[Federal Register Volume 68, Number 152 (Thursday, August 7, 2003)]
[Rules and Regulations]
[Pages 46919-46924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20158]



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

  Federal Register / Vol. 68, No. 152 / Thursday, August 7, 2003 / 
Rules and Regulations  

[[Page 46919]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 996

[Docket No. FV03-996-2 IFR]


Change in Minimum Quality and Handling Standards for Domestic and 
Imported Peanuts Marketed in the United States

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Interim final rule with request for comments.

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

SUMMARY: This rule changes peanut quality and handling standards for 
domestic and imported peanuts marketed in the United States. These 
changes are based on comments received from the Peanut Standards Board 
(Board) and other industry sources. The standards and the Board were 
established by the Department of Agriculture (USDA), pursuant to 
section 1308 of the Farm Security and Rural Investment Act of 2002. 
This rule changes screen sizes specified in the outgoing quality 
standards to allow smaller peanut kernels of all varieties to be used 
in edible markets; specifies in the text of the regulations that 
financially interested persons may appeal quality inspection results 
and that ``holders of the title'' to any lot of peanuts may appeal 
aflatoxin test results; allows peanut lots which meet minimum damage 
and minor defect standards prior to blanching, but fail for some other 
reason, to be exempt from damage and minor defect standards upon re-
inspection after blanching; and increases to 10 percent the quantity of 
sound whole kernels that may be contained in lots of splits for 
specified peanut varieties. These changes are intended to maximize 
handling efficiency and to provide the producers, handlers, and 
importers with flexibility to meet current and new market demands, 
while maintaining peanut quality and wholesomeness for consumers.

DATES: Effective August 8, 2003; comments received by September 8, 2003 
will be considered prior to issuance of a final rule.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this rule. Comments must be sent to the Docket Clerk, 
Marketing Order Administration Branch, Fruit and Vegetable Programs, 
AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 
20250-0237; Fax: (202) 720-8938, or E-mail: [email protected]. 
All comments should reference the docket number and the date and page 
number of this issue of the Federal Register and will be made available 
for public inspection in the Office of the Docket Clerk during regular 
business hours, or can be viewed at: http://www.ams.usda.gov/fv/moab.html.

FOR FURTHER INFORMATION CONTACT: Jim Wendland or Kenneth G. Johnson, DC 
Marketing Field Office, Marketing Order Administration Branch, Fruit 
and Vegetable Programs, AMS, USDA, 4700 River Road, suite 2A04, Unit 
155, Riverdale, Maryland 20737; telephone (301) 734-5243, Fax: (301) 
734-5275 or George J. Kelhart, Technical Advisor, Marketing Order 
Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 
Independence Avenue SW., Stop 0237, Washington, DC 20250-0237; 
telephone (202) 720-2491, Fax: (202) 720-8938; or E-mail: 
[email protected], [email protected] or 
[email protected].
    Small businesses may request information on complying with this 
rule by contacting Jay Guerber, at the same address as above, or E-
mail: [email protected].

SUPPLEMENTARY INFORMATION: This rule is issued under section 1308 of 
the Farm Security and Rural Investment Act of 2002 (Public Law 107-
171), 7 U.S.C. 7958, hereinafter referred to as the ``Act.''
    The Department of Agriculture (USDA) is issuing this interim final 
rule in conformance with Executive Order 12866 and has determined it to 
be non-significant.
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is not intended to have retroactive effect. 
This rule will not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    There are no administrative procedures, which must be exhausted 
prior to any judicial challenge to the provisions of this rule.

Background

    Section 1308 of the Act requires that USDA take several actions 
with regard to peanuts marketed in the United States: ensure mandatory 
inspection on all peanuts marketed in the United States; establish the 
Board comprised of industry representatives to advise USDA; and develop 
peanut quality and handling standards; and to modify those quality and 
handling standards when needed. An interim final rule was published in 
the Federal Register (67 FR 57129) on September 9, 2002, terminating 
the previous peanut programs and establishing standards in Part 996 to 
insure the continued inspection of 2002 crop year peanuts and 
subsequent crop year peanuts, 2001 crop year peanuts not yet inspected, 
and 2001 crop year failing peanuts that had not yet met disposition 
standards. The initial Board was selected and announced on December 5, 
2002. A final rule finalizing the interim final rule was published in 
the Federal Register (68 FR 1145) on January 9, 2003, to continue 
requiring all domestic and imported peanuts marketed in the United 
States to be handled consistent with the handling standards and 
officially inspected against the quality standards of the new program. 
The provisions of this new program continue in force and effect until 
modified, suspended, or terminated.
    Pursuant to the Act, USDA has consulted with Board members in the 
review of the handling and quality standards for the 2003 and 
subsequent crop years. USDA conducted a meeting with Board members on 
April 30, 2003. The changes were raised and supported by Board members. 
In addition to the meeting, USDA received written comments from Board 
members and others on recommended changes to the peanut handling and 
quality standards.
    This rulemaking action: (1) Changes screen sizes specified in the 
outgoing

[[Page 46920]]

quality standards to allow smaller peanut kernels of all varieties to 
enter edible channels; (2) specifies in the text of the regulations 
that financially interested persons may appeal quality inspection and 
that ``holders of the title'' to any lot of peanuts may appeal 
aflatoxin test results; (3) allows peanut lots which meet minimum 
damage and minor defect standards, but fail for other reasons, prior to 
blanching, to be exempt from minimum damage and minor defect standards 
upon re-inspection after blanching; and (4) increases to 10 percent the 
quantity of sound whole kernels that may be contained in lots of splits 
for specified peanut varieties. These changes are intended to maximize 
handling efficiency and to provide the producers, handlers, and 
importers with flexibility to meet current and new market demands, 
while maintaining peanut quality and wholesomeness for consumers.
    The quality and handling standards are intended to assure that 
satisfactory quality and wholesome peanuts are used in domestic 
markets. All peanuts intended for human consumption must be officially 
inspected and graded by the Federal or Federal-State Inspection Service 
and undergo chemical testing by a USDA laboratory or a private 
laboratory approved by USDA. The maximum allowable presence of 
aflatoxin is 15 parts per billion (ppb), the same standard as required 
under the three previous peanut programs. This tolerance has been in 
effect for more than 15 years and was in effect at the time the 
previous peanut programs were terminated. Once certified as meeting 
outgoing quality standards, peanuts may not be commingled with any 
other peanuts that have failed outgoing quality standards or any 
residual peanuts from reconditioning operations.

Small Kernel Usage

    Prior to establishing the quality standards that were applied 
during the 2002-03 crop year, a few peanut handler members of the Board 
suggested changing the shape and size of the holes in screens used to 
sort out small kernels. The changes discussed would have increased the 
number of smaller kernels that rode the screens and that could have 
entered edible channels.
    The shape of the opening, slotted vs. round, is a significant 
factor in the number of smaller kernels that fall through or ride the 
screens. Slotted screens resemble the shape of peanuts and allow 
kernels to fall through as they bounce down the screen during the 
sorting process. Kernels fall through round openings only when striking 
the opening on end or ``standing up'' as they bounce down the screen. 
When more kernels ride the screen, more are available for edible 
channels.
    Proponents of smaller kernel use claimed that end-product 
manufacturers now have markets for smaller, whole kernels. They also 
claimed that modern, electronic color sorting technologies can sort out 
smaller kernels that are moldy or defective. Opponents, including some 
handlers and grower representatives, claimed that the benefits of 
increased use of small kernels were not worth the increased risk of 
aflatoxin contamination. Based on studies conducted by the Agricultural 
Research Service (ARS) going back to at least 1979, the industry was 
aware that there is a higher incidence of aflatoxin contamination in 
smaller peanut kernels.
    Most Board members agreed that new research was needed on small 
kernel sizes and aflatoxin contamination before any change was made. 
USDA decided not to change screen sizes for the 2002-03 crop year and 
asked ARS to conduct another analysis of the incidence of aflatoxin in 
small peanut kernels. ARS peanut size and aflatoxin studies using 2002 
crop farmers stock runner type peanuts from the Southeast (the peanuts 
and region most likely to have aflatoxin contamination) measured the 
contamination of kernels that fell through a \16/64\ inch slotted 
screen and those that rode a \17/64\ inch round screen. The completed 
results, received by Fruit and Vegetable Programs on January 21, 2003, 
indicated that there was a small, but not significant, increase of 
aflatoxin associated with the smaller peanut kernel size.
    Past research demonstrated that three farmers stock grade 
components are associated with aflatoxin. These are damage, loose-
shelled kernels, and small and other kernels. Very little aflatoxin is 
associated with high quality farmers stock peanuts associated with the 
farmers stock grade referred to as sound mature kernels and sound 
splits. Studies conducted by sampling 120 contaminated farmers stock 
lots, published in 1998, showed that these three risk components 
accounted for 93.1 percent of the total aflatoxin in a farmers stock 
lot, but only 18.4 percent of the lot kernel mass. Aflatoxin in sound 
mature kernels and sound splits, small and other kernels, loose shelled 
kernels, and damaged kernels represented 6.9, 7.9, 33.3, and 51.9 
percent of the total aflatoxin. The small kernels had the lowest risk 
of the components. The findings of research performed in previous years 
were similar.
    ARS believes that the results of the past studies are consistent 
with the current study presented to the Board in April 2003. The 
peanuts that rode the \17/64\ inch round screen were a mix of sizes 
from small to large (not only small kernels as in the past studies). 
The mix of sizes was used to better duplicate sheller milling lines and 
processing practices. The aflatoxin impact was minimal because small 
and other kernels have the lowest aflatoxin risk of the three risk 
components and the small kernels composed a small percentage of the 
different sizes riding the \17/64\ inch round screen. The higher the 
percentage of small kernels riding a \17/64\ inch round screen, the 
greater the aflatoxin impact that small kernels will have on the lot in 
question. The percentage of small kernels that fell through the \16/64\ 
inch slotted screen and rode the \17/64\ inch round screen varied 
greatly from lot to lot in the study presented to the Board. They 
averaged about 7 and 21 percent in the current study, respectively. In 
the final analysis, the aflatoxin impact of the smaller kernels was not 
significant according to ARS.
    The Board discussed the peanut size and aflatoxin study at its 
April 30, 2003, meeting, and recommended relaxation of quality 
standards to allow smaller peanut kernels to be used for human 
consumption because the increase in aflatoxin in small kernels was not 
determined to be significant. All Board members agreed that quality and 
wholesomeness are paramount for producers, handlers, and importers, but 
the industry believes that it can continue to provide buyers with high 
quality and wholesome peanuts with changed screen size.
    Compliance officers report that out of 77 shellers, a total of 62 
have electronic sorting technology to sort out defective small kernels 
and further improve peanut quality and wholesomeness. The 15 shellers 
without sorting technology in their plants only shell seed peanuts, 
which are not shipped to the edible market.
    Several industry representatives at last year's Board meeting also 
cited the pungent taste of small kernels as a quality factor that 
should weigh against the use of smaller peanut kernels. No such 
concerns were mentioned or discussed at this year's Board meeting, or 
in the comments received subsequent to the Board meeting.
    The screen size changes are shown in the table in Sec.  996.31(a) 
Minimum Quality Standards: Peanuts for Human Consumption--Whole Kernels 
and Splits: Maximum Limitations, under the column for Sound Whole 
Kernels. Under the ``Excluding lots of splits''

[[Page 46921]]

category, this action changes the screen size for Runner peanuts from a 
\16/64\ inch x \3/4\ inch slotted opening to a \17/64\ inch round 
opening. These were the screen sizes and peanut variety used in the 
study.
    Because the Virginia, Spanish, and Valencia varieties do not 
routinely experience high aflatoxin content, smaller kernels of those 
varieties also are not expected to have significantly increased 
aflatoxin contamination. Therefore, corresponding changes in screen 
sizes for these varieties are also made in this rule. For Virginia 
variety peanuts, the screen size changes from a \15/64\ inch x 1 inch 
slotted opening to a \17/64\ inch round opening. For Spanish and 
Valencia varieties, the change is from a \15/64\ inch x \3/4\ inch 
slotted opening to a \16/64\ inch round opening.
    Corresponding changes are made under the ``Lots of splits'' 
category for ``Sound whole kernels.'' For Runner variety split lots, 
the screen opening would change from a \14/64\ inch x \3/4\ inch 
slotted opening to a \17/64\ inch round opening. For Virginia variety 
split lots, the \14/16\ x 1 inch slotted opening would be changed to a 
\17/64\ inch round opening. For Spanish and Valencia varieties, the 
\13/64\ inch x \3/4\ inch slotted opening would be changed to a \16/64\ 
inch round opening.
    Currently, the table includes three columns for fall through. One 
column includes a maximum 3 percent tolerance for ``Sound Split and 
Broken Kernels''. The second column includes a 3 percent tolerance for 
``Sound Whole Kernels'', and the third column includes a total 
tolerance of 4 percent for these categories of peanuts. A comment 
received from a handler association subsequent to the Board meeting 
suggested combining the three columns into one column and establishing 
a total tolerance of 6 percent for sound split, broken, and small 
kernels allowed in any lot. The association recommended this tolerance 
change to bring the tolerances into conformity with the U.S. Grade 
Standards for the various types of shelled peanuts grown and marketed 
in the United States.
    Thus, this rule implements a relaxation in the utilization of small 
peanut kernels only by changing the screens from slotted to round holes 
for sound whole kernels and splits as noted above. This change is 
expected to increase market share for U.S. peanuts by enabling handlers 
to sell smaller peanuts to buyers who purchase less expensive peanuts 
from other origins for manufacturing into peanut butter and paste, or 
similar products.
    This change will be implemented at shelling facilities with minimal 
or no additional cost to the shellers--either large or small. The 
screens with smaller openings for this change are currently used for 
split lots and no additional investment for screens will be necessary. 
Any adjustments to the packing line as far as screens are concerned 
should be easily implemented.
    According to Federal-State Inspection Service (Inspection Service), 
all plants in Georgia are currently using \17/64\ round screens on 
Runners and \16/64\ screens on Spanish peanut varieties. The Inspection 
Service has a supply of screens for smaller peanut kernels to cover 
five new shelling plants scheduled to begin operation during the 2003 
crop year. In addition, the Inspection Service will provide screens for 
peanut shellers in other States. The cost per screen is $55.00 plus 
shipping.

Appeal Procedures

    The Board recommended adding an additional paragraph in the 
handling standards specifying that the ``holder of the title'' to any 
lot of peanuts may request an appeal inspection if it is believed that 
the orginal aflatoxin analysis is in error. Appeals for aflatoxin are 
currently handled following procedures specified in the Inspection 
Service's Instructions for Milled Peanuts. The ``holder of the title'' 
to any lot of peanuts may request such an appeal. The aflatoxin sample 
would be drawn by Federal or Federal-State Inspection inspectors and 
the appeal analysis would be performed, and the aflatoxin certificate 
issued, by USDA or USDA-approved laboratories.
    This action also specifies that any financially interested person 
may request an appeal inspection if it is believed that the original 
quality inspection was in error. These appeals would continue to be 
handled following procedures specified in the Inspection Service's 
Instructions for Milled Peanuts. Federal or Federal-State Inspection 
Service inspectors would sample and inspect the peanuts following 
procedures in the milled peanut instructions.
    All costs involved in conducting appeal inspections are for the 
account of the ``holder of the title'' or the financially interested 
person requesting the appeal. Under the appeal process, appeals may be 
requested verbally. A written request is not necessary.

Re-inspection of Blanched Lots

    Peanut lots which meet quality (grade) standards, including damage 
and minor defects, but which fail on aflatoxin may be blanched to 
remove the contaminated kernels. Under the current standards, blanched 
lots must be re-inspected for damage and minor defects. In some cases, 
a blanched lot will pass aflatoxin but fail damage and minor defect 
tolerances because the removal of the skins in the blanching process 
may expose additional instances of damage or minor defects.
    Currently, Sec.  996.50(d) provides that lots failing quality 
standards specified in the table in Sec.  996.31(a), which are 
blanched, do not have to meet the ``fall through'' standards upon re-
inspection. The Board recommends that the same exception be applied to 
the damage and minor defects standard in the second column of the table 
in Sec.  996.31(a). The primary benefit of this change would be to 
reduce handler-operating costs and avoid a possible loss of peanuts.

Allow Handlers To Purchase High Moisture Peanuts

    Under Sec.  996.30(b) Moisture, farmers stock peanuts with more 
than 10.49 percent moisture content must be dried by the producer at 
the buying point or moved to another location and facility for drying. 
Virginia type peanuts for seed may contain up to 11.49 percent 
moisture. The drying is accomplished on individual wagons, prior to 
incoming inspection. Not all buying points, in very rural locations, 
have drying facilities.
    The Board requested that the 10.49 percent moisture standard be 
changed to allow handlers to acquire farmers stock peanuts with a 
moisture content up to 25 percent. They also recommended the addition 
of a provision that the handler would have to agree to such acquisition 
and also to agree to dry the peanuts to meet the 10.49 percent standard 
prior to storage or milling. The moisture requirements for Virginia 
type peanuts for seed were not recommended for change. According to 
Board members, such a change could make a significant difference in the 
efficient acquisition and warehousing of farmers stock peanuts each 
fall. The Board indicated that this change could speed up the drying, 
grading, and movement of peanuts at harvest.
    After considering this request and input from the Inspection 
Service, USDA believes that the Board's recommendation needs further 
review and analysis. The Inspection Service indicated that its current 
shelling equipment cannot properly shell peanuts with a moisture 
content higher than 16 to 18 percent, and that it would have difficulty 
grading such peanuts. Under current inspection procedures, such peanuts 
would be further dried by the producer.

[[Page 46922]]

    USDA believes that the current standards and procedures should 
continue during the 2003-04 crop year. This will allow the peanut 
industry to study this issue further.

Increase Sound Whole Kernel Tolerance

    The Minimum Quality Standards table in Sec.  996.31(a) provides 
standards for split kernel lots. Historically, lots of split kernels 
may contain a maximum percentage of sound whole kernels in the lot. For 
Virginia variety peanuts, sound whole kernel content is limited to 10 
percent of the lot by weight. For Runner, Spanish, and Valencia 
varieties, the sound whole kernel content is limited to 4 percent. The 
Board recommended that the sound whole tolerance for Runner, Spanish, 
and Valencia peanuts be relaxed to 10 percent, to bring the tolerance 
into conformity with the tolerance for Virginia variety peanuts. This 
rule change is expected to result in fewer split lot rejections for 
Runner, Spanish, and Valencia variety peanuts, which should reduce 
handler-reconditioning costs. No adverse impact is expected from making 
this standard uniform for all four varieties.

Effective Time

    Section 996.75, Effective time, also is revised so that these 
changes apply to 2003-04 and subsequent crop year peanuts, to 2002 and 
2001 crop year peanuts not yet inspected, and to failing peanuts that 
have not yet met disposition standards.

Initial Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Analysis Act (RFA) the Agricultural Marketing Service (AMS) has 
considered the economic impact of this action on small entities. 
Accordingly, AMS had prepared this initial regulatory flexibility 
analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened.
    There are currently 77 peanut handlers (shellers) and 25 importers 
subject to regulation under the peanut program. An estimated two-thirds 
of the handlers and nearly all of the importers may be classified as 
small entities, based on the documents and reports received by USDA. 
Small agricultural service firms, which include handlers and importers, 
are defined by the Small Business Administration (13 CFR 121.201), as 
those having annual receipts of less than $5,000,000.
    An approximation of the number of peanut farms that could be 
considered small agricultural businesses under the SBA definition (less 
than $750,000 in annual receipts from agricultural sales) can be 
obtained from the 1997 Agricultural Census, which is the most recent 
information on the number of farms categorized by size. There were 
10,505 peanut farms with sales valued at less than $500,000 in 1997, 
representing 86 percent of the total number of peanut farms in the U.S. 
(12,221). Since the Agricultural Census does not use $750,000 in sales 
as a category, $500,000 in sales is the closest approximation. Assuming 
that most of the sales from those farms are attributable to peanuts, 
the percentage of small peanut farms in 1997 (less than $750,000 in 
sales) was likely a few percentage points higher than 86 percent, and 
may have shifted a few percentage points since then. Thus, the 
proportion of small peanut farms is likely to be between 80 and 90 
percent.
    The two-year average peanut production for the 2001 and 2002 crop 
years was 3.799 billion pounds, harvested from 1.354 million acres, 
yielding 2,806 pounds per acre. The average value of production for the 
two-year period was $797.469 million, as reported on the National 
Agricultural Statistics Service (NASS) Web site as of February 2003 
(http://www.nass.usda.gov:81/idepd/report.htm). The average grower 
price over the two-year period was $0.21 per pound, and the average 
value per harvested acre was $611. Dividing the two-year average value 
of production ($797.5 million) by the estimated 12,221 farms yields an 
estimated revenue per farm of approximately $65,254.
    The Agricultural Census presents farm sizes in ranges of acres, and 
median farm size in 1997 was between 50 and 99 acres. The median is the 
midpoint ranging from the largest to the smallest. Median farm size in 
terms of annual sales revenue was between $100,000 and $250,000.
    Several producers may own a single farm jointly, or, conversely, a 
producer may own several farms. In the peanut industry, there is, on 
average, more than one producer per farm. Dividing the two-year average 
value of production of $948.8 million by an estimated 23,000 commercial 
producers (2002 Agricultural Statistics, USDA, Table 11-10) results in 
an estimate of average revenue per producer of approximately $41,250.
    The current 14 custom blanchers, 8 custom remillers, 4 oilmill 
operators, 4 USDA and 15 USDA-approved private chemical (aflatoxin) 
testing laboratories are subject to the peanut standards to the extent 
that they must comply with reconditioning provisions under Sec.  996.50 
and reporting and recordkeeping requirements under Sec.  996.71. These 
requirements are applied uniformly to these entities, whether large or 
small. In addition, there are currently 10 State inspection programs 
(Inspection Service) that will perform inspection under this peanut 
program.
    Importers of peanuts cover a broad range of business entities, 
including fresh and processed food handlers and commodity brokers who 
buy agricultural products on behalf of others. Under the 2003 import 
quotas, approximately 25 business entities have only imported 
approximately 40 percent of the 126 million pounds of low duty quota 
peanuts (sometimes called duty free quota peanuts) compared with 37 
entities which had imported 100 percent of the quotas by April 5, 2002. 
The current import quota period began January 2, 2003, for Mexico, and 
April 1, 2003, for Argentina, and ``other countries.'' Some large, 
corporate handlers are also importers of peanuts. AMS is not aware of 
any peanut producers who imported peanuts during any of the recent 
quota years. The majority of peanut importers have annual receipts 
under $5,000,000. Some importers use customs brokers' import services 
and brokers are regulated under this rule to the extent that they must 
comply with entry requirements under Sec.  996.60 and reporting and 
recordkeeping requirements under Sec.  996.71. These requirements are 
not applied disproportionately to small customs brokers.
    In view of the foregoing, it can be concluded that the majority of 
peanut producers, handlers, importers, and above-mentioned entities may 
be classified as small businesses. Also, financially interested persons 
who may appeal quality inspection results, and ``holders of the title'' 
to any lot of peanuts who may appeal aflatoxin test results may include 
small entities.
    This rulemaking action: (1) Changes screen sizes specified in the 
outgoing quality standards to allow smaller peanut kernels of all 
varieties to be used for edible purposes; (2) specifies in the text of 
the regulations that financially interested persons may appeal quality 
inspection results and ``holders of the title'' may appeal aflatoxin 
test results; (3) allows peanut lots which meet minimum damage and 
minor defect standards, but fail for other reasons, prior to blanching, 
to be exempt from the damage and minor defect standards upon re-
inspection after blanching; and

[[Page 46923]]

(4) increases to 10 percent, the quantity of sound whole kernels that 
may be contained in lots of splits for specified peanut varieties. 
These changes are intended to maximize handling efficiency and to 
provide peanut producers, handlers, and importers with flexibility to 
meet new market demands, while maintaining peanut quality and 
wholesomeness for consumers.

Smaller Kernel Sizes

    Changing screen sizes used in handling peanuts will allow smaller 
kernels of all varieties to be used for edible purposes. Proponents of 
smaller kernel use claim that manufacturers of peanut products now have 
markets for smaller whole kernels, and that this rule change will 
enable them to take advantage of this recent shift in the marketplace. 
Market share for U.S. peanuts is expected to rise because the rule 
enables handlers to sell smaller peanuts to buyers who would otherwise 
purchase less expensive peanuts from other origins for manufacturing 
into peanut butter and paste, and other similar products.
    This rule implements a relaxation in the utilization of small 
peanut kernels by changing the screens used for sorting sound whole 
kernels and kernels with splits from a slotted screen to one with round 
holes. The equipment for this change (smaller screen sizes) is 
currently in use for split lots in most shelling facilities. This 
change should therefore require little or no additional investment for 
most shellers, large or small.
    The Inspection Service has a supply of screens for smaller peanut 
kernels to cover five new shelling plants scheduled to begin operation 
for the 2003 crop year. In addition, the Inspection Service will 
provide screens for peanut shellers that need them at a cost per screen 
of $55.00 plus shipping.
    Although the chances of aflatoxin contamination in small kernels is 
not significant, proponents of the rule change claim that modern 
electronic color sorting technologies can sort out the moldy or 
defective kernels, thus ensuring that the new screens will not have a 
negative impact on the quality and wholesomeness of peanuts entering 
edible food channels.
    Shellers that have already have this technology will have little or 
no additional cost. Compliance officers report that out of 77 shellers 
only 15 do not have electronic sorting technology in their shelling 
plants. These firms only shell seed peanuts, which are not shipped to 
the edible market.

Re-inspection of Blanched Lots

    This rule change allows shelled lots that are being reconditioned 
to be excluded from re-inspection for damage or minor defects if the 
lot originally passed based on those standards. Peanut lots which meet 
quality (grade) standards, including damage and minor defects, but 
which fail on aflatoxin, may be blanched to remove the aflatoxin-
contaminated kernels.
    Under the current standards, the lot must be re-inspected for 
damage and minor defects after blanching. In some cases, the result of 
the re-inspection is that the blanched lot exceeds tolerances for 
damage and minor defects, even though the original lot did not fail to 
meet the standard. This result can occur because the removal of the 
skins in the blanching process may expose instances of damage or minor 
defects not previously detected.
    The primary benefit of this rule change would be to reduce handler 
operating costs and avoid an additional loss of peanuts. The impact of 
this change is not expected to be different between large and small 
entities.

Increased Sound Whole Kernel Tolerance

    The Minimum Quality Standards table in 996.31(a) provides standards 
for split kernel lots by specifying the maximum percentage of sound 
whole kernels permitted in a lot. For Virginia variety peanuts, sound 
whole kernel content is currently limited to 10 percent of the lot by 
weight. For Runner, Spanish, and Valencia varieties, the sound whole 
kernel content is currently limited to 4 percent. This rule change 
accepts the Board recommendation that the Sound Whole Kernel tolerance 
for Runner, Spanish and Valencia be relaxed to 10 percent, the same 
tolerance that applies to Virginia variety peanuts. The primary benefit 
of this rule change would be to lower costs and increase sales revenue 
by rejecting fewer lots of the Runner, Spanish, and Valencia varieties 
for splits. No adverse financial impact is expected from making this 
standard uniform for all four varieties. The impact of this change is 
not expected to be different between large and small entities.

Appeal Procedures

    The addition of provisions specifying that financially interested 
persons may appeal quality inspection results and ``holders of the 
title'' to any lot of peanuts may request appeals of aflatoxin test 
results will benefit all persons involved.
    USDA has considered alternatives to the suggested changes to the 
quality and handling standards. The Act requires USDA to consult with 
the Board on these standards. An alternative would be to continue the 
2002-03 crop year standards for the 2003-04 crop year without 
implementing the recommended relaxations made by the Board at its April 
30, 2003, meeting. Because of the anticipated benefits of the 
recommended changes, USDA believes that implementation of the Board's 
suggested changes is preferable to continuing without change. The 
Board's meeting was a public meeting and all interested persons were 
able to attend and provide input.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap, or conflict with this rule. A small business guide on 
complying with AMS' fresh fruit, vegetable, and specialty crop programs 
similar to this peanut program may be viewed at the following Web site: 
http://www.ams.usda.gov/fv/moab.html. Any questions about the 
compliance guide or compliance with this program should be sent to Jay 
Guerber at the previously mentioned address in the FOR FURTHER 
INFORMATION CONTACT section.
    This rule invites comments on the Board's recommendations to change 
the quality and handling standards. Any comments received will be 
considered prior to finalization. Interested persons also are invited 
to submit information on the regulatory and economic impact of this 
action on small businesses.

Information Collection

    The Act specifies in section 1601(c)(2)(A) that the standards 
established pursuant to the Act, may be implemented without regard to 
the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). 
Furthermore, this rule does not change the existing information 
collection burden.
    Section 1601 also specifies that promulgation of the standards and 
administration of the program shall be made without regard to the 
statement of policy of the Secretary of Agriculture effective July 24, 
1971 (36 FR 13804) relating to notice of proposed rulemaking and public 
participation in rulemaking and the notice and comment provisions of 
section 553 of title 5, United States Code.
    Nonetheless, USDA may find, upon good cause, that it would be 
impracticable, unnecessary, and contrary to the public interest to give 
preliminary notice prior to putting this rule into effect and that good 
cause exists for not postponing the effective date of this rule until 
30 days after publication in the Federal Register because (1) This rule 
relaxes quality and

[[Page 46924]]

handling standards under the program; (2) the 2003 peanut harvest is 
expected to begin around August 15 and these relaxations should be in 
place as soon as possible; (3) the Board supported the changes; and (4) 
this rule provides a 30-day comment period and any comments will be 
considered prior to finalization of this rule. A 30-day comment period 
is appropriate for these reasons.

List of Subjects in 7 CFR Part 996

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


0
For the reasons set forth in the preamble, 7 CFR Part 996 is amended as 
follows:

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

0
1. The authority citation for 7 CFR part 996 is revised to read as 
follows:

    Authority: 7 U.S.C. 7958.


0
2. In Sec.  996.31, the table in paragraph (a) is revised to read as 
follows:


Sec.  996.31  Outgoing quality requirements.

    (a) * * *

                            Minimum Quality Standards--Peanuts for Human Consumption
                                 [Whole kernels and splits: Maximum limitations]
----------------------------------------------------------------------------------------------------------------
                                                 Unshelled
                                    Unshelled   peanuts and  Total fall through  Sound
                                   peanuts and    damaged       whole kernels and/or      Foreign      Moisture
     Type and grade category         damaged    kernels and    sound split and broken    materials    (percent)
                                     kernels      defects             kernels            (percent)
                                    (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
                                          Excluding Lots of ``Splits''
----------------------------------------------------------------------------------------------------------------
Runner...........................         1.50         2.50  6.00%; \17/64\ inch round          .20         9.00
                                                              screen.
Virginia (except No. 2)..........         1.50         2.50  6.00%; \17/64\ inch round          .20         9.00
                                                              screen.
Spanish and Valencia.............         1.50         2.50  6.00%; \16/64\ inch round          .20         9.00
                                                              screen.
No. 2 Virginia...................         1.50         2.50  6.00%; \17/64\ inch round          .20         9.00
                                                              screen.
Runner with splits (not more than         1.50         2.50  6.00%; \17/64\ inch round          .20         9.00
 15% sound splits).                                           screen.
Virginia with splits (not more            1.50         2.50  6.00%; \17/64\ inch round          .20         9.00
 than 15% sound splits).                                      screen.
Spanish and Valencia with splits          1.50         2.50  6.00%; \16/64\ inch round          .20         9.00
 (not more than 15% sound splits).                            screen.
----------------------------------
                                               Lots of ``splits''
----------------------------------------------------------------------------------------------------------------
Runner (not less than 90% splits)         2.00         2.50  6.00%; \17/64\ inch round          .20         9.00
                                                              screen.
Virginia (not less than 90%               2.00         2.50  6.00%; \17/64\ inch round          .20         9.00
 Splits).                                                     screen.
Spanish and Valencia.............         2.00         2.50  6.00%; \16/64\ inch round          .20         9.00
                                                              screen.
----------------------------------------------------------------------------------------------------------------

* * * * *

0
3. In Sec.  996.40, a new paragraph (c) is added to read as follows:


Sec.  996.40  Handling standards.

* * * * *
    (c) Appeal inspections. Any ``holder of the title'' to any lot of 
peanuts may request an appeal inspection if it is believed that the 
original aflatoxin test results were in error. Appeal inspections would 
be conducted in accordance with Federal or Federal-State inspection 
procedures for milled peanuts. The aflatoxin appeal sample would be 
drawn by Federal or Federal-State Inspection Service officials and the 
appeal analysis would be conducted by USDA or USDA-approved 
laboratories. Any financially interested person may request an appeal 
inspection if it is believed that the original quality inspection is in 
error. Quality appeals would be conducted by Federal or Federal-State 
Inspection Service inspectors in accordance with the Federal or 
Federal-State inspection procedures for milled peanuts. The person 
requesting the appeal inspection would pay the cost of such appeals. 
The appeal inspection results shall be issued to the person requesting 
the appeal inspection and a copy shall be mailed to USDA or its agent.

0
4. In Sec.  996.50, paragraph (d) is revised to read as follows:


Sec.  996.50  Reconditioning failing quality peanuts.

* * * * *
    (d) Blanching. Handlers and importers may blanch, or cause to have 
blanched, shelled peanuts failing to meet the outgoing quality 
standards specified in the table in Sec.  996.31(a). If after 
blanching, such peanut lot meets the quality standards in Sec.  
996.31(a), the lot may be moved for human consumption under positive 
lot identification procedures and accompanied by applicable grade and 
aflatoxin certificates. Peanut lots certified as meeting the fall 
through standard or the damaged kernels and minor defects standard as 
specified in Sec.  996.31(a), prior to blanching shall be exempt from 
fall through, damaged kernels and minor defects standards after 
blanching.
* * * * *

0
5. Section 996.75 is revised to read as follows:


Sec.  996.75  Effective time.

    The provisions of this part, as well as any amendments, shall apply 
to 2003-04 and subsequent crop year peanuts, to 2002-03 and 2001-02 
crop year peanuts not yet inspected, or failing peanuts that have not 
met disposition standards, and shall continue in force and effect until 
modified, suspended, or terminated.

    Dated: August 4, 2003.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 03-20158 Filed 8-4-03; 3:11 pm]
BILLING CODE 3410-02-P