Tart Cherries Grown in the States of Michigan, et al.; Free and Restricted Percentages for the 2018-19 Crop Year and Revision of Grower Diversion Requirements for Tart Cherries, 20043-20048 [2019-09152]

Download as PDF 20043 Proposed Rules Federal Register Vol. 84, No. 89 Wednesday, May 8, 2019 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 930 [Doc. No. AMS–SC–18–0083; SC19–930–1 PR] Tart Cherries Grown in the States of Michigan, et al.; Free and Restricted Percentages for the 2018–19 Crop Year and Revision of Grower Diversion Requirements for Tart Cherries Agricultural Marketing Service, USDA. ACTION: Proposed rule. AGENCY: This proposed rule would implement a recommendation from the Cherry Industry Administrative Board (Board) to establish free and restricted percentages for the 2018–19 crop year under the Marketing Order for tart cherries grown in the states of Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin. This action would establish the proportion of tart cherries from the 2018–19 crop which may be handled in commercial outlets. This action would also revise the regulations regarding grower diversion. This action should stabilize marketing conditions by adjusting supply to meet market demand and help improve grower returns. DATES: Comments must be received by June 7, 2019. ADDRESSES: Interested persons are invited to submit written comments concerning this proposal. 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: http://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 khammond on DSKBBV9HB2PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 16:31 May 07, 2019 Jkt 247001 hours, or can be viewed at: http:// www.regulations.gov. All comments submitted in response to this proposal 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: 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: Jennie.Varela@usda.gov or Christian.Nissen@usda.gov. Small businesses may request information on complying with this regulation by contacting Richard Lower, Marketing Order and Agreement Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, STOP 0237, Washington, DC 20250–0237; Telephone: (202) 720– 2491, Fax: (202) 720–8938, or Email: Richard.Lower@ams.usda.gov. SUPPLEMENTARY INFORMATION: This 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 Agreement and Order No. 930, both as amended (7 CFR part 930), regulating the handling of tart cherries produced in the states of Michigan, New York, Pennsylvania, Oregon, Utah, Washington and Wisconsin. 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 proposed 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 PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 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 proposed 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 proposed rule would establish free and restricted percentages for tart cherries for the 2018–19 crop year, beginning July 1, 2018, through June 30, 2019. 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 invites comments on the establishment of free and restricted percentages for the 2018–19 crop year. This proposal would establish the proportion of tart cherries from the 2018–19 crop which may be handled in commercial outlets at 73 percent free and 27 percent restricted. This action would also revise the regulations regarding grower diversion to codify the Board’s definition of marketable fruit. The Secretary of Agriculture (Secretary) has determined that designating free and restricted percentages of tart cherries for the 2018– 2019 crop year would effectuate the declared policy of the Act to stabilize marketing conditions by adjusting supply to meet market demand and help improve grower returns. These recommendations were made by the Board at meetings on September 13, 2018, and October 23, 2018. E:\FR\FM\08MYP1.SGM 08MYP1 khammond on DSKBBV9HB2PROD with PROPOSALS 20044 Federal Register / Vol. 84, No. 89 / Wednesday, May 8, 2019 / Proposed Rules 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 these free and restricted percentages. Free percentage volume may be shipped to any market, while restricted percentage volume must be held by handlers in a primary or secondary reserve, or be diverted or used for exempt purposes as prescribed in §§ 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. For cherries held in reserve, handlers would be responsible for storage and would retain title of the tart cherries. Under § 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 2018–19 crop year would be: 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) would not be regulated for the 2018–19 season. Section 930.58 of the Order provides authority for voluntary grower diversion. When volume regulation is in effect, growers can divert all or a portion of their cherries which otherwise, upon delivery to a handler, would be subject to regulation. This section also authorizes the Board, with the approval of the Secretary, to establish terms and conditions for grower diversion. Section 930.158 prescribes the rules and regulations for grower diversion, including a requirement that diverted cherries be marketable. Demand for tart cherries and tart cherry products tends to be relatively stable from year to year. Conversely, annual tart cherry production can vary greatly. In addition, tart cherries are processed and can be stored and carried over from crop year to crop year, further impacting supply. As a result, supply and demand for tart cherries are rarely in balance. Because demand for tart cherries is inelastic, total sales volume is not very responsive to changes in price. VerDate Sep<11>2014 16:31 May 07, 2019 Jkt 247001 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 § 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. 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 carryout 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 carryout 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’’ (http:// www.ams.usda.gov/publications/ content/1982-guidelines-fruit-vegetablemarketing-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 § 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 PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 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 July 6, 2018, and computed an optimum supply of 303 million pounds for the 2018–19 crop year using the average of free sales for the three previous seasons and desirable carry-out. To determine the carry-out figure, the Board discussed and considered a range of alternatives. One member suggested a carry-out value of 100 million pounds to maximize the amount of fruit on the market and to compete with imports. Another member indicated both free and restricted product could be used to compete with imports and proposed a 50 million pound carry-out. Another attendee noted excessive carryout puts downward pressure on prices. After the consideration of the alternatives, the Board determined a carry-out of 80 million pounds would supply the industry’s needs at the beginning of the next season. The Board subtracted the estimated carry-in of 125.1 million pounds from the optimum supply to calculate the production quantity needed from the 2018–19 crop to meet optimum supply. This number, 177.9 million pounds, was subtracted from the Board’s estimated 2018–19 total production (from regulated and unregulated districts) of 344.5 million pounds to calculate a surplus of 166.6 million pounds of tart cherries. The Board also complied with the market growth factor requirement by removing 22.3 million pounds (average sales for prior three years of 223 million times 10 percent) from the surplus. The adjusted surplus of 144.3 million pounds was then divided by the expected production in the regulated districts (338.5 million pounds) to reach a preliminary restricted percentage of 43 percent for the 2018–19 crop year. The Board then discussed whether this calculation would provide sufficient supply to grow sales and fulfil orders that have not yet shipped. Some members and attendees expressed concern that some existing inventory is old enough that it is difficult to sell and thus more of the current season’s fruit should be made available. Some also reported there may be poor fruit yield in E:\FR\FM\08MYP1.SGM 08MYP1 Federal Register / Vol. 84, No. 89 / Wednesday, May 8, 2019 / Proposed Rules Michigan, which would require more tonnage to supply the same amount of product. Others added the Board’s demand calculations were not considering growth in the juice and dried fruit markets that are being served by imported product. As a result, the Board recommended an additional economic adjustment of 48 million pounds (18 million due to fruit quality concerns and 30 million for expected deliveries). With this adjustment, and anticipated orchard diversion (25 million pounds) the Board’s preliminary restricted percentage was 31 percent (96 million pounds divided by 313.5 million pounds). The Board met again on September 13, 2018, to consider final volume regulation percentages for the 2018–19 season. The final percentages are based on the Board’s reported production figures and the supply and demand information available in September. The total production for the 2018–19 season was 299.2 million pounds, 45.3 million pounds below the Board’s July estimate. In addition, growers diverted 12.4 million pounds in the orchard, about half of what had been anticipated. As a result 286.8 million pounds would be available to market, 282.3 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 Julyof 125.1 million pounds, from the optimum supply of 303 million pounds to determine 177.9 million pounds of 2018–19 production would be necessary to reach optimum supply. The Board subtracted the 177.9 million pounds from the actual production of 299.2 million pounds, resulting in a surplus of 121.3 million pounds of tart cherries. The Board also revisited its earlier decision regarding an economic adjustment. Many in attendance expressed that the previously 20045 recommended economic adjustment should be revisited to avoid placing excess fruit on the market. One member indicated the fruit quality in Michigan was better than anticipated in July. Other attendees indicated the adjustment for additional sales had been overstated. As a result, the Board recommended lowering the economic adjustment to 24 million pounds. The recalculated surplus was reduced by subtracting the revised economic adjustment of 24 million pounds and the market growth factor of 22.3 million pounds, resulting in an adjusted surplus of 75 million pounds. The Board then divided this final surplus by the available production of 282.3 million pounds in the regulated districts (294.7 million pounds minus 12.4 million pounds of in-orchard diversion) to calculate a restricted percentage of 27 percent with a corresponding free percentage of 73 percent for the 2018– 19 crop year, as outlined in the following table: Millions of pounds Final Calculations: (1) Average sales of the prior three years ................................................................................................................................... (2) Plus desirable carry-out .......................................................................................................................................................... (3) Optimum supply calculated by the Board ............................................................................................................................... (4) Carry-in as of July 1, 2018 ..................................................................................................................................................... (5) Adjusted optimum supply (item 3 minus item 4) .................................................................................................................... (6) Board reported production ...................................................................................................................................................... (7) Surplus (item 6 minus item 5) ................................................................................................................................................ (8) Total economic adjustments ................................................................................................................................................... (9) Market growth factor ............................................................................................................................................................... (10) Adjusted Surplus (item 7 minus items 8 and 9) ................................................................................................................... (11) Supply in regulated districts .................................................................................................................................................. (12) In-Orchard Diversion ............................................................................................................................................................. 223 80 303 125.1 177.9 299.2 121.3 24 22.3 75 294.7 12.4 (13) Production minus in orchard diversion .......................................................................................................................... 282.3 Final Percentages: Percent khammond on DSKBBV9HB2PROD with PROPOSALS Restricted (item 10 divided by item 13 × 100) ............................................................................................................................. Free (100 minus restricted percentage) ....................................................................................................................................... The final restriction of 27 percent is lower than the preliminary restriction percentage of 31 percent. The largest factor affecting this change was the final production numbers that came in below the Board’s July estimate. Additionally, less fruit was diverted in orchard than anticipated and the Board revised its economic adjustment to 24 million pounds. The desired carry-out remained the same at 80 million pounds. In discussing the calculation, several members indicated they believed the recommendation was too restrictive. They supported maintaining the economic adjustment at the original level, which would have resulted in a lower calculated restriction. Other VerDate Sep<11>2014 16:31 May 07, 2019 Jkt 247001 members stated that reducing the economic adjustment was reflective of industry conditions and expressed concern about putting too much fruit into the market. Establishing free and 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, based on its discussion of this issue and the result of the above calculations, believes the available PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 27 73 information indicates a restricted percentage should be established for the 2018–19 crop year to avoid oversupplying the market with tart cherries. Consequently, the Board recommended final percentages of 73 percent free and 27 percent restricted by a vote of 13 in favor, 4 opposed, and 1 abstention. 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 73 percent free and 27 percent restricted would tend to effectuate the E:\FR\FM\08MYP1.SGM 08MYP1 20046 Federal Register / Vol. 84, No. 89 / Wednesday, May 8, 2019 / Proposed Rules khammond on DSKBBV9HB2PROD with PROPOSALS declared policy of the Act, and so designates these percentages. Additionally, the Board reviewed its rules regarding grower diversion, as this diversion option has become more of a common practice over the past few seasons. To receive grower diversion credit, the Order requires that the fruit left in the orchard must be marketable. With no definition of marketable in the Order, the Board had defined fruit as unmarketable if insects were found in any of the fruit sampled from the acreage marked for diversion. In 2016, the Board formed a committee to investigate updating this policy based on recent infestations of spotted wing drosophila. The industry was concerned growers would not qualify for diversion if a zero-tolerance policy remained in effect, but also wanted to ensure orchards were properly maintained to prevent the spread of infestation. The Board modified its working definition of marketable to reflect aspects of the tolerances in an FDA Compliance Policy Guide (CPG Sec. 550.225 Cherries— Brined, Fresh, Canned and Frozen— Adulteration Involving Rot and Insect). Specifically, the Board recommended using a 5 percent tolerance for insects and a 7 percent tolerance for rot when sampling cherries for diversion. After applying the two tolerances for insects and rot over two harvests, the Board found these levels were effective. The Board discussed this issue at its meetings on September 13, 2018, and October 23, 2018, and unanimously recommended incorporating this change into the Order’s rules and regulations. 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 proposed 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 VerDate Sep<11>2014 16:31 May 07, 2019 Jkt 247001 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 2017–18 season was approximately $0.224 per pound. With total utilization at approximately 254 million pounds for the 2017–18 season, the total 2017–18 value of the crop utilized for processing is estimated at $56.9 million. Dividing the crop value by the estimated number of producers (600) yields an estimated average receipt per producer of $94,833. This is well below the SBA threshold for small producers. A free on board (FOB) price of $0.82 per pound for frozen tart cherries was reported by the Food Institute during the 2017–2018 season. Based on utilization, this price represents a good estimate of the price for processed cherries. Multiplying this FOB price by total utilization of 254.1 million pounds results in an estimated handler-level tart cherry value of $208 million. Dividing this figure by the number of handlers (40) yields estimated average annual handler receipts of $5.2 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 for the years 2012 through 2017 were 85 million, 294 million, 304 million, 253 million, 329 million, and 260 million, respectively. Because of these fluctuations, supply and demand for tart cherries are rarely in balance. 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 $0.588 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 PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 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 proposal would control the supply of tart cherries by establishing percentages of 73 percent free and 27 percent restricted for the 2018–19 crop year. These percentages should stabilize marketing conditions by adjusting supply to meet market demand and help improve grower returns. The proposal would regulate tart cherries handled in Michigan, New York, Utah, Washington, and Wisconsin. This proposal would also revise the regulations regarding grower diversion to codify the Board’s definition of marketable fruit. The authority for this proposed action is provided in §§ 930.50, 930.51(a), 930.52, and 930.58. The Board recommended this action at meetings on September 13, 2018, and October 23, 2018. This proposal would 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’’ (http://www.ams.usda.gov/publications/ content/1982-guidelines-fruit-vegetablemarketing-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. Under this proposal, the available quantity would be more than 150 percent of the average sales for the last 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 2017–18, these activities accounted for over 82 million pounds in sales, 27 million of which were exports. These numbers represent increases of 45 million pounds and 11.4 million pounds respectively. 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 E:\FR\FM\08MYP1.SGM 08MYP1 khammond on DSKBBV9HB2PROD with PROPOSALS Federal Register / Vol. 84, No. 89 / Wednesday, May 8, 2019 / Proposed Rules years are used to supplement supplies in short crop years. The reserves help the industry to mitigate the impact of oversupply in large crop years, while allowing the industry to supply 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. The Board recommended a carry-out of 80 million pounds and made a demand adjustment of 24 million pounds in order to make the regulation less restrictive. With 125.1 million pounds of carry-in, 4.5 million pounds of production in the unregulated districts, and 207.3 million pounds of free tonnage from the regulated districts, 336.9 million pounds of fruit would be available for the domestic market. This is nearly 50 million pounds greater than the tonnage made available in the previous season. Even with the recommended restriction, the domestic market would have an ample supply of tart cherries. Further, should marketing conditions change, and market demand exceed existing supplies, the Board could meet and recommend the release of an additional volume of cherries. Consequently, it is not anticipated that this proposal would unduly burden growers or handlers. While this proposal could result in some additional costs to the industry, these costs are 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. In addition, the industry could start to build large amounts of unwanted inventories, which would also have a depressing effect on grower returns. An econometric model has been developed to assess the impact volume control has on the price growers receive for their product. Based on the model, the use of volume control would have a positive impact on grower returns for this crop year. With volume control, grower prices are estimated to be approximately $0.04 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 changes in price do not result in significant changes in the quantity VerDate Sep<11>2014 16:31 May 07, 2019 Jkt 247001 demanded. Consumer prices largely do not reflect fluctuations in cherry supplies. Therefore, this proposal should have little or no effect on consumer prices and should not result in a reduction in retail sales. The incorporation of a tolerance for insects and rot in diverted fruit would align the Order’s grower diversion rules and regulations with current industry practices. The tolerances should make it possible for more growers to participate in diversion during periods of oversupply, while encouraging proper pest management. Proper pest management helps reduce costs by decreasing incidences of infestation. Further, the use of grower diversion removes excess supply from the market without incurring the costs of harvesting, processing, and storage. The proposed tolerance for insects and rot for cherries diverted in the orchard would provide clear guidance for compliance with Order provisions, encourage proper pest management, and align the Order’s rules with industry standards. Growers, regardless of size, would benefit from the addition of these tolerances. The free and restricted percentages established by this proposal would provide the market with optimum supply and would 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 proposal would benefit all handlers by helping them maintain and expand markets, despite seasonal supply fluctuations. Likewise, price stability positively impacts all growers and handlers by allowing them to better anticipate the revenues their tart cherries would generate. Growers and handlers, regardless of size, would benefit from the stabilizing effects of the volume restriction. The Board had extensive discussions on carry-out inventory alternatives. The alternatives included five motions that failed to pass, ranging from 50 million pounds to 100 million pounds. The Board determined that if the carry-out number was too large, it could have a negative impact on grower returns. Some attendees indicated excess carryin over the past few seasons has had a negative effect on returns and that growers are seeking relief. After consideration of the alternatives, the Board recommended a carry-out of 80 million pounds. PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 20047 The Board also weighed alternatives when discussing the economic adjustment. At its July meeting, the Board recommended a 48 million pound adjustment to account for fruit quality concerns and expected sales. One member proposed an additional 40million-pound adjustment to counter imports of dried and frozen cherries, while other members favored a lower amount. When the final production numbers were reviewed in September, the Board revisited the economic adjustment. Members indicated fruit quality was still an issue, but yields were better than initially anticipated. Members also stated that with tough international markets, the additional sales may have been overstated. Members from the Western states in particular were concerned that a large shift in the restriction percentage following harvest would disrupt the overall market and petitioned the Board to reconsider the adjustment. After discussion, the Board adopted an adjustment of 24 million pounds determining this amount would best meet the industry’s sales needs. Thus, the alternatives were rejected. Regarding grower diversion requirements, the Board initially proposed a broader set of requirements including spray protocols and destruction of diverted fruit in order to better control infestation. The original proposal called for annual determination of which steps would be required in each district. As research is still evolving on how best to deal with spotted wing drosophila infestations, preferred methods of dealing with the diverted fruit were also subject to change. Thus, the Board voted to codify only the tolerance for marketability. 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 proposal 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. E:\FR\FM\08MYP1.SGM 08MYP1 20048 Federal Register / Vol. 84, No. 89 / Wednesday, May 8, 2019 / Proposed Rules AMS is committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes. USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this proposed rule. In addition, the 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 July 6, 2018, September 13, 2018, and October 23, 2018, meetings were public meetings, and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit comments on this proposed rule, including the regulatory and information collection impacts of this proposal on small businesses. A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/ 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 proposal. All written comments timely received will be considered before a final determination is made on this matter. 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 1. The authority citation for 7 CFR part 930 continues to read as follows: khammond on DSKBBV9HB2PROD with PROPOSALS ■ 2. Amend § 930.158 by revising paragraph (a) to read as follows: § 930.158 Grower diversion and grower diversion certificates. Dated: April 30, 2019. Bruce Summers, Administrator, Agricultural Marketing Service. [FR Doc. 2019–09152 Filed 5–7–19; 8:45 am] BILLING CODE 3410–02–P DEPARTMENT OF ENERGY 10 CFR Parts 430 and 431 [EERE–2018–BT–TP–0020] Energy Conservation Program: Notice of Request for Information on the Measurement of Average Use Cycles or Periods of Use in DOE Test Procedures On March 18, 2019, the U.S. Department of Energy (DOE) published a request for information (RFI) on the measurement of average cycles or periods of use in DOE test procedures in SUMMARY: (a) Grower diversion certificates. The Board may issue diversion certificates to growers in districts subject to volume regulation who have voluntarily elected Jkt 247001 The percentages for tart cherries handled by handlers during the crop year beginning on July 1, 2018, which shall be free and restricted, respectively, are designated as follows: Free percentage, 73 percent and restricted percentage, 27 percent. Office of Energy Efficiency and Renewable Energy, Department of Energy. ACTION: Extension of public comment period. ■ 16:31 May 07, 2019 § 930.256 Free and restricted percentages for the 2018–19 crop year. AGENCY: Authority: 7 U.S.C. 601–674. VerDate Sep<11>2014 to divert in the orchard all or a portion of their tart cherry production which otherwise, upon delivery to handlers, would become restricted percentage cherries. Growers may offer the diversion certificate to handlers in lieu of delivering cherries. Handlers may redeem diversion certificates with the Board through June 30 of each crop year. After June 30 of the crop year that crop year’s grower diversion certificates are no longer valid. Cherries that have reached a harvestable, marketable condition will be eligible for diversion. Diversion will not be granted to growers whose fruit was destroyed before it set and/or matured on the tree, or whose fruit is unmarketable. If marketable fruit were to be damaged or destroyed by acts of nature such as storms or hail diversion credit could be granted. To be considered marketable for the purposes of this section, sampled fruit may not exceed a 5 percent tolerance for insects or a 7 percent tolerance for rot. * * * * * ■ 3. Revise § 930.256 and its heading title to read as follows: PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 the Federal Register. This document announces an extension of the public comment period for submitting comments on the RFI. The comment period is extended to May 31, 2019. DATES: The comment period for the RFI published on March 18, 2019 (84 FR 9721) is extended. DOE will accept comments, data, and information regarding this RFI received no later than May 31, 2019. ADDRESSES: Interested persons are encouraged to submit comments using the Federal eRulemaking Portal at http://www.regulations.gov. Follow the instructions for submitting comments. Alternatively, interested persons may submit comments, identified by docket number EERE–2018–BT–TP–0020, by any of the following methods: 1. Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. 2. Email: To UseCycleRFI2018TP0020@ee.doe.gov. Include docket number EERE–2018–BT– TP–0020 in the subject line of the message. 3. Postal Mail: Appliance and Equipment Standards Program, U.S. Department of Energy, Building Technologies Office, Mailstop EE–5B, 1000 Independence Avenue SW, Washington, DC 20585–0121. Telephone: (202) 287–1445. If possible, please submit all items on a compact disc (CD), in which case it is not necessary to include printed copies. 4. Hand Delivery/Courier: Appliance and Equipment Standards Program, U.S. Department of Energy, Building Technologies Office, 950 L’Enfant Plaza SW, Suite 600, Washington, DC 20024. Telephone: (202) 287–1445. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies. No telefacsimilies (faxes) will be accepted. Docket: The docket for this activity, which includes Federal Register notices, comments, and other supporting documents/materials, is available for review at http:// www.regulations.gov. All documents in the docket are listed in the http:// www.regulations.gov index. However, some documents listed in the index, such as those containing information that is exempt from public disclosure, may not be publicly available. The docket web page can be found at http://www.regulations.gov/ docket?D=EERE-2018-BT-TP-0020. The docket web page will contain simple instructions on how to access all documents, including public comments. E:\FR\FM\08MYP1.SGM 08MYP1

Agencies

[Federal Register Volume 84, Number 89 (Wednesday, May 8, 2019)]
[Proposed Rules]
[Pages 20043-20048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09152]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 84, No. 89 / Wednesday, May 8, 2019 / 
Proposed Rules

[[Page 20043]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Doc. No. AMS-SC-18-0083; SC19-930-1 PR]


Tart Cherries Grown in the States of Michigan, et al.; Free and 
Restricted Percentages for the 2018-19 Crop Year and Revision of Grower 
Diversion Requirements for Tart Cherries

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: This proposed rule would implement a recommendation from the 
Cherry Industry Administrative Board (Board) to establish free and 
restricted percentages for the 2018-19 crop year under the Marketing 
Order for tart cherries grown in the states of Michigan, New York, 
Pennsylvania, Oregon, Utah, Washington, and Wisconsin. This action 
would establish the proportion of tart cherries from the 2018-19 crop 
which may be handled in commercial outlets. This action would also 
revise the regulations regarding grower diversion. This action should 
stabilize marketing conditions by adjusting supply to meet market 
demand and help improve grower returns.

DATES: Comments must be received by June 7, 2019.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. 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: http://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: http://www.regulations.gov. All 
comments submitted in response to this proposal 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: 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 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 Agreement and Order No. 930, both as amended (7 CFR part 
930), regulating the handling of tart cherries produced in the states 
of Michigan, New York, Pennsylvania, Oregon, Utah, Washington and 
Wisconsin. 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 proposed 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. Under the Order provisions now in effect, free 
and restricted percentages may be established for tart cherries handled 
during the crop year. This proposed rule would establish free and 
restricted percentages for tart cherries for the 2018-19 crop year, 
beginning July 1, 2018, through June 30, 2019.
    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 invites comments on the establishment of free 
and restricted percentages for the 2018-19 crop year. This proposal 
would establish the proportion of tart cherries from the 2018-19 crop 
which may be handled in commercial outlets at 73 percent free and 27 
percent restricted. This action would also revise the regulations 
regarding grower diversion to codify the Board's definition of 
marketable fruit. The Secretary of Agriculture (Secretary) has 
determined that designating free and restricted percentages of tart 
cherries for the 2018-2019 crop year would effectuate the declared 
policy of the Act to stabilize marketing conditions by adjusting supply 
to meet market demand and help improve grower returns. These 
recommendations were made by the Board at meetings on September 13, 
2018, and October 23, 2018.

[[Page 20044]]

    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 these free and restricted percentages. Free 
percentage volume may be shipped to any market, while restricted 
percentage volume must be held by handlers in a primary or secondary 
reserve, or be diverted or used for exempt purposes as prescribed in 
Sec. Sec.  930.159 and 930.162. Exempt purposes include, in part, the 
development of new products, sales into new markets, the development of 
export markets, and charitable contributions. Sections 930.55 through 
930.57 prescribe procedures for inventory reserve. For cherries held in 
reserve, handlers would be responsible for storage and would retain 
title of the tart cherries.
    Under Sec.  930.52, only 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 2018-19 crop year would be: 
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) would not be regulated for the 2018-19 
season.
    Section 930.58 of the Order provides authority for voluntary grower 
diversion. When volume regulation is in effect, growers can divert all 
or a portion of their cherries which otherwise, upon delivery to a 
handler, would be subject to regulation. This section also authorizes 
the Board, with the approval of the Secretary, to establish terms and 
conditions for grower diversion. Section 930.158 prescribes the rules 
and regulations for grower diversion, including a requirement that 
diverted cherries be marketable.
    Demand for tart cherries and tart cherry products tends to be 
relatively stable from year to year. Conversely, annual tart cherry 
production can vary greatly. In addition, tart cherries are processed 
and can be stored and carried over from crop year to crop year, further 
impacting supply. As a result, supply and demand for tart cherries are 
rarely in balance.
    Because demand for tart cherries is inelastic, total sales volume 
is not very responsive to changes in price. However, prices are very 
sensitive to changes in supply. As such, an oversupply of cherries 
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.
    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'' (http://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 July 6, 2018, and computed an optimum supply of 
303 million pounds for the 2018-19 crop year using the average of free 
sales for the three previous seasons and desirable carry-out. To 
determine the carry-out figure, the Board discussed and considered a 
range of alternatives. One member suggested a carry-out value of 100 
million pounds to maximize the amount of fruit on the market and to 
compete with imports. Another member indicated both free and restricted 
product could be used to compete with imports and proposed a 50 million 
pound carry-out. Another attendee noted excessive carryout puts 
downward pressure on prices. After the consideration of the 
alternatives, the Board determined a carry-out of 80 million pounds 
would supply the industry's needs at the beginning of the next season.
    The Board subtracted the estimated carry-in of 125.1 million pounds 
from the optimum supply to calculate the production quantity needed 
from the 2018-19 crop to meet optimum supply. This number, 177.9 
million pounds, was subtracted from the Board's estimated 2018-19 total 
production (from regulated and unregulated districts) of 344.5 million 
pounds to calculate a surplus of 166.6 million pounds of tart cherries. 
The Board also complied with the market growth factor requirement by 
removing 22.3 million pounds (average sales for prior three years of 
223 million times 10 percent) from the surplus. The adjusted surplus of 
144.3 million pounds was then divided by the expected production in the 
regulated districts (338.5 million pounds) to reach a preliminary 
restricted percentage of 43 percent for the 2018-19 crop year.
    The Board then discussed whether this calculation would provide 
sufficient supply to grow sales and fulfil orders that have not yet 
shipped. Some members and attendees expressed concern that some 
existing inventory is old enough that it is difficult to sell and thus 
more of the current season's fruit should be made available. Some also 
reported there may be poor fruit yield in

[[Page 20045]]

Michigan, which would require more tonnage to supply the same amount of 
product. Others added the Board's demand calculations were not 
considering growth in the juice and dried fruit markets that are being 
served by imported product. As a result, the Board recommended an 
additional economic adjustment of 48 million pounds (18 million due to 
fruit quality concerns and 30 million for expected deliveries). With 
this adjustment, and anticipated orchard diversion (25 million pounds) 
the Board's preliminary restricted percentage was 31 percent (96 
million pounds divided by 313.5 million pounds).
    The Board met again on September 13, 2018, to consider final volume 
regulation percentages for the 2018-19 season. The final percentages 
are based on the Board's reported production figures and the supply and 
demand information available in September.
    The total production for the 2018-19 season was 299.2 million 
pounds, 45.3 million pounds below the Board's July estimate. In 
addition, growers diverted 12.4 million pounds in the orchard, about 
half of what had been anticipated. As a result 286.8 million pounds 
would be available to market, 282.3 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 Julyof 125.1 
million pounds, from the optimum supply of 303 million pounds to 
determine 177.9 million pounds of 2018-19 production would be necessary 
to reach optimum supply. The Board subtracted the 177.9 million pounds 
from the actual production of 299.2 million pounds, resulting in a 
surplus of 121.3 million pounds of tart cherries.
    The Board also revisited its earlier decision regarding an economic 
adjustment. Many in attendance expressed that the previously 
recommended economic adjustment should be revisited to avoid placing 
excess fruit on the market. One member indicated the fruit quality in 
Michigan was better than anticipated in July. Other attendees indicated 
the adjustment for additional sales had been overstated. As a result, 
the Board recommended lowering the economic adjustment to 24 million 
pounds.
    The recalculated surplus was reduced by subtracting the revised 
economic adjustment of 24 million pounds and the market growth factor 
of 22.3 million pounds, resulting in an adjusted surplus of 75 million 
pounds. The Board then divided this final surplus by the available 
production of 282.3 million pounds in the regulated districts (294.7 
million pounds minus 12.4 million pounds of in-orchard diversion) to 
calculate a restricted percentage of 27 percent with a corresponding 
free percentage of 73 percent for the 2018-19 crop year, as outlined in 
the following table:

------------------------------------------------------------------------
                                                            Millions of
                                                              pounds
------------------------------------------------------------------------
Final Calculations:
    (1) Average sales of the prior three years..........             223
    (2) Plus desirable carry-out........................              80
    (3) Optimum supply calculated by the Board..........             303
    (4) Carry-in as of July 1, 2018.....................           125.1
    (5) Adjusted optimum supply (item 3 minus item 4)...           177.9
    (6) Board reported production.......................           299.2
    (7) Surplus (item 6 minus item 5)...................           121.3
    (8) Total economic adjustments......................              24
    (9) Market growth factor............................            22.3
    (10) Adjusted Surplus (item 7 minus items 8 and 9)..              75
    (11) Supply in regulated districts..................           294.7
    (12) In-Orchard Diversion...........................            12.4
                                                         ---------------
        (13) Production minus in orchard diversion......           282.3
                                                         ---------------
Final Percentages:                                            Percent
                                                         ---------------
    Restricted (item 10 divided by item 13 x 100).......              27
    Free (100 minus restricted percentage)..............              73
------------------------------------------------------------------------

    The final restriction of 27 percent is lower than the preliminary 
restriction percentage of 31 percent. The largest factor affecting this 
change was the final production numbers that came in below the Board's 
July estimate. Additionally, less fruit was diverted in orchard than 
anticipated and the Board revised its economic adjustment to 24 million 
pounds. The desired carry-out remained the same at 80 million pounds.
    In discussing the calculation, several members indicated they 
believed the recommendation was too restrictive. They supported 
maintaining the economic adjustment at the original level, which would 
have resulted in a lower calculated restriction. Other members stated 
that reducing the economic adjustment was reflective of industry 
conditions and expressed concern about putting too much fruit into the 
market.
    Establishing free and 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, based on its discussion of this issue and the result 
of the above calculations, believes the available information indicates 
a restricted percentage should be established for the 2018-19 crop year 
to avoid oversupplying the market with tart cherries.
    Consequently, the Board recommended final percentages of 73 percent 
free and 27 percent restricted by a vote of 13 in favor, 4 opposed, and 
1 abstention. 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 73 percent 
free and 27 percent restricted would tend to effectuate the

[[Page 20046]]

declared policy of the Act, and so designates these percentages.
    Additionally, the Board reviewed its rules regarding grower 
diversion, as this diversion option has become more of a common 
practice over the past few seasons. To receive grower diversion credit, 
the Order requires that the fruit left in the orchard must be 
marketable. With no definition of marketable in the Order, the Board 
had defined fruit as unmarketable if insects were found in any of the 
fruit sampled from the acreage marked for diversion.
    In 2016, the Board formed a committee to investigate updating this 
policy based on recent infestations of spotted wing drosophila. The 
industry was concerned growers would not qualify for diversion if a 
zero-tolerance policy remained in effect, but also wanted to ensure 
orchards were properly maintained to prevent the spread of infestation. 
The Board modified its working definition of marketable to reflect 
aspects of the tolerances in an FDA Compliance Policy Guide (CPG Sec. 
550.225 Cherries--Brined, Fresh, Canned and Frozen--Adulteration 
Involving Rot and Insect). Specifically, the Board recommended using a 
5 percent tolerance for insects and a 7 percent tolerance for rot when 
sampling cherries for diversion. After applying the two tolerances for 
insects and rot over two harvests, the Board found these levels were 
effective. The Board discussed this issue at its meetings on September 
13, 2018, and October 23, 2018, and unanimously recommended 
incorporating this change into the Order's rules and regulations.

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 proposed 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 (NASS) 
and Board data, the average annual grower price for tart cherries 
utilized for processing during the 2017-18 season was approximately 
$0.224 per pound. With total utilization at approximately 254 million 
pounds for the 2017-18 season, the total 2017-18 value of the crop 
utilized for processing is estimated at $56.9 million. Dividing the 
crop value by the estimated number of producers (600) yields an 
estimated average receipt per producer of $94,833. This is well below 
the SBA threshold for small producers.
    A free on board (FOB) price of $0.82 per pound for frozen tart 
cherries was reported by the Food Institute during the 2017-2018 
season. Based on utilization, this price represents a good estimate of 
the price for processed cherries. Multiplying this FOB price by total 
utilization of 254.1 million pounds results in an estimated handler-
level tart cherry value of $208 million. Dividing this figure by the 
number of handlers (40) yields estimated average annual handler 
receipts of $5.2 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 for the years 2012 through 2017 were 85 
million, 294 million, 304 million, 253 million, 329 million, and 260 
million, respectively. Because of these fluctuations, supply and demand 
for tart cherries are rarely in balance.
    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 $0.588 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 proposal would control the supply of tart cherries by 
establishing percentages of 73 percent free and 27 percent restricted 
for the 2018-19 crop year. These percentages should stabilize marketing 
conditions by adjusting supply to meet market demand and help improve 
grower returns. The proposal would regulate tart cherries handled in 
Michigan, New York, Utah, Washington, and Wisconsin. This proposal 
would also revise the regulations regarding grower diversion to codify 
the Board's definition of marketable fruit. The authority for this 
proposed action is provided in Sec. Sec.  930.50, 930.51(a), 930.52, 
and 930.58. The Board recommended this action at meetings on September 
13, 2018, and October 23, 2018.
    This proposal would 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'' (http://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. Under this 
proposal, the available quantity would be more than 150 percent of the 
average sales for the last 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 2017-18, these activities 
accounted for over 82 million pounds in sales, 27 million of which were 
exports. These numbers represent increases of 45 million pounds and 
11.4 million pounds respectively.
    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

[[Page 20047]]

years are used to supplement supplies in short crop years. The reserves 
help the industry to mitigate the impact of oversupply in large crop 
years, while allowing the industry to supply 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.
    The Board recommended a carry-out of 80 million pounds and made a 
demand adjustment of 24 million pounds in order to make the regulation 
less restrictive. With 125.1 million pounds of carry-in, 4.5 million 
pounds of production in the unregulated districts, and 207.3 million 
pounds of free tonnage from the regulated districts, 336.9 million 
pounds of fruit would be available for the domestic market. This is 
nearly 50 million pounds greater than the tonnage made available in the 
previous season. Even with the recommended restriction, the domestic 
market would have an ample supply of tart cherries. Further, should 
marketing conditions change, and market demand exceed existing 
supplies, the Board could meet and recommend the release of an 
additional volume of cherries. Consequently, it is not anticipated that 
this proposal would unduly burden growers or handlers.
    While this proposal could result in some additional costs to the 
industry, these costs are 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. In addition, the industry could start to build large 
amounts of unwanted inventories, which would also have a depressing 
effect on grower returns.
    An econometric model has been developed to assess the impact volume 
control has on the price growers receive for their product. Based on 
the model, the use of volume control would have a positive impact on 
grower returns for this crop year. With volume control, grower prices 
are estimated to be approximately $0.04 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 
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 proposal should have little or no effect on 
consumer prices and should not result in a reduction in retail sales.
    The incorporation of a tolerance for insects and rot in diverted 
fruit would align the Order's grower diversion rules and regulations 
with current industry practices. The tolerances should make it possible 
for more growers to participate in diversion during periods of 
oversupply, while encouraging proper pest management. Proper pest 
management helps reduce costs by decreasing incidences of infestation. 
Further, the use of grower diversion removes excess supply from the 
market without incurring the costs of harvesting, processing, and 
storage.
    The proposed tolerance for insects and rot for cherries diverted in 
the orchard would provide clear guidance for compliance with Order 
provisions, encourage proper pest management, and align the Order's 
rules with industry standards. Growers, regardless of size, would 
benefit from the addition of these tolerances.
    The free and restricted percentages established by this proposal 
would provide the market with optimum supply and would 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 proposal would benefit all handlers 
by helping them maintain and expand markets, despite seasonal supply 
fluctuations. Likewise, price stability positively impacts all growers 
and handlers by allowing them to better anticipate the revenues their 
tart cherries would generate. Growers and handlers, regardless of size, 
would benefit from the stabilizing effects of the volume restriction.
    The Board had extensive discussions on carry-out inventory 
alternatives. The alternatives included five motions that failed to 
pass, ranging from 50 million pounds to 100 million pounds. The Board 
determined that if the carry-out number was too large, it could have a 
negative impact on grower returns. Some attendees indicated excess 
carry-in over the past few seasons has had a negative effect on returns 
and that growers are seeking relief. After consideration of the 
alternatives, the Board recommended a carry-out of 80 million pounds.
    The Board also weighed alternatives when discussing the economic 
adjustment. At its July meeting, the Board recommended a 48 million 
pound adjustment to account for fruit quality concerns and expected 
sales. One member proposed an additional 40-million-pound adjustment to 
counter imports of dried and frozen cherries, while other members 
favored a lower amount.
    When the final production numbers were reviewed in September, the 
Board revisited the economic adjustment. Members indicated fruit 
quality was still an issue, but yields were better than initially 
anticipated. Members also stated that with tough international markets, 
the additional sales may have been overstated. Members from the Western 
states in particular were concerned that a large shift in the 
restriction percentage following harvest would disrupt the overall 
market and petitioned the Board to reconsider the adjustment. After 
discussion, the Board adopted an adjustment of 24 million pounds 
determining this amount would best meet the industry's sales needs. 
Thus, the alternatives were rejected.
    Regarding grower diversion requirements, the Board initially 
proposed a broader set of requirements including spray protocols and 
destruction of diverted fruit in order to better control infestation. 
The original proposal called for annual determination of which steps 
would be required in each district. As research is still evolving on 
how best to deal with spotted wing drosophila infestations, preferred 
methods of dealing with the diverted fruit were also subject to change. 
Thus, the Board voted to codify only the tolerance for marketability.
    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 proposal 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.

[[Page 20048]]

    AMS is committed to complying with the E-Government Act, to promote 
the use of the internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this proposed rule.
    In addition, the 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 July 6, 2018, September 13, 2018, 
and October 23, 2018, meetings were public meetings, and all entities, 
both large and small, were able to express views on this issue. 
Finally, interested persons are invited to submit comments on this 
proposed rule, including the regulatory and information collection 
impacts of this proposal on small businesses.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/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 proposal. All written comments timely received will be 
considered before a final determination is made on this matter.

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.

0
2. Amend Sec.  930.158 by revising paragraph (a) to read as follows:


Sec.  930.158   Grower diversion and grower diversion certificates.

    (a) Grower diversion certificates. The Board may issue diversion 
certificates to growers in districts subject to volume regulation who 
have voluntarily elected to divert in the orchard all or a portion of 
their tart cherry production which otherwise, upon delivery to 
handlers, would become restricted percentage cherries. Growers may 
offer the diversion certificate to handlers in lieu of delivering 
cherries. Handlers may redeem diversion certificates with the Board 
through June 30 of each crop year. After June 30 of the crop year that 
crop year's grower diversion certificates are no longer valid. Cherries 
that have reached a harvestable, marketable condition will be eligible 
for diversion. Diversion will not be granted to growers whose fruit was 
destroyed before it set and/or matured on the tree, or whose fruit is 
unmarketable. If marketable fruit were to be damaged or destroyed by 
acts of nature such as storms or hail diversion credit could be 
granted. To be considered marketable for the purposes of this section, 
sampled fruit may not exceed a 5 percent tolerance for insects or a 7 
percent tolerance for rot.
* * * * *
0
3. Revise Sec.  930.256 and its heading title to read as follows:


Sec.  930.256   Free and restricted percentages for the 2018-19 crop 
year.

    The percentages for tart cherries handled by handlers during the 
crop year beginning on July 1, 2018, which shall be free and 
restricted, respectively, are designated as follows: Free percentage, 
73 percent and restricted percentage, 27 percent.

    Dated: April 30, 2019.
Bruce Summers,
Administrator, Agricultural Marketing Service.
[FR Doc. 2019-09152 Filed 5-7-19; 8:45 am]
 BILLING CODE 3410-02-P