[Federal Register Volume 61, Number 168 (Wednesday, August 28, 1996)]
[Proposed Rules]
[Pages 44192-44195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21959]


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DEPARTMENT OF AGRICULTURE
7 CFR Part 998

[Docket No. FV96-998-3 PR]]


Domestically Produced Peanuts Handled by Persons Subject to 
Peanut Marketing Agreement No. 146; Changes in Terms and Conditions of 
Indemnification

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposal invites comments on modifying, for 1996 and 
subsequent crop peanuts, the indemnification program for signatory 
handlers under Peanut Marketing Agreement No. 146 (Agreement). The 
proposed rule would reduce indemnification payment coverage to certain 
costs involved with appeal and product claims. This would reduce the 
Peanut Administrative Committee's (Committee's) indemnification 
payments for losses incurred by signatory handlers in not being able to 
ship unwholesome peanuts for edible purposes from a ceiling of $7 
million for each of the last two years, to about $2300,000. With the 
proposed reduction in indemnification claim payments, the Committee 
will have adequate funds in its indemnification reserve to cover costs. 
No handler assessments for indemnification would be necessary. This 
would reduce signatory handlers' costs, enabling them to be more 
competitive with non-signatory handlers, and importers. The changes 
were recommended by the Committee, the administrative agency which 
oversees the quality assurance program under the Agreement.

DATES: Comments must be received by September 12, 1996.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. Comments must be sent in triplicate to the 
Docket Clerk, Fruit and Vegetable Division, AMS, USDA, room 2523-S, 
P.O. Box 96456, Washington, DC 20090-6456; Fax: (202) 720-5698. All 
comments should reference the docket number, the date, and page number 
of this issue of the Federal Register and will be made available for 
public inspection in the Office of the Docket Clerk during regular 
business hours.

FOR FURTHER INFORMATION CONTACT:
Jim Wendland, Marketing Specialist, Marketing Order Administration 
Branch, Fruit and Vegetable Division, AMS, USDA, P.O. Box 96456, room 
2523-S, Washington, D.C. 20090-6456; telephone: (202) 720-2170, or Fax: 
(202) 720-5698; or William G. Pimental, Marketing Specialist, Southeast 
Marketing Field Office, Fruit and Vegetable Division, AMS, USDA, P.O. 
Box 2276, Winter Haven, Florida 33883-2276; telephone: (941) 229-4770, 
or Fax: (941) 299-5169. Small businesses may request information on 
compliance with this proposed regulation by contacting: Jay Guerber, 
Marketing Order Administration Branch, Fruit and Vegetable Division, 
AMS, USDA, P.O. Box 96456, room 2523-S, Washington, D.C. 20090-6456; 
telephone: (202) 720-2491, or Fax: (202) 720-5698.

SUPPLEMENTARY INFORMATION: This proposal is issued under Peanut 
Marketing Agreement No. 146 (7 CFR part 998). The program regulates the 
quality of domestically produced peanuts handled by Agreement signers. 
The Agreement is effective under the Agricultural Marketing Agreement 
Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as 
the ``Act.''
    The U.S. Department of Agriculture (Department) is issuing this 
rule in conformance with Executive Order 12866.
    This proposal has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to apply to 1996 (beginning July 
1, 1996) and subsequent crop year peanuts. This proposal will not 
preempt any State or local laws, regulations, or policies, unless they 
present an irreconcilable conflict with this rule.
    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has 
considered the economic impact of this action 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 agreements and 
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.
    About 32 signatory peanut handlers are subject to regulation under 
the

[[Page 44193]]

Agreement. There are about 47,000 peanut producers in the 16-State 
production area. Small agricultural service firms, which includes 
handlers, have been defined by the Small Business Administration (13 
CFR 121.601) as those having annual receipts of less than $5,000,000, 
and small agricultural producers have been defined as those having 
annual receipts of less than $500,000. Although approximately 25 
percent of the signatory handlers may be classified as small entities, 
they are seed shellers who ship almost no peanuts to human consumption 
outlets. This proposal would have virtually no effect on them. A 
majority of the producers may be classified as small entities. 
Interested persons are invited to submit information on the regulatory 
impact of this proposed rule on small businesses.
    Domestic peanut production in 1995 was 1.76 million tons, with a 
farm value of $1 billion.
    The objective of the Agreement is to ensure that only high quality 
and wholesome peanuts enter human consumption markets in the United 
States. About 70 percent of domestic handlers, handling approximately 
95 percent of the crop, have signed the Agreement.
    Under the regulations, farmers stock peanuts with visible 
Aspergillus flavus mold (the principal source of aflatoxin) are 
required to be diverted to non-edible uses. Each lot of milled peanuts 
must be sampled and tested and those certified ``positive'' as to 
aflatoxin must be diverted to non-edible uses. Handlers of such peanuts 
currently may be eligible to receive indemnification payments for 
losses incurred in not being able to ship the peanuts for edible uses. 
Costs to administer the Agreement and make indemnification payments are 
paid by assessments levied on signatory handlers.
    The Committee, which is composed of producers and handlers of 
peanuts, meets at least annually to review the Agreement's rules and 
regulations, which are effective on a continuous basis from one year to 
the next. Committee meetings are open to the public, and interested 
persons may express their views at these meetings. The Department 
reviews Committee recommendations and justifications, as well as 
information from other sources, to determine whether modification of 
the Agreement regulations would tend to effectuate the declared policy 
of the Act.
    The Committee believes that the domestic peanut industry is 
undergoing a period of great change. The Committee endorses the 
findings in a recent study entitled ``United States Peanut Industry 
Revitalization Project'' developed by the National Peanut Council and 
the Department's Agricultural Research Service. According to the study, 
since 1991, the U.S. peanut industry has been in a period of dramatic 
economic decline because of (1) decreasing consumption of peanuts and 
peanut products, (2) decreasing U.S. peanut production and increasing 
production costs, and (3) increasing imports of peanuts and peanut 
products.
    The study shows that peanut per capita consumption has steadily 
declined; between 1991 and 1994, a total of 11 percent. Harvested acres 
of peanuts in the U.S. have declined 25 percent between 1991 and 1995. 
Production has fluctuated downward, with 1995 production 30 percent 
below that of 1991. Farm value of peanut production has dropped 29 
percent in the same period. Farmer production costs and revenue are 
projected to be equal by the year 2000, as are handler costs and 
revenue, which would leave no profit.
    All of these factors combine to show that the domestic peanut 
industry is in decline and that the outlook is not expected to improve 
without affirmative actions taken by the industry. The Committee has 
been meeting for the past two years to develop major improvements and 
cut costs to its program and to the signatory handlers by streamlining 
handling procedures and making them consistent with current industry 
economies and technological developments.
    Over the last several years, the Committee has been reducing the 
indemnification benefits. This reduction has made indemnification of 
failing peanuts a less viable economic option and has put more 
responsibility on each handler to decide whether it is economical to 
recondition a failing lot. Peanut processing machinery has improved 
through technological advances to the point that virtually any lot of 
peanuts, regardless of original (incoming) quality, can now be shelled, 
remilled and/or blanched (processed) to meet outgoing quality 
requirements established under the Agreement. The Committee concluded 
that handlers should bear more responsibility for reconditioning their 
own peanuts and in shipping quality peanuts to their customers, and 
that Committee and handler indemnification costs should be reduced.
    The Committee met on May 23, 1996, and recommended a substantial 
reduction in indemnification coverage to reduce costs. Signatory 
handlers have indicated they would rather have the Committee eliminate 
the indemnification assessment currently collected from them than 
continue the current indemnification coverage. The Committee's 
indemnification payments for handler losses would decline from a record 
high net loss of $21.6 million for crop year 1990, and ceilings of $9 
million for crop years 1991-1993 and $7 million for each of the last 
two years, to approximately $300,000. This would reduce signatory 
handlers' costs, enabling them to be more competitive with non-
signatory peanut handlers, and importers.
    The Committee currently pays claims based on the initial sampling 
of any peanut lot failing to meet aflatoxin requirements for human 
consumption before the peanuts are shipped from the handler's plant to 
the buyer, product and appeals claims. Payments are made for blanching 
fees and/or remilling fees, freight charges for moving the peanuts from 
one production area to another for marketing, and for losses for the 
rejected peanuts.
    Under the modified program, on an ``appeal claim'' the Committee 
would pay only for freight costs from the handler's plant to the 
manufacturer and return from manufacturer to the destination requested 
by the handler (handler's plant, blancher, or remiller). ``Appeal 
claims'' involve lots of peanuts, which had been certified as meeting 
all quality requirements, prior to shipment, and then rejected by the 
buyer on the basis of appeal aflatoxin test results. The deadline for 
filing ``appeal'' indemnification claims with the Committee would 
remain November 1 following the end of the crop year. The Committee 
recommended that ``product claims'' continue to be handled as they have 
been in the past. That is, claims may be filed by any handler 
sustaining a loss as a result of a buyer withholding from human 
consumption a portion or all of the product made from a lot of peanuts 
which has been determined to be unwholesome due to aflatoxin. The 
Committee would indemnify the amount of the raw peanuts in the product 
at $0.35 per pound. The product is destroyed under the supervision of 
USDA's Processed Products Branch inspectors and the Committee pays 
these charges. The deadline for filing ``product claims'' remains 
November 1 of the second year following the year in which the peanuts 
were produced.
    An estimated $2.0 to $2.5 million indemnification reserve (after 
all 1995 crop claims are paid) should be available to cover claims 
under the proposed program. With annual costs under the proposed 
program estimated

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at $200,000 to $300,000, there is enough money in reserves to cover 
claims for about 10 crop years. Thus, handlers would not be required to 
pay indemnification assessments during that period. Indemnification 
assessments during the 1994 and 1995 crop years totalled approximately 
$3.4 million and $1.3 million (to date), respectively.
    If the Committee had recommended maintaining the current coverage 
at the $7,000,000 ceiling, an indemnification assessment rate of about 
$4.00 per ton on the 1996 crop would have been necessary to finance the 
program. All signatory handlers, both large and small, would benefit 
from the substantially lower costs associated with the elimination of 
annual indemnification assessment obligations. This would enable 
handlers to be more competitive with non-signatory handlers and 
importers. Handlers who believe they may be adversely impacted by 
aflatoxin can obtain private insurance coverage against such losses.
    Therefore, the AMS has determined that this proposed action would 
not have a significant economic impact on a substantial number of small 
entities. Interested persons are invited to submit information on the 
regulatory and informational impacts of this proposed rule on small 
businesses.
    To implement the reduced indemnification coverage, substantive 
changes to Sec. 998.300 Terms and conditions of indemnification are 
necessary. As a consequence, Sec. 998.300 has been completely revised 
and reorganized, and is set forth below in its entirety. Handler 
application and Committee payment procedures for appeal and product 
claims remain the same.
    The proposed changes to the signer indemnification program should 
be in effect as close to the beginning of the crop year as possible. 
The crop year began July 1, 1996. This leaves a very short time period 
in which to receive industry comments and evaluate the recommendations 
prior to issuing a final rule. Thus, a 15-day (rather than a 30-day) 
comment period is provided to allow interested persons to respond to 
this proposal. All written comments timely received will be considered 
before a final determination is made in this matter.
    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), any information collection requirements that may be 
contained in this proposal have been previously approved by the Office 
of Management and Budget (OMB) and have been assigned OMB No. 0581-
0067. This proposal would likely result in less reports having to be 
filed, particularly because there would likely be less indemnification 
claims filed under the reduced program coverage.
    The Committee also recommended numerous relaxations to the 
Agreement's incoming and outgoing quality regulations for 1996 and 
subsequent crop peanuts, which are being proposed in a separate 
rulemaking action.

List of Subjects in 7 CFR Part 998

    Marketing agreements, Peanuts, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 7 CFR part 998 is 
proposed to be amended as follows:
    1. The authority citation for 7 CFR part 998 continues to read as 
follows:

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

PART 998--MARKETING AGREEMENT REGULATING THE QUALITY OF 
DOMESTICALLY PRODUCED PEANUTS

    2. Section 998.300 is revised to read as follows:


Sec. 998.300  Terms and conditions of indemnification for 1996 and 
subsequent crop peanuts.

    (a) For the purpose of paying indemnities on a uniform basis 
pursuant to Sec. 998.36 of the peanut marketing agreement, each handler 
shall promptly notify or arrange for the buyer to notify the Manager, 
Peanut Administrative Committee, of any lot of cleaned inshell or 
shelled peanuts, milled into one of the categories listed in paragraph 
(a) of the Outgoing quality regulation (7 CFR 998.200) or paragraph (j) 
of this section, on which the buyer, including the user division of a 
handler, has withheld usage due to a finding as to aflatoxin content as 
shown by the results of further chemical assay, after shipment.
    (b) To be eligible for indemnification, such a lot of peanuts shall 
have been inspected and certified as meeting the quality requirements 
for Indemnifiable Grades as specified in paragraph (a) of the Outgoing 
quality regulation (7 CFR 998.200), shall have met all other applicable 
regulations issued pursuant thereto, including the pretesting 
requirements in paragraphs (a) and (c) of the Outgoing quality 
regulation and the lot identification shall have been maintained. If 
the Committee concludes, based on further assays, that the lot is so 
high in aflatoxin that it should be handled pursuant to this section 
and such is concurred in by the Agricultural Marketing Service, the lot 
shall be accepted for indemnification.
    (c) The indemnification payment shall be transportation expenses 
(excluding demurrage, loading and unloading charges, custom fees, 
border re-entry fees, etc.) from the handler's plant or storage to the 
point within the Continental United States or Canada where the 
rejection occurred and from such point to a delivery point specified by 
the Committee if the lot is found by the Committee to be unwholesome as 
to aflatoxin after such lot had been certified negative as to aflatoxin 
prior to being shipped or otherwise disposed of for human consumption 
by the handler pursuant to requirements of the Outgoing quality 
regulation (7 CFR 998.200).
    (d) Claims for indemnification may be filed by any handler 
sustaining a loss as a result of a buyer withholding from human 
consumption a portion or all of the product made from a lot of peanuts 
which has been determined to be unwholesome due to aflatoxin. The 
Committee shall pay such claims as it determines to be valid, to the 
extent of the equivalent indemnification value applicable to the 
peanuts used in the product so withheld. On products manufactured from 
edible quality grades of peanuts, such claims may be filed with the 
committee no later than November 1 of the second year following the 
year in which the peanuts were produced.
    (e) Notice of claims for indemnification on peanuts of the current 
crop year shall be received by the Committee (by mail or legible 
facsimile) no later than the close of the business day on November 1, 
following the end of the crop year. For the purpose of this paragraph, 
``notice'' shall be defined as the covering (executed and signed) Form 
PAC-5, accompanied by a copy of the applicable valid grade inspection 
certificate and the lab certificate showing the aflatoxin assay results 
which caused the request for rejection.
    (f) Each handler shall include, directly or by reference, in the 
handler's sales contract, the following provisions:
    (1) Buyer shall give the Peanut Administrative Committee 
(Committee) office notice of any request made to the Federal or 
Federal-State Inspection Service for an ``appeal'' inspection for 
aflatoxin. Results of the ``appeal'' inspection will be reported by the 
Federal or Federal-State Inspection Service or other designated lab to 
Committee management. If the Committee management determines that the 
test results of the ``appeal'' sample show the lot to be high in 
aflatoxin, Committee management shall inform the buyer and handler of 
the results. In

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this case, the buyer may apply to reject the lot and return it to the 
handler by filing a rejection letter with Committee management. Upon a 
determination of the Committee, confirmed by the Agricultural Marketing 
Service, authorizing rejection, such peanuts, and title thereto, if 
passed to the buyer, shall be returned to the seller. Buyer must return 
the rejected lot to the seller within 45 days of the date on which 
Committee management informs buyer of the ``appeal'' sample test 
results, otherwise the buyer agrees that he/she forfeits the right to 
reject the lot and return it to the seller.
    (2) Seller shall, prior to shipment of a lot of shelled peanuts 
covered by this sales contract, cause appropriate samples to be drawn 
by the Federal or Federal-State Inspection Service from such lot, shall 
cause the sample(s) to be sent to a USDA laboratory or if designated by 
the buyer, a laboratory listed on the most recent Committee list of 
approved laboratories to conduct such assay, for an aflatoxin assay and 
cause the laboratory, if other than the buyer's to send one copy of the 
results of the assay to the buyer. A portion of the costs of aflatoxin 
sampling and testing, as provided in Sec. 998.200(c)(3), shall be for 
the account of the buyer and the buyer agrees to pay such costs.
    (g) Any handler who fails to include such provisions in his/her 
sales contract shall be ineligible for indemnification payments with 
respect to any claim filed with the Committee on current crop year 
peanuts covered by the sales contract.
    (h)(1) Any handler who fails to conform to the requirements of 
paragraph (g) of the Incoming quality regulation (7 CFR 998.200) shall 
be ineligible for any indemnification payments until such condition or 
conditions are corrected to the satisfaction of the Committee.
    (2) Any handler who fails to comply with the requirements of 
paragraph (h)(1) or (h)(2) of the Outgoing quality regulation (7 CFR 
998.200) shall be ineligible for any indemnification payments until 
such non-compliance is corrected to the satisfaction of the Committee.
    (i) Any handler who fails to cause positive lot identification on 
any lot of peanuts to accurately reflect the crop year in which such 
peanuts were produced, pursuant to paragraph (d) of the Outgoing 
quality regulation (7 CFR 998.200), shall be ineligible for any 
indemnification payments until such non-compliance is corrected to the 
satisfaction of the Committee.
    (j) Categories of cleaned inshell peanuts eligible for 
indemnification are as follows:
    (1) Cleaned inshell peanuts \1\
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    \1\ Eligible lots of cleaned inshell peanuts which are found, 
after shipment, to contain excessive aflatoxin, may be rejected to 
the handler. Transportation expenses (excluding demurrage, loading 
and unloading charges, custom fees, border reentry fees, etc.) from 
the handler's plant or storage to the point within the Continental 
United States or Canada where the rejection occurred and from such 
point to a delivery point specified by the Committee shall be the 
extent of the indemnification payment.
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    (i) U.S. Jumbos
    (ii) U.S. Fancy Handpicks
    (iii) Valencia-Roasting Stock \2\
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    \2\ Inshell peanuts with not more than 25 percent having shells 
damaged by discoloration, which are cracked or broken, or both.
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    (k) The indemnification value for peanuts indemnified shall be 35 
cents per pound.

    Dated: August 22, 1996.
Robert C. Keeney,
Director, Fruit and Vegetable Division.
[FR Doc. 96-21959 Filed 8-27-96; 8:45 am]
BILLING CODE 3410-02-M