Tart Cherries Grown in the States of Michigan, et al.; Free and Restricted Percentages for the 2017-18 Crop Year for Tart Cherries, 47801-47806 [2018-20583]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 83, Number 184 (Friday, September 21, 2018)]
[Rules and Regulations]
[Pages 47801-47806]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20583]



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Federal Register / Vol. 83, No. 184 / Friday, September 21, 2018 / 
Rules and Regulations

[[Page 47801]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Doc. No. AMS-SC-17-0071; SC18-930-1 FR]


Tart Cherries Grown in the States of Michigan, et al.; Free and 
Restricted Percentages for the 2017-18 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, or the proportion of 2017 tart cherries which may be 
handled in commercial outlets, for the 2017-18 crop year under the 
Marketing Order for tart cherries grown in the states of Michigan, New 
York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin.

DATES: Effective October 22, 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) 324-3375, 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, 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. 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 
producers and handlers of tart cherries operating within the production 
area, and a public member.
    The Department of Agriculture (USDA) is issuing this final rule in 
conformance with Executive Orders 13563 and 13175. This action falls 
within a category of regulatory action 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'[thinsp]'' (February 2, 2017).
    This 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 2017-18 crop year, beginning July 
1, 2017, through June 30, 2018.
    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, or the 
proportion of 2017 tart cherries which may be handled in commercial 
outlets, for the 2017-18 crop year at 69 percent and 31 percent, 
respectively. This action should stabilize marketing conditions by 
adjusting supply to meet market demand and help improve grower returns. 
The final percentages were recommended by the Board at a meeting on 
September 14, 2017 and have been designated by the Secretary.
    Section 930.51(a) provides the Secretary 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 the aforesaid percentages. Free percentage 
volume may be shipped to any market. 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. 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 including that handlers would be 
responsible for storage and would retain title of the tart cherries.
    Under Sec.  930.52, only 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 that is 
less than 50 percent of its annual average of the previous five years 
is exempt. The regulated districts for the 2017-2018 crop year are: 
District 1--Northern Michigan; District 2--Central Michigan; District 
3--Southern Michigan; District 4--New York; District 7--Utah; District 
8--Washington; and District 9--Wisconsin. Districts 5 and 6 (Oregon and 
Pennsylvania, respectively) will not be regulated for the 2017-18 
season.
    Demand for tart cherries and tart cherry products tends to be 
relatively stable from year to year. Conversely,

[[Page 47802]]

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 
would have a sharp negative effect on prices, driving down grower 
returns. Aware of this economic relationship, the Board focuses on 
using the volume control provisions in the Order to balance supply and 
demand to stabilize industry returns.
    Pursuant to Sec.  930.50, 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 of Agriculture.
    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), 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 22, 2017 and computed an optimum supply of 
282.4 million pounds for the 2017-18 crop year using the average of 
free sales for the three previous seasons. Regarding the carry-out 
value, the Board discussed and considered a range of alternatives. One 
member suggested a carry-out value of 20 million pounds, approximately 
one tenth of three years' average annual sales. Last year's carry-out 
was set at 57 million pounds to cover the three-month gap between 
calculation of carry-out at the end of one season and the availability 
of fruit for the next season. One member, advocating for 60 million 
pounds, noted that a carry-out to supply only three months' worth of 
cherries makes it difficult for processors to serve their customers. 
Some Board members stated that in the past two seasons, the recommended 
carry-out was equivalent to approximately three months' sales but the 
industry ended up with a higher carry-out than anticipated, which puts 
downward pressure on prices. After the consideration of the 
alternatives, the Board determined a carry-out of 45 million pounds 
would be slightly less than the three-month estimate of 60 million 
pounds and would supply the industry's needs at the beginning of the 
next season.
    The Board subtracted the estimated carry-in of 110.5 million pounds 
from the optimum supply to calculate the production quantity needed 
from the 2017-18 crop to meet optimum supply. This number, 171.9 
million pounds, was subtracted from the Board's estimated 2017-18 total 
production (from regulated and unregulated districts) of 259 million 
pounds to calculate a surplus of 87.1 million pounds of tart cherries. 
The Board also complied with the market growth factor requirement by 
removing 23.7 million pounds (average sales for prior three years of 
237.4 million times 10 percent) from the surplus. The adjusted surplus 
of 63.1 million pounds was then divided by the expected production in 
the regulated districts (252 million pounds) minus anticipated orchard 
diversion (12 million pounds) to reach a preliminary restricted 
percentage of 26 percent for the 2017-18 crop year.
    The Board then discussed whether this calculation would provide 
sufficient supply to grow sales and supply orders that are already 
scheduled but not yet shipped, including filling remaining orders from 
USDA purchases. A motion to make an economic adjustment of five million 
pounds to adjust for USDA sales failed to receive Board support. After 
the discussion, the Board's preliminary restricted percentage remained 
at 26 percent (63 million pounds divided by 240 million pounds).
    The Board met again on September 14, 2017, to consider final volume 
regulation percentages for the 2017-18 season. The final percentages 
are based on the Board's reported production figures and the supply and 
demand information available in September. In September and going 
forward, the Board revised the formula for calculating free sales. When 
the three-year sales average was recalculated in September, the 
revision lowered the sales average to 205 million pounds, which 
resulted in a revised optimum supply of 250 million pounds.
    The total production for the 2017-18 season was 270.4 million 
pounds, 11.4 million pounds above the Board's June estimate. In 
addition, growers diverted 11.7 million pounds in the orchard, leaving 
258.7 million pounds available to market, 251.1 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 110.5 
million pounds from the optimum supply of 250 million pounds to 
determine 139.5 million pounds of 2017-18 production would be necessary 
to reach optimum supply. The Board subtracted the 139.5 million pounds 
from the actual production of 270.4 million pounds, resulting in a 
surplus of 130.9 million pounds of tart cherries. The Board also 
recommended an economic adjustment to adjust the supply in anticipation 
of

[[Page 47803]]

increased sales from market expansion, new markets, and growth from the 
short crop this season in Europe. The surplus was then reduced by 
subtracting the economic adjustment of 33 million pounds and the market 
growth factor of 20.5 million pounds, resulting in an adjusted surplus 
of 77.4 million pounds. The Board then divided this final surplus by 
the available production of 251.1 million pounds in the regulated 
districts (262.8 million pounds minus 11.7 million pounds of in-orchard 
diversion) to calculate a restricted percentage of 31 percent with a 
corresponding free percentage of 69 percent for the 2017-18 crop year, 
as outlined in the following table:

------------------------------------------------------------------------
                                                            Millions of
                                                              pounds
------------------------------------------------------------------------
Final Calculations:
    (1) Average sales of the prior three years..........           205.0
    (2) Plus desirable carry-out........................            45.0
    (3) Optimum supply calculated by the Board..........           250.0
    (4) Carry-in as of July 1, 2017.....................           110.5
    (5) Adjusted optimum supply (item 3 minus item 4)...           139.5
    (6) Board reported production.......................           270.4
    (7) Surplus (item 6 minus item 5)...................           130.9
    (8) Total economic adjustments......................            33.0
    (9) Market growth factor............................            20.5
    (10) Adjusted Surplus (item 7 minus items 8 and 9)..            77.4
    (11) Supply in regulated districts..................           262.8
    (12) In-orchard diversion...........................            11.7
                                                         ---------------
    (13) Regulated production minus in-orchard diversion           251.1
Final Percentages:                                               Percent
                                                         ---------------
    Restricted (item 10 divided by item 13 x 100).......              31
    Free (100 minus restricted percentage)..............              69
------------------------------------------------------------------------

    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 2017-18 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 69 percent free and 31 percent restricted by a vote of 
18 in favor and 1 opposed.
    The initial restriction percentage of 26 percent was lower than the 
final restriction of 31 percent. One factor affecting this change was 
the final production numbers that came in above the Board's June 
estimate. Additionally, in September the Board revised the formula for 
calculating the three-year sales average, which will be used going 
forward. The revision in the calculation of the free sales average 
lowered the sales calculation from the preliminary 237.4 million pounds 
to the final average of 205 million pounds. The desired carry-out 
remained the same at 45 million pounds, resulting in a revised optimum 
supply of 250 million pounds, down from the June calculation of 282.4 
million pounds.
    At the Board meeting on September 14, an economic adjustment of 33 
million pounds was recommended in the Optimum Supply Formula (OSF). 
Several members indicated the factors in the marketplace prompted the 
need to make this economic adjustment to maintain market growth. These 
factors include serving new and expanded markets, a year over year 
increase in sales, and the expectation of increased sales as a result 
of a smaller than normal tart cherry crop in Europe this season.
    One member opposed to the proposed restriction expressed opposition 
to the definition of sales used in the OSF. In particular, the member 
expressed concern that the definition of sales is misrepresented by not 
including imported cherries in the sales average, thus not capturing 
overall supply and demand. Another member agreed with this concern but 
did not oppose the proposed OSF calculation.
    A motion was made to re-open the discussion about the OSF and 
consider an adjustment for imports. However, the motion failed to gain 
enough support for further discussion. One member indicated that the 
issue of imports continues to be a top priority for discussion and will 
be revisited moving forward into the winter season.
    After reviewing the available data and considering the concerns 
expressed, the Board determined that a 31 percent restriction would 
meet sales needs and establish some reserves without oversupplying the 
market. Thus, the Board recommended establishing final percentages of 
69 percent free and 31 percent restricted. The Board could meet and 
recommend the release of additional volume during the crop year if 
conditions so warranted. The Secretary finds, from the recommendation 
and supporting information supplied by the Board, that designating 
final percentages of 69 percent free and 31 percent restricted will 
tend to effectuate the declared policy of the Act, and so designates 
these percentages.

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 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

[[Page 47804]]

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 
utilized for processing during the 2016-17 season was approximately 
$0.273 per pound. With total utilization at approximately 323.1 million 
pounds for the 2016-17 season, the total 2016-17 value of the crop 
utilized for processing 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. 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, is a good estimate to represent the range 
of prices reported by the Food Institute during the 2017-2018 season. 
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.
    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 utilized for processing for the years 2014 
through 2016 were 304 million, 253 million, and 329 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. Grower prices per pound 
for processed utilization have ranged from a low of $0.073 in 1987 to a 
high of $0.549 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. Aware of this economic 
relationship, the Board 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 69 percent free and 31 percent restricted for the 2017-
18 crop year. These percentages should stabilize marketing conditions 
by adjusting supply to meet market demand and help improve grower 
returns. This action will regulate tart cherries handled in Michigan, 
New York, Utah, Washington, and Wisconsin. The authority for this 
action is provided in Sec. Sec.  930.50, 930.51(a), and 930.52. The 
Board recommended this action at a meeting on September 14, 2017.
    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 will be available under this regulation 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 2016-17, these activities 
accounted for over 37 million pounds in sales, 15.6 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 a carry-out of 45 million pounds 
and made a demand adjustment of 33 million pounds in order to make the 
regulation less restrictive. The domestic market will have an ample 
supply of tart cherries, even with this restriction. There are 110.5 
million pounds of carry-in, 7.7 million pounds of production in the 
unregulated districts, and there will be 173.7 million pounds of free 
tonnage from the regulated districts, leaving 291.8 million pounds of 
fruit 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 would 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, and have a combined total production of 262.8 million 
pounds. A 31 percent restriction, after removing the 11.7 million 
pounds for in-orchard diversion, means 173.3 million pounds will be 
available to be shipped to primary markets from these five states. The 
173.3 million pounds from the restricted districts, 7.7 million pounds 
from the unrestricted districts (Oregon and Pennsylvania), and the 
110.5-million-pound carry-in inventory will make a total of 291.5 
million pounds available as free tonnage for the primary markets. This 
is less than the 306 million pounds of free tonnage made available last 
year. However, this will be enough to cover 260 million pounds of Board 
reported sales in 2016-2017, while providing substantial carry-out. 
Further, the Board could meet and recommend the release of additional 
volume during the crop year if conditions so warrant.
    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

[[Page 47805]]

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 will have a positive impact on grower returns for this 
crop year. With volume control, grower prices are estimated to be 
approximately $0.05 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 regulation 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 will generate. Growers and handlers, regardless of size, 
benefit from the stabilizing effects of this restriction. In addition, 
the 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. The Board had extensive 
discussions on carry-out inventory alternatives. The alternatives 
included four motions that failed to pass, ranging from carry-out 
inventory of 20 million pounds to 55 million pounds. The Board 
determined that if the carry-out number was too large, it could have a 
negative impact on grower returns. Some members were concerned that 
processors would not have enough fruit to maintain sales before the new 
crop was available. After consideration of the alternatives, the Board 
recommended a carry-out of 45 million pounds.
    Regarding demand, the Board began in June with a sales average of 
237.4 million pounds. However, in September the Board revised the 
formula for calculating the sales average going forward. This 
modification will provide a more accurate calculation of free sales 
each year. This revision lowered the three-year sales average for the 
final calculation made at the September meeting to 205 million pounds.
    Additionally, at the September meeting, Board members discussed an 
expectation of increased sales over the coming year. This anticipated 
increase is from serving new and expanded markets and to adjust for a 
smaller than normal tart cherry crop in Europe this season. In order to 
avoid undersupplying the market, the Board determined that the 
calculation of the optimum supply should include an additional 
adjustment to account for the growth in new markets, market expansion, 
and the crop shortage in Europe. The Board could accept the calculated 
surplus without any change. After discussion, an adjustment of an 
additional 33 million pounds was made to the 2017-18 available supply 
of tart cherries as it was determined that this amount would best meet 
the industry's sales needs. A motion to re-open the discussion and 
consider a further adjustment for imports was made, but the motion 
failed to receive support. Thus, 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 are necessary in 
those requirements as a result of this action. 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. One of the public comments received did 
reference the initial regulatory flexibility analysis. A review of that 
comment is included below as part of the review of all public comments 
received.
    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 meetings were widely publicized throughout 
the tart cherry industry, and all interested persons were invited to 
attend the meetings and participate in Board deliberations on all 
issues. Like all Board meetings, the June 22, 2017, and September 14, 
2017, 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 May 11, 2018 (83 FR 21941). 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 June 11, 2018, was 
provided to allow interested persons to respond to the proposal. Two 
comments were received.
    Both comments point to an increase in imports as a reason for 
opposing this action. One commenter referenced imports as being well 
over 200 million pounds of raw product equivalency, and the other 
commenter stated imports are over 250 million pounds a year. One 
commenter noted it was impossible to determine a equilibrium point 
without acknowledging the total market and the volume of imports and 
suggested imported cherries may be replacing domestic product pound for 
pound. The other commenter noted imports are growing faster than U.S. 
sales.
    AMS's analysis of data from the Foreign Agricultural Service's 
Global Agricultural Trade System (GATS) indicates a raw product 
equivalent quantity of 260 million pounds of tart cherry products were 
imported into the U.S. in 2017. The imported volume has remained at 230 
million pounds or higher since 2014. Tart cherry juice concentrate 
represents by far the largest segment of imports and has experienced 
tremendous growth since 2012.
    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. The Board is aware 
of the volume of imported cherries products, and at the meetings on 
June 22, 2017, and September 14, 2017, the Board discussed the economic 
impact of

[[Page 47806]]

imports. At the September meeting, an economic adjustment of 33 million 
pounds was recommended in the OSF. This adjustment was based, in part, 
on providing additional fruit for new and expanded markets, including 
those previously served by imported product, and the expectation of 
increased sales as a result of a smaller than normal tart cherry crop 
in Europe this season.
    Further, given the rapid increase in the imported volume of tart 
cherry juice, the continued level of imported product, and the 
relatively stable level of domestic shipments, the vast majority of 
imported tart cherry products are going to new markets not previously 
served by the domestic industry. While there may be some common 
markets, these new markets serviced by imported product far exceed the 
estimated 78 million pounds of tart cherries restricted by this 
regulation.
    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. 
In addition, USDA is reviewing extending the maximum length of these 
activities from three years to five years, and expediting the approval 
process for some projects, thus creating even more opportunities to 
pursue new markets. These changes should benefit the industry by 
creating new markets for domestic production, but also by utilizing 
restricted fruit as a tool to build additional markets rather than 
additional reserves. Consequently, handlers have ample opportunity to 
compete for new markets using restricted cherries while continuing to 
service traditional markets with free cherries. Should industry efforts 
cause demand to exceed available volume, USDA could release an 
additional volume.
    Steps have also been taken in this and previous seasons to put 
additional fruit on the market through increased carry-out and economic 
adjustments, and domestic sales have shown modest growth. The final 
percentages calculation for this season includes an economic adjustment 
of 33 million pounds and a market growth factor of 20.5 million pounds 
for an additional 53.5 million pounds beyond the average sales. 
Moreover, the industry reported a remaining free carry-in inventory of 
over 110.5 million pounds for the 2017-18 crop year, nearly 54 million 
pounds more than the recommend desired carry-out from 2016-17.
    Further, carry-in for the following season has exceeded the 
recommended carry-out for the previous season for each of the previous 
three volume regulations. This suggests that even with established 
restrictions, unrestricted fruit is available to meet domestic demand.
    Both commenters expressed concern that restricted reserve tart 
cherry product is being held in inventory beyond Order requirements. 
Under the Order, any product placed by the handler in the inventory 
reserve must have been produced in either the current or the preceding 
two crop years. Handlers can exchange such reserves with more current 
product as it ages or divert it to other approved outlets. These 
inventories are reviewed and monitored for compliance.
    One of the commenters also questioned the statement in the RFA that 
the tart cherry market is inelastic, stating that it is not true for 
all products, particularly juice, and that markets should be looked at 
on a product by product basis. While pricing may vary in the sales of 
various processed products, the Order, and this regulation apply to the 
entire domestic tart cherry market. Grower prices remain very sensitive 
to changes in supply while demand remains relatively stable from year 
to year. This inelastic nature was demonstrated by the sharp jump in 
average grower price in 2012 to $0.549 per pound with the substantial 
decrease in domestic supply and a $0.07 per pound drop in the grower 
price from 2015 to 2016 when there was above-average supply.
    Finally, both commenters mentioned the decision in Burnette Foods, 
Inc. v. USDA,\1\ and the trial court's conclusion regarding the Board's 
composition in light of 7 CFR 930.20(g), both of which are being 
considered on appeal. One of the commenters stated that in light of the 
district court's decision, the recommendation of the Board should not 
stand. However, as stated in the proposed rule and in this action, the 
Secretary reached the decision contained in this final rule and has 
designated these free and restricted percentages based on his own 
independent evaluation of the recommendation and supporting information 
supplied by the Board. Therefore, this rulemaking is an action taken on 
behalf of the USDA.\2\
---------------------------------------------------------------------------

    \1\ No. 16-cv-21 (W.D. Mich.).
    \2\ See 7 CFR 930.51(a).
---------------------------------------------------------------------------

    Additional concerns raised in the comments pertained to issues not 
applicable to the proposed rule.
    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 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 7 CFR part 930 continues to read as 
follows:

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

0
2. Revise Sec.  930.256 to read as follows:


Sec.  930.256  Free and restricted percentages for the 2017-18 crop 
year.

    The percentages for tart cherries handled by handlers during the 
crop year beginning on July 1, 2017, which shall be free and 
restricted, respectively, are designated as follows: Free percentage, 
69 percent and restricted percentage, 31 percent.

    Dated: September 18, 2018.
Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2018-20583 Filed 9-20-18; 8:45 am]
 BILLING CODE 3410-02-P