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, 53003-53008 [2019-21360]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 84, Number 193 (Friday, October 4, 2019)]
[Rules and Regulations]
[Pages 53003-53008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21360]



[[Page 53003]]

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

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


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: Final rule.

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SUMMARY: This rule implements 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 establishes the 
proportion of tart cherries from the 2018-19 crop which may be handled 
in commercial outlets. This action also revises the regulations 
regarding grower diversion. This action should stabilize marketing 
conditions by adjusting supply to meet market demand and help improve 
grower returns.

DATES: Effective November 4, 2019.

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 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 final rule in 
conformance with Executive Orders 13563 and 13175. This final 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 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 final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. Under the Order provisions now in effect, free 
and restricted percentages may be established for tart cherries handled 
during the crop year. This rule establishes 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 a marketing order may file with USDA a 
petition stating that the marketing order, any provision of the 
marketing order, or any obligation imposed in connection with the 
marketing order is not in accordance with law and request a 
modification of the marketing 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 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 also revises 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 effectuates 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.
    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 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 2018-19 
season.
    Section 930.58 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.

[[Page 53004]]

    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 marketing 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'' (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 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 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 July of 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

[[Page 53005]]

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 
marketing 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 tends to effectuate the 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 marketing order requires that the fruit left in the orchard must be 
marketable. With no definition of marketable in the marketing 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.

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 final rule on small 
entities. Accordingly, AMS has prepared this final regulatory 
flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf.
    There are approximately 600 producers of tart cherries in the 
regulated area and approximately 40 handlers of tart cherries who are 
subject to regulation under the Order. Small agricultural producers are 
defined by the Small Business Administration (SBA) as those having 
annual receipts of less than $750,000, and small agricultural service 
firms have been defined as those whose annual receipts are less than 
$7,500,000 (13 CFR 121.201).
    According to the National Agricultural Statistics Service (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

[[Page 53006]]

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 rule controls 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. This action regulates tart cherries growing in Michigan, New 
York, Utah, Washington, and Wisconsin. This action also revises the 
regulations regarding grower diversion to codify the Board's definition 
of marketable fruit. The authority for this 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 rule will result in some fruit being diverted from the primary 
domestic markets. However, as mentioned earlier, the USDA's 
``Guidelines for Fruit, Vegetable, and Specialty Crop Marketing 
Orders'' (https://www.ams.usda.gov/publications/content/1982-guidelines-fruit-vegetable-marketing-orders) specify that 110 percent of recent 
years' sales should be made available to primary markets each season 
before recommendations for volume regulation are approved. The quantity 
that is available under this regulation is 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 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 will 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 will 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 regulation will unduly burden growers or handlers.
    While this action 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 action 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 aligns 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 established tolerance for insects and rot for cherries diverted 
in the orchard will provide clear guidance for compliance with 
marketing order provisions, encourage proper pest management, and align 
the Order's rules with industry standards. Growers, regardless of size, 
should benefit from the addition of these tolerances.
    The free and restricted percentages established by this action will 
provide the market with optimum supply and

[[Page 53007]]

will apply uniformly to all regulated handlers in the industry, 
regardless of size. As the restriction represents a percentage of a 
handler's volume, the costs, when applicable, are proportionate and 
should not place an extra burden on small entities as compared to large 
entities.
    The stabilizing effects of this action benefit all handlers by 
helping them maintain and expand markets, despite seasonal supply 
fluctuations. Likewise, price stability positively impacts all growers 
and handlers by allowing them to better anticipate the revenues their 
tart cherries would generate. Growers and handlers, regardless of size 
benefit from the stabilizing effects of 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 to those 
requirements are necessary as a result of this action. Should any 
changes become necessary, they would be submitted to OMB for approval.
    This final rule 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.
    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.
    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.
    A proposed rule concerning this action was published in the Federal 
Register on May 8, 2019 (84 FR 20043). Copies of the proposed rule were 
sent via email to all Board members and tart cherry handlers. Finally, 
the proposed rule was made available through the internet by USDA and 
the Office of the Federal Register. A 30-day comment period was 
provided to allow interested persons to respond to the proposal.
    Two comments were received in opposition to the proposal. Both 
commenters were concerned by adjustments made between the Board's 
preliminary and final recommendations, indicating the changes reduced 
the amount of free volume available. The Order requires that the Board 
make a preliminary recommendation on or around July 1 and then make a 
final recommendation before September 15. The preliminary numbers are 
based on forecasts and are announced to give the industry an initial 
indication of the conditions for the upcoming season. The preliminary 
percentages or the numbers used in the calculation are not binding.
    One commenter stated changes from the June estimates interrupt the 
flow of business. However, there are often changes between the two 
recommendations, as actual production, diversion numbers, or industry 
conditions do not always align with forecasts. When the Board meets in 
September to make a final recommendation, harvest is complete, and the 
fruit has moved into processing channels. The Board can discuss volume 
regulation using actual numbers and current information regarding 
market conditions. Therefore, the final recommendation to the Secretary 
is made in September. Further, should conditions warrant, the Order 
gives the Board the authority to recommend a release of reserves if it 
is determined there is demand for additional fruit.
    One commenter objected to the reduction in the economic adjustment 
from the 48 million pounds used during the preliminary discussion in 
June to the 24 million pounds included in the final recommendation. The 
Board had incorporated an adjustment of 48 million pounds in its 
preliminary recommendation based in part on the expectations of poor 
fruit quality and additional sales needs. At the meeting in September, 
many in attendance expressed that the Board needed to revisit the 
economic adjustment to avoid placing excess fruit on the market. During 
the discussion, one member indicated the fruit quality in Michigan was 
better than was 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 commenter expressed that the statement regarding improved fruit 
quality was erroneous and using this as a reason to change the economic 
adjustment from 48 to 24 million pounds was improper. The commenter 
noted that yields for 2018 fell below 2015 and 2016 levels as grounds 
to support the claim that the original economic adjustment should have 
been

[[Page 53008]]

maintained. However, the final recommendation provided by the Board 
indicated yields were better than anticipated in July, but still an 
issue. The other major factor in this adjustment was a consideration of 
expected sales. As noted earlier, the Board's discussions indicated the 
adjustment for additional sales may have been overstated in its 
preliminary calculations. Therefore, the economic adjustment was not 
eliminated but reduced to 24 million pounds. Further, all members had 
an opportunity to express their opinions. The concerns regarding the 
change in the economic adjustment raised by these commenters were part 
of the Board's discussions and in the end the recommended adjustment 
was supported by a supermajority of the Board.
    The comments also referred to old or poor quality inventory being 
favored by the regulation. With the exception of an age limitation on 
inventory held in reserve, the Order makes no distinctions among 
products in inventory. There are no regulations on the age or quality 
of fruit held as free inventory, nor is there any specific data 
collected regarding the age of the product in inventory. The comments 
also provide no specifics regarding the volume or age of the inventory 
they cite as problematic. Without this information, there can be no 
objective determination regarding how the age or quality of current 
inventory is impacting the market.
    Both comments also mentioned concerns with the volume of imports, 
which were also part of the Board's preliminary and final discussions. 
While the Order cannot regulate imports, the Board has sought to use 
its available tools to remain competitive. In recent years, the Board 
has recommended, and USDA implemented, changes to the Order to allow 
processors to use restricted fruit under the market expansion 
provisions of the Order. This has included allowing new market 
diversion credits when supplying a customer formerly supplied by 
imports. As stated previously, these activities accounted for 55 
million pounds of sales in 2017, up from 21.4 million pounds in the 
previous season. In 2018, the Order's rules and regulations were 
modified to expand the number of years products are eligible for these 
diversion credits from three to five years. That change allows handlers 
to receive credits for two additional years, making it more likely 
handlers will invest in these diversion activities and reestablish 
domestic markets using restricted fruit.
    One commenter also indicated the regulation results in quality 
fruit being destroyed. There is no requirement under the Order to 
destroy fruit. Those choosing to participate in grower diversion as a 
means of complying with the regulation do leave fruit unharvested in 
order to receive diversion credits that are then sold to processors. 
This is just one of many options processors have in order comply with 
the regulation. Board data indicate only 12.5 million pounds were 
diverted in the orchard, half of what had been projected in July. This 
indicates more handlers chose to meet their restricted percentage using 
reserves, new product and new market diversion, and exports.
    Accordingly, based on the comments received, no changes will be 
made to the rule as proposed.
    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. 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 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: September 26, 2019.
Bruce Summers,
Administrator, Agricultural Marketing Service.
[FR Doc. 2019-21360 Filed 10-3-19; 8:45 am]
BILLING CODE 3410-02-P