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

Published date08 May 2019
Citation84 FR 20043
Record Number2019-09152
SectionProposed rules
CourtAgricultural Marketing Service,Agriculture Department
Federal Register, Volume 84 Issue 89 (Wednesday, May 8, 2019)
[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]
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                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
                

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