[Federal Register Volume 69, Number 65 (Monday, April 5, 2004)]
[Rules and Regulations]
[Pages 17844-17861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7414]



[[Page 17843]]

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Part IV





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 983



Pistachios Grown in California; Order Regulating Handling; Final Rule

  Federal Register / Vol. 69 , No. 65 / Monday, April 5, 2004 / Rules 
and Regulations  

[[Page 17844]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 983

[Docket Nos. AO-F&V-983-2 FV02-983-01]


Pistachios Grown in California; Order Regulating Handling

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule establishes a marketing agreement and order (order) 
for pistachios grown in California. The order sets 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, will locally administer 
the program. The program will be financed by assessments on handlers of 
pistachios grown in the production area. The program is designed to 
enhance grower returns through the delivery of higher-quality 
pistachios to consumers.

DATES: This rule is effective April 6, 2004, except for Sec. Sec.  
983.38 through 983.46, which are effective August 1, 2004.

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 compliance with this regulation 
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); Recommended Decision and 
Opportunity to File Written Exceptions issued on July 23, 2003, and 
published in the August 4, 2003, issue of the Federal Register (68 FR 
45990); and Secretary's Decision and Referendum Order issued on 
December 11, 2003, and published in the December 30, 2003, issue of the 
Federal Register (68 FR 75320).
    This administrative action is governed by the provisions of 
sections 556 and 557 of title 5 of the United States Code and, 
therefore, is excluded from the requirements of Executive Order 12866.

Preliminary Statement

    The marketing agreement and order regulating the handling of 
pistachios grown in California is 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 production area. The hearing was held 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). Notice of this 
hearing was published in the Federal Register on June 26, 2002.
    The proposal was submitted for consideration to the Department by 
the Proponents Committee (proponents), a group representing the 
majority of producers and handlers of pistachios in California. The 
proponents are independent of the California Pistachio Commission and 
the Western Pistachio Association.
    The order provides the California pistachio industry with a tool to 
regulate the quality of pistachios handled in California. This includes 
preventing pistachios containing aflatoxin above the permitted maximum 
tolerance level of 15 parts per billion (ppb) from entering the market 
place. The order also precludes defective and small pistachios from 
being sold. Under the order, testing and certification of pistachios 
for quality (including aflatoxin) will be mandatory. The mandatory 
regulatory program is designed to provide the industry with an 
effective means of ensuring product quality, thereby enhancing customer 
satisfaction.
    Upon the basis of evidence introduced at the hearing and the record 
thereof, the Administrator of AMS on July 23, 2003, filed with the 
Hearing Clerk, U.S. Department of Agriculture, a Recommended Decision 
and Opportunity to File Written Exceptions thereto by September 3, 
2003. That document also announced AMS's intent to request approval of 
new information collection requirements to implement the program. 
Written comments on the proposed information collection requirements 
were due by October 3, 2003.
    One exception (and as corrected) was filed during the period 
provided on behalf of the proponents. The exception expressed general 
support of the marketing order and requested that several changes be 
made to the proposed order provisions, including that one proposed 
definition be revised, one definition be deleted, and several editorial 
and clarifying changes be made. The specifics of the exception were 
addressed in the Secretary's Decision and Referendum Order issued on 
December 11, 2003, and published in the Federal Register on December 
30, 2003.
    That document also directed that a referendum be conducted during 
the period January 12 through February 9, 2004, among growers of 
California pistachios to determine whether they favored issuance of the 
order. In the referendum, the order was favored by more than two-thirds 
of the growers voting in the referendum by number and volume.
    The marketing agreement was mailed to all pistachio handlers in the 
production area for their approval. The marketing agreement was 
approved by handlers representing more than 50 percent of the volume of 
pistachios handled by all handlers during the representative period of 
September 1, 2002, through August 31, 2003.

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 final 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. Marketing orders are unique in 
that they are normally brought through group action of essentially 
small entities for their own benefit. Thus, both the RFA and the Act 
are compatible with respect to small entities.
    Small agricultural producers have been defined by the Small 
Business Administration (SBA) (13 CFR 121.201) as those having annual 
receipts of less than $750,000. Small agricultural service firms, which 
include handlers that will be regulated under the pistachio order, are 
defined as those

[[Page 17845]]

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 pistachio 
marketing order program on small businesses. The record evidence is 
that while the program will impose some costs on the regulated parties, 
those costs will 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 19 handlers who process pistachios in 
the production area.
    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, 91 percent of the 
California pistachio producers receive less than $550,000 annually, and 
9 percent receive more than $550,000 annually. Thus, at least 91 
percent 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 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 should 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 should 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.

[[Page 17846]]

    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 order will assist in improving producer returns for 
pistachios. The order will 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 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 marketing order provisions. 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 
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 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 are an 
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 
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

[[Page 17847]]

($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 will 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 an upward 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).

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 will reduce the chance of a demand-decreasing market 
disturbance in the U.S.
    Witnesses cited a 1996 pistachio aflatoxin case that 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 will make the probability of an 
aflatoxin event less likely. As a starting point, witnesses argued that 
without mandatory aflatoxin testing through the 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 will 
face higher costs to comply with the 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 will 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

[[Page 17848]]

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 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 below the price 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 marketing order does not impose any direct compliance costs on 
producers. The direct impact is on the handlers who are required to pay 
for testing and inspection. Producers will 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 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 
will 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 will benefit from implementation of the order. Further,

[[Page 17849]]

there is no evidence of differing economic impacts between small and 
large producers.

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 marketing order includes provisions to reduce compliance costs 
for small handlers. Firms that handle less than 1,000,000 pounds per 
year will be subject to simplified aflatoxin testing procedures. 
Additionally, they will 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 compliance     Net economic
          Handler group*             cost  (dollars)   impact  (dollars)
------------------------------------------------------------------------
Higher Volume/Lower Compliance              -$667,000          1,178,000
 Costs............................
Medium Volume/Compliance Costs....           -150,000            208,000
Lower Volume/Higher Compliance                -58,000             61,000
 Costs............................
                                   --------------------
    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, will reap about 81 percent of the benefits of 
the program. AMS therefore concludes that the program will 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 marketing order will 
require minimal adjustments in current processing activities and will 
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 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 program and its regulatory 
provisions.
    The order will impose some reporting and recordkeeping requirements 
on handlers. However, handler testimony indicated that the expected 
burden that will be imposed with respect to these requirements will be 
negligible. Most of the information that will 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 will be imposed 
under this marketing order on the estimated 19 handlers of pistachios 
in California.
    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, namely no marketing order, or an order 
without the combination of quality, size and aflatoxin regulation.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap, or conflict with this rule.
    In determining that the order and its provisions will not have a 
disproportionate economic on a substantial number of small entities, 
all of the issues discussed above were considered. Based on hearing 
record evidence and USDA's analysis of the economic information 
provided, the order provisions have been carefully reviewed to ensure 
that every effort has been made to eliminate any unnecessary costs or 
requirements.
    Although the order will 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 should be offset by the benefits derived from expanded sales 
benefiting handlers and producers alike. Accordingly, it is determined 
that the order will not have a disproportionate economic impact on a 
substantial number of small handlers or producers.

Paperwork Reduction Act

    In compliance with OMB regulations (5 CFR part 1320) which 
implement the Paperwork Reduction Act of 1995 (Pub. L. 104-13), the 
forms to be used for nomination and selection of the initial 
administrative committee have been submitted to and approved by OMB.
    Any additional information collection and recordkeeping 
requirements that

[[Page 17850]]

may be imposed under the order will be submitted to OMB for approval. 
Those requirements would not become effective prior to OMB approval.

Civil Justice Reform

    The provisions of the marketing agreement and order have been 
reviewed under Executive Order 12778, Civil Justice Reform. They are 
not intended to have retroactive effect. The agreement and order will 
not preempt any State or local laws, regulations, or policies, unless 
they present an irreconcilable conflict with this rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with the 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 
therefrom. 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.

Findings and Determinations

    (a) Findings upon the basis of the hearing record. Pursuant to the 
provisions of the Agricultural Marketing Agreement of 1937, as amended 
(7 U.S.C. 601 et seq.), and the applicable rules of practice and 
procedure effective thereunder (7 CFR part 900), a public hearing was 
held upon a proposed marketing agreement and order regulating the 
handling of pistachios grown in California.
    Upon the basis of the evidence introduced at such hearing and the 
record thereof, it is found that:
    (1) The marketing agreement and order, and all of the terms and 
conditions thereof, will tend to effectuate the declared policy of the 
Act;
    (2) The 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 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 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 marketing agreement and order, is in the current of interstate or 
foreign commerce or directly burdens, obstructs, or affects such 
commerce.
    (b) Additional findings. It is necessary and in the public interest 
to make most of the provisions of this order effective not later than 
one day after publication in the Federal Register. The exception would 
be for those provisions of the order (Sec. Sec.  983.38 through 983.46) 
that establish mandatory testing inspection and certification for 
maximum aflatoxin and minimum quality levels of California pistachios. 
These provisions would not become effective until August 1, 2004.
    A later effective date would unnecessarily delay implementation of 
the program, which is expected to benefit the California pistachio 
industry. Making the program effective as specified would allow for the 
nomination, selection and organization of the initial administrative 
committee sufficiently in advance of the 2004 pistachio harvest season. 
It also allows time for the committee to recommend a budget and 
assessment rate and any administrative rules and regulations deemed 
necessary to operate the program.
    In view of the foregoing, it is hereby found and determined that 
good cause exists for making most of the order provisions effective one 
day after publication in the Federal Register, and that it would be 
contrary to the public interest to delay the effective date for 30 days 
after publication in the Federal Register (Sec. 553(d), Administrative 
Procedure Act; 5 U.S.C. 551-559).
    (c) Determinations. It is hereby determined that:
    (1) The ``Marketing Agreement Regulating the Handling of Pistachios 
Grown in California,'' upon which the aforesaid public hearing was 
held, has been signed by handlers (excluding cooperative associations 
of producers who are not engaged in processing, distributing, or 
shipping pistachios covered by the order) who during the period 
September 1, 2002, through August 31, 2003, handled not less than 50 
percent of the volume of such pistachios covered by the order, and
    (2) The issuance of this order is favored or approved by at least 
two-thirds of the producers who participated in a referendum on the 
question of its approval and who, during the period September 1, 2002, 
through August 31, 2003 (which has been determined to be a 
representative period), have been engaged within the production area in 
the production of pistachios for market, such producers having also 
produced for market at least two-thirds of the volume of such commodity 
represented in the referendum.

List of Subjects in Proposed 7 CFR Part 983

    Marketing agreements, Pistachios, Reporting and recordkeeping 
requirements.

Order Relative to the Handling of Pistachios Grown in California

    It is therefore ordered, That on and after the effective date 
hereof, all handling of pistachios grown in California shall be in 
conformity to, and in compliance with, the terms and conditions of the 
said order, as follows:
    The provisions of the marketing order are set forth in full herein.

0
Title 7, chapter IX is 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.
983.14 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.

[[Page 17851]]

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.

Regulations

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 Right 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.

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

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.


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 inshell pistachios, free of 
internal defects as defined in Sec.  983.39(b)(4) and (5), 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.  983.14  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

[[Page 17852]]

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.


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

[[Page 17853]]

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 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

[[Page 17854]]

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 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.

[[Page 17855]]

    (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 the following Table 1. The gross weight of the kernel lot 
sample for aflatoxin testing and the number of incremental samples 
required is shown in the following Table 2 of this paragraph.

                 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 sample
                 Lot weight  (lbs.)                   samples for the       lot sample           (kilograms)
                                                         lot sample        (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), 
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 Sample 
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 Sample 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

[[Page 17856]]

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 
accredited 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 of this 
paragraph.

            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    ...............
 1, 2 and 3 above, which materially
 detracts from the appearance or the
 edible or marketing quality of the
 individual shell or the lot........
-------------------------------------
                        INTERNAL (KERNEL) DEFECTS
------------------------------------------------------------------------
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                     2.0                0.5
     allowed........................
Total external or internal defects                9.0    ...............
 allowed............................
-------------------------------------
                              OTHER DEFECTS
------------------------------------------------------------------------
1. Shell pieces and blanks (Fills                 2.0    ...............
 <50% of the shell).................
    (i) Maximum blanks allowed......              1.0    ...............
2. Foreign material--No glass, metal              0.25               0.1
 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 \30/64\ths
 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 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

[[Page 17857]]

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:
    (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
                                                            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
----------------------------------------------------------------------------------------------------------------

    (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

[[Page 17858]]

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 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 the 
order provisions contained in Sec. Sec.  983.38 through 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. Sec.  983.38 and 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.

[[Page 17859]]

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 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.

[[Page 17860]]

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. Sec.  983.47 through 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  Right 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.


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.

[[Page 17861]]

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.

    Dated: March 25, 2004.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 04-7414 Filed 4-2-04; 8:45 am]
BILLING CODE 3410-02-P