[Federal Register Volume 61, Number 209 (Monday, October 28, 1996)]
[Rules and Regulations]
[Pages 55547-55550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27455]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 61, No. 209 / Monday, October 28, 1996 / 
Rules and Regulations  

[[Page 55547]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 998

[Docket No. FV96-998-3 FR]


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: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule modifies, for 1996 and subsequent crop 
peanuts, the indemnification program for signatory handlers under 
Peanut Marketing Agreement No. 146 (Agreement). This rule reduces 
indemnification payment coverage to certain costs involved with appeal 
and product claims. The Peanut Administrative Committee (Committee), 
which is responsible for local administration of the quality assurance 
program under the Agreement, recommended the changes. This rule reduces 
the 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 $300,000. With the reduction in indemnification claim 
payments, the Committee will have adequate funds in its indemnification 
reserve to cover costs. No handler assessments for indemnification will 
be necessary. This will reduce signatory handlers' costs, enabling them 
to be more competitive in the marketplace.

EFFECTIVE DATE: This final rule becomes effective October 29, 1996.

FOR FURTHER INFORMATION CONTACT: Jim Wendland, Marketing Order 
Administration Branch, Fruit and Vegetable Division, AMS, USDA, P.O. 
Box 96456, room 2525-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) 299-4770, or Fax: (941) 299-5169. Small businesses may 
request information on compliance with this regulation by contacting: 
Jay Guerber, Marketing Order Administration Branch, Fruit and Vegetable 
Division, AMS, USDA, P.O. Box 96456, room 2525-S, Washington, D.C. 
20090-6456; telephone: (202) 720-2491, or Fax: (202) 720-5698.

SUPPLEMENTARY INFORMATION: This final rule 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 
final rule in conformance with Executive Order 12866.
    This final rule 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 final rule 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 subject themselves to regulation 
under the 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 final rule will have virtually no effect on them. A 
majority of the producers may be classified as small entities.
    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.

[[Page 55548]]

    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.
    The Committee agrees that all of these factors combined show that 
the domestic peanut industry is in decline and that the outlook is not 
expected to change without some positive intervention by the industry. 
The Committee has been meeting for the past two years to develop major 
improvements and cut costs 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 will 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 will reduce signatory 
handlers' costs, enabling them to be more competitive in the 
marketplace.
    The Committee has paid claims based on the initial sampling of any 
peanut lot failing to meet aflatoxin requirements for human consumption 
before the peanuts were shipped from the handler's plant to the buyer, 
product and appeals claims. Payments were 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 
will 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 will 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 will 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 revised program. With annual costs under the program 
estimated at $200,000 to $300,000, there is enough money in reserves to 
cover claims for about 10 crop years. Thus, handlers will not be 
required to pay indemnification assessments during that period. 
Indemnification assessments during the 1994 and 1995 crop years totaled 
approximately $3.4 million and $1.3 million, 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, will benefit 
from the substantially lower costs associated with the elimination of 
annual indemnification assessment obligations. 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 action will not have a 
significant economic impact on a substantial number of small entities.
    The proposed rule concerning this action was published in the 
August 28, 1996, issue of the Federal Register (61 FR 44192). That 
proposal provided that interested persons could file comments, 
including information on the regulatory and informational impacts of 
the proposed rule on small businesses, through September 12, 1996. Six 
comments were received, four favoring and two opposing the proposed 
rule.
    The comments in favor of implementing the changes set forth in the 
proposed rule were submitted on behalf of four handlers. They 
reiterated several of the justifications made in the proposed rule.
    One commenter agreed that indemnification payments should be 
limited to appeal and product claims. In support of this, he stated 
that improvements in technology now allow normal aflatoxin problems to 
be handled at each handler's shelling facilities and should not be an 
extra cost to the industry.
    Another commenter indicated that recent peanut shelling technology 
and peanut buyer demands have forced the peanut industry to new heights 
of peanut product safety and quality requirements. He also stated that 
the outdated and unfair system of indemnification for sheller aflatoxin 
claims needed to be changed. The proposed changes by the Peanut

[[Page 55549]]

Administrative Committee meet the needs of the peanut industry.
    Two other commenters stated that it is time to limit 
indemnification payments for aflatoxin to appeal claims and product 
liability claims. They indicated there is no justification for those 
indemnification payments for normal aflatoxin problems that exist 
before blanching or remilling, since the industry has modern technology 
that can detect these problems and these costs should be paid solely by 
the individual sheller, not by the industry.
    Two comments in opposition were submitted by two handlers. One 
commenter indicated that eliminating indemnification insurance is to 
``un-do'' a system of quality control that predecessors established 
years ago, which has helped many small handlers survive. He agreed that 
peanut processing machinery and technology is available to reduce the 
aflatoxin content to an acceptable level on most any peanut lot, but he 
thinks this is an expensive procedure and that few smaller independent 
shellers can absorb the extra cost of reconditioning equipment 
necessary to accomplish this. The commenter also stated that until the 
industry greatly reduces or eliminates aflatoxin from occurring in 
peanut production, the industry should not eliminate the time proven 
system of handling it.
    Another commenter stated that the small handler who is limited to a 
specific area could be severely impacted if that area happened to be 
dry or had other problems causing higher aflatoxin. He agreed that 
state of the art processing equipment is available to recondition low 
quality peanuts so they meet Outgoing Quality requirements.
    The Department recognizes that the rule will place more 
responsibility on shellers for meeting the needs of peanut buyers. 
Information provided by the Committee indicates that the cost of the 
current indemnification program is simply too high and the industry 
must change to meet new world competition or face a serious decline. 
The Committee is providing an opportunity for shellers to control the 
quality of their own peanuts and eliminate their costs for 
indemnification assessments. Those handlers who believe they may be 
adversely impacted by aflatoxin can obtain private insurance coverage 
against such losses. Such insurance coverage is readily available to 
cover the current crop. We understand that some recent policies have 
been written for a cost at or less than the Committee's previous 
indemnification assessment rate. Although there may be some burden, not 
having to pay indemnification assessments is a cost saving which is 
expected to continue for several years due to the funds available in 
the indemnification reserve. Therefore, after thoroughly analyzing the 
comments received and other available information, the Department has 
concluded that this final rule is appropriate.
    After consideration of relevant matter presented, including the 
information and recommendations submitted by the Committee, the six 
comments received, and other available information, it is hereby found 
that the final rule, as hereinafter set forth, will tend to effectuate 
the declared policy of the Act.
    It is further found that good cause exists for not postponing the 
effective date of this rule until 30 days after publication in the 
Federal Register (5 U.S.C. 553) because this final rule should be 
implemented as close to the beginning of the crop year as possible. The 
crop year began July 1, 1996. Further, handlers are aware of these 
program changes, which were recommended at a public meeting of the 
Committee on May 23, 1996, and need no additional time to take 
advantage of the modified program. Also, at that meeting the Committee 
did not recommend an indemnification assessment for 1996 crop peanuts. 
Further, interested persons were given an opportunity to comment on the 
proposed rule.
    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 final rule have been previously approved by the 
Office of Management and Budget (OMB) and have been assigned OMB No. 
0581-0067. This final rule will likely result in less reports having to 
be filed, particularly because there will 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 have been proposed in a separate 
rulemaking action which was published in the October 4, 1996, issue of 
the Federal Register (61 FR 51811). Comments on that proposal must be 
received by October 24, 1996.

List of Subjects in 37 CFR Part 998

    Marketing agreements, Peanuts, Reporting and recordkeeping 
requirements.

    For the reasons set forth above, 7 CFR part 998 is amended as 
follows:
    1. The authority citation 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 (7 CFR 998.200) 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

[[Page 55550]]

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 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 998.100) 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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (i) U.S. Jumbos
    (ii) U.S. Fancy Handpicks
    (iii) Valencia-Roasting Stock \2\
---------------------------------------------------------------------------

    \2\ Inshell peanuts with not more than 25 percent having shells 
damaged by discoloration, which are cracked or broken, or both.
---------------------------------------------------------------------------

    (2) Reserved.
    (k) The indemnification value for peanuts indemnified shall be 35 
cents per pound.

    Dated: October 18, 1996.
Robert C. Keeney,
Director, Fruit and Vegetable Division.
[FR Doc. 96-27455 Filed 10-25-96; 8:45 am]
BILLING CODE 3410-02-P