Raisins Produced From Grapes Grown in California; Use of Estimated Trade Demand To Compute Volume Regulation Percentages, 41302-41305 [08-1447]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 73, Number 139 (Friday, July 18, 2008)]
[Proposed Rules]
[Pages 41302-41305]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 08-1447]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 989

[Docket No. AMS-FV-08-0042; FV08-989-2 PR]


Raisins Produced From Grapes Grown in California; Use of 
Estimated Trade Demand To Compute Volume Regulation Percentages

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule invites comments on using an estimated trade demand 
figure to compute volume regulation percentages for 2008-09 crop 
Natural (sun-dried) Seedless (NS) raisins covered under the Federal 
marketing order for California raisins (order). The order regulates the 
handling of raisins produced from grapes grown in California and is 
administered locally by the Raisin Administrative Committee 
(Committee). This rule would provide parameters for implementing volume 
regulation for 2008-09 crop NS raisins, if supplies are short, for the 
purposes of maintaining a portion of the industry's export markets and 
stabilizing the domestic market.

DATES: Comments must be received by August 4, 2008.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. 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; or Internet: https://
www.regulations.gov. All comments should reference the docket number 
and the date and page number of this issue of the Federal Register and 
will be made available for public inspection in the Office of the 
Docket Clerk during regular business hours, or can be viewed at: http:/
/www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Rose M. Aguayo, Marketing Specialist, 
or Kurt J. Kimmel, Regional Manager, California Marketing Field Office, 
Marketing Order Administration Branch, Fruit and Vegetable Programs, 
AMS, USDA; Telephone: (559) 487-5901, Fax: (559) 487-5906, or e-mail: 
Rose.Aguayo@usda.gov or Kurt.Kimmel@usda.gov.
    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 proposal is issued under Marketing 
Agreement and Order No. 989 (7 CFR part 989), both as amended, 
regulating the handling of raisins produced from grapes grown in 
California, hereinafter referred to as the ``order.'' The order is 
effective under the Agricultural Marketing Agreement Act of 1937, as 
amended (7 U.S.C. 601-674), hereinafter referred to as the ``Act.''
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Order 12866.
    This proposal has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is not intended to have retroactive effect. 
This proposal will not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. A 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing, USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed not later than 20 days after the date of 
the entry of the ruling.
    This proposal invites comments on using an estimated trade demand 
figure to compute volume regulation percentages for 2008-09 crop NS 
raisins covered under the order. This rule would provide parameters for 
implementing volume regulation for 2008-09 crop NS raisins, if supplies 
are short, for the purposes of maintaining a portion of the industry's 
export markets and stabilizing the domestic market. This action was 
unanimously recommended by the Committee at a meeting on April 3, 2008.

Volume Regulation Authority

    The order provides authority for volume regulation designed to 
promote orderly marketing conditions, stabilize prices and supplies, 
and improve producer returns. When volume regulation is in effect, a 
certain percentage of the California raisin crop may be sold by 
handlers to any market (free tonnage), while the remaining percentage 
must be held by handlers in a reserve pool (reserve) for the account of 
the Committee. Reserve raisins are disposed of through certain programs 
authorized under the order. For instance, reserve raisins may be sold 
by the Committee to handlers for free use or to replace part of the 
free tonnage raisins they exported; used in diversion programs; carried 
over as a hedge against a short crop the following year; or disposed of 
in other outlets not competitive with those for free tonnage raisins, 
such as government purchase, distilleries, or animal feed. Net proceeds 
from sales of reserve raisins are distributed to the reserve pool's 
equity holders, primarily producers.
    Section 989.54 of the order prescribes procedures and time frames 
to be followed in establishing volume regulation for each crop year, 
which runs from August 1 through July 31. The Committee must meet by 
August 15 to review data regarding raisin supplies. At that time, the 
Committee computes a trade demand for each varietal type of raisins for 
which a free tonnage percentage might be recommended. Trade demand is 
equal to 90 percent of the prior year's domestic and export shipments, 
adjusted by subtracting carryin inventory from the prior year and 
adding a desirable carryout inventory for the end of the current year.

[[Page 41303]]

    Paragraph (e) of Sec.  989.54 contains a list of factors that the 
Committee must consider when computing volume regulation percentages. 
Factor (4) states that the Committee must consider, if different than 
the computed trade demand, the estimated trade demand for raisins in 
free tonnage outlets. Section 989.154(b) provides parameters for use of 
an estimated trade demand for the 2007-08 crop year.
    By October 5, the Committee must announce preliminary crop 
estimates and determine whether volume regulation is warranted for the 
varietal types for which it computed trade demands. Preliminary volume 
regulation percentages are then computed to release 85 percent of the 
computed trade demand if a free tonnage price for raisins has been 
established or 65 percent of the trade demand if no free tonnage price 
for raisins has been established. Free tonnage price for raisins is the 
price that handlers pay producers for the free tonnage portion of their 
crop. By February 15, the Committee must recommend final free and 
reserve percentages that will tend to release the full trade demand.
    The order also requires that, when volume regulation is in effect, 
two offers of reserve raisins must be made available to handlers for 
free use. These offers are known as the ``10 plus 10'' offers. Each 
offer consists of a quantity of reserve raisins equal to 10 percent of 
the prior year's shipments. The order also specifies that ``10 plus 
10'' raisins must be sold to handlers at the current field price plus a 
3 percent surcharge and Committee costs.

Development of Export Markets

    With the exception of 11 crop years, volume regulation has been 
utilized for NS raisins since the order's inception in 1949. The 
procedures for determining volume regulation percentages have been 
modified over the years to address the industry's needs. In the past, 
volume regulation has been utilized primarily to help the industry 
manage an oversupply of raisins. Through the use of various marketing 
programs operated through reserve pools and other industry promotional 
activities, the industry has also developed its export markets.
    Between 1980 and 1985, exports of California NS raisins averaged 
about 26 percent (53,700 packed tons, or raisins which have been 
processed) of the industry's total NS raisin shipments (207,600 packed 
tons) per year. During the last ten years (1997-2006) these exports 
averaged about 37 percent (103,833 packed tons) of the industry's total 
NS raisin shipments (281,416 packed tons) per year. The total shipment 
figures exclude government purchases.

Export Replacement Offer

    One market development program operated through reserve pools, the 
Export Replacement Offer (ERO), has helped U.S. raisins to be price 
competitive in export markets. Prices in export markets are generally 
lower than the domestic market. The ERO began in the early 1980's as a 
``raisin-back'' program whereby handlers who exported California 
raisins could purchase, at a reduced price, reserve raisins for free 
use. This effectively blended down the cost of the raisins that were 
exported. The NS raisin ERO was changed to a ``cash-back'' program in 
1996 whereby handlers could receive cash from the reserve pool for 
export shipments.
    The ERO has been operated as a ``cash back'' program in all years 
since then, except for 2000, 2001, and a portion of 2002. Financing for 
the cash-back ERO program has been primarily from the Committee's ``10 
plus 10'' sales of reserve raisins. Since 2002, an average of $42.7 
million of reserve pool funds were utilized to support the export of 
about 103,000 packed tons of NS raisins annually.

Current Industry Situation

    The Committee is concerned that the 2008-09 crop may be short 
because of grape vine removals over the last several years and an April 
frost. About 53,000 acres of grape vines have been removed in favor of 
other crops, which have recently been providing higher returns. 
Additionally, this year's raisin crop in Turkey was small due to 
inclement weather. This led to an increase in exports of California 
raisins which will likely inflate next year's computed trade demand. 
Thus, with a smaller crop and a higher trade demand, volume regulation 
may not be warranted for 2008-09 NS raisins based on the order's trade 
demand formula.
    If no 2008-09 reserve were established, the industry would not be 
able to continue the ERO program and support its export sales. The 
Committee is concerned that the industry could lose a significant 
portion, perhaps 50 percent, of its export markets. Further, handlers 
who could not sell their raisins in export may sell their raisins 
domestically. Annual domestic shipments of NS raisins for the past ten 
years have averaged about 178,000 packed tons. The Committee is 
concerned that additional raisins sold into the domestic market could 
create instability.

Implementing Volume Regulation if Supplies Are Short To Maintain the 
ERO

    Thus, the Committee unanimously recommended using an estimated 
trade demand to establish no more than a 10 percent reserve if the 
2008-09 NS raisin crop is small. This would allow the industry to 
maintain the ERO. No volume regulation would be implemented if the crop 
estimate is below 215,000 tons. At that level, the needs of the 
domestic market would be met and about half of the industry's export 
markets. Section 989.154(b) of the order's administrative rules and 
regulations is proposed to be revised accordingly. Similar rulemaking 
actions were completed in 1999 (64 FR 43897) and 2007 (72 FR 54343).
    To illustrate how this would work, the Committee would compute a 
trade demand for NS raisins by August 15 (as an example, 267,000 
natural condition tons). At that time, the Committee would also 
announce its intention to use an estimated trade demand to compute 
volume regulation percentages if the 2008-09 NS raisin crop is at least 
215,000 tons but no more than 10 percent above the computed trade 
demand (293,700 tons in the example).

Crop Estimate Below 215,000 Tons--No Regulation

    The Committee would meet by October 5 to announce a NS crop 
estimate and determine whether volume regulation was warranted. Under 
the Committee's proposal, if the 2008-09 crop estimate is under 215,000 
natural condition tons, volume regulation would not be recommended. 
With a crop of 215,000 natural condition tons, and about 109,000 
natural condition tons of NS raisins projected to be carried forward 
from the 2007-08 crop year, a supply of about 324,000 natural condition 
tons of raisins would be available for the 2008-09 crop year. As 
previously mentioned, annual NS raisin shipments average about 282,000 
packed tons (almost 300,000 natural condition tons), excluding 
government purchases.
    With an available supply of only 324,000 natural condition tons of 
NS raisins, the Committee believes that the industry's first priority 
would be to satisfy the needs of the domestic market, which absorbs 
annually an average of about 178,000 packed tons (189,000 natural 
condition tons). Assuming that 189,000 natural condition tons were 
shipped domestically, the Committee estimates that, with no ERO program 
to help U.S. raisins be price competitive in export markets, the 
industry would

[[Page 41304]]

export about half of its usual tonnage, or about 55,000 natural 
condition tons. The remaining 80,000 natural condition tons would 
likely be held in inventory for the following 2009-10 crop year. Annual 
carryout inventory for NS raisins for the past 5 years has averaged 
about 109,000 natural condition tons.

Crop Estimate Equal to 215,000 Tons But No More Than 10 Percent Above 
the Computed Trade Demand--Volume Regulation

    If the October 2008-09 crop estimate for NS raisins is at least 
215,000 natural condition tons but no more than 10 percent above the 
computed trade demand, the Committee would use an estimated trade 
demand figure to compute preliminary free and reserve percentages for 
the 2008-09 crop. Thus, using the 267,000 natural condition ton 
computed trade demand figure, an estimated trade demand would be used 
to compute volume regulation percentages if the crop estimate is 
215,000 but no more than 293,700 natural condition tons.
    The Committee would meet by February 15 to compute final free and 
reserve percentages. The Committee recommended that if an estimated 
trade demand figure is used to compute percentages, the final reserve 
percentage be computed to equal no more than 10 percent of the 
estimated crop. Producers would ultimately be paid the free tonnage 
price for raisins for 90 percent of their crop, or their free tonnage.
    The remaining 10 percent of the crop would be held in reserve and 
offered for sale to handlers in the ``10 plus 10'' offers. As 
previously described, the ``10 plus 10'' offers are two offers of 
reserve raisins that are made available to handlers for free use. The 
order specifies that each offer consists of a quantity of reserve 
raisins equal to 10 percent of the prior year's shipments. This 
requirement would not be met if volume regulation were implemented when 
raisin supplies were short. However, all of the raisins held in reserve 
would be made available to handlers for free use. Handlers would pay 
the Committee for the ``10 plus 10'' raisins and that money would be 
utilized to fund a 2008-09 ERO program. Any unused 2008-09 reserve pool 
funds could be used to initiate a 2009-10 ERO program or be paid to 
2008-09 reserve pool equity holders.

Crop Estimate More Than 10 Percent Above the Computed Trade Demand

    Finally, the Committee recommended that, if the 2008-09 crop 
estimate is more than 10 percent greater than the computed trade demand 
(or above 293,700 natural condition tons in the earlier example), the 
computed trade demand (as an example, 267,000 natural condition tons) 
would be utilized to compute volume regulation percentages. Under this 
scenario, enough raisins (over 29,000 natural condition tons) would be 
available in reserve to continue the ERO program.

Summary of Alternatives

    It is anticipated that allowing the use of an estimated trade 
demand figure to compute volume regulation percentages for 2008-09 crop 
NS raisins if supplies are short would assist the industry in 
maintaining a portion of its export markets and stabilize the domestic 
market. If the crop estimate is below 215,000 natural condition tons, 
no volume regulation would be implemented. If this occurs, it is likely 
that domestic market needs would be met, while export markets would not 
be satisfied.
    However, if the crop is at least 215,000 natural condition tons but 
no more than 10 percent above the computed trade demand, establishing a 
small reserve pool would allow the industry to not only satisfy the 
needs of the domestic market, but also maintain a portion of its export 
sales. By maintaining an ERO program, even at a reduced level, 
exporters could continue to be price competitive and sell their raisins 
abroad. The domestic market would remain stable because it would not 
have to absorb any additional raisins that handlers could not afford to 
sell in export markets.

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 action 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 
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 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 21 handlers of California raisins who are 
subject to regulation under the order and approximately 3,000 raisin 
producers in the regulated area. Small agricultural service firms have 
been defined by the Small Business Administration (13 CFR 121.201) as 
those having annual receipts of less than $6,500,000, and small 
agricultural producers are defined as those having annual receipts of 
less than $750,000. No more than 8 handlers, and a majority of 
producers, of California raisins may be classified as small entities.
    This rule would revise Sec.  989.154(b) of the order's 
administrative rules and regulations regarding use of an estimated 
trade demand figure to establish no more than a 10 percent reserve if 
the 2008-09 NS raisin crop is small. This would allow the industry to 
maintain the ERO. Volume regulation would not be implemented if the 
crop falls below 215,000 tons. At that level, the needs of the domestic 
market and about half of the industry's export markets would be met. 
Authority for this action is provided in Sec.  989.54(e)(4) of the 
order.
    Regarding the impact of the action on producers and handlers, under 
the Committee's proposal, if an estimated trade demand figure was used 
to compute volume regulation percentages, the final reserve percentage 
would compute to no more than 10 percent. Producers would thus be paid 
the free tonnage price for raisins for at least 90 percent of their 
crop. About 10 percent of their crop would go into a reserve pool. The 
free tonnage price for raisins for NS raisins for the past 5 years has 
averaged $1,130 per ton. Handlers in turn would purchase 90 percent of 
their raisins directly from producers at the free tonnage price for 
raisins, but would have to buy remaining raisins out of the reserve 
pool at a higher price (field price plus 3 percent and Committee 
costs). The ``10 plus 10'' price of NS reserve raisins has averaged 
about $100 higher than the free tonnage price for raisins for the past 
5 years, or $1,233 per ton. Proceeds from the ``10 plus 10'' sales 
would be used to support export sales.
    While there may be some initial costs for both producers and 
handlers, the long term benefits of this action far outweigh the costs. 
The Committee believes that with no reserve pool, and hence, no ERO 
program, export sales would decline dramatically, perhaps up to 50 
percent. Handlers would likely sell into the domestic market raisins 
that they were unable to sell into lower priced export markets. 
Additional NS raisins sold into the domestic market, which typically 
absorbs about 178,000 packed tons, could create instability. The 
industry would likely lose a substantial portion of its export markets, 
which now account for about 37 percent (103,833 packed tons) of the 
industry's annual shipments (281,416 packed tons), excluding government 
purchases. Committee members have also

[[Page 41305]]

commented that, once export markets were lost, it would be difficult 
and costly for the industry to recover those sales. Raisins are mostly 
used as an ingredient in baked goods, cereals, and snacks. Typically, 
buyers want reliable suppliers from year to year and are generally 
reluctant to find alternative ingredients or sources. In turn, once 
buyers change sources, they may not switch back.
    Export markets for raisins are highly competitive. The U.S. and 
Turkey are the world's leading producers of raisins. Turkey exports 
approximately 76 percent of its total production, and represents an 
alternative product source for raisin buyers. Turkey's 2007-08 raisin 
crop was small due to a drought and high temperatures. Consequently, 
exports of Turkish raisins decreased while exports of California 
raisins increased significantly (up about 30 percent).
    Maintaining the industry's export markets would help the industry 
maximize its 2008-09 total shipments of NS raisins and prevent handlers 
from carrying forward large quantities of inventory into the 2009-10 
crop year. If the industry is unable to maximize its 2008-09 shipments 
of NS raisins, carryin inventory could be high. This would result in a 
lower computed trade demand figure for the 2009-10 crop year and 
ultimately a lower free tonnage percentage. Since NS raisin producers 
are paid significantly more for their free tonnage raisins than for 
reserve tonnage raisins, this would mean reduced returns to producers. 
Projected reduced 2009-10 returns to producers, coupled with the risks 
of rain and labor shortages during harvest, may influence producers to 
``go green,'' or sell their raisin-variety grapes to the fresh-grape, 
wine, or juice concentrate markets. Additional supplies to those 
outlets could potentially reduce ``green'' returns as well.
    The Committee discussed alternatives to this change. One option 
considered was using one of the three prior year's shipments to compute 
trade demand, pursuant to Sec.  989.54(a) of the order. However, the 
order only allows this if prior year's shipments were limited due to 
crop conditions. Since 2007-08 shipments have increased, the Committee 
concluded this option was not viable. Another alternative considered 
was utilizing the computed trade demand formula in the order and using 
all available funds to support the ERO (about $21.7 million from the 
2007-08 reserve pool). However, these funds would only support the ERO 
through December 2008. Thus, the Committee ultimately recommended using 
an estimated trade demand to compute volume regulation percentages next 
year if 2008-09 crop NS raisin supplies are short.
    This proposed rule would provide parameters for implementing volume 
regulation for 2008-09 crop NS raisins, if supplies are short, for the 
purposes of maintaining a portion of the industry's export markets and 
stabilizing the domestic market. Accordingly, this action would not 
impose any additional reporting or recordkeeping requirements on either 
small or large raisin handlers. 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.
    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.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this proposed rule.
    In addition, the Committee's Administrative Issues Subcommittee 
deliberated this issue prior to the Committee's meeting on April 3, 
2008. Both meetings were widely publicized throughout the raisin 
industry and all interested persons were invited to attend the meetings 
and participate in Committee deliberations on all issues. Like all 
Committee meetings, the April 3, 2008, meetings were public meetings 
and all entities, both large and small, were able to express views on 
this issue. Finally, interested persons are invited to submit comments 
on this proposed rule, including 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/AMSv1.0/
ams.fetchTemplateData.do?template=TemplateN&page=MarketingOrdersSmallBus
inessGuide. 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 15-day comment period is provided to allow interested persons to 
respond to this proposal. Fifteen days is deemed appropriate because 
this action, if adopted, should be in place by the beginning of the 
2008-09 crop year, August 1. All written comments timely received will 
be considered before a final determination is made on this matter.

List of Subjects in 7 CFR Part 989

    Grapes, Marketing agreements, Raisins, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 7 CFR part 989 is 
proposed to be amended as follows:

PART 989--RAISINS PRODUCED FROM GRAPES GROWN IN CALIFORNIA

    1. The authority citation for 7 CFR part 989 continues to read as 
follows:

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


Sec.  989.154  [Amended]

    2. In the second sentence of Sec.  989.154(b), the words ``2007-
08'' are removed in both locations and the words ``2008-09'' are added 
in their place.

    Dated: July 16, 2008.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. 08-1447 Filed 7-16-08; 12:23 pm]
BILLING CODE 3410-02-P