[Federal Register Volume 68, Number 6 (Thursday, January 9, 2003)]
[Rules and Regulations]
[Pages 1145-1158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-367]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 996, 997, 998, and 999

[Docket No. FV02-996-1 FIR]


Establishment of Minimum Quality and Handling Standards for 
Domestic and Imported Peanuts Marketed in the United States and 
Termination of the Peanut Marketing Agreement and Associated Rules and 
Regulations

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Department of Agriculture (USDA) is adopting, as a final 
rule, with changes, an interim final rule establishing a new part 996 
which requires all domestic and imported peanuts marketed in the United 
States to be officially inspected. This action is mandated by the Farm 
Security and Rural Investment Act of 2002, enacted May 13, 2002. This 
rule continues handling standards that handlers and importers must 
follow and edible quality standards that all such peanuts intended for 
edible use must meet prior to entering human consumption channels. 
Safeguards to protect against peanut quality concerns are also 
specified. This rule also finalizes the termination of the Peanut 
Marketing Agreement No. 146 (Agreement) and the rules and regulations 
issued under the Agreement, and the termination of companion 
regulations that applied to imported peanuts and peanuts handled by 
persons not subject to the Agreement.

DATES: The changes to the interim rule of September 9, 2002 (67 FR 
57129), are effective January 10, 2003.

FOR FURTHER INFORMATION CONTACT: Jim Wendland or Kenneth G. Johnson, DC 
Marketing Field Office, Marketing Order Administration Branch, Fruit 
and Vegetable Programs, AMS, USDA, 4700 River Road, suite 2A38, Unit 
155, Riverdale, Maryland 20737; telephone (301) 734-5243, Fax: (301) 
734-5275 or Ronald L. Cioffi, Marketing Order Administration Branch, 
Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue, SW., 
Stop 0237, Washington, DC 20250-0237; telephone (202) 720-2491, Fax: 
(202) 720-8938; or E-mail: [email protected], 
[email protected] or [email protected].
    Small businesses may request information on complying with this 
rule by contacting Jay Guerber, at the same DC address as above, or E-
mail: [email protected].

SUPPLEMENTARY INFORMATION: This rule is issued under section 1308 of 
the Farm Security and Rural Investment Act of 2002 (Pub. L. 107-171), 7 
U.S.C. 7958, hereinafter referred to as the ``Act.''
    This final rule has been determined to be non-significant for the 
purposes of Executive Order 12866 by the Office of Management and 
Budget (OMB) and therefore has not been reviewed by OMB.
    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.
    There are no administrative procedures which must be exhausted 
prior to any judicial challenge to the provisions of this rule.
    Prior documents in this proceeding are: an interim final rule 
published in the Federal Register, (67 FR 57129, September 9, 2002) and 
a correction (67 FR 63503, October 11, 2002).

Termination of the Peanut Marketing Agreement and the Peanut Non-signer 
and Import Regulations

    This rule finalizes termination of Peanut Marketing Agreement No. 
146 (7

[[Page 1146]]

CFR part 998.1-998.61) and the rules and regulations (7 CFR part 
998.100-998.409) in effect under the Agreement on December 31, 2002, so 
that indemnification payments can be made on 2001 crop peanuts. This 
rule also finalizes termination of the companion regulations that apply 
to peanuts handled by persons not subject to the Agreement (7 CFR part 
997) and to imported peanuts (7 CFR part 999.600) effective January 13, 
2003.
    The Peanut Marketing Agreement No. 146 (7 CFR part 998) has been in 
effect since 1965 under the authority of the Agricultural Marketing 
Agreement Act of 1937, as amended (7 U.S.C. 601-674) (AMAA). The 
Agreement was administered by the Peanut Administrative Committee 
(PAC), which was comprised of peanut handlers and producers appointed 
by USDA. Minimum quality regulations were applied to handlers who 
signed the Agreement. The Agreement covered peanuts produced in the 
three regional production areas in the United States. The Agreement 
also included authority for indemnification payments to signatory 
handlers on peanuts involved in product and appeals claims due to 
aflatoxin content. Reporting and recordkeeping requirements also were 
prescribed. Handlers paid assessments to the PAC to cover program 
administrative and indemnification costs.
    Consistent with the requirements of the AMAA, comparable quality 
requirements had been in effect for peanuts handled by persons not 
signatory to the Agreement (``non-signers''). The non-signer program (7 
CFR part 997) was mandated in 1989 by Pub. L. 101-220, which amended 
the AMAA. The peanut import regulation had been authorized by section 
108B(f)(2) of the Agricultural Act of 1949 (7 U.S.C. 1445c3), as 
amended in 1990 and 1993.
    The non-signer regulations covered peanuts handled by persons not 
subject to the Agreement. The inspection and quality requirements were 
the same as those under the Agreement. Non-signer handlers had to pay 
the same administrative assessment rate as applied to signatory 
handlers under the Agreement.
    The peanut import regulation required imported peanuts to meet the 
same quality and handling requirements as required under the Agreement. 
Imported peanuts were maintained under lot identification procedures 
and kept separate and apart from domestic peanuts until certified for 
human consumption use.
    Under all three programs, failing peanuts could be reconditioned to 
meet edible requirements or disposed of in non-edible outlets. 
Safeguard provisions were included in the three programs to ensure that 
the Federal or Federal-State Inspection Service (Inspection Service) 
sampled, inspected, and certified the quality of all peanut lots 
intended for edible consumption, and that chemical analyses were 
performed by USDA laboratories or laboratories approved by USDA.
    The Farm Security and Rural Investment Act of 2002 terminated the 
PAC effective July 1, 2002. That action, in turn, required termination 
of the Agreement and its implementing regulations. The Agreement and 
its implementing regulations are terminated effective January 1, 2003, 
by the interim final rule and indemnification payments for 2001 peanuts 
can be made through December 31, 2002. The companion regulations 
covering peanuts handled by persons not signatory to the Agreement and 
imported peanuts were terminated effective September 10, 2002. 
Assessments collected by the PAC under the Agreement and by USDA under 
the non-signer regulations ceased with 2001 crop peanuts.

New Peanut Program Authority

    Section 1308 of the Act requires that USDA take several actions 
with regard to peanuts marketed in the United States, effective with 
2002 crop peanuts.
    Mandatory Inspection: Paragraph (a) requires that all peanuts 
marketed in the United States (including imported peanuts) be 
officially inspected and graded by Federal or Federal-State inspectors.
    Termination of the Peanut Administrative Committee: Paragraph (b) 
terminated the PAC effective July 1, 2002. As noted above, because the 
PAC was charged with daily oversight of the Agreement's regulatory 
program, termination of the PAC necessitated termination of the 
Agreement and its implementing regulations. That termination is 
effective January 1, 2003, and indemnification payments on 2001 crop 
peanuts can be made through December 31, 2002. The companion non-signer 
and peanut import regulations were based on regulations under the 
Agreement. Those regulations were terminated effective September 10, 
2002.
    Establishment of a Peanut Standards Board: Paragraph (c) provides 
for the establishment of a Peanut Standards Board (Board), and requires 
USDA to consult with the Board prior to establishing or changing 
quality and handling standards for domestically produced and imported 
peanuts. The Board is not subject to the Federal Advisory Committee 
Act. A transition period is designated to allow time for USDA to 
implement nomination procedures and select a Board, as prescribed under 
the Act.
    USDA received nominations and applications from interested persons 
to serve on the Board. A notice was published in the Federal Register 
on August 2, 2002 (67 FR 50409), and an application form was posted on 
the AMS website at: http://www.ams.usda.gov/fv/peanut-farmbill.htlm. 
Written nominations were received through September 3, 2002.
    The Act also provides, in paragraph (g)(1) of section 1308, that 
during the transition period from the Agreement to the new program, 
USDA may designate persons serving as members of the PAC to serve as 
members of the Board, on an interim basis, for the purpose of carrying 
out the duties of the Board. USDA established the interim Board and 
consulted with it on three occasions to establish the quality and 
handling standards specified in this program.
    Maintaining wholesome quality peanuts: Paragraph (d) directs USDA 
to make identifying and combating the presence of all quality concerns 
related to peanuts a priority in the development of quality and 
handling standards for peanuts and in the inspection of domestically 
produced and imported peanuts. The Act directs USDA to consult with 
appropriate Federal and State agencies to provide adequate safeguards 
against all quality concerns related to peanuts. USDA notified State 
government Inspection Service supervisors of the proposed text on the 
internet and met with supervisors on July 29 and August 15, 2002. USDA 
also has contacted officials in the United States Customs Service 
(Customs Service) and the Food and Drug Administration (FDA) with 
regard to this new program.
    Imported peanuts: Paragraph (e) provides that imported peanuts 
shall be subject to the same quality and handling standards as apply to 
domestically produced peanuts.

Program Continuity

    To maintain program continuity until the new peanut program could 
take effect, USDA continued the implementing regulations of the 
Agreement and the non-signer and import regulations as provided above. 
Assessments are not being collected and indemnification payments are 
not being made on 2002 crop peanuts.

[[Page 1147]]

    The provisions of the new program apply to 2002 and subsequent crop 
year peanuts, to 2001 crop year peanuts not yet inspected, and to 2001 
crop year failing peanuts that have not met disposition standards. This 
program continues in force and effect until modified, suspended, or 
terminated.
    Pursuant to the Act, USDA consulted with interim Board members in 
the development of the quality and handling standards established in 
this rulemaking. USDA coordinated a conference call with interim Board 
members on July 2, 2002. An initial draft text with reduced USDA 
oversight was prepared by USDA and distributed to the interim Board 
members prior to the conference call. The draft was reviewed and 
initial changes and comments were proposed. At the interim Board's 
direction, four interim Board officers met with USDA on July 17, 2002. 
Three of the four officers proposed several additional changes, 
including a proposal to change the minimum kernel size that could be 
used in human consumption outlets. A second draft text was prepared 
reflecting those proposed changes. That draft was again distributed to 
interim Board members and State supervisors of the Inspection Service 
and was discussed at a meeting in Atlanta, Georgia, on July 30, 2002. 
In addition to the 18-member interim Board, approximately 50 industry 
members and Inspection Service State supervisors attended the meeting. 
The revised draft text was thoroughly reviewed and several 
modifications were recommended. Quality standards which would allow 
purchase of Segregation 2 and 3 quality peanuts for processing for 
human consumption use and the proposed change in the minimum kernel 
size were discussed by the interim Board. An implementation schedule 
also was discussed.
    USDA revised the draft text after the Atlanta meeting and posted it 
on the AMS website. Written comments were received from interim Board 
members after the meeting and a few comments were received in response 
to the posting of the draft standards text on the internet. Comments to 
the draft were accepted through August 12, 2002.

Comments From Interim Board Members and Others to the Draft Rule

    Most interim Board members indicated that they did not seek radical 
or wholesale changes to the Agreement regulations. This was apparent 
from comments offered during the initial conference call and at the 
July 30, 2002, interim Board meeting.
    Grower member representatives raised three general objections to 
establishment of new standards for the 2002 peanut crop. They believed 
that the new program should not have been implemented if the 2002 crop 
harvest had begun. Because of geographical location, peanuts in south 
Texas and north Florida, representing a small portion of the total 
crop, were harvested before USDA could complete this rulemaking 
process. Because the new quality standards offer potential benefits to 
growers and handlers, some grower members contended that implementation 
after the 2002 crop harvest had begun would be unfair to producers and 
handlers in those early-harvest areas.
    Some interim Board members suggested that the greatest benefit from 
the program--purchase of Segregation 2 and 3 peanuts for possible 
edible use--would affect only a very small percentage of the early 
harvest peanuts, and that it may be possible to warehouse some of the 
early season farmers stock peanuts until the new standards become 
effective. Other interim Board members did not contest this assessment.
    Section 1308 of the Act provides that its provisions take effect 
with the 2002 peanut crop. An alternative considered was to continue 
the more restrictive 2001 regulations for the entire 2002 crop and 
implement the new program for the 2003 crop. However, USDA believed 
that implementation of the program as soon as possible after harvest 
begins was better than that alternative. The benefits of the new 
program to the entire industry are compelling. Most interim Board 
members believe that there should not be further delay in implementing 
this action. Only a small number of early harvest producers were 
affected by the implementation date of this action. Further, storage 
accommodations can help alleviate any timing concerns. Finally, the Act 
mandates that the new program be in effect for 2002 crop peanuts.
    The same interim Board members concerned about producer fairness 
also cautioned about making significant changes to incoming quality 
provisions without knowledge of changes being considered to the 
Marketing Assistance Program by USDA's Farm Service Agency. Pursuant to 
the Act, the FSA loan program also was being restructured, and the 
extent and nature of the loan provisions were not known until after the 
quality and handling standards in this program became effective.
    These members stated that the provision to allow purchase of 
Segregation 2 and 3 quality peanuts for edible consumption could affect 
the FSA loan program. They questioned details relating to the loan 
payments, inspection costs and storage of farmers stock peanuts placed 
under FSA's loan program.
    None of the definitions and other provisions addressed in the 
interim final rule are applicable to other peanut programs operated by 
USDA, such as the loan and direct payment, counter-cyclical payments, 
and quota buyout payment programs provided for in the 2002 Act. Thus, 
for example, the definitions of ``handle'' and ``handler'' set out in 
the interim final rule have no application to those other programs and 
do not govern eligibility for payments, or the kinds of payments that 
can be made, under those other programs. Rather, the definitions and 
other provisions implemented in the interim final rule were strictly 
developed for the limited purposes reflected in the rule and no other. 
The policy choices and any statutory interpretations involved reflect 
that limited purpose. FSA was consulted in that respect and assured 
that the understanding and intent was clearly that these rules would 
not in any way restrict policy determination made with respect to other 
programs. Rules for other peanut programs will be issued in due course. 
Further, references in this preamble to previous peanut programs is 
meant to refer to those peanut operations which were under the control 
of the Agricultural Marketing Service (AMS) and not those under the 
control of FSA or FSA's predecessor agency.
    Written comments concerning provisions of the draft rule were 
received from a few independent handlers stating that not all handlers 
are able to remove all defective kernels, particularly in lots with 
concealed freeze damage or kernels with yellow pitting. Also, some 
alleged that not all peanut shelling operations have the latest 
technologies or their own dedicated blanching facilities to remove all 
kernels which contain aflatoxin.
    Handlers must make decisions regarding the reconditioning of each 
failing lot. Those decisions are made on a lot-by-lot basis, based upon 
the grade factors identified in the lot's latest grade inspection or 
aflatoxin certificate. Handlers with the latest milling technologies or 
their own blanching operations may be better able to recondition 
failing lots than handlers without such equipment. Handlers are not 
prevented from remilling lots more than one time to remove defective or 
contaminated kernels. Custom blanching operations with current

[[Page 1148]]

technologies are available to all handlers. If reconditioning 
operations are not successful, other handlers with such equipment could 
acquire the failing lots or recondition them on a contract basis. 
Because handlers are not prevented from reconditioning other handlers' 
failing lots, high quality standards can be established and maintained.
    In the 1980's, Agreement regulations prohibited small kernels from 
use in edible consumption lots because research showed a higher 
incidence of aflatoxin in small peanuts. Research conducted at that 
time indicated that aflatoxin occurs more frequently in peanuts which 
are under stress during the growing season and that many peanut kernels 
are small because the plants were under such stress.
    Some large handlers contended in the interim Board meeting that 
modern sorting technologies are able to remove the smaller, 
contaminated kernels and that end-product manufacturers now have 
markets for smaller whole kernels in snack foods and other edible 
products. The handlers recommended that the change would allow more 
domestically produced peanuts to be used in human consumption outlets 
and, thus, result in a more efficient use of total domestic peanut 
production. They also claimed that foreign manufacturers of peanut 
products, such as peanut paste and peanut butter, are not under such 
minimum size restrictions for the manufactured product they export to 
the United States. The handlers contended that relaxation in the size 
and shape of the holes in the screens used to sort out small kernels 
would allow domestic handlers and manufacturers to better compete with 
foreign product.
    However, interim Board members representing regional grower 
associations opposed smaller kernel sizes for food quality and 
wholesomeness reasons. They contended that the risk of increased 
aflatoxin contamination in the smaller kernels outweighs the benefit of 
any incremental increase in the use of small peanut kernels, or cost 
savings accrued. Those opposed to the use of small kernels contended 
that, in addition to having a higher incidence of aflatoxin, smaller 
kernels also have a bitter taste.
    At the interim Board meeting, a representative from a peanut 
manufacturers' association said that manufacturers oppose use of 
smaller size kernels.
    The draft text which USDA posted on the internet included a table 
displaying amended screen sizes that would allow smaller kernels in 
edible lots. Written comments were received, most from interim Board 
members, opposing the use of round hole screens and the smaller kernel 
size. Those comments cited concerns for wholesomeness and a loss of 
quality if smaller kernels were allowed in edible lots. Some suggested 
that the screen sizes should not be changed without further research on 
the increased risk of aflatoxin in small peanut kernels.
    After review of the positions presented at the interim Board 
meeting and the written comments received, USDA determined that the 
kernel sizes specified under the previous peanut programs should be 
established in the interim final rule and continue in effect for the 
2002 crop year. Therefore, the recommendation to change the minimum 
size standard was not accepted for 2002 crop peanuts.
    An oilmill operator (crusher) commenting on the draft text stated 
that the mission of the new standards should be to ensure food safety 
and not to establish restrictions that increase costs and hinder trade 
between willing sellers and buyers. Therefore, it was the commenter's 
view that peanuts to be used for non-edible purposes such as crushing 
should not be subject to the same incoming identification and 
inspection requirements as edible peanuts. USDA discussed and explained 
in the Interim Final Rule why incoming inspection is necessary.
    Several additional minor changes were made to the draft text, 
reviewed by the interim Board, and posted on the internet. Those 
changes were based on further USDA review of the draft text and 
discussions with Inspection Service supervisors. The changes included 
re-instituting Agreement requirements in the new program that help USDA 
monitor the disposition of sheller oilstock residuals, the movement of 
failing lots through the reconditioning processes, adjustments to 
positive lot identification procedures, and compliance oversight. A 
more thorough recordkeeping paragraph also was added to reflect current 
industry practice and the requirements of this program.
    USDA published the interim final rule (67 FR 57129) establishing 
the new peanut minimum quality and handling standards on September 9, 
2002. The rule became effective September 10, 2002. Comments were 
accepted through October 9, 2002. Twenty five comments were received 
and are addressed below.

Comments Concerning the Interim Final Rule

    The major issue discussed in the comments was the large handlers' 
recommendation to change screen sizes to reduce the minimum kernel size 
for peanuts intended for human consumption. Twenty one comments were 
received on that topic. Five handlers, 10 growers, and 2 other persons 
supported the recommendation to change the minimum kernel size. Their 
position was not changed from that outlined in the interim final rule 
discussion: (1) Domestic and international markets exist for small 
peanut kernels; (2) allowing the use of smaller kernels in edible lots 
will enable domestic handlers to compete with foreign peanut butter 
produced without regard to kernel size; and (3) wholesomeness is 
ensured because the outgoing standards are not changed in the new 
Peanut Standards rule.
    Two growers and two handlers commented that the screens should not 
be changed. They claimed that an Agricultural Research Service (ARS) 
study conducted in the late 1980s shows a higher incidence of aflatoxin 
contamination in small peanut kernels. They commented that allowing the 
use of smaller kernels is not worth the increased risk of aflatoxin 
contamination in those small kernels. They also cited the pungent taste 
of small kernels as a quality factor which should weigh against use of 
smaller peanut kernels.
    Proponents of smaller kernel use also contend that wholesomeness is 
not a concern because the electronic sorting equipment identifies and 
removes all damaged and contaminated kernels, even small, contaminated 
kernels. Based upon compliance staff information, approximately 31 of 
71 handlers have electronic equipment capable of efficiently sorting 
out contaminated small kernels. One commenter pointed out that a 
reduction in kernel size for domestic peanuts would be applied to 
imported peanuts, but that it is not known how many foreign peanut 
shelling operations utilize electronic equipment.
    Manufacturer associations opposed changing screen sizes when the 
interim final rule was being prepared. A handler commented that brand-
name manufacturers are the ones best prepared, but least likely (due to 
quality concerns) to use the small kernels, while smaller, low-end 
buyers are most likely to buy the low-priced small kernels but are 
least likely to have the equipment or expend extra funds for testing to 
assure the small kernels are free of aflatoxin contamination.
    After consideration of comments received on minimum kernel size, 
USDA has determined the regulations should continue, for the 2002 
peanut

[[Page 1149]]

crop, the same screen sizes established in the interim rule and used 
since the late 1980s. This decision is based on USDA's determination 
that further research on aflatoxin contamination in small kernels 
should be conducted. Such research has been started by ARS with the 
cooperation of the Federal-State Inspection Service and Agricultural 
Marketing Service aflatoxin laboratories in Georgia. Furthermore, this 
year's marketing season, using the present screen sizes, is well under 
way and any change in screen sizes at this stage would not cover the 
majority of the 2002 crop. If, based on USDA's research and studies, it 
is determined that a change in screen size is warranted, such change 
will be considered and discussed with the Board.
    Four other issues were covered in comments on the interim final 
rule. A few handlers requested that a sampling and inspection fee of 
$.0027 per pound, formerly charged to buyers under the Peanut Marketing 
Agreement, be retained in the new peanut standard program. The interim 
final rule terminated the Agreement. As discussed in the interim final 
rule, USDA did not include the fee in that rule because the fee is 
considered a contractual matter between sellers and buyers. This rule 
does not reinstate such fee.
    Several handlers pointed out that a separate moisture content 
requirement for Virginia-type seed peanuts was omitted in the interim 
final rule. This was corrected by memorandum from USDA to the 
Inspection Service dated October 4, 2002. The separate moisture 
requirement for Virginia-type seed peanuts is added to the final rule 
as a proviso to the incoming quality standards in paragraph (b) of 
Sec.  996.30.
    Three commenters in Oklahoma requested an increase in the incoming 
grade tolerance for foreign material content because their buying point 
does not have facilities to clean freshly pulled farmers stock peanuts 
to meet the required foreign material content tolerance. However, the 
tolerance is the same as required under USDA's previous peanut programs 
for many years. Moreover, alternative courses of action provided under 
the previous programs are continued in this program to help growers and 
buying point operators to meet the foreign material content tolerance. 
Paragraph (c) of Sec.  996.30 provides that farmers stock peanuts with 
a foreign material content exceeding 10.49 percent may held separately 
until milled, moved over a sand-screen before storage, or shipped 
directly to a handler for prompt shelling.
    Finally, one interim Board grower member opposed the relaxation to 
allow purchase of Segregation 3 peanuts for processing into edible 
peanuts. The commenter stated that this would increase the chances of 
kernels with aflatoxin ending up in edible peanut lots. The majority of 
other commenters supported the relaxation in comments to the draft 
provisions and interim final rule on the premise that contaminated 
kernels would be sorted out in the handling process. USDA will continue 
to allow the purchase of Segregation 3 peanuts for processing for human 
consumption use because this will enable a more efficient use of peanut 
production.

Clarification of Interim Final Rule

    Clarification to certain provisions of the interim rule were 
suggested by the Inspection and the Customs Service. These are as 
follows:
    The Inspection Service suggested that paragraph (b)(4) of Sec.  
996.40, regarding the sampling and testing of peanuts for outgoing 
requirements, should read that number 3 check samples may be ground by 
the Inspection Service or a USDA or USDA-approved laboratory. The 
interim final rule provided only that the Inspection Service would 
grind number 3 samples. The phrase ``USDA or USDA-approved laboratory'' 
is added to Sec.  996.40(b)(4) to allow those entities to grind number 
3 check samples if it is more convenient to the efficient testing of 
the number 3 samples.
    Paragraph (g) of Sec.  996.50 provides for the positive lot 
identification (PLI) of residual peanuts by red tags or other PLI means 
acceptable to the Inspection Service. The Inspection Service also 
suggested that it is not the responsibility of Inspection Service 
personnel to determine the appropriate use of other PLI methods in 
addition to the use of red tags. However, Inspection Service personnel 
are able to utilize lot identification methods, other than red tags, if 
other methods are determined suitable and appropriate to a particular 
situation or lot of peanuts and are documented on the inspection 
certificate. The paragraph will continue to read as provided in the 
interim final rule.
    Paragraph (c) of Sec.  996.60, regarding the early arrival and 
storage of foreign peanuts in the U.S. prior to the opening of an 
import quota, incorrectly specifies that the Inspection Service may 
require re-inspection. However, the Inspection Service does not have 
authority to demand re-inspection. USDA may require such re-inspection. 
Paragraph (c) of Sec.  996.60 is revised accordingly.
    The Customs Service clarified titles and citations of Customs 
Service regulations specified in the preamble on page 57135 of the 
interim final rule. The correct citations are specified in the preamble 
discussion under Import Entry Procedures.
    Customs also suggested changes in the preamble discussion and text 
definition of ``conditionally released'' to clarify that merchandise is 
not conditionally released for storage or warehousing. Under Customs 
Service procedures, warehoused merchandise is not conditionally 
released. Appropriate changes in the preamble discussion under the 
stamp-and-fax procedure and in the definition of ``conditionally 
released'' under Sec.  996.2 have been made in this final rule.
    The Customs Service requested that the preamble discussion 
regarding limiting lot size to 200,000 pounds clarify that Customs has 
no requirement on the amount of merchandise that can be covered under a 
single entry. The 200,000 pound limit is required by USDA and the 
inspection service to assure an accurate sampling protocol. The 
preamble language has been clarified accordingly.
    Customs also suggested clarifications in the use of some terms in 
the preamble to be consistent with Customs Service terminologies. The 
preamble has been edited to use ``Customs broker'' rather than ``import 
broker,'' ``port of arrival'' rather than ``port of entry,'' and 
``warehousing'' rather than ``storage.'' In the discussion, the process 
involved in the conditional release of peanuts also has been clarified 
to conform with Customs Service procedures. The suggested 
clarifications are made in the preamble discussion in this final rule.
    Finally, Customs Service suggested that the definition of importer 
under Sec.  966.7 should include importers who enter peanuts intended 
for non-edible use. Importation of non-edible peanuts may not be 
economically feasible at this time, given the low value of oilstock and 
feed-quality peanuts. Further, it is not USDA's intention to restrict 
importation for such purposes. However, importers of all peanuts, 
regardless of intended use, must comply with the inspection and 
disposition requirements of this program. The definition of Importer 
under Sec.  966.7 has been clarified accordingly.
    After review of all comments received to the interim final rule, 
USDA finalizes, and continues in effect with changes, the interim final 
rule in 7 CFR part 996 as follows.

[[Page 1150]]

Peanut Quality and Handling Standards

    This rulemaking action finalizes the interim final rule and 
continues in effect, with changes, part 996, peanut quality and 
handling standards. These standards are similar to the quality and 
handling requirements that were in effect under USDA's three previous 
peanut programs. The changes, described in the following discussion, 
are based on interim Board recommendations in developing the draft rule 
and on industry comments to the interim final rule.
    No restrictions on use of farmers stock peanuts: Prior to issuance 
of the interim final rule, only farmers stock peanuts determined to be 
Segregation 1 quality peanuts could be acquired by handlers for 
preparation and disposition to human consumption outlets. Segregation 2 
and 3 farmers stock peanuts were restricted to non-human consumption 
use such as seed, oilstock, animal feed, and birdseed.
    This peanut standards program differs from the previous peanut 
programs in that handlers may purchase any segregation quality peanuts 
for shelling and eventual disposition to human consumption outlets, 
provided that such peanuts, after handling, meet the outgoing standards 
of this program. This change was recommended by several of the large 
peanut handling operations.
    Some handlers on the interim Board stated that the prohibition on 
Segregation 2 and 3 peanuts for edible use is more than 35 years old 
and that modern technologies enable handlers to shell and mill failing 
quality peanuts of any segregation category. They stated that this will 
increase use of domestic peanut production for edible consumption 
without a loss in edible peanut quality. They also stated that raw, 
farmers stock peanuts produced in other countries are not subject to 
incoming quality requirements or restricted as to segregation levels in 
those countries. Thus, they believe, this change in the peanut program 
would place domestic handlers on an even playing field with shellers in 
other countries who might export to the United States peanuts shelled 
and handled from any quality raw peanuts.
    At the interim Board meeting, at least one grower spoke in favor of 
removal of the restriction on the use of Segregation 2 and 3 farmers 
stock only in non-edible outlets. Many growers have long contended that 
a single moldy peanut in a wagonload of farmers stock greatly reduces 
the value of the entire wagon and, thus, significantly reduces the 
grower's income. These growers see this as unfair and believe that they 
should be able to market their peanuts without a restriction on 
segregation use.
    Under this program, Segregation 3 peanuts with visible aflatoxin 
mold may be purchased by handlers and imported by importers. Safeguard 
procedures remain in place to assure peanut quality and wholesomeness. 
The requirement that any farmers stock peanuts shelled and milled for 
human consumption use must be inspected and certified as meeting 
outgoing quality standards for grade and aflatoxin content prior to 
disposition for human consumption use is continued in this final rule.
    Storage of Segregation 2 and 3 farmers stock peanuts purchased by 
the handler is at the handler's discretion. Separate storage and 
shelling of Segregation 2 and 3 peanuts under the handler's ownership 
are no longer necessary because any peanuts intended for human 
consumption use must meet outgoing quality requirements before such 
use. Shelling of a handler's farmers stock peanuts and use of the 
handler's shelled peanuts also are at the handler's discretion, 
provided that any shelled peanuts which the handler disposes of for 
human consumption use are inspected and certified for outgoing grade 
quality, as indicated in the table in Sec.  996.31(a), and certified 
negative as to aflatoxin pursuant to a chemical analysis carried out by 
a USDA or USDA-approved laboratory. Positive lot identification (PLI) 
practices covered under Sec.  996.40(a) must also be followed. A 
handler may dispose of the handler's non-edible quality peanuts 
(sheller oilstock residuals) to such non-edible peanut uses as crushing 
into oil, or animal feed, or seed, pursuant to Sec.  996.50. 
Disposition is at the handler's discretion, provided that non-edible 
peanuts are moved under positive lot identification procedures and 
records documenting all such dispositions are maintained by the handler 
pursuant to Sec.  996.71(b).
    To the extent that farmers stock peanuts are imported, the importer 
has the same discretionary control over the storage, handling, and 
disposition of such peanuts.
    Any storage or subsequent inspection that a handler may carry out 
for farmers stock peanuts held under USDA's Farm Service Agency's (FSA) 
loan program are subject to the provisions of the loan program.
    Likewise, a handler may receive or acquire farmers stock peanuts or 
shelled peanuts from another handler and proceed to mill and prepare 
those peanuts for edible or non-edible use. Any contractual 
arrangements covering storage, shelling, milling, or disposition of 
such peanut lots are up to the two handlers. However, any peanuts 
intended for human consumption must be certified for such use pursuant 
to Sec.  996.31(a).
    This final rule continues the same outgoing quality standards for 
damage, defects, foreign material and moisture, and maximum allowable 
aflatoxin content as required under the previous peanut programs. The 
15 parts-per-billion (ppb) maximum aflatoxin content is specified in 
the definition of the term ``negative aflatoxin content'' in Sec.  
996.11.
    Direct blanching without prior inspection: Under the previous 
programs, all peanuts were required to be sampled and inspected for 
grade quality and aflatoxin content as the peanuts completed the 
shelling operation. The peanuts also were positive lot identified at 
that time and kept separate and apart from other milled lots. After the 
peanuts were moved to a blanching operation and blanched, a second 
sampling and grade inspection was conducted.
    Under this program, handlers intending to blanch peanuts pursuant 
to a buyer's demand, may move peanuts from the handler's shelling 
facility to the handler's dedicated blanching facility without 
obtaining outgoing inspection and PLI prior to movement. Under this 
provision, the handler's blanching operation may not blanch peanuts 
belonging to other handlers. Movement of such peanuts under these 
conditions may be without grade inspection and PLI.
    This change from the previous peanut programs was recommended by 
interim Board handler members, who have their own blanching facilities, 
as a method of reducing handling and inspection costs and improving the 
efficiency of handling operations for peanuts that the handler intends 
to blanch. This provision does not apply to peanuts sent to a custom 
blancher for blanching because those peanuts may be commingled with 
peanuts from another handler. To help safeguard against inadvertent 
commingling with another handler's peanuts, peanut lots sent to a 
custom blancher must be maintained under positive lot identity and be 
accompanied by a valid grade inspection certificate.
    Because the peanuts are sampled and inspected for grade and 
aflatoxin content after completion of the blanching operation, and PLI 
is applied at that time, the outgoing quality and identity of the 
peanuts is not jeopardized.
    Reporting farmers stock acquisitions: Because handlers and 
importers may

[[Page 1151]]

shell and mill Segregation 2 and 3 peanuts into edible quality peanuts, 
it is necessary that USDA account for all farmers stock peanuts 
acquired by handlers and importers. This final rule continues to 
require that all farmers stock acquisitions, regardless of segregation 
category, must be reported by the handler and importer to USDA. Form 
FV-305, Handlers/Importers Monthly Report is similar to the form 
previously used under the non-signer peanut program and to the PAC-1 
filed by signatory handlers under the Agreement.
    Reporting failing lots: Under the previous programs, non-signer 
handlers and importers were required to file with USDA copies of the 
outgoing grade and aflatoxin certificates on every peanut lot failing 
quality or aflatoxin standards. USDA used these certificates to monitor 
reconditioning and proper disposition of the failing lots. Under the 
Agreement, the Inspection Service and the aflatoxin laboratories filed 
with PAC, all grade and aflatoxin certificates on behalf of the 
signatory handlers.
    Reporting procedures similar to those used under the Agreement are 
used for all handlers and importers in this program. Thus, handlers and 
importers are not required to file failing grade quality and aflatoxin 
certificates with USDA. These certificates are filed by the Inspection 
Service and USDA and USDA-approved aflatoxin laboratories.
    The incoming quality, outgoing quality, and handling standards 
established under the interim final rule and finalized in this rule are 
the same as, or similar to, the requirements under the previous peanut 
programs and are intended to maintain the peanut industry's high 
standards for peanut quality and wholesomeness.

Quality Standards

    The following categories of peanuts are subject to inspection 
requirements and quality and handling standards established under part 
996.
    Incoming quality--farmers stock peanuts: Under this program, all 
farmers stock peanuts received by handlers or importers must be sampled 
and inspected by the Federal or Federal-State Inspection Service 
(Inspection Service) inspectors to determine the moisture content of 
the peanuts, the amount of foreign material in the peanuts, and the 
amount of damage and concealed damage in the peanuts. Moisture and 
foreign material content not exceeding 10.49 percent meet incoming 
quality standards--the same as under the previous peanut programs. The 
peanuts also are inspected for visible Aspergillis flavus mold. Seed 
peanuts produced in the Virginia-Carolina area may be received or 
acquired containing up to 11.49 percent moisture.
    Domestically produced farmers stock peanuts are required to undergo 
incoming inspection at a buying point prior to shelling or storage. 
Incoming quality standards are found in paragraph (a) of Sec.  966.30. 
Incoming inspection is conducted by the Inspection Service to determine 
the general grade level of raw, farmers stock peanuts presented by the 
producer at buying points in the various domestic production areas. 
Peanuts are graded for foreign material, loose-shelled kernels, and 
moisture content. Segregation 1 farmers stock peanuts may contain 2 
percent or less damaged kernels and 1 percent or less concealed damage 
caused by rancidity, mold, or decay. Segregation 2 peanuts are lesser 
quality peanuts containing more than 2 percent damaged kernels, or more 
than 1 percent concealed damage. Segregation 3 peanuts are those which 
contain visible Aspergillus flavus. Segregation 2 and 3 peanuts may be 
shelled and entered into human consumption outlets provided the peanuts 
meet outgoing quality and wholesomeness requirements. Imported farmers 
stock peanuts must be transported directly to a buying point and 
subjected to incoming inspection to determine Segregation quality.
    It is the handler's option to keep farmers stock peanuts segregated 
by category or to commingle Segregation 1, 2, and 3 peanuts in the 
handler's warehouse. Domestically produced and imported farmers stock 
peanuts, however, must be kept separate and apart because imported 
peanuts are subject to Customs Service redelivery demands until the 
imported peanuts are certified as meeting outgoing quality requirements 
specified in Sec.  996.31.
    Incoming inspection determines the quality of the farmers stock 
peanuts based on moisture content, foreign material, damage, loose-
shelled kernels, and visible Aspergillus flavus mold. Handlers and 
importers must report to USDA acquisitions of all Segregation 1, 2, and 
3 farmers stock peanuts. The Inspection Service issues USDA form FV-95, 
``Federal-State Inspection Service Notesheet'' designating the lot as 
either Segregation 1, 2, or 3 quality. Reporting requirements are 
discussed in more detail below.
    Because USDA cannot determine whether peanuts produced and milled 
in a foreign country originated from Segregation 1 quality peanuts, 
importers do not have to provide evidence of Segregation 1 quality for 
foreign peanuts imported in shelled or cleaned-inshell condition.
    Outgoing quality--shelled peanuts: Both domestic and imported 
shelled peanuts must be sampled, inspected, and certified as meeting 
the outgoing grade standards specified in the table in Sec.  996.31(a) 
entitled ``Minimum Quality Standards--Peanuts for Human Consumption.'' 
The table lists, for different peanut varieties, maximum percentage 
tolerances for damaged kernels; unshelled kernels and kernels with 
minor defects; split and broken kernels and sound whole kernels (size 
factors); foreign material, and moisture content. All categories and 
tolerances in the table are the same as those in effect under the 
Agreement at the time the PAC was terminated.
    Each shelled peanut lot also must undergo chemical testing by a 
USDA laboratory or a private laboratory approved by USDA. AMS' Science 
and Technology Programs assures that all of the laboratories conducting 
chemical analyses follow the same testing procedures. The maximum 
allowable presence of aflatoxin is 15 parts per billion (ppb)--the same 
standard as required under the three previous peanut programs. This 
tolerance has been in effect for more than 15 years and was in effect 
at the time the PAC was terminated.
    Once certified as meeting outgoing quality standards under Sec.  
996.31(a) for shelled peanuts, a lot may not be commingled with any lot 
that has failed outgoing quality standards or any residual peanuts from 
reconditioning operations.
    Outgoing quality--Cleaned-inshell peanuts: Based on the changes in 
the edible use of Segregation 2 and 3 peanuts, cleaned-inshell peanuts 
are no longer restricted to Segregation 1 peanuts. Cleaned-inshell 
peanuts are farmers stock peanuts that are cleaned, sorted, and 
prepared for human consumption markets in the U.S. and must be 
inspected against minimum quality standards not exceeding 2 percent 
damage, 10 percent moisture, and 0.5 percent foreign material. Cleaned-
inshell peanuts also may not exceed more than 1 percent mold unless the 
lot is also chemically tested and found ``negative'' as to aflatoxin. 
These standards are found in paragraph (b) of Sec.  996.31.

Handling Standards

    Positive lot identification procedures are continued in effect 
under Sec.  966.40. These procedures are necessary to maintain 
identification of peanut lots and ensure that lots certified for edible 
consumption are not commingled with

[[Page 1152]]

peanuts of lower quality. This section also establishes consistent 
procedures for collecting samples from peanut lots that are being 
inspected. Lot identification and sampling procedures must be applied 
consistently on all peanut lots undergoing inspection to ensure that 
all peanut lots are handled uniformly and lots once certified as 
meeting outgoing standards are maintained and shipped without loss of 
quality. PLI standards under this final rule are the same as the 
positive lot identification requirements previously used by the 
Inspection Service under the Agreement, non-signer, and import peanut 
programs.
    The Inspection Service works with domestic peanut handlers, 
importers, and storage warehouses to determine the most appropriate PLI 
or lot identity method to be used on individual peanut lots. Several 
factors dictate which PLI method should be used: (1) Size of the lot; 
(2) storage space on the dock or in the warehouse; (3) whether any 
further movement of the lot is required prior to certification; and (4) 
other needs of the handler, importer, dock or warehouse operators, or 
the Customs Service.
    For domestic lots and repackaged import lots, PLI includes PLI 
stickers, tags or seals applied to each individual package or container 
in such a manner that is acceptable to the Inspection Service and 
maintains the identity of the lot. For imported lots, PLI tape may be 
used to wrap bags or boxes on pallets, PLI stickers may be used to 
cover the shrink-wrap overlap, doors may be sealed to isolate the lot, 
bags or boxes may be stenciled with a lot number, or any other means 
that is acceptable to the Inspection Service. The crop year or quota 
year shown on the positive lot identification tags shall be the year in 
which the peanuts in the lot were produced domestically or imported 
into the United States, as appropriate.
    PLI practices for both domestic and imported peanuts also include 
affixing a PLI seal to the door of a shipping container so that it 
cannot be opened without breaking the seal, and affixing a red tag on 
sewn bags of failing quality peanuts. Other methods acceptable to the 
Inspection Service that clearly identify the lot and prevent peanuts 
from being removed or added to the lot may be used. Any peanuts moved 
in bulk or bulk bins shall have their lot identity maintained by 
sealing the conveyance and, if in other containers, by other means 
acceptable to the Inspection Service. All lots of shelled or cleaned-
inshell peanuts shall be handled, stored, and shipped under positive 
lot identification procedures.
    The standard peanut lot size is 40,000 pounds, but may vary at the 
handler or buyer's preference. Lot size is limited to 200,000 pounds, 
which is the largest amount of peanuts that can be adequately sampled 
by the Inspection Service. The limitation was used under the agreement, 
non-signer, and import peanut programs.
    Sampling procedures: This rule continues in effect uniform sampling 
procedures and sample sizes that the Inspection Service follows when 
conducting grade inspections, and in collecting peanuts for chemical 
analysis. The portion of the peanuts collected for chemical analysis 
are sent to a USDA or USDA-approved laboratory. A portion of the 
peanuts sampled are held by the Inspection Service as check samples if 
the lot is determined to fail either grade or aflatoxin analysis. These 
procedures and sample sizes are the same as those previously used under 
the Agreement, non-signer, and import peanut programs.
    All required sampling and positive lot identification procedures 
are performed by inspectors of the Federal or Federal-State Inspection 
Service. Imported peanuts are subject to Customs Service redelivery 
demands if determined in violation of these quality or handling 
standards or Customs Service entry requirements referenced below. 
Handlers and importers must reimburse the Inspection Service and 
chemical laboratories for sampling and grade inspection and chemical 
analyses for aflatoxin. Incoming inspections range from $4.00 to $6.25 
per ton of farmers stock peanuts. Sampling and outgoing grade 
inspections vary with each Federal-State Inspection Service and range 
from $1.50 to $3.00 a ton. Chemical analysis for aflatoxin averages 
$40.00 per analysis. The fee schedule for USDA laboratories appears at 
7 CFR part 91.37.

Import Entry Procedures

    The import entry and safeguard procedures established under the 
interim final rule and finalized in this rule are similar to the 
procedures applied under the previous peanut import program (7 CFR part 
999.600).
    U.S. Customs Service requirements: Importers of foreign produced 
peanuts must follow established Customs Service entry procedures and 
AMS stamp-and-fax notification and inspection procedures specified 
below. Customs Service importation procedures and requirements are set 
out in title 19 of the Code of Federal Regulations. The Customs Service 
regulations applicable to peanut handling and processing include, but 
are not be limited to: Bond requirements (19 CFR part 113); transfer of 
merchandise from port of arrival to another Customs Service office 
location (19 CFR parts 18 and 112); entry of merchandise for 
consumption (19 CFR parts 141 and 142; warehouse entry and withdrawal 
from warehouse for consumption (19 CFR part 144); establishment of 
bonded warehouses (19 CFR part 19); and within these parts, 
manipulation in bonded warehouses (19 CFR part 19.11); substitution of 
actual owner as importer of record (19 CFR part 141.20); failure to 
recondition merchandise (19 CFR part 113.62(e); and redelivery of 
merchandise to Customs custody (19 CFR part 113.62(d)) and 19 CFR 
141.113). For Customs Service purposes, the term ``consumption'' means 
``use in the United States.'' Customs Service entry procedures are not 
superseded by the import procedures in this program.
    It is the importer's responsibility to file import entry 
documentation and notify the Inspection Service with documentation 
sufficient to insure inspection of all imported peanut lots. It also is 
the importer's responsibility to account for disposition of all failing 
quality peanut lots imported by the importer. A bond secured by surety 
or U.S. Treasury obligations must be posted by the importer with the 
Customs Service to guarantee the importer's performance. For more 
information on these procedures, importers should contact their customs 
broker, the Customs Service office at the port where peanuts are 
expected to be entered, or www.ustreas.gov/education/duties/bureaus/uscustoms.html.
    Safeguard procedures: The safeguard procedures in this part are 
similar to safeguard procedures already in place for peanuts and other 
imported fresh agricultural commodities and are consistent with the 
inspection, identification, and certification requirements applied to 
domestically produced peanuts.
    To obtain information on importing peanuts or making arrangements 
for necessary inspection and certification, importers may contact the 
Fresh Products Branch headquarters office in Washington, DC, which will 
direct them to the closest regional inspection office. The telephone 
number of headquarters office is (202) 720-5870, and the fax number is 
(202) 720-0393.
    Stamp-and-fax procedure: Under USDA safeguard procedures 
established in this program, the importer must provide advance notice 
of inspection needs to the Inspection Service office that will collect 
samples of the peanuts for inspection. The importer must file

[[Page 1153]]

completed entry documentation (usually Customs Service forms CS 3461 
and CF 7501, or other equivalent forms) with the Inspection Service 
office by mail or facsimile transmission. To expedite entry procedures, 
the filing should occur prior to, or upon arrival of the shipment at 
the port of entry. The Inspection Service office stamps, signs, and 
dates the entry document and returns it to the importer or Customs 
broker by fax or mail. The importer/broker then submits the stamped 
copy to the Customs Service. This ``stamp-and-fax'' procedure is 
unchanged from the procedure used under the previous peanut import 
program and is similar to procedures in place for other imported 
agricultural commodities under USDA jurisdiction. Failure to file the 
entry documentation stamped by the Inspection Service may result in a 
delay in entry of the product.
    The importer must file a copy of each stamp-and-fax entry document 
with USDA and forward a copy, with any lot that is transported in-bond 
to an inland destination for inspection or warehousing. The importer 
must provide sufficient information to identify the peanut lot being 
entered and to ensure that arrangements are made for sampling and 
inspection. This information must include the Customs Service entry 
number, container identification, weight of the peanut lot, the city, 
street address, and building number (if known) receiving the peanut 
lot, the requested date and time of inspection, and a contact name and 
telephone number at the destination. If the destination is changed from 
that listed on the stamp-and-fax document, the importer must 
immediately advise Inspection Service offices at both the original 
destination and the new destination of such change. Shipments that are 
not made available pursuant to entry documentation, or are not properly 
displayed for sampling purposes, will be reported to the Customs 
Service as failing to follow required entry procedures.
    Boatload shipments exceeding 200,000 pounds must be entered as two 
or more items on Customs Service entry documents. This limit on lot 
size is required by USDA and the Inspection Service for sampling 
purposes and is the same as the limit on lot sizes of domestically 
produced peanuts. Lot size and identification arrangements must be made 
cooperatively between the importer and the Inspection Service. This 
facilitates subsequent lot identification, inspection, and reporting of 
large imported shipments.
    Release for importation: Depending on condition (shelled or 
inshell) and containerization, foreign-produced peanuts may be either: 
(1) Held at the port-of-entry until certified by the Inspection Service 
as meeting the edible quality requirements of this rule; or, (2) 
conditionally released under Customs Service entry procedures and 
transported inland for inspection and certification.
    Under option (1), foreign-produced shelled or cleaned-inshell 
peanuts which are held at the port-of-arrival must be presented in 
containers or bags that allow appropriate sampling of the lot pursuant 
to Inspection Service requirements. After sampling, such lots are held 
at the port-of-arrival under Customs Service custody, under positive 
lot identification requirements of the Inspection Service, pending 
results of the inspection and chemical analysis. If determined to meet 
the applicable edible quality requirements of this part, the shelled or 
cleaned-inshell peanuts may be entered for consumption without further 
inspection. Reports of such entries do not have to be filed with USDA.
    If a lot is held at the port-of-arrival under Customs Service 
custody and subsequently determined to fail edible quality standards, 
the lot, at the importer's discretion, may be: Exported; moved inland 
under bond for reconditioning and, if satisfactorily remilled or 
blanched, used for edible consumption; or entered for non-edible 
consumption. Such failing peanuts that remain under Customs Service 
custody until exported do not have to be reported to USDA because the 
peanuts were not officially entered into the U.S. Failing lots that are 
moved in-bond for reconditioning at a remilling or blanching facility 
inland must be reported to USDA, pursuant to option 2, below. The 
importer is responsible for ensuring that such lots remain under PLI 
until reconditioned and determined to meet edible quality requirements. 
Records of disposition of residual peanuts to non-edible outlets also 
must be maintained. Such records must be maintained for the time frames 
discussed under Reporting and Recordkeeping Requirements, below.
    Under option (2), foreign produced peanuts moved inland from the 
port-of-arrival for sampling, inspection, and certification. All 
imported farmers stock peanuts must be shipped inland for sampling and 
inspection because specialized sampling facilities at buying points are 
not available at ports of entry. All in-bond entries must be maintained 
under PLI. Shelled and cleaned-inshell lots which are subsequently 
sampled and determined to meet both grade and aflatoxin quality 
standards may be entered directly into human consumption channels of 
commerce and not reported to USDA. For monitoring and compliance-
assurance purposes, in-bond entries which fail to meet outgoing quality 
standards are reported to USDA by the Inspection Service and/or the 
aflatoxin laboratory.
    Peanuts transported from the port-of-arrival to another location 
must be transported by a carrier designated by the Customs Service 
under 19 U.S.C. 1551. Peanuts entered for warehousing must be stored in 
a Customs Service bonded warehouse. Such peanuts must remain in Customs 
Service custody until they are determined to meet the quality and 
handling standards of this program, at which point they may be 
withdrawn from warehouse and entered for consumption.
    Imported shipments of farmers stock peanuts must be transported 
inland to a buying point where sampling equipment is available to 
conduct the incoming sampling operation. Importers are required to 
maintain all records showing compliance with these standards and all 
Customs Service requirements.
    Importers must not release failing lots for edible consumption 
until reconditioned and certified as meeting the standards of this 
program.

Reporting and Recordkeeping

    This rule finalizes reporting and recordkeeping standards under 
Sec.  996.71 that are necessary for USDA to monitor compliance with 
program quality and handling standards.
    Farmers stock acquisitions: Handlers and importers are required to 
report to USDA the volume of Segregation 1, 2, and 3 farmers stock 
peanuts acquired from growers or others, or imported. Under previous 
peanut programs, the information was used, in part, to determine the 
assessment owed by signatory handlers to the PAC and non-signatory 
handlers to USDA.
    Because all farmers stock peanuts can now be shelled for human 
consumption use, all three categories of farmers stock must be 
reported. This information is used for compliance purposes and in the 
compilation of reports by USDA. The monthly report must include the 
volume, by variety, of Segregation 1, 2, and 3 farmers stock peanuts 
acquired in the preceding month. Form FV-305, Handlers/Importers 
Monthly Report is used by handlers and importers to report their 
monthly farmers stock acquisitions.
    To collect farmers stock information, the interim Board recommended 
that USDA use the assessment form used under the national Peanut 
Promotion,

[[Page 1154]]

Research, and Information Order (7 CFR part 1216). However, that form 
has been discontinued and the new ``First Handler's Report'' form used 
under that research and promotion program does not require disclosure 
of volume handled, peanut variety, or Segregation of the peanuts 
acquired. Thus, the form cannot be used for the purposes needed under 
this program.
    The new form, Handlers/Importers Monthly Report, must be sent to 
USDA. Facsimile or express mail deliveries may be used to ensure timely 
receipt of certificates and other required documentation. Mail 
deliveries must be addressed to the DC Marketing Field Office, MOAB, 
FVP, AMS, USDA, 4700 River Road, Unit 155, Riverdale, MD 20737, Attn: 
Report of Peanuts. The Fax number is (301) 734-5275.
    Falsification of any report submitted to USDA is a violation of 
Federal law and is punishable by fine or imprisonment, or both.
    Documentation of edible and non-edible peanuts: This program 
continues the procedures previously used under the Agreement to monitor 
disposition of edible and failing quality peanuts. The Inspection 
Service sends copies of all grade inspections and the chemical 
laboratories send copies of all aflatoxin assays to USDA. USDA uses 
this information to monitor proper disposition of all lots failing 
either grade or aflatoxin certification.
    This represents a relaxation of reporting requirements for 
importers. Under the previous peanut import program, non-signatory 
handlers and importers were required to file copies of all failing 
grade and aflatoxin certificates with AMS. Importers are no longer 
required to do so, unless specifically requested by USDA or unless the 
Customs Service demands such documentation of importers. These 
certificates will be provided by the Inspection Service, USDA 
laboratories, or USDA-approved laboratories, as the case may be.
    Recordkeeping: Handlers and importers are required to maintain all 
relevant documentation on the disposition of inedible peanuts. If a lot 
is remilled, blanched, or roasted, the handler or importer must 
maintain grade certificate(s) and/or aflatoxin certificate(s) showing 
that the lot has been reconditioned and subsequently meets outgoing, 
edible quality standards. Grade and aflatoxin inspections conducted on 
reconditioned lots reference the applicable lot number and previous 
grade and aflatoxin certificate numbers so that a record of the lot's 
reconditioning is maintained. Documents showing the disposition of non-
edible residuals (pick-outs, etc.) must be maintained by each handler 
and importer. For example, if the lot is crushed for oil, the oil 
mill's report of crushing must be maintained. That crushing report must 
tie the crushed residual peanuts to their original failing lots. If the 
failing lot is sold for seed or for animal feed, the sales receipt of 
the transaction must tie the purchased lot to the failing lot through 
the inspection certificate number. If the failing lot is exported, an 
export certificate must be filed showing the inspection certificate 
number of the failing peanut lot. Failing peanut lots sent to a 
landfill or buried also must be reported with proof of such disposition 
through the inspection certificate number.
    In total, the documentation maintained and distributed to USDA must 
be sufficient to document and substantiate the proper disposition of 
all peanut lots failing grade or aflatoxin quality standards, as well 
as the residuals resulting from those failing lots.
    Documentation on lot dispositions must be maintained for at least 
two years after the crop year of applicability.

Confidentiality

    This rule includes a confidentiality provision in Sec.  996.72 to 
protect handler and importer reports and records required to be 
submitted to USDA under this program. Confidential information includes 
data or information constituting a trade secret or disclosing a trade 
position, financial condition, or business operations of handlers or 
their customers. Confidentiality provisions do not extend to disclosure 
of peanut lots determined to be within the provisions in Sec.  
996.74(b).

Verification of Reports

    Provisions are included in Sec.  996.73 of this part that allows 
USDA access to any premises where peanuts may be held or processed, and 
access to any business files containing information regarding the 
handling, importing, and disposition of peanuts. USDA, at any time 
during regular business hours, is permitted to inspect any peanuts held 
and any and all records with respect to the acquisition, holding, or 
disposition of any peanuts which may be held or which may have been 
disposed of by that handler or importer.

Compliance Oversight

    USDA will take action against any handler or importer in violation 
of the Act or this part. Such action includes instances when a handler 
or importer: (1) Acquires farmers stock peanuts without official 
incoming inspection; (2) fails to obtain outgoing inspection on shelled 
or cleaned-inshell peanuts and ships such peanuts for human consumption 
use; (3) ships failing quality peanuts for human consumption use; (4) 
commingles failing quality peanuts with certified edible quality 
peanuts and ships the commingled lot for human consumption use; (5) 
fails to maintain PLI on peanut lots certified for human consumption 
use; (6) fails to maintain and provide access to records on the 
reconditioning or disposition of failing quality peanuts; or (7) 
otherwise violates any provisions of the Act or this program.
    USDA will use injunctions to restrain violations and withdraw 
inspection services from alleged violators.
    AMS will notify the FDA of the names of any handlers or importers 
known to have shipped un-inspected or failing peanuts into human 
consumption channels and the lot numbers of such peanuts. AMS also will 
publish on the AMS Web site the names of any handler and importer and 
the failing lots not reported as reconditioned or disposed to non-
edible outlets.

Final Regulatory Flexibility Analysis

    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 had 
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.
    There were approximately 45 peanut handlers and 38 importers that 
were subject to regulation under the Agreement and non-signer program, 
and the peanut import regulation. An estimated two-thirds of the 
handlers and nearly all of the importers may be classified as small 
entities, based on the documents and reports received by USDA. Small 
agricultural service firms, which include handlers and importers, are 
defined by the Small Business Administration (SBA) (13 CFR 121.201), as 
those having annual receipts of less than $5,000,000.
    An approximation of the number of peanut farms that could be 
considered small agricultural businesses under the SBA definition (less 
than $750,000 in annual receipts from agricultural sales) can be 
obtained from the 1997 Agricultural Census, which is the most recent 
information on the number of farms categorized by size. There were 
10,505 peanut farms with sales valued at less than $500,000 in 1997,

[[Page 1155]]

representing 86 percent of the total number of peanut farms in the U.S 
(12,221). Since the Agricultural Census does not use $750,000 in sales 
as a category, $500,000 in sales is the closest approximation. Assuming 
that most of the sales from those farms are attributable to peanuts, 
the percentage of small peanut farms in 1997 (less than $750,000 in 
sales) was likely a few percentage points higher than 86 percent, and 
may have shifted a few percentage points since then. Thus, the 
proportion of small peanut farms is likely to be between 80 and 90 
percent.
    Two-year average peanut production for the 2000 and 2001 crop years 
was 3.711 billion pounds, harvested from 1.363 million acres, yielding 
2,723 pounds per acre. The average value of production for the two-year 
period was $948.777 million, as reported on the National Agricultural 
Statistics Service (NASS) Web site as of August 2002 (http://www.nass.usda.gov:81/idepd/report.htm). The average grower price over 
the two-year period was $0.26 per pound, and the average value per 
harvested acre was $707. Dividing the two-year average value of 
production ($948.177 million) by the estimated 12,221 farms yields an 
estimated revenue per farm of approximately $77,600.
    The Agricultural Census presents farm sizes in ranges of acres, and 
median farm size in 1997 was between 50 and 99 acres. The median is the 
midpoint ranging from the largest to the smallest. Median farm size in 
terms of annual sales revenue was between $100,000 and $250,000. 
Several producers may own a single farm jointly, or, conversely, a 
producer may own several farms. In the peanut industry, there is, on 
average, more than one producer per farm. Dividing the two-year average 
value of production of $948.777 million by an estimated 23,000 
commercial producers (2002 Agricultural Statistics, USDA, Table 11-10) 
results in an estimate of average revenue per producer of approximately 
$41,251.
    Oilmill operators, blanchers, and private chemical laboratories are 
subject to this rule to the extent that they must comply with 
reconditioning provisions under Sec.  996.50 and reporting and 
recordkeeping requirements under Sec.  996.71. There are several such 
entities in the peanut industry and these requirements are applied 
uniformly to these entities, whether large or small. In addition, there 
are currently 10 State inspection programs (FSIS) that will perform 
inspection under this new program.
    Importers of peanuts cover a broad range of business entities, 
including fresh and processed food handlers and commodity brokers who 
buy agricultural products on behalf of others. Under the 2001 import 
quota, approximately 38 business entities imported approximately 126 
million pounds of low duty peanuts (sometimes called ``duty free'' 
quota peanuts). That import quota period ended December 31, 2001, for 
Mexico, and March 31, 2002, for Argentina, Israel, and other countries. 
Some large, corporate handlers are also importers of peanuts. AMS is 
not aware of any peanut producers who imported peanuts during any of 
the recent quota years. The majority of peanut importers have annual 
receipts under $5,000,000. Customs brokers may provide import services 
to importers who are regulated under, and accountable, to this rule. 
They must assure that entry requirements under Sec.  996.60 and 
reporting and recordkeeping requirements under Sec.  996.71 are met. 
These requirements are not applied disproportionately to small Customs 
brokers.
    In view of the foregoing, it can be concluded that the majority of 
peanut producers, handlers, and importers may be classified as small 
entities. In addition, it may be assumed that many oilmill operators 
and blanchers also are small entities.
    The quality and handling requirements of the prior peanut quality 
programs have been in effect for more than 36 years and for imported 
peanuts for more than six years. Handlers and importers have been the 
segment of the industry directly regulated under the three peanut 
programs, and they are in general agreement that the industry has 
changed greatly since the establishment of the Agreement in 1965.
    With only a few exceptions, the quality and handling standards in 
this peanut program are the same as, or similar to, the requirements 
previously in effect for domestically produced and imported peanuts. 
The few exceptions are relaxations in requirements that will benefit 
handlers and importers. These requirements were subject to regulatory 
flexibility analysis and were found to not disproportionately affect 
small entities.
    The Act requires that all peanuts marketed in the United States be 
officially inspected and graded by Federal or Federal-State inspectors. 
The Act further requires that USDA make identifying and combating the 
presence of all quality concerns a priority in the development of 
quality and handling standards and in the inspection of all peanuts in 
the domestic market. Finally, USDA is to ``* * * provide adequate 
safeguards against all quality concerns related to peanuts.'' The new 
peanut program is to be established in consultation with the Board.
    This program establishes under part 996 the minimum quality and 
handling standards that were in effect on May 13, 2002, the date the 
Act became effective, with relaxations recommended by interim Board 
members and peanut growers and handlers. Peanuts may not be entered 
into human consumption channels unless the peanuts are inspected and 
meet minimum quality standards for size, damage, defects, foreign 
material and moisture, and not exceed maximum aflatoxin content 
specified in this rule. Handling standards include the same positive 
lot identification, sampling and inspection procedures, and 
prohibitions on commingling certified and non-edible peanuts as were in 
effect under the three previous programs. Peanuts failing to meet the 
quality standards of this part, or which are not handled consistent 
with the handling standards of this part, may not be used for human 
consumption in the United States.
    All USDA required sampling, quality certification, and lot 
identification is conducted by the Inspection Service. Chemical 
analysis is conducted by USDA or USDA-approved laboratories. Private 
laboratories must, among other things, agree to send copies of all 
aflatoxin analyses conducted by the laboratory to USDA. Foreign 
produced peanuts stored in bonded warehouses are subject to Customs 
Service audits. Handlers and importers must reimburse the Inspection 
Service and USDA laboratories and approved private laboratories, for 
services provided and costs incurred in the sampling, grade inspection 
and chemical analysis of peanuts. Incoming inspections range from $4.00 
to $6.25 per ton of farmers stock peanuts. Sampling and outgoing grade 
inspections vary with the Federal and each Federal-State Inspection 
Service and range from $1.50 to $3.00 a ton. Chemical analysis for 
aflatoxin averages $40.00 per analysis. These costs to handlers and 
importers also were incurred under the previous three programs. Thus, 
there is no net increase in financial burden attributable to these 
aspects of the new program.
    This action imposes on handlers and importers a minor reporting 
requirement in addition to that imposed under the previous peanut 
programs (reporting acquisitions of Segregation 2 and 3 farmers stock 
peanuts). However, importers and non-signatory handlers under the 
previous programs have a

[[Page 1156]]

minor decrease in reporting requirements, because they are no longer 
required to submit evidence of proper disposition of failing lots. That 
task is completed by the USDA. Recordkeeping requirements remain the 
same as required under the three previous peanut programs. The 
information collection burden under the previous programs totaled 411 
reporting hours and 269 recordkeeping hours. These were approved under 
OMB Nos. 0581-0067 (Agreement), 0581-0163 (non-signers), and 0581-0176 
(imports).
    Changes affecting regulated entities: Under this program, handlers 
are no longer subject to any payment of assessments on farmers stock 
peanuts acquired. Under the Agreement and non-signer program, handlers 
were assessed $.33 per net farmers stock ton of peanuts acquired. This 
totaled over $515,000 for the 2000 crop. Assessments collected from 
signatory handlers provided for the administration of the PAC. 
Assessments collected from non-signatory handlers helped reimburse USDA 
for administration of the non-signer program. There are no such 
assessments under this peanut program.
    The previous peanut programs prohibited the use of Segregation 2 
and 3 farmers stock peanuts in human consumption channels. This program 
removes that prohibition and allows such peanuts to be handled and 
marketed in higher return outlets. Handlers sought this change. As 
noted above, handlers believe that modern milling technologies enable 
handlers to remove poor quality and contaminated peanut kernels in the 
shelling and milling operation. This change from the previous programs' 
requirements enables more peanuts to be marketed at higher market 
values for human consumption. Segregation 2 and 3 peanuts, in a normal 
crop year, average around 1 percent of total production. Thus, for the 
2000 and 2001 crop years, an estimated 37 million pounds of additional 
farmers stock peanuts would have been available for human consumption 
channels.
    Handlers stated that peanuts used in the manufacturing of imported 
peanut butter and peanut paste are not restricted to Segregation 1 
quality peanuts produced in those exporting countries. They contended 
that use of Segregation 2 and 3 quality peanuts for human consumption, 
after careful and efficient sorting and milling processes, would level 
the playing field for the U.S. peanut industry. Outgoing inspection 
will ensure that poor quality peanuts do not enter domestic edible 
consumption market channels.
    Grower and handler revenues are likely to increase slightly due to 
the ability to sell Segregation 2 and 3 quality peanuts for human 
consumption use. This change is not expected to affect small and large 
entities differently.
    If Segregation 2 and 3 peanuts are handled for human consumption, 
it is reasonable to assume that fewer poor quality peanuts will be 
available for crushing into oil and other non-edible use such as animal 
feed. Thus, if normal supply and demand factors take affect, the price 
of oilstock quality peanuts could rise. A higher percentage of sheller 
oilstock residuals are likely to be sorted out of Segregation 2 and 3 
peanuts during the initial shelling process. Therefore, not all of the 
peanuts in Segregation 2 and 3 lots will be edible, and the supply of 
oilstock peanuts will not be cut off completely. The market value of 
peanuts used for crushing into oil and added to animal feed could 
increase.
    Further, blanching operations could realize an increase in business 
because blanching, as a last resort in reconditioning a failing lot, 
will likely be used in the final preparation of shelled peanuts 
originating from Segregation 2 and 3 peanuts for human consumption.
    Finally, handlers with blanching facilities dedicated exclusively 
to the handler's own peanuts may move a lot of shelled peanuts directly 
from the shelling operation to their dedicated blanching operations 
without first obtaining grade inspection and PLI on the lot. Handlers 
recommended removing the required inspection and PLI prior to blanching 
at their own, dedicated facilities because the nature of the peanuts 
change in the blanching process and the peanuts must be inspected 
immediately after blanching, rendering the first inspection redundant. 
This would apply only to lots blanched in the handler's own blanching 
facility that does not blanch peanuts belonging to others, thus 
eliminating the need to establish PLI prior to blanching. This 
streamlined handling process will increase efficiency of the handling 
of peanuts that the handler intends to blanch. Handler costs for such 
lots are reduced by inspecting the lot once, rather than twice. While 
this change may tend to be most beneficial to those handlers who are 
mostly larger operations with their own, dedicated, blanching 
facilities, it should not have an adverse impact on small handlers.
    Reporting and recordkeeping requirements under this peanut program 
are not expected to adversely impact small businesses, and there is no 
indication that large and small businesses would be impacted 
differently. Under this program, handlers and importers must report 
monthly acquisitions of Segregation 2 and 3 peanuts--a minor increase 
from the previous programs when only Segregation 1 peanuts were 
reported. However, the benefits of being able to handle those peanuts 
for possible edible consumption outweigh the increased reporting 
requirement. Further, this minor increase in reporting is offset by a 
decrease in reporting disposition of failing peanut lots for non-
signatory handlers and importers. In the case of imports, few, if any, 
peanuts are imported in farmers stock form because of the extra weight 
and bulk of the peanut shell.
    The other provisions in this peanut program are the same as, or 
similar to, the requirements in effect for domestically produced and 
imported peanuts for the last several years. Those requirements were 
subject to prior regulatory flexibility analysis.
    USDA has considered alternatives to this program. The Act provides 
that a new program be established for the 2002 peanut crop. An 
alternative would have been to continue the 2001 regulations for the 
entire 2002 crop. However, based on industry comment, implementation of 
a new program as soon as possible after harvest began was preferable to 
continuing the previous programs. USDA has met with the interim Board 
which is representative of the industry and has included nearly all of 
its recommendations in this rule. The initial draft prepared by USDA 
proposed a streamlined program with less USDA oversight of handling 
standards. However, the interim Board suggested that oversight 
provisions in the previous programs be included in this program to 
assure the continued high quality and wholesomeness of peanuts entered 
into human consumption channels in the U.S. Draft provisions were 
posted on the USDA website and comments were received. Most comments 
confirmed the Board's consensus that significant changes in the 
previous programs were not necessary. One proposal included changing 
screen sizes to allow smaller kernels to be included in lots intended 
for human consumption use. Comments advised against such a relaxation 
in the interim final rule. The majority of comments to the interim 
final rule on this topic favored the relaxation. However, USDA has 
decided to review this proposal further and not to make such a change 
at this time. Thus, this program is substantially the same as

[[Page 1157]]

USDA's three previous peanut programs.
    Except as previously discussed, USDA has not identified any 
relevant Federal rules that duplicate, overlap, or conflict with this 
rule. A small business guide on complying with AMS' fresh fruit, 
vegetable, and specialty crop programs similar to this peanut program 
may be viewed at the following web site: http://www.ams.usda.gov/fv/moab.html. Any questions about the compliance guide or compliance with 
this program should be sent to Jay Guerber at the previously mentioned 
address in the FOR FURTHER INFORMATION CONTACT section.

Information Collection

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), the information collection requirements under the 
Agreement, non-signers and import programs were approved by the Office 
of Management and Budget (OMB) and assigned OMB Nos. 0581-0067, 0581-
0163 and 0581-0176, respectively. However, with the termination of 
those peanut programs, reporting and recordkeeping burdens on peanut 
handlers and importers have been terminated. OMB burden hours under the 
previous programs were 540 hours. The burden under the new program is 
estimated to be 463 hours. An estimated 367 hours (nearly 80 percent) 
of the new program burden is for recordkeeping, which handlers and 
importers would normally do under good business practices.
    The Act specifies in Sec.  1604(c)(2)(A) that any new quality and 
handling standards, established pursuant to the Act, may be implemented 
without regard to the Paperwork Reduction Act. Nonetheless, USDA has 
considered the reporting and recordkeeping burden on handlers and 
importers under the new program.
    Handlers and importers are required to complete and submit only one 
report to USDA--a monthly acquisition of farmers stock peanuts. 
Acquisitions of Segregation 2 and 3 peanuts must now be reported 
because those peanuts can be prepared for edible markets. Because 
Segregation 2 and 3 peanuts normally account for around 1 percent of 
each peanut crop, this change is expected to represent only a minor 
increase in the reporting burden under the new program. Non-signatory 
handlers and importers are no longer required to submit evidence of 
disposition of failing lots, which reduces their reporting burden. 
Recordkeeping requirements remain the same as required under the three 
previous peanut programs.
    USDA held several meetings with the interim Board, Inspection 
Service supervisors, posted a draft rule on the internet for comments, 
and considered all comments, prior to publishing the interim final 
rule. Twenty-five comments were received to the interim final rule and 
all were carefully considered in developing this finalization action. 
As earlier discussed, changes have been made to the interim final rule. 
Any additional changes will be considered in consultation with the 
Peanut Standards Board, as provided for in the Act. USDA also has 
reviewed this rule with FSA and incorporated the suggested 
clarifications suggested by the Customs Service. The program 
established in the interim final rule and finalized in this rulemaking 
action is substantially the same as the three previous peanut programs. 
The 2002 crop harvest is now complete.
    Section 1601 of the Act also specifies that promulgation of the 
standards and administration of the new peanut quality program shall be 
made without regard to: (A) The Paperwork Reduction Act; (B) the 
Statement of Policy of the Secretary of Agriculture effective July 24, 
1971 (36 FR 13804), relating to notices of proposed rulemaking and 
public participation in rulemaking; and (C) the notice and comment 
provisions of section 553 of title 5, United States Code.
    Section 553 of title 5 provides that, upon good cause, the rule may 
be made effective less than 30 days after publication in the Federal 
Register. The Farm Bill required that the rule be effective for the 
2002 crop year and the interim final rule became effective at the 
beginning of the 2002 harvest season. A 30 day comment period was 
provided in the interim final rule and all comments received were 
considered. This rule finalizes the interim final rule and implements 
five minor revisions which improve the overall effectiveness of the 
interim final rule. Based on the above, USDA finds that good cause 
exists for making this rule effective one day after publication in the 
Federal Register.

List of Subjects in 7 CFR Part 996

    Food grades and standards, Imports, Peanuts, Reporting and 
recordkeeping requirements.


    For the reasons set forth in the preamble, and under authority of 7 
U.S.C. 601-674 and Public Law 107-171, 7 CFR chapter IX is amended as 
set forth below.
    Accordingly, the interim final rule amending 7 CFR part 996 which 
was published at 67 FR 57129 on September 9, 2002, is adopted as a 
final rule with the following changes:

PART 996--MINIMUM QUALITY AND HANDLING STANDARDS FOR DOMESTIC AND 
IMPORTED PEANUTS MARKETED IN THE UNITED STATES

    Authority: Secs. 1308, Pub. L. 107-171, 116 Stat. 178 (U.S.C. 
7958).

Definitions

    1. Section 996.2 is revised to read as follows:


Sec.  996.2  Conditional release.

    Conditional release means release from U.S. Customs Service custody 
to the importer for purposes of handling and USDA required sampling, 
inspection and chemical analysis.

    2. Section 996.7 is revised to read as follows:


Sec.  996.7  Importer.

    Importer means a person who engages in the importation of foreign 
produced peanuts into the United States.

    3. Section 996.30 is amended by revising paragraph (b) to read as 
follows:


Sec.  996.30  Incoming quality standards.

* * * * *
    (b) Moisture. No handler or importer shall receive or acquire 
farmers stock peanuts for subsequent disposition to human consumption 
outlets containing more than 10.49 percent moisture: Provided, That 
peanuts of a higher moisture content may be received and dried to not 
more than 10.49 percent moisture prior to storing or milling; and 
Provided further, That Virginia-type peanuts used for seed may be 
received or acquired containing up to 11.49 percent moisture.
* * * * *

    4. Section 996.40 is amended by revising paragraph (b)(4) to read 
as follows:


Sec.  996.40  Handling standards.

* * * * *
    (b) * * *
    (4) Upon call from the laboratory, the handler or importer shall 
cause Sample 2 to be ground by the Inspection Service, USDA or USDA-
approved laboratory in a ``subsampling mill.'' The resultant ground 
subsample from Sample 2 shall be of a size specified by the Inspection 
Service and it shall be designated as ``Subsample 2-AB.'' Upon call 
from the laboratory, the handler shall cause Sample 3 to be ground by 
the Inspection Service, USDA or USDA-approved laboratory in a 
``subsampling mill.'' The resultant ground subsample from Sample 3 
shall be of a size

[[Page 1158]]

specified by Inspection Service and shall be designated as ``Subsample 
3-AB.'' ``Subsamples 2-AB and 3-AB'' shall be analyzed only in a USDA 
laboratory or a USDA-approved laboratory and each shall be accompanied 
by a notice of sampling. The results of each assay shall be reported by 
the laboratory to the handler and to USDA.
* * * * *

    5. Section 996.60 is amended by revising paragraph (c) to read as 
follows:


Sec.  996.60  Safeguard procedures for imported peanuts.

* * * * *
    (c) Early arrival and storage. Peanut lots sampled and inspected 
upon arrival in the United States, but placed in storage for more than 
one month prior to beginning of the quota year for which the peanuts 
will be entered, must be reported to USDA at the time of inspection. 
The importer shall file copies of the Customs Service documentation 
showing the volume of peanuts placed in storage and location, including 
any identifying number of the storage warehouse. Such peanuts should be 
stored in clean, dry warehouses and under cold storage conditions 
consistent with industry standards. USDA may require re-inspection of 
the lot at the time the lot is declared for entry with the Customs 
Service.
* * * * *

    Dated: January 3, 2003.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 03-367 Filed 1-8-03; 8:45 am]
BILLING CODE 3410-02-P