Docket Clerk
Fruit and Vegetable Division, AMS
U.S. Department of Agriculture
South Building
P.O. Box 96456
Washington, DC 20090-6456
Dear Docket Clerk:
On January 7, 1997, the Agricultural Marketing Service (AMS) issued the above-referenced proposed rule which seeks to establish quantity percentages for spearmint oil produced in the Far West, by class, that handlers may purchase from, or handle for, producers during the 1997-98 marketing year. The most notable fact underlying this rulemaking is that for the first time ever (since the Office of Advocacy has maintained records), the AMS Fruit and Vegetable Division has performed an initial regulatory flexibility analysis (IRFA) on a proposed rule. AMS is to be commended for its effort to comply with the Regulatory Flexibility Act (RFA). Notwithstanding, there are a few areas in which the IRFA could be improved in order to achieve full compliance with the RFA and assure that small entities will not be burdened unnecessarily.
CERTIFICATION
Since the Administrator of AMS did not certify that the instant rulemaking would not have a significant economic impact on a substantial number of small entities, and since an IRFA is included, AMS effectively is acknowledging that there may/will be a significant economic impact on a substantial number of small entities. A brief overview of the facts supports AMS' decision not to certify. The Spearmint Oil Committee (Committee) is the agency responsible for administration of the marketing order that governs spearmint oil produced in the Far West. The Committee has recommended this rule in order to avoid extreme fluctuations in supplies and prices, and hence, maintain market stability. The proposed rule seeks to establish a salable quantity of 996,522 pounds and an allotment percentage of 55 percent for Scotch spearmint oil that handlers may purchase from, or handle for, producers during the 1997-98 market year. For the same marketing year, the rule would establish a salable quantity of 1,125,351 pounds and an allotment percentage of 56 percent for Native spearmint oil. The production area covered by the order accounts for about 75 percent of the industry's production in the U.S. The Committee is targeting 73 percent of the North American market, compared to the nearly 65 percent targeted for the previous season. Note the following formula used to determine the salable quantity and allotment percentage for Scotch spearmint oil.
Formula:
Carry-in = total available supply - estimated trade demand Estimated N. American production = based on buyer and producer input % of N. American targeted mkt. = avg. of 5 regional producer meeting recommendations Total quantity needed to reach targeted % = estimated production + targeted % Min. amount on hand = recommendation from 5 regional producer meetings Total supply req'd = min. on hand amount + total quantity to reach targeted % Add'l quantity req'd = total supply req'd - estimated carry-in Computed/Recommended allotment % = req'd salable quantity / total allotment base Recommended salable quantity = recommended allotment % + total allotment base. The Committee apparently maintains records which show that the market for spearmint oil has remained relatively steady while the order has been in effect (since 1980). None of the eight handlers regulated by the order would be considered small by U.S. Small Business Administration (SBA) standards, and a minority of the producers are small.1 Nevertheless, the question remains whether the rule will allow the affected small producers to grow and process enough spearmint oil to keep them economically viable. The answer to this question requires a level of analysis beyond that needed to assess whether a rule should be certified. Attempting to alter reserve percentages and allotments-telling a small business how much they can grow, sell or buy-certainly could have a significant economic impact. To mitigate the impact of the regulation on small entities while achieving the intended purpose of preventing fluctuating markets for the spearmint industry and consumers, an IRFA clearly is required.
INITIAL REGULATORY FLEXIBILITY ANALYSIS
In determining the economic impact of the rule, AMS should flesh out some of its assumptions and/or statements. For instance, AMS states that, "[r]ecords show that the marketing order has contributed extensively to the stabilization of grower prices, which prior to 1980 experienced wide fluctuations from year to year."2 To base the need for the instant rulemaking on conditions that existed nearly 20 years ago, some sort of comparative market analysis would be in order. That is, AMS should determine whether there is any current evidence to suggest that the markets would experience instability under today's market conditions without the order? There are basic questions at issue: 1) Could it be that the market was unusually volatile during the period between 1971 and 1975 where market prices for Native spearmint oil increased from $3.00 per pound to $11.00 per pound? 2) Why can we assume that the early 1970s are representative of market conditions today? 3) How does the increase in international producers of spearmint oil affect the stability of the U.S. market? AMS also states in its discussion of alternatives that, " higher or lower salable quantities and allotment percentages would not achieve the intended balance between market and price stability and market share maintenance and growth."3 The Spearmint Oil Administrative Committee (the Committee) reached this conclusion and recommendation, "after careful consideration of all available information."4 The Committee seems to be privy to information not contained in the rulemaking. The basis for the Committee's decision is germane to the rulemaking. Were specific percentages considered by the Committee as alternatives and rejected? If so, why? The Committee's decision implies that there has been an analysis to determine what quantities of spearmint a producer must have in order to survive. What specific factors led the committee to determine that its current minimum allotments are insufficient and will the proposed increase in allotment be great enough to overcome these factors? By being as transparent as possible in the rulemaking process, agencies are less likely to be challenged in court under the Small Business Regulatory Enforcement Fairness Act (SBREFA). Finally, there is no mention of how many new producers will be allocated enough base to enter the market? Care needs to be taken to ensure that rules do not promote market competition under the guise of "stabilizing grower prices" at the expense of free and open competition. The Office of Advocacy consistently has taken the position that competition among businesses of varying sizes should be maintained whenever possible.
CONCLUSION
The comments presented above are not intended as gratuitous criticism. Rather, the comments are suggestions on how to improve the instant and future rulemakings. The Office of Advocacy is pleased that AMS obviously has instituted new policies and guidelines for its regulatory flexibility analyses. The fact that AMS has made a giant step in the direction of compliance with the RFA has been recognized and appreciated by this office. The Office of Advocacy recommends that AMS conduct a final regulatory flexibility analysis in conjunction with publication of the final rule. Such an analysis will provide AMS an opportunity to address the issues discussed above. Please do not hesitate to contact me or Mrs. McGibbon with questions related to compliance with the RFA We look forward to working with you in the future.
Sincerely,
Jere W. Glover
Chief Counsel for Advocacy
Shawne Carter McGibbon
Assistant Chief Counsel for Advocacy
ENDNOTES
1 Small agricultural service firms are defined by the Small Business Administration (13 CFR 121.601) as those having annual receipts of less than $5,000,000, and small agricultural producers are defined as those whose annual receipts are less than $500,000. Using the SBA standards as a guide, 13% of Scotch spearmint oil producers and 9% of Native spearmint oil may be classified as small entities.
2 62 Fed. Reg. at 943
3 Id. at 944.
4 Id.