Walnuts Grown in California; Hearing on Proposed Amendment of Marketing Order No.984

Citation85 FR 7669
Record Number2020-02387
Published date11 February 2020
CourtAgricultural Marketing Service
Federal Register, Volume 85 Issue 28 (Tuesday, February 11, 2020)
[Federal Register Volume 85, Number 28 (Tuesday, February 11, 2020)]
                [Proposed Rules]
                [Pages 7669-7672]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-02387]
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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. 85, No. 28 / Tuesday, February 11, 2020 /
                Proposed Rules
                [[Page 7669]]
                DEPARTMENT OF AGRICULTURE
                Agricultural Marketing Service
                7 CFR Part 984
                [Docket No. AO-SC-20-J-0011; AMS-SC-19-0082; SC19-984-1]
                Walnuts Grown in California; Hearing on Proposed Amendment of
                Marketing Order No.984
                AGENCY: Agricultural Marketing Service, USDA.
                ACTION: Notice of hearing on proposed rulemaking; advance notice of
                proposed rulemaking.
                -----------------------------------------------------------------------
                SUMMARY: Notice is hereby given of a public hearing to receive evidence
                on proposed amendments to Federal Marketing Order No. 984 (Order)
                regulating the handling of walnuts grown in California. The California
                Walnut Board (Board), which locally administers the Order, recommended
                proposed amendments that would add authority for the Board to provide
                credit for certain market promotion expenses paid by handlers against
                their annual assessments due under the Order and establish requirements
                to effectuate the new authority. In addition, the Agricultural
                Marketing Service (AMS) proposes to make changes to the Order as may be
                necessary to conform to any amendment that may result from the hearing.
                DATES: The hearing will be held March 16, 2020, from 9:00 a.m. to 5:00
                p.m. and, if deemed necessary by the presiding administrative law
                judge, will continue March 17, 2020, from 9:00 a.m. until 5:00 p.m. or
                until any other such time as determined by the judge.
                ADDRESSES: The hearing will be held at the Sacramento Marriott Rancho
                Cordova, 11211 Point East Drive, Rancho Cordova, CA 95742.
                FOR FURTHER INFORMATION CONTACT: Melissa Schmaedick, Marketing Order
                and Agreement Division, Specialty Crops Program, AMS, USDA, Post Office
                Box 952, Moab, UT 84532; Telephone: (435) 265-5092, Fax: (435) 259-
                1502, or Andrew Hatch, 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] or
                [email protected].
                 Small businesses may request information on this proceeding by
                contacting Richard E. 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 administrative action is instituted
                pursuant to the Agricultural Marketing Agreement Act of 1937, as
                amended (7 U.S.C. 601-674), hereinafter referred to as the ``Act.''
                This action is governed by the provisions of sections 556 and 557 of
                title 5 of the United States Code and, therefore, is excluded from the
                requirements of Executive Order 12866, 13563 and 13175. AMS provided
                notice of the upcoming hearing to tribal governments through USDA's
                Office of Tribal Relations.
                 The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) seeks to
                ensure that within the statutory authority of a program, the regulatory
                and informational requirements are tailored to the size and nature of
                small businesses. Interested persons are invited to present evidence at
                the hearing on the possible regulatory and informational impacts of the
                proposals on small businesses.
                 The amendments proposed herein have been reviewed under Executive
                Order 12988, Civil Justice Reform. They are not intended to have
                retroactive effect.
                 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. 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 no later than 20 days
                after the date of the entry of the ruling.
                 The hearing is convened in accordance with the provisions of the
                Act and the applicable rules of practice and procedure governing the
                formulation of marketing agreements and orders (7 CFR part 900).
                 The proposed amendments to Marketing Order No. 984 (7 CFR 984) were
                recommended to the Secretary by the Board on September 13, 2019, and a
                request for a public hearing and proposed rulemaking was submitted to
                USDA on September 16, 2019. After reviewing the proposals and other
                information submitted by the Board, USDA concludes that the proposed
                amendments to part 984 (referred to as ``the Order'') will tend to
                effectuate the declared policy of the Act, and therefore, made a
                determination to schedule this matter for hearing.
                 The Board administers the Order, with the oversight of USDA. The
                Board's proposed change would authorize the Board to set aside funds
                every year during its budget discussions to fund a credit-back program.
                The proposal would also authorize certain market promotion expenses
                paid directly by handlers within a marketing year to be ``credited-
                back'' to the handler against their assessment obligation paid to the
                Board. The credit-back amount available to each handler would be
                determined by that handler's percentage of the industry's total volume
                of walnuts handled during the prior marketing year multiplied by the
                current marketing year's credit-back program budget. If the new
                authority is approved by growers in a grower referendum, the resulting
                final rule would include rules and regulations to effectuate the new
                authority.
                 In its request to USDA for a public hearing, the Board stated that
                the proposed amendments are necessary to encourage handlers to
                undertake market promotion activities in addition to the marketing
                order's generic marketing efforts, and to increase market demand for
                the industry's increasing supply of walnuts.
                [[Page 7670]]
                 The Board's request explained that the industry has grown since the
                program's inception in 1946, with production nearly doubling in the
                past decade to an estimated 672,000 short tons. Current bearing acres
                total 350,000 and an additional 60,000 are due to come into production
                over the next five years. As such, the Board is forecasting production
                to reach over 850,000 short tons, or a 26-percent increase, within that
                time.
                 The Board's justification for its recommendation stated that demand
                for walnuts needs to increase to stabilize future market returns. The
                Board stated that future increases in supply without additional
                increases in demand could result in weaker market returns. Further, the
                Board's analysis of domestic walnut consumption reveals untapped growth
                potential, with domestic household penetration only reaching 40
                percent. Thus, the proposed credit-back authority could stimulate
                demand and stabilize future market prices.
                 The Board explained that it is only authorized to conduct generic
                marketing activities for the promotion of inshell and shelled walnuts
                under the Order. The Board has previously developed new product
                formulations for handler use; however, because the Board does not
                manufacture or otherwise sell walnuts, it is incumbent upon the
                handlers to further develop and deliver new products to the market. The
                proposal for credit-back authority is intended to encourage handler
                product development and overall marketing and promotion of California
                walnuts. If the proposal is approved, the Board would be authorized to
                establish a credit-back program and recommend an annual credit-back
                rate, subject to approval by the Secretary.
                 In its hearing request, the Board stated the need to implement a
                credit-back program for the 2020/2021 marketing year, which begins
                September 1, 2020. The Board is recommending a credit-back rate of
                $0.70 cents for each handler dollar spent on qualified activities up to
                each handler's pro-rata share of assessments paid into the allocated
                credit-back fund. During its annual budget process, the Board would
                designate a credit-back fund based on forecasted production and
                anticipated assessment revenue. The per handler pro-rata share of the
                credit-back fund would be calculated by multiplying the budgeted
                credit-back fund by each handler's percentage of walnuts handled of the
                previous marketing year's total walnuts. The Board would then
                communicate to handlers the availability of the credit-back fund and
                their pro-rata portion of that fund.
                 Handlers would be able to apply for credit-back on the expenses of
                qualified activities completed within the marketing year. Handlers
                would provide proof of payment and documentation of qualified
                activities to the Board for review. Once the Board has approved the
                claim, the handler would receive a reimbursement for 70 percent of the
                expense of the qualified activity up to the handler's pro-rata share of
                the credit-back fund. If a credit-back claim for expenses is made prior
                to the end of the marketing year, the handler must also have paid
                sufficient assessments into the credit-back fund to cover their
                reimbursement. The Board's proposal also states that claims for credit-
                back on expenses must be made within 15 days after the end of the
                marketing year. If a claim for credit-back is not sufficiently
                documented or does not reflect qualified credit-back activities, the
                Board will deny a claim. An appeal process would afford a handler with
                a denied claim the opportunity to appeal the denial.
                 Regarding activities qualified for credit-back, the Board stated
                that direct expenditures for marketing promotion, including paid
                advertising, that promote the sale of walnuts, walnut products, or
                their uses could be eligible. The Board recommended that qualified
                activities would include: Paid media directed to end-users, trade or
                industrial users, and paid advertising space or time, including, but
                not limited to, newspapers, magazines, radio, television, online,
                transit, and outdoor media (including standard agency commission costs
                not to exceed 15 percent of gross expense); market promotion, marketing
                research (except pre-testing and test-marketing of paid advertising),
                and trade and consumer product public relations (not including
                advertising or public relations agency fees); in-store demonstrations,
                production of promotional materials, sales and marketing presentation
                kits, etc. (excluding couponing); and trade show booth rentals,
                services, and promotional materials.
                 The Board's recommendation also addresses promotional activities
                involving joint activities, handler-owned distribution of products, and
                promotional activities conducted under a State or Federal trade
                program.
                 For qualified credit-back activity involving joint participation by
                a handler and a manufacturer or seller of a complementary product(s),
                or a handler selling multiple complementary products, including other
                nuts, the Board recommended the amount allowed for credit-back should
                reflect that portion of the activity represented by walnuts. In
                addition, the handler's name or brand may be included on the product
                packaging, but the words ``California Walnuts'' must always be included
                on the product packaging.
                 For products owned or distributed by the handler, the Board
                recommended that the product must list the ownership or distributorship
                on the package and display the handler's name and the handler's brand.
                The words ``California Walnuts'' must always be included on the primary
                face label.
                 Regarding handler promotional activities pursuant to a contract
                with the Foreign Agricultural Service (FAS), USDA, and/or the
                California Department of Food and Agriculture (CDFA), the Board
                recommended that these activities not be eligible for credit-back
                unless the Board is administering the foreign marketing program, and
                the handler certifies that he or she would not be reimbursed by either
                FAS or CDFA for the amount claimed for credit-back. Foreign market
                expenses paid by third parties as part of a handler's contract with FAS
                or CDFA would not be eligible for credit-back.
                 In its recommendation, the Board states that the proposed changes
                have the broadest possible support from the industry. The proposed
                amendments were presented and discussed at several meetings involving
                California walnut handlers and growers. Ultimately, the Board
                recommended the proposed amendments at a public meeting on September
                13, 2019, where stakeholders were provided the opportunity to express
                their views and provide input. The proposed amendments were unanimously
                supported by the Board.
                 In addition to the proposed amendments submitted by the Board, AMS
                proposes to make any such changes to the Order as may be necessary to
                conform to any amendment that may result from the hearing, or to
                correct minor inconsistencies and typographical errors.
                 USDA will oversee this formal rulemaking proceeding. The issuance
                of this notice of public hearing is the first of several steps in the
                amendatory rulemaking process, including the issuance of a recommended
                decision, public comment period, Secretary's decision, grower
                referendum, and handler sign-up (if the prior steps prove favorable).
                 The public hearing process will further explain the industry's
                barriers to marketing and the merits of the proposed amendments in
                addressing these issues. At the hearing, interested persons may provide
                testimony in support of or in opposition to the proposed amendments. In
                addition, interested persons will be invited to
                [[Page 7671]]
                testify on the possible regulatory and informational impact of the
                proposed amendments on small businesses.
                 Interested persons will also be provided the opportunity to file
                briefs in support of or in opposition to the proposed amendments after
                the hearing, as well as file exceptions to any recommended decision
                that may be issued. Finally, any proposed amendments must be approved
                in a grower referendum before they can be implemented.
                 USDA will hold the public hearing for the purposes of: (i)
                Receiving evidence about the economic and marketing conditions which
                relate to the proposed amendments of the Order; (ii) determining
                whether there is a need for the proposed amendments to the Order; (iii)
                determining if there are other alternatives to this program or
                duplicates of the proposed program; and (iv) determining whether the
                proposed amendments or appropriate modifications thereof will tend to
                effectuate the declared policy of the Act.
                 Testimony is invited at the hearing on all the proposals and
                recommendations contained in this notice, as well as any appropriate
                modifications or alternatives.
                 All persons wishing to submit written material as evidence at the
                hearing should be prepared to submit four copies of such material at
                the hearing. Four copies of prepared testimony for presentation at the
                hearing should also be made available. To the extent practicable, eight
                additional copies of evidentiary exhibits and testimony prepared as an
                exhibit should be made available to USDA representatives on the day of
                appearance at the hearing. Any requests for preparation of USDA data
                for this rulemaking hearing should be made at least 10 days prior to
                the beginning of the hearing.
                 From the time the notice of hearing is issued until the issuance of
                a final decision in this proceeding, USDA employees involved in the
                decisional process are prohibited from discussing the merits of the
                hearing issues on an ex parte basis with any person having an interest
                in the proceeding. The prohibition applies to employees in the
                following organizational units: Office of the Secretary of Agriculture;
                Office of the Administrator, AMS; Office of the General Counsel; and
                the Specialty Crops Program, AMS.
                 Procedural matters are not subject to the above prohibition and may
                be discussed at any time.
                 USDA would make other such changes to the Order as may be necessary
                to conform with amendments that may result from the hearing, or correct
                minor inconsistencies and typographical errors.
                List of Subjects in 7 CFR Part 984
                 Walnuts, Marketing agreements, Nuts, Reporting and recordkeeping
                requirements.
                 Testimony is invited on the recommended proposals to 7 CFR part
                984, or appropriate alternatives or modifications to such proposals, as
                follows:
                PART 984--WALNUTS GROWN IN CALIFORNIA
                0
                1. The authority citation for 7 CFR part 984 continues to read as
                follows:
                 Authority: 7 U.S.C. 601-674.
                0
                2. Revise Sec. 984.46 to read as follows:
                Sec. 984.46 Research and development.
                 (a) Research and development authorities. The Board, with the
                approval of the Secretary, may establish or provide for the
                establishment of production research, marketing research and
                development projects, and marketing promotion, including paid
                advertising, designed to assist, improve, or promote the marketing,
                distribution, and consumption or efficient production of walnuts. The
                expenses of such projects shall be paid from funds collected pursuant
                to Sec. 984.69 and Sec. 984.70, and may be credited back pursuant to
                paragraph (c) of this section.
                 (b) Credit-back for promotion expenses. The Board may provide for
                crediting the pro rata expense assessment obligations of a handler with
                such portion of his or her direct expenditure for marketing promotion,
                including paid advertising, as may be authorized. The credit-back
                amount available to each handler shall be determined by that handler's
                percent of the industry's total volume of walnuts handled during the
                prior marketing year multiplied by the current marketing year's credit-
                back program budget. No handler shall receive credit back for any
                creditable expenditures that would exceed the total amount of credit-
                back available to him or her for the applicable marketing year.
                Further, no handler shall receive credit back in an amount that exceeds
                that handler's assessments paid in the applicable marketing year at the
                time the credit-back application is made. Marketing promotion expenses
                shall be credited at a rate recommended by the Board and approved by
                the Secretary, where the credit rate is based on the amount per dollar
                of marketing promotion expenses for creditable expenditures paid by a
                handler during the applicable marketing year. Credit may be paid
                directly to the handler as a reimbursement of assessments paid or may
                be issued as recommended by the Board and approved by the Secretary.
                The Board may also establish, subject to the approval of the Secretary,
                different credit rates for different products or different marketing
                promotion activities according to priorities determined by the Board
                and its marketing plan.
                 (c) Creditable expenditures. The Board, with the approval of the
                Secretary, may credit-back all or any portion of a handler's direct
                expenditures for marketing promotion including paid advertising that
                promotes the sale of walnuts, walnut products or their uses. Such
                expenditures may include, but are not limited to, money spent for
                advertising space or time in newspapers, magazines, radio, television,
                transit, and outdoor media, including the actual standard agency
                commission costs not to exceed 15 percent, or as otherwise recommended
                by the Board and approved by the Secretary.
                0
                3. Add subpart D to read as follows:
                Sec
                984.546 Credit for marketing promotion activities, including paid
                advertising
                984.547 [Reserved]
                Subpart D--Research and Development Requirements
                Sec. 984.546 Credit for marketing promotion activities, including
                paid advertising.
                 (a) Timeliness of reimbursement claim and credit-back rate. For a
                handler to receive credit-back for his or her own marketing promotional
                activities pursuant to Sec. 984.46, the Board shall determine that
                such expenditures meet the applicable requirements of this section.
                Credit-back may be granted in the form of reimbursement for all
                creditable expenditures paid within the applicable marketing year
                subject to the effective credit-back rate; Provided, that such
                creditable expenditures are documented to the satisfaction of the Board
                within 15 days after the end of that marketing year. Credit may be
                granted for a handler's creditable expenditures in an amount not to
                exceed that handler's pro-rata share of the credit-back fund. No more
                than 70 cents ($0.70) shall be credited back to a handler for every
                dollar spent on qualified activities.
                 (b) Assessment payments. The handler assessment is due as defined
                in Sec. 984.69. A handler shall be current on all assessment payments
                prior to receiving credit-back for creditable expenditures.
                [[Page 7672]]
                 (c) Handler eligibility for reimbursement. The Board shall grant
                credit-back for qualified activities only to the handler who performed
                such activities and who filed a claim for credit-back in accordance
                with this section.
                 (d) Applicability to marketing year. Credit-back shall be granted
                only for creditable expenditures for qualified activities that are
                conducted and completed during the marketing year for which credit-back
                is requested.
                 (e) Qualified activities. The following requirements shall apply to
                all creditable expenditures resulting from qualified activities:
                 (1) Credit-back granted by the Board shall be that which is
                appropriate when compared to accepted professional practices and rates
                for the type of activity conducted. In the case of claims for credit-
                back activities not covered by specific and established criteria, the
                Board shall grant the claim if it is consistent with practices and
                rates for similar activities.
                 (2) The clear and evident purpose of each qualified activity shall
                be to promote the sale, consumption or use of California walnuts.
                 (3) No credit-back will be given for any activity that targets the
                farming or grower trade.
                 (4) Credit-back will not be allowed in any case for travel
                expenses, or for any promotional activities that result in price
                discounting.
                 (5) Credit-back shall be granted for those qualified activities
                specified below:
                 (i) Credit-back shall be granted for paid media directed to end-
                users, trade or industrial users, and for money spent on paid
                advertising space or time, including, but not limited to, newspapers,
                magazines, radio, television, online, transit and outdoor media, and
                including the standard agency commission costs not to exceed 15 percent
                of gross.
                 (ii) Credit-back shall be granted for market promotion other than
                paid advertising, for the following activities:
                 (A) Marketing research (except pre-testing and test-marketing of
                paid advertising);
                 (B) Trade and consumer product public relations: Provided, that no
                credit-back shall be given for related fees charged by an advertising
                or public relations agency;
                 (C) Sales Promotion (in-store demonstrations, production of
                promotional materials, sales and marketing presentation kits, etc.,
                excluding couponing);
                 (D) Trade shows (booth rental, services, and promotional
                materials).
                 (iii) For any qualified activity involving joint participation by a
                handler and a manufacturer or seller of a complementary product(s), or
                a handler selling multiple complementary products, including other
                nuts, with such activity including the handler's name or brand, or the
                words ``California Walnuts'', the amount allowed for credit-back shall
                reflect that portion of the activity represented by walnuts. If the
                product is owned or distributed by the handler, in order to receive any
                amount of credit back, the product must list the ownership or
                distributorship on the package and display the handler's name and the
                handler's brand. The words ``California Walnuts'' must be included on
                the primary, face label. Such activities must also meet the
                requirements of paragraphs (e)(1), (2), (3), (4), and (5) of this
                section.
                 (iv) If the handler is engaged in marketing promotion activities
                pursuant to a contract with the Foreign Agricultural Service (FAS),
                USDA, and/or the California Department of Food and Agriculture (CDFA),
                unless the Board is administering the foreign marketing program, such
                activities shall not be eligible for credit-back unless the handler
                certifies that he or she was not and will not be reimbursed by either
                FAS or CDFA for the amount claimed for credit-back, and has on record
                with the Board all claims for reimbursement made to FAS and/or the
                CDFA. Foreign market expenses paid by third parties as part of a
                handler's contract with FAS or CDFA shall not be eligible for credit-
                back.
                 (6) Credit-back Reimbursement claims. A handler must file claims
                with the Board to obtain credit-back for creditable expenditures, as
                follows:
                 (i) All claims submitted to the Board for any qualified activity
                must include:
                 (A) A description of the activity and when and where it was
                conducted;
                 (B) Copies of all invoices from suppliers or agencies;
                 (C) Copies of all canceled checks or other proof of payment issued
                by the handler in payment of these invoices; and
                 (D) An actual sample, picture or other physical evidence of the
                qualified activity.
                 (ii) Handlers may receive reimbursement of their paid assessments
                up to their pro-rata share of available dollars to be based on their
                percentage of the prior marketing year crop total. In all instances,
                handlers must remit the assessment to the Board when billed, and
                reimbursement will be issued to the extent of proven, qualified
                activities.
                 (iii) Checks from the Board in payment of approved credit-back
                claims will be mailed to handlers within 30 days of receipt of eligible
                claims.
                 (iv) Final claims for the marketing year pertaining to such
                qualified activities must be submitted with all required elements
                within 15 days after the close of the Board's marketing year.
                 (f) Appeals. If a determination is made by the Board staff that a
                particular marketing promotional activity is not eligible for credit-
                back because it does not meet the criteria specified in this section,
                the affected handler may request the Executive Committee review the
                Board staff's decision. If the affected handler disagrees with the
                decision of the Executive Committee, the handler may request that the
                Board review the Executive Committee's decision. If the handler
                disagrees with the decision of the Board, the handler, through the
                Board, may request that the Secretary review the Board's decision.
                Handlers have the right to request anonymity in the review of their
                appeal. The Secretary maintains the right to review any decisions made
                by the aforementioned bodies at his or her discretion.
                Sec. 984.547 [Reserved]
                 Dated: February 3, 2020.
                Bruce Summers,
                Administrator, Agricultural Marketing Service.
                [FR Doc. 2020-02387 Filed 2-10-20; 8:45 am]
                 BILLING CODE 3410-02-P
                

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