[Federal Register Volume 83, Number 65 (Wednesday, April 4, 2018)]
[Rules and Regulations]
[Pages 14350-14357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06875]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 929

[Doc. No. AMS-SC-17-0061; SC17-929-2 FR]


Cranberries Grown in States of Massachusetts, et al.; Free and 
Restricted Percentages for the 2017-18 Crop Year for Cranberries

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule implements a recommendation to establish free and 
restricted percentages for the 2017-18 crop year under the marketing 
order for cranberries grown in the production area (Order). This action 
establishes the proportion of cranberries from the 2017-18 crop which 
may be handled and allows for the disposal of 2017-18 processed 
cranberry products. It also establishes a minimum quantity exemption 
and an exemption for handlers with no carryover inventory, exempts 
organically grown cranberries, and defines outlets for restricted 
fruit. This action adjusts supply to more closely meet market demand, 
improves grower and handler returns and reduces inventory. This final 
rule also contains formatting changes to subpart references to bring 
the language into conformance with the Office of the Federal Register 
requirements.

DATES: Effective May 4, 2018.

FOR FURTHER INFORMATION CONTACT: Doris Jamieson, Marketing Specialist, 
or Christian D. Nissen, Regional Director, Southeast Marketing Field 
Office, Marketing Order and Agreement Division, Specialty Crops 
Program, AMS, USDA; Telephone: (863) 324-3375, Fax: (863) 291-8614, or 
Email: [email protected] or [email protected].
    Small businesses may request information on complying with this 
regulation by contacting Richard Lower, Marketing Order and Agreement 
Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue 
SW, STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-2491, 
Fax: (202) 720-8938, or Email: [email protected].

SUPPLEMENTARY INFORMATION: This final rule, pursuant to 5 U.S.C. 553, 
amends regulations issued to carry out a marketing order as defined in 
7 CFR 900.2(j). This final rule is issued under Marketing Agreement and 
Order No. 929, as amended (7 CFR part 929), regulating the handling of 
cranberries grown in the States of Massachusetts, Rhode Island, 
Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, Oregon, 
Washington, and Long Island in the State of New York. Part 929 
(referred to as 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 Cranberry Marketing 
Committee (Committee) locally administers the Order and is comprised of 
growers and handlers of cranberries operating within the production 
area, and a public member.
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Orders 13563 and 13175. This action falls 
within a category of regulatory actions that the Office of Management 
and Budget (OMB) exempted from Executive Order 12866 review. 
Additionally, because this rule does not meet the definition of a 
significant regulatory action it does not trigger the requirements 
contained in Executive Order 13771. See OMB's Memorandum titled 
``Interim Guidance Implementing Section 2 of the Executive Order of 
January 30, 2017 titled `Reducing Regulation and Controlling Regulatory 
Costs' '' (February 2, 2017).
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. Order provisions provide that the Committee may 
recommend and implement, subject to USDA approval, volume control 
regulation that would decrease the available supply of cranberries, 
whenever the Secretary finds that ``such regulation will tend to 
effectuate the declared policy of the Act.'' Accordingly, this rule 
establishes free and restricted percentages for cranberries for the 
2017-18 crop year, beginning September 1, 2017, through August 31, 
2018.

[[Page 14351]]

    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 final rule establishes free and restricted percentages for the 
2017-18 crop year. This rule establishes the proportion of cranberries 
from the 2017-18 crop that may be handled at 85 percent free and 15 
percent restricted. This action also allows for the disposal of 2017-18 
processed cranberry products to meet up to 50 percent of a handler's 
restriction. It also establishes a minimum quantity exemption, exempts 
handlers with no carryout inventory, exempts organically grown 
cranberries, and defines outlets for restricted fruit. This action 
adjusts supply to more closely meet market demand, improves grower 
returns, and helps reduce inventory.
    The Committee met on August 4, 2017, and August 31, 2017, and 
recommended establishing these free and restricted percentages for the 
2017-18 season, providing handlers with the option to divert processed 
cranberry products to meet up to 50 percent of their restricted 
percentage, and designating outlets for restricted fruit. The Committee 
also recommended establishing a minimum exemption of 125,000 barrels 
for each handler. After much consideration, USDA determined the minimum 
exemption portion of the recommendation should be revised. 
Consequently, this rule only exempts small handlers who process less 
than 125,000 barrels or handlers who will not have carryover inventory 
at the end of the 2017-18 fiscal year from the restriction. The 125,000 
barrel exemption does not apply to handlers who do not meet these 
criteria. The Committee met again on January 17, 2018, to discuss the 
proposed rule following its publication in the Federal Register. The 
Committee recommended that USDA consider reducing the restricted 
percentage from 15 percent to 5 percent. After considering the 
recommendation and the data available, USDA determined the restricted 
percentage should remain at 15 percent.
    Sections 929.52 and 929.54 authorize the Secretary of Agriculture 
(Secretary) to control volume by designating free and restricted 
percentages for cranberries acquired by handlers in a given crop year. 
Section 929.52 provides that the Secretary shall control the handling 
of cranberries whenever the Secretary finds, from the recommendations 
and information submitted by the Committee, or from other such 
information, that such volume control will tend to effectuate the 
declared policy of the Act. Free percentage volume may be shipped to 
any market, while restricted percentage volume must be diverted or used 
for noncompetitive purposes as prescribed in Sec.  929.57. Section 
929.51 requires the Committee to consider certain conditions, including 
supply and demand, prior to recommending a handler withholding program, 
and that any recommendation to do so be made by August 31.
    Section 929.58(a) provides the authority to exempt from any or all 
requirements the handling of cranberries in such minimum quantities as 
the Committee, with the approval of the Secretary, may prescribe. 
Section 929.58(b) provides, in part, the authority to exempt from any 
or all requirements the handling of cranberries of such forms or types, 
including organic cranberries, as the Committee, with the approval of 
the Secretary, may prescribe.
    Domestic cranberry production has been increasing over the past few 
years, up from 8.0 million barrels in 2012 to 9.6 million barrels in 
2016. During the last few years, demand has remained relatively flat, 
and has not kept pace with the increases in supply. This has led to 
increasing levels of inventories. Ending inventory levels have 
increased from 5.8 million barrels in 2012 to 9.7 million barrels in 
2016.
    Demand for cranberries is inelastic, meaning changes in consumer 
price have a minimal effect on total sales volume. However, grower 
prices are very sensitive to changes in supply. As such, higher 
inventory levels place downward pressure on grower prices for 
cranberries and reduce grower returns. Data reviewed by the Committee 
indicates that the price per barrel received by some growers has fallen 
from $30 a barrel in 2011 to $10 a barrel in 2016. With the cost of 
production estimated at approximately $35 a barrel, for many growers 
returns have fallen below the cost of production.
    On August 4, 2017, and again on August 31, 2017, the Committee met 
to discuss the levels of supply and demand and how market conditions 
were impacting the industry. The Committee discussed the approximate 
levels of production for the 2017-18 season, forecasting production at 
approximately 9.1 million barrels. Carry-in inventory was estimated at 
approximately 9.9 million barrels and foreign acquired cranberries are 
expected to provide an additional 2.1 million barrels, for a total 
available supply of approximately 21.1 million barrels for the year. 
After accounting for shrinkage, the Committee agreed on an adjusted 
supply of 20.4 million barrels for the 2017-18 season.
    The Committee also reviewed anticipated sales for the upcoming 
season. Sales for fresh fruit were estimated at 333,000 barrels and 
processed fruit sales were estimated at 9.2 million barrels. Based on 
these expectations, inventory at the end of the 2017-18 crop year was 
anticipated to be roughly 10.9 million barrels, a 10 percent increase 
from the previous year. Using these numbers, end of year inventories 
would be approximately 115 percent of average annual sales.
    After calculating the anticipated level of surplus for the 2017-18 
season, the Committee agreed the industry is faced with a large 
inventory that continues to build. In its discussions of how to address 
this issue, the Committee considered several options. During the 
discussion of regulating the volume for the 2017-18 season, some 
members preferred establishing a producer allotment for the 2018-19 
season over implementing a handler withholding for the current season. 
However, other members stated that if no action was taken to control 
supply for the 2017-18 season, another million barrels of cranberries 
would be added to the surplus inventory. In addition, not regulating 
the 2017-18 crop would require greater levels of restriction on the 
2018-19 crop, and grower returns may decline further.
    The Committee discussed various levels of restriction, being 
sensitive to the impact volume control could have on small handlers. 
Some small handlers are able to sell all their production each year and 
do not maintain an inventory. Several Committee members stated a large 
restriction would place a hardship on these small handlers.
    The Committee also recognized a small restriction would not 
immediately balance supply with demand. However, even a small 
restriction would remove a portion of the volume from the market and 
help prevent an additional increase in inventory. Therefore, based on 
these

[[Page 14352]]

discussions, the Committee recommended establishing free and restricted 
percentages at 85 percent free and 15 percent restricted.
    The Committee also recommended an allowance for the diversion of 
2017-18 processed cranberry products to meet up to 50 percent of a 
handler's restriction. The Committee made this recommendation 
recognizing that processing fresh fruit to produce one of its top-
selling items, sweetened dried cranberries (SDC), results in juice 
concentrate as a by-product. A significant amount of current carryover 
inventory is in the form of juice concentrate. By allowing for the 
diversion of processed cranberry products, such as juice concentrate, 
to meet a portion of a handler's restriction, the Committee believes 
this will help prevent additional build-up of carryover inventory. The 
ability to use cranberry processed products in addition to fresh 
berries to meet diversion requirements may also help handlers who find 
they need to divert additional volume late in the year when the 
availability of fresh berries may be limited.
    To ensure the disposal of processed products in lieu of fresh 
berries is correctly accounted for under the restriction, the Committee 
also recommended including a conversion table, Table 1, in the 
regulations. The table recognizes different conversion equivalencies of 
berries to processed product based on the volume of Brix concentrate.
    Brix is the method for measuring the amount of sugar contained in 
the cranberry products, and the industry average is 50 Brix per 
concentrate. The Committee acknowledged that the Brix level can vary 
depending on the growing region and farming practices. This table 
assists in ensuring that the disposal of processed product in lieu of 
fresh berries is applied equitably among all handlers.

                                            Table 1--Conversion Table
----------------------------------------------------------------------------------------------------------------
              Region                Brix average          Concentrate yield for one barrel of cranberries
----------------------------------------------------------------------------------------------------------------
Oregon...........................             9.8  1.91 gallons 50 Brix concentrate.
Washington.......................             9.3  1.81 gallons 50 Brix concentrate.
New Jersey.......................             8.8  1.72 gallons 50 Brix concentrate.
Wisconsin........................             8.7  1.70 gallons 50 Brix concentrate.
Massachusetts....................             8.4  1.64 gallons 50 Brix concentrate.
All others.......................             8.7  1.70 gallons 50 Brix concentrate.
----------------------------------------------------------------------------------------------------------------

    For example, using the conversion table above, handlers could 
determine the amount of cranberry concentrate they would need to 
divert, in lieu of fresh berries, to cover any restricted percentage. 
Juice concentrate should comprise the vast majority of processed 
product used for diversion. Should requests be made to use other 
processed products for diversion, conversion rates for those products 
will be provided by the Committee based on information provided by the 
requesting handler. The means for approving and appealing those 
conversion rates will be provided in a separate rulemaking action.
    For example, a handler covered under the restriction whose acquired 
volume is 1,000,000 barrels would have 1,000,000 barrels in regulated 
volume with 850,000 barrels of free use cranberries (1,000,000 x .85) 
and 150,000 barrels of restricted use cranberries (1,000,000 x .15) for 
the 2017-18 season. Under this rule, the handler could divert fresh 
fruit to outlets for restricted cranberries as prescribed in the Order, 
or divert up to 50 percent of the restriction, or a 75,000 barrel 
equivalent (150,000 barrels / 2) in processed products from the 2017-18 
harvest, with the remaining amount fulfilled using fresh berries. For 
cranberries produced in Wisconsin, this would equate to 127,500 gallons 
of concentrate (75,000 barrels x 1.7 gallons) that would need to be 
diverted to outlets for restricted cranberries.
    Section 929.57 states that cranberries withheld from handling may 
only be diverted through such outlets as the Committee, with the 
approval of the Secretary, finds are noncompetitive to outlets for 
unrestricted (free percentage) cranberries. The Committee discussed 
various outlets and recommended the following: Foreign countries, 
except Canada; charitable institutions; any nonhuman food use; and, 
research and development projects approved by the Committee dealing 
with the development of foreign and domestic markets, including, but 
not limited to dehydration, radiation, freeze drying, or freezing of 
cranberries as outlets for withheld cranberries. They further 
recommended that cranberries may not be converted into canned, frozen, 
or dehydrated cranberries or other cranberry products by any commercial 
process prior to diversion to foreign countries. These outlets for 
restricted cranberries will be added to the rules and regulations under 
the Order by creating a new Sec.  929.108.
    The Committee also recommended organically grown cranberries be 
exempt from this regulation as they serve a niche market and represent 
a very small portion of the total crop. All other cranberry production, 
including fresh cranberries, is subject to regulation under the handler 
withhold volume regulation.
    To address the burden the volume regulation would have on small 
handlers, the Committee also recommended providing a minimum quantity 
exemption of 125,000 barrels. Under the Committee's recommendation, the 
exemption would be given to handlers of record for the 2016-17 
(previous) crop year and the 125,000 barrels would be subtracted from 
the handler's 2017-18 acquired volume before the restricted percentage 
would be applied. Small handlers whose acquired volume is 125,000 
barrels or less would be exempt from the volume regulation, and 
handlers with slightly larger volumes would face minimal restrictions.
    After much consideration, USDA determined the minimum exemption 
recommendation should be revised under this rule. Rather than provide 
an exemption of 125,000 barrels for each handler, this action exempts 
small handlers who process less than 125,000 barrels from the 15 
percent restriction. Further, only handlers who have carryover 
inventory that is not sold or under contract at the end of the 2017-18 
fiscal year are subject to the 15 percent restriction. These changes 
reflect the Committee's goal of reducing the burden on small handlers, 
and allow handlers that have matched their production with market 
demand to continue to serve their customer base and protect their 
market share. Handlers subject to the restriction should be able to 
meet any market shortfalls by utilizing cranberries or cranberry 
products they have in inventory.

[[Page 14353]]

    With this change, only those handlers carrying inventory will be 
subject to the restriction. In reviewing the Committee's recommendation 
and other available industry information, it is the existing 
inventories in excess of 9 million barrels that are putting the most 
downward pressure on returns to both growers and handlers. 
Consequently, this change will put more focus on reducing the volume in 
inventory.
    The Committee met again on January 17, 2018, to discuss the 
proposed rule on this action as published in the Federal Register on 
January 2, 2018 (83 FR 72). At the meeting, members discussed current 
market conditions. When the Committee had recommended the 15 percent 
restriction in August 2017, domestic production had been estimated at 
9.14 million barrels. Since that time, Committee members stated that 
weather conditions had impacted production and that domestic production 
would actually be closer to 8 million barrels. Based on the reduced 
crop estimate, in a vote of 12 in favor, one against, and one 
abstention, the Committee voted to recommend reducing the restricted 
percentage from 15 percent to 5 percent. Members stated that the 
reduction in the crop, in combination with the reduced restriction, 
would still combine to remove a similar amount of fruit from the market 
as was originally projected under the 15 percent restriction.
    USDA reviewed the recommendation made by the Committee to reduce 
the restricted percentage from 15 percent to 5 percent. Based on a 
revised 2017 domestic production of 8.085 million barrels, down from an 
estimated 9.14 million barrels, revising the restricted percentage to 5 
percent, and considering exempt production, would remove approximately 
366,000 barrels of cranberries from the market, leaving inventory as a 
percentage of sales at approximately 90.5 percent. Keeping the 
restricted percentage at 15 percent would remove approximately 1.1 
million barrels of cranberries from the market, resulting in inventory 
as a percentage of sales of 82.9 percent. In addition, as some handlers 
may be exempt from the regulation as they are not carrying cranberries 
in inventory, the actual volume of cranberries removed from the market 
may be less. Given that the purpose of the volume regulation is to help 
reduce the existing levels of inventory, USDA has determined that the 
restricted percentage should remain at 15 percent.
    Accordingly, this rule establishes free and restricted percentages 
of 85 percent and 15 percent, respectively, for the 2017-18 season, 
provides handlers with the option to divert processed cranberry 
products to meet up to 50 percent of their restricted percentage, and 
defines outlets for restricted fruit. This rule also exempts small 
handlers who process less than 125,000 barrels from the restriction, as 
well as handlers with no carryover inventory.

Final Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), 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 
businesses subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf.
    There are approximately 1,100 cranberry growers in the regulated 
area and approximately 65 cranberry handlers subject to regulation 
under the Order. Small agricultural producers are defined by the Small 
Business Administration (SBA) as those having annual receipts of less 
than $750,000, and small agricultural service firms are defined as 
those whose annual receipts are less than $7,500,000 (13 CFR 121.201).
    According to industry and Committee data, the average grower price 
for cranberries during the 2016-17 season was $23.50 per barrel and 
total sales were approximately 9.5 million barrels. The value for 
cranberries that year totaled $223,250,000 ($23.50 per barrel 
multiplied by 9.5 million barrels). Taking the total value of 
production for cranberries and dividing it by the total number of 
cranberry growers provides an average return per grower of $202,955. 
Using the average price and utilization information, and assuming a 
normal distribution, the majority of cranberry growers receive less 
than $750,000 annually.
    According to USDA's Market News report, the average free on board 
(f.o.b.) price for cranberries was approximately $30.00 per barrel. 
Multiplying the f.o.b. price by total utilization of 9.5 million 
barrels results in an estimated handler-level cranberry value of $285 
million. Dividing this figure by the number of handlers (65) yields an 
estimated average annual handler receipt of $4.3 million, which is 
below the SBA threshold for small agricultural service firms. 
Therefore, the majority of producers and handlers of cranberries may be 
classified as small entities.
    While cranberry production has continued to rise, demand has failed 
to keep pace, and inventories have been increasing. In an industry such 
as cranberries, product can be stored in inventory for long periods of 
time. Large inventories are costly to maintain, difficult to market, 
and have a price-depressing effect. When supply outpaces demand 
resulting in high levels of inventories, grower and handler returns can 
be negatively impacted.
    Demand for cranberries is inelastic, meaning changes in consumer 
price have a minimal effect on total sales. However, grower prices are 
very sensitive to changes in supply. With an inelastic demand, even a 
small shift in supply can affect grower prices. Setting free and 
restricted percentages will more closely align supply with demand. Free 
percentage cranberries can be marketed by handlers to any outlet, while 
restricted percentage volume can only be used for noncompetitive 
purposes. Establishing free and restricted percentages results in a 
decrease in supply, as handlers can only deliver a certain portion of 
their cranberries into the competitive marketplace. Therefore, using 
volume regulation to reduce supply should increase grower and handler 
prices and revenues.
    This final rule controls the supply of cranberries by establishing 
free and restricted percentages at 85 percent free and 15 percent 
restricted for the 2017-18 crop year. It also allows for the diversion 
of 2017-18 processed cranberry products to meet up to 50 percent of a 
handler's restriction. In addition, this rule establishes a minimum 
quantity exemption, exempts handlers with no carryout inventory, 
exempts organically grown cranberries, and defines outlets for 
restricted fruit. These actions are designed to help stabilize market 
conditions, reduce burdensome inventories, and improve grower and 
handler returns. This rule establishes new Sec. Sec.  929.107, 929.108 
and 929.252. The authority for these actions is provided for in 
Sec. Sec.  929.51, 929.52, 929.54, 929.57, and 929.58. These changes 
are based on Committee recommendations from meetings on August 4 and 
August 31, 2017.
    While these actions could result in some additional costs to the 
industry, the benefits are expected to outweigh them. The purpose of 
establishing free and restricted percentages is to address oversupply 
conditions and to stabilize

[[Page 14354]]

grower prices. The industry has a significant volume in inventory, and 
this has had a negative impact on grower and handler returns. Without 
volume control, inventories would likely continue to increase, further 
lowering returns.
    Inventories have more than doubled since 2011. In 2011, existing 
inventories were around 4.6 million barrels. By the end of the 2016-17 
season, inventories are anticipated to be approximately 9.9 million 
barrels. Inventories as a percentage of total sales have also been 
increasing from approximately 50 percent in 2010 to approximately 103 
percent in 2016, and will reach an anticipated 115 percent after the 
2017-18 season if volume control is not implemented. These inventories 
have had a depressing effect on grower prices, which for many has 
fallen below their cost of production.
    Retail demand for cranberries is highly inelastic, which indicates 
changes in consumer price do not result in significant changes in the 
quantity demanded. Consumer prices largely do not reflect small changes 
in cranberry supplies. Therefore, this action should have little or no 
effect on consumer prices and should not result in a reduction in 
retail sales. However, even a small shift in supply can increase grower 
and handler returns. The use of free and restricted percentages will 
likely have a positive impact on grower and handler returns for this 
crop year.
    This final rule will result in some fruit being taken off the 
market. However, a sufficient amount of fruit will still be available 
to supply all aspects of the market. In addition, allowing handlers the 
option to divert 2017-18 processed cranberry products to meet up to 50 
percent of their restriction provides handlers some additional 
flexibility and may help reduce inventories of juice concentrate, one 
of the largest segments of existing inventory.
    This action also exempts small handlers who process less than 
125,000 barrels from the restriction. Consequently, small handlers 
whose acquired volume is 125,000 barrels or less are exempt from the 
volume restriction. This reduces the burden the volume restriction has 
on small handlers and their growers.
    In addition, only handlers who have carryover inventory that is not 
sold or under contract at the end of the 2017-18 fiscal year are 
subject to the 15 percent restriction. This allows handlers that have 
matched their production with market demand to continue to serve their 
customer base and protect their market share. Handlers subject to the 
restriction should be able to meet any shortfalls by utilizing 
cranberries or cranberry products they have in inventory.
    There are also secondary uses available for restricted fruit, 
including foreign markets except Canada, charitable institutions, 
nonhuman food use, and research and development projects. While these 
alternatives may provide different levels of return than sales to 
primary markets, they play an important role for the industry. In 
addition, if demand is greater than anticipated, there are significant 
amounts of fruit in inventory that could be utilized to meet demand.
    As the restriction represents a percentage of a handler's volume, 
the costs, when applicable, are proportionate and should not place an 
extra burden on small entities as compared to large entities. Likewise, 
growers and handlers, regardless of size, benefit from the stabilizing 
effects of this restriction.
    One alternative considered was not to impose volume restrictions 
during the 2017-18 crop year. However, Committee members believed that 
inventory levels were such that some form of volume control was 
necessary to help stabilize marketing conditions.
    The Committee also considered other levels of free and restricted 
percentages. However, some members were concerned that setting a 
restriction that was too high could negatively impact small handlers. 
The Committee also considered not recommending a provision to allow the 
disposal of 2017-18 processed cranberry products to meet up to 50-
percent of a handler's restriction. However, the Committee determined 
allowing the diversion of cranberry products to meet up to 50 percent 
of the restriction allows large handlers to reduce inventory and not 
add additional volumes of juice concentrate to the existing inventory 
levels. Therefore, for the reasons mentioned above, these alternatives 
were rejected by the Committee.
    However, the Committee later recommended an alternative to USDA. 
After its January 17, 2018 meeting, the Committee recommended reducing 
its previously requested 15 percent restriction to 5 percent. USDA 
determined that lowering the restricted percentage by this amount would 
not sufficiently reduce carryover inventory, and thus would not relieve 
the downward pressure on grower prices.
    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), the Order's information collection requirements have been 
previously approved by OMB and assigned OMB No. 0581-0189, Generic 
Fruit Crops.
    This final rule establishes free and restricted percentages and 
handler diversion options under the Order. On February 15, 2018, USDA 
published a proposed rule in the Federal Register (83 FR 6800) seeking 
comment on new information requirements and Committee forms to support 
diversion procedures when volume regulation is established. The impact 
of the new requirements will be addressed in that rulemaking. 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.
    As noted in the initial regulatory flexibility analysis, USDA has 
not identified any relevant Federal rules that duplicate, overlap, or 
conflict with this final rule.
    AMS 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.
    In addition, the Committee's meetings were widely publicized 
throughout the cranberry industry and all interested persons were 
invited to attend the meetings and participate in Committee 
deliberations on all issues. Like all Committee meetings, the August 4 
and August 31, 2017, and January 17, 2018, meetings were public 
meetings and all entities, both large and small, were able to express 
views on these issues.
    A proposed rule concerning this action was published in the Federal 
Register on January 2, 2018 (83 FR 72). Copies of the proposed rule 
were sent via email to Committee members and cranberry handlers. 
Finally, the proposed rule was made available through the internet by 
USDA and the Office of the Federal Register. A 30-day comment period 
ending February 1, 2018, was provided to allow interested persons to 
respond to the proposal.
    During the comment period, 174 comments were received in response 
to the proposal. Of the comments received, 13 were in support of the 
proposed regulation, 123 comments supported regulation with some 
changes to the proposal (101 of these comments were from growers 
affiliated with the major industry cooperative), 37 were opposed to the 
proposed regulation, and 1 took no position.
    Four of the comments in support of the rule stated USDA should 
maintain the restricted percentage at 15 percent even with the 
reduction in the size of

[[Page 14355]]

the 2017-18 crop. Three commenters stated a five percent restriction 
would do little to support the industry, especially as the decrease in 
the 2017-18 crop could be offset by an increase in the 2018-19 crop. 
One commenter stated that maintaining the higher percentage, along with 
the reduction in the 2017-18 crop, would have an even greater impact on 
inventories. Another commenter stated that keeping the restricted 
percentage at 15 percent sends a message that the oversupply will be 
dealt with. One commenter stated full support for the proposed 
regulation as a way to keep the industry healthy and profitable. 
Another commenter recognized that the industry has enough cranberries 
in inventory to supply the next 12 months. One commenter also indicated 
they thought the percentage of restricted cranberries could have been 
even higher. Support of the exemption for organic cranberries was 
voiced by one commenter, who stated that a restriction on this sector 
would inhibit future market growth.
    In the comments that supported volume regulation, but with changes 
from what was included in the proposed rule, 107 commenters stated that 
they supported volume regulation as a way to reduce the volume of 
cranberries available in the marketplace and help increase returns. Of 
these, 106 commenters indicated that oversupply conditions had reached 
such levels that some action needed to be taken, and 104 commenters 
also referenced the positive impact of previous volume regulations 
established for the 2000 and 2001 seasons. Three commenters also 
indicated that the decrease in the 2017-18 crop size has already had a 
positive impact on price, and that the proposed regulation has also had 
a positive effect.
    Three other commenters requesting adjustments to the proposal 
stated their support for maintaining the restricted percentage at 15 
percent. One of those commenters stated that dropping the restriction 
to five percent would be too low to effectively impact the oversupply. 
Another commenter stated that a timely reduction in supply is 
essential. Another comment stated that the industry should hold the 
restriction at 15 percent and take advantage of the short crop as a 
bonus.
    Of those commenters requesting a change to the proposed rule, 119 
commenters supported reducing the restricted percentage from 15 percent 
to 5 percent. Of these, 112 referenced the decrease in the volume of 
the 2017-18 crop as rationale for reducing the restricted percentage.
    As stated above, USDA reviewed the Committee's recommendation to 
reduce the restricted percentage from 15 percent to five percent based 
on an approximate 10 percent reduction in the 2017-18 crop. The 
industry began the year with approximately 9.7 million barrels in 
inventory, an amount greater than estimated total sales for the 2017-18 
season. Using the revised 2017-18 domestic production estimate of 8.085 
million barrels, revising the restricted percentage to five percent 
would remove approximately 366,000 barrels of cranberries from the 
market, leaving inventory as a percentage of sales at around 90.5 
percent.
    Maintaining the restricted percentage at 15 percent would remove 
approximately 1.1 million barrels of cranberries from the market, 
resulting in inventory as a percentage of sales of 82.9 percent. 
Further, since handlers with no carryover inventory are exempt from the 
regulation, the actual volume of cranberries removed from the market 
may be less than calculated with either a 15 or 5 percentage 
restriction. In addition, handlers have already been establishing plans 
to comply with a 15 percent restriction. Given that the purpose of the 
volume regulation is to help reduce supply and inventory, USDA has 
determined that the restricted percentage should remain at 15 percent.
    Another 103 commenters requested that the final rule clarify that 
processed products may be used for charitable purposes as an outlet for 
restricted cranberries. This final rule adds Sec.  929.108, which 
specifies the outlets for restricted cranberries. As stated above, the 
Committee recommended that cranberries may not be converted into 
canned, frozen, or dehydrated cranberries or other cranberry products 
by any commercial process prior to diversion to foreign countries. The 
limitation is written specifically into Sec.  929.108(a). However, this 
restriction of whole fruit only does not apply to diversion to 
charitable institutions, any nonhuman food use, or research and 
development projects approved by the Committee dealing with the 
development of foreign and domestic markets, including as processed 
fruit.
    In addition, these same commenters also asked that processed 
products sent to outlets for restricted cranberries, specifically for 
charity, not count toward the diversion of 2017-18 processed cranberry 
products to meet up to 50 percent of a handler's restriction. When free 
and restricted percentages are established, restricted percentage 
volume must be diverted or used in noncompetitive outlets. The 
restricted percentage is applied to each individual handler's volume to 
establish the volume of cranberries that need to be diverted. Under the 
final rule, 50 percent of this amount can be met using 2017-18 
processed cranberry products. Consequently, regardless of how the 
handler is diverting processed products into noncompetitive outlets, 
2017-18 processed products can only be used to meet 50 percent of the 
handler's restriction. Restriction aside, handlers are always able, and 
encouraged, to donate as much whole fruit or processed products to 
charity as they can.
    Thirteen commenters indicated the exemption added by USDA for 
handlers that have no inventory after August 31, 2018, is problematic 
and should be changed. Two of these commenters indicated that inventory 
is not clearly defined for the purposes of this exemption, and that 
some handlers need inventory beyond that date in order to operate. Two 
comments also expressed concern about how the Committee would be able 
to track compliance with this change. One commenter said this provision 
should be removed.
    Another 11 commenters also expressed concerns regarding the change 
USDA made to the 125,000 barrel exemption recommended by the Committee. 
Five commenters stated this would adversely affect midsize handlers. 
Three commenters indicated the exemption for the first 125,000 barrels 
for each handler as recommended by the Committee was fair, but with 
this change it is no longer equitable. One commenter stated this change 
would cost growers money in extra charges from the handlers.
    In reviewing the Committee's recommendation and other available 
industry information, USDA has determined that the existing inventories 
in excess of 9 million barrels are putting the most downward pressure 
on returns to both growers and handlers. Rather than provide an 
exemption of 125,000 barrels for each handler, this action exempts 
small handlers who process less than 125,000 barrels from the 15 
percent restriction. Small handlers processing less than 125,000 
barrels make up nearly 88 percent of all handlers, yet combined only 
account for less than 10 percent of the total volume.
    Further, only handlers who have carryover inventory at the end of 
the 2017-18 fiscal year are subject to the 15 percent restriction. 
These changes further reduce the burden on small handlers and provide 
an exemption to handlers that have matched their production with market 
demand allowing them to continue to serve their customer base and 
protect their market share. With this change, only those handlers 
carrying inventory would be subject to the restriction.

[[Page 14356]]

    As stated above, inventory is product that is not sold or under 
contract at the end of the 2017-18 fiscal year. If a handler is 
carrying inventory from the 2017-18 season, and/or previous seasons, at 
the end of the 2017-18 fiscal year (August 31, 2018) the handler will 
be subject to the restriction. In regards to compliance, the Committee 
has hired additional support to assist with this volume regulation. 
Further, handlers maintain information on inventory and should be able 
to supply the paperwork necessary to demonstrate if they qualify for 
the inventory exemption.
    Three commenters stated that the rule should be changed to allow 
handlers to meet 100 percent of their restriction using processed 
product. Four others stated handlers should not be allowed to 
substitute byproduct concentrate to meet 50 percent of the restriction. 
While a significant portion of existing inventory is concentrate, not 
all handlers produce concentrate or concentrate as a byproduct of SDC 
production. Allowing the use of 50 percent of 2017-18 cranberry 
products to meet the required restriction represents a compromise that 
recognizes the need to reduce the inventory volume of cranberry 
concentrate, while also acknowledging the overall oversupply facing the 
industry.
    Some of the comments from those in opposition to the proposed rule 
echo the comments made by those requesting changes to the proposal. 
Twelve commenters in opposition to the proposed rule stated the weather 
had taken care of the problem of oversupply for the current season, 
negating the need for establishing the restriction. Five commenters 
referenced the change to the 125,000 barrel exemption, and another four 
commenters referenced the exemption for handlers with no inventory at 
the end of the 2017-18 fiscal year as reasons for opposing the 
regulation. Comments similar to these are addressed above.
    Seven commenters opposed the proposal, citing the oversupply of 
concentrate as the cause of the industry's problems. Two additional 
commenters opposed the proposed regulation because handlers could 
divert 50 percent of 2017-18 products to meet their restriction. While 
concentrate does represent a large portion of the existing inventory, 
the level of frozen berries is even higher. Industry data shows that at 
the end of the 2016-17 fiscal year, of the estimated 9.7 million 
barrels in inventory, approximately 4.2 million barrels were frozen 
berries, while approximately 3.7 million barrels were from concentrate. 
Consequently, the rule provides for the diversion of product to meet 50 
percent of the restriction as a way to reduce the inventory of 
concentrate. However, reducing overall supply, including whole fruit, 
is also important in addressing the current level of inventory.
    Twelve comments stated that the proposed regulation would 
negatively impact growers by reducing their returns. Seven commenters 
stated the proposed regulation originated from the major cooperative. 
Another six commenters stated that if finalized this regulation would 
adversely affect midsize handlers. While these actions could result in 
some additional costs to the industry, the benefits are expected to 
outweigh them. The purpose of establishing free and restricted 
percentages is to address oversupply conditions and to stabilize grower 
prices. The industry has a significant volume in inventory, and this 
has had a negative impact on grower and handler returns. Growers and 
handlers, both large and small, should benefit from this regulation. It 
is estimated that approximately 1.1 million barrels of cranberries will 
be removed from inventories are a result of this rule. Lowering 
inventory levels is expected to result in positive returns for the 
entire industry.
    Four commenters opposed the regulation because the restriction does 
not apply to Canada or other foreign production. These commenters 
stated that without it being restricted, foreign product could be used 
to offset the domestic product being restricted. USDA has not made any 
revisions as a result of these comments because, as an initial matter, 
the Order cannot regulate imported volume. Moreover, for this argument 
to be relevant, the 15 percent restriction would need to cause a market 
shortfall in the production area. However, given that the production 
area market entered the 2017-18 season with more cranberries and 
product in inventory than anticipated sales, and on top of that had an 
additional 8.1 million barrels of production, USDA has determined there 
is ample domestic supply to meet sales requirements and there is no 
risk of an impending market shortfall.
    Four comments in opposition to the proposal also stated that it 
would be implemented too late to have benefit, as growers have already 
incurred the cost of producing their full crop. In discussing this 
issue, the Committee recognized that utilizing a producer allotment 
allowed growers to make adjustments to reduce their costs, they 
determined that the situation with the oversupply was such that 
something needed to be done for the 2017-18 season. Committee members 
were concerned that delaying action would only result in higher 
inventories for the 2018-19 season and the need for an even larger 
volume regulation in the future. Despite the timing, the Committee 
anticipates that use of handler free and restricted percentages will 
likely have a positive impact on grower and handler returns for the 
current crop year.
    Finally, three commenters stated that nothing should be done and 
that the market be allowed to dictate what happens with industry. Under 
the Order, the Committee has the authority to recommend volume 
regulation to the Secretary to help manage supply and demand. The 
Committee chose to utilize this authority to address the current 
oversupply situation and to help industry returns.
    Additional comments were received that addressed issues outside the 
scope of the proposed rule.
    For the reasons discussed above, no changes will be made to the 
rule as proposed, 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/rules-regulations/moa/small-businesses. Any questions 
about the compliance guide should be sent to Richard Lower at the 
previously-mentioned address in the FOR FURTHER INFORMATION CONTACT 
section.
    After consideration of all relevant matter presented, including the 
information and recommendation of the Committee and other available 
information, it is hereby found that this rule, as hereinafter set 
forth, will tend to effectuate the declared policy of the Act.

List of Subjects in 7 CFR Part 929

    Cranberries, Marketing agreements, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 7 CFR part 929 is 
amended as follows:

PART 929--CRANBERRIES GROWN IN STATES OF MASSACHUSETTS, RHODE 
ISLAND, CONNECTICUT, NEW JERSEY, WISCONSIN, MICHIGAN, MINNESOTA, 
OREGON, WASHINGTON, AND LONG ISLAND IN THE STATE OF NEW YORK

0
1. The authority citation for part 929 continues to read as follows:

    Authority:  7 U.S.C. 601-674.

[[Page 14357]]

[Subpart Redesignated as Subpart A]

0
2. Redesignate ``Subpart--Order Regulating Handling'' as ``Subpart A--
Order Regulating Handling''.

[Subpart Redesignated as Subpart B and Amended]

0
 3. Redesignate ``Subpart--Rules and Regulations'' as subpart B and 
revise the heading to read as follows:

Subpart B--Administrative Requirements

0
4. Add Sec.  929.107 to read as follows:


Sec.  929.107  Conversion.

    During a year of volume regulation, cranberry concentrate and other 
processed products made from excess or restricted cranberries harvested 
in that year may be diverted according to the provisions of this part. 
Any handler disposing of concentrate or other processed products must 
report the whole-berry equivalent to the Committee so that all excess 
or restricted cranberries are accounted for and reported per rules and 
regulations in effect. Table 1-Conversion Table provides a conversion 
rate for concentrate to barrels of whole berries based on Brix average 
by production region. Should requests be made to use other processed 
products for diversion, conversion rates for those products would be 
provided by the Committee based on information provided by the 
requesting handler.

                                   Table 1 to Sec.   929.107--Conversion Table
----------------------------------------------------------------------------------------------------------------
              Region                Brix average          Concentrate yield for one barrel of cranberries
----------------------------------------------------------------------------------------------------------------
Oregon...........................             9.8  1.91 gallons 50 Brix concentrate.
Washington.......................             9.3  1.81 gallons 50 Brix concentrate.
New Jersey.......................             8.8  1.72 gallons 50 Brix concentrate.
Wisconsin........................             8.7  1.70 gallons 50 Brix concentrate.
Massachusetts....................             8.4  1.64 gallons 50 Brix concentrate.
All others.......................             8.7  1.70 gallons 50 Brix concentrate.
----------------------------------------------------------------------------------------------------------------


0
5. Add Sec.  929.108 to read as follows:


Sec.  929.108  Outlets for restricted cranberries.

    In accordance with Sec.  929.57, restricted cranberries may be 
diverted only to the following noncommercial or noncompetitive outlets:
    (a) Foreign countries, except Canada, provided that restricted 
cranberries diverted under this provision may not be converted into 
canned, frozen, or dehydrated cranberries or other cranberry products 
by any commercial process, prior to diversion;
    (b) Charitable institutions;
    (c) Any nonhuman food use, or;
    (d) Research and development projects approved by the Committee 
dealing with the development of foreign and domestic markets, 
including, but not limited to dehydration radiation, freeze drying, or 
freezing of cranberries.

[Subpart Redesignated as Subpart C]

0
6. Redesignate ``Subpart--Assessment Rate'' as ``Subpart C--Assessment 
Rate''.
0
7. Add Sec.  929.252 to read as follows:


Sec.  929.252  Free and restricted percentages for the 2017-18 crop 
year.

    (a) The percentages for cranberries handled by handlers during the 
crop year beginning on September 1, 2017, which shall be free and 
restricted, respectively are designated as follows: Free percentage, 85 
percent and restricted percentage, 15 percent.
    (b) Handlers have the option to process restricted cranberries into 
dehydrated cranberries or other processed products. Handlers also have 
the option to divert concentrate or other processed products as 
provided in Sec.  929.107 to account for up to 50 percent of their 
restriction.
    (c) Organically grown fruit shall be exempt from the volume 
regulation requirements of this section. Small handlers who process 
less than 125,000 barrels during the 2017-18 fiscal year are exempt 
from the restriction. Any handlers who do not have carryover inventory 
at the end of the 2017-18 fiscal year are also exempt.

    Dated: March 30, 2018.
Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2018-06875 Filed 4-3-18; 8:45 am]
 BILLING CODE 3410-02-P