Tart Cherries Grown in the States of Michigan, et al.; Free and Restricted Percentages for the 2016-17 Crop Year for Tart Cherries, 28749-28755 [2017-13241]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 82, Number 121 (Monday, June 26, 2017)]
[Rules and Regulations]
[Pages 28749-28755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-13241]



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Federal Register / Vol. 82, No. 121 / Monday, June 26, 2017 / Rules 
and Regulations

[[Page 28749]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Doc. No. AMS-SC-16-0105; SC16-930-5 FR]


Tart Cherries Grown in the States of Michigan, et al.; Free and 
Restricted Percentages for the 2016-17 Crop Year for Tart Cherries

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

SUMMARY: This rule implements a recommendation from the Cherry Industry 
Administrative Board (Board) to establish free and restricted 
percentages for the 2016-17 crop year under the marketing order for 
tart cherries grown in the states of Michigan, New York, Pennsylvania, 
Oregon, Utah, Washington, and Wisconsin (order). The Board locally 
administers the marketing order and is comprised of producers and 
handlers of tart cherries operating within the production area, and a 
public member. This action establishes the proportion of tart cherries 
from the 2016 crop which may be handled in commercial outlets at 71 
percent free and 29 percent restricted. These percentages should 
stabilize marketing conditions by adjusting supply to meet market 
demand and help improve grower returns.

DATES: Effective June 27, 2017.

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

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing 
Agreement and Order No. 930, both as amended (7 CFR part 930), 
regulating the handling of tart cherries produced in the States of 
Michigan, New York, Pennsylvania, Oregon, Utah, Washington and 
Wisconsin, 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 Orders 13563 and 13175.
    This action falls within a category of regulatory actions that the 
Office of Management and Budget (OMB) has exempted from Executive Order 
12866 review. Additionally, because this rule does not meet the 
definition of a significant regulatory action it does not trigger the 
requirements contained in Executive Order 13771. See OMB's Memorandum 
titled ``Interim Guidance Implementing Section 2 of the Executive Order 
of January 30, 2017 titled `Reducing Regulation and Controlling 
Regulatory Costs' '' (February 2, 2017).
    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. Under the order provisions now in effect, free 
and restricted percentages may be established for tart cherries handled 
during the crop year. This final rule establishes free and restricted 
percentages for tart cherries for the 2016-17 crop year, beginning July 
1, 2016, through June 30, 2017.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. A 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing, USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed not later than 20 days after the date of 
the entry of the ruling.
    This final rule establishes free and restricted percentages for the 
2016-17 crop year. This rule establishes the proportion of tart 
cherries from the 2016 crop which may be handled in commercial outlets 
at 71 percent free and 29 percent restricted. This action should 
stabilize marketing conditions by adjusting supply to meet market 
demand and help improve grower returns. The carry-out and the final 
percentages were recommended by the Cherry Industry Administrative 
Board (Board) at a meeting on September 8, 2016.
    Section 930.51(a) of the order provides authority to regulate 
volume by designating free and restricted percentages for any tart 
cherries acquired by handlers in a given crop year. Section 930.50 
prescribes procedures for computing an optimum supply based on sales 
history and for calculating these free and restricted percentages. Free 
percentage volume may be shipped to any market, while restricted 
percentage volume must be held by handlers in a primary or secondary 
reserve, or be diverted or used for exempt purposes as prescribed in 
Sec. Sec.  930.159 and 930.162 of the regulations. Exempt purposes 
include, in part, the development of new products, sales into new 
markets, the development of export markets, and charitable 
contributions. Sections 930.55 through 930.57 prescribe procedures for 
inventory reserve. For cherries held in reserve, handlers would be 
responsible for storage and would retain title of the tart cherries.
    Under Sec.  930.52, only those districts with an annual average 
production over the prior three years of at least six million pounds 
are subject to regulation, and any district producing a crop which is 
less than 50 percent of its annual average of the previous five years 
is exempt. The regulated districts for the 2016-17 crop year are: 
District 1--Northern Michigan; District 2--Central Michigan; District 
3--Southern Michigan; District 4--New York; District

[[Page 28750]]

7--Utah; District 8--Washington; and District 9--Wisconsin. Districts 5 
and 6 (Oregon and Pennsylvania, respectively) are not regulated for the 
2016-17 season.
    Demand for tart cherries and tart cherry products tends to be 
relatively stable from year to year. Conversely, annual tart cherry 
production can vary greatly. In addition, tart cherries are processed 
and can be stored and carried over from crop year to crop year, further 
impacting supply. As a result, supply and demand for tart cherries are 
rarely in balance.
    Because demand for tart cherries is inelastic, total sales volume 
is not very responsive to changes in price. However, prices are very 
sensitive to changes in supply. As such, an oversupply of cherries can 
have a sharp negative effect on prices, driving down grower returns. 
The Board, aware of this economic relationship, focuses on using the 
volume control provisions in the order to balance supply and demand to 
stabilize industry returns.
    Pursuant to Sec.  930.50 of the order, the Board meets on or about 
July 1 to review sales data, inventory data, current crop forecasts and 
market conditions for the upcoming season and, if necessary, to 
recommend preliminary free and restricted percentages if anticipated 
supply would exceed demand. After harvest is complete, but no later 
than September 15, the Board meets again to update its calculations 
using actual production data, consider any necessary adjustments to the 
preliminary percentages, and determine if final free and restricted 
percentages should be recommended to the Secretary.
    The Board uses sales history, inventory, and production data to 
determine whether there is a surplus, and if so, how much volume should 
be restricted to maintain optimum supply. The optimum supply represents 
the desirable volume of tart cherries that should be available for sale 
in the coming crop year. Optimum supply is defined as the average free 
sales of the prior three years plus desirable carry-out inventory. 
Desirable carry-out is the amount of fruit needed by the industry to be 
carried into the succeeding crop year to meet market demand until the 
new crop is available. Desirable carry-out is set by the Board after 
considering market circumstances and needs. Section 930.151(b) 
specifies that desirable carry-out can range from zero to a maximum of 
100 million pounds.
    In addition, USDA's ``Guidelines for Fruit, Vegetable, and 
Specialty Crop Marketing Orders'' (https://www.ams.usda.gov/publications/content/1982-guidelines-fruit-vegetable-marketing-orders) 
specify that 110 percent of recent years' sales should be made 
available to primary markets each season before recommendations for 
volume regulation are approved. This requirement is codified in Sec.  
930.50(g) of the order, which specifies that, in years when restricted 
percentages are established, the Board shall make available tonnage 
equivalent to an additional 10 percent of the average sales of the 
prior three years for market expansion (market growth factor).
    After the Board determines optimum supply, desirable carry-out, and 
market growth factor, it must examine the current year's available 
volume to determine whether there is an oversupply situation. Available 
volume includes carry-in inventory (any inventory available at the 
beginning of the season) along with that season's production. If 
production is greater than the optimum supply minus carry-in, the 
difference is considered surplus. This surplus tonnage is divided by 
the sum of production in the regulated districts to reach a restricted 
percentage. This percentage must be held in reserve or used for 
approved diversion activities, such as exports.
    The Board met on June 23, 2016, and computed an optimum supply of 
287 million pounds for the 2016-17 crop year using the average of free 
sales for the three previous seasons and a desirable carry-out of 57 
million pounds. The Board determined three months of sales would be a 
good estimate for what was needed at the end of the season, as there is 
a three-month gap between the calculation of carry-out at the end of 
one season and the availability of fruit in the next season. The 
recommended carry-out of 57 million pounds is approximately a quarter 
of average annual sales.
    The Board then subtracted the estimated carry-in of 81.3 million 
pounds from the optimum supply to calculate the production needed from 
the 2016-17 crop to meet optimum supply. This number, 205.7 million 
pounds, was subtracted from the Board's estimated 2016-17 production of 
351.3 million pounds to calculate a surplus of 145.6 million pounds of 
tart cherries. The Board also complied with the market growth factor 
requirement by adding 23 million pounds (average sales for prior three 
years of 230 million times 10 percent) to the free supply. The surplus 
minus the market growth factor was then divided by the expected 
production in the regulated districts (348 million pounds) to reach a 
preliminary restricted percentage of 35 percent for the 2016-17 crop 
year.
    The Board then discussed whether this calculation would provide 
sufficient supply to grow sales while being able to supply orders that 
are already scheduled, including filling remaining orders from a USDA 
purchase made the previous season. The Board, after considering 
anticipated supply needs for the 2016-17 season, decided to make an 
economic adjustment of 22 million pounds to increase the available 
supply of tart cherries. This economic adjustment further reduced the 
preliminary surplus to 100.6 million pounds. After these adjustments, 
the preliminary restricted percentage was recalculated as 29 percent 
(100.6 million pounds divided by 348 million pounds).
    The Board met again on September 8, 2016, to consider final volume 
regulation percentages for the 2016-17 season. The final percentages 
are based on the Board's reported production figures and the supply and 
demand information available in September. The total production for the 
2016-17 season was 341 million pounds, 10 million pounds below the 
Board's June estimate. In addition, growers diverted 26 million pounds 
in the orchard, leaving 315 million pounds available to market, 310 
million pounds of which are in the restricted districts. Using the 
actual production numbers, and accounting for the recommended desirable 
carry-out and economic adjustment, as well as the market growth factor, 
the restricted percentage was recalculated.
    The Board subtracted the carry-in figure used in June of 81.3 
million pounds from the optimum supply of 287 million pounds to 
determine 205.7 million pounds of 2016-17 production would be necessary 
to reach optimum supply. The Board subtracted the 205.7 million pounds 
from the actual production of 341.3 million pounds, resulting in a 
surplus of 135.6 million pounds of tart cherries. The surplus was then 
reduced by subtracting the economic adjustment of 22 million pounds and 
the market growth factor of 23 million pounds, resulting in an adjusted 
surplus of 90.6 million pounds. The Board then divided this final 
surplus by the available production of 310 million pounds in the 
regulated districts (336.1 million pounds minus 26.4 million pounds of 
in-orchard diversion) to calculate a restricted percentage of 29 
percent with a corresponding free percentage of 71 percent for the 
2016-17 crop year, as outlined in the following table:

[[Page 28751]]



------------------------------------------------------------------------
                                                               Millions
                                                               of pounds
------------------------------------------------------------------------
Final Calculations:
  (1) Average sales of the prior three years................       230.0
  (2) Plus desirable carry-out..............................        57.0
  (3) Optimum supply calculated by the Board................       287.0
  (4) Carry-in as of July 1, 2016...........................        81.3
  (5) Adjusted optimum supply (item 3 minus item 4).........       205.7
  (6) Board reported production.............................       341.3
  (7) Surplus (item 6 minus item 5).........................       135.6
  (8) Total economic adjustments............................        22.0
  (9) Market growth factor..................................        23.0
  (10) Adjusted Surplus (item 7 minus items 8 and 9)........        90.6
  (11) Supply in regulated districts........................       336.1
  (12) In-Orchard Diversion.................................        26.4
                                                             -----------
  (13) Production minus in orchard diversion................       309.7
                                                             -----------
Final Percentages:                                              Percent
  Restricted (item 10 divided by item 13 x 100).............          29
  Free (100 minus restricted percentage)....................          71
------------------------------------------------------------------------

    The primary purpose of setting restricted percentages is an attempt 
to bring supply and demand into balance. If the primary market is 
oversupplied with cherries, grower prices decline substantially. 
Restricted percentages have benefited grower returns and helped 
stabilize the market as compared to those seasons prior to the 
implementation of the order. The Board believes the available 
information indicates that a restricted percentage should be 
established for the 2016-17 crop year to avoid oversupplying the market 
with tart cherries. Consequently, based on its discussion of this issue 
and the result of the above calculations, the Board recommended final 
percentages of 71 percent free and 29 percent restricted by a vote of 
16 in favor, 2 opposed, and 2 abstentions.
    Though production came in below the Board's June, 2016, estimate, 
the initial restriction percentage remained the same due to the 
substantial in-orchard diversion. During the discussion of the proposed 
restriction, several members supported the proposed percentages as 
there was no change from the preliminary 29 percent restriction 
recommended in June. They believed deviating from the percentages 
announced in June would be disruptive to the industry, as processors 
have already made agreements with growers.
    Another member noted when there was a crop failure in 2012, there 
was not enough reserve to maintain sales and warned against being 
unprepared in the future. The member also noted that in the last four 
years, even with volume regulation and an increase in imported 
products, overall domestic sales have increased since 2013, including 
modest growth in both juice and piefill.
    Some members opposed to the proposed restriction expressed concern 
regarding competition from imported tart cherry juice concentrate. In 
particular, they were concerned that the additional volume from imports 
is not accounted for in the Optimum Supply Formula (OSF), thus not 
capturing overall supply and demand.
    Others were of the opinion that the Board's recent actions to 
expand the use of diversion credits in new markets or through grower 
diversion were allowing the industry to remain competitive without 
making additional adjustments to supply. Another member countered that 
not all handlers are helped by new market diversion credits and cannot 
sell all of their product under a restriction.
    When asked how much of the market currently being served by imports 
could be supplied by the domestic handlers, some members stated they 
could utilize the full adjusted calculated surplus of 90.6 million 
pounds. Others noted that trying to compete for those markets by 
matching the price of imported concentrate would drop grower returns to 
an unsustainable level.
    One member summarized that, although there is a carrying cost for 
storing restricted fruit, and the industry appears to be at a trade 
disadvantage, the Board should account for those factors all the while 
focusing on continuing to grow sales. Though there was much discussion 
regarding the market impact of imports, there was no motion made by any 
Board member to make a further economic adjustment to the calculation 
based on imported product.
    After reviewing the available data, and considering the concerns 
expressed, the Board determined that a 29 percent restriction with a 
carry-out volume of 57 million pounds meets sales needs and establishes 
some reserves without oversupplying the market. Thus, the Board 
recommended establishing final percentages of 71 percent free and 29 
percent restricted. The Board could meet and recommend the release of 
additional volume during the crop year if conditions so warranted.

Final Regulatory Flexibility Act

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) 
has considered the economic impact of this action on small entities. 
Accordingly, AMS has prepared this final regulatory flexibility 
analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf.
    There are approximately 600 producers of tart cherries in the 
regulated area and approximately 40 handlers of tart cherries who are 
subject to regulation under the order. Small agricultural producers are 
defined by the Small Business Administration (SBA) as those having 
annual receipts of less than $750,000 and small agricultural service 
firms have been defined as those whose annual receipts are less than 
$7,500,000 (13 CFR 121.201).
    According to the National Agricultural Statistics Service (NASS) 
and Board data, the average annual grower price for tart cherries 
during the 2015-16 season was approximately $0.347 per pound. With 
total utilization at 251.1 million pounds, the total 2015-16 crop value 
is estimated at $87 million. Dividing the crop value by the estimated 
number of producers (600) yields an estimated average annual receipt 
per producer of $145,000. This is well below the SBA threshold for 
small producers. In 2015, The Food Institute estimated a free on board 
(f.o.b.) price of $0.96 per pound for frozen tart cherries, which make 
up the majority of processed tart cherries. Multiplying the f.o.b price 
by total utilization of 251.1 million pounds results in an estimated 
handler-level tart cherry value of $241 million. Dividing this figure 
by the number of handlers (40) yields an estimated average annual 
handler receipts of $6 million, which is below the SBA threshold for 
small agricultural service firms. Assuming a normal bell-curve 
distribution, the majority of producers and handlers of tart cherries 
may be classified as small entities.
    The tart cherry industry in the United States is characterized by 
wide, annual fluctuations in production. According to NASS, the pounds 
of tart cherry production for the years 2012 through 2015 were 85 
million, 291 million, 301 million, and 251 million, respectively. 
Because of these fluctuations, supply and demand for tart cherries are 
rarely equal.
    Demand for tart cherries is inelastic, meaning changes in price 
have a minimal effect on total sales volume. However, prices are very 
sensitive to changes in supply, and grower prices vary widely in 
response to the large swings in annual supply, with prices ranging from 
a low of 7.3 cents per

[[Page 28752]]

pound in 1987 to a high of 59.4 cents per pound in 2012.
    Because of this relationship between supply and price, 
oversupplying the market with tart cherries would have a sharp negative 
effect on prices, driving down grower returns. The Board, aware of this 
economic relationship, focuses on using the volume control authority in 
the order to align supply with demand and stabilize industry returns. 
This authority allows the industry to set free and restricted 
percentages as a way to bring supply and demand into balance. Free 
percentage cherries can be marketed by handlers to any outlet, while 
restricted percentage volume must be held by handlers in reserve, 
diverted, or used for exempted purposes.
    This rule controls the supply of tart cherries by establishing 
percentages of 71 percent free and 29 percent restricted for the 2016-
17 crop year. These percentages should stabilize marketing conditions 
by adjusting supply to meet market demand and help improve grower 
returns. This rule regulates tart cherries handled in Michigan, New 
York, Utah, Washington, and Wisconsin. The authority for this action is 
provided for in Sec. Sec.  930.50, 930.51(a) and 930.52 of the order. 
The Board recommended this action at a meeting on September 8, 2016.
    This rule will result in some fruit being diverted from the primary 
domestic markets. However, as mentioned earlier, the USDA's 
``Guidelines for Fruit, Vegetable, and Specialty Crop Marketing 
Orders'' (https://www.ams.usda.gov/publications/content/1982-guidelines-fruit-vegetable-marketing-orders) specify that 110 percent of recent 
years' sales should be made available to primary markets each season 
before recommendations for volume regulation are approved. The quantity 
that is available under this action is greater than 110 percent of the 
average quantity shipped in the prior three years.
    In addition, there are secondary uses available for restricted 
fruit, including the development of new products, sales into new 
markets, the development of export markets, and being placed in 
reserve. While these alternatives may provide different levels of 
return than the sales to primary markets, they play an important role 
for the industry. The areas of new products, new markets, and the 
development of export markets utilize restricted fruit to develop and 
expand the markets for tart cherries. In 2015-16, these activities 
accounted for over 27 million pounds in sales, 12 million of which were 
exports.
    Placing tart cherries into reserves is also a key part of balancing 
supply and demand. Although handlers bear the handling and storage 
costs for fruit in reserve, reserves stored in large crop years are 
used to supplement supplies in short crop years. The reserves allow the 
industry to mitigate the impact of oversupply in large crop years, 
while allowing the industry to maintain supply to markets in years when 
production falls below demand. Further, storage and handling costs are 
more than offset by the increase in price when moving from a large crop 
to a short crop year.
    In addition, the Board recommended an increased carry-out of 57 
million pounds and made a demand adjustment of 22 million pounds in 
order to make the regulation less restrictive. Even with the 
restriction, over 300 million pounds of fruit will be available to the 
domestic market. Consequently, it is not anticipated that this 
regulation will unduly burden growers or handlers.
    While this action could result in some additional costs to the 
industry, these costs are more than outweighed by the benefits. The 
purpose of setting restricted percentages is to attempt to bring supply 
and demand into balance. If the primary market (domestic) is 
oversupplied with cherries, grower prices decline substantially. 
Without volume control, the primary market will likely be oversupplied, 
resulting in lower grower prices.
    The three districts in Michigan, along with the districts in New 
York, Utah, Washington, and Wisconsin, are the restricted areas for 
this crop year with a combined total production of 310 million pounds. 
A 29 percent restriction means 220 million pounds will be available to 
be shipped to primary markets from these five states. The 220 million 
pounds from the restricted districts, 5 million pounds from the 
unrestricted districts (Oregon and Pennsylvania), and the 81 million 
pound carry-in inventory would make a total of 306 million pounds 
available as free tonnage for the primary markets. This is similar to 
the 305 million pounds of free tonnage made available last year. This 
is enough to cover the 251 million pounds of total utilization in 2015-
16, while providing substantial carry-out. Further, the Board could 
meet and recommend the release of additional volume during the crop 
year if conditions so warranted.
    Prior to the implementation of the order, grower prices often did 
not cover the cost of production. The most recent costs of production 
determined by representatives of Michigan State University are an 
estimated $0.33 per pound. To assess the impact that volume control has 
on the prices growers receive for their product, an econometric model 
has been developed. Based on the model, the use of volume control would 
have a positive impact on grower returns for this crop year. With 
volume control, grower prices are estimated to be approximately $0.06 
per pound higher than without restrictions. In addition, absent volume 
control, the industry could start to build large amounts of unwanted 
inventories. These inventories would have a depressing effect on grower 
prices.
    Retail demand is assumed to be highly inelastic, which indicates 
that changes in price do not result in significant changes in the 
quantity demanded. Consumer prices largely do not reflect fluctuations 
in cherry supplies. Therefore, this action should have little or no 
effect on consumer prices and should not result in a reduction in 
retail sales.
    The free and restricted percentages established by this rule 
provide the market with optimum supply and apply uniformly to all 
regulated handlers in the industry, regardless of size. As the 
restriction represents a percentage of a handler's volume, the costs, 
when applicable, are proportionate and should not place an extra burden 
on small entities as compared to large entities.
    The stabilizing effects of this action benefit all handlers by 
helping them maintain and expand markets, despite seasonal supply 
fluctuations. Likewise, price stability positively impacts all growers 
and handlers by allowing them to better anticipate the revenues their 
tart cherries would generate. Growers and handlers, regardless of size, 
benefit from the stabilizing effects of this restriction. In addition, 
the increased carry-out should provide processors enough supply to meet 
market needs going into the next season.
    The Board considered alternatives in its preliminary restriction 
discussions that affected this action. Regarding demand, the Board 
began with the actual sales average of 230 million pounds. However, the 
Board noted that some previously contracted sales would be due for 
delivery in the coming season. In order to avoid undersupplying the 
market, the Board determined that the calculation of the optimum supply 
should include an additional adjustment for that purpose. After 
discussion, an adjustment of an additional 22 million pounds was made 
in the 2016-17 available supply of tart cherries as it was determined 
that this amount would best meet the industry's

[[Page 28753]]

sales needs. Thus, the other alternative levels were rejected.
    Regarding the carry-out value, the Board considered a range of 
alternatives. One member suggested the Board begin with 57 million 
pounds, approximately a quarter of average annual sales. Other members 
suggested alternatives as high as 70 million pounds. However, some 
members were concerned about leaving too much fruit on the market at 
the end of the season and depressing prices going into the next year. 
The Board determined three months of sales would be a good estimate for 
what is needed at the end of the season, as there is a three-month gap 
between the calculation of carry-out at the end of one season and the 
availability of fruit from the next season. Thus, the other 
alternatives were rejected.
    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), the order's information collection requirements have been 
previously approved by OMB and assigned OMB No. 0581-0177, Tart 
Cherries Grown in the States of Michigan, New York, Pennsylvania, 
Oregon, Utah, Washington, and Wisconsin. No changes in those 
requirements as a result of this action are necessary. Should any 
changes become necessary, they would be submitted to OMB for approval.
    This action will not impose any additional reporting or 
recordkeeping requirements on either small or large tart cherry 
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.
    As noted in the initial regulatory flexibility analysis, USDA has 
not identified any relevant Federal rules that duplicate, overlap, or 
conflict with this final rule. Further, the public comments received 
concerning the proposal did not address the initial regulatory 
flexibility analysis.
    AMS is committed to complying with the E-Government Act, to promote 
the use of the internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.
    In addition, the Board's meeting was widely publicized throughout 
the tart cherry industry, and all interested persons were invited to 
attend the meeting and participate in Board deliberations on all 
issues. Like all Board meetings, the June 23, 2016, and September 8, 
2016, meetings were public meetings, and all entities, both large and 
small, were able to express views on this issue.
    A proposed rule concerning this action was published in the Federal 
Register on March 21, 2017 (82 FR 14481). Copies of the rule were sent 
via email to all Board members and tart cherry handlers. Finally, the 
rule was made available through the internet by USDA and the Office of 
the Federal Register. A 30-day comment period ending April 20, 2017, 
was provided to allow interested persons to respond to the proposal.
    Eleven comments were received during the comment period in response 
to the proposal. Four comments favored the proposed regulation and 
seven comments opposed the proposed regulation. One comment received 
was signed by 67 industry members. The commenters included growers, 
handlers, Board members, an industry representative, economic policy 
and law students, individuals, and one anonymous cherry consumer. Most 
of the points made by the commenters in opposition had been discussed 
prior to the Board's vote recommending this action.
    The comment signed by 67 industry members asserted the United 
States government import data indicate that 40 percent of tart cherry 
consumption in the 2015 season was from imported products. AMS's 
analysis of the Foreign Agricultural Service's Global Agricultural 
Trade System (GATS) indicates an equivalent of more than 230 million 
pounds of cherries products were imported into the U.S. in the 2016 
season. The imported volume has remained above 230 million pounds since 
the 2014 season. According to the data, tart cherry juice concentrate 
represents by far the largest segment of imports and has experienced 
tremendous growth beginning in 2012.
    Five of the comments in opposition, including the comment signed by 
67 industry members, reference the absence of imported tart cherry 
products in the OSF. All of these commenters implied that not including 
imported tart cherry products into the OSF calculation disregards a 
large portion of the demand for tart cherries. As a result, these 
commenters since believe the proposed rule fails to bring supply into 
balance with demand in the targeted market. The comment with 67 
signatures states the federal marketing order does not account for the 
total demand of tart cherry products in the US because imported 
products are not included in the formula. Another commenter suggested 
not considering imported products in the OSF indicates the Board's 
recommended restriction is arbitrary and capricious.
    The OSF presented to the Board included several adjustments to 
avoid the possibility of undersupplying the market. In determining 
demand, the Board takes into account many factors, including previous 
sales history and an analysis of economic factors having a bearing on 
the market. The final percentages recommended by the Board included 
several adjustments to supply additional fruit to the market. In 
calculating these adjustments for determining demand in the OSF, the 
Board also considered supplies of competing commodities and the 
additional ten percent added for the market growth factor. This was 
noted by one of the commenters voicing support for the proposed 
regulation. The economic adjustment added 22 million pounds and the 
market growth factor added 23 million pounds for an additional 55 
million pounds beyond the average sales.
    Under the order, when computing and determining final percentages 
for recommendation to the Secretary, the Board must give consideration 
to several factors including supplies of competing commodities and 
economic factors having a bearing on cherry markets. At the meetings on 
June 23, 2016, and September 8, 2016, the Board discussed its concerns 
regarding the economic impact of imports. At the September meeting, 
following the motion to adopt the OSF as presented, several comments 
and observations were made regarding the matter of imports. However, 
none of the members suggested an alternative adjustment for imports. 
Additionally, the Board did not propose amending the order language in 
section 930.50 to include imports as a factor in calculating the OSF. 
Most of the comments at the September meeting supported the motion to 
adopt the OSF as presented.
    The comment with 67 signatures also states that the domestic 
industry has been unable to supply the significant growth in 
consumption of dried and juiced cherry products. Data concur that 
domestic production alone would not replace the imported volume in 
recent years. However, the Board reported steady or increased overall 
domestic sales from 2013-15, even though each of those seasons were 
regulated. The use of diversion credits allowed handlers to ship an 
additional 27.5 million pounds of restricted fruit during the 2015-16 
season in addition to free sales. Despite this growth, the industry 
reported a remaining free inventory of over 80 million pounds going 
into the crop year,

[[Page 28754]]

suggesting availability of domestic fruit is not a concern.
    Also at the September meeting, a Board member stated an adjustment 
to the OSF for imports is one alternative, but the Board's preferred 
alternative was to use restricted cherries for supplying new and 
competing commodity markets. Therefore, alternatives were considered 
consistent with Executive Order 13563. The member also stated that 
restricting cherries under the order aids in stabilizing grower prices. 
Placing excess cherries into the market is contrary to the purpose of 
the order. The Board supports utilizing exempted markets for restricted 
cherries as an alternative to storage. Exporting cherry products and 
participating in new product and new market projects allows handlers to 
sell restricted cherries into these markets.
    Should domestic handlers decide to compete in these new markets, in 
most cases, restricted cherries could be used and the handler could 
receive diversion credits under the diversion provisions of the order. 
Further, the Board recently recommended extending the maximum length of 
these activities from three years to five years, creating even more 
opportunities to pursue new markets. Consequently, handlers currently 
have ample opportunity to compete for new markets using restricted 
cherries while continuing to service traditional markets with 
unrestricted cherries. In addition, should industry efforts cause 
demand to exceed available volume, the Board could meet and recommend 
the release of additional volume.
    Another commenter opposed to the 29 percent or approximately 90 
million pound restriction indicated the total percent restriction, over 
the past three years, was 69 percent. However, the percent restriction 
for each year cannot be added together to arrive at the total 
restriction over the last three years. The calculation to derive the 
percent restriction over the past three years is achieved by dividing 
the total adjusted surplus by the total production in regulated 
districts over the past three years. The pounds of regulated production 
for 2014, 2015, and 2016 seasons were 295 million with 59 million 
restricted, 240 million with 47 million restricted, and 310 million 
with 91 million restricted, respectively. The total 197 million pounds 
of surplus divided by the total regulated production of 845 million 
equals a 23 percent restriction. The miscalculation from the commenter 
in opposition overstated the total percent restriction for the past 
three years by triple.
    This commenter also stated that marketers of cherry products should 
not be forced to hold volume off the market while imported products 
enter the market freely. Contrary to the commenter's opinion, a Board 
member at the September 8, 2016, meeting stated that placing excess 
cherries into the market as a method of countering imports would only 
lower grower prices significantly and would not be positive for the 
grower community. Another Board member added that imports are capturing 
a less profitable market while the domestic industry is serving more 
profitable markets.
    One commenter indicated the OSF was calculated incorrectly by 
including the in-orchard diverted fruit as part of production in the 
formula. This individual suggested if the in-orchard diverted fruit was 
removed from production, the percentage would be 21 percent, instead of 
29 percent restriction. However, 26.4 million pounds of in-orchard 
diversion were accounted for when calculating the volume subject to 
restriction from the regulated districts. This is consistent with the 
method used to account for fruit produced in unrestricted districts. 
The total production (341.3 million pounds) minus the in-orchard 
diversions (26.4 million pounds) and production in unrestricted 
districts (5.2 million pounds) left 309.7 million pounds subject to 
restriction. The Board divided the surplus of 90.6 million pounds by 
this volume to arrive at 29 percent restricted and 71 percent free 
market cherries.
    One comment, submitted twice, from two students in opposition to 
this regulation suggested the government should not intervene and 
require cherry farmers to restrict supply. This comment assumed the 
order restricts the amount of tart cherries that can be produced. 
Volume regulation under the order is a tool for the tart cherry 
industry to stabilize market conditions due to fluctuations in supply 
and the inelastic nature of demand for tart cherries. This action does 
not regulate growers' production of the commodity. This regulatory 
action is a restriction on domestic tart cherry products handled for 
the market. This regulation will only restrict cherries purchased for 
handling. Further, this action is a recommendation from the tart cherry 
industry as represented by the Board made up of growers, handlers, and 
a member of the public. The Board considered not regulating as a 
possible alternative, consistent with Executive Order 13563, but this 
consideration was rejected after reviewing production data.
    One commenter opposed the restriction because it would reduce tart 
cherry production and not allow the producers to benefit from 
maximizing the crop. The commenter also concluded the restriction would 
make it difficult for the industry to reach optimum supply. As 
previously mentioned, this action does not restrict tart cherry 
production. Production decisions are made well in advance of the 
recommendation for volume restriction, which is discussed just prior to 
harvest and finalized following harvest. Unlike some other commodities 
like row crops, tree crops such as tart cherries cannot be easily taken 
out of production. This action regulates only the handling of tart 
cherries.
    Regarding the commenter's second concern, USDA requires 110 percent 
of average sales be made available under any volume regulation. The 
Board recommended an economic adjustment for the 2016-17 season to make 
even more fruit available, going beyond the initial optimum supply 
calculation. While the restriction may not impact production costs, 
producers do experience a drop in price when the market is 
oversupplied. When the market approaches optimum supply, prices tend to 
be more stable.
    All four of the proponents of this action suggest the restriction 
will stabilize the cherry industry's economy. Three of the proponents 
made reference to the industry wide support for the recommended 
restriction, as represented by the Board's vote in which 16 members, 
the majority of the Board, voted in favor, two abstained and two 
opposed the recommended restriction. One of these proponents indicated 
this level of support is significantly greater than the requisite two-
thirds majority required for Board action. Further, two proponents made 
reference that the action is supported by a large majority of the 
industry.
    Three proponents of this action recognized the Board's 
consideration of the opponents' concerns in their comments on the 
proposal. All three noted the matter of imports has been addressed by 
the Board at several meetings. One proponent recognized the Board 
established a committee to suggest alternative ways to increase 
domestic juice and juice concentrate sales. Another commenter suggested 
if growers and processors want to account for imports in a way other 
than through adjustments, then the Board should focus on amending the 
order language for determining optimum supply to account for imports.
    All three proponents made reference to the Board's efforts in 
promoting the exemption process as a method of competing with imported 
cherry products. One commenter noted the

[[Page 28755]]

Board's recommendation for extending the time from one year to three 
years for new product and new market exemptions that was implemented in 
the previous season. As mentioned previously, the Board has recommended 
a further expansion of the timeframe. The additional time will allow 
opportunity for more cherries to qualify for exemption in response to 
the level of imported cherry products.
    One commenter referenced the opportunities available to use both 
in-orchard and post-harvest diversion to comply with a restriction. The 
commenter stated the Federal marketing order provides major incentive 
to expand sales by using restricted fruit to serve new markets, new 
products, and exports. Additionally, there is incentive in place for 
growers to divert excess fruit where there is no market or where the 
cost associated with marketing the fruit may not increase returns. 
Growers who choose to divert in the orchard can be issued certificates 
by the Board that can be sold to handlers to meet their restriction 
requirements.
    One commenter noted the Board felt the final calculations were 
appropriate. They also stated that the majority of the industry 
approved the order in its last referendum, believing that the order 
brings more returns to growers. Another proponent noted, even with the 
restriction, sales are not being lost due to lack of available 
unrestricted cherries. The carry-in from July 2016 (81 million lbs.) 
and the projected availability of free market carry-out (57 million 
lbs.) indicate the restriction is not a factor in limiting sales of 
tart cherry products. The Board deliberated thoroughly on whether or 
not to make an additional economic adjustment to account for imported 
cherry products. However, no motion was made for an additional 
adjustment to reflect the impact of imported cherry products. As one 
commenter noted, there is a lack of consensus on how to factor imports 
into the final calculation.
    Further, according to Foreign Agricultural Service's GATS database, 
though imported cherry products remained high (230 million lbs. 
equivalent) during the 2016 calendar year, the volume is down from the 
2015 calendar year (267 million lbs. equivalent) and also below the 
2014 calendar year (244 million lbs. equivalent). The final NASS prices 
for the 2016 season are not yet available, but from 2013-15, grower 
prices were stable, ranging from $0.34 to $0.36 per pound. Thus, when 
using available sales, utilization, and price data from previous years 
it is difficult to determine what, if any, specific negative impact 
imports have had on the market for domestic tart cherries and then 
account for that impact in the OSF.
    As previously stated, there are more than 309 million pounds of 
tart cherries available for free sales for 2016-17. This volume exceeds 
total sales from 2015-16 of both free and restricted cherries of 288 
million pounds. Further, the order provides numerous alternatives for 
the use of restricted fruit, such as handler diversion, for complying 
with the recommended restriction. Additionally, the USDA announced the 
intent to purchase over 10 million pounds of cherry products in the 
2016-2017 season as surplus purchases. Therefore, as stated in the RFA, 
it is not anticipated that this action will unduly burden growers or 
handlers.
    Accordingly, no changes will be made to the rule as proposed, based 
on the comments received.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: https://www.ams.usda.gov/rules-regulations/moa/small-businesses. Any questions 
about the compliance guide should be sent to Richard Lower at the 
previously mentioned address in the FOR FURTHER INFORMATION CONTACT 
section.
    After consideration of all relevant matter presented, including the 
information and recommendation submitted by the Committee and other 
available information, it is hereby found that this rule, as 
hereinafter set forth, will tend to effectuate the declared policy of 
the Act.
    It is further found that good cause exists for not postponing the 
effective date of this rule until 30 days after publication in the 
Federal Register (5 U.S.C. 553) because handlers are already shipping 
tart cherries from the 2016-17 crop. Further, handlers are aware of 
this rule, which was recommended at a public meeting. Also, a 30-day 
comment period was provided for in the proposed rule.

List of Subjects in 7 CFR Part 930

    Marketing agreements, Reporting and recordkeeping requirements, 
Tart cherries.

    For the reasons set forth in the preamble, 7 CFR part 930 is 
amended as follows:

PART 930--TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK, 
PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

0
1. The authority citation for 7 CFR part 930 continues to read as 
follows:

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


0
2. Section 930.151 is revised to read as follows:


Sec.  930.151  Desirable carry-out inventory.

    For the 2016 crop year, the desirable carry-out inventory, for the 
purposes of determining an optimum supply volume, will be 57 million 
pounds.

0
3. Section 930.256 is revised to read as follows:


Sec.  930.256  Free and restricted percentages for the 2016-17 crop 
year.

    The percentages for tart cherries handled by handlers during the 
crop year beginning on July 1, 2016, which shall be free and 
restricted, respectively, are designated as follows: Free percentage, 
71 percent and restricted percentage, 29 percent.

    Dated: June 20, 2017.
Bruce Summers,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 2017-13241 Filed 6-23-17; 8:45 am]
 BILLING CODE 3410-02-P