[Federal Register Volume 65, Number 22 (Wednesday, February 2, 2000)]
[Rules and Regulations]
[Pages 4867-4870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2193]



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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 981

[Docket No. FV99-981-4 FIR]


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

AGENCY:  Agricultural Marketing Service, USDA.

ACTION:  Final rule.

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SUMMARY:  The Department of Agriculture (Department) is adopting, as a 
final rule, without change, the provisions of an interim final rule 
revising 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 toward 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.

EFFECTIVE DATE:  March 3, 2000.

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: [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 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 continues in effect revisions to 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 continues in effect revisions to 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 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. The Department issued an interim 
final rule published in the Federal Register on November 1, 1999, 
implementing the revised recommendation (64 FR 58763). This rule 
continues in effect the provisions of that interim final rule.
    Prior to implementation of the interim final rule, regulations 
crediting handlers' promotion of almond products limited any such 
credit to the portion of the product weight represented by almonds, or 
the handler's actual payment, whichever was less. This limitation, 
previously 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).

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    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 previous regulations allowing only partial credit for promotion 
of all almond products were believed to have created a disincentive for 
handlers to develop, create and promote almond products. Therefore, the 
Board recommended and the Department implemented revised regulations to 
allow maximum credit-back to handlers for promoting almond products, 
under certain conditions. This rule continues in effect those revised 
regulations.
    Since November 2, 1999, the effective date of the interim final 
rule implementing these changes, handlers have been 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. 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 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 made by the interim final 
rule to Sec. 981.441(e)(4) continue in effect unchanged.
    Finally, this rule continues in effect specific language in 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 these changes 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 interim final rule was November 2, 1999, and the provisions of the 
revised regulation will continue to be in effect from that date 
forward. Handler activities were conducted under program parameters in 
effect prior to the effective date of the interim final rule. 
Therefore, those parameters for activities conducted prior to the 
rule's effective date should be followed. Accordingly, handlers 
promoting products containing almonds prior to November 2, 1999, 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 November 2, 
1999, the activities must meet the revised criteria for handlers to be 
eligible to receive Credit-Back at the maximum of 66\2/3\ percent for 
promoting almond products. 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 final 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 concluded that the majority of 
handlers and producers of California almonds may be classified as small 
entities.
    This rule continues in effect the provisions of an interim final 
rule made effective on November 2, 1999, revising 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

[[Page 4869]]

promotion activities, including paid advertising. This rule continues 
in effect revisions to 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.
    Prior to implementation of the interim final rule on November 2, 
1999, regulations concerning crediting handlers' promotion of almond 
products limited 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 existed prior to implementation of the 
interim final rule. However, this did 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. In addition, as noted in the initial regulatory 
flexibility analysis, 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.
    An interim final rule concerning this action was published in the 
Federal Register on November 1, 1999. Copies of the rule were mailed to 
all Board members and almond handlers. In addition, the rule was made 
available through the Internet by the Office of the Federal Register. 
That rule provided for a 60-day comment period which ended January 3, 
2000. No comments were received.
    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 address in the FOR FURTHER INFORMATION CONTACT 
section.

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    After consideration of all relevant material presented, including 
the information and recommendation submitted by the Board and other 
available information, it is found that finalizing the interim final 
rule, without change, as published in the Federal Register (64 FR 
58763, November 1, 1999) will tend to effectuate the declared policy of 
the Act.

List of Subjects in 7 CFR Part 981

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

PART 981--ALMONDS GROWN IN CALIFORNIA

    Accordingly, the interim final rule amending 7 CFR Part 981 which 
was published at 64 FR 58763 on November 1, 1999, is adopted as a final 
rule without change.


    Dated: January 27, 2000.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 00-2193 Filed 2-1-00; 8:45 am]
BILLING CODE 3410-02-P