Tart Cherries Grown in the States of Michigan, et al.; Revision of Exemption Requirements, 77-80 [2017-28167]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 83, Number 1 (Tuesday, January 2, 2018)]
[Proposed Rules]
[Pages 77-80]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28167]


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

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Doc. No. AMS-SC-17-0047; SC17-930-1 PR]


Tart Cherries Grown in the States of Michigan, et al.; Revision 
of Exemption Requirements

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: This proposed rule would implement a recommendation from the 
Cherry Industry Administrative Board (Board) to revise the exemption 
provisions under the Marketing Order for tart cherries (Order). This 
rule changes the number of years that new product, new market 
development, and market expansion projects are eligible for handler 
diversion credit. This action would also permit handlers to apply for 
previously awarded projects if the original handler has not begun the 
project within a year of approval, and provides an expedited approval 
option for some market expansion activities. These changes are intended 
to encourage handlers to participate in new product, new market and 
market expansion activities, expand demand, and make the approval 
process more efficient.
    This proposal also contains a formatting change to subpart 
references to bring the language into conformance with the Office of 
Federal Register requirements.

DATES: Comments must be received by February 1, 2018.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this rule. Comments must be sent to the Docket Clerk, 
Marketing Order and Agreement Division, Specialty Crops Program, 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 document 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: https://www.regulations.gov. All 
comments submitted in response to this rule will be included in the 
record and will be made available to the public. Please be advised that 
the identity of the individuals or entities submitting the comments 
will be made public on the internet at the address provided above.

FOR FURTHER INFORMATION CONTACT: This action, pursuant to 5 U.S.C. 553, 
proposes an amendment to regulations issued to carry out a marketing 
order as defined in 7 CFR 900.2(j). Jennie M. Varela, Marketing 
Specialist, or Christian D. Nissen, Regional Director, Southeast 
Marketing Field Office, Marketing Order and Agreement Division, 
Specialty Crops Program, AMS, USDA; Telephone: (863) 324-3775, Fax: 
(863) 291-8614, or Email: [email protected] or 
[email protected].
    Small businesses may request information on complying with this 
regulation by contacting Richard Lower, Marketing Order and Agreement 
Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue 
SW, STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-2491, 
Fax: (202) 720-8938, or Email: [email protected].

SUPPLEMENTARY INFORMATION: This action, pursuant to 5 U.S.C. 553, 
proposes an amendment to regulations issued to carry out a marketing 
order as defined in 7 CFR 900.2(j). This proposed rule is issued under 
Marketing Order No. 930, as amended (7 CFR part 930), regulating the 
handling of tart cherries grown in the States of Michigan, New York, 
Pennsylvania, Oregon, Utah, Washington, and Wisconsin. Part 930

[[Page 78]]

(hereinafter referred to as the ``Order'') is effective under the 
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-
674), hereinafter referred to as the ``Act.'' The Board locally 
administers the Order and is comprised of growers and handlers 
operating in the production area and one public member.
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Orders 13563 and 13175. This proposed rule 
falls within a category of regulatory action that the Office of 
Management and Budget (OMB) exempted from Executive Order 12866 review. 
Additionally, because this proposed 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'[thinsp]'' (February 2, 2017).
    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This proposed rule is not intended to have 
retroactive effect.
    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 proposed rule would change the number of years that new 
product, new market development, and market expansion projects are 
eligible for handler diversion credit from three years to five years. 
This action would also permit handlers to apply for previously awarded 
projects if the original handler has not made a shipment within a year 
of approval, and provides an expedited approval option for some market 
expansion activities. These changes are intended to encourage 
participation in new product, new market development and market 
expansion, expand demand, and make the approval process more efficient. 
The Board unanimously approved these changes at a meeting on May 3, 
2017.
    Section 930.59 authorizes handler diversion. When volume regulation 
is in effect, handlers may fulfill any restricted percentage 
requirement in full or in part by acquiring diversion certificates or 
by voluntarily diverting cherries or cherry products in a program 
approved by the Board, rather than placing cherries in an inventory 
reserve.
    Section 930.159 specifies methods of handler diversion, including 
using cherries or cherry products for exempt purposes prescribed under 
Sec.  930.162. Section 930.162 establishes the terms and conditions of 
exemption that must be satisfied for handlers to receive diversion 
certificates for exempt uses. Section 930.162(b) defines the activities 
which qualify for exemptions under new product, new market development, 
and market expansion and the period for which they are eligible for 
diversion credit. New products include foods or other products in which 
tart cherries or tart cherry products are incorporated which are not 
presently being produced on a commercial basis. New market development 
and market expansion activities include, but are not limited to, sales 
of cherries into markets that are not yet commercially established, 
product line extensions, or segmentation of markets along geographic or 
other definable characteristics.
    The Order provides for the use of volume regulation to stabilize 
prices and improve grower returns during periods of oversupply. At the 
beginning of each season, the Board examines production and sales data 
to determine whether a volume regulation is necessary and, if so, 
announces free and restricted percentages to limit the volume of tart 
cherries on the market. Free percentage cherries can be used to supply 
any available market, including domestic markets for pie filling, water 
packed, and frozen tart cherries. Restricted percentage cherries can be 
placed in reserve or be used to earn diversion credits as prescribed in 
Sec. Sec.  930.159 and 930.162. These activities include, in part, the 
development of new products, new market development and market 
expansion, as well as charitable contributions, and the development of 
export markets.
    Changes in the domestic tart cherry market have provided challenges 
to the industry, particularly competition from imported cherry 
products. In the last five years, there has been a large increase in 
the volume of imported tart cherry products, especially tart cherry 
juice. The Board sees this juice market as a potential opportunity to 
expand domestic sales. The Board assigned a series of committees to 
look into the growing juice market, examine the impact of imports on 
the overall domestic market, and recommend actions that could help 
domestic handlers capture market share. As a result, the Board 
determined that the use of diversion credit for new markets and market 
expansion would be a valuable way to reach the developing juice market 
that is not currently utilizing domestic cherries.
    The Board believes the development of new products, new markets, 
and expansion of current markets is an important part of the future 
success of the domestic industry. These projects are intended to help 
expand the market for tart cherries and increase demand. The Board sees 
the use of diversion credits as a way to encourage these activities 
using restricted fruit that may otherwise be stored or destroyed.
    However, creating new products or establishing sales in new markets 
can be costly and time consuming. In 2015, the Board increased the 
eligibility for diversion credit from one year to a three-year duration 
for new market and market expansion projects and saw participation 
rise. In discussing the proposed change, Board members indicated that 
three years still did not provide handlers sufficient time to develop 
and recoup the costs and resources needed to establish one of these 
projects. The Board believes extending the availability of diversion 
credits from three years to five years would provide an incentive for 
handlers to develop new products, new markets, or to expand current 
markets.
    Further, the Board believes that allowing handlers to apply for 
previously approved projects that the original handler has not 
fulfilled creates additional opportunities and promotes project 
development. Under the Order's regulations, diversion credit for new 
products and new markets can be issued for tart cherries for products 
or markets not yet commercially established. Consequently, the Board's 
administrative policy was that once a handler received approval for a 
project, that handler maintained the right to commercially develop that 
project for up to three years. However, the Board found that sometimes 
a handler received approval for a project but never started it. The 
Board recommended that if the handler does not start the project, it 
should still be considered a new product, new market, or market 
expansion activity, and other handlers should be able to apply for the 
previously approved project.

[[Page 79]]

    Under this proposed change, a handler would have one year to begin 
the new product, new market, or market expansion project with the 
opportunity to appeal for an additional six months if necessary to 
start the project. If the handler does not make a shipment, and does 
not request an extension, other handlers could apply to develop the 
project. The Board believes this would encourage handlers to start 
projects or create the opportunity for another handler to apply for the 
project if the original handler cannot, or chooses not to, proceed.
    Finally, the Board recommended an expedited option so that 
diversion credit for some market expansion projects could be approved 
once the sales information is verified by Board staff, rather than 
review by a subcommittee. Adding this flexibility to the approval 
process would make it faster for diversion applicants.
    Currently all types of new market, new product, and market 
expansion projects are reviewed by an appointed subcommittee, which can 
take considerable time. In hope of handlers participating in these 
activities, the Board recognized the need to make the approval process 
faster so that decisions on applications are not delayed. In the case 
of market expansion projects, some tart cherry handlers are competing 
to source buyers not currently using domestic tart cherries rather than 
developing a new product. The Board believes these transactions are 
vital to expanding sales of tart cherries. The Board recommended an 
expedited option for these market expansion projects. Diversion credit 
for these transactions would be approved once a statement from a buyer 
of its intent to use domestic tart cherries in products not currently 
supplied by the domestic market is sent to and verified by Board staff, 
rather than after review by the Board subcommittee. The Board believes 
this would expedite the approval process for diversion requests.

Initial Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) 
has considered the economic impact of this 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 
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 and Board 
data, the average annual grower price for tart cherries during the 
2016-17 season was approximately $0.273 per pound. With total 
utilization at around 323.1 million pounds for the 2016-17 season, the 
total 2016-17 crop value is estimated at $88.2 million. Dividing the 
crop value by the estimated number of producers (600) yields an 
estimated average receipt per producer of $147,000. This is well below 
the SBA threshold for small producers. In 2016, The Food Institute 
estimated a free on board (f.o.b.) price of $0.83 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 323.1 million 
pounds results in an estimated handler-level tart cherry value of $268 
million. Dividing this figure by the number of handlers (40) yields an 
estimated average annual handler receipts of $6.7 million, which is 
below the SBA threshold for small agricultural service firms. Assuming 
a normal distribution, the majority of producers and handlers of tart 
cherries may be classified as small entities.
    This rule would revise Sec.  930.162 of the regulations by changing 
the number of years that new product, new market development, and 
market expansion projects are eligible for handler diversion credit 
from three years to five years. This action would also permit handlers 
to apply for previously awarded projects if the original handler has 
not made a shipment within one year of approval, and provides an 
expedited approval option for some market expansion activities. These 
changes are intended to encourage handlers to participate in new 
product, new market and market expansion activities, to expand demand, 
and make the approval process more efficient. The authority for these 
actions is provided in Sec.  930.59.
    It is not anticipated that this proposed rule would impose 
additional costs on handlers or growers, regardless of size. Rather, 
this proposal should help handlers receive better returns on their new 
market development and market expansion projects by extending the time 
period that handlers can receive diversion credit for those activities. 
This should provide more opportunity for handlers to recover the time 
and resources required to establish these projects.
    In addition, extending the number of years that these marketing 
projects are eligible for diversion credits may provide incentive for 
handlers to develop these programs, and may enable additional sales 
which could improve returns for growers and handlers. Board members 
indicated that three years does not provide handlers enough time to 
develop and recover the costs and resources needed to implement one of 
these projects. The Board expects increasing the time frame would 
provide an incentive for additional handlers to participate in these 
exempt activities. Additionally, the proposed changes would open up the 
opportunity for another handler if the original handler does not carry 
out an approved project. Creating a longer window for use of restricted 
fruit and making the process accessible to more handlers should help 
the industry in its efforts to expand demand.
    Finally, this action would change the process by which handlers 
receive approval for market expansion projects that involve tart cherry 
handlers competing to source buyers not currently using domestic tart 
cherries. The Board believes this would help expand sales of tart 
cherries. The Board recommended that diversion credit for these sales 
transactions would be approved once the sales information is verified 
by Board staff, rather than after review by the subcommittee. The Board 
believes this would expedite the approval process for these types of 
diversion requests.
    The Board does not believe that these changes would significantly 
impact the calculations for free and restricted percentages. These 
changes are intended to facilitate projects that will create future 
sales opportunities. The effects of this rule are not expected to be 
disproportionately greater or less for small handlers or producers than 
for larger entities.
    Regarding alternatives to this action, the Board considered a 
number of options in its discussion, including leaving the length of 
time that new product, new market, and market expansion programs are 
eligible for handler diversion credit unchanged. However, given the 
increased

[[Page 80]]

participation rate since the time period was extended in 2015, and the 
Board's desire to quickly open up opportunities for handlers, the Board 
preferred to expand the opportunity for diversion credits for these 
projects. Therefore, the 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 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 are 
necessary as a result of this action. Should any changes become 
necessary, they would be submitted to OMB for approval.
    This proposed rule would 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.
    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, USDA has not identified any relevant Federal rules 
that duplicate, overlap or conflict with this rule.
    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. Like all Board 
meetings, the May 3, 2017, meeting was a public meeting, and all 
entities, both large and small, were able to express their 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: 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.
    A 30-day comment period is provided to allow interested persons to 
respond to this 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 
proposed to be 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.

[Subpart Redesignated as Subpart A]

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

[Subpart Redesignated as Subpart B and Amended]

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

Subpart B--Administrative Requirements

[Subpart Redesignated as Subpart C]

0
4. Redesignate ``Subpart--Assessment Rate'' as ``Subpart C--Assessment 
Rate''.
0
5. In Sec.  930.162:
0
a. Revising the sentences at the end of (b)(1) and (b)(2);
0
b. Add new paragraph (c)(3);
0
c. Redesignating paragraphs (c)(3),(4) and (5) as (c)(4),(5) and (6); 
and
0
d. Add new paragraph (h).
    The revisions to read as follows:


Sec.  930.162  Exemptions.

* * * * *
    (b) * * *
    (1) * * * In addition, the maximum duration of any credit activity 
is five years from the date of the first shipment.
    (2) * * * In addition, shipments of tart cherries or tart cherry 
products in new market development and market expansion outlets are 
eligible for handler diversion credit for a period of five years from 
the handler's date of the first shipment into such outlets.
* * * * *
    (c) * * *
    (3) When applying to the Board for an exemption for the use of 
domestic tart cherry products in markets not currently served by the 
domestic industry, handlers may provide a verifiable statement from the 
buyer of its intent to use domestic tart cherry products to the Board 
staff for review in lieu of review by the subcommittee as detailed in 
(d) of this section. A verifiable statement is defined as a written 
statement from the buyer that it will use domestic tart cherries in 
products or markets not currently supplied by domestic sources, which 
will be reviewed and documented by Board staff.
* * * * *
    (h) Extensions and Transfers If no shipments are made within the 
first year of any approved exemption project from the date of approval, 
new applications for a similar project (same market or product) are 
eligible for approval; provided that, handlers with an approved 
exemption project have the opportunity to apply to the subcommittee for 
a six month extension of this time period.
    For projects granted extensions, if no shipment is made prior to 
the end of the extension period, new applications for the same market 
or project are eligible for approval.
* * * * *

    Dated: December 26, 2017.
Bruce Summers,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 2017-28167 Filed 12-29-17; 8:45 am]
 BILLING CODE 3410-02-P