Walnuts Grown in California; Secretary's Decision and Referendum Order on Amendments to Marketing Order No. 984
| Published date | 20 October 2020 |
| Citation | 85 FR 66491 |
| Record Number | 2020-22334 |
| Section | Proposed rules |
| Court | Agricultural Marketing Service |
Federal Register, Volume 85 Issue 203 (Tuesday, October 20, 2020)
[Federal Register Volume 85, Number 203 (Tuesday, October 20, 2020)]
[Proposed Rules]
[Pages 66491-66498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22334]
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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.
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Federal Register / Vol. 85, No. 203 / Tuesday, October 20, 2020 /
Proposed Rules
[[Page 66491]]
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; Secretary's Decision and Referendum
Order on Amendments to Marketing Order No. 984
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule and referendum order.
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SUMMARY: This decision proposes amendments to Marketing Order No. 984
(Order), which regulates the handling of walnuts grown in California
and provides growers with the opportunity to vote in a referendum to
determine if they favor the changes. 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) proposed to make any such changes as may be necessary to
conform to any amendment that may result from the public hearing.
DATES: The referendum will be conducted from November 30, 2020, through
December 11, 2020. The representative period for the purpose of the
referendum is September 1, 2018, through August 31, 2019.
ADDRESSES: Marketing Order and Agreement Division, Specialty Crops
Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, Washington,
DC 20250-0237.
FOR FURTHER INFORMATION CONTACT: Matthew Pavone, Chief, Rulemaking
Services Branch, Marketing Order and Agreement Division, Specialty
Crops Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237,
Washington, DC 2025-0237; Telephone: (202) 720-2491, Fax: (202) 720-
8938, or Andrew Hatch, Deputy Director, 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 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: Prior documents in this proceeding: Notice
of Hearing issued on February 2, 2020, and published in the February
11, 2020, issue of the Federal Register (85 FR 7669); a Correction to
the Notice of Hearing issued on April 9, 2020, and published in the
April 10, 2020, issue of the Federal Register (85 FR 20202); and a
Recommended Decision issued on July 8, 2020, and published in the
August 5, 2020, issue of the Federal Register (85 FR 47305).
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 Orders 12866, 13563, and 13175.
Additionally, because this rule does not meet the definition of a
significant regulatory action it does not trigger the requirements
contained in Executive Order 13771. See the Office of Management and
Budget's (OMB) Memorandum titled ``Interim Guidance Implementing
Section 2 of the Executive Order of January 30, 2017, titled `Reducing
Regulation and Controlling Regulatory Costs' '' (February 2, 2017).
Notice of this rulemaking action was provided to tribal governments
through the Department of Agriculture's (USDA) Office of Tribal
Relations.
Preliminary Statement
The proposed amendments are based on the record of a public hearing
held via videoconference technology on April 20 and 21, 2020. The
hearing was held pursuant to the provisions of the Agricultural
Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674),
hereinafter referred to as the ``Act,'' and the applicable rules of
practice and procedure governing the formulation of marketing
agreements and orders (7 CFR part 900). Notice of this hearing was
published in the Federal Register on February 11, 2020 (85 FR 7669)
followed by a Correction to the Notice of Hearing issued on April 9,
2020, and published in the April 10, 2020, issue of the Federal
Register (85 FR 20202). The notice of hearing contained one proposal
submitted by the Board and one submitted by USDA.
The amendments proposed by the Board in this decision 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 would establish requirements to effectuate the new
authority.
USDA proposed to make any such changes as may be necessary to 7 CFR
part 984 (referred to as ``the Order'') to conform to any amendment
that may be adopted, or to correct minor inconsistencies and
typographical errors. As such, USDA is recommending two clarifying
changes: One to the proposed language in Sec. 984.46(a) and the other
to the proposed regulatory text in Sec. 984.546(e)(5)(iii).
The proposed language in Sec. 984.46(a) would add credit-back
authority to the Order. USDA has determined that the language presented
in the Notice of Hearing lacked a reference to the proposed, new
paragraph (b) and only included a reference to proposed, new paragraph
(c). This correction was discussed at the hearing and a witness
clarified that proposed, new paragraphs (b) and (c) were both necessary
references in the proposed revision to Sec. 984.46(a), and that the
omission of the reference to paragraph (b) was an oversight. USDA has
revised the proposed language so that both proposed new paragraphs are
referenced in the proposed regulatory text of this decision.
USDA is also recommending a clarifying change to the proposed
regulatory text in Sec. 984.546(e)(5)(iii). The originally proposed
wording of this paragraph by the Board does not adequately state that
in all promotional
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activities, regardless of whether a handler is operating independently
or in conjunction with a manufacturer, or whether promoting a product
that is solely walnut content or walnuts are a partial ingredient, the
words ``California Walnuts'' must be included in the labeling in order
for that activity to qualify as a creditable expenditure. USDA is
recommending this change in conformance with witness testimony
clarifying the intent of the proposed language. The revised language is
included in the proposed regulatory text of this decision.
Upon the basis of evidence introduced at the hearing and the record
thereof, the Administrator of AMS on July 8, 2020, filed with the
Hearing Clerk, USDA, a Recommended Decision and Opportunity to File
Written Exceptions thereto by September 4, 2020. No exceptions were
filed.
Final Regulatory Flexibility Analysis
Pursuant to the requirements set forth in the Regulatory
Flexibility Act (RFA), AMS has considered the economic impact of this
action on small entities. Accordingly, AMS has prepared this final
regulatory flexibility analysis.
The purpose of the RFA is to fit regulatory actions to the scale of
businesses subject to such actions so that small businesses will not be
unduly or disproportionately burdened. Marketing orders and amendments
thereto are unique in that they are normally brought about through
group action of essentially small entities for their own benefit.
During the hearing held on April 20 and 21, 2020, interested
parties were invited to present evidence on the probable regulatory
impact on small businesses of the proposed amendment to the Order. The
evidence presented at the hearing shows that the proposed amendment
would not have a significant negative economic impact on a substantial
number of small agricultural producers or handlers.
Eight grower and handler witnesses testified at the hearing. All
eight witnesses were growers and five were also handlers. Four
testified that they were small walnut growers according to the Small
Business Administration (SBA) definition and four were large. Of the
five who were handlers, one was small, and four were large.
All five who were both handlers and growers expressed support for
the proposed amendment. Of the three remaining grower witnesses, two
stated their support. One grower reported that he had concerns but did
not specifically oppose the amendment. Therefore, in their role as
growers, 7 out of 8 witnesses supported the amendment, and stated that
they expected to see significant benefits from the additional promotion
expenditure that would be authorized by the amendment and would not
incur additional costs. The benefits and impacts of the proposed
amendment are explained in the following three sections: (a) Walnut
Industry Background and Overview, (b) Domestic Market Demand for
Walnuts, and (c) Estimated Economic Impact of the Proposed Credit-Back
Program.
Walnut Industry Background and Overview
According to the hearing record, there are approximately 4,400
producers and 92 handlers in the production area. Record evidence
includes reference to a study showing that the walnut industry
contributes 85,000 jobs to the economy, directly and indirectly.
A small handler as defined by the SBA (13 CFR 121.201) is one that
grosses less than $30,000,000 annually. A small grower is one that
grosses less than $1,000,000 annually.
Record evidence showed that approximately 82 percent of
California's walnut handlers (75 out of 92) shipped merchantable
walnuts valued under $30 million during the 2018-2019 marketing year
and would therefore be considered small handlers according to the SBA
definition.
Data in the hearing record from the 2017 Agricultural Census,
published by USDA'S National Agricultural Statistics Service (NASS),
showed that 86 percent of California farms growing walnuts had walnut
sales of less than $1 million.
In an alternative computation using NASS data from the hearing
record, the 3-year average crop value (2016-2017 to 2018-2019) was
$1.24 billion. Average bearing acres over that same 3-year period were
333,000. Dividing crop value by acres yields a revenue per acre
estimate of $3,733. Using these numbers, it would take approximately
268 acres ($1,000,000/$3,733) to yield $1 million in annual walnut
sales. The 2017 Agricultural Census data show that 80 percent of walnut
farms in 2017 were below 260 acres. Therefore, well over three-fourths
of California walnut farms would be considered small businesses
according to the SBA definition.
Walnuts bloom in March and April, and the harvest of the earliest
varieties begins in the first part of September. As later varieties
mature, the harvest continues into November. The crop comes in from the
field at about 25 percent moisture and the hulling and drying process
typically takes place within 24 hours. The nuts are hulled (removal of
the green husks) and dried to about seven percent moisture before
delivery to a handler. Some growers have their own hulling and drying
equipment and others pay for this service. Drying to seven percent
moisture keeps the nuts stable in storage and minimizes deterioration.
Once received by the handler, shelling varieties are shelled and
have a shelf-life of approximately 12 months. Unshelled varieties are
cleaned, sized, and put into storage. Both shelled and unshelled nuts
are shipped and distributed to customers throughout the marketing year.
Approximately 75 percent of the California walnut crop is sold as
kernels (shelled). Witnesses testified that advances in processing and
packaging technologies continue to improve product quality,
consistency, and shelf-life.
Weather is one of two main factors driving crop size variability, a
significant feature of the walnut market. In some years, climatic
conditions may contribute to fungus or other issues that damage the
crop and cause nuts to fall prior to harvest. With walnuts grown over a
large geographic area, some regions will have better weather than
others in any particular year. Crops were larger in 2015 and 2018 and
smaller in 2017 and 2019.
The other key variability factor is ``alternate bearing'' (a
natural tendency of several types of tree nuts, in which a large crop
is often followed by a small crop). As trees mature, alternate bearing
can become more pronounced, and for many years this had a big impact on
crop size variability. With recent new plantings, the average age of
producing trees in California has dropped. There is less of an
alternate bearing tendency with younger trees. Crop sizes have become
less variable as younger trees reach bearing age, which typically
occurs in the fifth year. Older trees are replaced with varieties with
improved quality characteristics to meet changing consumer demand.
Newer varieties are generally more productive, contributing to higher
yields per acre and greater production.
The hearing record shows that crop size variability, particularly
the reduced availability of walnuts in short crop years, continues to
contribute to loss of demand, as some buyers of kernels as ingredients
in baked goods and other products shift to other tree nuts. These lost
market opportunities are additional factors in the industry's interest
in product diversification through a credit-back program.
Additional factors that affect current market conditions are the
longer-term supply impacts of growers responding to market signals. If
producers decide to
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plant more trees because of strong market prices, such as in the 2011-
2014 time period, they receive those trees one or two years later,
based on contracts that vary with the type of nursery stock. This time
lag, and penalties associated with dropping a planting contract,
contribute to continued planting even after market prices drop and
growers might otherwise not want to plant. For these reasons, there is
a delayed response in planting new trees, and a delayed response in
reducing the level of planting when prices and revenue per acre
decline, such as in 2015-2018. One witness estimated that the rate of
tree planting in recent years is about three times greater than tree
removal. Another key factor is that the time from tree planting to
bearing nuts is typically five years.
Record evidence shows that walnut production exceeded 600,000
inshell tons every season starting in 2015-2016. Witnesses testified
that a key factor in their support of new demand expansion initiatives
is their expectation that walnut production is likely to be at or above
700,000 tons within one or two seasons and may exceed 800,000 tons a
few years later.
The hearing record shows that farm management decisions made years
ago have a significant impact on walnut supply for the coming years,
contributing to grower and handler support for major initiatives meant
to increase demand, including credit-back.
About two-thirds of the walnut crop is typically exported, and for
many years, increasing international demand facilitated expansion of
the walnut market. China emerged as a major walnut buyer, but also
began large scale planting of walnuts. Prices continued to improve for
years, reaching $1.86 per pound ($3,710 per ton) in 2013-2014. As
China's new plantings started coming into production, world walnut
prices began to decline. By 2017-2018, walnut prices rebounded as
Turkey and other Middle Eastern countries took up some of the slack in
world market demand, according to the hearing record.
Hearing evidence provided various reasons for the decline in walnut
crop value since the peak level of $1.9 billion in 2014-2015. One was
reduced export market opportunities. With increased trade barriers from
China and India, significant volumes were shifted into other export
markets, driving prices downward. Walnut production was also growing in
Chile and Europe. The 2018-2019 price fell to $0.65 per pound ($1,300
per ton). With the reduced reliability of the international market, the
industry is increasingly looking for ways to increase demand in the
U.S. domestic market.
The hearing record shows that most of the grower and handler
witnesses stated that a key reason for seeking credit-back authority
was the need to increase demand after years of unfavorable marketing
conditions. Witnesses stated that a key factor in their support of
seeking new ways to increase market demand was several years of
deteriorating profitability.
Hearing evidence included data that facilitated comparing farm
revenue per acre to cost of production, a key measure of walnut farm
profitability. Tables 2 and 3 illustrate the decline in profitability
by comparing two four-year periods with very different financial
outcomes, 2011 to 2014 and 2015 to 2018.
Table 2--California Walnuts: Cost of Production Data From University of California Extension
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Sample yield
(from Table 5 Sample costs
Average yield: of UC study) per acre
Year Tons per acre Average yield: that is closest associated with
\1\ Pounds per acre to NASS yield yield shown in
in column (b) column (c) \2\
\2\
(a) (b) (c) (d)
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2011.................................... 1.74 3,480 ................ ................
2012.................................... 1.84 3,680 3,400 $3,318
2013.................................... 1.76 3,520 4,000 4,015
2014.................................... 1.97 3,940 ................ ................
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2011-2014 avg....................... 1.83 ................ ................ 3,667
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2015.................................... 2.02 4,040 4,500 4,509
2016.................................... 2.19 4,380 ................ ................
2017.................................... 1.88 3,760 4,500 5,574
2018.................................... 1.93 3,860 4,500 5,283
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2015-2018 avg....................... 2.01 ................ ................ 5,122
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\1\ Source: NASS, USDA.
\2\ Source: ``Table 5. Ranging Analysis--Walnuts--Costs per Acre and Per Pound at Varying Yields to Produce
Walnuts.'' Table 5 appears in each of the following five UC Cooperative Extension studies: ``Walnuts Cost and
Returns Study, Sacramento Valley,'' UC Coop. Extension--2012, 2015, 2018. ``Walnuts Cost and Returns Study,
San Joaquin Valley North'', UC Coop. Extension--2013, 2017. Sample yields appear in column 2 of Table 5 in
each publication.
Table 2 displays cost of production numbers that represent both
time periods. University of California Extension conducted two cost of
production studies in the 2011-2014 time period, and three studies
between 2015 and 2019. Each of the five studies had ranges of
production cost figures associated with different yields. To be
representative of a typical or average walnut producer, the costs
selected to present in column (d) were associated with University of
California study yields (column c) closest to the NASS average annual
yields for that year (column b).
The average production cost per acre figures for 2011-2014 and
2015-2018 were $3,667 and $5,122, respectively. Those figures were
transferred to column (d) of Table 3, and the associated average yields
(1.83 and 2.10 tons per acre) appear in column (b) of Table 3.
[[Page 66494]]
Table 3--California Walnuts: Producer Gross Return, Cost of Production, Net Return
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Season average Producer net
producer Average yield: Producer gross Total cost of return per acre
Range of years price, $/ton Tons per acre return per production per (gross return
\1\ \2\ acre acre \3\ minus cost)
(a) (b) (c) (a) * (b) (d) (e) (c)-(d)
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2011-2014..................... $3,245 1.83 $5,930 $3,667 $2,264
2015-2018..................... 1,828 2.01 3,664 5,122 -1,458
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\1\ Source: NASS, USDA.
\2\ Four-year averages computed in Table 1, based on annual NASS yield data.
\3\ Computed in Table 1, based on U. of California Extension cost of production studies. For 2011-2014, the cost
of production per acre is a two-year average (2012, 2013). For 2015-2018, the cost per acre is a 3-year
average (2015, 2017, 2018).
Table 3 uses the data from Table 2 to show how the walnut farm
profitability declined between the two time periods. Producer gross
returns per acre for each of the two four-year time periods (column
(c)) were computed by multiplying average yield by average price.
Subtracting cost of production in column (d) yields the producer net
return in column (e).
The two producer net return numbers in column (e) of Table 3 are
the key results of this cost and return analysis. Four years of walnut
farm profitability, represented by producer net return per acre of
$2,264 for 2011-2014, were followed by four years of difficult market
conditions (2015-2018), with a negative average net return figure (-
$1,458). This analysis provides a numerical estimate that bears out the
witness testimony that emphasized that a dramatic downward shift in
their economic fortunes in recent years was a major factor in their
support for a credit-back program that would leverage additional
financial resources for handler-based promotional expenditures oriented
toward increasing domestic demand for walnut products.
Domestic Market Demand for Walnuts
With reduced export market opportunities, the California industry
focused in recent years on ways to expand the domestic market. Record
evidence showed that domestic per capita consumption has been
approximately one-half pound for many years.
The Board commissioned a consumer survey (with 1,000 respondents)
showing that walnut products were reaching 40 percent of U.S.
households, indicating significant expansion potential. The study
pointed out significant differences among age groups, with 22 percent
of those aged 18 to 24 being walnut consumers. Certain age groups are
therefore the targets for demand expansion.
The majority of walnuts going into the domestic market are kernels
(shelled). One key segment is retail sales, with the main product being
bags of raw kernels. Another major segment is industrial--use as an
ingredient by food manufacturers in making pastries and other products.
Record evidence shows that walnut industry participants consider these
two segments to be a narrow group of uses which needs to be expanded.
Witnesses reported that among the Board's strategic objectives, the
top priority is retail sector growth, and the snack category in
particular. However, current Board marketing programs are generic in
nature and focus largely on the traditional form of walnuts: Raw. Raw
walnuts as a snack product are important components but expanding
retail market development beyond the raw product is considered critical
by industry participants, according to the hearing record. New
consumption growth will mainly be achieved through new products and
forms that appeal to a larger consumer audience, witnesses stated.
According to the hearing record, opportunities for significant
walnut demand expansion include snack products such as roasted, salted,
glazed, and trail mixes, and other new products such as beverages,
spreads and meat alternatives. Witnesses stated that these demand
expansion opportunities are best achieved through brand advertising and
other handler-based promotional approaches, rather than the generic
promotion currently authorized through the Order. Witnesses reported
that this is a key reason why adding credit-back authority would be
helpful for demand expansion--by providing incentives for handler-based
product development and promotion.
A small handler stated that if credit-back authority is added to
the marketing order, his firm would likely partner with another company
to create a snack product, providing evidence that credit-back
authority would help small handlers as well as large ones.
Estimated Economic Impact of the Proposed Credit-Back Program
The hearing record included evidence of the estimated impact of the
credit-back program on walnut grower total revenue and net return.
Table 4 illustrates the impact of handlers taking advantage of the
credit-back incentive by increasing their promotional spending. Based
on the assumptions shown in the table, walnut growers would see
increased total revenue of $21.1 million (row K) and increased net
return of $16.8 million (row L). The table shows that there are four
computational steps that lead up to the final computations in rows K
and L.
The first step is to estimate a typical annual budget of the Board
($25 million in row C) by multiplying the current assessment rate paid
to the Board ($0.04) by a number representing an annual walnut
production level representative of recent years (625 million
hundredweight [cwt]).
Table 4--Calculating the Impact of the Walnut Credit-Back Program on Producer Total Revenue and Net Return
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Calculation Value
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A. Total production (cwt)............................... .................................... 625,000,000
B. Assessment rate ($/cwt).............................. .................................... $0.04
C. Total Board budget................................... C = A * B $25,000,000
[[Page 66495]]
D. Share of budget allocated to Credit-Back program (%). .................................... 10%
E. Credit-Back program budget........................... E = C * D $2,500,000
F. Credit-Back rate(%).................................. .................................... 70%
G. Total advertising and promotion expenditures with G = E/F $3,571,429
Credit-Back program.
H. Increase in advertising and promotion expenditure.... H = G-E $1,071,429
I. Increase in TOTAL revenue per dollar of advertising/ .................................... $19.75
promotion \1\.
J. Increase in NET return per dollar of advertising/ .................................... $15.67
promotion \1\.
K. Increase in TOTAL revenue............................ K = H * I $21,160,714
L. Increase in NET return............................... L = H * J $16,789,286
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\1\ Estimates of total revenue and net return per dollar spent on promotion are from a report prepared for the
Board by Dr. Harry M. Kaiser of Cornell University entitled ``Economic Evaluation of the California Walnut
Board's Advertising and Promotion Programs: An Analysis of the Direct and Indirect Impacts'', July 5, 2018.
If the Board allocated 10 percent of a $25 million annual budget to
the credit-back program, the funds available to allocate to pay
handlers for eligible promotional spending would be $2.5 million (row
E). According to the hearing record, this is a level of credit-back
funding supported by growers and handlers.
Handlers would receive 70 percent of the amount they expended on
creditable expenditures. If the Board expended its full annual credit-
back budget of $2.5 million, the total promotional expenditure would
rise to $3.57 million ($2.5/0.70) as shown in row G. The credit-back
expenditure would create the incentive for handlers to spend the $2.5
million plus an additional $1.07 million (row H).
The final step is the overall economic impact on the walnut market
of the increased spending on advertising and promotion. A 2018 economic
analysis of walnut promotion impacts by Dr. Harry Kaiser (cited in the
footnote of Table 4) showed that each dollar of walnut advertising and
promotional expenditure yielded $19.75 in total revenue and $15.67 in
net return to walnut growers (rows I and J). Multiplying $1.07 million
by those two promotional impact-per-dollar figures yields the estimated
increase in total revenue per year and net return per year of $21.16
million and $16.79 million, respectively, shown in rows K and L. Net
return is what is returned to walnut growers after accounting for the
cost of the promotion program.
Record evidence indicates that all industry members, growers and
handlers, would benefit proportionally from an increase in demand
brought about due to the credit-back program. The credit-back program
would be funded by allocating to the credit-back program a portion of
the total Board promotional budget, funded at the current assessment
rate. With no increase in the Board's assessment rate, there would be
no increased costs to growers or handlers.
All handlers, large and small, would benefit proportionally by
participating in the credit-back program. Handlers will participate
only if they decide that they will benefit, and would incur no costs if
they choose not to participate. No handler can benefit
disproportionately from the program, since a handler's maximum credit-
back payment from the Board is based on that handler's share of total
industry acquisitions from the prior year, according to the hearing
record. As cited above, a small handler testified that their smaller
size would not be a hindrance to using the credit-back program, because
his walnut processing operation could develop a new product in
partnership with another firm.
Consumers would benefit from product diversification of the walnut
market. They could choose to buy any of the new products that become
available, thereby adding new foods to their diet, at prices that fit
within their food budget.
The record shows that the proposal to add authority to establish
the credit-back program would, in itself, have no significant economic
impact on producers or handlers of any size. If the proposed authority
and the accompanying requirements were implemented, both benefits and
costs could be anticipated. Costs of complying with the new program
could include handler maintenance and delivery of receipts and
documentation for reimbursement of creditable expenditures, but these
would be minimal and are considered standard business practices. For
the reasons described above, it is determined that the benefits of
adding authority for a credit-back program would outweigh the potential
costs of future implementation.
USDA has not identified any relevant Federal rules that duplicate,
overlap or conflict with this proposed rule. These amendments are
intended to improve the operation and administration of the Order and
to assist in the marketing of California walnuts.
Board meetings regarding these proposals, as well as the hearing
date and location, were widely publicized throughout the California
walnut industry, and all interested persons were invited to attend the
meetings and the hearing to participate in Board deliberations on all
issues. All Board meetings and the hearing were public forums, and all
entities, both large and small, were able to express views on these
issues. Interested persons are invited to submit information on the
regulatory impacts of this action on small businesses.
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.
Paperwork Reduction Act
Current information collection requirements that are part of the
Federal marketing order for California walnuts (7 CFR part 984) are
approved under OMB No. 0581-0178 Vegetables and Specialty Crops. No
changes in these requirements are anticipated as a result of this
proceeding. Should any such changes become necessary, they would be
submitted to OMB for approval.
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.
AMS is committed to complying with the Government Paperwork
Elimination Act, which requires Government agencies in general to
provide the public the option of submitting information or
[[Page 66496]]
transacting business electronically to the maximum extent possible.
Civil Justice Reform
The amendments to the Order proposed herein have been reviewed
under Executive Order 12988, Civil Justice Reform. They are not
intended to have retroactive effect. If adopted, the proposed
amendments would not preempt any State or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
proposal.
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 no later than 20 days after the date of
entry of the ruling.
Findings and Conclusions
The findings and conclusions, rulings, and general findings and
determinations included in the Recommended Decision set forth in the
August 5, 2020, issue of the Federal Register (85 FR 47305) are hereby
approved and adopted.
Marketing Order
Annexed hereto and made a part hereof is the document entitled
``Order Amending the Order Regulating the Handling of Walnuts Grown in
California.'' This document has been decided upon as the detailed and
appropriate means of effectuating the foregoing findings and
conclusions.
It is hereby ordered, That this entire decision be published in the
Federal Register.
Referendum Order
It is hereby directed that a referendum be conducted in accordance
with the procedure for the conduct of referenda (7 CFR 900.400 through
900.407) to determine whether the annexed order amending the order
regulating the handling of walnuts grown in California is approved or
favored by growers, as defined under the terms of the order, who during
the representative period were engaged in the production of walnuts in
the production area.
The representative period for the conduct of such referendum is
hereby determined to be September 1, 2018, through August 31, 2019.
The agents of the Secretary to conduct such referendum are hereby
designated to be Terry Vawter and Jeffery Rymer, California Marketing
Field Office, Marketing Order and Agreement Division, Specialty Crops
Program, AMS, USDA; telephone: 559-487-5901; or fax: 559-487-5906 or
Email: [email protected] or [email protected], respectively.
Order Amending the Order Regulating the Handling of Walnuts Grown in
California \1\
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\1\ This order shall not become effective unless and until the
requirements of Sec. 900.14 of the rules of practice and procedure
governing proceedings to formulate marketing agreements and
marketing orders have been met.
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Findings and Determinations
The findings and determinations hereinafter set forth are
supplementary to the findings and determinations that were previously
made in connection with the issuance of the marketing order; and all
said previous findings and determinations are hereby ratified and
affirmed, except insofar as such findings and determinations may be in
conflict with the findings and determinations set forth herein.
(a) Findings and Determinations Upon the Basis of the Hearing Record
Pursuant to the provisions of the Agricultural Marketing Agreement
Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of
practice and procedure effective thereunder (7 CFR part 900), a public
hearing was held upon proposed further amendment of Marketing Order No.
984, regulating the handling of walnuts grown in California.
Upon the basis of the record, it is found that:
(1) The marketing order, as amended, and as hereby proposed to be
further amended, and all of the terms and conditions thereof, would
tend to effectuate the declared policy of the Act;
(2) The marketing order, as amended, and as hereby proposed to be
further amended, regulates the handling of walnuts grown in the
production area in the same manner as, and is applicable only to,
persons in the respective classes of commercial and industrial activity
specified in the marketing order upon which a hearing has been held;
(3) The marketing order, as amended, and as hereby proposed to be
further amended, is limited in its application to the smallest regional
production area that is practicable, consistent with carrying out the
declared policy of the Act, and the issuance of several orders
applicable to subdivisions of the production area would not effectively
carry out the declared policy of the Act;
(4) The marketing order, as amended, and as hereby proposed to be
further amended, prescribes, insofar as practicable, such different
terms applicable to different parts of the production area as are
necessary to give due recognition to the differences in the production
and marketing of walnuts grown in California; and
(5) All handling of walnuts grown in the production area as defined
in the marketing order is in the current of interstate or foreign
commerce or directly burdens, obstructs, or affects such commerce.
Order Relative to Handling
It is therefore ordered, that on and after the effective date
hereof, all handling of walnuts grown in California shall be in
conformity to, and in compliance with, the terms and conditions of the
said order as hereby proposed to be amended as follows:
The provisions of the proposed marketing order amending the order
contained in the Recommended Decision issued on July 8, 2020, and
published in the August 5, 2020, issue of the Federal Register (85 FR
47305) will be and are the terms and provisions of this order amending
the order and are set forth in full herein.
List of Subjects in 7 CFR Part 984
Marketing agreements, Nuts, Reporting and recordkeeping
requirements, Walnuts.
Recommended Further Amendment of the Marketing Order
For the reasons set out in the preamble, 7 CFR part 982 is proposed
to be amended 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
[[Page 66497]]
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. Sec. 984.69 and 984.70 and may be credited back pursuant to
paragraphs (b) and (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:
Subpart D--Research and Development Requirements
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.
(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 in paragraphs (e)(5)(i) through (iv) of this section:
(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); and
(D) Trade shows (booth rental, services, and promotional
materials).
(iii) For any qualified activity involving a handler promoting
branded products, a handler selling multiple complementary products,
including other nuts, with such activity including the handler's name
or brand, or joint participation by a handler and a manufacturer or
seller of a complementary product(s), 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
[[Page 66498]]
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) 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]
Bruce Summers,
Administrator, Agricultural Marketing Service.
[FR Doc. 2020-22334 Filed 10-19-20; 8:45 am]
BILLING CODE P
