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Federal Register / Vol. 86, No. 158 / Thursday, August 19, 2021 / Proposed Rules of product quality than buyers, a condition called asymmetric information. Akerlof 1970 showed asymmetric information can cause economic inefficiencies in which producers forego investments that are less costly to implement than the benefit they provide consumers.9 Third-party inspection that verifies a products quality resolves this source of market failure.
Grain inspectors certify the protein content, kernel size, and other quality factors related to products market value to simplify transactions. Since the outcome of grain inspections directly affects the sale price, biases and inconsistences in inspection methods might potentially redistribute the gains to trade from seller to buyer, or vice versa. Market power might exacerbate the tendency to bias and inconsistency if, for instance, large sellers or buyers can influence the outcome of quality inspections in their favor. In addition to fairness concerns, such opportunistic behavior creates economic inefficiencies by reducing returns on investment in quality improvement and creating costs for downstream producers i.e., bakers and food processors expecting products of certain quality.
Grain inspection is an optional service. When information asymmetries are a concern, inspection facilitates simpler, more rapid, and less risky transaction of final product. By allowing producers to recoup the costs of quality improvement, grain inspection also encourages investment in quality improvement.
Under its regulatory authority, the USDA approves grain inspection standards and monitors their uniform application by OAs. To promote a competitive market for grain, in which all producers have access to inspection services, FGIS requires that OAs provide inspection services to all producers in an assigned area and regulates marketing fee schedules charged by OAs for these services. FGIS approves rates to cover various labor, laboratory, and travel costs and only approves differential rates across geographic areas if underlying costs differ across assigned regions. For this reason, FGIS does not expect this rule to impact the prices paid by inspection users or the fees received by OAs. Instead, FGIS expects this rule will allow the small fraction of inspection users who need timely service and nonuse of service exceptions greater flexibility in 9 George
Akerlof, The Market for Lemons:
Quality Uncertainty and the Market Mechanism Quarterly Journal of Economics, 1970.

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obtaining inspections services to meet immediate business requirements.
Benefits and Costs of the Rule FGIS considers economic benefits of this rule as being three-fold. First, the rule provides clarity to producers regarding the terms under which exceptions are granted. Second, the rule increases options to producers who require inspection services to market their grain. FGIS expects that this option will be utilized by fewer than one percent producers who need inspections services quickly but face service constraints by OAs. Third, the rule may heighten attention to service issues among OAs that have received nonuse of service exception requests. The validation process FGIS will maintain as part of the granting of exceptions will ensure requests serve a valid business purpose. OAs may offer additional services such as a broader range of testing as a result.
FGIS does not ascribe any direct compliance costs to either OAs or producers as a result of the potential increase for timely service and nonuse of service exceptions under this rule.
FGIS does not expect that inspection fees it approves will change as a result of this rule. To the extent that this rule provides greater flexibility to how producers can obtain inspection services, it will provide improved services or reduce total costs to producers by, for instance, allowing those needing immediate inspections to get them from an OA other than the one to which they are assigned. Moreover, FGIS does not believe the rule will create significant indirect costs, aside from minor costs to market participants learning the rule and documenting exceptions.
To the extent that some OAs conduct fewer inspections because producers in their assigned area have requested more exceptions, other OAs will conduct more inspections. FGIS believes that any business losses to an OA will be small and that any losses will be offset by gains to other OAs. This rearrangement of business activity constitutes a transfer of benefits from one OA to another and has a neutral effect on total costs and benefits of the rule.
To summarize, FGIS believes that the total impact of the rule on the grain inspection industry is not economically significant and that the benefits of this rule exceed its costs, which are negligible.
Regulatory Flexibility Analysis The Regulatory Flexibility Act RFA
5 U.S.C. 601 et seq. requires agencies
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to consider the impact of their rules on small entities and to evaluate alternatives that would accomplish objectives of the rule without unduly burdening small entities when rules impose a significant economic impact on a substantial number of small entities. This rule has an economic impact on farms selling grain that require inspections classified under North American Industry Classification System, or NAICS, codes 111110, 111120, 111130, 111140, 111150, 111191, 111160, 111191, and 111199, grain elevators and grain certifiers that conduct post-harvest crop activities NAICS code 115114 and either require or perform inspections. The Small Business Administration SBA
considers grain farms to be small if their sales are less than $1 million and grain elevators and grain certifiers OAs to be small if their sales are less than $30
million 13 CFR 121.201.
FGIS certifies that this rule does not have a significant economic impact on small businesses. This determination is made based on FGISs expectation that any small entities requiring grain inspection, including grain farms and grain elevators, or entities performing grain inspection, including OAs, will see neither a change in prices paid or fees charged nor a loss in access to inspection services or change in territorial boundaries for which they can perform inspections. Further, FGIS
believes its proposed challenge process addresses the concern that some small OAs may lose economic viability when exceptions are granted to customers under the exceptions to geographic boundary requirement.
Executive Order 12988
This proposed rule has been reviewed under Executive Order 12988Civil Justice Reform. This rule is not intended to have retroactive effect. The USGSA
provides in sec. 87g that no State or subdivision thereof may require or impose any requirements or restrictions concerning the inspection, weighing, or description of grain under the Act.
This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. No administrative proceedings would be required before parties could file suit in court challenging the provisions of this rule.
Executive Order 13175
This rule has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. Executive Order 13175

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