[Federal Register Volume 64, Number 210 (Monday, November 1, 1999)]
[Rules and Regulations]
[Pages 58763-58766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28373]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 981

[Docket No. FV99-981-4 IFR]


Almonds Grown in California; Revisions to Requirements Regarding 
Credit For Promotion and Advertising Activities

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: This rule revises the requirements regarding credit for 
promotion and advertising activities prescribed under the 
administrative rules and regulations of the California almond marketing 
order (order). The order regulates the handling of almonds grown in 
California and is administered locally by the Almond Board of 
California (Board). The order is funded through the collection of 
assessments from almond handlers. Under the terms of the order's 
regulations, handlers may receive credit towards their assessment 
obligation for certain expenditures for marketing promotion activities, 
including paid advertising. This rule revises the requirements 
regarding the activities for which handlers may receive such credit by 
allowing maximum credit for promoting almond products, under certain 
conditions. The changes are intended to encourage and support almond 
product development and thus increase the demand for almonds. The 
changes also clarify existing regulations.

DATES: This interim final rule becomes effective November 2, 1999; 
comments received by January 3, 2000 will be considered prior to 
issuance of a final rule.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this rule. Comments must be sent to the Docket Clerk, Fruit 
and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456, 
Washington, DC 20090-6456; Fax: (202) 720-5698 or E-mail: 
[email protected]. All comments should reference the docket 
number and the date and page number of this issue of the Federal 
Register and will be available for public inspection in the Office of 
the Docket Clerk during regular business hours.

FOR FURTHER INFORMATION CONTACT: Martin Engeler, Assistant Regional 
Manager, California Marketing Field Office, Marketing Order 
Administration Branch, F&V, AMS, USDA, 2202 Monterey Street, suite 
102B, Fresno, California 93721; telephone: (559) 487-5901, Fax: (559) 
487-5906; or George Kelhart, Technical Advisor, Marketing Order 
Administration Branch, Fruit and Vegetable Programs, AMS, USDA, room 
2525-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: (202) 
720-2491, Fax: (202) 720-5698. Small businesses may request information 
on complying with this regulation by contacting Jay Guerber, Marketing 
Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 
P.O. Box 96456, room 2525-S, Washington, DC 20090-6456; telephone (202) 
720-2491, Fax: (202) 720-5698, or E-mail: Jay.G[email protected].

SUPPLEMENTARY INFORMATION: This rule is issued under Marketing Order 
No. 981, as amended (7 CFR part 981), regulating the handling of 
almonds grown in California, hereinafter referred to as the ``order.'' 
The marketing 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.''
    The Department of Agriculture (Department) is issuing this rule in 
conformance with Executive Order 12866.
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is not intended to have retroactive effect. 
This 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 608c(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. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing the Secretary would rule on the petition. 
The Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the Secretary's 
ruling on the petition, provided an action is filed not later than 20 
days after the date of the entry of the ruling.
    This rule revises the requirements regarding credit for promotion 
and advertising activities prescribed under Sec. 981.441 of the 
administrative rules and regulations of the order. The order is funded 
through the collection of assessments from almond handlers. Under the 
terms of the order's regulations, handlers may receive credit towards 
their assessment obligation for certain expenditures for marketing 
promotion activities, including paid advertising. This rule revises the 
requirements regarding the activities for which handlers may receive 
such credit by allowing maximum credit for promoting almond products, 
under certain conditions. The changes also clarify existing 
regulations. The changes are intended to encourage and support almond 
product development and thus increase the demand for almonds. This rule 
was unanimously recommended by the Board at a meeting on July 12, 1999, 
with additional justification approved via facsimile vote during the 
week of August 30, 1999.
    The order provides authority for the Board to incur expenses for 
administering the order and to collect assessments from handlers to 
cover these expenses. Section 981.41(a) provides authority for the 
Board to conduct marketing promotion projects, including projects 
involving paid advertising. Section 981.41(c) allows the Board to 
credit a handler's assessment obligation with all or a portion of his 
or her direct expenditures for marketing promotion, including paid 
advertising, that promotes the sale of almonds, almond products, or 
their uses. Section 981.41(e) allows the Board to prescribe rules and 
regulations regarding such credit for market promotion, including paid 
advertising activities. Those regulations are prescribed in 
Sec. 981.441.
    The Department implemented several Board-recommended changes to the 
regulations regarding the criteria that must be met in order for 
handlers to receive credit for their promotional activities in July 
1999 (64 FR 41023, July 29, 1999). However, the Department did not 
implement one Board recommendation concerning credit for promoting 
almond products at that time because of concerns regarding the lack of 
specified criteria to be used in reviewing claims and concerns about 
the claims review process. The Board and its staff reconsidered the 
issue, further developed the concept, and submitted a revised 
recommendation addressing the Department's concerns.

[[Page 58764]]

This rule implements the revised recommendation.
    Current regulations crediting handlers' promotion of almond 
products limit any such credit to the portion of the product weight 
represented by almonds, or the handler's actual payment, whichever is 
less. This limitation, as specified in Sec. 981.441(e)(iv), was 
included because it was believed that while promoting almond products 
was important, such activity might also promote and increase sales of 
other ingredients in the product. Therefore, the amount of credit 
handlers could receive was established at less than the maximum of 
66\2/3\ percent. This maximum level is specified in Sec. 981.441(a).
    The almond industry has historically been one of rapid growth. 
Recent years have been no exception, as almond acreage has increased 
substantially in the last decade. When coupled with increasing yields, 
production is expected to achieve record levels in coming years. The 
industry is faced with the prospect of selling these larger crops at a 
profitable return to producers. In order to achieve this, it is 
recognized that consumption and demand for almonds must be increased. 
Because a substantial portion of almonds are used as ingredients, an 
important method of increasing almond consumption is through increasing 
the consumption of almond products.
    The current regulations allowing only partial credit for promotion 
of all almond products are believed to have created a disincentive for 
handlers to develop, create and promote almond products. Therefore, the 
Board recommended and the Department is implementing revised 
regulations to allow maximum credit-back to handlers for promoting 
almond products, under certain conditions.
    After the effective date of this interim final rule, handlers will 
be able to receive credit against their assessment obligations in an 
amount not to exceed 66\2/3\ percent of their proven expenditures for 
qualified activities for promotion of almond products. In order to 
receive this level of credit, the product must be owned or distributed 
by the handler and such ownership or distributorship must be stated on 
the package. Handler ownership or distributorship is required in order 
to eliminate the possible occurrence of utilizing industry funds to 
promote businesses outside the almond industry.
    In addition, the product must display the handler's brand, or the 
words ``California Almonds'' on the primary, face label. This 
requirement is intended to ensure that the clear intent is to promote 
the consumption and use of California almonds, which is the basic 
requirement for all promotion under the almond order.
    Under the rule, maximum credit is not allowed for promotion of 
mixed nut products. In the case of mixed nuts, and for other 
promotional activities of almond products that do not meet the 
aforementioned criteria, the amount of credit allowed continues to be 
the lesser of 66\2/3\ percent of the handler's actual payment or that 
portion of the product weight represented by almonds. Mixed nuts do not 
qualify for the maximum credit because the thrust of eligible credit-
back promotion activities is to promote the consumption and use of 
California almonds, not other nuts. Also, many almond handlers are 
involved in handling and marketing other nuts, and almond funds could 
possibly be used to promote other nut industries and other nuts. 
Therefore, mixed nuts continue to be subject to the reduced level of 
credit-back based on the portion of the product weight represented by 
almonds. Accordingly, appropriate changes have been made to 
Sec. 981.441(e)(4).
    Finally, this rule adds specific language to the introductory text 
of Sec. 981.441(e)(4) clarifying that no promotion of almonds or almond 
products shall be eligible for credit-back if the promotion results in 
price discounting of the handler's product. An example of price 
discounting is as follows. A retail store routinely places 
advertisements in a local newspaper for various products in an attempt 
to attract customers. The advertisement includes a handler's almonds. 
The handler makes arrangements with the retailer to pay for the 
advertisement. In essence, this ``discounts'' the price of the product 
to the retailer. While these types of arrangements occur, it is not the 
intent of promotion under the almond order to subsidize such activities 
through the credit-back program. Price discounting has not been allowed 
under the program, and this rule adds specific language to the 
regulations for clarity.
    The Board recommended that this rule be applied retroactively to 
August 1, 1999. This would allow the revised regulations to apply to 
all promotional activities conducted from the beginning of the 1999-
2000 crop year forward. The crop year began August 1, 1999, and ends 
July 31, 2000. Section 981.441 specifies the procedures that the Board 
follows in granting credit and billing handlers. The effective date of 
the rule is one day after publication in the Federal Register, and the 
provisions of this revised regulation will be applied at that time. 
Handler activities were conducted under program parameters in effect 
prior to the effective date of this interim final rule. Therefore, 
those parameters for activities conducted prior to this rule's 
effective date should be followed. Accordingly, handlers promoting 
products containing almonds prior to the effective date of this rule 
will be eligible to receive Credit-Back based on the portion of the 
product weight represented by almonds, or the handler's actual payment, 
whichever is less. For activities conducted on or after the effective 
date of this rule, the activities must meet the revised criteria, and 
handlers will be eligible to receive Credit-Back at the maximum of 
66\2/3\ percent for promoting almond products, if the percent for 
promoting almond products, if the activities meet the revised criteria 
in this rule. Submission of documentation should continue to be made in 
accordance with the provisions of the regulations as amended by the 
final rule that appeared in the July 29, 1999, Federal Register at 64 
FR 41023.
    Pursuant to 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. Accordingly, AMS has 
prepared this initial regulatory flexibility analysis.
    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 105 handlers of California almonds who are 
subject to regulation under the order and approximately 6,000 almond 
producers in the regulated area. Small agricultural service firms 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 are defined as those having annual receipts of 
less than $500,000.
    Based on the most current data available, about 54 percent of the 
handlers ship under $5,000,000 worth of almonds and 46 percent ship 
over $5,000,000 worth on an annual basis. In addition, based on 
acreage, production, and grower prices reported by the National 
Agricultural Statistics Service, and the total number of almond 
growers, the average annual grower revenue is approximately $195,000. 
In view of the foregoing, it can be

[[Page 58765]]

concluded that the majority of handlers and producers of California 
almonds may be classified as small entities.
    This rule revises the requirements regarding credit for promotion 
and advertising activities prescribed under Sec. 981.441 of the 
administrative rules and regulations of the order, and clarifies the 
intent of one aspect of the existing regulations. The order is funded 
through the collection of assessments from almond handlers. Under the 
terms of the order's regulations, handlers may receive credit towards 
their assessment obligation for certain expenditures for marketing 
promotion activities, including paid advertising. This rule revises the 
requirements regarding the activities for which handlers may receive 
such credit by allowing maximum credit for promoting almond products, 
under certain conditions. The revisions also clarify existing 
regulations regarding disallowing promotional activities that result in 
price discounting. The changes are intended to encourage and support 
almond product development and thus increase the demand for almonds.
    Current regulations concerning crediting handlers' promotion of 
almond products limit any such credit to the portion of the product 
weight represented by almonds, or the handler's actual payment, 
whichever is less. This limitation was included because it was believed 
that while promoting almond products was important, such activity may 
also promote and increase sales of other ingredients in the product. 
Therefore, the amount of credit handlers could receive was established 
at less than the maximum of 66\2/3\ percent. It is now believed that 
the potential for increasing demand for almonds by providing incentive 
through allowing maximum credit alleviates the prior concerns regarding 
promoting other ingredients.
    Regarding the impact of this rule on affected entities, the changes 
specified herein regarding credit for product development are designed 
to provide incentive to almond handlers to create, develop, and promote 
almond products. Almonds are widely used as ingredients in other 
products, thus an important method of increasing almond consumption and 
demand is through increasing sales of almond products. Handlers in the 
almond industry will be rewarded for their innovation in developing 
almond products, while the entire industry will benefit from the 
resulting increased demand. Thus, the impact on all growers and 
handlers in the almond industry is expected to be positive. This is an 
additional tool for the industry to use to increase demand for their 
product in the face of increasing supplies.
    The changes regarding price discounting clarify that handlers can 
not receive credit-back for promotional activities that result in price 
discounting of product. This activity has not been allowed under the 
regulations as it does not meet the intent of the program; the changes 
merely clarify the existing regulations. Disallowing price discounting 
results in a more efficient and effective use of industry promotion 
funds.
    Alternatives to the changes were considered. One alternative was to 
leave the regulations as they currently exist. However, this does not 
address the issue of providing incentive and encouragement to handlers 
to promote almond products. Another alternative was to allow maximum 
credit only for new or unique products, with the Board to determine 
what products fit that description. This alternative was initially 
recommended by the Board but was not implemented by the Department 
because of concerns regarding the lack of specified criteria to be used 
in reviewing claims, and concerns about the claims review process. A 
third alternative considered was to allow maximum credit-back for all 
promotions concerning almond products. However, it was determined that 
certain criteria should be applied to product promotions to meet the 
intent of the program, for the following reasons. To receive maximum 
credit-back, the product must be owned or distributed by the handler, 
to ensure that credit is not granted for promoting products or 
businesses outside the almond industry. Packages must be labeled with 
the handler's name or the words ``California Almonds'' to help ensure 
the intent is to promote the consumption and use of California almonds, 
which is the basic requirement for all promotion under the order. Mixed 
nuts are subject to a reduced level of credit-back because handlers are 
and can be involved in handling and marketing other nuts, and if 
maximum credit were allowed, this could result in almond industry funds 
being used to promote other nut industries and other nuts. Moreover, 
the thrust of eligible credit-back promotion activities is to promote 
the consumption of California almonds, not other nuts, and it would not 
be appropriate to give mixed nut products the full 66\2/3\ credit.
    This rule imposes no additional reporting or recordkeeping 
requirements on either small or large almond handlers. In accordance 
with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the 
information collection requirements that are contained in this rule 
have been previously approved by the Office of Management and Budget 
(OMB) and have been assigned OMB No. 0581-0071. As with all Federal 
marketing order programs, reports and forms are periodically reviewed 
to reduce information requirements and duplication by industry and 
public sector agencies. Finally, the Department has not identified any 
relevant Federal rules that duplicate, overlap or conflict with this 
rule.
    Additionally, the Board meeting was widely publicized throughout 
the almond industry and all interested persons were invited to attend 
the meeting and participate in Board deliberations. Like all Board 
meetings, the July 12, 1999, meeting was a public meeting and all 
entities, both large and small, were able to express their views on 
this issue. The Board itself is composed of 10 members, of which 5 are 
producers and 5 are handlers.
    Also, the Board has a number of appointed committees to review 
certain issues and make recommendations to the Board. The Board formed 
a task force in July 1998 to review its credit-back advertising 
program. The task force met periodically during the following months to 
review the program and consider appropriate changes. The task force 
presented its recommendations to the Board's Public Relations and 
Advertising Committee on November 13, 1998, and that committee 
presented its recommendations to the Board on December 2, 1998, and 
March 5, 1999. The Department subsequently implemented all of the 
Board's recommended changes, except for those relating to almond 
products. The Board again recommended the changes associated with 
almond products on July 12, 1999, and its Public Relations and 
Advertising Committee and staff developed further clarification and 
justification for those changes which were approved by a Board 
facsimile vote during the week of August 30, 1999. All of these 
meetings were open to the public, and both large and small entities 
were able to participate and express their views. Finally, interested 
persons are invited to submit information on the regulatory and 
informational impacts of this action on small businesses.
    A small business guide on complying with fruit, vegetable and 
specialty crop marketing agreements and orders may be viewed at the 
following website: http://www.ams.usda.gov/fv/moab/.html. Any questions 
about the compliance guide should be sent to Jay Guerber at the 
previously mentioned

[[Page 58766]]

address in the FOR FURTHER INFORMATION CONTACT section.
    After consideration of all relevant matter presented, including the 
information and recommendation submitted by the Board and other 
available information, it is hereby found that this rule, as 
hereinafter set forth, will tend to effectuate the declared policy of 
the Act.
    This rule invites comments on a change to the credit-back 
promotional requirements prescribed under the California almond 
marketing order. Any comments received will be considered prior to 
finalization of this rule.
    Pursuant to 5 U.S.C. 553, it is also found and determined upon good 
cause that it is impracticable, unnecessary, and contrary to the public 
interest to give preliminary notice prior to putting this rule into 
effect and that good cause exists for not postponing the effective date 
of this rule until 30 days after publication in the Federal Register 
because: (1) The almond crop year began on August 1, 1999, and this 
rule should be in effect as closely as possible to that time so 
handlers can avail themselves of the additional opportunities for 
receiving promotional credit; (2) these changes were unanimously 
recommended by the Board and interested persons had an opportunity to 
provide input; (3) handlers are aware of these changes which were 
recommended at a public meeting; and (4) a 60-day comment period is 
provided for in this rule and any comments received will be considered 
prior to finalization of this rule.

List of Subjects in 7 CFR Part 981

    Almonds, Marketing agreements, Nuts, Reporting and recordkeeping 
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. In Sec. 981.441, the introductory text of paragraph (e)(4) and 
paragraph (e)(4)(iv) are revised and a new paragraph (e)(4)(v) is added 
to read as follows:


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

* * * * *
    (e) * * *
    (4) Credit-Back shall be granted for those qualified activities 
specified below, except that Credit-Back will not be allowed in any 
case for travel expenses, or for any promotional activities that result 
in price discounting.
* * * * *
    (iv) Except as otherwise provided in paragraph (e)(4)(v) of this 
section, 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: Provided, That, except for mixed nut products, the 
amount of Credit-Back for qualified promotional activities for products 
containing almonds shall be granted at 66\2/3\ percent of proven 
expenditures, if the product is owned or distributed by the handler and 
such ownership or distributorship is stated on the package: Provided 
Further, That to receive any level of credit, the product must display 
the handler's name, the handler's brand, or the words ``California 
Almonds'' on the primary, face label.
    (v) When products containing almonds are promoted prior to November 
2, 1999, 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.
* * * * *
    Dated: October 25, 1999.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 99-28373 Filed 10-29-99; 8:45 am]
BILLING CODE 3410-02-P