Tart Cherries Grown in the States of Michigan, et al.; Revision of Exemption Requirements, 31444-31447 [2018-14516]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 83, Number 130 (Friday, July 6, 2018)]
[Rules and Regulations]
[Pages 31444-31447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14516]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

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


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

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule implements a recommendation from the Cherry Industry 
Administrative Board (Board) to revise the exemption provisions for 
tart cherries grown in Michigan, New York, Pennsylvania, Oregon, Utah, 
Washington, and Wisconsin. 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 also permits 
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. This final rule also contains a formatting change to 
subpart references to bring the language into conformance with the 
Office of Federal Register requirements.

DATES: Effective August 6, 2018.

FOR FURTHER INFORMATION CONTACT: 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 final rule, pursuant to 5 U.S.C. 553, 
amends regulations issued to carry out a marketing order as defined in 
7 CFR 900.2(j). This final rule is issued under Marketing 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 (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 action falls 
within a category of regulatory actions that the Office of Management 
and Budget (OMB) exempted from Executive Order 12866 review. 
Additionally, because this rule does not meet the definition of a 
significant regulatory action, it does not trigger the requirements 
contained in Executive Order 13771. See OMB's Memorandum titled 
``Interim Guidance Implementing Section 2 of the Executive Order of 
January 30, 2017, titled `Reducing Regulation and Controlling 
Regulatory Costs' '' (February 2, 2017).
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This 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 final rule changes 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 
also permits handlers to apply for previously awarded projects if the 
original handler has not made a

[[Page 31445]]

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. The Secretary approves these recommendations.
    Section 930.59 authorizes the Secretary to implement 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, and 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 this 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 will 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.
    With this change, a handler has 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 can apply to develop the project. The Board believes 
this will 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 can be approved 
once the sales information is verified by Board staff, rather than 
review by a subcommittee. Adding this flexibility to the approval 
process will 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 will 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 will expedite the approval process for diversion requests.
    The Secretary finds, from the recommendation and supporting 
information supplied by the Board, that changing the number of years 
that new product, new market development, and market expansion projects 
are eligible for handler diversion credit tends to

[[Page 31446]]

effectuate the declared policy of the Act and so approves these 
changes.

Final Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) 
has considered the economic impact of this rule 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 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 
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 revises Sec.  930.162 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 also permits 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 rule will impose additional costs 
on handlers or growers, regardless of size. Rather, this action 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 
provides 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 will 
provide an incentive for additional handlers to participate in these 
exempt activities. Additionally, the changes 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 changes 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 will help expand sales of tart 
cherries. The Board recommended that diversion credit for these sales 
transactions be approved once the sales information is verified by 
Board staff, rather than after review by the subcommittee. The Board 
believes this will expedite the approval process for these types of 
diversion requests.
    The Board does not believe that these changes significantly impact 
the calculations for free and restricted percentages. These changes are 
intended to facilitate projects that 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 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 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 are necessary as a result of this action. Should any 
changes become necessary, they would be submitted to OMB for approval.
    This rule imposes no 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.
    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.
    Further, the Board's meetings were 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.
    A proposed rule concerning this action was published in the Federal

[[Page 31447]]

Register on January 2, 2018 (83 FR 77). Copies of the proposed rule 
were sent via email to Board members and tart cherry handlers. The 
proposed rule was made available through the internet by USDA and the 
Office of the Federal Register. A 30-day comment period ending February 
1, 2018, was provided to allow interested persons to respond to the 
proposal.
    Two comments were received. Both commenters urged adoption of the 
changes, noting the Board had worked hard on this proposal and had 
listened to the industry as part of the process. 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 of the Board and other available 
information, it is hereby found that this rule, as hereinafter set 
forth, will tend to effectuate the declared policy of the Act.

List of Subjects in 7 CFR Part 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 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--Administrative Rules and Regulations'' as 
subpart B and revise the heading to read as follows:

Subpart B--Administrative Requirements

0
4. In Sec.  930.162:
0
a. Revise the sentences at the end of paragraphs (b)(1) and (b)(2);
0
b. Redesignate paragraphs (c)(3),(4), and (5) as paragraphs (c)(4),(5), 
and (6);
0
c. Add new paragraph (c)(3); and
0
d. Add paragraph (h).
    The revisions and additions 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 
paragraph (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. (1) 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.
    (2) 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.

[Subpart Redesignated as Subpart C]

0
5. Redesignate ``Subpart--Assessment Rates'' as ``Subpart C--Assessment 
Rate''.

    Dated: July 2, 2018.
Bruce Summers,
Administrator, Agricultural Marketing Service.
[FR Doc. 2018-14516 Filed 7-5-18; 8:45 am]
 BILLING CODE 3410-02-P