[Federal Register Volume 59, Number 131 (Monday, July 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16731]


[[Page Unknown]]

[Federal Register: July 11, 1994]


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OFFICE OF PERSONNEL MANAGEMENT
 

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 981

[Docket No. FV93-981-2FIR]

Almonds Grown in California; Finalize Revision of Administrative 
Rules and Regulations Concerning Creditable Promotion and 
Advertising Requirements

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Department of Agriculture (Department) is adopting as a 
final rule, with modifications, the provisions of an interim final rule 
that changed the focus of the Almond Board of California's (Board) 
advertising and promotion program by broadening the scope of creditable 
advertising and promotion activities available to handlers and 
expanding the Board's ability to engage in a significant generic 
advertising and promotion program to benefit the entire industry. This 
action provides for more effective and efficient use of industry 
advertising and promotion funds.

EFFECTIVE DATE: July 11, 1994.

FOR FURTHER INFORMATION CONTACT: Kathleen M. Finn, Marketing 
Specialist, Marketing Order Administration Branch, Fruit and Vegetable 
Division, AMS, USDA, Room 2536-S., P.O. Box 96456, Washington, DC 
20090-6456; telephone: (202) 720-1509, or FAX (202) 720-5698; or Martin 
Engeler, Assistant Officer-in-Charge, California Marketing Field 
Office, Fruit and Vegetable Division, AMS, USDA, 2202 Monterey Street, 
Suite 102-B, Fresno, California 93721; (209) 487-5901 or FAX (209) 487-
5906.

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing 
Agreement and Order No. 981 [7 CFR Part 981], both as amended, 
hereinafter referred to as the ``order'' regulating the handling of 
almonds grown in California. The order is effective under the 
Agricultural Marketing Agreement Act of 1937, as amended [7 U.S.C. 601-
674], hereinafter referred to as the ``Act.''
    This final rule has been determined to be not significant for 
purposes of Executive Order 12866 and therefore has not been reviewed 
by OMB.
    This final rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. This action is not intended to have retroactive 
effect. This final rule will not preempt any State or local laws, 
regulations, or policies, unless they present an irreconcilable 
conflict with this rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 8c(15)(A) of the 
Act, any handler subject to an order may file with the Secretary 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. Such handler is afforded the opportunity for a hearing on 
the petition. After a hearing the Secretary will 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 in equity to review the 
Secretary's ruling on the petition, provided a bill in equity is filed 
not later than 20 days after date of entry of the ruling.
    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), the Administrator of the Agricultural Marketing Service 
(AMS) has considered the economic impact of this final rule on small 
entities.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    There are approximately 115 handlers of almonds that are subject to 
regulation under the marketing order and approximately 7,000 producers 
in the regulated area. Small agricultural service firms are defined by 
the Small Business Administration [13 CFR 121.601] as those whose 
annual receipts are less than $5,000,000, and small agricultural 
producers have been defined as those having annual receipts of less 
than $500,000. The majority of the almond handlers and producers may be 
classified as small entities.
    This action finalizes an interim final rule which revised 
Sec. 981.441 of Subpart--Administrative Rules and Regulations and is 
based on recommendations of the Board, comments received in response to 
the interim final rule, comments received in response to the reopening 
of the comment period of the interim final rule, and other available 
information. The interim final rule was published in the Federal 
Register [58 FR 43500], on August 17, 1993. The rule amended 
Sec. 981.441 of the rules and regulations in effect under the order. It 
provided a 30 day comment period which ended September 16, 1993. During 
this period, one comment was received from Cal-Almond, Inc., an 
independent almond handler.
    On December 22, 1993, the United States Court of Appeals for the 
Ninth Circuit in California issued a ruling on a district court order 
involving an action against the Department by three independent almond 
handlers wherein such handlers alleged, among other things, that the 
Board's advertising program during the 1980's was unconstitutional 
because the program violated the handlers' First Amendment Rights. The 
district court had ruled that the advertising program was 
constitutional. The Ninth Circuit Court of Appeals acknowledged the 
substantial public interest in designing effective advertising and 
promotion programs to stimulate demand and to increase returns to 
growers but concluded that the almond program in place during the 
1980's was sufficiently flawed in that it did not meet the 
constitutional standards.
    In light of the potential effect of the Ninth Circuit Court of 
Appeal's decision on the newly established Credit-Back advertising and 
promotion program and on the almond industry as a whole, the Department 
determined that it was in the public interest to reopen the comment 
period for the interim final rule. Accordingly, the comment period was 
reopened on January 31, 1994, [59 FR 4247]. Reopening of the comment 
period provided interested persons an opportunity to review the rules 
for the new Credit-Back advertising and promotion program and to submit 
additional written opinions and information regarding the potential 
effect of the Court's decision on that program. The Department also 
sought comments on how to best address the issues raised in the Court's 
decision. The second comment period closed on March 2, 1994. Seven 
additional comments were received. All of the comments received on the 
interim final rule will be discussed herein.

Statutory and Regulatory Background

    The Almond Marketing Order is promulgated pursuant to the 
Agricultural Marketing Agreement Act of 1937 (``Act''). Congress 
enacted this statute in 1937, a time of economic upheaval for many 
farmers, in order to stabilize market conditions and ameliorate 
shortages and surpluses. Congress believed that ``establish[ing] and 
maintain[ing]'' such orderly marketing conditions would be in the 
public interest, ultimately benefitting both farmers and consumers. See 
7 U.S.C. 602 (declarations of policy).
    The principal means by which Congress sought to effectuate these 
goals is the promulgation of marketing orders under 7 U.S.C. Sec. 608c. 
Marketing orders are regulations issued by the Secretary of 
Agriculture, after notice and hearing, and after a finding by the 
Secretary that the order's terms ``will tend to effectuate the declared 
policy of [the Act].'' See 7 U.S.C. Sec. 608c(4). Most orders do not 
become effective until it is approved by two-thirds or more of the 
affected producers voting in a referendum. See 7 U.S.C. Secs. 608c (8) 
and (9). Conversely, a vote of a simple majority of the affected 
producers can terminate an order. See 7 U.S.C. Sec. 608c(16)(B). 
Although producers vote on the marketing order, the order imposes 
direct regulatory obligations only on the activities of ``handlers'' or 
processors of agricultural commodities. See 7 U.S.C. 608c(1).
    Section 608c(6)(I) of the Act provides for the ``establishment of 
production research, marketing research and development projects 
designed to assist, improve, or promote the marketing, distribution, 
and consumption or efficient production of any such commodity or 
product, the expense of such projects to be paid from funds collected 
pursuant to the marketing order.'' Section 608c(6)(I) also provides 
``[t]hat with respect to orders applicable to almonds * * * such 
projects may provide for any form of marketing promotion including paid 
advertising and with respect to almonds * * * may provide for crediting 
the pro rata expense assessment obligations of a handler with all or 
any portion of his direct expenditures for such marketing promotion 
including paid advertising as may be authorized by the order * * *''
    Pursuant to this statutory scheme, the Secretary has promulgated a 
marketing order regulating the handlers of almonds grown in California. 
The Order is administered by the Almond Board of California 
(``Board''), which is composed of industry representatives, whose 
function it is to administer the Order and to recommend amendments to 
the Order. The duties of the Board also include acting as intermediary 
between the Secretary and industry members; investigating and 
collecting data on growing, shipping, and marketing conditions with 
respect to almonds; furnishing pertinent information to the Secretary; 
and keeping record of its acts and transactions. Funds to cover the 
Board's expenses are generated by levying assessments on each handler, 
in proportion to the kernel weight of almonds received.

Background of the California Almond Industry

    The California Almond Marketing Order has been in effect since 
1950. It provides a means for growers and handlers to work together to 
address various problems which affect the marketing of California 
almonds, including varying weather conditions which can lead to annual 
swings in production.
    One way in which the Almond Marketing Order has helped to address 
problems affecting the industry is by establishing salable and reserve 
percentages for all almonds received by handlers during a given crop 
year. The establishment of reserve percentages has allowed the 
Department to regulate the supply of almonds marketed and avoid 
dramatic price drops during years of excess production. In years when 
the anticipated annual crop is large, a reserve percentage may be 
established and handlers withhold a percentage of the almonds received 
from growers from the market. Conversely, in years when the annual crop 
proves to be small, reserve almonds are released for sale. In addition, 
small quantities of reserve almonds are sometimes used to develop new 
products or are disposed of in secondary markets such as oil or 
livestock feed.
    The Department has analyzed the production and sale of almonds 
since the inception of the Almond Marketing Order. Over the past forty 
years, the production and sale of almonds, both in this country and 
abroad, have increased dramatically. In the 1950's, almond production 
grew from 19 million to 84 million pounds per year and the value 
increased from $15 to $38 million. By 1969, production had reached 132 
million pounds per year at a value of $74 million.
    During the 1950's and 1960's, the domestic market was the primary 
outlet for California almonds. Supplies which exceeded the needs of the 
domestic market were exported or put to other ``non-competitive'' uses, 
such as sliced, diced and slivered almonds. In 1969, shipments of 
almonds to export markets exceeded domestic shipments for the first 
time. Most export shipments were of reserve almonds which were sold at 
prices below domestic levels.
    The Almond Marketing Order was amended in 1971 to provide for 
further market development through the establishment of a creditable 
advertising and generic promotion program. These programs have been in 
effect since 1972. In recommending that the Almond Marketing Order be 
amended to authorize advertising and promotion programs, proponents 
within the almond industry believed that advertising almonds would tend 
to increase almond consumption and enhance grower returns. The 
Department's analysis of sales figures for almonds during the last 
twenty-two years demonstrate that this belief was correct.
    The adoption of the creditable advertising and generic promotion 
programs has fostered a period of steady growth in the demand for 
almonds, both domestically and abroad. From 1972 to 1992, domestic 
shipments of almonds increased from 75 million pounds to 186 million 
pounds and their value increased from $63 million in 1972 to $318 
million in 1992. During these years, the creditable advertising and 
generic promotion programs fostered an even greater rate of growth in 
the export market. Annual exports of almonds went from 69 million 
pounds in 1972 to 350 million pounds in 1992 and the value increased 
from $58 million to $598 million. The industry has benefitted from 
increased production and sales as consumption grew and almonds expanded 
into new markets.
    Currently, the majority of almonds produced in the United States 
are sold abroad, with the largest markets in Germany and Japan. The 
California almond industry has become an established supplier of high 
quality almonds to markets throughout the world and has maintained a 
dominant share (over 60%) of the overall world almond market for the 
past ten years. Substantial growth has also occurred in the demand for 
sliced, diced and slivered almonds, once considered a secondary almond 
market. Due to market expansion, shipments of almonds for such uses are 
now considered normal commercial sales.
    The relative proportion of annual crop sold to ingredient 
manufacturers in bulk quantities has also increased substantially 
during the last two decades. Currently, the majority of almonds sold in 
the United States are sold for use as ingredients in candy, cereal, ice 
cream, baked goods, cookies, granola bars, prepared meals, and other 
manufactured products. The Department's data on almond sales to export 
markets also indicates that the vast majority of almonds sold to 
European countries are intended for use as ingredients.
    Since the adoption of the creditable advertising and generic 
promotion programs there has been an increase in the number of almond 
handlers operating in the United States. In 1971, there were 15 almond 
handlers in California and the four largest handled about 95% of the 
annual crop. By 1991, there were 115 almond handlers in California and 
the four largest handled 62% of the annual crop. The growth of the 
almond market has enabled small handlers to enter the industry in 
greater numbers.

The Former Creditable Advertising Program

    At the time of its adoption in 1971, the almond Marketing Order's 
advertising and promotion program was structured with a strong emphasis 
on individual handler advertising and promotion, with a complementary 
generic program conducted by the Board. Since its implementation, the 
Secretary has instituted numerous rulemaking actions to revise and 
update the creditable advertising and promotion program to address 
changing circumstances in the industry.
    In revising the program, the Secretary relied, in part, on industry 
production and sales data and the Board's consistent belief that the 
industry's advertising and promotion program provided an effective 
means of increasing almond sales. The Board, on behalf of the industry, 
responds to changing industry practices and trends by recommending to 
the Secretary modifications to the Order's implementing regulations and 
by redesigning its activities to better reflect these changes, thereby 
ensuring further development of the almond industry. In addition, the 
Secretary also relied on comments received from almond industry 
representatives and other interested persons prior to adopting certain 
amendments to the regulations.
    Section 981.41 of the Order provides the Board, with the approval 
of the Secretary, authority to credit a handler's direct expenditures 
for marketing promotion, including paid advertising, against the 
applicable portion of their assessment obligation. The requirements 
that a handler needed to fulfill before obtaining credit for promotion 
are set forth in Sec. 981.441 of the Administrative Rules and 
Regulations. The purpose of these requirements was to ensure that 
creditable activities undertaken by handlers were forms of promotion 
recognized and accepted by advertising and promotion industry norms, 
and could reasonably be expected to increase almond consumption. In 
addition, the requirements were devised to ensure that creditable 
activities could be documented and costs could be measured in 
conformance with industry standards.
    From the time of the program's inception, the list of handler 
activities for which credit could be obtained has frequently been 
revised and expanded in order to meet the changing needs of the 
industry. In all, over twenty-five Board recommendations have been made 
and adopted by the Secretary in an effort to improve the Order's 
advertising and promotion program. Some examples of these revisions are 
described below.
    On September 16, 1982, [47 FR 40783], the creditable advertising 
and promotion program was revised in order to allow handlers to receive 
credit against their creditable assessment obligations for distributing 
sample packages of almonds to charitable and educational institutions 
(up to 150% credit allowed depending on volume), and for purchasing 
almond promotional materials from the Board (100% credit allowed). The 
Board believed that these revisions would provide handlers with 
additional opportunities to obtain credit for their promotion of 
almonds, especially for handlers who did not market almonds under a 
specific brand name. These revisions were also intended to be 
advantageous to small handlers.
    On April 23, 1987, [52 FR 13427], the program was revised to expand 
provisions already in place concerning the crediting of certain handler 
marketing promotion expenditures related to mail order promotions. 
Specifically, the costs of purchasing mailing lists to conduct mail 
order promotions and the costs of postage and envelopes to mail printed 
promotional materials became creditable at a rate of up to $25,000 per 
crop year. The revision was intended to give all handlers a new 
opportunity to take advantage of crediting. In 1990, [55 FR 41826] the 
creditable amount was further relaxed to allow handlers to obtain 
credit for mail order promotions at a rate of up to $25,000 per crop 
year or 25 percent of their creditable assessment obligations, 
whichever was greater.
    On October 13, 1987, [52 FR 37926], the program was revised to 
increase the amount of credit that handlers could obtain for media 
advertising in certain foreign markets. The revision was made because 
the export market for California almonds was steadily increasing and 
the need for advertising in foreign countries was increasing 
accordingly. Under this revised rule, handlers became eligible to 
receive a 100% credit for all qualified brand advertising media 
expenditures conducted in designated foreign markets.
    On February 15, 1989, [54 FR 6866], the program was again revised 
to allow handlers credit against their creditable assessment 
obligations for payments for in-store supermarket generic or brand 
advertising using fixed position (i.e. stationary) display 
advertisements, or video media. In addition, the provisions were 
further expanded to allow handlers to receive a 150% credit for 
payments to the Board for the Board's generic advertising and promotion 
program. These changes gave handlers additional flexibility in meeting 
their assessment obligations and particularly benefited small handlers 
which did not have brand names and/or did not market their almonds in 
retail outlets.
    On October 16, 1990, [55 FR 41826], the program was further revised 
to provide handlers with additional opportunities to receive credit 
against their creditable assessment obligations for their own branded 
or generic advertising and promotional activities by (1) allowing 
credit for in-store supermarket advertisements using light emitting 
diode (LED) signs (a new form of in-store supermarket advertising which 
was being offered by advertising firms at that time); (2) expanding the 
provisions under which handlers could receive credit for in-store 
supermarket advertisements using fixed position media; (3) allowing 
handlers credit for brand advertisements in all foreign countries where 
California almonds were sold; and (4) increasing credit for certain 
mail order promotion costs. These revisions were intended to better 
reflect current industry practices as they related to advertising and 
promotion.
    Over the years, other revisions to the program have been adopted in 
order to expand activities eligible for credit, improve program 
administration and generally bring the program into line with industry 
practices. These numerous revisions to the program demonstrate the 
Board's, as well as the industry's, recognition of changing conditions 
within the market and their willingness and ability to adapt the almond 
advertising and promotional program to address these changes.

The Ninth Circuit's Review of the Former Creditable Advertising Program

    The Ninth Circuit Court of Appeals recently reviewed the Almond 
Marketing Order's former creditable advertising and promotion program 
in Cal-Almond v. U.S. Department of Agriculture. The case was brought 
by three independent almond handlers, each of which challenged the 
constitutionality of the Almond Marketing Order's former creditable 
advertising program on the grounds that the mandatory nature of the 
program violated their First Amendment rights. The Department's 
Judicial Officer upheld the validity of the Order. The handlers sought 
review in the United States District Court, which affirmed the 
Secretary's decision. The handlers then appealed to the Ninth Circuit 
Court of Appeals.
    In reviewing the District Court's decision, the Court of Appeals 
held that the former advertising and promotion program imposed a burden 
on almond handlers' First Amendment rights, and, therefore, it was 
necessary to evaluate the nature and scope of the burden imposed on 
those rights to determine whether the program was constitutional.
    The Ninth Circuit evaluated the constitutionality of the former 
almond advertising and promotion program under a three-pronged test:
    (1) Is the governmental interest in establishing and carrying out 
an advertising and promotion program substantial?
    (2) Does the program directly advance that interest?
    (3) Is the program no more extensive than necessary to achieve the 
government's purpose?
    In evaluating the almond program under this test, the Court held 
that there was in fact a substantial governmental interest in 
establishing a program that would stimulate the demand for almonds and 
help maintain and expand markets so as to enhance returns to almond 
growers. The Court went on to find, however, that there was 
insufficient record evidence to establish that the former almond 
advertising and promotion program was effective enough to directly 
advance the government's interest in increasing almond sales, and that 
the rules providing for credit against a handler's assessment 
obligation for its own advertising were more extensive and cumbersome 
than necessary. Thus, it held that the advertising regulations were an 
unconstitutional restriction on the handlers' First Amendment rights.
    It is important to note that in Cal-Almond, the Ninth Circuit did 
not find inherent constitutional harm in the establishment of research 
and promotion programs designed to increase sales and enhance grower 
returns. In fact, the Court acknowledged the substantial governmental 
interest in establishing such programs in order to maintain and expand 
the markets for agricultural commodities. The Court's complaint lay 
with the unique design of the former almond advertising and promotion 
program, with the lack of record proof that it directly advanced the 
stated interests, and with the fact that the former creditable 
advertising requirements seemed more extensive than necessary to 
achieve the approved goals.

The New Credit-Back Advertising and Promotion Program

    An interim final rule published in the Federal Register on August 
17, 1993, [57 FR 43500] represents the most recent and extensive 
revision to the Order's advertising and promotion program. Due to 
changes in the size and structure of the California almond industry 
during the 1980's and 1990's, as well as the fact that more handlers 
were beginning to sell almonds for use as ingredients in manufactured 
products rather than for direct consumption, there was a general 
perception within the industry that a new and innovative program needed 
to be implemented which would be even more effective than the former 
program in promoting the sale of California almonds.
    This prompted the Board and its Public Relations and Advertising 
Committee to seek to create a new and widely accepted advertising and 
promotion program designed to aid the further development of the almond 
industry. On April 20, 1993, by a vote of 9-1, the Board recommended 
the new Credit-Back advertising and promotion program. The sole Board 
member opposing the new program was generally opposed to the entire 
concept of creditable advertising and promotion. This Board member 
asserted that all handlers should be required to fund a generic 
promotion program equally and that any brand advertising done on their 
own should be carried out at their own expense without any type of 
Board oversight.
    The new Credit-Back advertising and promotion program recognizes 
new marketing techniques which have been developed by the industry over 
the years, and is intended to work with and complement a strong generic 
advertising and promotion program which will be undertaken by the 
Board. The premise of the new program is that individual handlers will 
be most effective in promoting their own portion of the almond crop 
while the Board will be the most effective vehicle through which to 
enhance total demand for almonds through a generic advertising and 
promotion program. Some of the significant features of the new program 
are as follows.
    Under the new program, as modified in this final rule, handlers 
conducting their own advertising and promotional activities will 
receive credit against their Credit-Back assessment up to the amount of 
the Credit-Back assessment installment due if they conduct and document 
their advertising and promotional activities at least two weeks prior 
to assessment billings. If handlers do not conduct any advertising and 
promotional activities prior to assessment billings, they will be 
required to submit their advertising and promotional assessment when 
billed. If handlers conduct advertising and promotional activities 
after assessment billings and file appropriate documentation, they will 
be eligible for a refund or Credit-Back. Handlers will be billed in 
four equal installments during the crop year. Handlers are not 
obligated to take part in the new program. Each handler must make an 
individual decision whether or not to participate in the new program.
    The new Credit-Back program substantially expands the list of 
advertising and promotional activities which will be eligible for 
credit under the regulations. The range of activities eligible for 
credit cover virtually every sales assistance, promotional, publicity 
and advertising area which a brand or individual company could use to 
aid in product sales, with the exception of price reductions. In all, 
there are now fourteen advertising, promotion and public relations 
categories of activities which will be eligible for credit. These 
include marketing research, paid media advertising directed to end-
users, trade or industrial users, in-store demonstrations, trade fairs, 
seminars and exhibits, couponing, sponsorships, printing costs, trade 
and consumer product publicity, direct mailings, sales and marketing 
presentation kits, and 50/50 advertising with retailers. Each of these 
activities are widely used and accepted forms of marketing advertising 
and promotion.
    Another aspect of the new program is the elimination of the 33% 
discount which was formerly allowed to handlers who paid their 
assessments directly to the Board by a specified date. Under the former 
creditable advertising and promotion program, handlers who paid their 
assessments to the Board by a specific date received a 150% credit 
against the advertising and promotional portion of their assessments. 
These payments were then used by the Board for generic advertising and 
promotion. In effect, this allowed handlers a 33% discount on a portion 
of their assessments. The purpose of the discount at the time was to 
encourage smaller handlers which did not have individual advertising 
and promotional programs to contribute to the Board's generic 
advertising and promotion program. Many members of the industry 
believed, however, that handlers who received the benefit of the 
discount did not always pass it on to growers and thus achieved a 
competitive advantage over handlers who engaged in individual 
advertising and promotional programs.
    Another feature of the new program is an appeals process whereby 
handlers have the option of anonymity in the event a claim for a 
promotional activity is denied. Handlers may request that the Public 
Relations and Advertising Committee review Board staff decisions 
concerning denied claims. If not satisfied with that committee's 
decision, handlers may request that the Board review the issue. 
Handlers have the option of anonymity when their appeal is brought 
before the Board. Finally, handlers may request that the Department 
review the Board's decisions. The Department may review all decisions 
at any point during the appeals process.
    The new Credit-Back program also offers handlers more flexibility 
in getting credit against their assessments for their own advertising 
and promotional activities compared with the former creditable 
advertising and promotion program. Some examples of the ways in which 
the new Credit-Back program offers handlers more flexibility are as 
follows.
    Under the former program, handlers were denied credit for 
individual advertisements if those advertisements directed consumers to 
a specific retail store. Under the new program, this type of activity 
will be covered under the 14 broad categories for which credit will be 
allowed. Thus, the new program eliminates previous restrictions on 
handlers and will allow them greater flexibility in the promotion of 
their own products.
    Also, under the former program credit was denied for advertisements 
which also promoted competing nuts. Under the new program, 
advertisements which contain references to almonds as well as competing 
nuts will be eligible for reimbursement. Any reimbursement will, 
however, be limited to that percentage of the advertisement's cost 
which is equal to the percentage of the advertisement which is devoted 
to almonds or the percentage of the product's weight which is almonds. 
The Board believes that the percentage rule is logical and fair because 
the handler credit originates from assessments on almonds, not on other 
products. The Board believes that to allow more credit than provided in 
the percentage rule would not serve the best interests of the industry 
because handlers would receive credit for promoting products which have 
nothing to do with the almond industry.
    Previously, handlers were not allowed credit for advertisements 
which promoted complementary branded products. Under the new program, 
credit will be allowed for advertisements that promote both almonds and 
complementary branded products. For the reasons described above, 
however, the amount of the reimbursement will be directly related to 
the percentage of the advertisement which is devoted to the promotion 
of almonds. This will allow the almond industry to operate under a 
system which is as unrestricted as possible without sacrificing the 
objectives of the Almond Marketing Order.
    Finally, under the old program, credit was denied for 
advertisements which promoted products which were less than 50% 
almonds. Under the new program, credit will be granted for all 
advertisements of products which contain almonds, regardless of the 
amount of almonds which are actually in the product. Again, the amount 
of the reimbursement will be directly related to the percentage of the 
advertisement which is devoted to the promotion of almonds.
    In recommending the new Credit-Back program, the Board concluded 
that because of the fundamental changes which have occurred in the 
almond industry in recent years, it has become more difficult for 
individual handlers to directly reach end consumers through their own 
advertising and promotion. Therefore, the importance of a collective 
industry effort to generically promote the overall use of almonds has 
grown. For these reasons, the Board elected to strengthen its generic 
promotion program while at the same time providing increased 
opportunities and incentives for handlers who wished to continue to 
advertise their own brand products in order to receive Credit-Back 
against their assessments.
    The Board believes that the implementation of the new Credit-Back 
advertising and promotion program will directly advance the industry's 
collective goal of increasing almond sales and enhancing grower 
returns. In addition, the new program encourages and empowers handlers 
to protect their own interests by promoting their own brand of products 
in order to get Credit-Back. The new program also recognizes that the 
collective interests of the industry are better served if brand 
advertising and promotion is combined with the generic advertising and 
promotion of almonds. Both generic and brand advertising and promotion 
are proven promotional tools which have fostered the growth of the 
almond market over the last twenty years.
    The new advertising and promotion program has been carefully 
structured so that the rules which govern its efficient administration 
are no more extensive than necessary to meet the desired goals of 
increasing almond sales and enhancing grower returns. Virtually all 
aspects of the former creditable advertising and promotion program have 
been modified or eliminated so as to increase efficiency while at the 
same time imposing a minimum of restrictions on handlers. The Board, 
the elective body composed of industry representatives, has carefully 
considered all aspects of this program and believes that its 
implementation will lead to even greater strides in the development of 
the almond market.
    The new advertising and promotion program is intended to enable the 
almond industry to have an advertising and promotion program which 
better reflects its current needs. The Board believes that there is 
widespread industry support for the new program. Overall, the new 
Credit-Back program is expected to foster the worldwide demand for 
California almonds through the provision of a more efficient and 
effective program which will encompass both generic and brand 
advertising and promotion.

Discussion of the Comments

    As was previously stated, USDA provided two comment periods for the 
new Credit-Back program. The first comment period ended on September 
16, 1993. One comment was received during this period from Cal-Almond, 
Inc., an independent almond handler.
    The second comment period ended on March 2, 1994. During this 
period, seven comments were received. Five comments were from 
independent almond handlers. They were Wiggin Farms, Arbuckle, CA; 
Western Nut Company, Chico, CA; Waterford Nut Company, Waterford, CA; 
Rotteveel Orchards, Dixon, CA; and Cal-Almond, Inc., Hughson, CA. A 
sixth comment was received from the U.S. Small Business Administration, 
Washington, DC. The seventh comment was received from Mr. Rodger 
Wasson, President and CEO of the Almond Board of California. All of the 
comments will be discussed below. Because many of the comments by the 
independent almond handlers contained similar concerns, they have been 
combined where appropriate and are addressed collectively.
    In its first comment submitted on September 14, 1993, Cal-Almond, 
Inc., stated that the issuance of an interim final rule rather than a 
proposed rule to establish the new Credit-Back program was arbitrary 
and capricious. The commenter asserted that the former creditable 
advertising and promotion program has been substantially altered by the 
interim final rule and the burden on handlers has been drastically 
increased.
    It is the Department's position that the issuance of the interim 
final rule met each of the requirements of the Administrative Procedure 
Act (APA) which pertain to the promulgation of regulations. The Board 
requested that the new regulations for the Credit-Back program be 
effective for the 1993-94 crop year. The only way to accomplish this 
was through the utilization of interim final rulemaking procedures, as 
authorized by the APA. Also, the Department was advised by the Board 
that the action was widely supported by the industry. While there was 
one dissenting vote among the ten Board members who voted on the 
establishment of the new program, that person was opposed to the 
imposition of any advertising assessments on members of the industry. 
The dissenting Board member had no specific criticisms of the new 
Credit-Back program. Finally, contrary to the commenter's assertion, 
the interim final rule represented a relaxation of the then-existing 
regulations. Moreover, the new Credit-Back program, as modified in this 
final rule, is further relaxed. The new program is carefully structured 
so that the rules which govern its efficient administration are no more 
extensive than necessary to meet the desired industry goals of 
increasing almond sales and enhancing grower returns. The new program 
substantially increases the advertising and promotional activities for 
which handlers can receive credit against their assessment obligations. 
At the same time, it decreases the number of reporting deadlines and 
recordkeeping requirements imposed on handlers.
    Cal-Almond further asserted that the Department does not have the 
authority to regulate how handlers pay growers and that the new Credit-
Back program's elimination of the provision which allowed handlers to 
receive a 150% credit against the promotional advertising portion of 
their assessments because of concerns about grower returns was 
therefore arbitrary and capricious. The commenter contended that: (1) 
the Almond Marketing Order does not permit the Department to insure 
that growers receive a certain amount of returns on their products, and 
(2) the Order does not permit the Department to become involved in 
contracts which handlers have with their growers.
    Contrary to the commenter's assertions, the interim final rule 
establishing the new Credit-Back program does not specify how handlers 
should pay almond growers, nor does it seek to regulate the returns 
which growers receive for their almonds. It is, however, the Act's 
intent that marketing orders help growers and handlers to work together 
to solve problems which affect their industry. Thus, industry practices 
which have a potentially negative effect on growers should be 
considered when making recommendations on changes to marketing order 
regulations.
    Cal-Almond and another independent almond handler, Western Nut 
Company, also commented that the new Credit-Back program requires 
handlers to make expenditures of $3 in order to get back $1, thus 
placing an incredible financial burden on handlers. Cal-Almond stated 
that this, in turn, will reduce handlers' initial payments to growers.
    In addition, independent almond handler, John Rotteveel on behalf 
of Rotteveel Orchards, indicated that he did not believe that the 50% 
return for creditable activities was enough to warrant any investment 
in the program. Grant Ecker on behalf of Waterford Nut Company, stated 
the new Credit-Back program places a larger economic burden on small 
handlers than the old program did.
    Cal-Almond also objected to the new Credit-Back program's 
imposition of a 50 percent Credit-Back limit for promotional activities 
in foreign markets. Cal-Almond stated that this is not an expansion of 
the previous rule, but is instead a restriction because the former rule 
allowed 100% credit for qualified promotional activities in foreign 
markets.
    The former creditable advertising and promotion program allowed for 
variable levels of credit for different activities, between 50 percent 
and 150 percent depending on the activity. The new Credit-Back program 
is designed to be more equitable because the credit allowed for all 
activities is the same. The amount of credit granted for foreign 
advertising expenditures is identical to the amount given for domestic 
advertising.
    The Department believes that having the same credit amount for each 
activity provides equity for all handlers' advertising and promotional 
activities. No preference is given in the new Credit-Back program for 
one type of advertising and promotional activity over another.
    The range of Credit-Back activities has been expanded so that 
handlers will be able to receive credit for 13 additional categories of 
promotion and advertising. This expansion could offset any increased 
outlays which handlers must make for brand promotion and advertising 
projects due to the reduced rate of credit.
    The new Credit-Back program is designed to provide handlers with 
more flexibility in conducting their advertising and promotional 
activities. The commenters seem to be suggesting that it would be more 
desirable for the new program to have an increased credit amount than 
what is currently allowed.
    On May 16, 1994, the Board met and discussed possible revisions 
that could be made to the new Credit-Back program. It was expressed at 
this meeting that the 50 percent Credit-Back amount may impose a 
greater financial burden on handlers than was anticipated. The Board 
unanimously recommended that the Credit-Back amount be modified from 50 
percent to 66\2/3\ percent ($1.00 for every $1.50 spent). It was 
determined that this amount would provide incentive for handlers to 
maintain their individual advertising and promotional efforts and still 
allow adequate funds for the generic portion of the new advertising and 
promotion program.
    The Department believes that the new Credit-Back program's expanded 
activities along with an increased credit amount will provide handlers 
with more incentive to maintain and more flexibility to conduct their 
individual advertising and promotional efforts. Therefore, we are 
modifying the new Credit-Back program in this final rule by increasing 
the amount of credit allowed for approved promotional activities from 
50 percent to 66\2/3\ percent.
    Cal-Almond also claimed that the requirement that handlers file an 
application with the Board to obtain pre-approval of creditable 
activities means that handlers cannot change their advertising plan for 
the entire year. Cal-Almond also objected to the requirement that 
handlers submit proof of at least one approved advertising activity by 
January 15 of each year. Sharon Wiggin, on behalf of Wiggin Farms, also 
stated that the form filing requirements and deadlines contained in the 
interim final rule are difficult to meet. The Department has determined 
that these comments have merit. The purpose of the requirement that 
handlers file an application with the Board to obtain pre-approval of 
creditable activities under the new program was to ensure that handlers 
were aware that the activity was eligible for Credit-Back prior to 
expending funds for the activity. In the past, the Board occasionally 
had to reject claims for activities that did not qualify after the 
promotional activity had already been conducted by the handler. The 
pre-approval provision was only intended to assist handlers by helping 
them avoid any unnecessary outlays of funds for activities that did not 
qualify for credit.
    This aspect of the new program was also discussed at the recent 
Board meeting. The Board unanimously recommended that the pre-approval 
provision was not essential to the successful administration of the 
program. As previously explained, this provision was only intended to 
assist handlers. Handlers will no longer be required to obtain pre-
approval of creditable activities from the Board under the new program 
as modified in this final rule. The Board will continue to assist any 
handler in determining whether an advertising and promotional activity 
is eligible for Credit-Back under the new program prior to the handler 
expending funds for the activity.
    Cal-Almond also objected to the provision which allows Credit-Back 
payments only for the portion of product weight represented by almonds 
or the handler's actual payment, whichever is less. The commenter 
claims that this provision works against those handlers who apply for 
Credit-Back for advertising of processed products that contain only a 
small percentage of almonds. The new Credit-Back program is, however, 
intended to allow Credit-Back only for money actually spent for 
advertising California almonds, not for advertising another product. As 
discussed previously, the Board believes that the percentage rule is 
logical and fair because the handler's credit originates from 
assessments on almonds, not on other products. Without the percentage 
rule, the best interests of the entire industry would not be served 
because handlers would receive credit for promoting products which have 
nothing to do with the almond industry.
    Cal-Almond also objected to the provision which requires a 
handler's name, brand, or the words ``California almonds,'' to appear 
on the product's primary face label in order for the handler to be 
eligible for Credit-Back. The commenter contended that, because nearly 
all almonds produced in the United States are grown in California, the 
requirement that the word ``California'' be placed on the label is 
unnecessary and may limit marketing opportunities for some handlers in 
their negotiations with product manufacturers. The intent, however, of 
the new advertising and promotion program is to promote the sale and 
consumption of ``California'' almonds, not other ingredients in 
products or almonds not grown in California. This provision will help 
ensure that advertising generated by the new Credit-Back program is, 
indeed, for almonds grown in California. In addition, the provision is 
not limited to the word ``California'' being placed on the product's 
primary face label in order for the handler to be eligible for Credit-
Back. Handlers can also negotiate with product manufacturers for the 
appearance of the handler's name or brand on the primary face label in 
order to be eligible for Credit-Back. Handlers have three alternatives 
under the new program, all of which ensure the promotion of 
``California'' almonds.
    Cal-Almond, Thomas L. Motta, on behalf of Western Nut Company, 
Grant Ecker, and Sharon Wiggin objected to handlers being required to 
expend advertising and promotion funds up-front in order to be eligible 
for a Credit-Back refund at a later date. Cal-Almond also stated that 
handlers should not have to wait until February 15 of the crop year to 
begin receiving Credit-Back refunds and that they should not have to 
wait 30 days after submission of claims to receive a refund. The 
Department has determined that these comments have merit. Because 
payment practices have been changed under the new Credit-Back program, 
the up-front payment may not provide some handlers with enough 
flexibility early in the crop year to conduct their advertising and 
promotional activities.
    This aspect of the new program was also discussed at the recent 
Board meeting. The Board unanimously recommended that handlers 
conducting their own advertising and promotional activities may now 
receive credit against their Credit-Back assessment up to the amount of 
the Credit-Back assessment installment due if they conduct and document 
their advertising and promotional activities at least two weeks prior 
to assessment billings.
    The Department has determined that in order to allow handlers more 
flexibility early in the crop year to conduct their advertising and 
promotional activities, this final rule will be modified to allow 
handlers to receive credit against their Credit-Back assessment up to 
the amount of the Credit-Back assessment installment due if they 
conduct and document their advertising and promotional activities at 
least two weeks prior to assessment billings.
    Cal-Almond also objected to the appeal process for determining 
whether a handler should receive Credit-Back for a particular 
promotional activity. The commenter claimed that competitors of some 
handlers will determine the outcome of their appeals. As previously 
discussed, handlers have the option of anonymity when their appeal is 
brought before the Board. In addition, the process allows for further 
appeal to the Department. The Department also has the right to review 
all decisions at any point during the appeal process.
    During the second comment period, Cal-Almond, as well as another 
independent almond handler, Rotteveel Orchards, commented that under 
the new Credit-Back program there are many types of promotional and 
advertising activities which handlers use to promote their products 
which will be ineligible for Credit-Back. John Rotteveel, on behalf of 
Rotteveel Orchards, stated the best forms of advertising for his 
company--``word-of-mouth'' advertising and personal contact with 
potential buyers--are not creditable activities under the new Credit-
Back program. In addition, Rotteveel indicated that he did not believe 
that the 50% return for creditable activities was enough to warrant any 
investment in the program.
    As has already been pointed out, the range of promotional 
activities eligible for reimbursement under the new Credit-Back program 
have been significantly expanded. The Department has also modified the 
new Credit-Back program in this final rule by increasing the amount of 
credit allowed for approved promotional activities from 50 percent to 
66\2/3\ percent.
    Cal-Almond also objected to the Board's television advertisements 
because it believes that they have a religious connotation which should 
not be used to promote almonds. The advertising campaign referred to is 
not intended to be offensive toward any religion, nor does it contain 
any negative connotations.
    Cal-Almond also objected to the portion of the provision which 
requires individual handlers to determine and declare, within 15 days 
after the start of the season, the extent to which they intend to use 
the advertising program. According to the commenter, a handler should 
not be required to report a year in advance how he/she intends to 
advertise over an entire year's period.
    The intent of this provision, in part, was to help the Board plan 
its finances for the upcoming crop year. With this information 
available, the Board could determine who was participating and who was 
not participating in the new program for that year. They would know at 
that time that all handlers who did not declare their intent would be 
paying the entire assessment to the Board and that amount could be 
earmarked for the generic advertising and promotion program.
    The provision did not require handlers to give a dollar amount or 
an advertising plan to the Board, but merely an anticipated percentage 
of their entire advertising assessment they believed would be used 
under the new program. The deadline was not intended to limit a 
handler's use of the program. Handlers were not restricted to any types 
of advertising or any specific amounts. However, the total Credit-Back 
amount could not exceed the original percentage reported to the Board.
    Although Cal-Almond's interpretation of this provision is not 
accurate, the Department considered all aspects of this provision to 
determine if there were other ways that the Board could obtain this 
information without requiring handlers to declare their intent to 
utilize the program. The new Credit-Back program is intended to provide 
handlers with more flexibility to conduct their own advertising and 
promotional activities.
    The Department believes that the Board has other alternatives to 
accomplish the objectives discussed above, such as reviewing handler 
participation during past years to obtain an estimate of participation 
in the new Credit-Back program for the new crop year. The Department 
has determined that in order to allow handlers more flexibility to 
participate in the new Credit-Back program, this provision should be 
eliminated from the regulations. Accordingly, this final rule will be 
revised to reflect that change.
    During the second comment period, another independent handler, 
Wiggin Farms, stated that a referendum should be conducted every three 
years to offer growers an opportunity to vote on increasing or 
decreasing advertising expenditures and for voting on continuation of 
the Order.
    The Department notes that the Board currently has the authority to 
recommend annual changes in program expenditures. Determining the 
merits of holding periodic continuance referenda is outside the scope 
of this rulemaking. The referenda issue was addressed last year when 
the Board and other industry groups recommended, during a formal 
rulemaking hearing in Modesto, California, that periodic referenda be 
held. The Department is in the process of reviewing and evaluating the 
record of the formal rulemaking proceeding.
    Many comments, as requested, addressed the Ninth Circuit decision. 
These comments are as follows:
    Cal-Almond stated that all of the rules and regulations contained 
in the interim final rule deprive handlers of their First Amendment 
rights and suggested that the entire creditable program be eliminated. 
The commenter asserted that a determination has never been made by the 
Board as to whether the Order or individual handlers are better at 
promoting and advertising almonds. The commenter further stated that 
there have never been any studies conducted to indicate whether the 
current advertising program is effective and contended that the 
Department is unable to show that the regulations are required in order 
to advance the stated goal of selling more almonds and increasing 
returns to producers. In addition, the commenter contended that the 
regulations contained in the interim final rule are more extensive than 
necessary to serve the governmental interest of increasing almond 
sales.
    One independent almond handler, Thomas Motta on behalf of Western 
Nut, stated that if the Marketing Order's advertising program is deemed 
constitutional at some future date, the Secretary should evaluate what 
type of advertising program best serves the almond industry. Motta 
further stated that the Ninth Circuit ruled that compelled advertising 
violates a handler's First Amendment rights and that regardless of what 
the Board calls it, it is still forced collection. Motta suggested that 
the advertising provisions of the order be put on hold until they are 
proven to be beneficial to the industry and are determined to be legal 
by the appropriate Court.
    Another independent almond handler, Grant Ecker on behalf of 
Waterford Nut Company, stated that he agrees with the Ninth Circuit 
Court ruling that the regulations hinder handler's efforts to increase 
sales and returns to growers. He stated that the new Credit-Back 
program places a larger economic burden on small handlers than the old 
program did.
    John Rotteveel, on behalf of Rotteveel Orchards, stated that the 
current and former advertising programs violate his constitutional 
rights. He believes that the program is a waste of money and does 
nothing to increase the consumption of almonds that almond handlers 
could not do themselves. Finally, Rotteveel stated that there is no way 
to prove that the advertising programs have increased world demand for 
almonds. He believes that growers and handlers are expanding these 
markets without the help of the Order and does not think that the 
increase in the number of handlers and growers in the United States can 
be attributed to the Order. Rotteveel suggested phasing out the Order 
and letting the almond industry run itself.
    It is the Department's position that the former creditable 
advertising program and the new Credit-Back program meet each of the 
criteria set forth in the Ninth Circuit decision which pertain to 
constitutionality. The Department believes that both programs are 
authorized under the Act and that the regulations do not infringe upon 
the First Amendment rights of any handler. Importantly, the Court in 
Cal-Almond did not hold that all advertising and promotion programs are 
unconstitutional or illegal on their face. Rather, the court recognized 
the substantial government interest in promoting almond consumption in 
order to stimulate the demand for almonds and enhance grower returns.
    As previously discussed, the new Credit-Back advertising and 
promotion program has been carefully structured so that the rules which 
govern its efficient administration are no more extensive than 
necessary to meet the desired goals of increasing almond sales and 
enhancing grower returns. Virtually all aspects of the former 
creditable advertising and promotion program have been modified or 
eliminated so as to increase efficiency while at the same time imposing 
a minimum of restrictions on handlers.
    An additional comment in the form of an exception to another 
comment was received from Cal-Almond well after the second comment 
period closed. Because Cal-Almond's comment was received after the 
close of the comment period, it has not been considered.
    Another comment was received from the Office of Chief Counsel for 
Advocacy of the United States Small Business Administration (SBA). The 
SBA contended that the Secretary did not comply with the Regulatory 
Flexibility Act (RFA) in issuing the interim final rule. It recommended 
that the Department perform a regulatory flexibility analysis, which 
would study the impact of advertising programs on small handlers and 
would consider alternatives to the program. The SBA further stated that 
the Secretary's assertion about small entity orientation and 
compatibility did not meet the requirements of the RFA. The SBA stated 
that the RFA does not provide exceptions for statutes that are not 
compatible with its goals. The SBA commented further that: (1) most 
small handlers sell to ``food processors'' and have no reason to 
promote fresh consumption of almonds, and (2) advertising expenses 
designed to increase use by ingredient manufacturers were not 
creditable under the old program and are not creditable under the new 
program. Finally, the SBA stated that the Credit-Back program was 
promulgated with no evidence that it would advance the government's 
interest, or that it is the least restrictive program needed to enhance 
almond sales.
    For these reasons, the SBA indicated that the Secretary should 
consider alternatives to the current advertising program, including no 
program at all, or, at a minimum, a program that imposes less 
restrictions on handlers. The SBA also recommended that promotional 
efforts targeting ingredient manufacturers should be given the same 
credit as those targeting fresh consumption.
    Advertisements resulting from joint participation by a handler and 
manufacturers or sellers of two complementary products or commodities 
were eligible for credit under the former advertising and promotion 
program provided that the brand name was used.
    Under the new Credit-Back program, advertising and promotion 
activities to trade, industrial or end users are specifically eligible 
for Credit-Back, with no requirement for a brand name. In addition, the 
Board's generic program contains consumer advertising designed to 
communicate the message that almonds enhance any product to which they 
are added. Research has found such consumer advertising is successful 
in promoting consumption of products used as ingredients. Increased 
consumption of almonds benefits the entire industry.
    The Department disagrees with the SBA's assertion that this action 
fails to meet the requirements for the Regulatory Flexibility Act. The 
SBA's concerns regarding the program's impact on small businesses have 
been properly addressed in this document and the interim final rule.
    Finally, a comment was received from Rodger Wasson, CEO of the 
Almond Board, which supported the new Credit-Back program and supplied 
documentation to substantiate the Board's position. Mr. Wasson 
discussed the history of the almond industry and beneficial changes 
that have taken place since the implementation of the creditable 
advertising program. He stated that the program has provided a variety 
of services designed to increase the demand for California almonds. In 
addition, it has continually been revised to meet the needs of the 
industry. Mr. Wasson stated that the Credit-Back provisions were 
recommended in order to more fully address the needs of the changing 
industry.
    He stated there are major differences between the previous 
creditable advertising program and the new Credit-Back program. Some 
examples are as follows: (1) The previous program allowed handler 
credit for paid media advertisements only. There were separate systems 
for ``generic packs'' and ``150 percent credit''. The new Credit-Back 
program adds 13 advertising, promotion and public relations categories 
(only travel is excluded across-the-board); (2) The previous program 
contained many reporting periods, carryovers, and recordkeeping on 
different systems. Credit-Back is simplified with one system, no 
carryovers, and a basic report-as-you-go reporting system; (3) The 
previous program did not allow credit for almonds used as an ingredient 
if the product contained less than 50 percent of almonds by weight. 
Credit-Back allows credit for the weight represented by almonds as an 
ingredient; (4) The previous program did not allow credit for 
advertisements directing consumers to one or more named retail outlets, 
other than handler-operated outlets. Credit-Back allows such 
advertisements if they include mention of almonds; (5) The previous 
program did not allow credit for advertisements promoting ``competing 
nuts.'' Credit-Back allows credit for this activity determined by the 
portion of the product represented by almonds and/or product weight, 
and (6) The previous program did not allow credit for advertisements 
that promote more than two complementary products. Credit-Back allows 
credit up to the portion represented by almonds.
    In addition, Mr. Wasson submitted materials on the benefits of 
generic advertising. A summary of the materials is as follows.

Generic Advertising and Promotion Programs

    Generic advertising, i.e., advertising activities which focus on 
the general properties of a product such as flavor, nutritional 
benefits and convenience, rather than touting specific brand names, is 
a proven promotional tool which is often used to increase demand for 
agricultural commodities. When used in conjunction with brand name 
promotion, generic advertising has proven to be highly successful.
    For these reasons, generic advertising of agricultural commodities 
has grown steadily since the first commodity board was created more 
than 50 years ago. In 1990, about 350 generic promotion programs were 
in effect at the federal and state levels, covering more than 80 
commodities at a cost of over $530 million annually.
    Each of the federal programs referred to above are overseen by 
USDA. The Agricultural Marketing Service (``AMS'') of the USDA 
currently oversees promotional programs contained in various federal 
marketing orders authorized under the Agricultural Marketing Agreement 
Act of 1937 (the AMAA). These marketing orders cover fruits, 
vegetables, specialty crops and milk. In addition, AMS has oversight 
responsibility for numerous federal statutes which authorize research 
and promotion programs for a variety of commodities, including beef, 
cotton, dairy, eggs, honey, limes, mushrooms, pork, potatoes, soybeans, 
milk, and watermelons.
    The success of many of these advertising and promotion programs has 
been well documented. For instance, an advertising campaign conducted 
by the Potato Board has yielded dramatic results.
    The Potato Board was founded in 1972 at a time when potato 
consumption was steadily declining. Many people had poor images of 
potatoes, did not know of their nutritional value and believed that 
they were fattening. In the years after its formation, the Board 
initiated numerous advertising campaigns designed to improve the 
potato's poor reputation and increase consumer sales. As a result, 
potato consumption has increased by 12% and 96% of the public is now 
aware that potatoes are a high fiber, low fat food which can be 
included in any healthy diet.
    Efforts of the National Dairy Promotion and Research Board to 
promote milk and milk products have also met with success. The Board 
was founded in 1984 and since then has spent more than $75 million 
annually on the promotion of dairy products. As a result, dairy product 
consumption rose by 12% between 1983 and 1990.
    Another example of a successful generic program is provided by the 
California Prune Board. In the 1980's, prunes were not a popular fruit 
and most members of the public had little knowledge of their 
nutritional value, specifically, their high fiber content. In 1987, the 
prune Board began a campaign to highlight the link between consumption 
of high fiber foods (such as prunes, which were marketed as a good 
tasting, high fiber fruit) and cancer prevention. The program included 
direct mailings of product samples to physicians, publicity and media 
appearances by experts about the health benefits of prunes, and 
sampling programs in shopping malls and on domestic airline flights. 
Combined with generic advertising and promotion, the program resulted 
in a 12% increase in prune sales in 1987 alone. To date, the sales of 
California prunes continue to rise.
    The success of certain commodity programs has also been measured 
through technical economic studies on the effects of generic 
advertising on industry sales. The results are impressive.
    For instance, in a recent study of the Washington apple industry 
(Olan D. Forker and Ronald W. Ward, 1991) it was estimated that between 
1988 and 1991, the industry received a rate of return of $6.63 for 
every dollar of assessments spent on the promotion of apples. In all, 
this represented a $133.76 million dollar return on a $17.5 million 
investment and the market price which Washington apple growers received 
for their apples between 1988 and 1991 was estimated to be 12.9% higher 
than it would have been without generic advertising.
    Similarly, a recent study sponsored by the Cattlemen's Beef 
Promotion and Research Board (Ronald W. Ward, 1993) examined the 
effects of generic advertising on the beef industry. Based on extensive 
economic analysis, it was estimated that between 1987 and 1992, the 
beef industry realized an average return rate of $5.80 for every dollar 
spent on promotional activities. By February 1992, the total economic 
return to the industry was estimated at $2.99 billion.
    A study by Ronald Ward and Bruce Dixon in 1989 provides an economic 
analysis of the effects of generic advertising on fluid milk 
consumption. The authors of this study found that such promotion, 
authorized under the National Dairy and Tobacco Adjustment Act of 1983, 
``confirm[s] a statistically significant relationship between fluid 
milk consumption and generic fluid milk advertising * * *'' Other 
research conducted by O.D. Forker and H.M. Kaiser of Cornell University 
indicates that between 1984 and 1990, dairy farmers realized a farm 
level return rate of 4.6 to 1 on investments in generic advertising 
authorized under the National Dairy Promotion Program.
    Mr. Wasson also submitted materials on the benefits of branded 
advertising. A summary of the materials is as follows.

Branded Advertising

    The usefulness of branded advertising to increase the sales of a 
particular product is also well documented. Within the private sector, 
companies unfailingly recognize the importance of advertising and 
collectively spend billions of dollars a year on advertising and 
promotion activities in order to generate sales. In 1992 alone, the 
nation's top 20 advertisers spent more than $500 million on 
advertising. (Advertising Age, August 29, 1993).
    Within the agricultural field, brand advertising is also a useful 
tool which has been found to benefit not only the actual brand 
advertiser, but the overall industry as well. Through brand 
advertising, handlers seek to move their own products from the shelf to 
the consumer. A recent study conducted by an economist at the 
University of California at Davis, Department of Agricultural Economics 
(Jason Christian, 1994) concluded that brand advertising has afforded 
substantial benefits to all California almond growers.
    In his analysis, Christian examined the market effects of brand 
advertising by one large almond cooperative as well as other 
independent handlers, between 1972 and 1992. Based on Christian's 
analysis, it was estimated that the average rate of return to the 
industry as a result of brand advertising by the cooperative was 
substantial. During the 1980's the average rate of return for each 
additional dollar spent on advertising expenditures was about $5.00. 
Aside from the individual brand advertiser, other handlers in the 
industry also benefited from the advertising because it created an 
increased demand for all almonds. Between 1979 and 1990, the benefits 
received by other almond handlers actually exceeded the returns 
received by the brand advertiser.
    Mr. Wasson also submitted materials on the effects of almond 
promotion on the industry, including documentation on imports and 
exports of almonds and statistical tables on the almond industry. A 
summary of the materials is as follows.

Effects of Almond Promotion on the Almond Industry

    Aside from the studies described above, there are numerous other 
indications that the combined creditable and generic advertising 
program administered by the Almond Board has been highly successful. 
Statistics indicate that both the supply and demand of California 
almonds have increased significantly since the inception of the Almond 
Marketing Order's advertising and promotion program.
    In the early 1980's the U.S. almond crop averaged about 300 million 
pounds. By the early 1990's the almond crop averaged about 550 million 
pounds. Almonds have thus attained a level of market growth which few 
other agricultural commodities can claim.
    Significantly, grower prices for almonds have remained relatively 
stable throughout these years of increased production. One basic theory 
of economic analysis is that prices for a product will fall if supply 
increases without a corresponding increase in demand. The relative 
stability of prices within the almond industry throughout the years of 
increased production indicate that demand for California almonds has 
increased dramatically over the years.
    Another measure of the growing popularity of almonds can be 
obtained through analysis of per capita consumption. USDA figures 
indicate that the United States' per capita consumption of almonds is 
well ahead of that of any competing nuts. In 1970-71, the average 
American's per capita consumption of almonds was about .34 pounds per 
person. In 1987-88, the average per capita consumption of almonds was 
.58 pounds per person. By 1991-92, per capita consumption had risen to 
.82 pounds per person. This represents a 40% increase in per capita 
consumption between 1987 and 1992. Importantly, no tree nut was 
promoted more aggressively than almonds during this period. 
Additionally, the tree nut with the second largest per capita 
consumption between 1987 and 1992 was walnuts, at just .54 pounds per 
person.
    Further evidence of the growth of the almond industry is provided 
by the fact that the use of almonds as ingredients in new products 
continues to increase. In 1992, almonds were most often included in all 
new foods containing tree nuts or peanuts which were introduced on the 
market. In all, 35% of all new products containing any type of nuts 
which were introduced in 1992 contained almonds.
    The Department notes that economic studies of the almond industry 
also show that advertising is a good use of industry funds. In his 1985 
study of the relationship between advertising, risk and domestic sales 
of almonds, Dr. John Baritelle, a research agricultural economist and a 
professor at the University of California-Riverside, concluded that 
advertising has been a good investment for the industry.
    As the basis for his study, Baritelle posed the initial question, 
``What does the industry get for its advertising dollar, and what would 
we get if we advertised even more?'' (Non-Technical Statement on Almond 
Advertising Model and Domestic Sales, at p. 2) (July, 1985). Almond 
crops for the years 1981 through 1983 were analyzed.
    The study found that for the crop year 1981, when almond production 
was at an all time high of 408 million pounds and the advertising 
budget was 10.86 million dollars, total estimated returns on 
advertising ranged from $1.21 to $4.51 for each dollar spent. This 
figure included the estimated returns that advertising dollars expended 
in 1981 would yield in 1982 since the study found that advertising has 
an impact on per capita sales in the year of expenditure as well as in 
the following year. Importantly, Baritelle found that even if the 1981 
advertising budget had been increased by 25% to $13.58 million, the 
industry would still have received a total return of at least $1.02 on 
every dollar spent.
    In 1982, when almond production returned to more normal levels and 
the advertising budget was $8.85 million, total estimated returns on 
advertising ranged from $1.75 to $6.26 for each dollar spent. Again, 
this figure included the estimated returns that advertising dollars 
expended in 1982 would yield in 1983. Additionally, Baritelle noted 
that even if the 1982 budget had been increased by 75% to $15.49 
million, the return to the industry would have been at least $1.04 for 
every dollar spent.
    Finally, the Department notes that in 1983, when almond production 
was low due to poor weather conditions and the advertising budget was 
$6.10 million, estimated returns ranged from $2.34 to $8.37. Again, 
this figure took into account returns that were expected to be realized 
in 1984.
    Mr. Wasson went on to state that although investing in the 
advertisement of almonds is a proven way to increase sales, it is 
significant that, when compared to other commodity boards, the Almond 
industry spends relatively little on promotional activities. For 
instance, the Washington Apple and Almond industries have similar crop 
sizes--about $1 billion--yet the Almond Board spends substantially less 
on advertising than the Washington Apple Commission. The Almond Board's 
promotional budget for the year 1993-94 was $5.4 million. The 
Washington Apple Commissions' advertising expenses for that same period 
was a little over $7.0 million.
    It is also significant that the Almond Board's lengthy process of 
developing and implementing generic advertising campaigns is consistent 
with advertising industry norms. Testing and monitoring is performed at 
various stages in the development and airing of advertisements and 
follow-up research on their effectiveness is conducted.
    Different concepts regarding the best method of promoting almonds 
are also explored. For example, focus group concept testing was 
conducted prior to the 1993-94 advertising campaign, and a concept was 
chosen from four alternatives. Advertisements were then developed, 
presented to a consumer audience for reaction, and adjustments and 
refinements were made before a final product was developed.
    After airing an advertisement, consumer awareness is measured since 
this is a basic measurement of an advertisement's effectiveness. 
Results of these tests recently showed that the television 
advertisement approved for use by the Almond Board during the 1993-94 
campaign was very successful. In addition, based on the experience 
gained from the 1993-94 campaign, the Board has conducted research to 
assist in developing a new program for 1994-95.
    The Order and its regulations were initiated by the industry for 
the benefit of the industry. Without majority industry support, the 
Order, or any part of it, could have been suspended or terminated. Mr. 
Wasson concluded by stating that the advertising and promotional 
programs instituted by the Board have received continual majority 
support since their inception.

The Department's Conclusion

    The Department's experience has been that whenever a segment of any 
industry is ``required'' to do certain things in order to make a 
program work for all, it is not unusual to find members of the industry 
who do not agree with any or all aspects of the program. There are some 
who just do not want to participate in any advertising or promotion 
programs. In order for a marketing order to be successful, however, 
participation by everyone is very important.
    With the decision of the Ninth Circuit, the Department's oversight 
responsibilities of the almond marketing order were carefully analyzed 
and considered. It was determined that it is in the best interest of 
the majority of the almond industry that the advertising and promotion 
program continue as modified herein.
    Based on the above, the Administrator of the AMS has determined 
that this final rule will not have a significant economic impact on a 
substantial number of small entities.
    The information collection requirements contained in these 
regulations have been previously approved by the Office of Management 
and Budget (OMB) and have been assigned OMB Control Number 0581-0071.
    Pursuant to 5 U.S.C. 553, it is also found and determined that good 
cause exists for not postponing the effective date of this action until 
30 days after publication in the Federal Register because: (1) the new 
Credit-Back program, as modified herein, will be more beneficial to the 
industry if it is implemented at the beginning of the 1994-95 crop year 
which begins July 1, 1994; (2) this action provides handlers with 
additional flexibility in the types of promotion and advertising 
allowed for crediting; (3) this action relaxes requirements currently 
in effect; (4) the interim final rule provided two comment periods 
which were addressed in this action and modifications were made based 
on the comments and other relevant information.
    After consideration of the all relevant material presented, the 
information and recommendations submitted by the Board, the comments 
received, and other information, the Department has determined that 
finalizing the interim final rule, with modifications, as published in 
the Federal Register [58 FR 43500, August 17, 1993] will tend to 
effectuate the declared policy of the Act.

List of Subjects in 7 CFR 981

    Almonds, Marketing agreements, Nuts, Reporting and recording 
requirements.

    For the reasons set forth in the preamble, 7 CFR Part 981 is 
amended as follows:

PART 981--ALMONDS GROWN IN CALIFORNIA

    1. The authority citation for 7 CFR Part 981 continues to read as 
follows:

    Authority: 7 U.S.C. 601-674.

    2. Section 981.441 is revised to read as follows:


Sec. 981.441  Credit for market promotion activities, including paid 
advertising.

    (a) In order for a handler to receive credit for his/her own 
promotional activities from his/her pro rata portion of advertising 
assessment payments, pursuant to Sec. 981.41(c), the Board must 
determine that such expenditures meet the applicable requirements of 
this section. Credit will be granted either in the form of a payment 
from the Board, or as an offset to the advertising assessment if 
activities are conducted and documented to the satisfaction of the 
Board at least two weeks prior to assessment billings. Credit, 
hereinafter termed ``Credit-Back'', will be granted in an amount not to 
exceed 66\2/3\ percent of a handler's proven expenditures for qualified 
activities.
    (b) The portion of the handler assessment for which credit may be 
received under this section will be billed, and is due and payable, at 
the same time as the portion of the handler assessment used for the 
Board's administrative expenses, unless the handler(s) conduct and 
document activities at least two weeks prior to assessment billings. In 
the latter case, handlers' advertising assessment obligations will be 
reduced according to the amount of proven activities approved by the 
Board.
    (c) The Board shall grant Credit-Back for qualifying activities 
only to the handler who performed such activities and who filed a claim 
for Credit-Back in accordance with this section.
    (d) Credit-Back shall be granted only for qualified promotional 
activities which are conducted and completed during the crop year for 
which Credit-Back is requested.
    (e) The following requirements shall apply to Credit-Back for all 
promotional 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. To this end, the Board may issue 
guidelines for qualifying activities from time to time as warranted. 
For activities in markets other than the United States and Canada, 
paragraph (e)(5) of this section shall also apply.
    (2) The clear and evident purpose of each activity shall be to 
promote the sale, consumption or use of California almonds, and nothing 
therein shall detract from this purpose.
    (3) No Credit-Back will be given for advertising placed in 
publications that target the farming or grower trade. No Credit-Back 
shall be given for any outdoor advertising or sponsorships in the 
California almond growing counties of Butte, Colusa, Fresno, Glenn, 
Kern, Madera, Merced, Sacramento, San Joaquin, Stanislaus, and Tulare 
counties, except that, outdoor advertising in these counties which 
specifically directs consumers to a handler-operated outlet offering 
direct purchase of almonds will be eligible for Credit-Back.
    (4) Credit-Back shall be granted for those qualified activities 
specified below, except that Credit-Back for travel expenses will not 
be allowed in any case.
    (i) Paid advertising directed to end-users, trade or industrial 
users. Credit-Back shall be granted for money spent on paid advertising 
space or time including, but not limited to, newspapers, magazines, 
radio, television, transit and outdoor media, and including the 
standard agency commission costs not to exceed 15 percent of gross.
    (ii) Other market promotion activities. 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 publicity;
    (C) Printing costs for promotional material;
    (D) Direct mail printing and distribution;
    (E) Retail in-store demonstrations;
    (F) Point-of-sale materials (not including packaging);
    (G) Sales and marketing presentation kits;
    (H) Trade fairs and exhibits;
    (I) Trade seminars;
    (J) 50/50 advertising with retailers;
    (K) Couponing (printing, distribution and handling costs only);
    (L) Purchase of Board produced promotional materials; and
    (M) Sponsorships
    (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 Almonds'', the amount allowed for Credit-Back claim 
shall reflect that portion of the activity represented by almonds, or 
the handler's actual payment, whichever is less.
    (iv) When products containing almonds are promoted, the amount 
allowed for Credit-Back shall reflect that portion of the product 
weight represented by almonds, or the handler's actual payment, 
whichever is less. In addition, the product must display the handler's 
name or brand, or the words ``California Almonds'' on the primary, face 
label.
    (5) Credit-Back for promotional activities in a foreign market 
shall be granted at 66\2/3\ percent of a handler's unreimbursed 
expenditures for qualified activities in any foreign market, if the 
handler is promoting pursuant to a contract with the Foreign 
Agricultural Service, USDA (FAS) and/or the California Department of 
Food and Agriculture (CDFA). Such activities must also meet the 
requirements of paragraphs (e) (1), (2), (3), (4), and (6) of this 
section. Unless the Board is administering the foreign marketing 
program, such activities shall not be eligible for Credit-Back unless 
the handler certifies that he/she was not and will not be reimbursed by 
either FAS or the 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 will not be eligible for Credit-
Back.
    (6) A handler must file claims with the Board to obtain Credit-Back 
for promotional 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 issued by the handler in payment 
of these invoices; and
    (D) An actual sample, picture or other physical evidence of the 
activity.
    (ii) Handlers may receive credit against their assessment 
obligation up to the advertising amount of the assessment installment 
due; Provided: That the handler submits the required documentation for 
a qualified activity at least two weeks prior to the mailing of 
assessment notices from the Board. In all other instances, handlers 
must remit the advertising assessment to the Board when billed, and a 
refund 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 on February 15, April 15, June 15, 
and 30 days after submission of final claims for the crop year pursuant 
to paragraph (e)(6)(iv) of this section. To receive payment on these 
dates, handler claims must be submitted, with all required elements, at 
least one month prior to the payment date. A handler can receive 
Credit-Back for his/her allowable direct expenditures only up to the 
amount of that portion of the handler's assessment designated for 
marketing promotion, including paid advertising.
    (iv) A statement of the Credit-Back commitments outstanding as of 
the close of a crop year must be submitted in full to the Board within 
15 days after close of that crop year. Final claims must be submitted 
within 105 days after the close of that crop year.
    (f) Appeals. If a determination is made by the Board staff that a 
particular promotional activity is not eligible for Credit-Back because 
it does not meet the criteria specified herein, or for any other 
reason, the affected handler may request the Public Relations and 
Advertising Committee to review the Board staff's decision. If the 
affected handler disagrees with the decision of the Public Relations 
and Advertising Committee, the handler may request that the Board 
review the Committee 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/her discretion.

    Dated: July 6, 1994.
Robert C. Keeney,
Deputy Director, Fruit and Vegetable Division.
[FR Doc. 94-16731 Filed 7-6-94; 4:14 pm]
BILLING CODE 3410-02-P