Marketing Order Regulating the Handling of Spearmint Oil Produced in the Far West; Salable Quantities and Allotment Percentages for the 2005-2006 Marketing Year, 2027-2032 [05-581]

Download as PDF 2027 Proposed Rules Federal Register Vol. 70, No. 8 Wednesday, January 12, 2005 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 985 [Docket No. FV05–985–1 PR] Marketing Order Regulating the Handling of Spearmint Oil Produced in the Far West; Salable Quantities and Allotment Percentages for the 2005– 2006 Marketing Year Agricultural Marketing Service, USDA. ACTION: Proposed rule. AGENCY: SUMMARY: This rule would establish the quantity of spearmint oil produced in the Far West, by class, that handlers may purchase from, or handle for, producers during the 2005–2006 marketing year, which begins on June 1, 2005. This rule invites comments on the establishment of salable quantities and allotment percentages for Class 1 (Scotch) spearmint oil of 677,409 pounds and 35 percent, respectively, and for Class 3 (Native) spearmint oil of 867,958 pounds and 40 percent, respectively. The Spearmint Oil Administrative Committee (Committee), the agency responsible for local administration of the marketing order for spearmint oil produced in the Far West, recommended this rule for the purpose of avoiding extreme fluctuations in supplies and prices to help maintain stability in the spearmint oil market. DATES: Comments must be received by February 11, 2005. ADDRESSES: Interested persons are invited to submit written comments concerning this rule. Comments must be sent to the Docket Clerk, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250–0237; Fax: (202) 720–8938; e-mail: moab.docketclerk@usda.gov; or Internet: http://www.regulations.gov. Comments should reference the docket number and VerDate jul<14>2003 17:43 Jan 11, 2005 Jkt 205001 the date and page number of this issue of the Federal Register and will be available for public inspection in the Office of the Docket Clerk during regular business hours, or can be viewed at: http://www.ams.usda.gov/fv/moab.html. FOR FURTHER INFORMATION CONTACT: Susan M. Hiller, Northwest Marketing Field Office, Fruit and Vegetable Programs, AMS, USDA, 1220 SW. Third Avenue, suite 385, Portland, Oregon 97204; Telephone: (503) 326–2724; Fax: (503) 326–7440; or George Kelhart, Technical Advisor, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250–0237; Telephone: (202) 720–2491; Fax: (202) 720–8938. Small businesses may request information on complying with this regulation by contacting Jay Guerber, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250–0237; Telephone (202) 720– 2491, Fax: (202) 720–8938, or e-mail: Jay.Guerber@usda.gov. This rule is issued under Marketing Order No. 985 (7 CFR part 985), as amended, regulating the handling of spearmint oil produced in the Far West (Washington, Idaho, Oregon, and designated parts of Nevada and Utah), hereinafter referred to as the ‘‘order.’’ This order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601–674), hereinafter referred to as the ‘‘Act.’’ The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866. This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, salable quantities and allotment percentages may be established for classes of spearmint oil produced in the Far West. This proposed rule would establish the quantity of spearmint oil produced in the Far West, by class, which may be purchased from or handled for producers by handlers during the 2005– 2006 marketing year, which begins on June 1, 2005. This rule will not preempt any State or local laws, regulations, or SUPPLEMENTARY INFORMATION: PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 policies, unless they present an irreconcilable conflict with this rule. The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA’s ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling. Pursuant to authority in §§ 985.50, 985.51, and 985.52 of the order, the Committee, with seven of its eight members present, met on October 6, 2004, and recommended salable quantities and allotment percentages for both classes of oil for the 2005–2006 marketing year. The Committee unanimously recommended the establishment of a salable quantity and allotment percentage for Scotch spearmint oil of 677,409 pounds and 35 percent, respectively. For Native spearmint oil, the Committee unanimously recommended the establishment of a salable quantity and allotment percentage of 867,958 pounds and 40 percent, respectively. This rule would limit the amount of spearmint oil that handlers may purchase from, or handle for, producers during the 2005–2006 marketing year, which begins on June 1, 2005. Salable quantities and allotment percentages have been placed into effect each season since the order’s inception in 1980. The U.S. production of Scotch spearmint oil is concentrated in the Far West, which includes Washington, Idaho, and Oregon and a portion of Nevada and Utah. Scotch spearmint oil is also produced in the Midwest states of Indiana, Michigan, and Wisconsin, as well as in the States of Montana, South Dakota, North Dakota, and Minnesota. The production area covered by the marketing order currently accounts for E:\FR\FM\12JAP1.SGM 12JAP1 2028 Federal Register / Vol. 70, No. 8 / Wednesday, January 12, 2005 / Proposed Rules approximately 68 percent of the annual U.S. sales of Scotch spearmint oil. When the order became effective in 1980, the Far West had 72 percent of the world’s sales of Scotch spearmint oil. While the Far West is still the leading producer of Scotch spearmint oil, its share of world sales is now estimated to be about 36 percent. This loss in world sales for the Far West region is directly attributed to the increase in global production. Other factors that have played a significant role include the overall quality of the imported oil and technological advances that allow for more blending of lower quality oils. Such factors have provided the Committee with challenges in accurately predicting trade demand for Scotch oil. This, in turn, has made it difficult to balance available supplies with demand and to achieve the Committee’s overall goal of stabilizing producer and market prices. The marketing order has continued to contribute to price and general market stabilization for Far West producers. The Committee, as well as spearmint oil producers and handlers attending the October 6, 2004, meeting estimated that the 2004 producer price of Scotch oil would maintain an average of $10.00 per pound. However, this producer price is below the cost of production for most producers as indicated in a study from the Washington State University Cooperative Extension Service (WSU), which estimates production costs to be between $13.50 and $15.00 per pound. This low level of producer returns has caused a reduction in acreage. When the order became effective in 1980, the Far West region had 9,702 acres of Scotch spearmint. The Committee estimates that the current acreage of Scotch spearmint will be about 4,771 acres. Based on the reduced Scotch spearmint acreage, the Committee estimates that production for the 2004–2005 marketing season will be about 635,508 pounds. The Committee recommended the 2005–2006 Scotch spearmint oil salable quantity (677,409 pounds) and allotment percentage (35 percent) utilizing sales estimates for 2005–2006 Scotch oil as provided by several of the industry’s handlers, as well as historical and current Scotch oil sales levels. The Committee is estimating that about 650,000 pounds of Scotch spearmint oil, on average, may be sold during the 2005–2006 marketing year. When considered in conjunction with the estimated carry in of 351,427 pounds of oil on June 1, 2005, the recommended salable quantity of 677,409 pounds results in a total available supply of Scotch spearmint oil next year of about 1,028,836 pounds. VerDate jul<14>2003 17:43 Jan 11, 2005 Jkt 205001 The recommendation for the 2005– 2006 Scotch spearmint oil volume regulation is consistent with the Committee’s stated intent of keeping adequate supplies available at all times, while attempting to stabilize prices at a level adequate to sustain the producers. Furthermore, the recommendation takes into consideration the industry’s desire to compete with less expensive oil produced outside the regulated area. Although Native spearmint oil producers are facing market conditions similar to those affecting the Scotch spearmint oil market, the market share is quite different. Over 90 percent of the U.S. production of Native spearmint is produced within the Far West production area. Also, most of the world’s supply of Native spearmint is produced in the U.S. The supply and demand characteristics of the current Native spearmint oil market, combined with the stabilizing impact of the marketing order, have kept the price relatively steady, between $9.10 and $9.30 per pound over the last five years. The Committee considers this level too low for the majority of producers to maintain viability. The WSU study referenced earlier indicates that the cost of producing Native spearmint oil ranges from $10.26 to $10.92 per pound. Similar to Scotch, the low level of producer returns has also caused a reduction in Native spearmint acreage. When the order became effective in 1980, the Far West region had 12,153 acres of Native spearmint. The Committee estimates that the 2004–2005 acreage of Native spearmint is about 4,804 acres. Based on the reduced Native spearmint acreage, the Committee estimates that production for the 2004–2005 marketing season will be about 701,372 pounds. The Committee recommended the 2005–2006 Native spearmint oil salable quantity (867,958 pounds) and allotment percentage (40 percent) utilizing sales estimates for 2005–2006 Native oil as provided by several of the industry’s handlers, as well as historical and current Native oil sales levels. The Committee is estimating that about 945,000 pounds of Native spearmint oil, on average, may be sold during the 2005–2006 marketing year. When considered in conjunction with the estimated carry-in of 60,000 pounds of oil on June 1, 2005, the recommended salable quantity of 867,958 pounds results in a total available supply of Native spearmint oil next year of about 927,958 pounds. The Committee’s method of calculating the Native spearmint oil salable quantity and allotment PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 percentage continues to primarily utilize information on price and available supply as they are affected by the estimated trade demand. The Committee’s stated intent is to make adequate supplies available to meet market needs and improve producer prices. The Committee believes that the order has contributed extensively to the stabilization of producer prices, which prior to 1980 experienced wide fluctuations from year to year. According to the National Agricultural Statistics Service, for example, the average price paid for both classes of spearmint oil ranged from $4.00 per pound to $11.10 per pound during the period between 1968 and 1980. Prices since the order’s inception have generally stabilized at about $9.85 per pound for Native spearmint oil and at about $12.93 per pound for Scotch spearmint oil. However, the current prices for both classes of oil are below the average due to several factors, including the general uncertainty being experienced through the U.S. economy and the continuing overall weak farm situation, as well as an abundant global supply of spearmint oil. As noted earlier—although lower than what producers believe to be viable—prices currently appear to be stable at about $9.50 for both classes of oil. The Committee based its recommendation for the proposed salable quantity and allotment percentage for each class of spearmint oil for the 2005–2006 marketing year on the information discussed above, as well as the data outlined below. 1. Class 1 (Scotch) Spearmint Oil (A) Estimated carry-in on June 1, 2005—351,427 pounds. This figure is the difference between the estimated 2004–2005 marketing year trade demand of 620,000 pounds and the 2004–2005 marketing year total available supply of 971,427 pounds. (B) Estimated trade demand for the 2005–2006 marketing year—650,000 pounds. This figure is based on input from producers at five Scotch spearmint oil production area meetings held in September 2004, as well as estimates provided by handlers and other meeting participants at the October 6, 2004, meeting. The average estimated trade demand provided at the five production area meetings was 620,867 pounds, whereas the average handler trade demand ranged from 600,000 to 650,000 pounds. The average of sales over the last five years was 761,142 pounds. (C) Salable quantity required from the 2005–2006 marketing year production— 298,573 pounds. This figure is the E:\FR\FM\12JAP1.SGM 12JAP1 Federal Register / Vol. 70, No. 8 / Wednesday, January 12, 2005 / Proposed Rules difference between the estimated 2005– 2006 marketing year trade demand (650,000 pounds) and the estimated carry-in on June 1, 2005 (351,427 pounds). (D) Total estimated allotment base for the 2005–2006 marketing year— 1,935,455 pounds. This figure represents a one-percent increase over the revised 2004–2005 total allotment base. This figure is generally revised each year on June 1 due to producer base being lost due to the bona fide effort production provisions of § 985.53(e). The revision is usually minimal. (E) Computed allotment percentage— 15.4 percent. This percentage is computed by dividing the required salable quantity by the total estimated allotment base. (F) Recommended allotment percentage—35 percent. This recommendation is based on the Committee’s determination that a decrease from the current season’s allotment percentage of 40 percent to the computed 15.4 percent would not adequately supply the potential 2005– 2006 market. (G) The Committee’s recommended salable quantity—677,409 pounds. This figure is the product of the recommended allotment percentage and the total estimated allotment base. (H) Estimated available supply for the 2005–2006 marketing year—1,028,836 pounds. This figure is the sum of the 2005–2006 recommended salable quantity (677,409 pounds) and the estimated carry-in on June 1, 2005 (351,427 pounds). 2. Class 3 (Native) Spearmint Oil (A) Estimated carry-in on June 1, 2005—60,000 pounds. This figure is the difference between the estimated 2004– 2005 marketing year trade demand of 1,063,438 pounds and the revised 2004– 2005 marketing year total available supply of 1,123,438 pounds. (B) Estimated trade demand for the 2005–2006 marketing year—945,000 pounds. This figure is based on input from producers at the five Native spearmint oil production area meetings held in September 2004, as well as estimates provided by handlers and other meeting participants at the October 6, 2004, meeting. The average estimated trade demand provided at the five production area meetings was 957,000 pounds, whereas the average handler estimate was 945,000 pounds. (C) Salable quantity required from the 2005–2006 marketing year production— 885,000 pounds. This figure is the difference between the estimated 2005– 2006 marketing year trade demand VerDate jul<14>2003 17:43 Jan 11, 2005 Jkt 205001 (945,000 pounds) and the estimated carry-in on June 1, 2005 (60,000 pounds). (D) Total estimated allotment base for the 2005–2006 marketing year— 2,169,894 pounds. This figure represents a one percent increase over the revised 2004–2005 total allotment base. This figure is generally revised each year on June 1 due to producer base being lost due to the bona fide effort production provisions of § 985.53(e). The revision is usually minimal. (E) Computed allotment percentage— 40.8 percent. This percentage is computed by dividing the required salable quantity by the total estimated allotment base. (F) Recommended allotment percentage—40 percent. This is the Committee’s recommendation based on the computed allotment percentage, the average of the computed allotment percentage figures from the five production area meetings (40.6 percent), and input from producers and handlers at the October 6, 2004, meeting. (G) The Committee’s recommended salable quantity—867,958 pounds. This figure is the product of the recommended allotment percentage and the total estimated allotment base. (H) Estimated available supply for the 2005–2006 marketing year—927,958 pounds. This figure is the sum of the 2005–2006 recommended salable quantity (867,958 pounds) and the estimated carry-in on June 1, 2005 (60,000 pounds). The salable quantity is the total quantity of each class of spearmint oil, which handlers may purchase from, or handle on behalf of producers during a marketing year. Each producer is allotted a share of the salable quantity by applying the allotment percentage to the producer’s allotment base for the applicable class of spearmint oil. The Committee’s recommended Scotch and Native spearmint oil salable quantities and allotment percentages of 677,409 pounds and 35 percent and 867,958 and 40 percent, respectively, are based on the Committee’s goal of maintaining market stability by avoiding extreme fluctuations in supplies and prices and the anticipated supply and trade demand during the 2005–2006 marketing year. The proposed salable quantities are not expected to cause a shortage of spearmint oil supplies. Any unanticipated or additional market demand for spearmint oil, which may develop during the marketing year, can be satisfied by an increase in the salable quantities. Both Scotch and Native spearmint oil producers who produce more than their annual allotments PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 2029 during the 2005–2006 marketing year may transfer such excess spearmint oil to a producer with spearmint oil production less than his or her annual allotment or put it into the reserve pool until November 1, 2005. This proposed regulation, if adopted, would be similar to regulations issued in prior seasons. Costs to producers and handlers resulting from this rule are expected to be offset by the benefits derived from a stable market and improved returns. In conjunction with the issuance of this proposed rule, USDA has reviewed the Committee’s marketing policy statement for the 2005–2006 marketing year. The Committee’s marketing policy statement, a requirement whenever the Committee recommends volume regulations, fully meets the intent of § 985.50 of the order. During its discussion of potential 2005–2006 salable quantities and allotment percentages, the Committee considered: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) prospective production of each class of oil; (4) total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Conformity with the USDA’s ‘‘Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders’’ has also been reviewed and confirmed. The establishment of these salable quantities and allotment percentages would allow for anticipated market needs. In determining anticipated market needs, consideration by the Committee was given to historical sales, as well as changes and trends in production and demand. This rule also provides producers with information on the amount of spearmint oil that should be produced for the 2005–2006 season in order to meet anticipated market demand. Initial Regulatory Flexibility Analysis Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis. The purpose of the RFA is to fit regulatory actions to the scale of E:\FR\FM\12JAP1.SGM 12JAP1 2030 Federal Register / Vol. 70, No. 8 / Wednesday, January 12, 2005 / Proposed Rules business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility. There are eight spearmint oil handlers subject to regulation under the order, and approximately 59 producers of Class 1 (Scotch) spearmint oil and approximately 91 producers of Class 3 (Native) spearmint oil in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $5,000,000, and small agricultural producers are defined as those whose annual receipts are less than $750,000. Based on the SBA’s definition of small entities, the Committee estimates that 2 of the 8 handlers regulated by the order could be considered small entities. Most of the handlers are large corporations involved in the international trading of essential oils and the products of essential oils. In addition, the Committee estimates that 19 of the 59 Scotch spearmint oil producers and 21 of the 91 Native spearmint oil producers could be classified as small entities under the SBA definition. Thus, a majority of handlers and producers of Far West spearmint oil may not be classified as small entities. The Far West spearmint oil industry is characterized by producers whose farming operations generally involve more than one commodity, and whose income from farming operations is not exclusively dependent on the production of spearmint oil. A typical spearmint oil-producing operation has enough acreage for rotation such that the total acreage required to produce the crop is about one-third spearmint and two-thirds rotational crops. Thus, the typical spearmint oil producer has to have considerably more acreage than is planted to spearmint during any given season. Crop rotation is an essential cultural practice in the production of spearmint oil for weed, insect, and disease control. To remain economically viable with the added costs associated with spearmint oil production, most spearmint oil-producing farms fall into the SBA category of large businesses. Small spearmint oil producers generally are not as extensively diversified as larger ones and as such are more at risk from market fluctuations. Such small producers VerDate jul<14>2003 17:43 Jan 11, 2005 Jkt 205001 generally need to market their entire annual crop and do not have the luxury of having other crops to cushion seasons with poor spearmint oil returns. Conversely, large diversified producers have the potential to endure one or more seasons of poor spearmint oil markets because income from alternate crops could support the operation for a period of time. Being reasonably assured of a stable price and market provides small producing entities with the ability to maintain proper cash flow and to meet annual expenses. Thus, the market and price stability provided by the order potentially benefit the small producer more than such provisions benefit large producers. Even though a majority of handlers and producers of spearmint oil may not be classified as small entities, the volume control feature of this order has small entity orientation. This proposed rule would establish the quantity of spearmint oil produced in the Far West, by class, that handlers may purchase from, or handle for, producers during the 2005–2006 marketing year. The Committee recommended this rule to help maintain stability in the spearmint oil market by avoiding extreme fluctuations in supplies and prices. Establishing quantities to be purchased or handled during the marketing year through volume regulations allows producers to plan their mint planting and harvesting to meet expected market needs. The provisions of §§ 985.50, 985.51, and 985.52 of the order authorize this rule. Instability in the spearmint oil subsector of the mint industry is much more likely to originate on the supply side than the demand side. Fluctuations in yield and acreage planted from season-to-season tend to be larger than fluctuations in the amount purchased by buyers. Demand for spearmint oil tends to be relatively stable from year-to-year. The demand for spearmint oil is expected to grow slowly for the foreseeable future because the demand for consumer products that use spearmint oil will likely expand slowly, in line with population growth. Demand for spearmint oil at the farm level is derived from retail demand for spearmint-flavored products such as chewing gum, toothpaste, and mouthwash. The manufacturers of these products are by far the largest users of mint oil. However, spearmint flavoring is generally a very minor component of the products in which it is used, so changes in the raw product price have no impact on retail prices for those goods. Spearmint oil production tends to be cyclical. Years of large production, with demand remaining reasonably stable, PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 have led to periods in which large producer stocks of unsold spearmint oil have depressed producer prices for a number of years. Shortages and high prices may follow in subsequent years, as producers respond to price signals by cutting back production. The significant variability is illustrated by the fact that the coefficient of variation (a standard measure of variability; ‘‘CV’’) of Far West spearmint oil production from 1980 through 2003 was about 0.24. The CV for spearmint oil grower prices was about 0.14, well below the CV for production. This provides an indication of the price stabilizing impact of the marketing order. Production in the shortest marketing years was about 49 percent of the 24year average (1.875 million pounds from 1980 through 2003) and the largest crop was approximately 166 percent of the 24-year average. A key consequence is that in years of oversupply and low prices the season average producer price of spearmint oil is below the average cost of production (as measured by the Washington State University Cooperative Extension Service.) The wide fluctuations in supply and prices that result from this cycle, which was even more pronounced before the creation of the marketing order, can create liquidity problems for some producers. The marketing order was designed to reduce the price impacts of the cyclical swings in production. However, producers have been less able to weather these cycles in recent years because of the decline in prices of many of the alternative crops they grow. As noted earlier, almost all spearmint oil producers diversify by growing other crops. In an effort to stabilize prices, the spearmint oil industry uses the volume control mechanisms authorized under the order. This authority allows the Committee to recommend a salable quantity and allotment percentage for each class of oil for the upcoming marketing year. The salable quantity for each class of oil is the total volume of oil that producers may sell during the marketing year. The allotment percentage for each class of spearmint oil is derived by dividing the salable quantity by the total allotment base. Each producer is then issued an annual allotment certificate, in pounds, for the applicable class of oil, which is calculated by multiplying the producer’s allotment base by the applicable allotment percentage. This is the amount of oil for the applicable class that the producer can sell. By November 1 of each year, the Committee identifies any oil that E:\FR\FM\12JAP1.SGM 12JAP1 Federal Register / Vol. 70, No. 8 / Wednesday, January 12, 2005 / Proposed Rules individual producers have produced above the volume specified on their annual allotment certificates. This excess oil is placed in a reserve pool administered by the Committee. There is a reserve pool for each class of oil that may not be sold during the current marketing year unless USDA approves a Committee recommendation to make a portion of the pool available. However, limited quantities of reserve oil are typically sold to fill deficiencies. A deficiency occurs when on-farm production is less than a producer’s allotment. In that case, a producer’s own reserve oil can be sold to fill that deficiency. Excess production (higher than the producer’s allotment) can be sold to fill other producers’ deficiencies. In any given year, the total available supply of spearmint oil is composed of current production plus carry-over stocks from the previous crop. The Committee seeks to maintain market stability by balancing supply and demand, and to close the marketing year with an appropriate level of carryout. If the industry has production in excess of the salable quantity, then the reserve pool absorbs the surplus quantity of spearmint oil, which goes unsold during that year, unless the oil is needed for unanticipated sales. Under its provisions, the order may attempt to stabilize prices by (1) limiting supply and establishing reserves in high production years, thus minimizing the price-depressing effect that excess producer stocks have on unsold spearmint oil, and (2) ensuring that stocks are available in short supply years when prices would otherwise increase dramatically. The reserve pool stocks grown in large production years are drawn down in short crop years. An econometric model was used to assess the impact that volume control has on the prices producers receive for their commodity. Without volume control, spearmint oil markets would likely be over-supplied, resulting in low producer prices and a large volume of oil stored and carried over to the next crop year. The model estimates how much lower producer prices would likely be in the absence of volume controls. The Committee estimated the available supply during the 2004–2005 marketing year for both classes of oil at 2,094,865 pounds, and that the expected carry-in will be 411,427 pounds. Therefore, with volume control, sales by producers for the 2004–2005 marketing year would be limited to 1,545,367 pounds (the recommended salable quantity for both classes of spearmint oil). VerDate jul<14>2003 17:43 Jan 11, 2005 Jkt 205001 The recommended salable percentages, upon which 2005–2006 producer allotments are based, are 35 percent for Scotch and 40 percent for Native. Without volume controls, producers would not be limited to these allotment levels, and could produce and sell additional spearmint. The econometric model estimated a $1.74 decline in the season average producer price per pound (from both classes of spearmint oil) resulting from the higher quantities that would be produced and marketed without volume control. The Far West producer price for both classes of spearmint oil was $9.50 for 2003, which is below the average of $11.26 for the period of 1980 through 2003, based on National Agricultural Statistics Service data. The surplus situation for the spearmint oil market that would exist without volume controls in 2005– 2006 also would likely dampen prospects for improved producer prices in future years because of the buildup in stocks. The use of volume controls allows the industry to fully supply spearmint oil markets while avoiding the negative consequences of over-supplying these markets. The use of volume controls is believed to have little or no effect on consumer prices of products containing spearmint oil and will not result in fewer retail sales of such products. The Committee discussed alternatives to the recommendations contained in this rule for both classes of spearmint oil. The Committee discussed and rejected the idea of recommending that there not be any volume regulation for Scotch spearmint oil because of the severe price-depressing effects that would occur without volume control. The Committee also considered various alternative levels of volume control for Scotch spearmint oil, including leaving the percentage the same as the current season, increasing the percentage to a less restrictive level, or decreasing the percentage. After considerable discussion the Committee unanimously supported decreasing the percentage to 35 percent. The Committee discussed and rejected the idea of recommending that there not be any volume regulation for Native spearmint oil. The immediate result would be to put an excessive amount of Native reserve pool oil on the market causing depressed prices at the producer level. With the current price for Native spearmint oil lower than the 10-year average, and sales below the 5year average, the Committee, after considerable discussion, determined that 867,958 pounds and 40 percent would be the most effective salable quantity and allotment percentage, PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 2031 respectively, for the 2005–2006 marketing year. As noted earlier, the Committee’s recommendation to establish salable quantities and allotment percentages for both classes of spearmint oil was made after careful consideration of all available information, including: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) the prospective production of each class of oil; (4) the total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Based on its review, the Committee believes that the salable quantity and allotment percentage levels recommended would achieve the objectives sought. Without any regulations in effect, the Committee believes the industry would return to the pronounced cyclical price patterns that occurred prior to the order, and that prices in 2005–2006 would decline substantially below current levels. As stated earlier, the Committee believes that the order has contributed extensively to the stabilization of producer prices, which prior to 1980 experienced wide fluctuations from year-to-year. National Agricultural Statistics Service records show that the average price paid for both classes of spearmint oil ranged from $4.00 per pound to $11.10 per pound during the period between 1968 and 1980. Prices have been consistently more stable since the marketing order’s inception in 1980, with an average price (1980–2003) of $12.93 per pound for Scotch spearmint oil and $9.85 per pound for Native spearmint oil. During the period of 1998 through 2003, however, large production and carry-in inventories have contributed to prices below the 24-year average, despite the Committee’s efforts to balance available supplies with demand. Prices have ranged from $8.00 to $11.00 per pound for Scotch spearmint oil and between $9.10 and $10.00 per pound for Native spearmint oil. According to the Committee, the recommended salable quantities and allotment percentages are expected to achieve the goals of market and price stability. E:\FR\FM\12JAP1.SGM 12JAP1 2032 Federal Register / Vol. 70, No. 8 / Wednesday, January 12, 2005 / Proposed Rules As previously stated, annual salable quantities and allotment percentages have been issued for both classes of spearmint oil since the order’s inception. Reporting and recordkeeping requirements have remained the same for each year of regulation. These requirements have been approved by the Office of Management and Budget under OMB Control No. 0581–0065. Accordingly, this rule would not impose any additional reporting or recordkeeping requirements on either small or large spearmint oil producers and handlers. All reports and forms associated with this program are reviewed periodically in order to avoid unnecessary and duplicative information collection by industry and public sector agencies. The USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule. The Committee’s meeting was widely publicized throughout the spearmint oil industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the October 6, 2004, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses. A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/ fv/moab.html. Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section. A 30-day comment period is provided to allow interested persons the opportunity to respond to the proposal, including any regulatory and informational impacts of this action on small businesses. This comment period is deemed appropriate so that a final determination can be made prior to June 1, 2005, the beginning of the 2005–2006 marketing year. All written comments received within the comment period will be considered before a final determination is made on this matter. List of Subjects in 7 CFR Part 985 Marketing agreements, Oils and fats, Reporting and recordkeeping requirements, Spearmint oil. For the reasons set forth in the preamble, 7 CFR part 985 is proposed to be amended as follows: VerDate jul<14>2003 17:43 Jan 11, 2005 Jkt 205001 PART 985—MARKETING ORDER REGULATING THE HANDLING OF SPEARMINT OIL PRODUCED IN THE FAR WEST 1. The authority citation for 7 CFR part 985 continues to read as follows: Authority: 7 U.S.C. 601–674. 2. A new § 985.224 is added to read as follows: Note: This section will not appear in the Code of Federal Regulations. § 985.224 Salable quantities and allotment percentages—2005–2006 marketing year. The salable quantity and allotment percentage for each class of spearmint oil during the marketing year beginning on June 1, 2005, shall be as follows: (a) Class 1 (Scotch) oil—a salable quantity of 677,409 pounds and an allotment percentage of 35 percent. (b) Class 3 (Native) oil—a salable quantity of 867,958 pounds and an allotment percentage of 40 percent. Dated: January 5, 2005. Kenneth C. Clayton, Associate Administrator, Agricultural Marketing Service. [FR Doc. 05–581 Filed 1–11–05; 8:45 am] BILLING CODE 3410–02–P DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 1160 [Docket No. DA–04–04] National Fluid Milk Processor Promotion Program; Invitation To Submit Comments on Proposed Amendments to the Fluid Milk Promotion Order Agricultural Marketing Service, USDA. ACTION: Proposed rule. AGENCY: SUMMARY: This document invites comments on a proposed amendment to the Fluid Milk Promotion Order (Order). The proposed amendment, requested by the National Fluid Milk Processor Promotion Board (Board), which administers the Order, would modify the terms of membership on the Board. The proposed amendment would require that any change in a fluid milk processor member’s employer or change in ownership of the fluid milk processor who the member represents would disqualify that member. The member would continue to serve on the Board for a period of up to six months until a successor was appointed. In addition, a public member to the Board who PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 changes employment, gains employment with a new employer, or ceases to continue in the same business would be disqualified in a manner similar to a fluid milk processor member. The Board believes that the proposed amendments are necessary to ensure the Board is able to equitably represent fluid milk processing constituents and the public interest through the National Fluid Milk Processor Promotion Program. DATES: Comments must be submitted on or before February 11, 2005. ADDRESSES: Comments should be filed with USDA/AMS/Dairy Programs, Promotion and Research Branch, Stop 0233—Room 2958–S, 1400 Independence Avenue, SW., Washington, DC 20250–0233. Comments may be faxed to (202) 720– 0285 or e-mailed to David.Jamison2@usda.gov. You may send your comments by using the electronic process available at the Federal Rulemaking portal at http:// www.regulations.gov. Comments, which should reference the title of the action and the docket number, will be made available for public inspection at the above address during regular business hours. Comments also will be posted at: http://www.ams.usda.gov/dairy/ index.htm. FOR FURTHER INFORMATION CONTACT: David R. Jamison, USDA/AMS/Dairy Programs, Promotion and Research Branch, Stop 0233—Room 2958–S, 1400 Independence Avenue, SW., Washington, DC 20250–0233, (202) 720– 6961, David.Jamison2@usda.gov. SUPPLEMENTARY INFORMATION: This proposed rule has been determined to be not significant for purposes of Executive Order 12866 and, therefore, has not been reviewed by Office of Management and Budget (OMB). This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform and is not intended to have a retroactive effect. If adopted, this proposed rule would not preempt any State or local laws, regulations, or policies unless they present an irreconcilable conflict with this rule. The Fluid Milk Promotion Act of 1990 (Act), as amended, authorizes the Order. The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 1999K of the Act, any person subject to the Order may file with the Secretary 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 the law and request a modification of the Order or to be exempted from the E:\FR\FM\12JAP1.SGM 12JAP1

Agencies

[Federal Register Volume 70, Number 8 (Wednesday, January 12, 2005)]
[Proposed Rules]
[Pages 2027-2032]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-581]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 70, No. 8 / Wednesday, January 12, 2005 / 
Proposed Rules

[[Page 2027]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 985

[Docket No. FV05-985-1 PR]


Marketing Order Regulating the Handling of Spearmint Oil Produced 
in the Far West; Salable Quantities and Allotment Percentages for the 
2005-2006 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: This rule would establish the quantity of spearmint oil 
produced in the Far West, by class, that handlers may purchase from, or 
handle for, producers during the 2005-2006 marketing year, which begins 
on June 1, 2005. This rule invites comments on the establishment of 
salable quantities and allotment percentages for Class 1 (Scotch) 
spearmint oil of 677,409 pounds and 35 percent, respectively, and for 
Class 3 (Native) spearmint oil of 867,958 pounds and 40 percent, 
respectively. The Spearmint Oil Administrative Committee (Committee), 
the agency responsible for local administration of the marketing order 
for spearmint oil produced in the Far West, recommended this rule for 
the purpose of avoiding extreme fluctuations in supplies and prices to 
help maintain stability in the spearmint oil market.

DATES: Comments must be received by February 11, 2005.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this rule. Comments must be sent to the Docket Clerk, 
Marketing Order Administration Branch, Fruit and Vegetable Programs, 
AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 
20250-0237; Fax: (202) 720-8938; e-mail: moab.docketclerk@usda.gov; or 
Internet: http://www.regulations.gov. Comments should reference the 
docket number and the date and page number of this issue of the Federal 
Register and will be available for public inspection in the Office of 
the Docket Clerk during regular business hours, or can be viewed at: 
http://www.ams.usda.gov/fv/moab.html.

FOR FURTHER INFORMATION CONTACT: Susan M. Hiller, Northwest Marketing 
Field Office, Fruit and Vegetable Programs, AMS, USDA, 1220 SW. Third 
Avenue, suite 385, Portland, Oregon 97204; Telephone: (503) 326-2724; 
Fax: (503) 326-7440; or George Kelhart, Technical Advisor, Marketing 
Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 
1400 Independence Avenue SW., STOP 0237, Washington, DC 20250-0237; 
Telephone: (202) 720-2491; Fax: (202) 720-8938.
    Small businesses may request information on complying with this 
regulation by contacting Jay Guerber, Marketing Order Administration 
Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence 
Avenue SW., STOP 0237, Washington, DC 20250-0237; Telephone (202) 720-
2491, Fax: (202) 720-8938, or e-mail: Jay.Guerber@usda.gov.

SUPPLEMENTARY INFORMATION: This rule is issued under Marketing Order 
No. 985 (7 CFR part 985), as amended, regulating the handling of 
spearmint oil produced in the Far West (Washington, Idaho, Oregon, and 
designated parts of Nevada and Utah), hereinafter referred to as the 
``order.'' This order is effective under the Agricultural Marketing 
Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter 
referred to as the ``Act.''
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Order 12866.
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. Under the marketing order now in effect, salable 
quantities and allotment percentages may be established for classes of 
spearmint oil produced in the Far West. This proposed rule would 
establish the quantity of spearmint oil produced in the Far West, by 
class, which may be purchased from or handled for producers by handlers 
during the 2005-2006 marketing year, which begins on June 1, 2005. This 
rule will not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. Such 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed not later than 20 days after the date of 
the entry of the ruling.
    Pursuant to authority in Sec. Sec.  985.50, 985.51, and 985.52 of 
the order, the Committee, with seven of its eight members present, met 
on October 6, 2004, and recommended salable quantities and allotment 
percentages for both classes of oil for the 2005-2006 marketing year. 
The Committee unanimously recommended the establishment of a salable 
quantity and allotment percentage for Scotch spearmint oil of 677,409 
pounds and 35 percent, respectively. For Native spearmint oil, the 
Committee unanimously recommended the establishment of a salable 
quantity and allotment percentage of 867,958 pounds and 40 percent, 
respectively.
    This rule would limit the amount of spearmint oil that handlers may 
purchase from, or handle for, producers during the 2005-2006 marketing 
year, which begins on June 1, 2005. Salable quantities and allotment 
percentages have been placed into effect each season since the order's 
inception in 1980.
    The U.S. production of Scotch spearmint oil is concentrated in the 
Far West, which includes Washington, Idaho, and Oregon and a portion of 
Nevada and Utah. Scotch spearmint oil is also produced in the Midwest 
states of Indiana, Michigan, and Wisconsin, as well as in the States of 
Montana, South Dakota, North Dakota, and Minnesota. The production area 
covered by the marketing order currently accounts for

[[Page 2028]]

approximately 68 percent of the annual U.S. sales of Scotch spearmint 
oil.
    When the order became effective in 1980, the Far West had 72 
percent of the world's sales of Scotch spearmint oil. While the Far 
West is still the leading producer of Scotch spearmint oil, its share 
of world sales is now estimated to be about 36 percent. This loss in 
world sales for the Far West region is directly attributed to the 
increase in global production. Other factors that have played a 
significant role include the overall quality of the imported oil and 
technological advances that allow for more blending of lower quality 
oils. Such factors have provided the Committee with challenges in 
accurately predicting trade demand for Scotch oil. This, in turn, has 
made it difficult to balance available supplies with demand and to 
achieve the Committee's overall goal of stabilizing producer and market 
prices.
    The marketing order has continued to contribute to price and 
general market stabilization for Far West producers. The Committee, as 
well as spearmint oil producers and handlers attending the October 6, 
2004, meeting estimated that the 2004 producer price of Scotch oil 
would maintain an average of $10.00 per pound. However, this producer 
price is below the cost of production for most producers as indicated 
in a study from the Washington State University Cooperative Extension 
Service (WSU), which estimates production costs to be between $13.50 
and $15.00 per pound.
    This low level of producer returns has caused a reduction in 
acreage. When the order became effective in 1980, the Far West region 
had 9,702 acres of Scotch spearmint. The Committee estimates that the 
current acreage of Scotch spearmint will be about 4,771 acres. Based on 
the reduced Scotch spearmint acreage, the Committee estimates that 
production for the 2004-2005 marketing season will be about 635,508 
pounds.
    The Committee recommended the 2005-2006 Scotch spearmint oil 
salable quantity (677,409 pounds) and allotment percentage (35 percent) 
utilizing sales estimates for 2005-2006 Scotch oil as provided by 
several of the industry's handlers, as well as historical and current 
Scotch oil sales levels. The Committee is estimating that about 650,000 
pounds of Scotch spearmint oil, on average, may be sold during the 
2005-2006 marketing year. When considered in conjunction with the 
estimated carry in of 351,427 pounds of oil on June 1, 2005, the 
recommended salable quantity of 677,409 pounds results in a total 
available supply of Scotch spearmint oil next year of about 1,028,836 
pounds.
    The recommendation for the 2005-2006 Scotch spearmint oil volume 
regulation is consistent with the Committee's stated intent of keeping 
adequate supplies available at all times, while attempting to stabilize 
prices at a level adequate to sustain the producers. Furthermore, the 
recommendation takes into consideration the industry's desire to 
compete with less expensive oil produced outside the regulated area.
    Although Native spearmint oil producers are facing market 
conditions similar to those affecting the Scotch spearmint oil market, 
the market share is quite different. Over 90 percent of the U.S. 
production of Native spearmint is produced within the Far West 
production area. Also, most of the world's supply of Native spearmint 
is produced in the U.S.
    The supply and demand characteristics of the current Native 
spearmint oil market, combined with the stabilizing impact of the 
marketing order, have kept the price relatively steady, between $9.10 
and $9.30 per pound over the last five years. The Committee considers 
this level too low for the majority of producers to maintain viability. 
The WSU study referenced earlier indicates that the cost of producing 
Native spearmint oil ranges from $10.26 to $10.92 per pound.
    Similar to Scotch, the low level of producer returns has also 
caused a reduction in Native spearmint acreage. When the order became 
effective in 1980, the Far West region had 12,153 acres of Native 
spearmint. The Committee estimates that the 2004-2005 acreage of Native 
spearmint is about 4,804 acres. Based on the reduced Native spearmint 
acreage, the Committee estimates that production for the 2004-2005 
marketing season will be about 701,372 pounds.
    The Committee recommended the 2005-2006 Native spearmint oil 
salable quantity (867,958 pounds) and allotment percentage (40 percent) 
utilizing sales estimates for 2005-2006 Native oil as provided by 
several of the industry's handlers, as well as historical and current 
Native oil sales levels. The Committee is estimating that about 945,000 
pounds of Native spearmint oil, on average, may be sold during the 
2005-2006 marketing year. When considered in conjunction with the 
estimated carry-in of 60,000 pounds of oil on June 1, 2005, the 
recommended salable quantity of 867,958 pounds results in a total 
available supply of Native spearmint oil next year of about 927,958 
pounds.
    The Committee's method of calculating the Native spearmint oil 
salable quantity and allotment percentage continues to primarily 
utilize information on price and available supply as they are affected 
by the estimated trade demand. The Committee's stated intent is to make 
adequate supplies available to meet market needs and improve producer 
prices.
    The Committee believes that the order has contributed extensively 
to the stabilization of producer prices, which prior to 1980 
experienced wide fluctuations from year to year. According to the 
National Agricultural Statistics Service, for example, the average 
price paid for both classes of spearmint oil ranged from $4.00 per 
pound to $11.10 per pound during the period between 1968 and 1980. 
Prices since the order's inception have generally stabilized at about 
$9.85 per pound for Native spearmint oil and at about $12.93 per pound 
for Scotch spearmint oil. However, the current prices for both classes 
of oil are below the average due to several factors, including the 
general uncertainty being experienced through the U.S. economy and the 
continuing overall weak farm situation, as well as an abundant global 
supply of spearmint oil. As noted earlier--although lower than what 
producers believe to be viable--prices currently appear to be stable at 
about $9.50 for both classes of oil.
    The Committee based its recommendation for the proposed salable 
quantity and allotment percentage for each class of spearmint oil for 
the 2005-2006 marketing year on the information discussed above, as 
well as the data outlined below.

1. Class 1 (Scotch) Spearmint Oil

    (A) Estimated carry-in on June 1, 2005--351,427 pounds. This figure 
is the difference between the estimated 2004-2005 marketing year trade 
demand of 620,000 pounds and the 2004-2005 marketing year total 
available supply of 971,427 pounds.
    (B) Estimated trade demand for the 2005-2006 marketing year--
650,000 pounds. This figure is based on input from producers at five 
Scotch spearmint oil production area meetings held in September 2004, 
as well as estimates provided by handlers and other meeting 
participants at the October 6, 2004, meeting. The average estimated 
trade demand provided at the five production area meetings was 620,867 
pounds, whereas the average handler trade demand ranged from 600,000 to 
650,000 pounds. The average of sales over the last five years was 
761,142 pounds.
    (C) Salable quantity required from the 2005-2006 marketing year 
production--298,573 pounds. This figure is the

[[Page 2029]]

difference between the estimated 2005-2006 marketing year trade demand 
(650,000 pounds) and the estimated carry-in on June 1, 2005 (351,427 
pounds).
    (D) Total estimated allotment base for the 2005-2006 marketing 
year--1,935,455 pounds. This figure represents a one-percent increase 
over the revised 2004-2005 total allotment base. This figure is 
generally revised each year on June 1 due to producer base being lost 
due to the bona fide effort production provisions of Sec.  985.53(e). 
The revision is usually minimal.
    (E) Computed allotment percentage--15.4 percent. This percentage is 
computed by dividing the required salable quantity by the total 
estimated allotment base.
    (F) Recommended allotment percentage--35 percent. This 
recommendation is based on the Committee's determination that a 
decrease from the current season's allotment percentage of 40 percent 
to the computed 15.4 percent would not adequately supply the potential 
2005-2006 market.
    (G) The Committee's recommended salable quantity--677,409 pounds. 
This figure is the product of the recommended allotment percentage and 
the total estimated allotment base.
    (H) Estimated available supply for the 2005-2006 marketing year--
1,028,836 pounds. This figure is the sum of the 2005-2006 recommended 
salable quantity (677,409 pounds) and the estimated carry-in on June 1, 
2005 (351,427 pounds).

2. Class 3 (Native) Spearmint Oil

    (A) Estimated carry-in on June 1, 2005--60,000 pounds. This figure 
is the difference between the estimated 2004-2005 marketing year trade 
demand of 1,063,438 pounds and the revised 2004-2005 marketing year 
total available supply of 1,123,438 pounds.
    (B) Estimated trade demand for the 2005-2006 marketing year--
945,000 pounds. This figure is based on input from producers at the 
five Native spearmint oil production area meetings held in September 
2004, as well as estimates provided by handlers and other meeting 
participants at the October 6, 2004, meeting. The average estimated 
trade demand provided at the five production area meetings was 957,000 
pounds, whereas the average handler estimate was 945,000 pounds.
    (C) Salable quantity required from the 2005-2006 marketing year 
production--885,000 pounds. This figure is the difference between the 
estimated 2005-2006 marketing year trade demand (945,000 pounds) and 
the estimated carry-in on June 1, 2005 (60,000 pounds).
    (D) Total estimated allotment base for the 2005-2006 marketing 
year--2,169,894 pounds. This figure represents a one percent increase 
over the revised 2004-2005 total allotment base. This figure is 
generally revised each year on June 1 due to producer base being lost 
due to the bona fide effort production provisions of Sec.  985.53(e). 
The revision is usually minimal.
    (E) Computed allotment percentage--40.8 percent. This percentage is 
computed by dividing the required salable quantity by the total 
estimated allotment base.
    (F) Recommended allotment percentage--40 percent. This is the 
Committee's recommendation based on the computed allotment percentage, 
the average of the computed allotment percentage figures from the five 
production area meetings (40.6 percent), and input from producers and 
handlers at the October 6, 2004, meeting.
    (G) The Committee's recommended salable quantity--867,958 pounds. 
This figure is the product of the recommended allotment percentage and 
the total estimated allotment base.
    (H) Estimated available supply for the 2005-2006 marketing year--
927,958 pounds. This figure is the sum of the 2005-2006 recommended 
salable quantity (867,958 pounds) and the estimated carry-in on June 1, 
2005 (60,000 pounds).
    The salable quantity is the total quantity of each class of 
spearmint oil, which handlers may purchase from, or handle on behalf of 
producers during a marketing year. Each producer is allotted a share of 
the salable quantity by applying the allotment percentage to the 
producer's allotment base for the applicable class of spearmint oil.
    The Committee's recommended Scotch and Native spearmint oil salable 
quantities and allotment percentages of 677,409 pounds and 35 percent 
and 867,958 and 40 percent, respectively, are based on the Committee's 
goal of maintaining market stability by avoiding extreme fluctuations 
in supplies and prices and the anticipated supply and trade demand 
during the 2005-2006 marketing year. The proposed salable quantities 
are not expected to cause a shortage of spearmint oil supplies. Any 
unanticipated or additional market demand for spearmint oil, which may 
develop during the marketing year, can be satisfied by an increase in 
the salable quantities. Both Scotch and Native spearmint oil producers 
who produce more than their annual allotments during the 2005-2006 
marketing year may transfer such excess spearmint oil to a producer 
with spearmint oil production less than his or her annual allotment or 
put it into the reserve pool until November 1, 2005.
    This proposed regulation, if adopted, would be similar to 
regulations issued in prior seasons. Costs to producers and handlers 
resulting from this rule are expected to be offset by the benefits 
derived from a stable market and improved returns. In conjunction with 
the issuance of this proposed rule, USDA has reviewed the Committee's 
marketing policy statement for the 2005-2006 marketing year. The 
Committee's marketing policy statement, a requirement whenever the 
Committee recommends volume regulations, fully meets the intent of 
Sec.  985.50 of the order. During its discussion of potential 2005-2006 
salable quantities and allotment percentages, the Committee considered: 
(1) The estimated quantity of salable oil of each class held by 
producers and handlers; (2) the estimated demand for each class of oil; 
(3) prospective production of each class of oil; (4) total of allotment 
bases of each class of oil for the current marketing year and the 
estimated total of allotment bases of each class for the ensuing 
marketing year; (5) the quantity of reserve oil, by class, in storage; 
(6) producer prices of oil, including prices for each class of oil; and 
(7) general market conditions for each class of oil, including whether 
the estimated season average price to producers is likely to exceed 
parity. Conformity with the USDA's ``Guidelines for Fruit, Vegetable, 
and Specialty Crop Marketing Orders'' has also been reviewed and 
confirmed.
    The establishment of these salable quantities and allotment 
percentages would allow for anticipated market needs. In determining 
anticipated market needs, consideration by the Committee was given to 
historical sales, as well as changes and trends in production and 
demand. This rule also provides producers with information on the 
amount of spearmint oil that should be produced for the 2005-2006 
season in order to meet anticipated market demand.

Initial Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), the Agricultural Marketing Service (AMS) has considered the 
economic impact of this rule on small entities. Accordingly, AMS has 
prepared this initial regulatory flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of

[[Page 2030]]

business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and the rules issued thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    There are eight spearmint oil handlers subject to regulation under 
the order, and approximately 59 producers of Class 1 (Scotch) spearmint 
oil and approximately 91 producers of Class 3 (Native) spearmint oil in 
the regulated production area. Small agricultural service firms are 
defined by the Small Business Administration (SBA) (13 CFR 121.201) as 
those having annual receipts of less than $5,000,000, and small 
agricultural producers are defined as those whose annual receipts are 
less than $750,000.
    Based on the SBA's definition of small entities, the Committee 
estimates that 2 of the 8 handlers regulated by the order could be 
considered small entities. Most of the handlers are large corporations 
involved in the international trading of essential oils and the 
products of essential oils. In addition, the Committee estimates that 
19 of the 59 Scotch spearmint oil producers and 21 of the 91 Native 
spearmint oil producers could be classified as small entities under the 
SBA definition. Thus, a majority of handlers and producers of Far West 
spearmint oil may not be classified as small entities.
    The Far West spearmint oil industry is characterized by producers 
whose farming operations generally involve more than one commodity, and 
whose income from farming operations is not exclusively dependent on 
the production of spearmint oil. A typical spearmint oil-producing 
operation has enough acreage for rotation such that the total acreage 
required to produce the crop is about one-third spearmint and two-
thirds rotational crops. Thus, the typical spearmint oil producer has 
to have considerably more acreage than is planted to spearmint during 
any given season. Crop rotation is an essential cultural practice in 
the production of spearmint oil for weed, insect, and disease control. 
To remain economically viable with the added costs associated with 
spearmint oil production, most spearmint oil-producing farms fall into 
the SBA category of large businesses.
    Small spearmint oil producers generally are not as extensively 
diversified as larger ones and as such are more at risk from market 
fluctuations. Such small producers generally need to market their 
entire annual crop and do not have the luxury of having other crops to 
cushion seasons with poor spearmint oil returns. Conversely, large 
diversified producers have the potential to endure one or more seasons 
of poor spearmint oil markets because income from alternate crops could 
support the operation for a period of time. Being reasonably assured of 
a stable price and market provides small producing entities with the 
ability to maintain proper cash flow and to meet annual expenses. Thus, 
the market and price stability provided by the order potentially 
benefit the small producer more than such provisions benefit large 
producers. Even though a majority of handlers and producers of 
spearmint oil may not be classified as small entities, the volume 
control feature of this order has small entity orientation.
    This proposed rule would establish the quantity of spearmint oil 
produced in the Far West, by class, that handlers may purchase from, or 
handle for, producers during the 2005-2006 marketing year. The 
Committee recommended this rule to help maintain stability in the 
spearmint oil market by avoiding extreme fluctuations in supplies and 
prices. Establishing quantities to be purchased or handled during the 
marketing year through volume regulations allows producers to plan 
their mint planting and harvesting to meet expected market needs. The 
provisions of Sec. Sec.  985.50, 985.51, and 985.52 of the order 
authorize this rule.
    Instability in the spearmint oil sub-sector of the mint industry is 
much more likely to originate on the supply side than the demand side. 
Fluctuations in yield and acreage planted from season-to-season tend to 
be larger than fluctuations in the amount purchased by buyers. Demand 
for spearmint oil tends to be relatively stable from year-to-year. The 
demand for spearmint oil is expected to grow slowly for the foreseeable 
future because the demand for consumer products that use spearmint oil 
will likely expand slowly, in line with population growth.
    Demand for spearmint oil at the farm level is derived from retail 
demand for spearmint-flavored products such as chewing gum, toothpaste, 
and mouthwash. The manufacturers of these products are by far the 
largest users of mint oil. However, spearmint flavoring is generally a 
very minor component of the products in which it is used, so changes in 
the raw product price have no impact on retail prices for those goods.
    Spearmint oil production tends to be cyclical. Years of large 
production, with demand remaining reasonably stable, have led to 
periods in which large producer stocks of unsold spearmint oil have 
depressed producer prices for a number of years. Shortages and high 
prices may follow in subsequent years, as producers respond to price 
signals by cutting back production.
    The significant variability is illustrated by the fact that the 
coefficient of variation (a standard measure of variability; ``CV'') of 
Far West spearmint oil production from 1980 through 2003 was about 
0.24. The CV for spearmint oil grower prices was about 0.14, well below 
the CV for production. This provides an indication of the price 
stabilizing impact of the marketing order.
    Production in the shortest marketing years was about 49 percent of 
the 24-year average (1.875 million pounds from 1980 through 2003) and 
the largest crop was approximately 166 percent of the 24-year average. 
A key consequence is that in years of oversupply and low prices the 
season average producer price of spearmint oil is below the average 
cost of production (as measured by the Washington State University 
Cooperative Extension Service.)
    The wide fluctuations in supply and prices that result from this 
cycle, which was even more pronounced before the creation of the 
marketing order, can create liquidity problems for some producers. The 
marketing order was designed to reduce the price impacts of the 
cyclical swings in production. However, producers have been less able 
to weather these cycles in recent years because of the decline in 
prices of many of the alternative crops they grow. As noted earlier, 
almost all spearmint oil producers diversify by growing other crops.
    In an effort to stabilize prices, the spearmint oil industry uses 
the volume control mechanisms authorized under the order. This 
authority allows the Committee to recommend a salable quantity and 
allotment percentage for each class of oil for the upcoming marketing 
year. The salable quantity for each class of oil is the total volume of 
oil that producers may sell during the marketing year. The allotment 
percentage for each class of spearmint oil is derived by dividing the 
salable quantity by the total allotment base.
    Each producer is then issued an annual allotment certificate, in 
pounds, for the applicable class of oil, which is calculated by 
multiplying the producer's allotment base by the applicable allotment 
percentage. This is the amount of oil for the applicable class that the 
producer can sell.
    By November 1 of each year, the Committee identifies any oil that

[[Page 2031]]

individual producers have produced above the volume specified on their 
annual allotment certificates. This excess oil is placed in a reserve 
pool administered by the Committee.
    There is a reserve pool for each class of oil that may not be sold 
during the current marketing year unless USDA approves a Committee 
recommendation to make a portion of the pool available. However, 
limited quantities of reserve oil are typically sold to fill 
deficiencies. A deficiency occurs when on-farm production is less than 
a producer's allotment. In that case, a producer's own reserve oil can 
be sold to fill that deficiency. Excess production (higher than the 
producer's allotment) can be sold to fill other producers' 
deficiencies.
    In any given year, the total available supply of spearmint oil is 
composed of current production plus carry-over stocks from the previous 
crop. The Committee seeks to maintain market stability by balancing 
supply and demand, and to close the marketing year with an appropriate 
level of carryout. If the industry has production in excess of the 
salable quantity, then the reserve pool absorbs the surplus quantity of 
spearmint oil, which goes unsold during that year, unless the oil is 
needed for unanticipated sales.
    Under its provisions, the order may attempt to stabilize prices by 
(1) limiting supply and establishing reserves in high production years, 
thus minimizing the price-depressing effect that excess producer stocks 
have on unsold spearmint oil, and (2) ensuring that stocks are 
available in short supply years when prices would otherwise increase 
dramatically. The reserve pool stocks grown in large production years 
are drawn down in short crop years.
    An econometric model was used to assess the impact that volume 
control has on the prices producers receive for their commodity. 
Without volume control, spearmint oil markets would likely be over-
supplied, resulting in low producer prices and a large volume of oil 
stored and carried over to the next crop year. The model estimates how 
much lower producer prices would likely be in the absence of volume 
controls.
    The Committee estimated the available supply during the 2004-2005 
marketing year for both classes of oil at 2,094,865 pounds, and that 
the expected carry-in will be 411,427 pounds. Therefore, with volume 
control, sales by producers for the 2004-2005 marketing year would be 
limited to 1,545,367 pounds (the recommended salable quantity for both 
classes of spearmint oil).
    The recommended salable percentages, upon which 2005-2006 producer 
allotments are based, are 35 percent for Scotch and 40 percent for 
Native. Without volume controls, producers would not be limited to 
these allotment levels, and could produce and sell additional 
spearmint. The econometric model estimated a $1.74 decline in the 
season average producer price per pound (from both classes of spearmint 
oil) resulting from the higher quantities that would be produced and 
marketed without volume control. The Far West producer price for both 
classes of spearmint oil was $9.50 for 2003, which is below the average 
of $11.26 for the period of 1980 through 2003, based on National 
Agricultural Statistics Service data. The surplus situation for the 
spearmint oil market that would exist without volume controls in 2005-
2006 also would likely dampen prospects for improved producer prices in 
future years because of the buildup in stocks.
    The use of volume controls allows the industry to fully supply 
spearmint oil markets while avoiding the negative consequences of over-
supplying these markets. The use of volume controls is believed to have 
little or no effect on consumer prices of products containing spearmint 
oil and will not result in fewer retail sales of such products.
    The Committee discussed alternatives to the recommendations 
contained in this rule for both classes of spearmint oil. The Committee 
discussed and rejected the idea of recommending that there not be any 
volume regulation for Scotch spearmint oil because of the severe price-
depressing effects that would occur without volume control.
    The Committee also considered various alternative levels of volume 
control for Scotch spearmint oil, including leaving the percentage the 
same as the current season, increasing the percentage to a less 
restrictive level, or decreasing the percentage. After considerable 
discussion the Committee unanimously supported decreasing the 
percentage to 35 percent.
    The Committee discussed and rejected the idea of recommending that 
there not be any volume regulation for Native spearmint oil. The 
immediate result would be to put an excessive amount of Native reserve 
pool oil on the market causing depressed prices at the producer level. 
With the current price for Native spearmint oil lower than the 10-year 
average, and sales below the 5-year average, the Committee, after 
considerable discussion, determined that 867,958 pounds and 40 percent 
would be the most effective salable quantity and allotment percentage, 
respectively, for the 2005-2006 marketing year.
    As noted earlier, the Committee's recommendation to establish 
salable quantities and allotment percentages for both classes of 
spearmint oil was made after careful consideration of all available 
information, including: (1) The estimated quantity of salable oil of 
each class held by producers and handlers; (2) the estimated demand for 
each class of oil; (3) the prospective production of each class of oil; 
(4) the total of allotment bases of each class of oil for the current 
marketing year and the estimated total of allotment bases of each class 
for the ensuing marketing year; (5) the quantity of reserve oil, by 
class, in storage; (6) producer prices of oil, including prices for 
each class of oil; and (7) general market conditions for each class of 
oil, including whether the estimated season average price to producers 
is likely to exceed parity. Based on its review, the Committee believes 
that the salable quantity and allotment percentage levels recommended 
would achieve the objectives sought.
    Without any regulations in effect, the Committee believes the 
industry would return to the pronounced cyclical price patterns that 
occurred prior to the order, and that prices in 2005-2006 would decline 
substantially below current levels.
    As stated earlier, the Committee believes that the order has 
contributed extensively to the stabilization of producer prices, which 
prior to 1980 experienced wide fluctuations from year-to-year. National 
Agricultural Statistics Service records show that the average price 
paid for both classes of spearmint oil ranged from $4.00 per pound to 
$11.10 per pound during the period between 1968 and 1980. Prices have 
been consistently more stable since the marketing order's inception in 
1980, with an average price (1980-2003) of $12.93 per pound for Scotch 
spearmint oil and $9.85 per pound for Native spearmint oil.
    During the period of 1998 through 2003, however, large production 
and carry-in inventories have contributed to prices below the 24-year 
average, despite the Committee's efforts to balance available supplies 
with demand. Prices have ranged from $8.00 to $11.00 per pound for 
Scotch spearmint oil and between $9.10 and $10.00 per pound for Native 
spearmint oil.
    According to the Committee, the recommended salable quantities and 
allotment percentages are expected to achieve the goals of market and 
price stability.

[[Page 2032]]

    As previously stated, annual salable quantities and allotment 
percentages have been issued for both classes of spearmint oil since 
the order's inception. Reporting and recordkeeping requirements have 
remained the same for each year of regulation. These requirements have 
been approved by the Office of Management and Budget under OMB Control 
No. 0581-0065. Accordingly, this rule would not impose any additional 
reporting or recordkeeping requirements on either small or large 
spearmint oil producers and handlers. All reports and forms associated 
with this program are reviewed periodically in order to avoid 
unnecessary and duplicative information collection by industry and 
public sector agencies. The USDA has not identified any relevant 
Federal rules that duplicate, overlap, or conflict with this rule.
    The Committee's meeting was widely publicized throughout the 
spearmint oil industry and all interested persons were invited to 
attend the meeting and participate in Committee deliberations on all 
issues. Like all Committee meetings, the October 6, 2004, meeting was a 
public meeting and all entities, both large and small, were able to 
express views on this issue. Finally, interested persons are invited to 
submit information on the regulatory and informational impacts of this 
action on small businesses.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: http:/
/www.ams.usda.gov/fv/moab.html. Any questions about the compliance 
guide should be sent to Jay Guerber at the previously mentioned address 
in the FOR FURTHER INFORMATION CONTACT section.
    A 30-day comment period is provided to allow interested persons the 
opportunity to respond to the proposal, including any regulatory and 
informational impacts of this action on small businesses. This comment 
period is deemed appropriate so that a final determination can be made 
prior to June 1, 2005, the beginning of the 2005-2006 marketing year. 
All written comments received within the comment period will be 
considered before a final determination is made on this matter.

List of Subjects in 7 CFR Part 985

    Marketing agreements, Oils and fats, Reporting and recordkeeping 
requirements, Spearmint oil.

    For the reasons set forth in the preamble, 7 CFR part 985 is 
proposed to be amended as follows:

PART 985--MARKETING ORDER REGULATING THE HANDLING OF SPEARMINT OIL 
PRODUCED IN THE FAR WEST

    1. The authority citation for 7 CFR part 985 continues to read as 
follows:

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

    2. A new Sec.  985.224 is added to read as follows:

    Note: This section will not appear in the Code of Federal 
Regulations.

Sec.  985.224  Salable quantities and allotment percentages--2005-2006 
marketing year.

    The salable quantity and allotment percentage for each class of 
spearmint oil during the marketing year beginning on June 1, 2005, 
shall be as follows:
    (a) Class 1 (Scotch) oil--a salable quantity of 677,409 pounds and 
an allotment percentage of 35 percent.
    (b) Class 3 (Native) oil--a salable quantity of 867,958 pounds and 
an allotment percentage of 40 percent.

    Dated: January 5, 2005.
Kenneth C. Clayton,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 05-581 Filed 1-11-05; 8:45 am]
BILLING CODE 3410-02-P