[Federal Register Volume 68, Number 149 (Monday, August 4, 2003)]
[Proposed Rules]
[Pages 45990-46033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19123]



[[Page 45989]]

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Part III





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 983



Pistachios Grown in California; Recommended Decision and Opportunity To 
File Written Exceptions to Proposed Marketing Agreement and Order No. 
983; Proposed Rule

  Federal Register / Vol. 68, No. 149 / Monday, August 4, 2003 / 
Proposed Rule  

[[Page 45990]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 983

[Docket No. AO-F&V-983-2 FV02-983-01]


Pistachios Grown in California; Recommended Decision and 
Opportunity To File Written Exceptions to Proposed Marketing Agreement 
and Order No. 983

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule and opportunity to file exceptions.

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SUMMARY: This recommended decision proposes the issuance of a marketing 
agreement and order (order) for pistachios grown in California. The 
proposed order would set standards for the quality of pistachios 
produced and handled in California by establishing a maximum aflatoxin 
tolerance level, maximum limits for defects, a minimum size 
requirement, and mandatory inspection and certification. An eleven-
member committee, consisting of eight producers, two handlers, and one 
public member, would locally administer the program. The program would 
be financed by assessments on handlers of pistachios grown in the 
production area. The objective of the program would be to enhance 
grower returns through the delivery of higher-quality pistachios to 
consumers. This rule also announces the Agricultural Marketing 
Service's intention to request approval by the Office of Management and 
Budget of new information collection requirements to implement this 
program.

DATES: Written exceptions must be filed by September 3, 2003. Pursuant 
to the Paperwork Reduction Act, comments on the information collection 
burden must be received by October 3, 2003.

ADDRESS: Four copies of all written exceptions should be filed with the 
Hearing Clerk, U.S. Department of Agriculture, room 1081-S, Washington, 
DC 20250-9200, Facsimile number (202) 720-9776. All comments should 
reference the docket number and the date and page number of this issue 
of the Federal Register. Comments will be made available for public 
inspection in the Office of the Hearing Clerk during regular business 
hours, or can be viewed at: http://www.ams.usda.gov/fv/moab.html.

FOR FURTHER INFORMATION CONTACT: Melissa Schmaedick, Marketing Order 
Administration Branch, Fruit and Vegetable Programs, Agricultural 
Marketing Service, USDA, Post Office Box 1035, Moab, UT 84532, 
telephone: (435) 259-7988, fax: (435) 259-4945; or Anne M. Dec, 
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. Small 
businesses may request information on this proceeding by contacting Jay 
Guerber, 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.

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding: Notice 
of Hearing issued on June 19, 2002, and published in the June 26, 2002, 
issue of the Federal Register (67 FR 43045).
    This action is governed by the provisions of sections 556 and 557 
of title 5 of the United States Code and is therefore excluded from the 
requirements of Executive Order 12866.

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
recommended decision with respect to the proposed marketing agreement 
and order regulating the handling of pistachios grown in California, 
and the opportunity to file written exceptions thereto. Copies of this 
decision can be obtained from Melissa Schmaedick, whose address is 
listed above.
    This recommended decision is issued pursuant to the provisions of 
the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 
601 et seq.), hereinafter referred to as the ``Act,'' and the 
applicable rules of practice and procedure governing the formulation of 
marketing agreements and orders (7 CFR part 900).
    The proposed marketing agreement and order are based on the record 
of a public hearing held July 23-25, 2002, in Fresno, California. The 
hearing was held to receive evidence on the proposed marketing order 
from producers, handlers, and other interested parties located 
throughout the proposed production area. Notice of this hearing was 
published in the Federal Register on June 26, 2002.
    This proposal is the result of nearly three years of efforts 
undertaken by the Proponents Committee (proponents), a group 
representing the majority of producers and handlers of pistachios in 
California. The Proponents Committee was established in 2000 as a 
result of renewed industry interest in a Federal marketing order.
    An earlier attempt to establish a Federal marketing order in 1996 
on behalf of the pistachio industry by the California Pistachio 
Commission (CPC or Commission) and the Western Pistachio Association 
(Association) was terminated in 2000 due to a lack of industry support 
for certain proposed provisions. The current proposal is different from 
that which was previously proposed since many controversial issues have 
either been removed or resolved through more exacting specifications in 
the proposed order. The Proponents Committee is independent of the 
Commission and the Association.
    Witnesses at the hearing explained that the provisions of this 
proposal aim to provide the California pistachio industry with a tool 
to regulate the quality of pistachios handled in California. This would 
include preventing pistachios containing aflatoxin above the proposed 
permitted maximum tolerance level of 15 parts per billion (ppb) from 
entering the market place. The proposed order would also preclude 
defective and small pistachios from being sold. Under the proposed 
order, testing and certification of pistachios for quality (including 
aflatoxin) would be mandatory. A mandatory regulatory program would 
provide the industry with an effective means of ensuring product 
quality, thereby enhancing customer satisfaction.
    At the conclusion of the hearing, the Administrative Law Judge 
fixed September 23, 2002, as the final date for interested persons to 
file proposed findings and conclusions or written arguments and briefs 
based on the evidence received at the hearing. One brief was filed on 
behalf of the Proponents Committee in support of the proposed program 
and its provisions. The brief also recommended certain changes in the 
regulatory text of the proposed order as a result of the public hearing 
held in Fresno, California from July 25 through July 27, 2002. These 
changes are discussed as appropriate later in this document.

Material Issues

    The material issues presented on the record of hearing are as 
follows:
    1. Whether the handling of pistachios produced in the production 
area is in the current of interstate or foreign commerce or directly 
burdens, obstructs, or affects such commerce;
    2. Whether the economic and marketing conditions are such that they 
justify a need for a Federal marketing agreement and order which would 
tend

[[Page 45991]]

to effectuate the declared policy of the Act;
    3. What the definition of the production area and the commodity to 
be covered by the order should be;
    4. What the identity of the persons and the marketing transactions 
to be regulated should be;
    5. What the specific terms and provisions of the order should be, 
including:
    (a) The definitions of terms used therein which are necessary and 
incidental to attain the declared objectives and policy of the Act and 
order;
    (b) The establishment, composition, maintenance, procedures, powers 
and duties of an administrative committee for pistachios that would be 
the local administrative agency for assisting USDA in the 
administration of the order;
    (c) The authority to incur expenses and the procedure to levy 
assessments on handlers to obtain revenue for paying such expenses;
    (d) The establishment of mandatory inspection and certification for 
aflatoxin, quality and size requirements for California pistachios;
    (e) The establishment of requirements for handler reporting and 
recordkeeping;
    (f) The requirement for compliance with all provisions of the order 
and with any regulations issued under it;
    (g) The requirement for periodic continuance referenda;
    (h) An exemption for handlers of non-commercial quantities of 
pistachios;
    (i) Coordination of administration with the California Pistachio 
Commission program;
    (j) Additional terms and conditions as set forth in Sec.  983.59 
through Sec.  983.69 of the Notice of Hearing published in the Federal 
Register of June 26, 2002, which are common to all marketing agreements 
and orders, and other terms and conditions published at Sec.  983.90 
through Sec.  983.92 that are common to marketing agreements only; and
    6. Whether the proposed marketing order and its provisions, if 
approved in grower referendum, should be implemented in two phases.

Findings and Conclusions

    The following findings and conclusions on the material issues are 
based on the record of the hearing.

Material Issue Number 1--Whether the Handling of California Pistachios 
is in the Current of Interstate or Foreign Commerce

    The record indicates that the handling of pistachios grown in 
California is in the current of interstate or foreign commerce or 
directly burdens, obstructs or affects such commerce.
    Witnesses testifying at the hearing stated that over 97 percent of 
the pistachios produced in the United States are grown in California 
orchards. There are minor amounts of commercial plantings in eastern 
Arizona and New Mexico. However, it is estimated that these States 
account for only 2 and less than 1 percent of national production, 
respectively.
    The record shows that domestic consumption of California pistachios 
is well established, with the U.S. market representing an estimated 70 
percent of total production distributed in 1999-2000. Pistachios grown 
in the proposed production area are shipped throughout the United 
States, and the California industry, through the Commission, conducts a 
national promotion program for its product.
    The record also shows that export markets are increasingly 
important to California producers and handlers. About 30 percent of the 
crop is sold in foreign markets in more than 40 countries. According to 
the 2000-2001 CPC Annual Report, Germany, Japan, Canada and Hong Kong 
are California's largest pistachio export destinations. Exports to 
Germany alone accounted for 20 percent of total inshell pistachio 
exports in 1999-2000.
    Evidence presented at the hearing confirmed that any handling of 
California pistachios in market channels, including intrastate 
shipments, exerts an influence on all other handling of such 
pistachios. Thus, it is concluded that the handling of pistachios grown 
in the proposed production area is in the current of interstate and 
foreign commerce and directly affects such commerce.

Material Issue Number 2--The Need for a Pistachio Marketing Order

    The record evidence demonstrates that there is a need for a 
marketing order for California pistachios.
    Farming pistachios is a costly investment with a significant delay 
in benefits and an unreliable crop yield. Increasing yields have led to 
an increasing overall value of California pistachio production. 
However, to remain economically viable, producers must maintain a level 
of return per pound harvested that covers their cost of production. 
Witnesses of the proposed order assert that maintaining a high level of 
quality product in the market will lead to increasing consumer demand 
and stability in producer returns.
    Poor quality pistachios impact demand, and the potential growth of 
demand, for pistachios. Characteristics routinely deemed as ``poor 
quality'' by customers of the California pistachio industry include 
small size, and excessive internal and external blemishes. Market 
studies and references to customer comment databases presented by 
witnesses at the hearing demonstrate that the presence of poor quality 
pistachios in the marketplace significantly impacts demand in a 
negative way.
    According to record evidence, minimizing the level of aflatoxin in 
California pistachios is another significant quality factor, since 
aflatoxin is a known carcinogenic. Consumer concerns over aflatoxin can 
impact their perception of the quality of pistachios, and therefore 
negatively impact demand. Moreover, any market disturbances related to 
aflatoxin in pistachios, regardless of the origin of those pistachios, 
could have a detrimental effect on the California pistachio industry. A 
regulatory program limiting the amount of aflatoxin tolerated in 
pistachios would be useful to bolster consumer confidence in the 
quality of California pistachios.
    Pistachio acreage has consistently increased in California, from 
just over 20,000 bearing acres in 1979 to 78,000 bearing acres in 2001. 
The number of non-bearing acres (i.e., acres less than 7 years old, not 
yet in full production) has also shown consistent growth, increasing 
from 17,062 acres in 1997 to 23,500 acres in 2001. Yield per acre has 
also been steadily rising. Over the 1976-1980 period, average yield per 
bearing acre measured 1,097 pounds; by 1996-2000, this average 
increased to 2,418 pounds.
    Higher yields and increasing acreage have resulted in increasing 
production. According to information submitted by the California 
Pistachio Commission, production in 2000 totaled 242 million pounds, a 
64 percent increase over 1995 production, which totaled 148 million 
pounds. Moreover, witnesses at the hearing indicated that maturing 
acreage, absent any additional new plantings, will likely result in a 
60 percent increase in California pistachio production over the coming 
years.
    Several witnesses at the hearing testified that, in light of 
increasing production, future stability of market returns is reliant on 
continually increasing consumer demand for pistachios. These witnesses 
stated that strong consumer demand, which is ultimately related to 
consumer perceptions of product quality, is

[[Page 45992]]

essential to the continued economic well-being of the California 
pistachio industry. Moreover, witnesses discussed the importance of 
implementing a marketing order program that would provide a regulatory 
structure to monitor and ensure that minimum quality standards are not 
compromised as production of California pistachios increases. One of 
the most important quality characteristics cited by witnesses is the 
regulation of aflatoxins as these carcinogenic molds can be found in 
improperly handled pistachios.
    The proposed order would set quality standards for pistachios 
produced and handled in California by establishing a maximum aflatoxin 
tolerance level, maximum limits for defects, a minimum size 
requirement, and mandatory inspection and certification. Witnesses of 
the proposed marketing order argued that this regulatory program would 
bolster consumer demand for pistachios.
    The relationship among product quality, consumer demand, and 
producer returns in the pistachio industry was demonstrated at the 
hearing. Pistachio production is not only costly in terms of initial 
investment and cultural costs, but it is highly unpredictable in terms 
of returns. Between the initial processes of cleaning, hulling, sorting 
and drying, a significant portion of the initial volume harvested is 
reduced. This volume is further reduced as the handling process reaches 
its final stages of further sorting for quality and final preparation 
for market. As such, witnesses explained that ultimate pistachio sales 
are based on approximately 30 percent of the volume initially harvested 
from the field. Because of this, witnesses stated that the process of 
extracting the highest quality portion of the harvest, and ensuring 
consumer satisfaction with that product, is crucial to determining the 
value of the crop.
    Pistachio production is similar to other nut crops in that yield 
and total production are impacted by the alternate bearing nature of 
pistachio trees (meaning cyclical high and low production years). In 
addition, producer returns and total crop value are dependent on the 
overall quality of the crop. One example is the percentage of harvest 
that is either ``open shell'' or ``closed shell.'' Each harvest yields 
a certain percentage of nuts that have not naturally opened prior to 
harvest. These nuts are classified as ``closed shell,'' ``shelling 
stock'' or ``non-splits,'' and have a lower market value than those 
nuts that are naturally split, or ``open shell.'' As the percentage of 
open-shells varies, the total value of production can change 
significantly from one year to the next.
    Total value and value per acre are generally higher in high 
yielding years. An economic analysis of the California pistachio 
industry presented at the hearing by Dr. Dan Sumner of the University 
of California, Davis, indicates that trends for total crop value and 
value per bearing acre have been increasing over the past 20 years. In 
1980, the total value of the pistachio crop in California was $55.8 
million. By 2000, total crop value had increased more than four-fold, 
reaching $236.72 million. These gains are attributed to increases in 
both total pistachio producing acreage and yield per acre. Average 
value per bearing acre increased from $1,642 per acre in 1980-1984 to 
$2,658 per acre in 1996-2000.
    Conversely, grower return per pound is generally higher in low 
yielding years. According to CPC historical price data, price per pound 
has gradually decreased over the past 20 years, ranging from a high of 
$2.05 per pound in 1980 to a low of $0.98 per pound in 2000. Thus, in 
terms of current producer ability to reconcile production costs with 
receipts, yield per acre must be sufficiently high to compensate for 
low returns in price per pound. According to the record, the proposed 
order would assist in stabilizing, if not increasing, producer returns 
for pistachios. The quality requirements proposed herein would not only 
assist in fortifying consumer demand by ensuring consumer satisfaction 
with product quality, but mandatory quality standards would also boost 
domestic prices by culling poor product, which tends to have price-
depressing effects, from the market.
    The record evidence is that total costs of production can be 
divided into three categories: the costs of orchard establishment, 
cultural costs and administrative costs. Establishment costs, or the 
overall cost to develop an acre of pistachios until revenues exceed 
growing expenses, are estimated at between $10,000 and $15,000, with an 
average tree maturation period of 7 years. In order to recover these 
investment costs, the hearing record indicates that producers generally 
target an 11 per cent return on investment, estimated at between $1,100 
and $1,650 per acre. Annual per acre cultural costs average between 
$1,100 and $1,600, once the trees are productive. Administrative costs 
include the cost of farm management and crop financing, and range from 
$150 to $200 per acre.
    Given the cost estimates above, a producer would need to harvest an 
average of 2,000 pounds per acre to cover total production costs. This 
calculation assumes an average field price of $1.25 per pound, which is 
based on 24 years of CPC crop value statistics. For example, minimum 
estimated cultural costs plus administrative costs and an 11 percent 
return on investment results in a minimum total production cost of 
$2,350 per acre per year. Total production costs less the targeted 11 
percent return on investment equals $1,250 per acre, or an average 
harvest of 1,000 pounds per acre to cover production costs without a 
return on investment.
    While the CPC 2002 Annual Report indicates a State average of 
$2,619 per acre in gross receipts over the last four years, 1998-2001 
CPC yield per acre information reveals that only 6 out of 26 California 
counties with pistachio production yield on average more than 2,000 
pounds per acre. These counties include Colusa, Sutter, Madera, Fresno, 
Kings and Kern, and together represent over 88 percent of total 
California pistachio production between the years 1998 to 2001. Glenn, 
Butte, Placer, Yolo, Contra Costa, San Joaquin, Calaveras, Stanislaus, 
Merced, Tulare and Santa Barbara counties yield on average between 
1,000 to 2,000 pounds per acre and represent roughly 12 percent of 
total State production. Shasta, Tehama, Yuba, Solano, Sacramento, San 
Luis Obispo, Los Angeles, San Bernardino and Riverside counties yield 
on average less than 1,000 pounds per acre and represent less than one 
percent of California pistachio production.
    Given the assumptions made above, approximately 88 percent of the 
industry is covering total costs of production. Conversely, roughly 12 
percent of the industry is currently covering cultural costs but not 
generating a return on their investment.
    In 1996, high levels of aflatoxin were detected in foreign 
pistachios imported into the European Union (EU). Publicity about the 
presence of aflatoxin at high levels first led to a total ban on 
imports and has since reduced the number of pistachios imported from 
all sources into the EU by 45 percent. In Germany the drop was 60 
percent, and by 2000 imports were still only 53 percent of 1997 levels.
    Witnesses testifying at the hearing used this case of pistachios 
contaminated with aflatoxin, and the subsequent damage to consumer 
confidence and demand for pistachios in the EU, to demonstrate the 
industry's need to safeguard against similar findings in California 
pistachios. According to those who testified, mandatory inspection and 
certification

[[Page 45993]]

against high levels of aflatoxin would be the most effective means of 
preventing such an event with pistachios handled in California.
    Similarly, witnesses stressed the need to have a mandatory 
regulatory system in place in the event that aflatoxin were found in 
non-California pistachios, but were to universally impact the demand of 
all pistachios, regardless of origin. If such an event were to occur, 
witnesses of the order stressed the usefulness of having a federally 
regulated program for aflatoxin in order to maintain consumer 
confidence with regard to California pistachios.
    Evidence presented at the hearing supports a Federal marketing 
order for pistachios grown in California. In view of the foregoing, and 
based on the record of the proceeding, it is concluded that current 
economic and marketing conditions justify a need for a marketing order 
for California pistachios. The order would meet many needs of the 
industry and would tend to effectuate the declared policy of the Act.

Material Issue Number 3--Definition of Pistachio and Production Area

    Definitions of the terms ``pistachio'' and ``production area'' 
should be included in the order to delineate the commodity and the area 
that would be regulated under the provisions of the proposed program.
    ``Pistachio'' should be defined to mean the nut or nuts of the 
pistachio tree, genus Pistacia Vera. The term ``pistachio'' would cover 
all fruits of the Pistcaia Vera grown in the production area, whether 
inshell or shelled. Pistachios grown outside the production area would 
not be covered by the proposed order.
    Record evidence explains that the pistachio nut is the seed of a 
semidry drupaceous fruit, or stone fruit, much like peaches and mangos. 
However, while peach flesh is eaten and the seed discarded, the 
opposite is true of the pistachio; the flesh or ``hull'' is discarded 
and the seed, once it has been freed from protection of the thin, bony 
shell, is eaten.
    Pistachio development starts with a seedling being grown in a pot 
in a nursery for nearly two years. The seedlings are then transplanted 
into the field at a rate of 130 to 160 seedlings per acre, usually in 
January or February when the seedlings are dormant. Toward the end of 
the first growing season these seedlings are then grafted or budded in 
the field to Pistacia Vera, both male and female. The pistachio tree is 
dioecious, meaning there are both ``male'' and ``female'' trees, and is 
pollinated by the wind. The typical California pistachio orchard 
requires one male tree for every 8-24 females.
    Pistachio trees typically require six years of maturation after 
budding to produce a commercial crop. During the maturation period, 
young trees require considerable care, including yearly pruning, 
irrigation, fertilizer application and pest control, thus contributing 
to the considerable investment costs of establishing a pistachio 
orchard. Harvest of a tree's first commercial-sized crop typically 
occurs in the tree's seventh year. The crop and tree continue to grow 
in size for another seven to eight years until the tree is considered 
fully mature and has reached a height of approximately 25 to 30 feet.
    Pistachio trees require a significant dormant period, currently 
estimated to be 800 hours below 45[deg]F, followed by long, hot, dry 
summers. The trees are pruned during dormancy, and once they bloom, in 
late March or early April, they need to be irrigated, fertilized and 
treated for various pests during the rest of the year. The major input 
is usually water, as each acre requires approximately 36'' of water to 
be applied during the growing season if the trees are to produce a full 
crop.
    Currently there is no consensus as to the useful commercial life of 
a tree. Pistachio trees in the Middle East have lived for thousands of 
years. Trees appear to be long lived in California, although producers 
must replace 2 to 3 percent of their trees that die from disease or 
other causes every year. The overall cost to develop an acre of 
pistachios until revenues exceed growing expenses is between $10,000 
and $15,000 per acre, and does not differ significantly due to the size 
of the planting.
    The term ``production area'' should be defined to mean the State of 
California. The record shows that the production area defined in the 
proposed order is the major pistachio producing area in the United 
States.
    Witnesses testifying at the hearing stated that over 97 percent of 
the pistachios produced in the United States are grown in California 
orchards. Production is concentrated in six counties in the San Joaquin 
Valley, in the central part of the State. However, commercial 
production is reported in an additional 20 counties throughout 
California. While there are some counties in the State in which no 
pistachios are currently produced, witnesses testified that the 
production area should be defined to allow for coverage of any new 
pistachio development outside current plantings within California.
    Witnesses also proposed coverage of the entire State because the 
industry (through the California Pistachio Commission) finances 
national and international promotion programs to expand demand for 
California pistachios. Thus, buyers of California pistachios consider 
the entire State to be the pistachio producing area.
    While the proposed Federal order and the State commission would 
operate independently of each other, witnesses testified that the 
quality assurance standards implemented under the proposed order would 
complement the promotion activities undertaken by the Commission. Thus, 
they believed that having the two programs would benefit the California 
pistachio industry.
    Record evidence indicates that there are minor amounts of 
commercial plantings in eastern Arizona and New Mexico. However, it is 
estimated that these states produce only 2 and less than one percent of 
national production, respectively.
    Witnesses explained that Arizona and New Mexico had been considered 
as part of the production area during the initial stages of drafting 
the proposed order. According to record testimony, although there is 
some interest in the proposed marketing order among Arizona and New 
Mexico pistachio producers, support in those States is not strong 
enough to warrant including them in the proposed production area.
    Record evidence also indicates that pistachios produced in Arizona 
and New Mexico are mainly consumed within the respective State 
boundaries and have a relatively limited presence in national and 
international markets. Moreover, acreage in both States is neither 
increasing, nor is it expected to increase in the future, as climate 
factors limit the growth potential of existing pistachio orchards. 
Pistachio production from these States is not considered to represent a 
significant portion of total domestic production. It is also unlikely 
that Arizona and New Mexico pistachios will hold a significant presence 
in domestic and international markets in the future.
    Lastly, information presented at the hearing indicates that 
California nurserymen have sold a limited amount of pistachio trees 
into other western states, such as Nevada, Utah and Texas, but there is 
no known significant commercial production in these States. Production 
from these States is not believed to enter into the current of 
interstate commerce.
    The Act requires that marketing orders be limited in their 
application to the smallest regional production area found practicable. 
For the reasons given

[[Page 45994]]

above, it is concluded that covering pistachios grown in California 
(and not those grown in other States) under the proposed order is 
consistent with carrying out the declared policy of the Act and, 
therefore, the production area should be defined as hereinafter set 
forth.

Material Issue Number 4--Definition of Handler and Handle

    The term ``handler'' should be defined to identify the persons who 
would be subject to regulation under the order. Such term should apply 
to any person who handles pistachios within the production area, or 
places pistachios in the current of commerce within the production 
area, or in the current of commerce between the production area and any 
point outside thereof. A handler could be an individual, a joint 
venture, partnership, corporation, or other business entity.
    The definition of ``handler'' identifies persons who would be 
responsible for meeting the requirements of the order, including paying 
assessments, complying with testing and certification provisions of the 
order, and submitting reports and other information required for the 
administration of the proposed program. The term is also used to 
identify those persons who are eligible to vote for, and serve as, 
handler members and alternate members on the committee.
    The term ``handle'' should be defined in the order to establish the 
specific functions that would place pistachios in the current of 
commerce within the production area, or between the production area and 
any point outside thereof, and to provide a basis for determining which 
functions are subject to regulation under the authority of the proposed 
marketing order.
    ``Handle'' should be defined to mean engaging in: (a) Receiving 
pistachios, (b) hulling and drying pistachios, (c) further preparing 
pistachios by sorting, sizing, shelling, roasting, cleaning, salting, 
and/or packaging for marketing in or transporting to any and all 
markets in interstate or foreign commerce, and (d) placing pistachios 
into the current of commerce between the production area and any point 
outside that area.
    The record evidence is that the handling of pistachios is a multi-
step process. Witnesses described the harvest and initial processing 
(hulling and drying) of pistachios as an intense period of activity, 
typically beginning in early September, when the pistachio nuts are 
mature, and lasting for a period of 20 to 30 days.
    The trees are deemed ready for harvest when the ``hull'' slips on 
the shell when pressure is applied. By this time, approximately 75 
percent of the nuts have naturally ``split,'' meaning that the shell 
has naturally opened to give its characteristic ``open mouth'' 
appearance. This splitting of the shell typically will not be apparent, 
as the hull or outer layer remains intact, protecting the kernel from 
fungal infection and insect infestation. The hulls of some pistachios, 
however, may split, thereby revealing the tender pistachio nut inside. 
These pistachios, referred to as ``early splits,'' are more prone to 
mold or insect infestation.
    The balance of the pistachio harvest has not naturally opened. 
These are referred to as ``closed shell'' or ``non-split'' pistachios.
    According to record testimony, pistachios must be rapidly harvested 
when mature in order to prevent insect infestation and staining of the 
shell, and to avoid difficulty of handling an overripe product. During 
the harvest process, each tree is mechanically shaken to cause the 
pistachio nuts to fall into a catching frame. This method of harvesting 
allows the California pistachio industry to harvest pistachios without 
the nuts having to touch the ground, thereby avoiding possible 
contamination from soil-borne molds or insects. The nuts are then 
dumped from the catching frames into bins or trucks and readied for 
transport to the handler.
    The nuts, which contain a significant amount of moisture when 
harvested, must arrive at the handling facility as soon as possible 
after harvest. If the nuts are not hulled within 24 hours of their 
removal from the tree, staining of the outer shell occurs, and this is 
considered detrimental in the marketplace. Due to the short harvest 
period and the significant investment in equipment at the handling 
facility, witnesses explained that pistachio harvest will typically 
take place 24 hours a day 7 days a week until harvest is complete.
    At the handling facility, the nuts are weighed and emptied from the 
trailers. As the emptying of bins or trucks takes place, usually 
through bottom dump trailers into a pit, the nuts are sampled. This 
sampling of wet product is used to determine the quality and payable 
weight of the nuts being delivered.
    Once the nuts have been sampled and the trash (i.e., leaves, twigs, 
etc.) has been removed, the hull or the outer layer covering the shell 
is removed by equipment that resembles large potato peelers. Once 
hulled, the pistachios are then moved through various dewatering 
devices prior to entering a dryer. Some handlers do some initial 
quality sorting between hulling and drying, but this is not universal. 
The nuts are then dried in high-powered dryers to about 14 percent 
moisture. After drying, they are placed in storage in containers that 
vary from 500-pound bins to 1,000,000-pound silos. During the initial 
phase of storage, the nuts continue to be dried by air circulation, to 
get them down to a safe, long-term storage moisture content of around 6 
percent. At this stage, the nuts are stable and can remain in storage 
for up to two years.
    The sample taken at delivery is processed like the rest of the 
nuts, i.e., the trash is removed and the nuts in the sample are hulled 
and then dried before sorting. An assessment of the quality of the 
sample is then made. The assessment may include such things as a 
determination of the percentage of naturally split nuts, the color of 
the shells, and the amount of insect infestation (if any). This 
delivery sample may be used to determine payment to the producer, and 
to give the handler some idea of the characteristics of the crop he or 
she has to process.
    The record shows that producers often commit their nuts to more 
than one handler. The normal practice in the industry is to have 
contracts between producers and handlers, many of them multi-year and 
often with premiums for quality. Many of the contracts also have 
minimum prices. Apart from this minimum price, the producer often does 
not know what final price he/she will receive for the pistachios. The 
handler makes interim payments throughout the year culminating in a 
final payment, usually in August following the previous September's 
harvest. The amount paid by the handler will depend in large part on 
the price that he or she obtained for the processed crop, and the costs 
of handling the pistachios.
    When the nuts are removed from storage, the nuts are sorted, sized, 
graded and mechanically separated into open and closed shell product. 
These activities can take place in different sequences and the process 
varies among handling facilities. As part of this process, a 
considerable amount of trash, bad nuts, loose shells, etc., are removed 
from the product stream. At this stage, the nuts may be ready for 
market. However, some California pistachios are then roasted and salted 
by the handler prior to being placed in consumer or industrial size 
packages to be marketed.
    Once the nuts have been roasted and salted, their shelf life is 
reduced as they can become rancid or stale, and they need to be stored 
at temperatures approximating 35 degrees Fahrenheit in order to remain 
completely stable. If they are not placed in cold storage, they

[[Page 45995]]

have a shelf life of approximately nine months.
    The record shows that all of these activities, from initial receipt 
of the pistachios at the handling facility, to final packaging of the 
product, should be included in the definition of ``handle.'' These 
activities were identified as those necessary to prepare pistachios for 
entering the stream of commerce and, as such, should be included in the 
definition of the process which makes a person a ``handler,'' and, 
thus, subject to regulation under the proposed order.
    In addition, the hearing record indicates that placing California 
pistachios into the current of commerce from within the production area 
to points outside thereof for the purpose of hulling and drying, or 
further processing would also constitute handling. In such cases, the 
individual responsible for placing California pistachios into the 
current of commerce would be considered a handler and would be subject 
to the provisions of the proposed order.
    USDA recommends adding a paragraph (d) to Sec.  983.14 of the 
proposed order as it appeared in the Notice of Hearing. To clarify the 
definition of ``handle,'' the following language is proposed to be 
added: ``Placing California pistachios into the current of commerce 
from within the production area to points outside thereof.''
    According to the record, the acts of transporting pistachios from a 
producer's orchard to a processing plant within the production area and 
of transporting pistachios between handlers within the production area 
should be excluded from the definition of ``handle.''
    The transportation of pistachios from the orchard to the handling 
facility is typically either performed by the producer him or her self, 
or contracted out to third parties. Given that neither the producer nor 
the contract hauler would be engaged in the process of preparing 
pistachios for market in this capacity, their activities should be 
excluded from those considered as part of ``handling.''
    Similarly, witnesses stated that pistachios are customarily traded 
among handlers, and that this activity should not be considered part of 
the definition of ``handling.'' Trade among handlers predominantly 
occurs as a means for individual handlers to buy or sell surplus 
pistachios and to meet the demands of their respective customers. 
Witnesses also explained that some handlers are better equipped to 
handle pistachios that present processing problems. For example, 
pistachios requiring re-working to meet industry quality standards may 
be transferred from one handler to another for more efficient 
processing.
    The record evidence is that most producers do not handle their own 
pistachios. However, a producer would become a handler if the producer 
performs any handling functions. For example, a producer that hulls and 
dries pistachios before shipment for further preparation for marketing 
would be considered a handler. Once a producer becomes a handler, he or 
she would be subject to the proposed order provisions.

Material Issue Number 5(a)--Other Definitions

    (a) Certain terms should be defined for the purpose of specifically 
designating their applicability and limitations whenever they are used 
in the order.
    ``Accredited laboratory'' should be defined to mean a USDA 
laboratory or any other laboratory that has been approved or accredited 
by the U.S. Department of Agriculture for testing aflatoxin in 
pistachios. Witnesses testified that the aflatoxin testing and 
certification provisions of the proposed order are key components of 
the quality control program deemed necessary by the California 
pistachio industry. In order for the testing and certification process 
to be credible, the order should provide that the laboratories 
performing these functions must be accredited or approved by USDA.
    ``Act'' should be defined as the Agricultural Marketing Agreement 
Act of 1937, as amended (7 U.S.C. 601-674). This is the statute under 
which the proposed regulatory program would be operative, and this 
definition avoids the need to refer to the citation throughout the 
order.
    According to record evidence, ``affiliation'' should be defined, as 
it is important within the context of proposed eligibility requirements 
for committee members and their alternates. Witnesses testified that 
``affiliation'' should be defined to mean a person who is: (1) A 
producer or handler that directly or indirectly, through one or more 
intermediaries, owns or controls, or is controlled by or is under 
common control with the producer or handler specified; or, (2) a 
producer or handler who directly or indirectly through one or more 
intermediaries, is connected in a proprietary capacity or shares the 
ownership or control of the specified producer or handler with one or 
more other producers or handlers.
    According to the hearing record, the term ``control'' should be 
further defined to mean ``the possession, direct or indirect, of the 
power to direct or cause the direction of the management of policies of 
a handler or a producer whether through voting securities, membership 
in a cooperative, by contract or otherwise.''
    Witnesses explained that this definition of ``affiliation'' is 
proposed to ensure that persons who are in business together as 
handlers or producers are limited in their representation on the 
administrative committee. Further discussion of affiliation and its 
intended use under the provisions of the proposed order appears under 
material issue 5(b), the establishment of an agency to locally 
administer the order.
    ``Aflatoxin'' should be defined as one of the several carcinogenic 
mycotoxins produced by naturally occurring molds. Aflatoxin can be 
found, and can spread, in improperly processed and stored nuts, dried 
fruits and grains. According to information presented at the hearing, 
this group of fungal toxins is produced by the molds Aspergillus flavus 
and Aspergillus parasiticus. Aflatoxin is a known carcinogen and 
potential contaminant for pistachios.
    Proposed Sec.  983.38 sets forth a maximum aflatoxin level of 15 
parts per billion (ppb) for California pistachios. This threshold was 
substantiated by testimony from experts in the field of aflatoxin and 
food contaminants, and is further discussed under material issue 5(d).
    ``Aflatoxin inspection certificate'' should be defined to mean a 
certificate issued by a laboratory that is accredited or approved by 
USDA to indicate that a lot of pistachios was tested for and met the 
aflatoxin quality requirements proposed in this order. In particular, 
an ``aflatoxin inspection certificate'' would indicate that the 
pistachios have been tested for aflatoxin and the aflatoxin in the 
nuts, if any, did not exceed a level of 15 ppb. Under the provisions of 
this proposed order, no handler could ship pistachios for domestic 
human consumption that exceed an aflatoxin level of 15 ppb. Witnesses 
explained that any handler placing California pistachios into the 
stream of domestic commerce for the purpose of human consumption would 
be required to obtain an aflatoxin inspection certificate for each lot 
of pistachios handled. Aflatoxin certificates would also be important 
for committee record-keeping and auditing responsibilities with regard 
to local administration of the order.
    ``Assessed weight'' should be defined to mean the weight of all 
pistachios,

[[Page 45996]]

clear of debris, hulled and measured at 5 percent moisture, that are 
received for processing by a handler within each production year. 
Calculation of the assessed weight would be based on the weight of the 
pistachios received from the field. As the handler receives pistachios, 
a delivery sample would be taken, and the nuts in that sample cleaned, 
hulled and dried to 5 percent moisture content. The actual weight of 
the pistachios received would then be adjusted to reflect the 
characteristics of the delivery sample and its final weight when dried 
to 5 percent moisture content. According to the record, the 5 percent 
moisture content is an industry standard used by all handlers.
    In calculating the ``assessed weight'' for loose kernels, witnesses 
explained that the calculation method proposed in the order reflects 
current industry practices. To determine the weight of the kernels 
without shells, the weight of the kernel would be multiplied by two as 
it is generally accepted that the shell accounts for approximately half 
of the weight of a whole pistachio nut.
    Witnesses also explained that assessments placed on pistachio 
handlers would be based on the volume of pistachios received by each 
handler for processing during a production year. Hence, the term 
``assessed weight'' is essential to the committee's assessment 
collection. This term is further discussed in connection with proposed 
Sec.  983.53, ``Assessments.''
    The definition contained in the Notice of Hearing defined assessed 
weight as ``* * * edible inshell pistachios received for processing by 
a handler * * * .'' USDA recommends deleting the word ``edible'' from 
the definition. This would correct a conflict between the Notice of 
Hearing definition of ``assessed weight'' and the proposed definition 
of ``edible pistachios,'' Sec.  983.13. The definition proposed under 
Sec.  983.13, discussed later in this document, states that edible 
pistachios are pistachios that do not exceed aflatoxin and other 
quality provisions of the order described under Sec. Sec.  983.38 and 
983.39. Pistachios received from the field for processing by the 
handler have yet to be tested and certified as having met the proposed 
provisions of Sec. Sec.  983.38 and 983.39. Therefore, USDA recommends 
the modified definition described above.
    According to the hearing record, the definition of assessed weight 
could be modified based on a recommendation of the committee and 
approval by the Department through the public rulemaking process. 
Witnesses supported this authority so the industry would be able to 
take advantage of any better standard developed to determine the 
assessable weight of pistachios received by handlers.
    ``Certified pistachios'' should be defined to mean those pistachios 
for which aflatoxin inspection certificates and minimum quality 
certificates have been issued. Under the provisions of the proposed 
order, California pistachios shipped for domestic human consumption 
would be required to be certified. The definition of ``certified 
pistachios'' is further discussed under material issue 5(d) related to 
proposed quality (including aflatoxin) requirements.
    ``Committee'' should be defined to mean the administrative 
committee, which would be established pursuant to the proposed 
provisions of Sec.  983.32. The Act authorizes USDA to appoint an 
agency or agencies to assist in the administration of a marketing order 
program. This definition would identify the agency to locally 
administer the proposed pistachio order. The committee would be 
comprised of eight pistachio producers, two handlers, and one public 
member. The establishment of a committee would be important to ensure 
representation of the industry and consumers to USDA.
    ``Confidential data or information'' should be defined to mean 
reports and records furnished or submitted by handlers to the committee 
which include data or information constituting trade secrets or 
disclosing the trade position, financial condition, or business 
operations of a particular handler or its customers. This term is 
relevant to proposed Sec.  983.48 pertaining to disclosure of handler 
information. The confidentiality requirements in that provision of the 
order, discussed under material issue 5(e) are consistent with those 
contained in the Act.
    ``Department'' or ``USDA'' should be defined to mean the United 
States Department of Agriculture, which is the governmental body 
responsible for oversight of Federal marketing orders and agreements. 
This definition allows the usage of the USDA acronym, or reference to 
the USDA as the Department throughout the language of the proposed 
order.
    ``District'' should be defined to mean each geographic subdivision 
of the proposed production area described in the marketing order. The 
district delineations defined would be important for the purposes of 
committee nominations and producer representation of the regional areas 
of the production area.
    The record supports dividing the production area into three 
districts. District 1 would consist of 11 counties in Southern 
California (Tulare, Kern, San Bernardino, San Luis Obispo, Santa 
Barbara, Ventura, Los Angeles, Orange, Riverside, San Diego, and 
Imperial Counties). District 2 would be comprised of four counties in 
Central California where pistachio production is most highly 
concentrated (Kings, Fresno, Madera, and Merced Counties). District 3 
would consist of the remaining 43 California counties, primarily in the 
Northern portion of the State. The record shows that dividing the 
production area into these three districts would provide for adequate 
producer representation on the committee.
    Allocation of producer membership among the districts would be 
based, in large part, on the relative levels of acreage and production 
among the districts, as well as the number of producers in each of the 
districts. Allocation of producer membership among the districts is 
discussed further under material issue 5(b).
    Testimony indicated that authority should be provided to allow the 
committee to recommend to USDA the re-establishment of district 
boundaries and reapportionment of producer membership among the 
districts. This would allow changes in producer representation on the 
committee to reflect any future shifts in pistachio acreage and 
production within the production area.
    Witnesses also stated that district changes under the California 
Pistachio Commission should be a criterion used in adjusting the 
district boundaries under the proposed order. It may be reasonable to 
assume that changes in the distribution of pistachio producers, acreage 
and production would justify district reestablishment under both the 
State and Federal programs. However, any recommended change in the 
district boundaries under the order would be evaluated on its own 
merits.
    The definition of ``district'' contains authority to reestablish 
district boundaries. Redistricting would require a recommendation of 
the committee and approval by USDA through the rulemaking process. 
Authority for reallocation of producer membership among the districts 
is contained in proposed Sec.  983.32 and is discussed later in this 
document.
    ``Domestic shipments'' should be defined to mean shipments to the 
50 United States and to the territories of the United States. This term 
is important as the proposed quality requirements (including those 
pertaining to aflatoxin and size) would only apply to domestic 
shipments. The proposed quality requirements would

[[Page 45997]]

not apply to exports. The regulatory text of proposed Sec.  983.12 is 
recommended to be modified from what appeared in the Notice of Hearing 
to include shipments to the District of Columbia as domestic shipments. 
Omission of Washington, DC as a domestic market was an oversight on the 
part of the proponent group, and its inclusion in the order is 
consistent with the record evidence.
    ``Edible pistachios'' should be defined to mean pistachios that 
meet the quality requirements (including those pertaining to aflatoxin 
and size) set forth under the proposed provisions of Sec.  983.38, 
``Aflatoxin levels,'' and Sec.  983.39, ``Minimum quality and size 
levels.'' In particular, edible pistachios are pistachios that have 
been certified that they do not exceed the maximum level for aflatoxin 
and that they meet the minimum requirements for shell and kernel 
quality (including those relating to size).
    ``Inshell pistachios'' should be defined to mean pistachios that 
have a shell that has not been removed. This is to distinguish an 
inshell pistachio from a pistachio kernel or shelled pistachio. This 
term is further discussed in the context of proposed order provisions 
relating to quality standards under material issue 5(d).
    ``Inspector'' should be defined to mean any inspector authorized or 
approved by the USDA to inspect pistachios. This term is used in 
connection with the quality requirements proposed to be included in the 
order. An inspector, for example, would pull samples for aflatoxin 
testing by accredited laboratories. Inspectors would also be 
responsible for inspecting and certifying that pistachios meet the 
other quality requirements of the order.
    The record shows that the Federal or Federal-State Inspection 
Service would be designated as the agency responsible for conducting 
these activities. To provide maximum flexibility, however, the order 
should provide that any inspector so authorized or approved by the 
Department may perform these functions.
    ``Lot'' should be defined to mean any quantity of pistachios that 
is submitted for testing for certification under the minimum quality 
requirements (including aflatoxin and size) of this proposed order. 
Specifically, a ``lot'' would be an identifiable quantity of pistachios 
handled by a handler at one time. A lot could have common 
characteristics, such as origin, type of packing, packer, consignor, or 
markings.
    The record shows that the definition of lot is important in the 
context of traceability, as each lot tested would be issued a unique 
identification number. Traceability would allow handlers to respond to 
any sub-quality or aflatoxin issues that would necessitate preventing 
pistachios from entering the stream of commerce. The definition of 
``lot'' is further discussed under material issue 5(d) in connection 
with the testing and certification provisions contained in proposed 
Sec. Sec.  983.38 and 983.39.
    ``Minimum quality requirements'' should be defined to mean those 
requirements specified under the proposed provisions of Sec.  983.39, 
which prescribe the permissible maximum defects and minimum size for 
inshell pistachios and pistachio kernels handled and shipped from and 
within the proposed production area. Regulation of quality is central 
to the proposed marketing order. This term is further discussed under 
material issue 5(d).
    In conjunction with the definition of minimum quality requirements 
given above, ``minimum quality certificate'' should be defined to mean 
a certificate issued by an inspector that would indicate that a lot of 
pistachios was tested for the quality requirements proposed in this 
order and whether it met those requirements. Under the provisions of 
this program, no handler could ship pistachios for domestic human 
consumption that exceeded the percentage of defects or small-sized nuts 
allowed under Sec.  983.39. Witnesses explained that any handler 
placing California pistachios into the stream of domestic commerce for 
the purpose of human consumption would be required to obtain a minimum 
quality certificate to this effect. Therefore, minimum quality 
certificates are also important to the committee record-keeping and 
auditing responsibilities.
    ``Part'' should be defined to mean the order regulating the 
handling of pistachios grown in the State of California, and all rules 
and regulations issued under the order. The order itself would be 
defined as a subpart of the part, as would individual rules and 
regulations.
    According to record evidence ``person'' should be defined to mean 
an individual, partnership, limited liability corporation, corporation, 
trust, association, or any other business unit. This definition is 
consistent with the definition contained in the Act.
    ``Processing'' should be defined to mean hulling and drying of 
pistachios grown in the production area in preparation for market. This 
term covers the first steps of the handling process that occurs after 
the pistachios are harvested.
    Witnesses describing the assessment collection aspects of the 
proposed order explained that handler assessments would be based on the 
volume of pistachios initially received from the field. Record evidence 
suggests that it is important to differentiate between processing 
activities and further preparing pistachios for market, as different 
handlers may perform these different functions. That is, one handler 
may perform the initial handling function of processing (hulling and 
drying), while another handler performs the remaining steps in the 
handling process.
    Witnesses stated that only those handlers conducting the initial 
processing activities would be responsible for paying assessments to 
the committee. This would preclude the same pistachios from being 
assessed more than once. This term is included in the discussion of 
proposed Sec.  983.53, ``Assessments'' which appears under material 
issue 5(c).
    ``Producer'' should be defined to identify those persons who are 
eligible to vote for, and serve as, producer members and alternate 
members of the committee, and those who are eligible to vote in any 
referendum. The term should mean any person engaged within the 
production area in a proprietary capacity in the production or growing 
of pistachios for sale.
    Each business unit (such as a corporation or partnership) should be 
considered a single grower and should have a single vote in nomination 
proceedings and referenda. The term ``producer'' should include any 
person who owns or shares in the ownership of pistachios. For example, 
a person who rents land and produces pistachios resulting in that 
person's ownership of all or part of the pistachios produced on that 
land would be considered a producer.
    Also, any person who owns land, which that person does not farm, 
but as rental for such land obtains ownership of a portion of the 
pistachios produced thereon, should be regarded as a producer for that 
portion of the pistachios received as rent. The tenant on such land 
should be regarded as a producer for the remaining portion produced on 
such land.
    A joint venture is one whereby several persons contribute resources 
to a single endeavor to produce and market a pistachio crop. In such 
venture, one party may be the farmer who contributes one or more 
factors such as labor, time, production facilities or cultural skills, 
and the other party may be a handler who contributes money and 
cultural, harvesting, and marketing supervision. Normally, a husband 
and wife operation would be considered a partnership. Any

[[Page 45998]]

individual, partnership, family enterprise, organization, estate, or 
other business unit currently engaged in the production of pistachios 
for market would be considered a producer under the order, and would be 
entitled to vote in referenda and committee nominations. Each party 
would have to have title to at least part of the crop produced, 
electing its disposition, and receiving the proceeds there from. This 
control would come from owning and farming land producing pistachios, 
payment for farming services performed, or a landlord's share of the 
crop for the use of the producing land. A landlord who only receives 
cash for the land would not be eligible to vote. A business unit would 
be able to cast only one vote regardless of the number and location of 
its orchards, but each legal entity would be entitled to vote.
    ``Production year'' should be defined to mean the period beginning 
on September 1st and ending on August 31st of each year, or such other 
period as may be recommended by the committee and approved by the 
Department. This period starts with the typical beginning of the 
harvest season for pistachios and would prescribe a period of conduct 
for the committee's administrative activities, such as preparing an 
annual budget of expenses and accounting for receipts and expenditures 
of funds. Thus, the term ``production year'' would be synonymous with 
the term ``fiscal period.''
    Witnesses at the hearing also supported the September 1 through 
August 31 period because it coincides with the California Pistachio 
Commission's accounting year. Having the same fiscal periods could 
facilitate the joint management of the two programs, which could yield 
administrative efficiencies to the industry's benefit.
    As discussed under material issue 5(c), assessments would be based 
on the volume of pistachios received by a handler in each production 
year. Witnesses at the hearing stated that, although rare, there are 
some instances when pistachio harvest begins earlier than September 1. 
Record evidence suggests that this has happened in 2 out of the past 10 
production years. In an effort to reconcile potential accounting 
differences within the context of the proposed Federal program, 
witnesses suggested that any pistachios harvested as much as four weeks 
earlier than the beginning of September be attributed to the new year's 
production total. Thus, this definition would also state that 
pistachios harvested and received in August of any year would be 
counted as part of the subsequent production year for assessment and 
other marketing order purposes. The inclusion of pistachios harvested 
and received within four weeks prior to September 1 represents a 
modification of the order language contained in the Notice of Hearing.
    ``Proprietary Capacity'' should be defined to mean the capacity or 
interest of a producer or handler that, either directly or through an 
intermediary, is a property owner together with the rights of an owner 
including the right to vote the interest in that capacity as an 
individual, shareholder, member of a cooperative, partner, trustee, or 
in any other capacity with respect to any other business unit.
    Witnesses explained that this term is important to the proposed 
order and its provisions in that this language would make persons who 
are sharing ownership of a common business entity ``affiliated'' (see 
previous definition) for purposes of eligibility to serve on the 
committee. The term ``proprietary capacity'' is intended to imply 
ownership of a business as compared to an employee status only.
    ``Secretary'' means the Secretary of Agriculture of the United 
States or any officer or employee of the United States Department of 
Agriculture who is, or who may hereafter be, authorized to act in the 
Secretary's stead. The term includes any other officer or employee of 
the United States Department of Agriculture who has been delegated or 
who may be delegated the authority to act on behalf of the Secretary.
    ``Shelled pistachio'' should be defined to mean a pistachio kernel 
or part thereof and is distinct from an ``inshell pistachio.'' This 
term is relevant to the discussion of quality requirements set forth in 
proposed Sec. Sec.  983.38 and 983.39, ``Aflatoxin levels'' and 
``Minimum quality levels,'' and proposed Sec. Sec.  983.40 and 983.43, 
``Failed lots/rework procedures'' and ``Reinspection.''
    ``Substandard pistachios'' should be defined to mean shelled or 
inshell pistachios that do not meet the proposed quality requirements 
(including those related to size and aflatoxin) of the proposed order. 
According to the record, substandard pistachios should not be marketed 
for domestic human consumption. The proposed order contains specific 
provisions regarding the disposition of substandard pistachios. These 
provisions appear in proposed Sec. Sec.  983.40 and 983.43, ``Failed 
lots/rework procedures'' and ``Reinspection,'' and are discussed under 
material issue 5(d).

Material Issue Number 5(b)--Administrative Committee

    Pursuant to the Act, it is necessary to establish an agency to 
administer the order locally and to provide for effective and efficient 
operation of the order. The establishment and membership of an 
administrative committee is addressed in Sec. Sec.  983.32 and 983.33 
of the proposed order.
    The hearing record shows that the committee should consist of 11 
members. Eight members should be producers, two members should be 
handlers, and one member should be selected from the general public. 
Each member should have an alternate member who, possessing the same 
qualifications as the member, could serve in that member's place and 
stead in the event that the committee member could not fulfill his or 
her duties.

Allocation of Producer Membership

    For the purpose of producer representation, the proposed order 
provides that the production area be divided into three districts. 
District 1 would consist of Tulare, Kern, San Bernardino, San Luis 
Obispo, Santa Barbara, Ventura, Los Angeles, Orange, Riverside, San 
Diego and Imperial Counties. District 2 would consist of Kings, Fresno, 
Madera, and Merced Counties. District 3 would consist of all other 
Counties in California not included in Districts 1 and 2.
    As mentioned previously, the record indicates that producer 
representation from each district should be based, in large part, on 
the relative number of producers, bearing acreage, and volume of 
production in each district. According to record evidence, District 1 
had 227 producers, 38,396 acres, and production totaling 95,889,846 
pounds in 2001. This represents 35 percent of the total number of 
California pistachio producers (647), 49 percent of the State's bearing 
acreage (78,000) and 60 percent of total production in 2001 
(160,295,282 pounds). District 2 had 358 producers (55 percent) and 
36,330 acres (47 percent), and produced a total of 57,453,864 pounds 
(36 percent) in 2001. District 3 had 62 producers (10 percent), 3,274 
acres (4 percent) and 6,951,572 pounds of production (4 percent).
    Given the relative volumes and to ensure that each district's 
producers are represented on the committee, witnesses testified that of 
the eight producer members, four should be from District 1, three 
should represent District 2, and one should be a pistachio grower in 
District 3.
    As discussed under material issue 5(a), Sec.  983.11 of the 
proposed order

[[Page 45999]]

(which defines the three districts) should contain authority for the 
reestablishment of those districts. This would enable producer 
representation on the committee to reflect any future shifts in 
pistachio production among the districts.
    The record also supports authority for reapportionment of producer 
membership among the districts. This authority would complement the 
authority to reestablish districts, and would serve to allow for 
changes in representation in producer membership on the committee. 
Producer membership could be reapportioned whether or not the districts 
were reestablished. The record supports allowing producer membership to 
be reapportioned among the districts upon a two-thirds recommendation 
of the committee and approval of the Department (through the rulemaking 
process).
    While the record supports the ability to reapportion producer 
membership, the proposed order as it appeared in the Notice of Hearing 
did not contain such a provision. USDA recommends adding language to 
Sec.  983.32(b) of the proposed order to provide authority to 
reapportion producer membership among the districts.

Allocation of Handler Membership

    While the record shows that producer representation on the 
committee should be allocated among geographic districts, such 
allocation is not needed for the two handler members on the committee. 
The two handler members would represent the production area-at-large. 
For one of the handler members, each pistachio handler would be 
entitled to cast one vote in the nomination process. For the second 
handler member, each pistachio handler would be entitled to cast one 
vote for each ton of assessed weight of pistachios processed by that 
handler during the two production years preceding the year in which 
nominations are made.
    The record shows that there are 19 pistachio handlers in 
California, and that 1 of these handlers accounts for more than half of 
the volume of pistachios processed in California each year. Under the 
proposed provisions of the order, one of the handler members would 
likely represent the largest handler in the industry, since voting in 
the nomination process for that member would be weighted by volume. All 
remaining handlers would then nominate the other handler member, since 
any one handling entity would not be eligible to fill both handler 
member positions. (This limitation is discussed below.) Witnesses 
supported this method of allocating handler membership as adequate to 
ensure appropriate representation of the interests of California 
pistachio handlers in committee deliberations.
    In weighting the nomination votes for one of the handler members, 
the record shows that each handler would be entitled to cast one vote 
for each ton (or portion thereof) of assessed weight of pistachios 
processed by that handler during the two production years preceding the 
production year in which nominations are made. Calculating the assessed 
weight based on two years of production is intended to take into 
account the alternate bearing nature of pistachio trees. Furthermore, 
the assessed weight of pistachios would be credited to the handler 
responsible under the order for the payment of the assessments. This 
provision would address the fact that pistachios are often traded or 
sold by one handler to another after they are harvested. Attributing 
the volume of pistachios to the first handler of those pistachios would 
preclude double counting of nuts that are transferred from one handler 
to another. It would also provide the most accurate measure of the 
relative volumes of pistachios handled by each handler.
    Witnesses at the hearing testified that all handlers currently 
process (hull and dry) pistachios. Thus, all handlers would be able to 
participate in the nomination of both handler members on the committee.
    The record supports authority in the proposed order to revise 
handler representation on the committee to ensure that industry 
representation remains appropriate. This provision would allow for 
flexibility in the order to accommodate for future changes in industry 
structure. For example, if a significant number of handlers in the 
industry ceased to process pistachios, it could be appropriate to 
weight their votes in the nomination process on some other basis than 
the assessed weight of pistachios. Any change in handler representation 
would require a recommendation by the committee and approval by USDA 
through the rulemaking process.

Committee Member Affiliations

    The order should provide that not more than two members of the 
committee, and not more than two alternate members, could be employed 
by or affiliated with the same handler and/or producer. Additionally, 
only one producer member and alternate in any one district and only one 
handler member and alternate could be affiliated.
    The record evidence is that the membership of the committee should 
be representative of the industry as a whole. No one group of people 
who share common business interests should be able to gain control of 
committee decision making. To accomplish this goal, the order should 
limit the number of positions the members of any one affiliated group 
could hold.
    As previously mentioned, one handler in the industry accounts for 
more than half of the California pistachios handled annually. The 
record shows that the two-member limitation is in large part intended 
to prevent any entity, and its many affiliates, from dominating 
committee actions. The limitation is designed to assure fair 
representation on the committee, given the current nature and structure 
of the California pistachio industry.
    As discussed under Material Issue 5(a), the term ``affiliation'' 
should be defined broadly so that it encompasses the many different 
relationships through which people have common business interests.
    Witnesses at the hearing gave several examples to illustrate their 
view of how this limitation on committee membership should work. In the 
case of a corporate handler, all of its shareholders should be 
considered an affiliated group because they would be connected in a 
proprietary capacity and share in the ownership and control of the 
corporate handler. In this scenario, the shareholders and employees of 
the corporation would be limited to one handler member on the 
committee; they could not hold both handler member positions. If the 
corporation was also a pistachio producer, a producer member could also 
represent the affiliated group. In no case could more than two 
committee members represent that affiliated group.
    Another example offered by witnesses described one corporation 
owned by one set of shareholders and a second corporation with a 
separate set of shareholders that jointly own a handling entity. In 
this case, the employees of the handling entity and both of the 
corporations, and both sets of shareholders, would be considered as one 
affiliated group. As such, this combination of two corporations and one 
handler would be limited to a maximum of two committee positions.
    A third scenario described by witnesses entailed a corporation, 
owned by its shareholders, and a producer cooperative that jointly own 
a handling entity. The cooperative was comprised of producer members 
who grow pistachios and share in the proceeds of the sale of all of the 
pistachios of the

[[Page 46000]]

members pooled together. In this case, the corporation (owned by its 
shareholders) and the cooperative (owned by its members) would be 
affiliated through their common control of the handler. Therefore, this 
combination of corporate employees and shareholders, cooperative 
employees and members, and handler employees, would constitute a single 
affiliated group. The entire group would be entitled to no more than 
two representatives on the committee.
    Witnesses also testified about a producer who sells pistachios to a 
handler for cash or a fixed price plus bonuses but has no ownership or 
proprietary interest in that handler. In such a case, the producer 
would not be affiliated with that handler for purposes of committee 
membership.
    In a final illustration, if a producer is a shareholder or a member 
of, or directly or indirectly owns a handler, that producer would be 
considered a part of the handler's affiliated group. This would be true 
even if that producer sells part of his or her crop to another handler 
that is not part of the affiliated group.

Cooperative Affiliation

    As discussed above, members of a producer cooperative would 
constitute an affiliated group for purposes of committee membership. 
The record shows that the order should contain a provision to clarify 
when a person ceases to be affiliated with a cooperative for those 
purposes.
    As explained for the record, cooperatives usually retain from their 
profits, which would otherwise be paid pro rata to its members, such 
amount as is needed for its capital needs and reserves. These 
``retains'' are allocated and then paid pro rata to each member 
whenever the capital needs change or are replaced by new retains in 
subsequent years. This is known as ``revolving capital.''
    Paragraph (f) of proposed Sec.  983.33 should provide that a 
producer who has not marketed pistachios through a cooperative during 
the current and one preceding production year would no longer be 
considered ``affiliated'' with that cooperative. This would be true 
even if the cooperative continued to hold that producer's retains. If 
the cooperative holds none of the producer's retains, that producer 
would become unaffiliated with that cooperative at the time his or her 
membership is terminated.
    The record supports an additional clarification concerning producer 
cooperatives. There may be an occasion where a producer cooperative 
has, as a member, another producer cooperative that handles pistachios. 
While the members of both cooperatives would be considered affiliated, 
the producer cooperatives would still qualify as producers for purposes 
of voting for producer members on the committee.

Qualifications of the Public Member

    At the hearing, witnesses supported having a public member on the 
committee. The appointment of a public member would offer many 
advantages. One such advantage would be that the committee would have 
an impartial individual, having no economic interest in the pistachio 
industry, with whom to discuss industry problems and concerns. Such a 
person could offer a unique perspective in committee deliberations.
    As such, witnesses recommended that the public member and alternate 
public member should not be permitted to have a financial interest in 
the production, processing, financing, buying, packing, or marketing of 
pistachios, except as a consumer. This member and his or her alternate 
would also be precluded from being a director, officer, employee or 
affiliate of any firm or business entity engaged in the pistachio 
industry. The public member should be willing to devote sufficient time 
to regularly attend committee meetings and become familiar with the 
background and economics of the industry, as well as the provisions of 
the proposed order. Testimony indicated that the committee could be 
able to establish (with the approval of USDA) further qualifications 
the public member and alternate member should possess, if deemed 
necessary.

Nominations

    For the proposed committee to function, a mechanism is required by 
which members and alternate members would be nominated by their peers, 
and selected and appointed by the Department. Nomination procedures are 
set forth in the proposed provisions of Sec. Sec.  983.32 and 983.33.
    The order should provide that USDA would conduct nominations for 
initial producer and handler members of the committee. Such nominations 
could be made either at industry meetings, or by mail. The provisions 
also state that the first nominees must meet the same qualifications as 
required for their successors. While the Department would have 
discretion in determining a reasonable process to conduct initial 
committee nominations, the committee should be established as provided 
in Sec.  983.22 of the proposed order.
    A revision in paragraph (a) of Sec.  983.33 is recommended. This 
revision would clarify that USDA would conduct the initial nominations 
of producer and handler members and alternates only. The initial public 
member and alternate would be nominated by the industry members of the 
committee, as described later in this document.

Successor Producer and Handler Members

    The record evidence is that the committee staff should conduct 
subsequent nominations for producer and handler members of the 
committee. To facilitate maximum participation in the process, 
nominations would be conducted by mail ballot.
    The record evidence shows that producer and handler member 
nominations would entail several steps. First, individuals seeking 
nomination would be required to establish their qualifications to serve 
as a California pistachio producer or handler, and to identify the 
district (for producer seats) they are seeking to represent. Candidates 
would also be required to identify whether they intend to seek 
nomination as a producer or handler member. Considering that many 
pistachio handlers are also producers, witnesses recommended that 
individuals be limited to seeking nomination as one or the other. In 
other words, the same individual would not be allowed to simultaneously 
seek a producer and a handler seat; his or her name could only appear 
on the producer or the handler ballot, not both.
    The record shows that individuals seeking to fill member seats 
would need to submit notice of their intent to run as a nominee to the 
committee in advance of nominations. This would allow the committee 
staff adequate time to determine a candidate's eligibility in advance 
of issuing nomination ballots, and would allow for any questions or 
informational needs to be addressed in advance of voting for nominees.
    Once qualified candidates are identified, ballots containing the 
names of those individuals and additional space for write-in candidates 
would be prepared. The ballots, together with voting instructions, 
would be mailed to all producers and handlers who are on record with 
the committee. The committee staff would tally the votes and submit its 
nomination report to USDA for selection.
    The hearing record supports the same general approach for 
nominations of both producer and handler members. However, the language 
contained in the Notice of Hearing did not include provisions specific 
to successor handler

[[Page 46001]]

nominations. USDA is suggesting that proposed Sec.  983.33(b) be 
modified accordingly.
    The record shows that the committee should have authority (with 
USDA approval) to establish additional rules and regulations governing 
the nomination process, if deemed necessary. This authority would apply 
to both producer and handler member nominations.

Producer Members

    Witnesses explained that individuals seeking candidacy for 
nomination to a producer seat would be required to designate the 
district in which they seek election and substantiate their 
qualification as a producer, or designated representative of a 
producer, in that district. However, testimony also clarified that the 
order would not require that the candidate be a resident of that 
district. Witnesses explained that it would not be reasonable to impose 
such a requirement since not all producers live in the same district in 
which they produce pistachios. Such a residency requirement would, 
therefore, preclude a number of pistachio producers from being able to 
serve on the committee.
    Record evidence states that only producers would be qualified to 
serve as producer members and to participate in the nomination of 
producer members and their alternates. Producers can be corporations, 
partnerships, limited liability companies, trusts or other legal 
entities, as well as a sole proprietorship owned by an individual. The 
owners of the pistachio groves could designate an officer or employee 
to seek membership and to cast the votes on their behalf. As proposed, 
officers and employees would not include professional farm managers who 
perform farm management services for a number of different producers 
without being an employee or an officer of the producer. The intent is 
to limit those eligible to serve as producer members to persons who are 
involved, either as a producer with a proprietary interest in the 
pistachio industry or an employee working in the industry for a 
producer.
    Each producer would be entitled to cast one vote, either in person 
or through an authorized officer or employee, for each producer member 
position to be filled in his or her district. Witnesses suggested that 
rules and regulations could be recommended by the committee and 
approved by the Department that would require such authorization to be 
in writing and to be addressed to the committee. A producer would only 
be able to cast his or her vote in the district in which that producer 
produces pistachios. If the producer were engaged in producing 
pistachios in more than one district, then the producer would need to 
select a district in which to participate as a nominee and/or as a 
voter. A producer would not be allowed to vote for candidates in more 
than one district.
    Producers receiving the highest number of votes in each district 
would be designated nominees for their respective districts. Alternates 
for each nominee would be the candidates receiving the second highest 
number of votes in the same district. In the case of a tie, witnesses 
recommended that final nominees and their alternates be selected by a 
drawing.

Handler Members

    Handler nominees would be selected for the production area as a 
whole, and final candidates would be determined based on those two 
individuals receiving (1) The most votes representing handlers by 
number, and (2) the most votes representing handlers by volume. 
Alternates would be designated as those individuals receiving the 
second highest vote in each respective category. Handler voting 
procedures are further described below.
    Record evidence specifies that only handlers could participate in 
the nomination of the handler members and their alternates. Handlers 
would include the duly authorized officers or employees of handlers. 
Since many of the handlers are incorporated, a corporation or other 
business entity would be required to designate its representative. 
Individuals could also designate an employee to act on behalf of the 
proprietorship through a written designation signed by the owner.
    As indicated above, handler representation would be divided into 
two categories, with one member nominated by a number vote and the 
other member nominated by a volume vote. The former would be nominated 
by receiving the highest number of votes placed by voting handlers, 
with each handler having one vote. That member's alternate would be the 
candidate receiving the second highest number of votes.
    The provisions of the proposed order provide that if a person were 
both a producer and a handler of pistachios, that person would be able 
to participate in both the producer and handler nominations. While a 
single individual may not hold more than one seat on the committee, a 
producer who is also a handler could designate an officer or employee 
as a handler nominee, and another representative as a producer nominee. 
The affiliation provisions described above would apply.
    Members of the committee, at the time of their selection and during 
their term of office, must be pistachio producers or handlers, or 
officers or employees of a producer or handler. If that relationship 
should terminate during their term as a committee member or alternate, 
that person would become disqualified to serve further, and the 
position would be deemed vacant.

Public Member

    The provisions proposed under Sec.  983.32(c) would govern 
nomination and selection of the public member and alternate member. 
According to the record, the public member, who would be neither a 
pistachio producer nor a handler, would have all the rights and 
responsibilities of any other member of the committee. The record 
evidence is that the producer and handler members of the committee 
should nominate the public member. Witnesses explained that industry 
committee members would be in the best position to identify individuals 
who are qualified and willing to serve. Once the committee identified 
possible public member and alternate public member candidates, the 
committee would make a recommendation to USDA for final approval and 
selection by the Department.

Alternate Members

    The order should provide for the nomination and selection of an 
alternate member for each committee member. Alternates would be subject 
to the same eligibility requirements as committee members. They would 
act in the place and stead of the committee members they are alternates 
for when the committee members cannot fulfill their committee 
obligations. Alternates would provide continuity and stability to 
committee operations by ensuring full representation of the industry, 
including their particular district and group (producers or handlers).
    Alternate members would be nominated in the same manner as 
committee members, except that the recommended alternate(s) would be 
the individual(s) receiving the next highest votes to the nominee(s) 
receiving the highest number of votes. If a person were selected as an 
alternate from the same district as a member and both are employed by 
or connected in a proprietary capacity with the same business entity, 
the alternate would serve as the alternate to that member.
    When serving in the place and stead of their committee members, 
alternate members would be able to exercise all

[[Page 46002]]

of the rights, duties and powers of those members as though they were 
serving as full members of the committee. Alternate members would only 
be allowed to vote in the absence of those members for whom they are 
alternates, or when they succeed to those members' positions.
    Record evidence also shows that an alternate member should succeed 
his or her member in the event of that member's death, removal, 
resignation or disqualification. The alternate would then serve until a 
successor was selected and qualified.

Selection by USDA

    Record evidence states that once the nomination process for 
producer and handler members is completed, and the industry has voted 
on committee member and alternate candidates, nomination reports or 
committee minutes would be prepared by the committee staff and sent to 
the USDA. This should be done at least 60 days prior to the beginning 
of each two-year term of office (or by May 1). The Department, after 
determining that the conditions and qualifications of each nominee have 
been met, would then select the 10 producer and handler members of the 
committee and an alternate for each of those members based upon the 
nominations.
    As previously mentioned, the newly appointed industry members of 
the committee would nominate the public member and alternate member. 
USDA would also be responsible for selecting the public member and 
alternate.
    Nominees would be required to indicate in advance of their 
selection that they are willing to accept the position for which they 
were nominated. Agreeing in advance to serve as a committee member or 
alternate would avoid possible delays in the appointment of the 
committee.
    In the event that nominations are not made within the time and 
manner specified in the order, the USDA could appoint members and 
alternates without regard to nominations. Those appointments would be 
made on the basis of representation provided in proposed Sec. Sec.  
983.32 and 983.33.

Term of Office

    Record evidence suggests that the term of office should begin on 
July 1 and last for 2 years. The month of July represents a natural 
break in the California pistachio production cycle, with each new 
harvest beginning typically in September, or at the earliest in August. 
Moreover, witnesses indicated that this time frame would allow adequate 
time for committee members and staff to prepare an annual budget, 
develop a marketing policy for the upcoming production year, and make 
any recommendations to the Department for any needed regulatory changes 
prior to harvest activities.
    In addition, witnesses at the hearing indicated that terms should 
be staggered so that approximately half of the committee members' 
positions would be filled each year. This provision would ensure that 
continuity in experience among committee members was maintained, yet 
provide for new members with new ideas and fresh perspectives to 
participate in the administration of the order. To initiate this 
process, witnesses recommended that the first committee members 
nominated would be divided into two groups by a drawing to determine 
whether they would be seated for initial terms of one year or two 
years. Four producer members, one handler member and their alternates 
would serve an initial term of about one year. Remaining industry 
members and the public member (and their alternates) would serve an 
initial term of about 2 years.
    The regulatory text contained in the Notice of Hearing failed to 
specify that the term of office should apply to all committee members 
and their alternates. Paragraph (k) of proposed Sec.  983.33 has been 
revised to correct this.

Term Limits

    Record evidence supports term limits to spread the involvement of 
the pistachio producers and handlers, and increase industry 
participation in administering the marketing order. Term limits should 
apply to all committee members and alternates, including those 
representing the public. The maximum number of terms that an individual 
would be allowed to serve for would be four consecutive two-year terms 
of office, or a maximum of eight consecutive years on the committee. 
The tenure requirements would apply to both committee members and 
alternate members. Once a person has served as a member and/or 
alternate for 8 years, that person would not be eligible for 
renomination. He or she would be eligible to serve again after 12 
consecutive months out of office.

Vacancies

    Any vacancy on the committee would be filled by a majority vote of 
the committee members remaining for the remaining unexpired term of the 
vacant position. This authority appears in paragraph (j) of proposed 
Sec.  983.33. The replacement must fulfill all of the qualifications 
set forth as required for any other nominee for the position, and that 
person's qualifications would have to be certified to USDA. The 
Department could then appoint the nominee to serve the balance of the 
term.
    This procedure would eliminate the need to conduct a special 
nomination to fill a vacancy for the balance of a term, which would be 
less than two years in any case. It would also serve to address 
situations in which a member's position is vacant and the alternate 
declines the position or is not available to fill the vacancy, as 
provided in proposed Sec.  983.33(g). The authority could also be used 
to fill a vacancy for an alternate member.

Proposed Quorum and Voting Provisions

    The record evidence is that once the committee is appointed, a 
quorum of the committee would consist of seven committee members. This 
would include handlers, producers and the public member. Except as 
discussed below, any action of the committee would require the 
concurring vote of a majority of the committee members present. An 
alternate could serve as a member for purposes of constituting a quorum 
and voting if the member is absent.
    Record evidence indicated, however, that certain issues are of 
sufficient significance to the industry that action should require a 
greater degree of consensus than a simple majority vote would 
demonstrate. Witnesses testified that there are four areas that should 
require at least seven concurring votes, prior to any recommendation 
being made to the USDA. The first involves any modifications of the 
minimum quality levels set forth in proposed Sec.  983.39. The second 
entails any change in the aflatoxin levels prescribed in Sec.  983.38 
of the proposed order. Adjustments in the sampling and inspection 
requirements included in the order with respect to minimum quality 
(including aflatoxin) requirements is another area that should require 
seven concurring votes. And, finally, the record indicates that 
recommendations related to changes in committee representation 
(including qualifications and affiliation issues) should require a 
higher level of committee member agreement.
    As such, this proposal provides that any recommended change or 
modification to the issues outlined above would require at least seven 
concurring votes. Any other actions by the committee could be 
determined by a simple majority of those voting.
    The record shows that at committee meetings, members could cast 
their vote

[[Page 46003]]

by voice or in writing. Participation by telephone would be permitted 
as long as the equipment used would allow all meeting participants to 
hear and communicate with each other. Telephone or similar 
communication equipment could include conference call equipment and/or 
audio-visual equipment that would allow all members to participate in a 
meeting simultaneously.
    If for some reason an action must be taken without a meeting, 
record evidence indicates that such action would require a unanimous 
vote of the committee, and the votes would have to be in writing. 
Witnesses testifying at the hearing stated that the types of committee 
actions contemplated without a meeting would be limited to issues of 
routine business or those of relatively minor importance, such as 
approval of meeting minutes. Such matters would not merit the time and 
expense of holding an assembled meeting. This proposed provision is 
common to several existing marketing orders and would enhance the 
committee's decision-making abilities on simple administrative matters.

Compensation

    While testimony supported reimbursement of necessary expenses 
incurred by committee members attending meetings, witnesses testified 
that no compensation should be made to pistachio producers and handlers 
for their service on the committee. To the extent the committee 
requested the attendance of alternate members, those alternates would 
also be entitled to reimbursement of their expenses.
    Record evidence did support compensation, in addition to the 
necessary expenses, of the public member. In order to get the level of 
experience and background required to serve as a qualified, effective 
public member, witnesses stated that it might be necessary to 
compensate that person for his or her time. Compensation would need to 
be set at a reasonable level, and should be consistent with that 
person's experience and background.

Committee Powers and Duties

    The committee, under proposed Sec.  983.35, should be given those 
specific powers that are set forth in section 608c(7)(C) of the Act. 
Such powers are necessary for an administrative agency, such as the 
proposed committee, to carry out its proper functions. According to 
record evidence, the committee would have four general powers under the 
proposed provisions of this order:
    (1) To administer the provisions of the order;
    (2) To adopt by-laws, rules, and regulations for the implementation 
of the order with the approval of the Department;
    (3) To receive, investigate, and report to the Department 
complaints regarding violations of the order; and
    (4) To recommend marketing order amendments to the Department.
    These powers are necessary to carry out the committee's functions 
under both the proposed order and the Act. Witnesses indicated that 
these powers would enable the committee to make recommendations to the 
Department that reflect the conditions in the industry from their 
knowledge and experience.
    The specific duties of the committee as set forth in Sec.  983.36 
of the proposed order are necessary for the discharge of its 
responsibilities. These duties are similar to those typically specified 
for administrative agencies under other marketing order programs. They 
pertain to specific activities authorized under the order, such as 
investigating and compiling information regarding California pistachio 
marketing conditions, and to the general administration of the program 
including hiring employees, appointing officers, and keeping records of 
all committee transactions. The proposed order delineates the 
committee's duties as follows:
    (1) The committee should adopt bylaws and rules for the conduct of 
its meetings and for such other purposes as it deems necessary. The 
committee should also select such officers from among its membership, 
including a chairperson and vice-chairperson, as may be necessary, and 
define the duties of such officers.
    (2) The committee should employ such persons as it deems necessary 
to effectively and efficiently operate the program. The committee could 
enter into contracts or agreements with such persons, determine their 
duties, and establish appropriate levels of compensation. Such 
contracts or agreements would pertain to the provision of services 
required by the order and for the payment of the cost of such services 
with funds collected under the order.
    (3) The committee should select such subcommittees as may be 
necessary.
    (4) The committee should submit to the USDA a budget for each 
fiscal period, prior to the beginning of such period. The budget 
submission should include a report explaining the budget items and the 
committee's recommendation as to the rate of assessments for the fiscal 
period.
    (5) The committee should be required to keep minutes, books, and 
records that reflect all of the acts and transactions of the committee. 
Such records would be subject to examination by the Department.
    (6) The committee should prepare periodic statements of the 
financial operations of the committee and make copies of each statement 
available to producers and handlers for examination at the office of 
the committee.
    (7) The committee should be required to have its financial 
statements audited by a certified public accountant at least once each 
fiscal year and at such times as the USDA may request. Such audits 
should include an examination of the receipt of assessments and the 
disbursement of all funds. The committee should provide USDA with a 
copy of all audit reports and should make copies of such audits, after 
the removal of any confidential individual or handler information that 
may be contained in them, available for examination at the committee's 
office.
    (8) The committee should act as an intermediary between USDA and 
any pistachio producer or handler with respect to the operations of the 
order.
    (9) The committee should investigate and assemble data on the 
growing, handling, shipping and marketing conditions with respect to 
pistachios.
    (10) The committee should be required to apprise the Department of 
all committee meetings in a timely manner.
    (11) The committee should be required to submit to USDA such 
available information as the Department may request.
    (12) The committee should have the duty to investigate compliance 
with the provisions of the order.
    (13) The committee should provide, through communication to 
producers and handlers, information regarding the activities of the 
committee. The committee should also respond to industry inquiries 
about committee activities.
    (14) The committee should oversee the collection of assessments 
levied under the order.
    (15) Finally, the committee should have the authority to borrow 
such funds as may be necessary to fulfill its responsibilities and 
obligations. Any loan would be subject to USDA approval and could not 
exceed the expected expenses of one fiscal year.
    Witnesses explained that the above-outlined duties are important to 
the efficient and functional operation of the committee.

[[Page 46004]]

Material Issue Number 5(c)--Expenses and Assessments

    The committee should be required to prepare a budget showing 
estimates of income and expenditures necessary for the administration 
of the marketing order during each fiscal year. The budget, including 
an analysis of its component parts, should be submitted to USDA 
sufficiently in advance of each fiscal period to provide for USDA's 
review and approval. The budget should also include a recommendation to 
USDA of a rate of assessment designed to secure income required for 
such fiscal year.
    The committee should be authorized under Sec.  983.52 of the 
proposed order to incur such expenses as the Department finds are 
reasonable and likely to be incurred during each fiscal, or production, 
year. Such a provision is necessary to assure the maintenance and 
functioning of the committee, and to enable the committee to perform 
its duties in accordance with the provisions of the order.
    The record states that funds to cover the committee's expenses 
would be obtained through the collection of assessments from handlers 
who process pistachios in the proposed production area. These 
assessments are intended to reflect each handler's proportional share 
of the committee's expenses. As such, assessments would be based on the 
total amount of pistachios processed by each handler relative to the 
total amount of pistachios processed by the industry as a whole during 
a given production year.
    Witnesses explained that since pistachios are often transferred 
between handlers for further preparation or packaging for market, it 
would be appropriate to apply assessment calculations to the handler 
who first handles a particular lot of pistachios. By assessing the 
handler who initially receives a lot of pistachios, the industry 
intends to prevent having assessments paid more than once for the same 
pistachios. The previous discussion of the definition of ``assessed 
weight'' further clarifies this calculation.
    Testimony in support of proposed Sec.  983.52 covering committee 
expenses indicates that prior to the beginning of each production year, 
and as may be necessary thereafter, the committee should prepare an 
estimated budget of expenses necessary for its effective administration 
of the order. Based upon this estimate, the committee would calculate 
and recommend to the Department a rate of assessment that would provide 
adequate funds to cover the cost of projected expenditures. Preparing a 
budget for the committee prior to the beginning of each fiscal period 
is reasonable. A budget is necessary to provide the committee and the 
Department with a basis for determining the assessment necessary to 
cover the cost of operation.
    The committee would present its annual budget to USDA for review 
and approval. Accompanying the budget would be a report showing the 
basis for its calculations, an explanation of each line item, and any 
proposed year-over-year increases or decreases. Assessments would be 
levied at the rates established by USDA. Establishment of such 
assessment rates would be accomplished through the informal rulemaking 
process. Such rates would be established on the basis of the 
committee's recommendations or other available information.
    Witnesses stated that any assessment rate recommended to the 
Department should be limited to a maximum rate of one half of 1 percent 
of the industry's previous production year's average producer price. 
The average producer price would be calculated by the committee and 
would be based on the previous year's average grower receipt per pound 
of pistachios.
    The record shows that recent producer prices for pistachios were 
around $1.10 per pound. If the average producer price calculated by the 
committee for the previous year was $1.10 per pound, the maximum 
assessment rate for the current year's crop would be $0.0055, or 
approximately one half a cent per pound. Applying this rate to 2001 
production of about 160 million pounds would yield a maximum assessment 
income of $880,000. Witnesses testified that this should be sufficient 
to operate the proposed program.
    The intent of the maximum limit on the assessment rate is to assure 
pistachio producers and handlers that program expenses would be kept 
within specified limits, and that no projects requiring extraordinary 
expenditures would be undertaken. The proposed limit appears reasonable 
for the administration of a program of this nature.
    Witnesses reasoned that there could be times during a fiscal period 
when it would become necessary to revise the budget and/or increase the 
assessment. Such instances could include situations where actual 
harvest is lower than anticipated or the committee incurs unforeseen 
expenses. In this regard, witnesses stated that the assessment rate 
should not be increased without the committee first making a 
recommendation and securing approval of the Department to do so. Such 
recommendation would also need to be made prior the issuance of that 
production year's final handler assessment bill. Any assessment 
increase would be applicable to all pistachios received and processed 
by handlers within the proposed production area for that production 
year.
    During the hearing, questions were raised regarding proposed order 
language contained in the Notice of Hearing. Language in the Notice 
provided that any change to the assessment rate would be required to be 
recommended and approved before October 1 of any production year and 
before the date established for payment of the assessment. Discussion 
at the hearing resulted in witnesses acknowledging that situations 
could arise where these deadlines would be too restrictive, and would 
prevent the committee from being able to address unforeseen shortfalls 
in assessment income.
    Accordingly, witnesses recommended that the committee, as 
necessary, be permitted to adjust the rate of assessment (with USDA's 
approval) at any time before the final billing is made for the 
assessment. Section 983.53(b) should therefore be modified by removing 
the October 1 deadline and clarifying language that would allow the 
committee to recommend changes to the assessment rate before the 
issuance of the last handler assessment billing statement.
    Record evidence in support of proposed Sec.  983.55 indicates that 
if assessments are not paid within the time prescribed by the 
committee, the handler would be required to pay to the committee a late 
payment charge of 10 percent of the amount of the assessment determined 
to be past due and, in addition, interest on the unpaid balance at the 
rate of 1\1/2\ percent per month. Late payment charges and interest on 
unpaid balances are reasonable in encouraging timely payment of 
assessments and compensating the committee for expenses incurred in 
collecting unpaid assessments.
    While supporters of this proposal indicated that any assessments 
imposed under the program would be quite modest, timely collection of 
those assessments would be important in order to efficiently and 
effectively administer the provisions of this proposed program. 
Moreover, they indicated that if one handler were to become delinquent 
in paying his or her assessments, this could serve as an incentive for 
others to also become delinquent. Witnesses felt that the proposed late 
payment and interest

[[Page 46005]]

charges would help to ensure stability in the flow of committee funds 
collected through assessments.
    The record evidence is that the committee should have the authority 
to recommend other rates for late payment and interest charges, as may 
be appropriate. Section 983.55 is being modified to clarify this point. 
Any change in these rates would require approval of the Department 
through the informal rulemaking process.
    The Department is recommending several additional modifications in 
proposed Sec.  983.55. The language contained in the hearing notice 
provided that in addition to delinquent assessments, late charges and 
interest would be imposed on handlers who fail to file required reports 
under the order. Since (in the case of unfiled reports) there would be 
no monetary value upon which to impose these charges, this provision is 
found unworkable and is therefore deleted.
    Witnesses also supported a provision that if a handler is 
delinquent in paying his or her assessments for more than 60 days, the 
committee could request that the USDA stop providing aflatoxin and 
grade and size inspections to the delinquent handler. Witnesses also 
suggested that the committee could require any handler who fails to pay 
an assessment or related charge to furnish and maintain a surety bond 
in a form and amount, and for a period of time, specified by the 
committee. These provisions are not typical in relation to delinquent 
assessments under a marketing order program. Thus, these provisions are 
being deleted from Sec.  983.55 of the proposed order. The Department 
would work with the committee staff in determining an appropriate 
course of action relating to violations of the proposed order, 
including nonpayment of assessments.
    Under the proposed order, the committee would be allowed to accept 
voluntary contributions. Contributions could only be used to pay for 
authorized committee expenses. The committee may accept contributions, 
for example, to fund the operations of the order during the first part 
of a production year, before sufficient income is available from 
assessments on the current year's pistachios.
    A section on accounting is necessary to assure handlers and the 
industry that funds would only be used for the purposes intended, that 
there would be a proper disposition of excess funds, and that a 
detailed accounting would be made of such disposition. Under the order, 
the committee would only be authorized to incur such expenses as USDA 
finds are reasonable and likely to be incurred by it during each 
production year for its maintenance and functioning, and for such other 
purposes as the Department may determine to be appropriate.
    Paragraph (a) of proposed Sec.  983.56 provides for situations 
where, at the end of the fiscal period, the assessments collected may 
be in excess of expenses incurred. According to record evidence, the 
provisions under this section would allow the committee, with the 
approval of the Department, to establish an operating monetary reserve. 
This would allow the committee to carry over to subsequent production 
years any excess funds in a reserve, provided that funds already in the 
reserve do not exceed approximately two years' expenses. If reserve 
funds do exceed that amount, the assessment rate should be reduced to 
bring the reserves to a more reasonable level. These reserve funds 
could be used to defray expenses during any production year before 
assessment income is sufficient to cover such expenses; to cover 
deficits incurred during any fiscal period when assessment income is 
less than expenses; to defray expenses incurred during any period when 
any or all provisions of the order were suspended or inoperative; and, 
to cover necessary expenses of liquidation in the event of termination 
of the program.
    If any excess funds were not retained in a reserve, each handler 
who paid assessments would be entitled to a proportionate refund of the 
excess assessments collected. If excess assessments remained at the end 
of a given production year, the committee could apply each handler's 
excess as a credit for handlers towards the next production year's 
operating costs, or the committee could refund such funds to the 
handlers.
    Testimony states that all funds received by the committee pursuant 
to the provisions of the proposed order would be used solely for the 
purposes specified in the order. Moreover, Sec.  983.56 would authorize 
the Department at any time to require the committee and its members to 
account for all receipts, disbursements, funds, property or records for 
which they are responsible. This authority is necessary to ensure that 
proper accounting procedures are followed at all times.
    Whenever any person ceases to be a member of the committee, that 
individual should be required to account for all receipts and 
disbursements for which he or she was responsible. That person should 
also be required to deliver all property and funds in such person's 
possession to the committee. Finally, that person would execute such 
assignments and other instruments as might be necessary or appropriate 
to vest in the committee full title of all committee property and 
funds.
    In the event the proposed order were to be terminated or become 
inoperative, the committee, with the approval of USDA, would appoint 
one or more trustees for holding records, funds or other property of 
the committee. Any funds not required to defray the necessary expenses 
of liquidation would be returned, to the extent practicable, pro rata 
to the handlers from whom such funds were collected. Distribution of 
those funds would be carried out in a way that the Department deems 
appropriate.

Material Issue Number 5(d)--Quality and Inspection Requirements

    According to record evidence, provisions regarding maximum 
aflatoxin levels, minimum quality levels (including size requirements), 
and testing and certification procedures should be included in the 
proposed order. These provisions are captured under the proposed 
Sec. Sec.  983.38 through 983.46.
    Presently, certain pistachio quality controls are in place under 
the California Pistachio Marketing Agreement (agreement). The agreement 
is effective under the California Marketing Act (Chapter 1, Part 2, 
Division 21 of the Food and Agricultural Code of the State of 
California). The regulations in effect under the agreement prohibit the 
blending of naturally and artificially opened pistachios; ban the 
practice of bleaching pistachios; and require mandatory aflatoxin 
testing for shipments to specified export markets. These regulations 
are voluntary in that they apply only to handlers who choose to sign 
the agreement. The record evidence is that signatories to the agreement 
current account for 82 percent of the pistachios produced in 
California.
    The proposed Federal order would establish mandatory testing and 
certification requirements for California pistachios distributed for 
domestic human consumption. The order would include requirements that 
set maximum tolerance levels for aflatoxin and defects, and a minimum 
allowable size. The requirements under the proposed order would not 
duplicate or contradict the regulations under the State agreement.
    According to the record, in preparation for this proposal, the 
California pistachio industry initiated a study group on pistachio 
quality assurance issues in May 2000. The

[[Page 46006]]

purpose of this study group was to identify areas of quality regulation 
that would elicit consensus and support among industry producers and 
handlers. Record evidence also states that the proposed regulatory 
provisions are based on current industry practices and are 
substantiated by a wide body of scientific research and data.
    Record testimony ties the industry's concern over the regulation of 
aflatoxin in pistachios to the protection of consumer interests by 
preventing the sale of contaminated nuts. Witnesses repeatedly cited 
evidence demonstrating consumers' reluctance to buying defective or 
damaged pistachios contaminated with mold. Consumer concerns about the 
presence or threat of aflatoxin in pistachios makes the regulation of 
aflatoxin bearing molds important.
    Moreover, witnesses testified that if there were an outbreak of 
aflatoxin contamination in pistachios, widespread consumer reluctance 
to buy pistachios could result, even if the contamination was limited 
and quickly remedied. Witnesses feared that a single occurrence of 
aflatoxin contamination in pistachios could devastate the California 
pistachio industry and create effects that could take years and 
substantial financial resources to overcome.
    Record evidence demonstrates the importance of regulating quality 
(including size) in tandem with aflatoxin, as research suggests a 
strong correlation between some sub-quality characteristics (for 
example, ``early-split'' pistachio nuts) and the propensity for 
aflatoxin contamination.
    Evidence presented at the hearing suggests that aflatoxin 
contamination first occurs in the field and can continue to occur until 
pistachios are dried to a level where mold cannot grow. Industry 
research shows that most of the aflatoxin occurs in early split nuts or 
pistachios where the hull is damaged prior to harvest. A high 
percentage of small pistachios have a tendency to split early compared 
to larger pistachios. Accordingly, witnesses explained that there is a 
strong correlation between smaller, lighter pistachios with staining on 
the shell and the presence of aflatoxin.
    Record evidence presented on the basis of research conducted by 
Mark A. Doster and Themis J. Michailides (``Characteristics of 
Pistachio Nuts with Aspergillus Molds,'' 1991) delineates a positive 
correlation between early split pistachios and aflatoxin. A witness 
citing this study quoted, ``Early splits (ES) are pistachio nuts that 
have both hull and shell split and frequently have moldy and/or insect-
infested kernels. The hulls of ES nuts split over a several week period 
prior to harvest. Those ES that split earlier than two weeks before 
harvest had four times greater Aspergillus mold contamination compared 
with ES that split within two weeks of harvest. Both older ES and ES 
with moldy kernels had very different physical characteristics compared 
to normal nuts: fruits and kernels weighed less, hulls were more 
shriveled, and shells were smaller and stained * * *. In a typical 
orchard approximately 1 to 4% of the nuts are ES at harvest time. Molds 
in the genus Aspergillus are frequently found in ES nuts.''
    According to other studies cited at the hearing, 90 percent of 
aflatoxin is contained in 4.6 percent of low-quality pistachios. 
Witnesses citing these studies further stated that removal of low-
quality product, defined as smaller, lighter, stained-shell nuts 
typically found in ``early splits'', would reduce the average presence 
of aflatoxin in pistachios from 1.2 to 0.12 nano-grams/gram (ng/g) for 
all product sold for human consumption.
    Furthermore, drawing from a study on the distribution of aflatoxin 
in processed and unprocessed pistachios, witnesses cited the study's 
conclusion that, ``all aflatoxin found here arises in the orchard; none 
is produced under normal processing conditions.''
    Record evidence demonstrated that aflatoxin occurs rarely in a very 
small number of nuts, it originates in the field, and it is 
predominantly found in early split or damaged pistachios which have 
very different physical characteristics than higher quality pistachios.
    Due to the exceptional physical characteristics of the infected 
nuts, witnesses explained that these nuts should be removed as part of 
the industry's handling procedures. As such, witnesses advocated the 
implementation of mandatory regulations that would not only set a 
maximum level of aflatoxin, but also, through quality and size 
specifications, encourage the removal of those nuts that both have the 
least consumer acceptance and are most likely to harbor aflatoxin.

Marketing Policy

    Proposed Sec.  983.37 would require that the committee prepare and 
submit to USDA prior to August 1st of each year an annual marketing 
policy. The marketing policy would serve as the basis for any committee 
recommendations for revisions in quality regulations for the upcoming 
crop year. Record evidence explained that in developing its marketing 
policy, the committee should consider production, harvesting, 
processing and storage conditions, as well as current and prospective 
prices.

Proposed Aflatoxin Provisions

    According to testimony presented by Dr. Al Eaton, Director of the 
Center for Ecogenetics and Environmental Health, and the Department of 
Environmental Health, School of Public Health and Community Medicine, 
both of the University of Washington, aflatoxin is a known contaminant 
in pistachios. Dr. Eaton's testimony outlined the scientific arguments 
behind regulating aflatoxin as a known human carcinogen. Other 
witnesses argued that regulation of aflatoxin is an important factor 
contributing to the quality of pistachios. Witnesses testified that 
regulation of aflatoxin is crucial to positive acceptance of pistachios 
among consumers and growth of consumer demand.
    As stated by Dr. Eaton, the U.S. and international scientific 
communities have reviewed the significance of aflatoxin in human food 
and animal feed extensively. Dr. Eaton referred to studies by Eaton and 
Groopman, 1994, as well as the Food and Agriculture Organization and 
World Health Organization's Joint Expert Committee on Food Additives 
(JECFA), 1998. Dr. Eaton stated that limiting aflatoxin in affected 
commodities is important in regard to these concerns.
    Proposed Sec.  983.38(a) would provide for a maximum aflatoxin 
level for pistachios shipped for domestic human consumption. The level 
supported by record evidence is 15 parts per billion (ppb). Under this 
provision, no pistachios with an aflatoxin level greater than 15 ppb 
could be shipped for domestic human consumption. Witnesses testifying 
at the hearing stated that the 15 ppb threshold is an appropriate level 
to ensure the quality of pistachios. Witnesses also explained that 15 
ppb is the maximum level of aflatoxin allowed in peanuts, another 
commodity known to be affected by aflatoxin-bearing molds (7 CFR part 
996).
    The United States Food and Drug Administration (FDA) currently 
employs an aflatoxin tolerance level in pistachios of 20 ppb. Thus, 
this proposal would be more restrictive than what is currently accepted 
by the FDA. Witnesses explained that the 15 ppb was selected as the 
proposed maximum threshold to ensure that sampling procedures would 
result in aflatoxin tolerances below the current FDA level.
    Proposed Sec.  983.38(a) also provides that an aflatoxin inspection 
certificate

[[Page 46007]]

must cover all shipments for domestic human consumption. Further, any 
pistachios that fail to meet the aflatoxin requirement must be disposed 
of in certain ways. The inspection and substandard pistachio 
disposition procedures are discussed in detail later in this document.
    At the hearing, witnesses recommended eliminating the decimal point 
and the zero from all references to ``15.0'' ppb. The maximum aflatoxin 
threshold should read ``15'' ppb. Witnesses explained that current 
testing techniques available to the industry are only accurate to one 
part per billion. As such, requiring testing beyond the one part per 
billion would not be compatible with current industry testing 
abilities. Similarly, references to ``5.0'' ppb and ``10.0'' ppb should 
be changed to ``5'' ppb and ``10'' ppb in all corresponding 
descriptions of aflatoxin test sampling procedures. These changes are 
reflected in the proposed order language contained in this Recommended 
Decision.
    Witnesses testified that a considerable amount of concern and 
debate over the proposed aflatoxin and other quality requirements 
resulted in the details of those proposed requirements being included 
in the proposed order language. According to the record, industry 
discussions favored including specific regulatory language in the order 
over establishing committee authority to recommend such regulations. 
Witnesses explained that the former would allow industry participants 
to know, prior to voting on the proposed order in referendum, what 
specific requirements would be imposed on the industry. Thus, producers 
would be able to make a more informed decision as to whether they favor 
the program.
    Witnesses testified that the committee should have the authority to 
make recommendations to the Department to change the specified maximum 
aflatoxin level of 15 ppb. Paragraph (b) of proposed Sec.  983.38 
therefore provides authority for changing the allowable level of 
aflatoxin in the event that industry conditions change or research 
shows that a change in the aflatoxin level would be appropriate. As 
previously discussed under Material Issue 5(b), such a recommendation 
would require the concurring votes of at least seven committee members.

Transfer Between Handlers

    Paragraph (c) of Sec.  983.38 would provide that transfers of 
pistachios between handlers within the production area are exempt from 
the aflatoxin requirement.
    Record evidence indicates that pistachios are customarily traded 
among handlers. Trade among handlers predominantly occurs as a means 
for individual handlers to buy or sell pistachios to meet the specific 
needs of their respective customers. Witnesses also explained that some 
handlers are better equipped than others to handle pistachios that 
present processing problems. As such, pistachios requiring re-working 
to meet industry quality standards are often transferred from one 
handler to another for more efficient handling.
    An example of an inter-handler transfer presented at the hearing 
described a handler who is unable to ship pistachios because they have 
too much dark stain on the shells, and are deemed to be unmarketable in 
that state. However, another handler is able to paint the shells with a 
red food grade colorant that covers the dark stain, making the 
pistachios acceptable to consumers. Transferring the pistachios from 
the first handler to the second handler could benefit both parties.
    Proposed Sec.  983.38(c) would facilitate transfers of pistachios 
between handlers, which would allow for the highest use of the 
pistachios. While pistachios could be transferred from one handler to 
another without first being tested and certified as meeting the 
aflatoxin requirement, those pistachios would have to meet that 
requirement prior to entering the market for domestic human 
consumption. If the pistachios had been tested and certified as meeting 
the aflatoxin requirement by the first handler, those pistachios would 
not have to be tested and certified a second time. This would be true 
only if the lot's identity had been preserved, as discussed in the 
discussion below relative to ``Traceability.''

Traceability

    Proposed Sec.  983.38(d) would require that each lot of pistachios 
inspected for aflatoxin be uniquely identified and traceable from the 
point of testing through shipment by the handler. This is necessary 
because the handling of pistachios consists of a number of different 
steps that occur over a period of time.
    Witnesses stated that identification of individual lots would be 
necessary in order to distinguish one lot from another for aflatoxin 
certification purposes. Unique identification and traceability of lots 
would be necessary to ensure handler compliance with the provisions of 
the order. Further, in the event that sub-quality or aflatoxin 
contamination was found by a handler or his or her customers, 
traceability would allow for expeditious response on the part of that 
handler to remove such product from the production line or market.
    Traceability would be accomplished through the maintenance of each 
lot's identity as that lot proceeds through a handling facility. A lot 
could be in a handler's storage bins when a sample is taken for 
aflatoxin testing and certification purposes. The pistachios could be 
run through a roasting line later that day, and packaged on a 
subsequent day. In this example, witnesses explained that the handler 
would assign a unique number to the lot when the sample is taken, and 
the pistachios in the lot would be identified by that number through 
the entire handling process. This issue is further discussed in 
relation to proposed Sec.  983.44, ``Inspection, certification and 
identification.''

Sampling

    Proposed Sec.  983.38(d)(1) and (d)(2) outline sampling procedures 
for testing for aflatoxin and other quality requirements. The samples 
would be drawn by an inspector or under the supervision of an 
inspector.
    Witnesses explained that each sample drawn would need to be 
sufficient to meet testing procedure requirements under proposed Sec.  
Sec.  983.38 (Aflatoxin levels) and 983.39 (Minimum quality levels). 
The record shows that having one sample drawn to serve both purposes 
would make the testing procedures more efficient and cost effective, as 
the process of drawing samples for each certification process would be 
condensed into one. Witnesses explained that this would help minimize 
inspection fees, as less sampling time would be needed. Sampling 
procedures for aflatoxin and minimum quality (including size) 
certification are described below, and under the discussion of proposed 
Sec.  983.39.

Aflatoxin Sampling Procedures

    As previously discussed, the record is that aflatoxin typically 
presents itself in high concentrations in very few nuts. Witnesses 
recommended a sampling system rooted in statistical calculations of 
aflatoxin per lot based on varying sample sizes calibrated to lot 
weight. The recommended sampling protocol would rely on established 
statistical sampling methodologies.
    As there is not an internationally agreed upon procedure for 
aflatoxin sampling of pistachios, the proposed sampling regimen is 
based upon sequential sampling procedures used in the U.S. peanut 
industry; sampling

[[Page 46008]]

parameters identified by experts in the field; and sampling protocols 
currently used by the European Union.
    Record evidence stated that each lot sample for inshell and kernel 
pistachio aflatoxin testing must be made up of a prescribed number of 
incremental samples. Incremental sampling would be accomplished with an 
automatic sampling device or with a sampling probe.
    Witnesses explained that automatic samplers are devices that 
extract random samples from a stream of pistachios while the nuts are 
processed in the handler's plant. Sampling probes are tubes, with 5 to 
10 ports, that are pushed down into bins of bulk pistachios. The probe 
extracts pistachios from the bin at different levels of the bin 
ensuring that a cross sample of the pistachios in the bin are taken for 
testing and facilitates the collection of the required incremental 
samples. Probing devices are widely used in the sampling of other food 
products with similar physical characteristics.
    According to record evidence, the number of incremental samples and 
the total weight of the lot sample would be dependent on the size of 
the lot. As shown in the table below, a small lot of inshell pistachios 
weighing 220 pounds or less would require 10 incremental samples, 
resulting in a total lot sample weighing 3 kilograms. For a larger lot 
of inshell pistachios weighing 22,001 pounds to 150,000 pounds, a lot 
sample of 30 kilograms would consist of 100 incremental samples. As 
discussed later, the total lot sample would then be divided into three 
test samples. The fourth column of the table shows the weight of each 
of the test samples.

                      Inshell Pistachio Lot Sampling Increments for Aflatoxin Certification
----------------------------------------------------------------------------------------------------------------
                                                         Number of
                                                        incremental     Total weight of lot     Weight of test
                 Lot weight (lbs.)                    samples for the    sample (kilograms)   sample (kilograms)
                                                         lot sample
----------------------------------------------------------------------------------------------------------------
220 or less........................................                 10                  3.0                  1.0
221-440............................................                 15                  4.5                  1.5
441-1100...........................................                 20                  6.0                  2.0
1101-2200..........................................                 30                  9.0                  3.0
2201-4400..........................................                 40                 12.0                  4.0
4401-11,000........................................                 60                 18.0                  6.0
11,001-22,000......................................                 80                 24.0                  8.0
22,001-150,000.....................................                100                 30.0                 10.0
----------------------------------------------------------------------------------------------------------------

    For aflatoxin testing of pistachio kernels, the proposed 
incremental sampling requirements would follow the same methodology. 
The number of incremental samples would depend on the size of the lot, 
and would equal the number required for inshell lots of pistachios. 
However, the lot samples for kernel testing would be half the weight of 
the lot samples for inshell pistachio testing. This is because, as the 
record shows, half of the weight of inshell pistachios is made up of 
the shell, and only the kernels are tested for aflatoxin.
    According to the below table, a lot sample for a lot of 220 pounds 
or less of kernels would equal 1.5 kilograms and consist of 10 
incremental samples. A lot sample for a lot of 22,001 pounds to 150,000 
pounds of kernels would equal 15 kilograms and would consist of 100 
incremental samples.

                      Pistachio Kernel Lot Sampling Increments for Aflatoxin Certification
----------------------------------------------------------------------------------------------------------------
                                                        Number of
                                                       incremental     Total weight of lot     Weight of test
                 Lot weight (lbs.)                   samples for the    sample (kilograms)   sample (kilograms)
                                                        lot sample
----------------------------------------------------------------------------------------------------------------
220 or less.......................................                 10                  1.5                   .5
220-440...........................................                 15                  2.3                   .75
441-1100..........................................                 20                  3.0                  1.0
1101-2200.........................................                 30                  4.5                  1.5
2201-4400.........................................                 40                  6.0                  2.0
4401-11,000.......................................                 60                  9.0                  3.0
11,001-22,000.....................................                 80                 12.0                  4.0
22,001-150,000....................................                100                 15.0                  5.0
----------------------------------------------------------------------------------------------------------------

    The above tables provide for lot sizes up to 150,000 pounds. The 
record shows that this reflects current industry practice. That is, 
handlers do not handle lots in excess of that amount. However, in the 
event that these practices change, proposed section 983.46 would allow 
the proposed sampling methodology to accommodate the change. Any change 
in sampling procedures would require a recommendation of the committee 
and approval of the Department. Proposed Sec.  983.46 is discussed 
further under ``Modification or suspension of regulations.''
    The record evidence is that the next step in the sampling process 
should be that the lot samples for inshell and kernel aflatoxin testing 
be divided into 3 equal test samples. The dividing of the lot sample 
would be conducted by, or under the supervision of, an inspector with 
the Federal or Federal-State Inspection Service (Inspection Service). 
Witnesses testified that any inspection process in use by the 
Inspection Service should be available to pistachio handlers under the 
proposed order. Inspection programs that could be used include the 
``Partners In Quality'' program and the ``Customer Assisted Inspection 
Program.''

Aflatoxin Testing Procedures

    As provided in Sec.  983.38(d)(2), lot samples intended for 
aflatoxin testing and certification would be submitted to a laboratory 
that has been approved or accredited for aflatoxin analysis by the 
USDA. Witnesses explained that such a laboratory could be a third-party

[[Page 46009]]

laboratory or a laboratory run by an individual handler. In any case, 
witnesses stated that any laboratory conducting aflatoxin testing for 
certification under the provisions of the proposed order would be 
required to be approved or accredited by the USDA.
    The test samples would be processed according to the provisions 
proposed under Sec.  983.38(d)(3). The laboratory would record the 
receipt of each test sample. The test samples would then be prepared 
and chemically analyzed according to established testing procedures 
prescribed under the High Pressure Liquid Chromatograph (HPLC) or Vicam 
(Aflatest) aflatoxin testing methodologies, or any other method 
recommended by at least seven members of the committee and approved by 
USDA.
    The language authorizing the use of additional testing methods 
represents a departure from the language contained in the Notice of 
Hearing. The revised language was proposed by proponents of the 
marketing order and would provide the committee with additional 
flexibility in identifying acceptable methods of testing. The authority 
to review and recommend alternative methods of aflatoxin testing for 
approval by the Department would allow for the accommodation of 
advances in aflatoxin technology.
    Proposed Sec.  983.38(d)(4) sets forth the process by which the 
test samples would be analyzed in order to determine whether a lot met 
the maximum aflatoxin threshold of 15 ppb.
    As previously mentioned, each lot sample would be divided into 
three test samples. If the first sample tested, test sample 1, had an 
aflatoxin level at or below 5 ppb, the lot would be certified as 
negative to aflatoxin. No analysis of the other two test samples would 
be necessary. If test sample 1 were to test at or above 25 ppb, the lot 
would fail and the accredited laboratory would fill out a failed lot 
notification report as specified in Sec.  938.40, described below.
    If test sample 1 were to test above 5 ppb and below 25 ppb, the 
handler could either elect to continue the testing process or 
voluntarily re-work the lot. If the lot is re-worked, it would be 
subject to sampling and testing as if it were a new lot altogether.
    If the handler elects not to re-work the lot and go forward with 
the testing, the accredited laboratory would analyze test sample 2, and 
the results of test samples 1 and 2 would be averaged. The lot would be 
certified as negative to aflatoxin if the laboratory determines that 
the averaged result for test samples 1 and 2 is at or below 10 ppb. If 
the averaged result of test samples 1 and 2 is at or above 20 ppb, the 
lot would fail and the laboratory would fill out a failed lot 
notification report. If the averaged aflatoxin level of test samples 1 
and 2 is above 10 ppb and below 20 ppb, the handler could withdraw the 
lot from testing and re-work it. Thereafter, the handler could resubmit 
the lot for sampling and testing under proposed Sec.  983.38(d).
    If the handler elected to continue with the testing, the laboratory 
would analyze test sample 3, and the results of test samples 1, 2 and 3 
would be averaged. A lot would be certified as negative to aflatoxin 
and the laboratory would issue an aflatoxin inspection certificate if 
the averaged result of test samples 1, 2 and 3 is at or below 15 ppb. 
If the averaged aflatoxin level of test samples 1, 2 and 3 is above 15 
ppb, the lot would fail and the laboratory would fill out a failed lot 
form as required by proposed Sec.  983.40, ``Failed lots/re-work 
procedures.''
    If a lot failed to test below the maximum threshold for aflatoxin, 
the laboratory would send a copy of the Failed Lots/Re-Work Procedure 
form to the committee and to the failed lot's owner within 10 working 
days of failure.
    If an aflatoxin inspection certificate were issued certifying that 
a lot is negative to aflatoxin at any stage of the sequential testing, 
meaning the lot's aflatoxin content is below the maximum threshold, the 
certification would identify the lot by weight, grade and date. The 
certification would expire after 12 months.
    The recommendation at the hearing that a handler may withdraw his 
or her lot from testing at any stage in the testing and certification 
process represents a change to the proposed order language contained in 
the Notice of Hearing. Witnesses recommended this modification so that 
if a handler was not satisfied with an early aflatoxin content result, 
he or she could elect to rework the lot before the expense of 
completing the testing protocol.
    Proposed Sec.  983.38(d)(5) provides that accredited laboratories 
perform aflatoxin tests. Each lot shipped for domestic human 
consumption would be required to be tested and certified by a 
laboratory that it meets the aflatoxin requirement. The records of each 
test and of the final shipping disposition would be required to be kept 
by the handler. The records would be required to be maintained for 3 
years and would be subject to audit by the Department or the committee 
at any time. The maintenance of the records and the audit provisions 
are to enable the committee to determine handler compliance with the 
aflatoxin level requirements, and are discussed further under Material 
Issue 5(e).
    Pistachios that fail to meet the aflatoxin requirement would be 
required to be reworked or disposed of. Witnesses stated that a rework 
option is important as the cultivation of pistachios requires a 
substantial investment, and maximizing saleable usage of each harvest 
is crucial to the economic well being of both producers and handlers. 
Equally important are disposal requirements for pistachios failing to 
be certified as negative to aflatoxin. Disposal procedures would be 
important in assuring industry and consumers that failed product does 
not enter the stream of domestic commerce. Requirements for disposal of 
failed lots are discussed later under proposed Sec.  Sec.  983.40, 
``Failed lots/rework procedures'' and 983.45 ``Substandard 
pistachios.''
    Proposed Sec.  983.38(d)(6) provides that if test samples 2 or 3 
are not used for testing and certification purposes, the handler could 
request the laboratory to return those samples to him or her. This 
would allow handlers to sell the pistachios that comprise test samples 
2 and 3 for domestic human consumption if the lot is shown to comply 
with the aflatoxin regulation with the testing of sample 1. For 
example, with larger lots of 22,001 to 150,000 pounds, this would allow 
the handler to sell an additional 44 pounds of pistachios for human 
consumption.

Proposed Minimum Quality Levels

    The record supports minimum quality requirements for pistachios 
being included in the proposed order. These requirements, set forth in 
proposed Sec.  983.39, would establish maximum tolerances for certain 
internal and external defects, and a minimum size specification.
    The record shows that elimination of shell defects, bad tasting, 
insect-infested and closed pistachios would not only increase consumer 
satisfaction but also reduce the incidence of aflatoxin. Moreover, 
witnesses stated that, based on industry experience, most consumers 
prefer large pistachios. Because many consumers do not find smaller 
pistachios desirable, these pistachios sell for lower prices. Quality 
and size specifications would help improve grower returns by ensuring 
that California pistachios sold in the domestic market are of the 
quality that consumers prefer. Enhancing consumer demand by assuring 
acceptable quality (including the absence of aflatoxin) is necessary 
for the industry to market

[[Page 46010]]

increasing supplies of California pistachios.
    The record shows that the defects listed in proposed Sec.  983.39 
are generally accepted by the industry as those that reduce the 
marketability and consumer acceptance of pistachios. Handlers currently 
eliminate defective nuts in their normal operations to pack a product 
that meets their customers' expectations.
    Four categories of defects are proposed. The first is external 
shell defects, which includes non-splits (shells that are not open), 
adhering hull material, dark stain, and other damage that materially 
detracts from the appearance of the shell. Next are internal defects, 
which include immature kernels, kernel spotting, insect damage, mold, 
rancidity, and decay. The third class of ``other defects'' includes 
shell pieces and blanks, foreign material, particles and dust, and 
loose kernels. The final category is in shell pistachios that are below 
the specified minimum size.
    The proposed minimum quality requirements provide a maximum 
tolerance level for each type of defect. This is to recognize that in 
normal handling operations, it is impossible to eliminate every single 
defective nut from a lot. As an example, up to 5 percent (by weight) of 
the inshell pistachios in a lot may be below the minimum permissible 
size. The following table contains the proposed defects and tolerances.

                 Maximum Defect and Minimum Size Levels
------------------------------------------------------------------------
                                            Maximum permissible defects
                                                (percent by weight)
                 Factor                  -------------------------------
                                              Inshell         Kernels
------------------------------------------------------------------------
        EXTERNAL (SHELL) DEFECTS
 
a. Non-splits & not split on suture.....           10.0   ..............
    (1) Maximum non-splits allowed......            4.0   ..............
b. Adhering hull material...............            2.0   ..............
c. Dark stain...........................            3.0   ..............
d. Damage by other means, other than a,            10.0   ..............
 b and c above, which materially
 detracts from the appearance or the
 edible or marketing quality of the
 individual shell or the lot............
 
        INTERNAL (KERNEL) DEFECTS
 
a. Damage: Immature kernel (Fills <75% -            6.0              3.0
 50% of the shell), Kernel
 spotting (Affects \1/8\ aggregate
 surface)...............................
b. Serious damage--Minor insect or                  4.0              2.5
 vertebrate injury/insect damage, insect
 evidence, mold, rancidity, decay.......
    (1) Maximum insect damage allowed...            2.0              0.5
                                         -----------------
        Total external or internal                  9.0   ..............
         defects allowed................
 
              OTHER DEFECTS
 
a. Shell pieces and blanks (Fills <50%              2.0   ..............
 of the shell)..........................
    (1) Maximum blanks allowed..........            1.0   ..............
b. Foreign material--No glass, metal or             0.25             0.1
 live insects permitted.................
3. Particles and dust...................            0.25  ..............
4. Loose kernels........................            6.0   ..............
                                            Minimum permissible defects
                                                (percent by weight)
Maximum allowable inshell pistachios                5.0   ..............
 that will pass through a 30/64ths inch
 round hole screen......................
------------------------------------------------------------------------

    Witnesses testified that about 90 percent of the pistachios 
produced in California are packed to higher quality standards than 
those being proposed in the order. Thus, imposition of these quality 
requirements should have a minimal impact on handlers, while ensuring 
that the pistachios available to U.S. consumers are of acceptable 
quality.
    The terms used in the above table are defined in further detail 
under Sec.  983.39(b) of the proposed order. These terms would clarify 
permissible maximum defects for inshell pistachios and pistachio 
kernels.
    One of the terms defined in paragraph (b) of proposed Sec.  983.39 
is ``dark stain,'' an external defect. The definition of that term 
included in this Recommended Decision differs from that in the Notice 
of Hearing. In the Notice, dark stain was defined to mean an aggregate 
amount of discoloration affecting more than one-eighth of the shell 
surface or, on dyed nuts, when readily noticeable. Testimony at the 
hearing indicated that the last portion of that definition would have 
adversely impacted handlers who dye or color their nuts to remove 
cosmetic shell defects. Thus, this provision has been modified to 
exempt dyed or colored nuts from the dark stain requirements. This 
exemption is intended to allow handlers to improve the marketability of 
pistachios containing dark stain by covering that defect with a dye or 
color coat.
    Witnesses stated that each shipment of California pistachios 
intended for domestic human consumption would require a minimum quality 
certificate. As previously discussed, this certificate would be issued 
by an inspector and would certify that the pistachios contained in that 
lot meet the established minimum quality requirements. Pistachios that 
fail to meet the minimum quality specifications would be disposed of in 
such manner as described in proposed Sec.  983.40.
    The record also states that under proposed Sec.  983.39 (d), 
transfers between handlers within the production area would be exempt 
from minimum quality and size regulation. This exemption, as with a 
similar exemption for aflatoxin certificates, is designed to allow 
transfer of product between handlers. It would allow handlers to sell 
and trade pistachios of varying qualities among themselves, and would 
allow for efficiencies within the industry due to different handlers' 
abilities to prepare pistachios for market. All pistachios would have 
to be inspected and certified as meeting minimum quality

[[Page 46011]]

requirements before being shipped for domestic human consumption.
    As with aflatoxin testing, provisions for minimum quality and size 
testing under the order would require that lot samples consisting of a 
minimum number of incremental samples be drawn. A minimum number of 
incremental samples would be required to protect the statistical 
validity of the testing process and to ensure that the test sample is 
representative of the quality of the entire lot of pistachios from 
which it was drawn.
    As shown in the table below, the number of incremental samples per 
lot sample would be the same under the aflatoxin testing as under the 
minimum quality and size testing requirements. This would allow the 
handler to pull one set of samples for both tests, as previously 
explained. The sample would be drawn by, or under the supervision of, 
an inspector.

             Inshell and Kernel Pistachio Lot Sampling Increments for Minimum Quality Certification
----------------------------------------------------------------------------------------------------------------
                                                             Number of
                                                            incremental      Total weight of   Weight of inshell
                   Lot weight (lbs.)                      samples for the       lot sample      and kernel test
                                                             lot sample          (grams)         sample (grams)
----------------------------------------------------------------------------------------------------------------
220 or less............................................                 10                500                500
221-440................................................                 15                500                500
441-1100...............................................                 20                600                500
1101-2200..............................................                 30                900                500
2201-4400..............................................                 40               1200                500
4401-11,000............................................                 60               1800                500
11,001-22,000..........................................                 80               2400               1000
22,001-150,000.........................................                100               3000               1000
----------------------------------------------------------------------------------------------------------------

    According to witness testimony, a lot of inshell pistachios 
weighing 220 pounds or less would require a lot sample weighing a total 
of 500 grams. This lot sample would consist of 10 incremental samples 
collected throughout the lot. Alternatively, a lot weighing 22,001 
pounds to 150,000 pounds would require a lot sample equal to 3,000 
grams and would consist of 100 incremental samples.
    A test sample would then be taken from the lot sample. For lots up 
to 11,000 pounds, the test sample would equal 500 grams. For any lot in 
excess of 11,000 pounds, the test sample would be 1,000 grams.
    The test sample sizes for minimum quality requirements differ from 
those for aflatoxin testing. Under the aflatoxin testing system, the 
lot sample drawn would be divided into three equal test samples, with 
each sample being used progressively depending on the aflatoxin content 
of each test sample. Under the sampling and testing procedures for the 
proposed minimum quality requirements, the test sample would be used in 
its entirety. Inspectors would assess the quality of the test sample 
for external and internal defects.
    Table 4 in proposed Sec.  983.39(e)(1) has been revised from that 
included in the Notice of Hearing. An additional column entitled 
``Weight of kernel test sample (grams)'' has been eliminated, and the 
column previously entitled ``Weight of inshell test sample (grams)'' 
has been re-titled to ``Weight of inshell and kernel test sample 
(grams).'' These changes are based on witness testimony that the test 
sample sizes for inshell and kernel testing should be the same.

Proposed Minimum Quality Testing Procedures

    Witnesses stated that the test samples should be analyzed in 
accordance with USDA inspection procedures. This would ensure that the 
pistachios do not contain in excess of the maximum permissible defects 
and that they meet the minimum size level.
    Under the USDA inspection procedures, the inspector would analyze 
the test sample for external, internal, and other defects. The nuts 
would be shelled for further analysis of internal kernel defects if the 
pistachios exhibited dark stain, adhering hull, or other external 
defects, or if, in the inspector's opinion, they had possible internal 
defects.
    Witnesses explained the importance of this requirement as studies 
have shown that nuts with external defects have a higher probability of 
kernel defects. These studies, discussed earlier in this document, 
linked certain quality defects with the incidence of aflatoxin. Nuts 
with unblemished shells would be subject to internal kernel analysis at 
the discretion of the inspector. After testing, inspectors would 
certify that the lot had met the minimum quality levels.
    The record states that handlers would be required to keep testing 
and certification records, along with records of final shipping 
disposition, for three years after the crop year in which the 
pistachios were shipped. These records would be subject to audit by the 
committee at any time. These requirements would be important in 
allowing the committee and the USDA to ensure that pistachio handlers 
comply with the proposed provisions of the order. As stated in the 
discussion of proposed aflatoxin testing procedures, each lot tested 
for minimum quality and size certification would also be required to be 
uniquely identified to ensure traceability.

Substandard Pistachios

    Proposed Sec.  983.40 addresses procedures recommended by the 
witnesses for reworking or disposing of substandard pistachios. 
Substandard pistachios are pistachios that fail to test below the 
maximum aflatoxin tolerance level or do not meet minimum quality 
(including size) requirements.
    According to record testimony, handlers would have different 
options available for managing substandard pistachios. The first of 
these would allow a handler to rework a lot of pistachios until that 
lot met the aflatoxin and quality requirements proposed under the 
order. If, after being reworked, the pistachios met the aflatoxin and 
minimum quality levels, those pistachios could be shipped for domestic 
human consumption.
    If a handler chose not to rework a lot of substandard pistachios, 
then the handler would be required to either dispose of those nuts or 
use them for non-human consumption. These pistachios could also be 
exported if they met the requirements of the receiving country.
    Proposed Sec.  983.45 would prevent substandard pistachios from 
entering the stream of domestic human consumption. Under the provisions 
of this section, reporting and disposition procedures for substandard 
pistachios would be implemented by USDA (upon recommendation of the 
committee) through informal rulemaking.

[[Page 46012]]

Failed Lot Reporting

    According to record evidence, Sec.  983.40(b) would establish 
reporting requirements for lots failing to meet aflatoxin or minimum 
quality requirements of the proposed order. Reports of failing lots 
would have to be filed with the committee within 10 working days of the 
test failure. Reports regarding lots exceeding the maximum aflatoxin 
tolerance level would be sent by the accredited laboratory directly to 
the committee. Reporting of lots exceeding the maximum aflatoxin 
requirements directly by the laboratory rather than the handler would 
expedite and increase the efficiency of the committee's ability to 
locally oversee industry compliance to the proposed aflatoxin 
provisions. Reports concerning lots failing to meet the minimum quality 
requirements would be filed by the handler with the committee, as 
minimum quality testing would be conducted at the handler's facility 
and not at a laboratory.
    Establishing reporting procedures for lots failing to meet the 
requirements of the order would assist the committee in ensuring that 
only certified lots are used for domestic human consumption. This would 
help ensure that poor quality pistachios are either re-worked to 
requisite quality and aflatoxin levels, or properly disposed of. In 
this context, witnesses stated that failed lots reporting would be 
essential to supporting the committee's oversight and auditing 
responsibilities. Failed lot reporting would also present the committee 
with an important information-gathering tool, as it would allow the 
compilation of industry quality statistics.

Rework Procedures

    Notification of a failed lot, either with regard to aflatoxin or 
quality, would alert the committee to the possible reworking of 
pistachios for reinspection, or to the disposal of those pistachios. 
Witnesses expressed the importance of establishing rework procedures in 
order to allow handlers the opportunity to separate acceptable quality 
pistachios from inferior ones. Witnesses explained that while reworking 
and reinspection would not be required under the order, rework would 
provide handlers with an opportunity to secure a better return for 
their pistachios. Rework and reinspection procedures should therefore 
benefit both handlers and producers.
    Witnesses expanded on the importance of safeguarding against the 
negative effect of poor quality pistachios in the marketplace by 
explaining that lots failing to meet aflatoxin requirements would be 
subject to a different set of rework procedures than those failing 
quality requirements.
    Rework procedures for inshell pistachios failing to meet aflatoxin 
requirements would require handlers to remove 100 percent of the 
failing lot from its bulk or retail packaging. These pistachios would 
be required to pass through the sorting stages of the handling process 
in order to remove from the lot those nuts having the characteristics 
most susceptible to harboring aflatoxin. Witnesses stated that after 
reworking the lot, the weight of the total accepted and rejected 
product would be reported to the committee. The acceptable portion of 
the reworked lot would again be sampled and tested for aflatoxin, as 
proposed under Sec.  983.38, Aflatoxin levels, with one exception. In 
the case of a reworked lot, the lot sample size and the test sample 
size would be doubled from that specified in Table 1 of proposed Sec.  
983.38. In addition to being tested for aflatoxin content, the reworked 
lot would also be sampled and tested for minimum quality.
    If, after having been reworked, the lot fails aflatoxin testing for 
a second time, the lot could be shelled and the kernels reworked, 
sampled and tested in the manner required for an original lot of 
pistachio kernels. If the handler decided not to pursue further 
reworking of the failed lot, those pistachios would be prohibited from 
entering the stream of commerce for domestic human consumption. That 
lot would be required to be disposed of, sold for domestic non-human 
consumption purposes, or exported in compliance with the receiving 
country's requirements.
    Rework procedures proposed for pistachio kernels failing to test 
negative to aflatoxin would also require a re-processing of 100 percent 
of the volume of the failing lot. After reworking, witnesses stated 
that the total weight of the accepted product and the total weight of 
the rejected product would be reported to the committee for 
verification purposes. The reworked lot of kernels would be sampled and 
reinspected for aflatoxin as specified in the aflatoxin requirements of 
the order.
    According to record evidence, handlers should also be able to 
rework lots that fail to meet the minimum quality requirements proposed 
in Sec.  983.39 of the order. As in the case of pistachios failing 
aflatoxin requirements, handlers would need to remove from packaging 
and rework 100 percent of the product within that lot. Reworking would 
be completed by standard sorting techniques, including mechanical, 
electronic or manual procedures normally used in the handling of 
pistachios.
    The reworked lot would be sampled and tested as required under 
proposed Sec.  983.39, ``Minimum quality levels.'' There would be no 
limit to the number of times a lot could be reworked for minimum 
quality levels.

Testing of Minimal Quantities

    The record supports simplified aflatoxin testing requirements for 
handlers who handle less than one million pounds of assessed weight of 
pistachios a year. Additionally, such handlers should qualify for an 
exemption from minimum quality inspection and certification 
requirements under certain circumstances. Including these provisions in 
the proposed order would reduce costs for the smallest handlers, while 
maintaining the industry objective of having all pistachios used for 
domestic human consumption meet certain quality (including aflatoxin) 
levels.
    Section 983.41 of the proposed order, Testing of minimal 
quantities, would provide that aflatoxin testing for handlers of 
minimal quantities (less than a million pounds per year) could be 
accomplished in two ways. The first option would allow a handler to 
have an inspector sample and test all the handler's hulled and dried 
pistachios for aflatoxin certification prior to further processing. If 
the pistachios meet the proposed aflatoxin requirement, an aflatoxin 
certificate would be issued to cover the handler's total inventory. The 
handler would not then have to comply with the traceability procedures 
set forth in paragraph (d) of proposed Sec.  983.38.
    If the pistachios did not meet the aflatoxin requirements, the 
handler could subdivide his or her inventory into smaller lots and have 
each individual lot sampled and tested for aflatoxin. Any lots found to 
be above the maximum aflatoxin threshold could be reworked and would 
then be subject to the testing procedures specified in Sec.  983.38.
    Witnesses testifying at the hearing stated that small handlers 
should be allowed to test all of their hulled and dried pistachios 
before the pistachios are further processed for quality and size. The 
language of proposed Sec.  983.41(a) has been so clarified.
    Witnesses also testified that handlers of minimal quantities could 
apply to the committee for an exemption from inspection with respect to 
the minimum quality requirements set forth in

[[Page 46013]]

proposed Sec.  983.39 of the order. If the exemption were granted, the 
handler would be required to pull and retain (for 90 days) samples from 
each lot shipped. The samples would be required to be made available 
for review by the committee.
    Witnesses explained that if it was determined that an exempt 
handler were shipping substandard pistachios, the committee should be 
able to revoke the handler's exemption. The handler in question would 
then be subject to minimum quality and size inspections until further 
determination by the committee. The record indicates that implementing 
regulations should be effectuated to establish the specific procedures 
for such exemptions.

Commingling

    Witnesses recommended under proposed Sec.  983.42 that after a lot 
were issued an aflatoxin inspection certificate and minimum quality 
certificate, it could be commingled with other certified lots and 
maintain its aflatoxin and minimum quality certifications. However, 
handlers would be required to comply with paragraph (d) of proposed 
Sec.  983.38 which provides that each certified lot be identified and 
traceable from testing through shipment. Thus, if pistachios were 
transferred between handlers prior to certification, those pistachios 
would be required to meet the certification provisions of this proposed 
order prior to being commingled with other certified lots. In the case 
of the exemption from minimum quality certification for handlers 
handling less than 1 million pounds, any pistachios transferred from an 
exempt handler to a non-exempt handler would be subject to minimum 
quality certification.

Reinspection

    Witnesses supported authority for the committee to reject an 
inspection certificate and request reinspection of a lot whenever it 
has reason to believe that pistachios may have been damaged or 
deteriorated while in storage. That lot would be prevented from 
entering the marketplace for domestic human consumption until a new 
certification was obtained.
    USDA would not allow invalidation of a certificate that has been 
issued by an inspector. However, there may be circumstances that 
warrant a requirement that a lot be subject to a second inspection. 
Thus, proposed Sec.  983.43, Reinspection, is modified to provide that 
the Department, upon recommendation of the committee, may establish 
rules and regulations to establish conditions under which pistachios 
would be subject to reinspection.

Inspection, Certification and Identification

    The record indicates that all pistachios shipped for domestic human 
consumption should be required to be inspected and certified as meeting 
the order's quality requirements (including those pertaining to 
aflatoxin levels). If deemed necessary, lots of pistachios could be 
required to be identified by appropriate seals, stamps, tags, or other 
identification affixed to the containers by the handler. All 
inspections would be at the expense of the handler.
    Witnesses testified that not all handlers would have their 
pistachios tested or inspected at the same point in the handling 
process. The proposed order is intended to be flexible, as it was 
explained by witnesses that inspection could be appropriate for certain 
handlers at one stage in the process while being appropriate for other 
handlers at another stage. Witnesses stated that differences in 
inspection timing throughout different handlers' processing systems 
would not pose a compliance problem as long as lot identity was 
required and maintained.
    Several handler witnesses testified that they have already 
implemented traceability systems in their plants. Currently, several 
different systems for tracking lots of pistachios exist in the 
industry. Record testimony indicates that some handlers identify lots 
by date and shift. These lots are then traced by written records 
maintained by the handler's staff. Other handlers mark the containers 
with a code using crayons or markers. Yet other handlers use bar codes.
    The record indicates that current handling practices relating to 
the tracking of lots may be adequate for compliance purposes under the 
order. However, if deemed necessary, the USDA, upon recommendation of 
the committee, could issue rules to specify that handlers be required 
to affix some standardized type of identification to the containers in 
a lot.
    The record shows that the responsibility for affixing such 
identification could be given to the handlers without requiring it be 
done under the direction or supervision of an inspector. This 
represents a departure from the regulatory text of proposed Sec.  
983.44 contained in the Notice of Hearing. Originally, affixing of 
identification would have been required under the supervision of an 
inspector. Witnesses explained that giving handlers the responsibility 
to maintain pistachio identity could result in more flexibility in 
handlers' operations and lower costs. Section 983.44 has been modified 
accordingly.

Substandard Pistachios

    Record evidence indicates that the committee should have the 
authority to establish reporting and disposition requirements as it 
deems necessary to ensure that pistachios which do not meet the 
aflatoxin and minimum quality requirements prescribed by Sec.  983.38 
and Sec.  .39 are not shipped for domestic human consumption. This 
authority would appear in Sec.  983.45 of the proposed order, and would 
require approval by the Department through the informal rulemaking 
process.
    Witnesses opined that much of the information the committee and the 
Department would need to administer the order has been covered by 
reporting requirements set forth elsewhere in the proposed order. For 
example, reports would be required when pistachio lots fail testing for 
the aflatoxin tolerance or fail inspections for minimum quality and 
size specifications. However, in the course of administering the order, 
the committee may determine that further reports are necessary. This 
section gives the committee the authority to establish further 
reporting requirements, subject to the approval of the Department.
    The committee should also be authorized to recommend other rules 
(aside from those relating to reporting requirements) needed to ensure 
appropriate disposition of substandard pistachios. For example, 
handlers could be required to dispose of substandard pistachios under 
the supervision of the committee staff or an inspector. Again, such 
rules would need to be approved by USDA.
    In the Notice of Hearing, reference to Sec.  983.38 was 
inadvertently omitted from Sec.  983.45 of the proposed order. This 
oversight is corrected in this document.

Modification or Suspension of Regulations

    According to record evidence, proposed Sec.  983.46 should allow 
for modification, suspension, or termination of the requirements in 
Sec.  Sec.  983.38 through 983.45 of the order. These sections of the 
proposed order relate to aflatoxin and minimum quality requirements.
    The record shows that the quality and aflatoxin requirements 
specified in the proposed order are reasonable and appropriate at the 
current time. However, if the committee were to determine by reasons of 
changed industry conditions (such as development of new technology) 
that certain provisions of the order need to

[[Page 46014]]

be modified, suspended or terminated, the committee should have the 
authority to make those recommendations. All such recommendations would 
require seven concurring votes by the committee and would be subject to 
review and approval of USDA through the rulemaking process.
    Additionally, the record shows that the committee should have the 
authority to recommend any rules necessary for the implementation of 
the provisions of Sec. Sec.  983.38 through 983.45 of the proposed 
order. Again, any such recommendation would require USDA approval. It 
is recommended that a new paragraph (c) be added to proposed Sec.  
983.46 to add this authority to the order.

Material Issue Number 5(e)--Reporting and Recordkeeping

    The record evidence is that the committee should have the 
authority, with the approval of the Department, to require handlers to 
submit such reports and information as the committee may need to 
perform its functions and fulfill its responsibilities under the order. 
The committee would need to collect information for such purposes as 
collecting assessments, compiling statistical data for use in market 
evaluation, and determining whether handlers are complying with order 
requirements. The types of information that could be collected to fill 
these reporting needs include but are not limited to production, sales 
and inventory data, and information pertaining to transfers of 
pistachios between handlers.
    Additionally, under proposed Sec.  983.49, each handler would be 
required to maintain records with respect to pistachios acquired, 
processed, further handled, sold, or otherwise disposed of, as would be 
necessary to verify the reports that the handler submits to the 
committee. All such records would be required to be maintained for at 
least 3 years after the end of the fiscal year in which the transaction 
occurred.
    Witnesses also stated that the order should provide the authority 
for USDA and authorized employees of the committee to examine those 
records pertaining to matters within the purview of the order. This 
provision would enable verification of compliance with requirements of 
the proposed order.
    All reports and records submitted to the committee by handlers 
would be required to remain confidential and be disclosed only as 
authorized by USDA in accordance with the Act. However, the committee 
would be authorized to release composite information from any or all 
reports. Such composite information could not disclose the identity of 
the persons furnishing the information or any person's individual 
operation.
    The record shows that industry handlers already collect and 
maintain much of the information contemplated to be reported and 
retained under the proposed order provisions. Thus, compliance with the 
provisions of the order with regard to reporting and recordkeeping 
would entail minimal handler costs.

Material Issue Number 5(f)--Compliance

    No handler should be permitted to handle pistachios except in 
conformity with the provisions of the order, as set forth in proposed 
Sec.  983.58. If the program is to be effective, compliance with its 
requirements is essential.

Material Issue Number 5(g)--Continuance Referenda

    In accordance with proposed Sec.  983.67(d), the order should 
provide that the Department conduct periodic continuance referenda 
every 6 years. The initial continuance referendum should be conducted 
within 6 years of the effective date of the marketing order.
    USDA has determined that continuance referenda are an effective 
means for ascertaining whether producers favor continuance of marketing 
order programs. As such, the proposed marketed order should include a 
provision for continuance referenda.
    The Act provides that in the promulgation of a marketing order, at 
least two-thirds of the producers voting, by number or by volume 
represented in the referendum, must favor the issuance if the order. 
Continuance referenda should be based on the same standard of industry 
support. This requirement is considered adequate to measure producers' 
support to continue the marketing order.
    The Department would consider termination of the order if less than 
two-thirds of the producers voting in the referendum and producers of 
less than two-thirds of the volume of pistachios represented in the 
referendum favor continuance. In evaluating the merits of continuance 
versus termination, USDA would not only consider the results of the 
referendum. The Department would also consider all other relevant 
information concerning the operation of the order and its relative 
benefits and disadvantages in order to determine whether continued 
operation of the order would tend to effectuate the declared policy of 
the Act.
    The Department's ``Guidelines for Fruit, Vegetable and Specialty 
Crop Marketing Orders'' provide for periodic referenda to allow 
producers the opportunity to indicate their support for or rejection of 
a marketing order. It is the position of the Department that periodic 
referenda ensure that marketing order programs continue to be 
accountable to producers, obligate producers to evaluate their programs 
periodically, and involve them more closely in their operation. The 
record evidence supports these goals.
    In any event, section 608(C)(16)(B) of the Act requires the 
Department to terminate the order whenever the Department finds that 
the majority of all producers favor termination, and that such majority 
produced more than 50 percent of the commodity for market.

Material Issue Number 5(h)--Exemption for Small Quantities

    Proposed Sec.  983.69, ``Exemption,'' states that any handler who 
handles 1,000 dried pounds of pistachios or less during any year may 
handle pistachios free of the regulatory and assessment provisions of 
the proposed order.
    The record shows that the purpose of this provision is to provide 
an exemption from the proposed requirements of the order for small 
quantities of pistachios, such as those that are grown for home or 
personal use. This section may be changed, as recommended by the 
committee and approved by the Department. For example, the committee 
may recommend that the 1,000-pound threshold be revised.
    Additionally, implementing rules and regulations may be deemed 
necessary to ensure that handlers claiming this minimum exemption are 
not selling pistachios in domestic human consumption outlets that are 
not in compliance with the minimum quality requirements of the order. 
Such rules and regulations could be implemented under the authority in 
proposed Sec.  983.45 of the order.

Material Issue Number 5(i)--California Pistachio Commission

    Proposed Sec.  983.70, ``Relationship with the California Pistachio 
Commission,'' is supported by witness testimony that the committee have 
authority to deliberate, consult, cooperate and exchange information 
with the California Pistachio Commission (CPC). Any sharing of 
information between the two organizations would be kept confidential in 
accordance with the provisions of section 10(i) of the Act.

[[Page 46015]]

    Testimony offered by the Chief Executive Officer of the CPC further 
clarifies the potential efficiencies to be gained through cooperation 
of the CPC and the committee. As stated by the witness, the industry is 
already familiar with the structure and protocols of the Commission. 
Joint management of the two programs could reduce added paperwork, 
costs and duplication of efforts.
    In terms of proposed regulation, witnesses stated that the two 
programs would be complimentary, as the provisions of each program 
would not overlap. The proposed provisions of the Federal program 
pertain to mandatory testing and certification for aflatoxin, quality 
and size. The CPC does not administer such regulation but rather 
focuses on promotion and research activities. The CPC does oversee the 
California Pistachio Marketing Agreement, but this is a voluntary 
agreement among handlers, and the quality parameters under the 
agreement do not include those addressed in the proposed order.
    Witnesses speaking in support of Sec.  983.71 explained that, when 
the Agreement was formulated, it was the intention of the participants 
to pattern the administrative and organizational structure of the 
Agreement after the Commission for the purpose of minimizing 
administrative costs and avoiding the duplication of efforts as much as 
possible. According to record testimony, this goal has been obtained 
and has allowed the Agreement signatories the ability to maintain a 
very low administrative overhead with a minimum of added paperwork. 
Witnesses stated that, if the Federal program is approved, it is their 
intention to capture similar benefits.

Material Issue Number 5(j)--Common Terms

    The provisions of proposed Sec. Sec.  983.59 through 983.69 and 
Sec. Sec.  983.90 through 983.92 are common to marketing agreements and 
orders now operating. All such provisions are necessary to effectuate 
the other provisions of the marketing order and marketing agreement and 
to effectuate the declared policy of the Act. The record evidence 
supports inclusion of each provision. These provisions, which are 
applicable to both the marketing agreement and the marketing order, are 
identified by section number and heading as follows: Sec.  983.59 
Rights of the Secretary; Sec.  983.60 Personal Liability; Sec.  983.61 
Separability; Sec.  983.62 Derogation; Sec.  983.63 Duration of 
immunities; Sec.  983.64 Agents; Sec.  983.65 Effective time; Sec.  
983.66 Suspension or termination; Sec.  983.67 Termination; Sec.  
983.68 Procedure upon termination; and Sec.  983.69 Effect of 
termination or amendment. Those provisions applicable to the marketing 
agreement only are: Sec.  983.90 Counterparts; Sec.  983.91 Additional 
parties; and, Sec.  983.92 Order with marketing agreement.

Material Issue Number 6--Implementation of Proposed Order

    Based on a review of the hearing record, USDA recommends that if 
California pistachio producers were to vote in favor of promulgating 
the proposed marketing order, the provisions of this program be 
implemented in two phases. This recommendation addresses the need to 
establish administrative procedures, guidelines and forms, some of 
which would require USDA rulemaking and OMB approval, for the mandatory 
inspection and certification provisions of the proposed program to 
function effectively.
    The first phase would allow for the nomination and seating of an 
initial administrative committee, and the recommendation and 
implementation of administrative rules, including reporting and 
recordkeeping requirements, under which the program would operate. 
These activities include, but are not limited to, nominations of 
producer and handler members and alternate members of the committee, 
the selection of that committee by the Department, and holding 
committee meetings to select a staff, draft operating procedures, 
recommend a budget and assessment rate for the first fiscal period 
under the proposed order, and make other recommendations necessary to 
implement order authorities. Some of the committee recommendations 
would require rulemaking by the Department and approval of new 
information collection requirements by the Office of Management and 
Budget (OMB).
    The second phase would allow for the implementation of the 
regulatory provisions proposed under this program and necessary 
procedures to effectively administer them. This would include the 
mandatory testing and certification provisions for maximum aflatoxin 
and minimum quality levels of California pistachios, and failed lot 
rework provisions under Sec. Sec.  983.38 through 983.46 of the 
proposed order. USDA recommends that these provisions become effective 
on August 1, 2004.
    This recommendation reflects the fact that, if the order were to be 
approved through a producer referendum and implemented in its entirety, 
the immediate effectiveness of regulatory provisions without adequate 
administrative procedures to support them could obstruct the flow of 
California pistachios to the marketplace. USDA believes that while the 
intended effect of the proposed order is to ensure the delivery of high 
quality California pistachios to consumers, implementation of the 
regulatory provisions proposed herein without adequate implementation 
of industry administrative procedures could result in the unintended 
disruption of California pistachio shipments.

Small Business Consideration

    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has 
considered the economic impact of this action on small entities. 
Accordingly, the AMS has prepared this initial regulatory flexibility 
analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions so that small businesses will not be 
unduly or disproportionately burdened. Small agricultural producers 
have been defined by the Small Business Administration (SBA) (13 CFR 
121.601) as those having annual receipts of less than $750,000. Small 
agricultural service firms, which include handlers that would be 
regulated under the proposed pistachio order, are defined as those with 
annual receipts of less than $5,000,000.
    Interested persons were invited to present evidence at the hearing 
on the probable regulatory and informational impact of the proposed 
pistachio marketing order program on small businesses. The record 
evidence is that while the program would impose some costs on the 
regulated parties, those costs would be outweighed by the benefits 
expected to accrue to the U. S. pistachio industry.
    The record indicates that there are approximately 647 pistachio 
producers, which includes the members of the one existing pistachio 
producer cooperative. There are about 19 handlers who process 
pistachios in the production area proposed to be regulated.
    Statistics prepared by the California Pistachio Commission and 
submitted as evidence at the hearing show that 445 California pistachio 
producers (69% of the total) produce less than 100,000 pounds per year; 
100 producers (15%) produce more than 100,000 and less than 250,000 
pounds; 43 producers (7%) produce more than 250,000 and less than 
500,000 pounds; and 59 producers (9%) grow more than 500,000 pounds.
    Using an average grower price of $1.10 per pound, 9 percent of the

[[Page 46016]]

California pistachio producers receive more than $550,000 annually. 
Only a portion of these producers would meet SBA's definition of a 
small agricultural producer.
    The record shows that 12 California pistachio handlers (63 percent 
of the total) handle less than 1,000,000 pounds per year; 4 handlers 
(21%) handle between 1,000,000 and 10,000,000 pounds; and 3 handlers 
(16%) handle more than 10,000,000 pounds annually. The largest handler 
processes over 50 percent of industry production.
    Using an average handler price of $1.80 per pound, 63 percent of 
the pistachio handlers would receive annual receipts of less than $1.8 
million, 2 percent would receive between $1.8 and $18.0 million, and 16 
percent would receive more than $18.0 million. At least 12 of the 
pistachio handlers (or 63 percent of the total) could be considered 
small businesses under SBA's definition.
    Record evidence concerning pistachio production and handling costs 
provide an understanding of the California pistachio industry and 
potential impacts of implementing the proposed order. Farming 
pistachios is a costly investment with a significant delay in benefits 
and an unreliable crop yield.
    Although increasing yields have led to an increasing overall value 
of California pistachio production, producers must maintain a level of 
return per pound harvested that covers the cost of production in order 
for their pistachio operations to remain economically viable. Witnesses 
testified that maintaining a high level of quality product in the 
market would lead to increasing consumer demand and greater stability 
in producer returns.
    Evidence suggests that poor quality pistachios impact the demand, 
and the potential growth of demand, for pistachios. Characteristics 
routinely deemed as ``poor quality'' by customers of the California 
pistachio industry include small size, and excessive internal and 
external blemishes. Market studies and customer comments presented by 
handler witnesses demonstrate that the presence of poor quality 
pistachios in the marketplace significantly impacts demand in a 
negative way.
    Minimizing the level of aflatoxin in California pistachios is 
another significant quality factor, as aflatoxin is a known carcinogen. 
Consumer concerns over aflatoxin can affect their perception of 
pistachio quality, and therefore negatively impact demand. Moreover, 
any market disturbances related to aflatoxin in pistachios, regardless 
of the geographic origin of those pistachios, could have a detrimental 
effect on the California pistachio industry. A regulatory program 
limiting the amount of aflatoxin in pistachios could be useful in 
bolstering consumer confidence in the quality of California pistachios.
    Pistachio acreage has been consistently increasing in California, 
from just over 20,000 bearing acres in 1979 to 78,000 bearing acres in 
2001. The number of non-bearing acres (i.e. acres less than 7 years 
old, not yet in full production) has also shown consistent growth in 
recent years, rising from 13,400 acres in 1995 to 23,500 acres in 2001, 
a 75 percent increase. Yield per acre has also been steadily rising. 
Over the 1976-1980 period, average yield per bearing acre measured 
1,110 pounds; by 1996-2000, this average had increased to 2,512 pounds.
    Higher yields and increasing acreage has resulted in increasing 
production. According to information submitted by the CPC, production 
in 2000 totaled 242 million pounds, a 64-percent increase over 1995 
production, which totaled 148 million pounds. Moreover, witnesses at 
the hearing indicated that maturing acreage, absent any additional new 
plantings, will likely result in a 60-percent increase in California 
pistachio production over the coming years.
    Several witnesses at the hearing testified that, in light of 
increasing production, future stability of market returns is reliant on 
continually increasing consumer demand for pistachios. These witnesses 
stated that strong consumer demand, which is ultimately related to 
consumer perceptions of product quality, is essential to the continued 
economic well being of the California pistachio industry. Moreover, 
witnesses discussed the importance of implementing a marketing order 
program that would provide them with a regulatory structure to monitor 
and assure that minimum quality standards are not compromised as 
production of California pistachios increases.
    The relationship between product quality, consumer demand and 
producer returns in the pistachio industry was demonstrated at the 
hearing. Pistachio production is not only costly in terms of initial 
investment and cultural costs, but it is highly unpredictable in terms 
of producer returns. Between the initial processes of cleaning, 
hulling, sorting and drying, a significant portion of the initial 
volume harvested is reduced. This volume is further reduced as the 
handling process reaches its final stages of sorting for quality and 
final preparation for market. Witnesses explained that ultimate 
pistachio sales are based on approximately 30 percent of the volume 
initially harvested from the field. Because of this, witnesses stated 
that the process of extracting the highest quality portion of the 
harvest, and ensuring consumer satisfaction with that product, is 
crucial to determining the value of the crop.
    Pistachio production is similar to other nut crops in that yield 
and total production vary substantially from year to year because of 
the alternate bearing nature of pistachio trees resulting in cyclical 
high and low production years. Total value and value per acre are 
generally higher in higher yielding years. Conversely, grower return 
per pound is generally higher in low yielding years.
    Producer returns and total crop value are also dependent on the 
percentage of harvest that is either ``open shell'' or ``closed 
shell.'' Each harvest yields a certain percentage of nuts that have not 
naturally opened prior to cultivation. These nuts are classified as 
``closed shell,'' ``shelling stock'' or ``non-splits,'' and have a 
lower market value than those nuts that are naturally split, or ``open 
shell.'' The proportion of open-shells is a key factor in year-to-year 
changes in the total value of production.
    Economic evidence presented at the hearing, based on data from the 
National Agricultural Statistics Service (NASS) and the CPC, indicates 
that trends for total crop value and value per bearing acre have been 
increasing over the past 20 years. In 1980, the pistachio crop in 
California was valued at $55.8 million. By 2000, total crop value had 
increased more than four-fold, reaching $245 million. These gains are 
attributed to increases in both total pistachio producing acreage and 
yield per acre. Average value per bearing acre increased from $1,642 
per acre in 1980-1984 to $2,665 per acre in 1996-2000.
    According to CPC historical price data, price per pound has 
gradually decreased over the past 20 years, ranging from a high of 
$2.05 per pound in 1980 to a low of $0.99 per pound in 2001. According 
to the record, the proposed order would assist in improving producer 
returns for pistachios. The proposed order would not only assist in 
fortifying consumer demand by ensuring consumer satisfaction with 
product quality, but mandatory quality and aflatoxin requirements are 
also likely to boost domestic prices by culling lower quality 
pistachios, which tend to have price-depressing effects, from the 
market.
    A University of California Cooperative Extension study presented as 
part of record evidence estimates total cost of

[[Page 46017]]

production in 2001 at $2,643 per acre. According to industry data, the 
average grower return (value per bearing acre) for 1998-2001 was 
$2,619. This average revenue estimate is just below the Extension 
study's $2,643 estimate of typical cost. Record evidence indicates that 
over that 4-year period, the lowest value per bearing acre was $2,137 
in 2001 and the highest was $3,207 in 2000.
    Witnesses supplied an additional set of cost estimates, which 
ranged from a low-cost operation of $2,350 per acre to a high of $3,400 
per acre. In their testimony, total costs of production were divided 
into three categories: the costs of orchard establishment, cultural 
costs and administrative costs. Establishment costs, or the overall 
cost to develop an acre of pistachios until revenues exceed growing 
expenses, were estimated at between $10,000 and $15,000, with an 
average tree maturation period of 7 years. In order to recover these 
investment costs, the hearing record states that producers generally 
target an 11% return on investment, estimated at between $1,100 and 
$1,650 per acre. Annual per acre cultural costs average between $1,100 
and $1,600, once the trees are productive. Administrative costs include 
the cost of farm management and crop financing, and can vary between 
$150 and $200 per acre. The sum of cultural and administrative costs 
therefore range from $1,250 to $1,800.
    Grower price per pound averaged approximately $1.10 between 1997 
and 2001. Given that $1.10 average grower price and the cost estimates 
above, a producer would need to harvest an average of at least 2,000 
pounds per acre to cover total production costs for the low-cost 
operation ($2,350 per acre). A producer would need to harvest at least 
1,136 pounds per acre to cover the cultural and administrative costs of 
$1,250 per acre (not including a return on investment).
    The CPC Annual Report for Crop Year 2001-2002 reveals that 6 out of 
26 California counties with pistachio production yielded on average 
more than 2,000 pounds per acre between 1998 and 2001. These six 
counties, which together represented over 88 percent of total 
California pistachio production in 2000, are Colusa, Sutter, Madera, 
Fresno, Kings and Kern. Glenn, Butte, Placer, Yolo, Contra Costa, San 
Joaquin, Calaveras, Stanislaus, Merced, Tulare and Santa Barbara 
counties yield on average between 1,000 to 2,000 pounds per acre and 
represent roughly 12 percent of total state production. Shasta, Tehama, 
Yuba, Solano, Sacramento, San Luis Obispo, Los Angeles, San Bernardino 
and Riverside counties yield on average less than 1,000 pounds per acre 
and represent less than one percent of California pistachio production.
    Given the assumptions made above, approximately 88 percent of the 
industry is covering total costs of production. Conversely, roughly 12 
percent of the industry is currently covering cultural costs but not 
generating a return on their investment.

Simulation Model

    Record evidence includes an economic analysis presented by Dr. 
Daniel Sumner, University of California-Davis on the potential impacts 
of the proposed marketing order provisions if the program were 
implemented. Dr. Sumner presented a cost-benefit analysis based on a 
simulation model, the purpose of which was to provide a framework for 
comparing costs of compliance to the benefits of improved quality 
through implementation of the standards.

Cost Estimates

    Dr. Sumner's presentation focused on the regulatory features of the 
proposed marketing order: (1) Mandatory testing of pistachios for the 
presence of aflatoxin, with a maximum allowable tolerance of 15 ppb; 
and (2) mandatory minimum quality standards. The quality standards 
would specify minimum size and maximum allowable defects.
    According to record testimony, the major costs associated with 
these features are the cost of aflatoxin testing and the cost of USDA 
presence in the handlers' plant to inspect and sample lots of 
pistachios. Expected benefits identified by the witnesses would be the 
increase in consumer confidence in pistachios as a result of aflatoxin 
regulation, and the combined increases in consumer demand for 
pistachios due to mandatory USDA regulation and stringent quality 
standards.
    Dr. Sumner's analysis took into account many of the variables 
presented in testimony by other witnesses describing typical production 
and processing costs, and presented a weighted average cost computation 
for marketing order compliance. The average cost of compliance, as 
identified by several witnesses and reiterated in Dr. Sumner's 
analysis, is approximately one half cent per pound of domestic 
pistachio production, or $0.00525 per pound.
    Record evidence suggests that the cost of having a USDA inspector 
in the plant, including mileage plus the standard fee per hour, is 
approximately $291 per day for the largest plants (which process about 
80 percent of total production). Total production for the domestic 
market that would be processed by the largest plants (those that 
process over 10 million pounds annually) is estimated at 136 million 
pounds. If an average lot is 40,000 pounds (the most common lot size 
for testing cited by the largest handlers), then 3,400 lots would need 
to be tested to account for all 136 million pounds (166.67 million 
pounds times 80 per cent). If a USDA official were to test 5.5 lots per 
day, then 618 person-days would be needed to test all of the lots. 
Multiplying $291 per day times 618 person-days yields an annual cost of 
$180,000 for testing 136 million pounds. Dividing the $180,000 annual 
cost by 136 million pounds yields an estimated cost per pound of 
$0.0013 for having USDA personnel in the plant to sample and certify 
that the pistachios meet minimum quality standards. Testimony suggests 
that this cost estimate is on the high side, since many handlers would 
already have USDA personnel in their plants to perform other grading 
services besides certification of lots for minimum quality.
    The cost of aflatoxin testing in the witnesses' simulation analysis 
is estimated at the current rate charged by a private laboratory ($75 
per test). Given this rate information, the aflatoxin testing cost per 
pound would be $0.0019 ($75 divided by the average lot size of 40,000 
pounds).
    For the largest handlers, the combined cost of aflatoxin testing 
and paying for the USDA presence in the plants would be equal to the 
sum of the quality and aflatoxin cost figures outlined above ($0.0013 + 
$0.0019), or $0.0032 per pound. To account for imprecision of data and 
other incidental costs, Dr. Sumner's analysis employs a median cost per 
pound for marketing order compliance, which is slightly higher, or 
$0.005 per pound. The analysis further assumes that per unit costs are 
somewhat higher for smaller plants. Thus, median costs for two 
categories of smaller plants are estimated at $0.006 and $0.007.
    Weighting these cost figures for the three different size 
categories of plants yields an overall median estimated cost per pound 
for compliance of $0.00525. In terms of economic theory, this cost 
increase is represented by a vertical shift in the supply curve of 
about one-half cent, as measured along the vertical axis in a supply-
demand graph. The total direct cost of compliance is estimated at 
$875,000 in the median scenario ($0.00525 times 166.67 million pounds 
in the domestic market).

[[Page 46018]]

Benefit Estimates

    The witness's economic analysis takes into account three separate 
demand benefits, which he considers distinct. The first, and largest, 
of the demand benefits is higher expected long run average demand due 
to the reduced chance of an aflatoxin event that would cause a major 
negative shock to demand. The mandatory aflatoxin testing under the 
marketing order would reduce the chance of a demand-decreasing market 
disturbance in the U.S.
    Witnesses cited a 1996 pistachio aflatoxin case which occurred in 
Germany as an example of what could befall the U.S. pistachio industry 
if aflatoxin were not properly regulated. Widespread negative publicity 
about aflatoxin in foreign pistachios exported to Germany caused sales 
revenue to decline by 50 percent for a duration of three years or more. 
Witnesses estimate that a similar event in the United States could cost 
the industry over $300 million in gross revenue. Witnesses also pointed 
out that there were significant additional repercussions on pistachio 
sales worldwide as word of the German aflatoxin incident spread through 
the media of other nations, especially in Europe, affecting pistachio 
sales in those countries.
    The witness's analysis assumes that an aflatoxin related market 
disturbance would cause a more moderate decrease, represented in the 
median simulation case as a 10 percent decline (18 cents) from the 
$1.80 per pound typical base price at the handler level.
    By requiring aflatoxin testing for all pistachios destined for the 
domestic market, the marketing order would make the probability of an 
aflatoxin event less likely. As a starting point, witnesses argued that 
without mandatory aflatoxin testing through the proposed marketing 
order, there is a 5-percent annual probability of an aflatoxin related 
market disturbance. If such an incident were to occur, witnesses 
estimated that its impact would last for 3 years. Implementation of 
mandatory testing is then assumed to reduce the probability to 1 
percent, a decline of 4 percentage points.
    Mandatory testing under the marketing order therefore increases 
expected demand, or willingness to pay for pistachios, by $0.0216 per 
pound (4 per cent decline in probability times 18 cents times 3 years).
    The witness's analysis includes two additional demand-side 
benefits. The witness asserts that USDA requirements convey a positive 
benefit in the market as reflected by the use of this claim in product 
promotion, labels, and displays. A median increase of $0.0025 in 
willingness to pay reflects a reasonably conservative estimate of the 
higher buyer confidence in pistachios due solely to USDA participation 
in the pistachio quality testing and certification process. The 
certification gives additional confidence in the quality of the 
product.
    The third demand benefit is higher buyer perception of quality due 
to minimum standards. Witnesses assume a similarly small magnitude for 
this estimated increase in willingness to pay ($0.003 per pound).
    Summing the median parameters for each of these three demand 
impacts, the increase in willingness to pay for pistachios supplied to 
the domestic market is a little under 3 cents per pound ($0.0271). In 
terms of economic theory, this figure represents an upward shift in the 
demand curve of nearly 3 cents, as measured along the vertical axis in 
a supply-demand graph. Most of the impact is from the first benefit, 
the reduced probability of aflatoxin being found in California 
pistachios.
    Thus the median benefit in terms of increased per unit demand 
(willingness to pay) is estimated to be substantially larger than the 
estimated median per unit direct cost of marketing order compliance 
($0.0271 versus $0.00525). Expected or average demand is higher, 
reflecting the lower probability of an aflatoxin event and the average 
quality and certification effects in the domestic market. Handlers 
would face higher costs to comply with the proposed requirements.

Simulation Results

    These figures for increased cost and increased willingness to pay 
were combined with different demand and supply elasticities in the 
simulation model developed by Dr. Sumner to assess the net economic 
impact of marketing order implementation. The median elasticities used 
were unitary (-1.0 for demand and 1.0 for supply). The supply response 
that is modeled is a long run supply response (additional planting) due 
to the permanent change in market conditions resulting from the 
marketing order. These assumed elasticities are based on other prior 
econometric estimates for pistachios and other tree nuts. Witnesses 
cited a 1999 report by Lucinda Lewis of Competition Economics, Inc., 
``Charting a Direction for the U.S. Pistachio Industry,'' which found a 
-1.14 demand elasticity for pistachios. According to the record 
testimony, the range of elasticities used in the simulation scenarios 
are consistent with published economic studies of supply and demand for 
pistachios and other tree nuts.
    The simulation model solves a system of supply and demand equations 
for a new set of industry prices and quantities from marketing order 
implementation. As stated above, the total direct cost of compliance is 
$875,000. In the simulation, there is an upward shift in the market 
supply curve, representing increased costs to firms in the pistachio 
market. The magnitude of the price and quantity change from the shift 
in the supply curve is determined by the higher cost of production 
(compliance cost) and the elasticity of supply. The resulting computed 
(simulated) loss to the handler segment of the industry from higher 
expenses for marketing order compliance is $490,000.
    This $490,000 differs from the previously stated $875,000 cost of 
compliance figure by the amount of an implied price increase and the 
small equalization effect on the smaller handlers that process 20 
percent of the product.
    The witness's analysis assumes that with minimum quality 
requirements the relative position of the smaller firms would improve 
to match those of other handlers. This is because prior to the new 
mandatory requirements, these firms are assumed to have fewer quality 
controls than most other firms, and thus end up selling nuts to the 
part of the market that buys lower quality nuts at lower prices. The 
equalization effect resulting from uniform minimum quality 
specifications is a small positive benefit that offsets some of the 
cost of compliance for the smaller firms.
    On the demand side, the higher willingness to pay is $0.0216 per 
pound for the reduced probability of aflatoxin in California 
pistachios, and $0.0055 for the two additional demand-side benefits 
(higher buyer confidence from USDA certification and higher buyer 
perception of quality). The magnitude of the price and quantity change 
from the shift in the demand curve is determined by the higher 
willingness to pay and the elasticity of demand.
    In the median simulation, the amount sold in the domestic market 
rises by 1.6 million pounds. The benefit to industry participants is 
the total value of this increase in domestic sales which is the 1.6 
million pound increase in quantity sold multiplied by the higher 
expected price level resulting from the shifting of the supply and 
demand curves in the simulation of marketing order impacts.
    Using the median supply and demand elasticities in the simulation 
model, and the median compliance cost and

[[Page 46019]]

willingness to pay figures, the computed benefit to the handler portion 
of the market from the reduced chance of an aflatoxin market 
disturbance is $1.545 million dollars. The value of the two additional 
demand-side benefits is $.392 million dollars. The total benefit to 
handlers is thus $1.938 million dollars.
    When the loss due to compliance-related expenses ($490,000) is 
factored in, the resulting net benefit to pistachio handlers from the 
marketing order is $1.448 million dollars. This $1.448 million dollar 
estimate of net benefit to handlers is the key result from the 
witness's cost-benefit analysis.
    In economic theory terminology, this part of the simulation is 
measuring the change in producer surplus. Viewed in terms of a supply-
demand graph, producer surplus is the area under the cost and above the 
supply curve. The $1.448 million dollar estimate of net benefit is a 
measure of the difference between producer surplus at the initial 
equilibrium (e.g. $1.80 average price at the handler level, or $1.10 at 
the grower level) and the new higher price and quantity after the 
supply and demand curves have been shifted to represent the median 
changes in cost (supply) and willingness to pay (demand).

 Table 1.--Simulation of Pistachio Marketing Order Impacts on Producers/
                                Handlers
      [Annual Net Costs and Benefits with Median Parameter Values]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Benefit 1: Reduced chance of aflatoxin event...............   $1,545,000
Benefit 2: USDA certification..............................      178,000
Benefit 3:
    Improved quality perception............................      214,000
                                                            ------------
        Total benefit......................................    1,938,000
    Impact of cost of compliance...........................     -490,000
                                                            ------------
        Net total..........................................    1,448,000
------------------------------------------------------------------------

    It should be noted that although the witness asserts that Benefit 2 
and Benefit 3 are conceptually distinct, one could argue that there is 
significant overlap between the value of USDA certification and 
improved quality perception on the part of pistachio buyers and 
consumers. However, the assumed benefits are small in both cases, and 
if either of the benefit figures is eliminated, net estimated benefits 
to handlers still exceed one million dollars.
    Cost-benefit studies which use economic welfare analysis also 
typically include consumer impacts, and the witness's economic analysis 
includes a parallel set of computations for the buyer/consumer segment 
of the pistachio industry. The largest demand-side benefit, the reduced 
chance of an aflatoxin event, is estimated at $2.586 million. The 
combined value of the two additional demand-side benefits is $.655 
million, yielding a total benefit estimate of $3.241 million. 
Subtracting the estimated impact on buyers/consumers of introducing 
added costs of marketing order compliance ($245,000) yields a buyer/
consumer net benefit estimate of $2.996 million. A key aspect of this 
economic analysis is that consumer willingness to pay for pistachios 
rises as consumer confidence improves from the higher quality standards 
imposed by the order. With the demand and supply elasticities used in 
the analysis, the benefits to the domestic buyers/consumers in this 
simulation are larger than benefits to the handler side of the market.
    In economic theory terminology, this part of the simulation is 
measuring the change in consumer surplus. Viewed in terms of a supply-
demand graph, consumer surplus is the area above the price and below 
the demand curve. The $2.996 million dollar estimate of net benefit is 
a measure of the difference between consumer surplus at the initial 
equilibrium and the new price and quantity after the supply and demand 
curves have been shifted to represent the median changes in cost 
(supply) and willingness to pay (demand).
    Summing the producer/handler and buyer/consumer net benefits 
($2.996 + $1.448) yields a $4.444 million median estimated value of the 
marketing order to the economy.

Estimated Impacts on Small Producers

    The proposed marketing order would not impose any direct compliance 
costs on producers. The direct impact is on the handlers who would be 
required to pay for testing and inspection. Producers would be affected 
to the extent that they may have to discard more low quality nuts than 
previously, if they produce quantities of nuts below the proposed size 
and quality standard. Witnesses stated there is no evidence that the 
proportion of low quality nuts is correlated with farm size.
    Additionally, the record shows that handler costs of compliance are 
typically reflected in handler payments to producers. Witnesses stated 
that the anticipated benefit derived from increased consumer demand 
would offset the cost of compliance to producers.
    Witnesses stated that most producers sell to large handlers (which 
handle 80 percent of production). Distinguishing among handlers by size 
does not indicate different economic impacts on individual farms, which 
are distributed broadly across handlers.
    Witnesses also pointed out that there is substantial inter-handler 
competition in the pistachio industry, with at least 10 handlers out of 
19 competing for producers' pistachios (with the remainder presumably 
processing for their own account). Given the distribution of producers 
across processing firms and the level of competition, the overall cost-
benefit results may be taken as the impact on the full size range of 
producers.
    Based on a farm price of $1.10 and a handler price of $1.80, 
producers receive about 60 percent of the revenue in the industry, and 
are likely (given certain supply elasticities) to receive more than 60 
percent of the estimated handler net benefits. Producer total gain (out 
of the estimated $1.448 million in net benefits to the handler segment) 
is thus at least $870,000 per year ($1.448 million times 0.60). This is 
distributed across producers in proportion to output, with no 
differential impact on smaller or larger producers.
    Based on the hearing record, AMS therefore concludes that pistachio 
producers would benefit from implementation of the proposed order. 
Further, there is no evidence of differing economic impacts between 
small and large producers.

[[Page 46020]]

Estimated Impact on Small Handlers
    Most compliance costs are uniform across handlers, but some 
differences could be correlated with the size of a handler's operation. 
Two relevant points are the number of lots ready to be tested per day 
and the lot size to be tested. Larger firms, which are more likely to 
have larger lot sizes for testing and to have more lots ready per day 
(up to about 5), may experience some savings relative to firms with 
smaller lot sizes and fewer lots to be tested at one time.
    The proposed marketing order includes provisions to reduce 
compliance costs for small handlers. Firms that handle less than 
1,000,000 pounds per year would be subject to simplified afaltoxin 
testing procedures. Additionally, they would be exempt from testing for 
remaining minimum quality requirements. This should reduce the expenses 
for smaller handlers.
    Some other handlers, which process substantially more, may face 
somewhat higher costs for at least part of their production. Those 
handlers are likely, however, to have more than $5 million in total 
revenue, and would thus not be classified as small business entities.
    Table 2 shows that the compliance costs and net economic impacts 
for different sizes of handlers. A positive net economic impact would 
exist for all handler groups.

 Table 2.--Distribution of Economic Effects Across Handlers of Different
                                  Sizes
   [Pistachio Marketing Order Simulation Results With Median Parameter
                                 Values]
------------------------------------------------------------------------
                                           Direct         Net economic
           Handler group*              compliance cost       impact
------------------------------------------------------------------------
Higher Volume/Lower Compliance Costs         -$667,000        $1,178,000
Medium Volume/Compliance Costs......          -150,000           208,000
Lower Volume/Higher Compliance Costs            58,000            61,000
                                     -------------------
      Total.........................           875,000        1,447,000
------------------------------------------------------------------------
* 80%, 15%, and 5%, respectively, of total quantity of pistachios
  marketed annually.

    The above table shows that the net economic impact is in direct 
proportion to the volume of pistachios handled by each handler group. 
For example, the largest handler group, accounting for 80 percent of 
the pistachios marketed, would reap about 81 percent of the benefits of 
the program. AMS therefore concludes that the program would not have a 
disproportionate impact on small entities.
    The cost and benefit estimates presented above focus on a single 
set of results using median parameter values. The witness's economic 
analysis involved simulating a number of scenarios, using alternative 
values for compliance costs, benefits, and elasticities of supply and 
demand. All scenarios, even the low benefit, high cost scenarios, 
indicated positive net economic impacts.
    The witness's analysis concludes that the proposed marketing order 
would require minimal adjustments in current processing activities and 
would yield large estimated benefits. The simulation results indicate 
that costs of compliance are small relative to benefits for all firms, 
and that both small and large entities are likely to benefit 
significantly. Producers are likely to share net producer benefits in 
proportion to production. Large and small handlers both gain from the 
marketing order, also in proportion to the volumes handled. Some of the 
smallest handlers could have larger net benefits per unit because of 
the provision allowing special lower-cost testing arrangements.
    The witness's net benefit analysis represents a reasonable, 
plausible set of estimates of the economic impact of mandatory 
aflatoxin testing and minimum quality standards through promulgation of 
a Federal marketing order. The median cost and benefit figures 
explained during the hearing are considered to adequately represent 
estimates of the economic impact of implementation of the proposed 
program and its regulatory provisions.
    The proposed order would impose some reporting and recordkeeping 
requirements on handlers. However, handler testimony indicated that the 
expected burden that would be imposed with respect to these 
requirements would be negligible. Most of the information that would be 
reported to the committee is already compiled by handlers for other 
uses and is readily available. Reporting and recordkeeping requirements 
issued under the peanut aflatoxin certification program (7 CFR part 
996) impose an average annual burden on each regulated handler and 
importer of about 8 hours. It is reasonable to expect that a similar 
burden may be imposed under this proposed marketing order on the 
estimated 19 handlers of pistachios in California.
    The Act requires that, prior to the issuance of a marketing order, 
a referendum be conducted among the affected producers to determine if 
they favor issuance of the order. The ballot material that would be 
used in conducting the referendum would be submitted to and approved by 
OMB before it is used. It is estimated that it would take an average of 
10 minutes for each of the approximately 647 pistachio producers in 
California to complete the ballot. Additionally, it has been estimated 
that it would take approximately 10 minutes for each handler to 
complete the marketing agreement.
    Therefore, in compliance with OMB regulations (5 CFR part 1320) 
which implement the Paperwork Reduction Act of 1995 (Pub. L. 104-13), 
the information collection and recordkeeping requirements that may be 
imposed by this order would be submitted to OMB for approval. Those 
requirements would not become effective prior to OMB review. Any 
recordkeeping and reporting requirements imposed would be evaluated 
against the potential benefits to be derived and it is expected that 
any added burden resulting from increased reporting and recordkeeping 
would not be significant when compared to those anticipated benefits 
derived from administration of the order.
    The record evidence also indicates that the benefits to small as 
well as large handlers are likely to be greater than would accrue under 
the alternatives to the order proposed herein, namely no marketing 
order, or an order without the proposed combination of quality, size 
and aflatoxin regulation.
    In determining that the proposed order and its provisions would not 
have a disproportionate economic on a substantial number of small 
entities, all of the issues discussed above were

[[Page 46021]]

considered. Based on hearing record evidence and USDA's analysis of the 
economic information provided, the proposed order provisions have been 
carefully reviewed to ensure that every effort has been made to 
eliminate any unnecessary costs or requirements.
    Although the proposed order may impose some additional costs and 
requirements on handlers, it is anticipated that the order will help to 
strengthen demand for California pistachios. Therefore, any additional 
costs would be offset by the benefits derived from expanded sales 
benefiting handlers and producers alike. Accordingly, it is determined 
that the proposed order would not have a disproportionate economic 
impact on a substantial number of small handlers or producers.
    A 30-day comment period is provided to allow interested persons to 
respond to this proposed decision to effectuate a marketing order. 
Thirty days is deemed appropriate so that any marketing order resulting 
from this rulemaking process may be implemented as soon as possible at 
the beginning of the nearest marketing year. A 60-day comment period on 
the information collection burden is deemed appropriate as any 
paperwork burden imposed by this action will not become effective until 
the process is finalized. All written exceptions and comments timely 
received will be considered and a grower referendum will be conducted 
before these proposals are implemented.

Civil Justice Reform

    The marketing agreement and order proposed herein have been 
reviewed under Executive Order 12988, Civil Justice Reform. They are 
not intended to have retroactive effect. If adopted, the proposed order 
would not preempt any State or local laws, regulations, or policies, 
unless they present an irreconcilable conflict with this proposal.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with the Department a 
petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with law and request a modification of the order or to be exempted 
there from. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing, the USDA would rule on the petition. The 
Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the 
Department's ruling on the petition, provided an action is filed not 
later than 20 days after the date of the entry of the ruling.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), AMS announces its intention to request an approval of a 
new information collection for the marketing order regulating 
pistachios grown in California.
    Title: Pistachios Grown in California.
    OMB Number: 0581-NEW.
    Expiration Date of Approval: To be assigned by OMB.
    Type of Request: Intent to establish a new information collection.
    Abstract: The information collection requirements in this request 
are essential to carry out the intent of the Act, to provide the 
respondents the type of service they request, and to administer the 
California pistachio marketing order program.
    The California pistachio marketing order would authorize standards 
for quality of pistachios produced and handled in California by 
establishing a maximum aflatoxin tolerance level, maximum limits for 
defects, a minimum size requirement, and mandatory inspection and 
certification. AMS is the agency that would provide oversight of the 
order, and any administrative rules and regulations issued under the 
program.
    The Department must determine if sufficient producer support exists 
within the industry to initially establish the proposed marketing 
order. If the order were established, the USDA could also, given 
recommendation by the committee and adequate support by the industry, 
implement formal rulemaking to amend the order. Further, a continuance 
referendum would be conducted every 6 years to determine ongoing 
industry support for the order. In all of these instances, ballot 
information would be collected from producers and compiled in aggregate 
for purposes of determining producer support for the order (or any 
amendment to the order).
    Upon implementation of the order or during amendatory proceedings, 
handlers would be asked to sign a marketing agreement to indicate their 
willingness to comply with the provisions of the new or amended order. 
AMS would also provide a certificate of resolution for each handler 
organization to sign, documenting the handler's support of the 
marketing agreement and order.
    If the proposed order is established, handler and producer 
nomination forms, ballots, and confidential qualification and 
acceptance statements will be used to nominate and appoint the 
committee members.
    California pistachio producers and handlers would be nominated by 
their peers to serve as representatives on the committee. Each producer 
and handler would have the opportunity to submit a nomination form with 
the names of individuals to be considered for nomination.
    Individuals who are nominated and wish to stand for election would 
be required to complete a confidential qualification and acceptance 
statement before the election. If qualified, the nominees would be 
placed on a nomination ballot.
    Producers and handlers would vote for the candidate(s) of their 
choice using the producer and handler nomination ballots. Names of 
candidates receiving the most votes would be submitted to AMS for 
appointment as committee members and alternate members. The producer 
and handler members of the committee would nominate a public member and 
alternate public member. Each would complete qualification and 
acceptance statement before being recommended to AMS for appointment.
    The forms covered under this information collection request 
submission of minimum information necessary to ascertain producer 
support for implementing the proposed order and to appoint initial 
committee members. Additional reporting and recordkeeping requirements 
may subsequently be recommended by the committee for its use in 
administering the order. The burden imposed by any additional 
requirements would be submitted for approval by the OMB.
    The information collected would be used only by authorized 
representatives of USDA, including AMS, Fruit and Vegetable Programs 
regional and headquarters' staff, and authorized employees of the 
committee, if established. Section 608(d)(2) of the Act provides that 
all information would be kept confidential.

Total Annual Estimated Burden

    The total burden for the proposed information collection under the 
order is as follows:
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 15 minutes per response.
    Estimated Number of Respondents: 668 (647 producers, 19 handlers 
and the public member and alternate nominee).

[[Page 46022]]

    Estimated Number of Responses per Respondent: .77
    Estimated Total Annual Burden on Respondents: 133 hours.

Estimated Annual Burden for Each Form

    For each new form, the proposed request for approval of new 
information collections under the order are as follows:
    FV-240 Producer's Referendum Ballot (promulgation and continuance). 
Producers would use this ballot to vote whether they favor 
establishment of the order and, once every 6 years, whether they want 
the order to continue in effect. For the purpose of this calculation, 
it is estimated that 450 pistachio producers (75 percent of the total) 
would vote in the promulgation referendum and in the continuance 
referenda.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 20 minutes per response.
    Respondents: California pistachio producers.
    Estimated Number of Respondents: 450.
    Estimated Number of Responses per Respondent: Once every 6 years.
    Estimated Total Annual Burden on Respondents: 25 hours.
    FV-241 Cooperative Association of Producers Referendum Ballot 
(promulgation and continuance). This ballot would be used to register 
the cooperative's vote on promulgation or continuance of the marketing 
order. At the time of this promulgation proceeding, there is only 1 
pistachio cooperative registered in the production area.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 20 minutes per response.
    Respondents: California pistachio cooperative.
    Estimated Number of Respondents: 1.
    Estimated Number of Responses per Respondent: Once every 6 years.
    Estimated Total Annual Burden on Respondents: 3 minutes.
    FV-242 Marketing Agreement. Handlers would use this form to 
indicate their willingness to comply with the provisions of the order. 
The Marketing Agreement would be completed if the proposed order is 
implemented and in any future amendment of the order.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 5 minutes per response.
    Respondents: California pistachio handlers.
    Estimated Number of Respondents: 19.
    Estimated Number of Responses per Respondent: Once every 6 years.
    Estimated Total Annual Burden on Respondents: 16 minutes.
    FV-242A Certificate of Resolution. This would document corporate 
handlers' support for the order and marketing agreement. The Marketing 
Agreement would be completed if the proposed order is implemented and 
in any future amendment of the order.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 5 minutes per response.
    Respondents: Incorporated pistachio handlers.
    Estimated Number of Respondents: 19.
    Estimated Number of Responses per Respondent: Once every 6 years.
    Estimated Total Annual Burden on Respondents: 16 minutes.
    FV-243 Administrative Committee for Pistachios Confidential 
Producer/Handler and Public Member Qualification and Acceptance 
Statement. There are 11 members and 11 alternate members on the 
committee. Each year after the initial committee is seated, half of the 
22 members would be replaced with new members. This form would be used 
by candidates for nomination to provide their qualifications to serve 
on the committee. For the purpose of this calculation, it is estimated 
that 30 individuals will agree to be candidates to serve on the 
committee.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 10 minutes per response.
    Respondents: California pistachio producers, handlers and public 
member nominees.
    Estimated Number of Respondents: 30.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 5 hours.
    FV-244 Handler Members and Alternate Handler Members' Ballot. Each 
handler would use the ballot to vote on handler member nominees to 
serve on the committee.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 5 minutes per response.
    Respondents: California pistachio handlers.
    Estimated Number of Respondents: 19.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 1.5 hours.
    FV-245 Producer Members and Alternate Producer Members Nomination 
Form. Pistachio producers would use this form to nominate themselves or 
other producers to serve on the committee. For the purpose of this 
calculation, it is estimated that 50 producers will offer nominations.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 20 minutes per response.
    Respondents: California pistachio producers.
    Estimated Number of Respondents: 50.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 17 hours.
    FV-245A Handler Members and Alternate Handler Members' Nomination 
Form. Pistachio handlers would use this form to nominate themselves or 
other handlers to serve on the committee. For the purpose of this 
calculation, it is estimated that 10 handlers will offer nominations.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 20 minutes per response.
    Respondents: California pistachio handlers.
    Estimated Number of Respondents: 10.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 3.3 hours.
    FV-246 Producer Member and Alternate Producer Member Ballot. 
Pistachio producers would use this ballot to vote on their choice of 
nominees to serve on the committee. For the purpose of this 
calculation, it is estimated that 325 producers (50 percent of all 
producers) will vote in nomination elections.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 15 minutes per response.
    Respondents: California pistachio producers.
    Estimated Number of Respondents: 325.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 81 hours.
    If this marketing order program is approved by producers in 
referendum and established by USDA, the committee could recommend to 
the Department other forms (such as monthly handler reports of 
acquisitions

[[Page 46023]]

or dispositions of substandard pistachios) which would be needed to 
administer the order. All such forms would be subject to USDA and OMB 
review and approval.
    Comments: Comments are invited on: (1) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information would 
have practical utility; (2) the accuracy of the agency's estimate of 
the burden of the proposed collection of information, including the 
validity of the methodology and assumptions used; (3) ways to enhance 
the quality, utility, and clarity of the information to be collected; 
and (4) ways to minimize the burden of the collection of information on 
those who are to respond, including the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology.
    Comments should reference OMB No. 0581-NEW and the California 
pistachio marketing order, and be sent to USDA in care of the Docket 
Clerk at the previously mentioned address. All comments received will 
be available for public inspection during regular business hours at the 
same address.
    All responses to this notice will be summarized and included in the 
request for OMB approval of the above-described forms. All comments 
will become a matter of public record.

Rulings on Proposed Findings and Conclusions

    Briefs, proposed findings and conclusions, and the evidence in the 
record were considered in making the findings and conclusions set forth 
in this recommended decision. To the extent that the suggested findings 
and conclusions filed by interested persons are inconsistent with the 
findings and conclusions of this recommended decision, the requests to 
make such findings or to reach such conclusions are denied.

General Findings

    (1) The proposed marketing agreement and order and all of the terms 
and conditions thereof, would tend to effectuate the declared policy of 
the Act;
    (2) The proposed marketing agreement and order regulate the 
handling of pistachios in California in the same manner as, and are 
applicable only to, persons in the respective classes of commercial and 
industrial activity specified in the marketing agreement and order upon 
which a hearing has been held;
    (3) The proposed marketing agreement and order are limited in their 
application to the smallest regional production area which is 
practicable, consistent with carrying out the declared policy of the 
Act, and the issuance of several orders applicable to subdivision of 
the production area would not effectively carry out the declared policy 
of the Act;
    (4) The proposed marketing agreement and order prescribe, insofar 
as practicable, such different terms applicable to different parts of 
the production area as are necessary to give due recognition to the 
differences in the production and marketing of pistachios grown in the 
production area; and
    (5) All handling of pistachios grown in California as defined in 
the proposed marketing agreement and order, is in the current of 
interstate or foreign commerce or directly burdens, obstructs, or 
affects such commerce.
    Provisions of the proposed marketing agreement and order follow. 
Those sections identified with an asterisk (*) apply only to the 
proposed marketing agreement.

List of Subjects in 7 CFR Part 983

    Marketing agreements, Pistachios, Reporting and recordkeeping 
requirements.

    Title 7, chapter IX is proposed to be amended by adding part 983 to 
read as follows:

PART 983--PISTACHIOS GROWN IN CALIFORNIA

Subpart--Order Regulating Handling

Definitions

Sec.
983.1 Accredited laboratory.
983.2 Act.
983.3 Affiliation.
983.4 Aflatoxin.
983.5 Aflatoxin inspection certificate.
983.6 Assessed weight.
983.7 Certified pistachios.
983.8 Committee.
983.9 Confidential data or information.
983.10 Department or USDA.
983.11 Districts.
983.12 Domestic shipments.
983.13 Edible pistachios.
983.14 Handle.
983.15 Handler.
983.16 Inshell pistachios.
983.17 Inspector.
983.18 Lot.
983.19 Minimum quality requirements.
983.20 Minimum quality certificate.
983.21 Part and subpart.
983.22 Person.
983.23 Pistachios.
983.24 Processing.
983.25 Producer.
983.26 Production area.
983.27 Production year.
983.28 Proprietary capacity.
983.29 Secretary.
983.30 Shelled pistachios.
983.31 Substandard pistachios.

Administrative Committee

983.32 Establishment and membership.
983.33 Initial members and nomination of successor members.
983.34 Procedure.
983.35 Powers.
983.36 Duties.

Marketing Policy

983.37 Marketing policy.

Regulation

983.38 Aflatoxin levels.
983.39 Minimum quality levels.
983.40 Failed lots/rework procedure.
983.41 Testing of minimal quantities.
983.42 Commingling.
983.43 Reinspection.
983.44 Inspection, certification and identification.
983.45 Substandard pistachios.
983.46 Modification or suspension of regulations.

Reports, Books and Records

983.47 Reports.
983.48 Confidential information.
983.49 Records.
983.50 Random verification audits.
983.51 Verification of reports.

Expenses and Assessments

983.52 Expenses.
983.53 Assessments.
983.54 Contributions.
983.55 Delinquent assessments.
983.56 Accounting.
983.57 Implementation and amendments.

Miscellaneous Provisions

983.58 Compliance.
983.59 Rights of the Secretary.
983.60 Personal liability.
983.61 Separability.
983.62 Derogation.
983.63 Duration of immunities.
983.64 Agents.
983.65 Effective time.
983.66 Suspension or termination.
983.67 Termination.
983.68 Procedure upon termination.
983.69 Effect of termination or amendment.
983.70 Exemption.
983.71 Relationship with the California Pistachio Commission.
* 983.90 Counterparts.
* 983.91 Additional parties.
* 983.92 Order with marketing agreement.

*Sections identified with an asterisk (*) apply only to the proposed 
marketing agreement.

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

Subpart--Order Regulating Handling

Definitions


Sec.  983.1  Accredited laboratory.

    An accredited laboratory is a laboratory that has been approved or 
accredited by the U.S. Department of Agriculture for testing aflatoxin.

[[Page 46024]]

Sec.  983.2  Act.

    Act means Public Act No. 10, 73rd Congress (May 12, 1933), as 
amended and as re-enacted and amended by the Agricultural Marketing 
Order Act of 1937, as amended (48 Stat. 31, as amended; 7 U.S.C. 601 et 
seq.).


Sec.  983.3  Affiliation.

    Affiliation. This term normally appears as ``affiliate of'', or 
``affiliated with'', and means a person such as a producer or handler 
who is: a producer or handler that directly, or indirectly through one 
or more intermediaries, owns or controls, or is controlled by, or is 
under common control with the producer or handler specified; or a 
producer or handler that directly, or indirectly through one or more 
intermediaries, is connected in a proprietary capacity, or shares the 
ownership or control of the specified producer or handler with one or 
more other producers or handlers. As used in this part, the term 
control (including the terms controlling, controlled by, and under the 
common control with) means the possession, direct or indirect, of the 
power to direct or cause the direction of the management and policies 
of a handler or a producer, whether through voting securities, 
membership in a cooperative, by contract or otherwise.


Sec.  983.4  Aflatoxin.

    Aflatoxin is one of a group of mycotoxins produced by the molds 
Aspergillus flavus and Aspergillus parasiticus. Aflatoxins are 
naturally occurring compounds produced by molds, which can be spread in 
improperly processed and stored nuts, dried fruits and grains.


Sec.  983.5  Aflatoxin inspection certificate.

    Aflatoxin inspection certificate is a certificate issued by an 
accredited laboratory or by a USDA laboratory.


Sec.  983.6  Assessed weight.

    Assessed weight means pounds of pistachios, with the weight 
computed at 5 percent moisture, received for processing by a handler 
within each production year: Provided, That for loose kernels, the 
actual weight shall be multiplied by two to obtain an inshell weight; 
or based on such other elements as may be recommended by the committee 
and approved by the Secretary.


Sec.  983.7  Certified pistachios.

    Certified pistachios are those for which aflatoxin inspection and 
minimum quality certificates have been issued.


Sec.  983.8  Committee.

    Committee means the administrative committee for pistachios 
established pursuant to Sec.  983.32.


Sec.  983.9  Confidential data or information.

    Confidential data or information submitted to the committee 
consists of data or information constituting a trade secret or 
disclosure of the trade position, financial condition, or business 
operations of a particular entity or its customers.


Sec.  983.10  Department or USDA.

    Department or USDA means the United States Department of 
Agriculture.


Sec.  983.11  Districts.

    (a) Districts shall consist of the following:
    (1) District 1 consists of Tulare, Kern, San Bernardino, San Luis 
Obispo, Santa Barbara, Ventura, Los Angeles, Orange, Riverside, San 
Diego, and Imperial Counties of California.
    (2) District 2 consists of Kings, Fresno, Madera, and Merced 
Counties of California.
    (3) District 3 consists of all counties in California where 
pistachios are produced that are not included in Districts 1 and 2.
    (b) With the approval of the Secretary, the boundaries of any 
district may be changed by the committee, to ensure proper 
representation. The boundaries need not coincide with county lines. In 
addition, the boundaries in the production area may be adjusted to 
conform to changes to the boundaries of the districts established for 
those of the California Pistachio Commission upon the recommendation of 
the committee and approval of the Secretary.


Sec.  983.12  Domestic shipments.

    Domestic shipments means shipments to the fifty states of the 
United States or to territories of the United States and the District 
of Columbia.


Sec.  983.13  Edible pistachios.

    Edible pistachios are those that do not exceed the level of defects 
under Sec.  983.38 and Sec.  983.39.


Sec.  983.14  Handle.

    Handle means to engage in:
    (a) Receiving pistachios;
    (b) Hulling and drying pistachios;
    (c) Further preparing pistachios by sorting, sizing, shelling, 
roasting, cleaning, salting, and/or packaging for marketing in or 
transporting to any and all markets in the current of interstate or 
foreign commerce; and/or
    (d) Placing pistachios into the current of commerce from within the 
production area to points outside thereof: Provided, however, that 
transportation within the production area between handlers and from the 
orchard to the processing facility is not handling.


Sec.  983.15  Handler.

    Handler means any person who handles pistachios.


Sec.  983.16  Inshell pistachios.

    Inshell pistachios means pistachios that have a shell that has not 
been removed.


Sec.  983.17  Inspector.

    Inspector means any inspector authorized by the USDA to inspect 
pistachios.


Sec.  983.18  Lot.

    Lot means any quantity of pistachios that is submitted for testing 
purposes under this part.


Sec.  983.19  Minimum quality requirements.

    Minimum quality requirements are permissible maximum defects and 
minimum size levels for inshell pistachios and kernels specified in 
Sec.  983.39.


Sec.  983.20  Minimum quality certificate.

    Minimum quality certificate is a certificate issued by the USDA or 
Federal/State Inspection Service.


Sec.  983.21  Part and subpart.

    Part means the order regulating the handling of pistachios grown in 
the State of California, and all rules, regulations and supplementary 
orders issued there under. The aforesaid order regulating the handling 
of pistachios grown in California shall be a subpart of such part.


Sec.  983.22  Person.

    Person means an individual, partnership, limited liability 
corporation, corporation, trust, association, or any other business 
unit.


Sec.  983.23  Pistachios.

    Pistachios means the nuts of the pistachio tree of the genus 
Pistacia vera grown in the production area whether inshell or shelled.


Sec.  983.24  Processing.

    Processing means hulling and drying pistachios in preparation for 
market.


Sec.  983.25  Producer.

    Producer means any person engaged within the production area in a 
proprietary capacity in the production of pistachios for sale.

[[Page 46025]]

Sec.  983.26  Production area.

    Production area means the State of California.


Sec.  983.27  Production year.

    Production year is synonymous with ``fiscal period'' and means the 
period beginning on September 1 and ending on August 31 of each year or 
such other period as may be recommended by the committee and approved 
by the Secretary. Pistachios harvested and received in August of any 
year shall be applied to the subsequent production year for marketing 
order purposes.


Sec.  983.28  Proprietary capacity.

    Proprietary capacity means the capacity or interest of a producer 
or handler that, either directly or through one or more intermediaries, 
is a property owner together with all the appurtenant rights of an 
owner including the right to vote the interest in that capacity as an 
individual, a shareholder, member of a cooperative, partner, trustee or 
in any other capacity with respect to any other business unit.


Sec.  983.29  Secretary.

    Secretary means the Secretary of Agriculture of the United States 
or any officer or employee of the United States Department of 
Agriculture who is, or who may hereafter be, authorized to act in his/
her stead.


Sec.  983.30  Shelled pistachios.

    Shelled pistachios means pistachio kernels, or portions of kernels, 
after the pistachio shells have been removed.


Sec.  983.31  Substandard pistachios.

    Substandard pistachios means pistachios, inshell or shelled, which 
do not comply with the maximum aflatoxin and/or minimum quality 
regulations of this part.

Administrative Committee


Sec.  983.32  Establishment and membership.

    There is hereby established an administrative committee for 
pistachios to administer the terms and provisions of this part. This 
committee, consisting of eleven (11) member positions, each of whom 
shall have an alternate, shall be allocated as follows:
    (a) Handlers. Two of the members shall represent handlers, as 
follows:
    (1) One handler member nominated by one vote for each handler; and
    (2) One handler member nominated by voting based on each handler 
casting one vote for each ton (or portion thereof) of the assessed 
weight of pistachios processed by such handler during the two 
production years preceding the production year in which the nominations 
are made.
    (b) Producers. Eight members shall represent producers. Producers 
within the respective districts shall nominate four producers from 
District 1, three producers from District 2 and one producer from 
District 3. The Secretary, upon recommendation of the committee, may 
reapportion producer membership among the districts to ensure proper 
representation.
    (c) Public member. One member shall be a public member who is 
neither a producer nor a handler and shall have all the powers, rights 
and privileges of any other member of the committee. The public member 
and alternate public member shall be nominated by the committee and 
selected by the Secretary.


Sec.  983.33  Initial members and nomination of successor members.

    Nomination of committee members and alternates shall follow the 
procedure set forth in this section or as may be changed as recommended 
by the committee and approved by the Secretary.
    (a) Initial members. Nominations for initial grower and handler 
members shall be conducted by the Secretary by either holding meetings 
of handlers and producers, or by mail.
    (b) Successor members. Subsequent to the first nomination of 
committee members under this part, persons to be nominated to serve on 
the committee as producer or handler members shall be selected pursuant 
to nomination procedures that shall be established by the committee 
with the approval of the Secretary: Provided, That:
    (1) Any qualified individuals who seek nomination as a producer 
member shall submit to the committee an intent to seek office in one 
designated district on such form and with such information as the 
committee shall designate; ballots, accompanied by the names of all 
such candidates, with spaces to indicate voters' choices and spaces for 
write-in candidates, together with voting instructions, shall be mailed 
to all producers who are on record with the committee within the 
respective districts; the person(s) receiving the highest number of 
votes shall be the member nominee(s) for that district, and the 
person(s) receiving the second highest number of votes shall be the 
alternate member nominee(s). In case of a tie vote, the nominee shall 
be selected by a drawing.
    (2) Any qualified individuals who seek nomination as a handler 
member shall submit to the committee an intent to seek office with such 
information as the committee shall designate; ballots, accompanied by 
the names of all such candidates, with spaces to indicate voters' 
choices and spaces for write-in candidates, together with voting 
instructions, shall be mailed to all handlers who are on record with 
the committee. For the first handler member seat, the person receiving 
the highest number of votes shall be the handler member nominee for 
that seat, and the person receiving the second highest number of votes 
shall be the alternate member nominee. For the second handler member 
seat, the person receiving the highest number of votes representing 
handler volume shall be the handler member nominee for that seat, and 
the person receiving the second highest number of votes representing 
handler volume shall be the alternate member nominee. In case of a tie 
vote, the nominee shall be selected by a drawing.
    (c) Handlers. Only handlers, including duly authorized officers or 
employees of handlers, may participate in the nomination of the two 
handler member nominees and their alternates. Nomination of the two 
handler members and their alternates shall be as follows:
    (1) For one handler member nomination, each handler entity shall be 
entitled to one vote;
    (2) For the second handler member nomination, each handler entity 
shall be entitled to cast one vote respectively for each ton of 
assessed weight of pistachios processed by that handler during the two 
production years preceding the production year in which the nominations 
are made. For the purposes of nominating handler members and alternates 
by volume, the assessed weight of pistachios shall be credited to the 
handler responsible under the order for the payment of assessments of 
those pistachios. The committee with the approval of the Secretary, may 
revise the handler representation on the committee if the committee 
ceases to be representative of the industry.
    (d) Producers. Only producers, including duly authorized officers 
or employees of producers, may participate in the nomination of 
nominees for producer members and their alternates. Each producer shall 
be entitled to cast only one vote, whether directly or through an 
authorized officer or employee, for each position to be filled in the 
district in which the producer produces pistachios. If a producer is 
engaged in producing pistachios in more than one district, such 
producer shall select the district in which to participate in the 
nomination. If a person is both a producer and a handler of pistachios, 
such person may participate in both producer and

[[Page 46026]]

handler nominations, provided, however, that a single member may not 
hold concurrent seats as both a producer and handler.
    (e) Member's affiliation. Not more than two members and not more 
than two alternate members shall be persons employed by or affiliated 
with producers or handlers that are affiliated with the same handler 
and/or producer. Additionally, only one member and one alternate in any 
one district representing producers and only one member and one 
alternate representing handlers shall be employed by, or affiliated 
with the same handler and/or producer. No handler, and all of its 
affiliated handlers, can be represented by more than one handler 
member.
    (f) Cooperative affiliation. In the case of a producer cooperative, 
a producer shall not be deemed to be connected in a proprietary 
capacity with the cooperative notwithstanding any outstanding retains, 
contributions or financial indebtedness owed by the cooperative to a 
producer if the producer has not marketed pistachios through the 
cooperative during the current and one preceding production year. A 
cooperative that has as its members one or more other cooperatives that 
are handlers shall not be considered as a handler for the purpose of 
nominating or voting under this part.
    (g) Alternate members. Each member of the committee shall have an 
alternate member to be nominated in the same manner as the member. Any 
alternate serving in the same district as a member where both are 
employed by, or connected in a proprietary capacity with the same 
corporation, firm, partnership, association, or business organization, 
shall serve as the alternate to that member. An alternate member, in 
the absence of the member for whom that alternate is selected shall 
serve in place of that member on the committee, and shall have and be 
able to exercise all the rights, privileges, and powers of the member 
when serving on the committee. In the event of death, removal, 
resignation, or the disqualification of a member, the alternate shall 
act as a member on the committee until a successor member is selected 
and has been qualified.
    (h) Selection by Secretary. Nominations under paragraph (g) of this 
section received by the committee for all handler and producer members 
and alternate member positions shall be certified and sent to the 
Secretary at least 60 days prior to the beginning of each two-year term 
of office, together with all necessary data and other information 
deemed by the committee to be pertinent or requested by the Secretary. 
From those nominations, the Secretary shall select the ten producer and 
handler members of the committee and an alternate for each member.
    (i) Acceptance. Each person to be selected by the Secretary as a 
member or as an alternate member of the committee shall, prior to such 
selection, qualify by advising the Secretary that if selected, such 
person agrees to serve in the position for which that nomination has 
been made.
    (j) Failure to nominate. If nominations are not made within the 
time and manner specified in this part, the Secretary may, without 
regard to nominations, select the committee members and alternates 
qualified to serve on the basis of the representation provided for in 
Sec.  983.32.
    (k) Term of office. Selected members and alternate members of the 
committee shall serve for terms of two years: Provided, That four of 
the initially selected producer members and one handler member and 
their alternates shall, by a drawing, be seated for terms of one year 
so that approximately half of the memberships' terms expire each year. 
Each member and alternate member shall continue to serve until a 
successor is selected and has qualified. The term of office shall begin 
on July 1st of each year. Committee members and alternates may serve up 
to four consecutive, two-year terms of office. In no event shall any 
member or alternate serve more than eight consecutive years on the 
committee. For purposes of determining when a member or alternate has 
served four consecutive terms, the accrual of terms shall begin 
following any period of at least twelve consecutive months out of 
office.
    (l) Qualifications. (1) Each producer member and alternate shall 
be, at the time of selection and during the term of office, a producer 
or an officer, or employee, of a producer in the district for which 
nominated.
    (2) Each handler member and alternate shall be, at the time of 
selection and during the term of office, a handler or an officer or 
employee of a handler.
    (3) Any member or alternate member who at the time of selection was 
employed by or affiliated with the person who is nominated, that member 
shall, upon termination of that relationship, become disqualified to 
serve further as a member and that position shall be deemed vacant.
    (4) No person nominated to serve as a public member or alternate 
public member shall have a financial interest in any pistachio growing 
or handling operation.
    (m) Vacancy. Any vacancy on the committee occurring by the failure 
of any person selected to the committee to qualify as a member or 
alternate member due to a change in status making the member ineligible 
to serve, or due to death, removal, or resignation, shall be filled, by 
a majority vote of the committee for the unexpired portion of the term. 
However, that person shall fulfill all the qualifications set forth in 
this part as required for the member whose office that person is to 
fill. The qualifications of any person to fill a vacancy on the 
committee shall be certified in writing to the Secretary. The Secretary 
shall notify the committee if the Secretary determines that any such 
person is not qualified.
    (n) The committee, with the approval of the Secretary, may issue 
rules and regulations implementing Sec. Sec.  983.32, 983.33 and 
983.34.


Sec.  983.34  Procedure.

    (a) Quorum. A quorum of the committee shall be any seven voting 
committee members. The vote of a majority of members present at a 
meeting at which there is a quorum shall constitute the act of the 
committee: Provided, That actions of the committee with respect to the 
following issues shall require at least seven concurring votes of the 
voting members regarding any recommendation to the Secretary for 
adoption or change in:
    (1) Minimum quality levels;
    (2) Aflatoxin levels;
    (3) Inspection programs;
    (4) The establishment of the committee.
    (b) Voting. Members of the committee may participate in a meeting 
by attendance in person or through the use of a conference telephone or 
similar communication equipment, as long as all members participating 
in such a meeting can communicate with one another. An action required 
or permitted to be taken by the committee may be taken without a 
meeting, if all members of the committee shall consent in writing to 
that action.
    (c) Compensation. The members of the committee and their alternates 
shall serve without compensation, but members and alternates acting as 
members shall be allowed their necessary expenses: Provided, That the 
committee may request the attendance of one or more alternates not 
acting as members at any meeting of the committee, and such alternates 
may be allowed their necessary expenses; and, Provided further, That 
the public member and the alternate for the public member may be paid 
reasonable

[[Page 46027]]

compensation in addition to necessary expenses.


Sec.  983.35  Powers.

    The committee shall have the following powers:
    (a) To administer the provisions of this part in accordance with 
its terms;
    (b) To make and adopt bylaws, rules and regulations to effectuate 
the terms and provisions of this part with the approval of the 
Secretary;
    (c) To receive, investigate, and report to the Secretary complaints 
of violations of this part; and
    (d) To recommend to the Secretary amendments to this part.


Sec.  983.36  Duties.

    The committee shall have, among others, the following duties:
    (a) To adopt bylaws and rules for the conduct of its meetings and 
the selection of such officers from among its membership, including a 
chairperson and vice-chairperson, as may be necessary, and define the 
duties of such officers; and adopt such other bylaws, regulations and 
rules as may be necessary to accomplish the purposes of the Act and the 
efficient administration of this part;
    (b) To employ or contract with such persons or agents as the 
committee deems necessary and to determine the duties and compensation 
of such persons or agents;
    (c) To select such subcommittees as may be necessary;
    (d) To submit to the Secretary a budget for each fiscal period, 
prior to the beginning of such period, including a report explaining 
the items appearing therein and a recommendation as to the rate of 
assessments for such period;
    (e) To keep minutes, books, and records which will reflect all of 
the acts and transactions of the committee and which shall be subject 
to examination by the Secretary;
    (f) To prepare periodic statements of the financial operations of 
the committee and to make copies of each statement available to 
producers and handlers for examination at the office of the committee;
    (g) To cause its financial statements to be audited by a certified 
public accountant at least once each fiscal year and at such times as 
the Secretary may request. Such audit shall include an examination of 
the receipt of assessments and the disbursement of all funds. The 
committee shall provide the Secretary with a copy of all audits and 
shall make copies of such audits, after the removal of any confidential 
individual or handler information that may be contained in them, 
available for examination at the offices of the committee;
    (h) To act as intermediary between the Secretary and any producer 
or handler with respect to the operations of this part;
    (i) To investigate and assemble data on the growing, handling, 
shipping and marketing conditions with respect to pistachios;
    (j) To apprise the Secretary of all committee meetings in a timely 
manner;
    (k) To submit to the Secretary such available information as the 
Secretary may request;
    (l) To investigate compliance with the provisions of this part;
    (m) To provide, through communication to producers and handlers, 
information regarding the activities of the committee and to respond to 
industry inquiries about committee activities;
    (n) To oversee the collection of assessments levied under this 
part;
    (o) To borrow such funds, subject to the approval of the Secretary 
and not to exceed the expected expenses of one fiscal year, as are 
necessary for administering its responsibilities and obligations under 
this part.

Marketing Policy


Sec.  983.37  Marketing policy.

    Prior to August 1st each year, the committee shall prepare and 
submit to the Secretary a report setting forth its recommended 
marketing policy covering quality regulations for the pending crop. In 
the event it becomes advisable to modify such policy, because of 
changed crop conditions, the committee shall formulate a new policy and 
shall submit a report thereon to the Secretary. In developing the 
marketing policy, the committee shall give consideration to the 
production, harvesting, processing and storage conditions of that crop. 
The committee may also give consideration to current prices being 
received and the probable general level of prices to be received for 
pistachios by producers and handlers. Notice of the committee's 
marketing policy, and of any modifications thereof, shall be given 
promptly by reasonable publicity, to producers and handlers.

Regulations


Sec.  983.38  Aflatoxin levels.

    (a) Maximum level. No handler shall ship for domestic human 
consumption, pistachios that exceed an aflatoxin level of more than 15 
ppb. All shipments must also be covered by an aflatoxin inspection 
certificate. Pistachios that fail to meet the aflatoxin requirements 
shall be disposed in such manner as described in Failed lots/rework 
procedure of this part.
    (b) Change in level. The committee may recommend to the Secretary 
changes in the aflatoxin level specified in this section. If the 
Secretary finds on the basis of such recommendation or other 
information that such an adjustment of the aflatoxin level would tend 
to effectuate the declared policy of the Act, such change shall be made 
accordingly.
    (c) Transfers between handlers. Transfers between handlers within 
the production area are exempt from the aflatoxin regulation of this 
section.
    (d) Aflatoxin testing procedures. To obtain an aflatoxin inspection 
certificate, each lot to be certified shall be uniquely identified, be 
traceable from testing through shipment by the handler and be subjected 
to the following:
    (1) Samples for testing. Prior to testing, a sample shall be drawn 
from each lot and divided between those pistachios for aflatoxin 
testing and those for minimum quality testing (``lot samples'') in 
sufficient weight to comply with Table 1, Table 2 and Table 4 of this 
part.
    (2) Test samples for aflatoxin. Prior to submission of samples to 
an accredited laboratory for aflatoxin analysis, three samples shall be 
created equally from the pistachios designated for aflatoxin testing in 
compliance with the requirements of Tables 1 and 2 of this paragraph 
(d)(2) (``test samples''). The test samples shall be prepared by, or 
under the supervision of, an inspector, or as approved under an 
alternative USDA-recognized inspection program. The test samples shall 
be designated by an inspector as Test Sample 1, Test Sample 
2, and Test Sample 3. Each sample shall be placed in 
a suitable container, with the lot number clearly identified, and then 
submitted to an accredited laboratory. The gross weight of the inshell 
lot sample for aflatoxin testing and the number of samplings required 
are shown in Table 1 of this paragraph (d)(2). The gross weight of the 
kernel lot sample for aflatoxin testing and the number of incremental 
samples required is shown in Table 2 of this paragraph (d)(2).

[[Page 46028]]



                 Table 1.--Inshell Pistachio Lot Sampling Increments for Aflatoxin Certification
----------------------------------------------------------------------------------------------------------------
                                                             Number of
                                                            incremental      Total weight  of    Weight of test
                   Lot weight (lbs.)                      samples for  the      lot sample           sample
                                                             lot sample        (kilograms)        (kilograms)
----------------------------------------------------------------------------------------------------------------
220 or less............................................                 10                3.0                1.0
221-440................................................                 15                4.5                1.5
441-1100...............................................                 20                6.0                2.0
1101-2200..............................................                 30                9.0                3.0
2201-4400..............................................                 40               12.0                4.0
4401-11,000............................................                 60               18.0                6.0
11,001-22,000..........................................                 80               24.0                8.0
22,001-150,000.........................................                100               30.0               10.0
----------------------------------------------------------------------------------------------------------------


             Table 2.--Shelled Pistachio Kernel Lot Sampling Increments for Aflatoxin Certification
----------------------------------------------------------------------------------------------------------------
                                                            Number of
                                                           incremental      Total weight of     Weight of test
                   Lot weight (lbs.)                     samples for  the      lot sample           sample
                                                            lot sample        (kilograms)         (kilograms)
----------------------------------------------------------------------------------------------------------------
220 or less...........................................                 10                1.5                 .5
221-440...............................................                 15                2.3                 .75
441-1100..............................................                 20                3.0                1.0
1101-2200.............................................                 30                4.5                1.5
2201-4400.............................................                 40                6.0                2.0
4401-11,000...........................................                 60                9.0                3.0
11,001-22,000.........................................                 80               12.0                4.0
22,001-150,000........................................                100               15.0                5.0
----------------------------------------------------------------------------------------------------------------

    (3) Testing of pistachios. Test samples shall be received and 
logged by an accredited laboratory and each test sample shall be 
prepared and analyzed using High Pressure Liquid Chromatograph (HPLC) 
and Vicam Method (Aflatest) or other methods as recommended by not less 
than seven members of the committee and approved by the Secretary. The 
aflatoxin level shall be calculated on a kernel weight basis.
    (4) Certification of lots ``negative'' as to aflatoxin. Lots will 
be certified as ``negative'' on the aflatoxin inspection certificate if 
Test Sample 1 has an aflatoxin level at or below 5 ppb. If the 
aflatoxin level of Test Sample 1 is above 25 ppb, the lot 
fails and the accredited laboratory shall fill out a failed lot 
notification report as specified in Sec.  983.40. If the aflatoxin 
level of Test Sample 1 is above 5 ppb and below 25 ppb, the 
accredited laboratory may at the handler's discretion analyze Test 
Sample 2 and the test results of Test Samples 1 and 
2 will be averaged. Alternatively, the handler may elect to 
withdraw the lot from testing, rework the lot, and re-submit it for 
testing after re-working. If the handler directs the laboratory to 
proceed with the analysis of Test Sample 2, a lot will be 
certified as negative to aflatoxin and the laboratory shall issue an 
aflatoxin inspection certificate if the averaged results of Test 
Samples 1 and Test Sample 2 is at or below 10 ppb. If 
the averaged aflatoxin level of the Test Samples 1 and 
2 is at or above 20 ppb, the lot fails and the accredited 
laboratory shall fill out a failed lot notification report as specified 
in Sec.  983.40. If the averaged aflatoxin level of Test Samples 
1 and 2 is above 10 ppb and below 20 ppb, the 
accredited laboratory may, at the handler's discretion, analyze Test 
Sample 3 and the results of Test Samples 1, 
2 and 3 will be averaged. Alternatively, the handler 
may elect to withdraw the lot from testing, re-work the lot, and re-
submit it for testing after a re-working. If the handler directs the 
laboratory to proceed with the analysis of Test Sample 3, a 
lot will be certified as negative to aflatoxin and the laboratory shall 
issue an aflatoxin inspection certificate if the averaged results of 
Test Samples 1, 2 and 3 is at or below 15 
ppb. If the averaged aflatoxin results of Test Samples 1, 
2 and 3 is above 15 ppb, the lot fails and the 
accredited laboratory shall fill out a failed lot notification report 
as specified in Sec.  983.40. The accreditation laboratory shall send a 
copy of the failed lot notification report to the committee and to the 
failed lot's owner within 10 working days of any failure described in 
this section. If the lot is certified as negative as described in this 
section, the aflatoxin inspection certificate shall certify the lot 
using a certification form identifying each lot by weight, grade and 
date. The certification expires for the lot or remainder of the lot 
after 12 months.
    (5) Certification of aflatoxin levels. Each accredited laboratory 
shall complete aflatoxin testing and reporting and shall certify that 
every lot of California pistachios shipped domestically does not exceed 
the aflatoxin levels as required in Sec.  983.38(d)(4). Each handler 
shall keep a record of each test, along with a record of final shipping 
disposition. These records must be maintained for three years beyond 
the crop year of their applicability, and are subject to audit by the 
Secretary or the committee at any time.
    (6) Test samples that are not used for analysis. If a handler does 
not elect to use Test Samples 2 or 3 for 
certification purposes the handler may request the laboratory to return 
them to the handler.


Sec.  983.39  Minimum quality levels.

    (a) Maximum defect and minimum size. No handler shall ship for 
domestic human consumption, pistachios that exceed permissible maximum 
defect and minimum size levels shown in the following Table 3.

[[Page 46029]]



            Table 3.--Maximum Defect and Minimum Size Levels
------------------------------------------------------------------------
                                            Maximum permissible defects
                                                (percent by weight)
                 Factor                  -------------------------------
                                              Inshell         Kernels
------------------------------------------------------------------------
        External (Shell) Defects
1. Non-splits & not split on suture.....            10.0  ..............
    (i) Maximum non-splits allowed......             4.0  ..............
2. Adhering hull material...............             2.0  ..............
3. Dark stain...........................             3.0  ..............
4. Damage by other means, other than                10.0  ..............
 paragraphs 1, 2 and 3, which materially
 detracts from the appearance or the
 edible or marketing quality of the
 individual shell or the lot............
       Internal (Kernel) Deffects
1. Damage...............................             6.0             3.0
    Immature kernel (Fills <75%- <50% of
     the shell)
    Kernel spotting (Affects \1/8\
     aggregate surface)
2. Serious damage.......................             4.0             2.5
    Minor insect or vertebrate injury/
     insect damage, insect evidence,
     mold, rancidity, decay
    (i) Maximum insect damage allowed...             2.0             0.5
Total external or internal defects                   9.0  ..............
 allowed................................
              Other Defects
1. Shell pieces and blanks (Fills <50%               2.0  ..............
 of the shell)..........................
    (i) Maximum blanks allowed..........             1.0  ..............
2. Foreign material.....................            0.25             0.1
    No glass, metal or live insects
     permitted
3. Particles and dust...................            0.25  ..............
4. Loose kernels........................             6.0  ..............
                                            Minimum permissible defects
                                                (percent by weight)
Maximum allowable inshell pistachios                 5.0  ..............
 that will pass through a 30/64ths inch
 round hole screen......................
------------------------------------------------------------------------

    (b) Definitions applicable to permissible maximum defect and 
minimum size levels: The following definitions shall apply to inshell 
pistachio and pistachio kernel maximum defect and minimum size:
    (1) Loose kernels means edible kernels or kernel portions that are 
out of the shell and which cannot be considered particles and dust.
    (2) External (shell) defects means any abnormal condition affecting 
the hard covering around the kernel. Such defects include, but are not 
limited to, non-split shells, shells not split on suture, adhering hull 
material or dark stains.
    (3) Damage by external (shell) defects shall also include any 
specific defect described in paragraphs (b)(3)(i) through (iv) of this 
section or an equally objectionable variation of any one of these 
defects, any other defect or any combination of defects which 
materially detracts from the appearance or the edibility or the 
marketing quality of the individual shell or the lot.
    (i) Non-split shells means shells are not opened or are partially 
opened and will not allow an 18/1000 (.018) inch thick by \1/4\ (.25) 
inch wide gauge to slip into the opening.
    (ii) Not split on suture means shells are split other than on the 
suture and will allow an 18/1000 (.018) inch thick by \1/4\ (.25) inch 
wide gauge to slip into the opening.
    (iii) Adhering hull material means an aggregate amount of hull 
covers more than one-eighth (\1/8\) of the total shell surface, or when 
readily noticeable on dyed shells.
    (iv) Dark stain on raw or roasted nuts means an aggregate amount of 
dark brown, dark gray or black discoloration that affects more than 
one-eighth of the total shell surface. Pistachios that are dyed or 
color-coated to improve their marketing quality are not subject to the 
maximum permissible defects for dark stain. Speckled discoloration on 
the stem end, bottom quarter of the nut is not considered damage.
    (4) Internal (kernel) defects means any damage affecting the 
kernel. Such damage includes, but is not limited to evidence of 
insects, immature kernels, rancid kernels, mold or decay.
    (i) Damage by internal (kernel) defects shall also include any 
specific defect described in paragraphs (b)(4)(i)(A) and (B) of this 
section, or an equally objectionable variation of any one of these 
defects, any other defect, or any combination of defects, which 
materially detracts from the appearance or the edibility or the 
marketing quality of the individual kernel or of the lot.
    (A) Immature kernels in inshell are excessively thin kernels, or 
when a kernel fills less than three-fourths, but not less than one-half 
of the shell cavity. ``Immature kernels'' in shelled pistachios are 
excessively thin kernels and can have black, brown or gray surface with 
a dark interior color and the immaturity has adversely affected the 
flavor of the kernel.
    (B) Kernel spotting refers to dark brown or dark gray spots 
aggregating more than one-eighth of the surface of the kernel.
    (ii) Serious damage by internal (kernel) defects means any specific 
defect described in paragraphs (b)(4)(ii)(A) through (E) of this 
section, or an equally objectionable variation of any one of these 
defects, which seriously detracts from the appearance or the edibility 
or the marketing quality of the individual kernel or of the lot.
    (A) Minor insect or vertebrate injury means the kernel shows 
conspicuous evidence of feeding.
    (B) Insect damage means an insect, insect fragment, web or frass 
attached to the kernel. No live insects shall be permitted.
    (C) Mold that is readily visible on the shell or kernel.
    (D) Rancidity means the kernel is distinctly rancid to taste. 
Staleness of flavor shall not be classed as rancidity.
    (E) Decay means \1/16\th or more of the kernel surface is 
decomposed.
    (5) Other defects means defects that cannot be considered internal 
defects or external defects. Such defects include, but are not limited 
to shell pieces, blanks, foreign materials or particles and dust. The 
following shall be considered other defects:

[[Page 46030]]

    (i) Shell pieces means open inshell without a kernel, half shells 
or pieces of shell which are loose in the sample.
    (ii) Blanks means a non-split shell not containing a kernel or 
containing a kernel that fills less than one-half of the shell cavity.
    (iii) Foreign material means leaves, sticks, loose hulls or hull 
pieces, dirt, rocks, insects or insect fragments not attached to nuts, 
or any substance other than pistachio shells or kernels. Glass, metal 
or live insects shall not be permitted.
    (iv) Particles and dust means pieces of nut kernels that will pass 
through \5/64\ inch round opening.
    (v) Undersized means inshell pistachios that fall through a \30/
64\-inch round hole screen.
    (c) Minimum quality certificate. Each shipment for domestic human 
consumption must be covered by a USDA certificate certifying a minimum 
quality or higher. Pistachios that fail to meet the minimum quality 
specifications shall be disposed of in such manner as described in 
Sec.  983.40.
    (d) Transfers between handlers. Transfers between handlers within 
the production area are exempt from the minimum quality regulation of 
this section.
    (e) Minimum quality testing procedures. To obtain a minimum quality 
certificate, each lot to be certified shall be uniquely identified, 
shall be traceable from testing through shipment by the handler and 
shall be subjected to the following procedure:
    (1) Sampling of pistachios for maximum defects and minimum size. 
The gross weight of the inshell and kernel sample, and number of 
samplings required to meet the minimum quality regulation, is shown in 
Table 4 of this paragraph (e)(1). These samples shall be drawn from the 
lot that is to be certified pursuant to Sec.  983.38(d)(1) under the 
supervision of an inspector or as approved under an alternative USDA 
recognized inspection program.

        Table 4.--Inshell and Kernel Pistachio Lot Sampling Increments for Minimum Quality Certification
----------------------------------------------------------------------------------------------------------------
                                                                     Number of                       Weight of
                                                                    incremental    Total weight     inshell and
                       Lot weight  (lbs.)                           samples for    of lot sample    kernel test
                                                                      the lot         (grams)         sample
                                                                      sample                          (grams)
----------------------------------------------------------------------------------------------------------------
220 or less.....................................................              10             500             500
221-440.........................................................              15             500             500
441-1100........................................................              20             600             500
1101-2200.......................................................              30             900             500
2201-4400.......................................................              40            1200             500
4401-11,000.....................................................              60            1800             500
11,001-22,000...................................................              80            2400            1000
22,001-150,000..................................................             100            3000            1000
----------------------------------------------------------------------------------------------------------------

    (2) Testing of pistachios for maximum defect and minimum size. The 
sample shall be analyzed according to USDA protocol, current or as 
subsequently revised, to insure that the lot does not exceed maximum 
defects and meets at least the minimum size levels as specified in 
Table 3 of paragraph (a) of this section. For inshell pistachios, those 
nuts with dark stain, adhering hull, and those exhibiting apparent 
serious defects shall be shelled for internal kernel analysis. The USDA 
protocol currently appears in USDA inspection instruction manual 
``Pistachios in the Shell, Shipping Point and Market Inspection 
Instructions,'' June 1994: revised September 1994, HU-125-9(b). Copies 
may be obtained from the Fresh Products Branch, Agricultural Marketing 
Service, USDA. Contact information may be found at http://www.ams.usda.gov/fv/fvstand.htm.
    (f) Certification of minimum quality. Each inspector shall complete 
minimum quality testing and reporting and shall certify that every lot 
of California pistachios or portion thereof shipped domestically meets 
minimum quality levels. A record of each test, along with a record of 
final shipping disposition, shall be kept by each handler. These 
records must be maintained for three years following the production 
year in which the pistachios were shipped, and are subject to audit by 
the committee at any time.


Sec.  983.40  Failed lots/rework procedure.

    (a) Substandard pistachios. Each lot of substandard pistachios may 
be reworked to meet minimum quality requirements.
    (b) Failed lot reporting. If a lot fails to meet the aflatoxin and/
or the minimum quality requirements of this part, a failed lot 
notification report shall be completed and sent to the committee within 
10 working days of the test failure. This form must be completed and 
submitted to the committee each time a lot fails either aflatoxin or 
the minimum quality testing. The accredited laboratories shall send the 
failed lot notification reports for aflatoxin tests to the committee, 
and the handler, under the supervision of an inspector, shall send the 
failed lot notification reports for the lots that do not meet the 
minimum quality requirements to the committee.
    (c) Inshell rework procedure for aflatoxin. If inshell rework is 
selected as a remedy to meet the aflatoxin requirements of this part, 
then 100% of the product within that lot shall be removed from the bulk 
and/or retail packaging containers and reworked to remove the portion 
of the lot that caused the failure. Reworking shall consist of 
mechanical, electronic or manual procedures normally used in the 
handling of pistachios. After the rework procedure has been completed 
the total weight of the accepted product and the total weight of the 
rejected product shall be reported to the committee. The reworked lot 
shall be sampled and tested for aflatoxin as specified in Sec.  983.38 
except that the lot sample size and the test sample size shall be 
doubled. The reworked lot shall also be sampled and tested for the 
minimum quality requirements. If, after the lot has been reworked and 
tested, it fails the aflatoxin test for a second time, the lot may be 
shelled and the kernels reworked, sampled and tested in the manner 
specified for an original lot of kernels, or the failed lot may be used 
for non-human consumption or otherwise disposed of.
    (d) Kernel rework procedure for aflatoxin. If pistachio kernel 
rework is selected as a remedy to meet the aflatoxin requirements of 
Sec.  983.38, then 100% of the product within that lot shall be removed 
from the bulk and/or retail packaging containers and

[[Page 46031]]

reworked to remove the portion of the lot that caused the failure. 
Reworking shall consist of mechanical, electronic or manual procedures 
normally used in the handling of pistachios. After the rework procedure 
has been completed the total weight of the accepted product and the 
total weight of the rejected product shall be reported to the 
committee. The reworked lot shall be sampled and tested for aflatoxin 
as specified in Sec.  983.38.
    (e) Minimum quality rework procedure for inshell pistachios and 
kernels. If rework is selected as a remedy to meet the minimum quality 
requirements of Sec.  983.39, then 100% of the product within that lot 
shall be removed from the bulk and/or retail packaging containers and 
processed to remove the portion of the lot that caused the failure. 
Reworking shall consist of mechanical, electronic or manual procedures 
normally used in the handling of pistachios. The reworked lot shall be 
sampled and tested for the minimum quality requirements as specified in 
the minimum quality regulations of Sec.  983.39.


Sec.  983.41  Testing of minimal quantities.

    (a) Aflatoxin. Handlers who handle less than 1 million pounds of 
assessed weight per year, have the option of utilizing both of the 
following methods for testing for aflatoxin:
    (1) The handler may have an inspector sample and test his or her 
entire inventory of hulled and dried pistachios for the aflatoxin 
certification before further processing.
    (2) The handler may segregate receipts into various lots at the 
handler's discretion and have an inspector sample and test each 
specific lot. Any lots that have less than 15 ppb aflatoxin can be 
certified by an inspector to be negative as to aflatoxin. Any lots that 
are found to be above 15 ppb may be tested after reworking in the same 
manner as specified in Sec.  983.38.
    (b) Minimum quality. Handlers who handle less than 1 million pounds 
of assessed weight can apply to the committee for an exemption from 
minimum quality testing. If the committee grants an exemption, then the 
handler must pull and retain samples of the lots and make samples 
available for review by the committee. The handler shall maintain the 
samples for 90 days.


Sec.  983.42  Commingling.

    After a lot is issued an aflatoxin inspection certificate and 
minimum quality certificate, it may be commingled with other certified 
lots.


Sec.  983.43  Reinspection.

    The Secretary, upon recommendation of the committee, may establish 
rules and regulations to establish conditions under which pistachios 
would be subject to reinspection.


Sec.  983.44  Inspection, certification and identification.

    Upon recommendation of the committee and approval of the Secretary, 
all pistachios that are required to be inspected and certified in 
accordance with this part, shall be identified by appropriate seals, 
stamps, tags, or other identification to be affixed to the containers 
by the handler. All inspections shall be at the expense of the handler.


Sec.  983.45  Substandard pistachios.

    The committee shall, with the approval of the Secretary, establish 
such reporting and disposition procedures as it deems necessary to 
ensure that pistachios which do not meet the outgoing maximum aflatoxin 
tolerance and minimum quality requirements prescribed by Sec. Sec.  
983.38 and 983.39 shall not be shipped for domestic human consumption.


Sec.  983.46  Modification or suspension of regulations.

    (a) In the event that the committee, at any time, finds that, by 
reason of changed conditions, the order provisions contained in Sec.  
983.38 through Sec.  983.45 should be modified or suspended, it shall 
by vote of at least seven concurring members, so recommend to the 
Secretary.
    (b) Whenever the Secretary finds from the recommendations and 
information submitted by the committee or from other available 
information, that the aflatoxin or minimum quality provisions in Sec.  
983.38 and Sec.  983.39 should be modified, suspended, or terminated 
with respect to any or all shipments of pistachios in order to 
effectuate the declared policy of the Act, the Secretary shall modify 
or suspend such provisions. If the Secretary finds that a regulation 
obstructs or does not tend to effectuate the declared policy of the 
Act, the Secretary shall suspend or terminate such regulation.
    (c) The committee, with the approval of the Secretary, may issue 
rules and regulations implementing Sec. Sec.  983.38 through 983.45.

Reports, Books and Records


Sec.  983.47  Reports.

    Upon the request of the committee, with the approval of the 
Secretary, each handler shall furnish such reports and information on 
such forms as are needed to enable the Secretary and the committee to 
perform their functions and enforce the regulations under this part. 
The committee shall provide a uniform report format for the handlers.


Sec.  983.48  Confidential information.

    All reports and records furnished or submitted by handlers to the 
committee which include confidential data or information constituting a 
trade secret or disclosing the trade position, financial condition, or 
business operations of the particular handler or their customers shall 
be received by, and at all times kept in the custody and under the 
control of, one or more employees of the committee, who shall disclose 
such data and information to no person except the Secretary. However, 
such data or information may be disclosed only with the approval of the 
Secretary, to the committee when reasonably necessary to enable the 
committee to carry out its functions under this part.


Sec.  983.49  Records.

    Records of pistachios received, held and shipped by him, as will 
substantiate any required reports and will show performance under this 
part will be maintained by each handler for at least three years beyond 
the crop year of their applicability.


Sec.  983.50  Random verification audits.

    (a) All handlers' pistachio inventory shall be subject to random 
verification audits by the committee to ensure compliance with the 
terms of the order, and regulations adopted pursuant thereto.
    (b) Committee staff or agents of the committee, based on 
information from the industry or knowledge of possible violations, may 
make buys of handler product in retail locations. If it is determined 
that violations of the order have occurred as a result of the buys, the 
matter will be referred to the Secretary for appropriate action.


Sec.  983.51  Verification of reports.

    For the purpose of checking and verifying reports filed by handlers 
or the operation of handlers under the provisions of this part, the 
Secretary and the committee, through their duly authorized agents, 
shall have access to any premises where pistachios and records relating 
thereto may be held by any handler and at any time during reasonable 
business hours, shall be permitted to inspect any pistachios so held by 
such handler and any and all records of such handler with respect to 
the acquisition, holding, or disposition of all pistachios which may be 
held or

[[Page 46032]]

which may have been shipped by him/her.

Expenses and Assessments


Sec.  983.52  Expenses.

    The committee is authorized to incur such expenses as the Secretary 
finds are reasonable and likely to be incurred by it during each 
production year for the maintenance and functioning of the committee 
and for such other purposes as the Secretary may, pursuant to the 
provisions of this part, determine to be appropriate.


Sec.  983.53  Assessments.

    (a) Each handler who receives pistachios for processing in each 
production year shall pay the committee on demand, an assessment based 
on the pro rata share of the expenses authorized by the Secretary for 
that year attributable to the assessed weight of pistachios received by 
that handler in that year.
    (b) The committee, prior to the beginning of each production year, 
shall recommend and the Secretary shall set the assessment for the 
following production year, which shall not exceed one-half of one 
percent of the average price received by producers in the preceding 
production year. The committee, with the approval of the Secretary, may 
revise the assessment if it determines, based on information including 
crop size and value, that the action is necessary, and if the revision 
does not exceed the assessment limitation specified in this section and 
is made prior to the final billing of the assessment.


Sec.  983.54  Contributions.

    The committee may accept voluntary contributions but these shall 
only be used to pay for committee expenses.


Sec.  983.55  Delinquent assessments.

    Any handler who fails to pay any assessment within the time 
required by the committee, shall pay to the committee a late payment 
charge of 10 percent of the amount of the assessment determined to be 
past due and, in addition, interest on the unpaid balance at the rate 
of one and one-half percent per month. The late payment and interest 
charges may be modified by the Secretary upon recommendation of the 
committee.


Sec.  983.56  Accounting.

    (a) If, at the end of a production year, the assessments collected 
are in excess of expenses incurred, such excess shall be accounted for 
in accordance with one of the following:
    (1) If such excess is not retained in a reserve, as provided in 
paragraph (a)(2) of this section, it shall be refunded proportionately 
to the persons from whom it was collected in accordance with Sec.  
983.53: Provided, That any sum paid by a person in excess of his/her 
pro rata share of the expenses during any production year may be 
applied by the committee at the end of such production year as credit 
for such person, toward the committee's fiscal operations of the 
following production year;
    (2) The committee, with the approval of the Secretary, may carry 
over such excess into subsequent production years as a reserve: 
Provided, That funds already in the reserve do not exceed approximately 
two production years' budgeted expenses. In the event that funds exceed 
two production years' budgeted expenses, future assessments will be 
reduced to bring the reserves to an amount that is less than or equal 
to two production years' budgeted expenses. Such reserve funds may be 
used:
    (i) To defray expenses, during any production year, prior to the 
time assessment income is sufficient to cover such expenses;
    (ii) To cover deficits incurred during any production year when 
assessment income is less than expenses;
    (iii) To defray expenses incurred during any period when any or all 
provisions of this part are suspended; and
    (iv) To cover necessary expenses of liquidation in the event of 
termination of this part. Upon such termination, any funds not required 
to defray the necessary expenses of liquidation shall be disposed of in 
such manner as the Secretary may determine to be appropriate: Provided, 
That to the extent practical, such funds shall be returned pro rata to 
the persons from whom such funds were collected.
    (b) All funds received by the committee pursuant to the provisions 
of this part shall be used solely for the purpose specified in this 
part and shall be accounted for in the manner provided in this part. 
The Secretary may at any time require the committee and its members to 
account for all receipts and disbursements.
    (c) Upon the removal or expiration of the term of office of any 
member of the committee, such member shall account for all receipts and 
disbursements for which that member was personally responsible, deliver 
all committee property and funds in the possession of such member to 
the committee, and execute such assignments and other instruments as 
may be necessary or appropriate to vest in the committee full title to 
all of the committee property, funds, and claims vested in such member 
pursuant to this part.


Sec.  983.57  Implementation and amendments.

    The Secretary, upon the recommendation of a majority of the 
committee, may issue rules and regulations implementing or modifying 
Sec.  983.47 through Sec.  983.56, inclusive.

Miscellaneous Provisions


Sec.  983.58  Compliance.

    Except as provided in this part, no handler shall handle 
pistachios, the handling of which has been prohibited or otherwise 
limited by the Secretary in accordance with provisions of this part; 
and no handler shall handle pistachios except in conformity to the 
provision of this part.


Sec.  983.59  Rights of the Secretary.

    The members of the committee (including successors or alternates) 
and any agent or employee appointed or employed by the committee, shall 
be subject to removal or suspension at the discretion of the Secretary, 
at any time. Each and every decision, determination, or other act of 
the committee shall be subject to the continuing right of the Secretary 
to disapprove of the same at any time, and upon such disapproval, shall 
be deemed null and void.


Sec.  983.60  Personal liability.

    No member or alternate member of the committee, nor any employee, 
representative, or agent of the committee shall be held personally 
responsible to any handler, either individually, or jointly with 
others, in any way whatsoever, to any person, for errors in judgment, 
mistakes, or other acts, either of commission or omission, as such 
member, alternate member, employee, representative, or agent, except 
for acts of dishonesty, willful misconduct, or gross negligence.


Sec.  983.61  Separability.

    If any provision of this part is declared invalid, or the 
applicability thereof to any person, circumstance, or thing is held 
invalid, the validity of the remainder, or the applicability thereof to 
any other person, circumstance, or thing, shall not be affected 
thereby.


Sec.  983.62  Derogation.

    Nothing contained in this part is, or shall be construed to be, in 
derogation or in modification of the rights of the Secretary or of the 
United States to exercise any powers granted by the Act or otherwise, 
or, in accordance with such powers, to act in the premises whenever 
such action is deemed advisable.

[[Page 46033]]

Sec.  983.63  Duration of immunities.

    The benefits, privileges, and immunities conferred upon any person 
by virtue of this part shall cease upon its termination, except with 
respect to acts done under and during the existence thereof.


Sec.  983.64  Agents.

    The Secretary may, by a designation in writing, name any person, 
including any officer or employee of the United States Government, or 
name any service, division or branch in the United States Department of 
Agriculture, to act as agent or representative of the Secretary in 
connection with any of the provisions of this part.


Sec.  983.65  Effective time.

    The provisions of this part, as well as any amendments, shall 
become effective at such time as the Secretary may declare, and shall 
continue in force until terminated or suspended in one of the ways 
specified in Sec.  983.66 or Sec.  983.67.


Sec.  983.66  Suspension or termination.

    The Secretary shall terminate or suspend the operation of any or 
all of the provisions of this part, whenever he/she finds that such 
provisions do not tend to effectuate the declared policy of the Act.


Sec.  983.67  Termination.

    (a) The Secretary may at any time terminate the provisions of this 
part.
    (b) The Secretary shall terminate or suspend the operations of any 
or all of the provisions of this part whenever it is found that such 
provisions do not tend to effectuate the declared policy of the Act.
    (c) The Secretary shall terminate the provisions of this part at 
the end of any fiscal period whenever it is found that such termination 
is favored by a majority of producers who, during a representative 
period, have been engaged in the production of pistachios: Provided, 
That such majority has, during such representative period, produced for 
market more than fifty percent of the volume of such pistachios 
produced for market, but such termination shall be announced at least 
90 days before the end of the current fiscal period.
    (d) Within six years of the effective date of this part the 
Secretary shall conduct a referendum to ascertain whether continuance 
of this part is favored by producers. Subsequent referenda to ascertain 
continuance shall be conducted every six years thereafter. The 
Secretary may terminate the provisions of this part at the end of any 
fiscal period in which the Secretary has found that continuance of this 
part is not favored by a two thirds (\2/3\) majority of voting 
producers, or a two thirds (\2/3\) majority of volume represented 
thereby, who, during a representative period determined by the 
Secretary, have been engaged in the production for market of pistachios 
in the production area. Such termination shall be announced on or 
before the end of the production year.
    (e) The provisions of this part shall, in any event, terminate 
whenever the provisions of the Act authorizing them cease.


Sec.  983.68  Procedure upon termination.

    Upon the termination of this part, the members of the committee 
then functioning shall continue as joint trustees, for the purpose of 
liquidating the affairs of the committee. Action by such trustees shall 
require the concurrence of a majority of said trustees. Such trustees 
shall continue in such capacity until discharged by the Secretary, and 
shall account for all receipts and disbursements and deliver all 
property on hand, together with all books and records of the committee 
and the joint trustees, to such persons as the Secretary may direct; 
and shall upon the request of the Secretary, execute such assignments 
or other instruments necessary or appropriate to vest in such person 
full title and right to all the funds, properties, and claims vested in 
the committee or the joint trustees, pursuant to this part. Any person 
to whom funds, property, or claims have been transferred or delivered 
by the committee or the joint trustees, pursuant to this section, shall 
be subject to the same obligations imposed upon the members of said 
committee and upon said joint trustees.


Sec.  983.69  Effect of termination or amendment.

    Unless otherwise expressly provided by the Secretary, the 
termination of this part or of any regulation issued pursuant thereto, 
or the issuance of any amendment to either thereof, shall not:
    (a) Affect or waive any right, duty, obligation, or liability which 
shall have arisen or which may thereafter arise, in connection with any 
provisions of this part or any regulation issued there under,
    (b) Release or extinguish any violation of this part or any 
regulation issued there under, or
    (c) Affect or impair any rights or remedies of the Secretary, or of 
any other persons, with respect to such violation.


Sec.  983.70  Exemption.

    Any handler may handle pistachios within the production area free 
of the requirements in Sec. Sec.  983.38 through 983.45 and 983.53 if 
such pistachios are handled in quantities not exceeding 1,000 dried 
pounds during any marketing year. This subpart may be changed as 
recommended by the committee and approved by the Secretary.


Sec.  983.71  Relationship with the California Pistachio Commission.

    In conducting committee activities and other objectives under this 
part, the committee may deliberate, consult, cooperate and exchange 
information with the California Pistachio Commission. Any sharing of 
information gathered under this subpart shall be kept confidential in 
accordance with provisions under section 10(i) of the Act.


*Sec.  983.90  Counterparts.

    Handlers may sign an agreement with the Secretary indicating their 
support for this marketing order. This agreement may be executed in 
multiple counterparts by each handler. If more than fifty percent of 
the handlers, weighted by the volume of pistachios handled during a 
representative period, enter into such an agreement, then a marketing 
agreement shall exist for the pistachio marketing order. This marketing 
agreement shall not alter the terms of this part. Upon the termination 
of this part, the marketing agreement has no further force or effect.


*Sec.  983.91  Additional parties.

    After this part becomes effective, any handler may become a party 
to the marketing agreement if a counterpart is executed by the handler 
and delivered to the Secretary.


*Sec.  983.92  Order with marketing agreement.

    Each signatory handler hereby requests the Secretary to issue, 
pursuant to the Act, an order for regulating the handling of pistachios 
in the same manner as is provided for in this agreement.

    Dated: July 23, 2003.
A. J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 03-19123 Filed 8-1-03; 8:45 am]
BILLING CODE 3410-02-P