[Federal Register Volume 70, Number 10 (Friday, January 14, 2005)]
[Rules and Regulations]
[Pages 2763-2771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-572]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 900

[Docket No. FV03-900-1 FR]


Exemption of Organic Handlers From Assessments for Market 
Promotion Activities Under Marketing Order Programs

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule implements the provisions of section 10607 of the 
2002 Farm Bill and exempts handlers subject to marketing order 
requirements from paying assessments for market promotion activities, 
including paid advertising, to marketing order committees and boards. 
To obtain an exemption, the handler must operate under an approved 
organic process system plan authorized by the National Organic Program 
(NOP), and handle or market only products that are eligible for a 100 
percent organic product label under the NOP. The Agricultural Marketing 
Service (AMS), that oversees and works with the committees and boards 
in administering the programs, has identified 28 marketing order 
programs for which assessment exemptions may be established. A separate 
final rule to exempt any person producing and marketing solely 100 
percent organic products from paying assessments to any national 
research and promotion program administered by AMS also is being 
published in today's Federal Register.

DATES: Effective February 14, 2005.

FOR FURTHER INFORMATION CONTACT: George Kelhart or Jay Guerber, 
Marketing Order Administration Branch, Fruit and Vegetable Programs, 
Agricultural Marketing Service, U.S. Department of Agriculture, 1400 
Independence Avenue SW., STOP 0237, Room 2525-South, Washington, DC 
20250-0237; Telephone: (202) 720-2491; Fax: (202) 720-8938; or E-mail: 
[email protected].
    Small businesses may request information on complying 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; or E-mail: [email protected].

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding:
    Proposed rule; Published in the Federal Register December 2, 2003 
(68 FR 67381).
    Proposed rule; Extension of comment period; Published in the 
Federal Register December 30, 2003 (68 FR 75148).

Executive Order 12866

    This final rule is being issued by the Department of Agriculture 
(USDA) in conformance with Executive Order 12866.

Executive Order 12988

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. It is not intended to have retroactive effect. 
This final rule would not preempt any State or local laws, regulations, 
or policies, unless they present an irreconcilable conflict with this 
rule.
    The Agricultural Marketing Agreement Act of 1937 (7 U.S.C. 601-
674)(Act or AMAA), under which the 28 marketing order programs are 
established, provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under the Act, any person 
subject to an order may file a petition with USDA 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. The petitioner 
is afforded the opportunity for a hearing on the petition. After the 
hearing, USDA would make a ruling on the petition. The Act provides 
that the district court of the United States in any district in which 
the person is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling, provided a 
complaint is filed within 20 days from the date of the entry of the 
ruling.

Background

    Section 10607 of the Farm Security and Rural Investment Act (Pub. 
L. 107-171; 2002 Farm Bill) was enacted May 13, 2002. Section 501 of 
the Federal

[[Page 2764]]

Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7401; FAIR 
Act) was amended by the 2002 Farm Bill. This amendment exempts any 
person that produces and markets solely 100 percent organic products, 
and that does not produce any conventional or non-organic products, 
from paying assessments under a commodity promotion law with respect to 
any agricultural commodity that is produced on a certified organic farm 
as defined in section 2103 of the Organic Foods Production Act of 1990 
(7 U.S.C. 6502; OFPA). USDA has implemented National Organic Program 
(NOP) requirements at 7 CFR part 205 to carry out the provisions of the 
OFPA.
    USDA is amending the general regulations (7 CFR part 900) with 
respect to 28 marketing order programs established under the Act for 
which it has oversight. These amendments establish provisions for 
handlers who handle or market solely 100 percent organic products to be 
exempt from paying assessments for market promotion activities, 
including paid advertising.
    Currently, the FAIR Act amendment covers 28 marketing order 
programs established under the Act: Texas citrus--7 CFR part 906; 
Florida avocados--7 CFR part 915; California nectarines--7 CFR part 
916; California peaches and pears--7 CFR part 917; Washington 
apricots-- 7 CFR part 922; Washington sweet cherries--7 CFR part 923; 
Washington/Oregon fresh prunes--7 CFR part 924; Southeastern California 
grapes--7 CFR part 925; Oregon/Washington winter pears--7 CFR part 927; 
Cranberries grown in States of Massachusetts, et al.--7 CFR part 929; 
Tart cherries grown in States of Michigan, et al.--7 CFR part 930; 
Oregon/Washington Bartlett pears--7 CFR part 931; California olives--7 
CFR part 932; Oregon/California potatoes--7 CFR part 947; Colorado 
potatoes--7 CFR part 948; Georgia Vidalia onions--7 CFR part 955; 
Washington/Oregon Walla Walla onions--7 CFR part 956; Idaho-Eastern 
Oregon onions--7 CFR part 958; Texas onions--7 CFR part 959; Florida 
tomatoes--7 CFR part 966; Texas melons--7 CFR part 979; California 
almonds--7 CFR part 981; Oregon-Washington hazelnuts--7 CFR part 982; 
California walnuts--7 CFR part 984; Far West spearmint oil--7 CFR part 
985; California dates--7 CFR part 987; California raisins--7 CFR part 
989; and California dried prunes--7 CFR part 993. In addition, Sec.  
900.700(a) provides that the assessment exemption also shall apply to 
any additional marketing orders for fruits, vegetables, or specialty 
crops that may be established or amended to include market promotion.
    These marketing order programs allow for promotion programs 
designed to assist, improve, or promote the marketing, distribution, or 
consumption of the commodity covered under the marketing order program. 
Some of these programs also authorize market promotion in the form of 
paid advertising. Promotion activities, including paid advertising, are 
paid for by assessments levied on handlers regulated under the various 
marketing orders.
    Notice of this action was published in the Federal Register on 
December 2, 2003 (68 FR 67381). The period for written comments 
initially ended on January 2, 2004. However, at the request of the 
Organic Trade Association, the comment period was extended until 
February 2, 2004 (68 FR 75148; December 30, 2003).
    During the comment period, 147 comments were received from a member 
of Congress, producers of organic commodities, marketers of organic 
commodities, organic producer and trade organizations, the management 
of the tart cherry and almond marketing order boards, cooperative 
marketing organizations, and interested consumers. About 85 of the 
commenters used a form letter that discussed eligibility and 
administrative issues. Another 80 comments were received after the 
comment period, but they did not introduce any new issues. AMS has 
considered each comment timely submitted, and they are discussed below.

Summary of Changes From the Proposed Rule

    This final rule clarifies that, for the purpose of obtaining an 
assessment exemption for market promotion activities, a handler (i.e., 
assessment payer) must operate under a NOP-approved organic process 
system plan. Further, that handler may handle or market only 
commodities eligible for a 100 percent organic label under the NOP (7 
CFR part 205.300-205.311). This applies to all commodities handled or 
marketed by the handler, not only those covered by the marketing order 
programs. Such handlers are considered to be the persons that handle or 
market solely 100 percent organic commodities for the purposes of the 
2002 Farm Bill. The application form has been changed to reflect this 
as appropriate.
    The final rule also clarifies that a handler who handles or markets 
products produced on buffer zones or chemically-treated products from 
certified NOP producers is not eligible for an assessment exemption. 
Moreover, a handler, who is a split operation handling both organic and 
conventionally-produced product, is not eligible for an assessment 
exemption. Further, if an NOP handler is also a certified NOP producer, 
that handler would not be eligible for exemption unless the non-organic 
production from his or her production operation is handled by another 
handler.
    The final rule provides that the exemption will apply at the 
beginning of the next assessable period following notification to the 
applicant of approval of the assessment exemption, in writing, by the 
committee or board. The final rule requires marketing order committees 
and boards to grant or deny exemption requests within 30 days. However, 
for the first 6 months following the final rule's effective date, 
committees and boards will have 60 days to grant or deny exemption 
requests. After 6 months, the deadline will revert to 30 days.
    The final rule also provides that persons denied the exemption will 
be notified in writing. The procedures for handlers to follow in the 
event they are denied exemption status and desire further review are 
explained in this final rule.

Summary of Comments Received

    The comments largely fall into two broad categories. One category 
addresses issues of assessment exemption eligibility. The other 
category addresses administrative and procedural issues.

Issues of Eligibility

    Numerous commenters, including those that submitted the form 
letter, stated that the proposed rule changed the eligibility 
requirements fixed by Congress. They assert that the eligibility 
criteria for an organic exemption were established by Congress in the 
exemption statute and are easily implemented using the definitions 
(e.g., producer, handler, 100 percent organic, etc.) of the FAIR Act 
and the OFPA.
    The assessment exemption statute amends section 501 of the FAIR Act 
to provide that persons that produce and market solely 100 percent 
organic products shall be exempt from the payment of assessments under 
a commodity promotion law with respect to any agricultural commodity 
that is produced on a certified organic farm (as defined in section 
2103 of the OFPA). This exemption from assessments applies to a number 
of programs, including marketing orders that include marketing 
promotion provisions under section 8c(6)(I) of the AMAA. Marketing

[[Page 2765]]

orders established under the AMAA regulate the handling of the 
commodity, not the production; handlers, not producers, pay assessments 
under marketing order programs. Thus, relevant definitions established 
under the AMAA for the marketing order programs should apply and not 
those specified under other statutes.
    Other commenters, including those that submitted the form letter, 
stated that the term ``100 percent organic'' should refer to 100 
percent of a specific commodity, not all commodities. This would mean 
that a person that handles or markets an organic commodity regulated 
under a marketing order would be eligible for an exemption even if that 
person handled other commodities that are not organic. Other commenters 
stated that the term ``100 percent organic'' means nothing more than 
produced on a certified organic farm, and certified organic farms 
include split operations (i.e., those that produce and market both 
organic and conventionally-grown commodities). Other commenters stated 
that rendering a certified organic grower who produces any non-organic 
commodity ineligible for exemption would conflict with the OFPA and 
Congressional intent.
    USDA considered these comments. Such an interpretation, however, 
would make the additional statutory qualifications of ``solely'' and 
``does not produce any conventional or non-organic products'' 
meaningless. The statutory language of the 2002 Farm Bill provides that 
to be exempt, a person must produce and market solely 100 percent 
organic products, and not produce any conventional or non-organic 
products. Therefore, the interpretation urged by the commenters is not 
consistent with the statute.
    Furthermore, to eliminate uncertainty in interpreting exemption 
eligibility for programs authorized under the AMAA, the reference to a 
``person that produces and markets solely 100 percent organic 
commodities'' in the 2002 Farm Bill is the person that handles or 
markets (i.e., the person that pays assessments) on the commodities 
under the marketing order. Therefore, for a handler to qualify for an 
exemption, that handler must handle or market only 100 percent organic 
products under an approved NOP handler organic process system plan and 
all of the products handled or marketed by the handler must be eligible 
for a 100 percent organic label under the NOP.
    Handlers handling non-organic products are not eligible for an 
exemption. For example, NOP recognizes split farm operations and 
certain NOP permitted practices in which an organic grower produces 
conventionally-grown product, but maintains his or her organic grower 
status. Under the NOP, an organic grower may be required to sell a 
commodity conventionally due to Federal or State emergency chemical 
spray programs to eliminate pests or diseases. Similarly, the NOP 
requires an organic operation to maintain a buffer area between the 
organic crop and the conventional growing areas, and any commodity 
grown in that buffer area may not be sold as organic. Even if the 
handler is an organic producer who produces a conventional product 
consistent with NOP practices (i.e., product from a buffer zone), that 
handler would only be eligible for an exemption if the conventionally-
produced commodity produced by that handler was handled or marketed by 
another handler.
    As defined in the proposed rule, ``produce means to grow or produce 
food, feed, livestock, or fiber or to receive food, feed, livestock or 
fiber and alter that product by means of feeding, slaughtering, or 
processing.'' Commenters, including those who submitted the form 
letter, noted that there is nothing in the 2002 Farm Bill to require 
that handlers perform more than their normal activities for the 
exemption to apply. They assert that the exemptions should apply 
whether or not the handler alters the commodity.
    To address the concerns of the commenters and because the AMAA only 
authorizes regulation of handlers (the entities required to pay 
assessments), the exemption eligibility has been modified by removing 
the requirements for alteration or other forms of processing so all 
handlers are treated similarly.
    In response to the form letter comment, this final rule clarifies 
that, as long as the handler meets the requirements in Sec.  
900.700(b), it is not necessary that the handler label all products as 
organic. In other words, if the products were produced organically, the 
fact that they were marketed as conventional products would not nullify 
a handler's exemption from assessment status. Under the NOP, product 
produced under an approved system of organic management does not lose 
its status as the product of a certified organic farm when transacted 
in the conventional marketplace. Thus, persons who market organic 
products in conventional markets will not lose their exempt status.
    As revised, Sec.  900.700(b) provides that a handler who operates 
under an NOP-approved organic process system plan; handles or markets 
under an applicable marketing order or outside the marketing order 
solely 100 percent organic products produced on a certified organic 
farm as defined in Sec.  2103 of the Organic Foods Production Act of 
1990 (7 U.S.C. 6502) and NOP regulations; is not a split operation; and 
is subject to assessments, shall be exempt from the portion of the 
assessments applicable to marketing promotion.
Examples Illustrating the Application of Handling and Marketing Solely 
100 Percent Organic Products
     A handler who handles or markets solely 100 percent 
organic products under an NOP-approved organic process system plan, and 
pays marketing order assessments to the board or committee, is eligible 
for an exemption for the portion of the assessments used for marketing 
promotion on all products handled or marketed under the applicable 
marketing order.
     A handler receives products from a certified grower who 
grows 20 acres organically and 20 acres of another product 
conventionally. If the handler handles or markets any of the 
conventionally-produced products, the handler is not eligible for an 
exemption. Conversely, if the handler receives and markets only 100 
percent organic products, the handler is eligible for an exemption even 
if the producers who grew the product also produced conventional 
product.
     If a handler produces products organically and 
conventionally, the conventionally-grown products must be handled or 
marketed by another handler to be eligible for an exemption from the 
portion of the assessments used for marketing promotion.

Administrative and Procedural Issues

    The proposed rule limited the exemption to that portion of the 
assessment funds allocated for marketing promotion, including paid 
advertising. Some commenters, including those who submitted the form 
letter, said that all eligible persons should be exempt from all of the 
marketing order assessments collected, not just those assessments used 
for market promotion activities. The commenters asserted that the 
intent of Congress was to bar all assessments that might be imposed 
under generic commodity promotion laws on commodities originating from 
certified organic farms, not only those earmarked for marketing 
promotion, including paid advertising.
    The assessment exemption only applies to assessments that are spent 
for market research, market development,

[[Page 2766]]

market promotion, or paid advertising. Section 501 of the FAIR Act 
covers all promotion programs and all marketing orders with market 
research and promotion activities, including industry information and 
consumer information activities funded by assessments on handlers. 
Limiting the exemption to such activities is consistent with section 
501 of FAIR Act and the marketing orders with market research and 
promotion activities.
    Several commenters requested that USDA list examples of eligible 
activities in the final rule to help the committees and boards 
administer the organic assessment exemption program. Others requested 
that exempt activities be broadened to include all of the activities 
authorized in section 8c(6)(I) of the AMAA. If this were done, the 
activities would also include production research. Production research 
encompasses a whole array of activities including, but not limited to, 
research on growing techniques, disease control, the development of new 
varieties, and similar activities relating to the efficient production 
of the commodity. Production research activities are not within the 
scope of the 2002 Farm Bill, because they do not directly promote the 
marketing of the commodity.
    To provide guidance to those commenters who requested examples of 
eligible market promotion activities, market promotion includes a full 
range of activities designed to assist, improve, or promote the 
marketing, distribution, and consumption of the applicable commodity. 
Research related to the traditional market research activities (e.g., 
surveys of consumer and institutional users, product development, and 
taste studies) would be covered. Assessments used for the promotion of 
the nutritional and health benefits of the particular commodity, recipe 
development, informational packets, and other types of publicity also 
would be eligible for exemption.
    Market development projects would cover the full range of 
promotional activities generally included in that category, which 
include--but are not limited to--participation in trade shows, the 
development and use of internet websites to inform the trade and the 
public of the uses (e.g., recipes) and/or nutritional value of the 
regulated commodity, point of purchase materials, publication of 
promotional materials, the development and dissemination of materials 
to the media promoting the commodity's uses and benefits, and paid 
advertising when authorized under a marketing order.
    Another commenter objected to the exemption, mentioning that 
promotion activities implemented under their program promote their 
commodity and do not distinguish between organic and non-organic. As a 
consequence, organic producers and handlers would benefit from the 
industry's investment in market research and trade promotion, without 
contributing to the cost. The enabling legislation requires the organic 
assessment exemption to be implemented.
Administrative Costs Involving Market Promotion
    Commenters said that the final rule should clarify what portion of 
administrative costs on exempted activities should be eligible for 
exemption, because there are administrative costs associated with 
market promotion activities. Section 900.700(d) has been clarified to 
provide that the exempted costs include the portion of committee/board 
administrative costs incurred in implementing market promotion 
activities. For example, such administrative costs could include 
prorated amounts for salaries, rents, supplies, and other overhead 
costs associated with the market promotion activities, as recommended 
by the committees or boards, and approved by USDA.
    The proposed rule specified a calculation of the exemption rate 
based on the portion of funds allocated for market promotion 
activities. Some commenters said that the proposed method of 
calculation of the rate of assessment for exempt handlers, and its 
implementation, are too complicated and burdensome and should be 
simplified.
    USDA continues to conclude that the method of calculation specified 
in the proposed rule is necessary to administer the assessment 
exemption under the applicable marketing orders and should not be 
changed. Moreover, the assessment formula establishes a uniform method 
of calculation for all of the committees and boards and should not be 
overly complicated or burdensome.
    One commenter said that USDA should allow committees/boards to 
certify annually to AMS if they are not planning to conduct any market 
promotion activities. This process would eliminate the need for 
administering the exemption authority for the particular marketing 
order for a given assessment period. Based on this comment, USDA has 
modified Sec.  900.700(d) to provide that if a committee or board does 
not plan to conduct any market promotion activities during an 
assessment period, the committee or board may submit a certification to 
that effect to AMS. In such a situation, the committee or board would 
assess all handlers, regardless of their organic status, the full 
assessment rate applicable to the assessment period.
    A commenter suggested that the assessment exemption calculations be 
based on the previous year's promotion related expenses so that a 
producer is not required to pay for such activities. All marketing 
orders require assessments to be computed at the beginning of the 
assessment period, but the assessments may be modified as necessary 
during the applicable assessment period. Assessments are paid by 
handlers.
    Commenters, including those that submitted the form letter, stated 
that USDA seems to be implying that 100 percent organic producers are 
not exempt from promotion expenses until they are ``approved.'' They 
contend that approval processes beyond those of the OFPA and the NOP 
are not necessary. Under marketing orders, handlers pay assessments, 
and committees and boards administer the assessment provisions with 
USDA oversight. It is the responsibility of the committees and boards 
to assure that all persons who handle or market the regulated 
commodities pay assessments to cover program expenses. Therefore, 
committees and boards must approve any exemptions for the payment of 
assessments under the marketing order programs, and approval procedures 
must be implemented. In turn, persons meeting the exemption criteria 
will be granted assessment exemptions.
    According to the commenters, the application process duplicates the 
paperwork certified organic producers and handlers submit to their 
accredited certification agency to demonstrate that certified organic 
products maintain their organic integrity. They contend that it would 
be simpler to have the handler operating under the NOP require 
documentation of organic certification from the producer and verify 
that the commodity was organic. They further contend that the standard 
audit processes for the payment of assessments could be applied to 
determine that the handler properly assessed or exempted producers.
    The certificate from a USDA-accredited certifying agent under the 
OFPA and the NOP indicates whether a farm or operation is certified for 
organic production. However, the application submitted by handlers 
requests additional information necessary for committees or boards to 
determine whether a handler qualifies for an exemption. The information 
requested

[[Page 2767]]

is discussed in the Paperwork Reduction Act section of this final rule.
    This information is necessary to provide information to committees 
or boards to determine an applicant's eligibility and to verify 
compliance. Inclusion of this information on the form will assist the 
applicants in making their certifications and the committees or boards 
in properly administering the assessment exemption under the various 
marketing order programs.
    The role of the committees and boards has been clarified in this 
rule to specify that they will approve the applications of persons who 
meet the specified criteria. With USDA oversight, committees and boards 
will administer the exemption as they do all other aspects of their 
programs. Information confirming that an applicant is 100 percent 
organic for all commodities will be provided to the committees and 
boards by applicants and will be verified through routine compliance 
efforts. As discussed previously, to be ``100 percent organic'', a 
handler must operate under an NOP-approved organic process system plan 
and handle or market only products that can be labeled as 100 percent 
organic under the NOP.
    Commenters said that an appeals process should be fully described 
in the final rule to help the committees or boards and applicants 
better operate under the exemption program.
    A few marketing orders specify provisions allowing handlers to 
appeal committee or board decisions before seeking review by USDA, but 
such provisions are not necessary for interested persons to appeal any 
committee or board decision. Safeguards and avenues for appeal exist 
and operate without specified order-provided appeal processes. Handlers 
may request committees or boards to review the decisions with which the 
handlers question. Further, if the handlers still are not satisfied, 
they may ask USDA to conduct a final review of the matter. Accordingly, 
no change to the regulatory text is necessary.
    Also, in the proposed rule, provisions were included in Sec.  
900.700(c) specifying that USDA may review any decisions made by the 
committees or boards at its discretion. Because USDA routinely oversees 
committee or board actions under these programs, these provisions are 
not necessary in the regulatory text and have been removed.
    A commenter requested that a producer who does not agree that the 
assessment rate is fair, based on the calculation of promotion 
expenses, be accorded the right of due process, to be exercised through 
appeal to the National Appeals Division (NAD). The NAD is responsible 
for all administrative appeals arising from program activities of 
USDA's Farm Service Agency, Risk Management Agency, Natural Resources 
Conservation Service, Rural Business-Cooperative Development Service, 
Rural Housing Service, and the Rural Utilities Service. However, the 
NAD has no jurisdiction over the programs of AMS, including the 
administration of the assessment exemption process.
    Another commenter said the proposal implements an exemption from 
assessment and must not require a producer payment followed by a 
refund. Further, the commenter stated that if the operator provides an 
affidavit from a USDA-accredited certifying agent that shows the 
operation has been 100 percent organic during the course of the 
assessment period, the committee or board must not assess the producer. 
The commenter also stated that if a producer provides an affidavit 
demonstrating that the commodity has been 100 percent organically-
produced during the assessment period, for which the producer has 
already paid in full, not having an affidavit at the time of payment, 
the committee or board must grant a refund of any promotion assessment 
money paid by the operator during the assessment period. Producers are 
not assessed under the 28 specified marketing orders. Handlers of the 
commodities are assessed. The committees and boards have procedures in 
place to make pro rata adjustments in assessment overpayments when 
necessary consistent with marketing order procedures.
    One commenter stated that the words ``application'' and 
``certification'' used in the proposed rule should be changed to 
``affidavit'' to avoid confusion with the term ``certification'' as 
used in the NOP. USDA believes that the language in Sec.  900.700(c) is 
clear in the context used and that no change is needed. In fact, it is 
customary under marketing order programs for handlers to certify that 
the information they provide to the committees and boards is factually 
correct.
    A few commenters also contended that the proposed rule 
unnecessarily requires an exempt person to reapply to the committee or 
board each assessment period. All marketing order programs operate on 
an annual assessment period basis and annual applications are necessary 
for the committees and boards to maintain compliance and to ensure that 
the exemption program is implemented equitably among the eligible 
persons.
    A commenter contends that it is up to USDA not to assess 100 
percent organic producers; if USDA questions someone's status, it is up 
to USDA to prove otherwise. Committee and Board application and review 
systems are intended to assure that assessment exemptions are properly 
applied. Moreover, under the various marketing order programs, the 
payment of assessments is one of a number of requirements applied to 
handlers, not to producers, and a detailed application process is 
necessary to oversee handler compliance with these requirements.
    Section 900.700(f) of the proposed rule requires a handler to 
immediately notify the committee or board when the handler is no longer 
eligible for an exemption. A commenter recommended that the word 
``immediately'' be changed to ``within 30 days'' to lessen the burden 
on industry participants. This change has been made and paragraph (f) 
has been redesignated as paragraph (e).
    A commenter requested USDA to clarify that the organic assessment 
exemption did not apply to State marketing orders. The exemption only 
applies to the 28 specified Federal marketing orders under the AMAA. 
The exemption does not apply to assessments under any State marketing 
order or similar program.
    The same commenter requested USDA to specify, in the Small Business 
Guide for Complying with Marketing Agreements and Orders for Fruits, 
Vegetables, and Specialty Crops, the activities to which the exemption 
applies and does not apply. We have provided previously in this 
document examples of such activities and will do so in the Small 
Business Guide.
    Some commenters said that the effective date and initial coverage 
(e.g., which assessment period) for the exemption should be clarified, 
because an initial exemption period was not specified in the proposed 
rule. Under the proposal, a person can apply for an exemption at any 
time initially and must reapply every year after that on a specific 
date.
    There is a wide variation among programs in the collection of 
assessments. For example, in some programs, assessments are collected 
every month. In others, assessments are collected at the end of the 
assessable period; i.e., fiscal period, marketing year, crop year, etc. 
Accordingly, to treat the various marketing order programs uniformly, 
the exemption should be made effective at the beginning of the next 
assessable period for each marketing order program following the 
effective date of this final rule. This

[[Page 2768]]

means that organic assessment exemptions for some applicants will 
become effective sooner for some marketing orders than others, 
depending on the beginning of the respective assessable periods.
    In the proposed rule, the term ``marketing promotion expenditures'' 
was defined in Sec.  900.700(a). This term is not needed because it is 
not used in Sec.  900.700. The term ``marketing promotion'' is used and 
is defined to mean marketing research and development projects, and 
marketing promotion, including paid advertising, designed to assist, 
improve, or promote the marketing, distribution, and consumption of the 
applicable commodity.

Final Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) (RFA), the Agricultural Marketing Service 
(AMS) has considered the economic impact of this rule on small 
entities. Accordingly, AMS has prepared this final regulatory 
flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and the rules issued thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    As previously mentioned, assessments under the 28 marketing order 
programs are paid by handlers regulated under the various marketing 
orders. There are approximately 850 handlers regulated under the 28 
marketing orders. USDA does not have precise numbers, but believes 
there may be approximately 84 persons who handle or market solely 100 
percent organic products that might be exempt from paying assessments 
for market promotion, including paid advertising, under the 28 
marketing order programs administered by AMS. Thus, the estimated 
number of prospective applicants eligible for the assessment exemption 
may represent approximately 10 percent of the total handler population.
    Small agricultural service firms are defined by the Small Business 
Administration (13 CFR 121.201) as those whose annual receipts are less 
than $5,000,000. Although the exact size of the potential applicants is 
not known, USDA believes that the majority of persons who might qualify 
for an exemption may be classified as small entities.
    Section 501 of the Federal Agriculture Improvement and Reform Act 
of 1996 (FAIR Act) was amended on May 13, 2002 (7 U.S.C 7401). The 
amendment provides that, notwithstanding any provision of a commodity 
promotion law, a person that produces and markets solely 100 percent 
organic products, and that does not produce any conventional or non-
organic products, shall be exempt from paying assessments under a 
commodity promotion law with respect to any agricultural commodity that 
is produced on a certified organic farm, as defined in section 2103 of 
the Organic Foods Production Act of 1990 (7 U.S.C. 6502). The amendment 
further requires USDA to amend any research and promotion regulations 
to reflect this exemption.
    USDA is issuing amendments to the general regulations (7 CFR part 
900) affecting 28 of the 34 active marketing order programs established 
under the Act for which it has oversight. As defined in this final 
rule, these amendments will establish provisions to exempt any person 
subject to marketing order requirements who handles and markets solely 
100 percent organic products from paying assessments for market 
promotion activities, including paid advertising.
    The 28 marketing order programs allow for promotion activities that 
are designed to assist, improve, or promote the marketing, 
distribution, or consumption of the commodity covered under the 
marketing order. Some of the marketing orders also include authority 
for paid advertising activities. Market promotion, including paid 
advertising, activities are paid for by assessments levied on handlers 
regulated under the various marketing orders.
    Under this rule, a new subpart is added in 7 CFR part 900 General 
Regulations to identify persons eligible to obtain an assessment 
exemption for marketing promotion, including paid advertising; 
procedures for applying for an exemption; procedures for calculating 
the assessment exemption; and other procedural details for the 
applicable marketing orders. The rule imposes certain reporting and 
recordkeeping requirements on persons that handle or market solely 100 
percent organic products. This form requires the minimum information 
necessary to effectively administer the exemption from assessment 
provisions and for compliance purposes.
    Regarding the impact of this final rule on affected entities, this 
rule imposes minimal additional costs incurred in filing the exemption 
application and in maintaining records for two years needed to verify 
the applicant's exemption status during the applicable assessment 
period. Such applicants will be required to submit an application and 
receive approval from the applicable committee or board to obtain the 
assessment exemption. USDA estimates that each applicant will submit 
one application annually. The annual burden for all of the marketing 
order industries is estimated to total about 42 hours.
    The cost burden associated with the information collection is $420 
for all applicants, or $5.00 per applicant. The total cost has been 
estimated by multiplying the burden hours associated with the exemption 
application by $10.00 per hour, a sum deemed reasonable should the 
applicants be compensated for their time.
    As with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies. In addition, USDA 
has not identified any relevant Federal rules that duplicate, overlap, 
or conflict with this rule.
    Since this action potentially exempts from assessments handlers who 
handle or market solely 100 percent organic products, AMS believes that 
this rule will have a beneficial economic effect on exempted entities 
by reducing their assessment payments. During the 2001-2002 marketing 
season, assessments for the 28 marketing orders totaled $44,400,000. Of 
that amount, about $29,900,000 (or 67 percent) was made available for 
marketing promotion, including paid advertising, activities. USDA does 
not have precise information, but believes that about 1 percent on 
average of the total assessments are for certified organic commodities. 
Thus, assessments on organic commodities could total about $444,000, 
and about $300,000 for marketing promotion, including paid advertising, 
might be exempt under this final rule if all of the approximately 84 
handlers of the regulated commodities were eligible for the assessment 
exemption.
    Based on our estimate that there might be a total of 84 handlers 
exempt from assessments for marketing promotion activities conducted 
under the various marketing orders, the assessments for each eligible 
person could be reduced by an average of almost $3,600 ($300,000 
divided by 84) on an annual basis.
    There is some variation among the 28 marketing orders on the 
percentage of assessments used for marketing

[[Page 2769]]

promotion, including paid advertising, as well as the number of 
handlers handling or marketing solely 100 percent organic commodities. 
Thus, the actual reduction in assessments will vary among the various 
orders. In fact, the amounts allocated for marketing promotion, as a 
percentage of the total marketing order budgets, range from less than 5 
percent to over 75 percent.
    With regard to alternatives, the FAIR Act requires USDA to take 
this action, which will lessen the assessment costs for persons who 
handle and market solely 100 percent organic products. In drafting the 
exemption procedures, every effort has been made to minimize the burden 
on the persons impacted, and to simplify the process. The anticipated 
assessment reductions for eligible persons are expected to greatly 
outweigh the additional costs related to the reporting required.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), the reporting and recordkeeping provisions generated by 
this rule have been approved by the Office of Management and Budget 
(OMB) as a reinstatement, with change, of previously-approved OMB No. 
0581-0216, which has expired. This action is intended to provide relief 
to handlers of solely 100 percent organic products.
    This action will enable handlers that operate under an NOP-approved 
organic process system plan, and handle or market only organic product 
that can be labeled ``100 percent organic'' to apply for exemptions 
from paying market promotion assessments under the following 28 Federal 
marketing orders: 7 CFR parts 906, 915, 916, 917, 922, 923, 924, 925, 
927, 929, 930, 931, 932, 947, 948, 955, 956, 958, 959, 966, 979, 981, 
982, 984, 985, 987, 989, and 993, and such other marketing orders for 
fruits, vegetables, and specialty crops as may be established or 
amended to include market promotion.
    Title: Organic Handler Market Promotion Assessment Exemption under 
28 Federal Marketing Orders
    OMB Number: 0581-0216.
    Type of Request: Approval of reinstatement, with change, of a 
previously-approved collection for which approval has expired.
    Abstract: Marketing order programs provide an opportunity for 
producers of fresh fruits, vegetables and specialty crops to solve 
marketing problems that cannot be solved individually. Marketing order 
regulations help ensure adequate supplies of high quality products for 
consumers and adequate returns to producers. Under the Act, orders may 
authorize marketing research and development, including paid 
advertising, activities. Such activities to promote the various 
commodities are paid for with assessments levied on handlers regulated 
under the 28 Federal marketing orders.
    On May 13, 2002, section 501 of the FAIR Act was amended (7 U.S.C. 
7401) to exempt any person that handles or markets solely 100 percent 
organic products, and that does not produce any conventional or non-
organic products, from paying assessments under a commodity promotion 
law, with respect to any agricultural commodity that is produced on a 
certified organic farm as defined in section 2103 of the Organic Foods 
Production Act of 1990 (7 U.S.C. 6502).
    To be exempt from paying assessments for marketing promotion, 
including paid advertising expenses, under the specified marketing 
orders, the handler who operates under an NOP-approved organic process 
system plan should submit an application, FV-649, ``Certified Organic 
Handler Application for Exemption from Market Promotion Assessments 
Paid under Federal Marketing Orders'' to the applicable marketing order 
committee or board. The application needs to be submitted to the 
committee or board prior to or during the applicable assessment period, 
and annually thereafter, as long as the applicant continues to be 
eligible for the exemption.
    This application has been changed slightly from the previously 
approved form to reflect differences in the provisions between the 
proposed and final rules. The information requested includes (changes 
from the proposed application are noted): Introductory text explaining 
who may request an organic assessment exemption, the purpose of the 
form, and where the application should be submitted has been added; the 
applicable Marketing Committee/Board and Federal marketing order number 
has been added; the date; handler's name (applicant); telephone and fax 
numbers, an optional e-mail address has been added; name and address of 
the company; certification that the applicant operates under an 
approved organic process system plan authorized by the National Organic 
Program (NOP) and handles or markets products that are eligible to be 
labeled as 100 percent organic, that the applicant is not a split 
operation as defined by the Organic Foods Production Act of 1990 (OFPA) 
and the NOP, and that the applicant is subject to assessments under the 
Federal marketing order program for which this exemption is requested.
    A table has been added for the applicant to list all commodities 
handled or marketed and to indicate whether each commodity handled or 
marketed is eligible to be labeled as 100 percent organic. As revised, 
the application requires the applicant to list the number of producers 
for whom the applicant handles or markets products. The applicant also 
is required to attach a copy of their organic handling operation 
certificate provided by a USDA-accredited certifying agent under the 
OFPA and the NOP, and a copy of the applicant's NOP producer 
certificate, if applicable. An NOP certificate for each producer for 
whom the applicant handles or markets also must be attached.
    The form continues to include language for the applicant to certify 
that their firm meets the requirements and is eligible for an organic 
assessment exemption under the applicable Federal marketing order. 
Language has been added cautioning applicants that any false statement 
or misrepresentation may result in a fine of not more than $10,000, or 
imprisonment for not more than five years, or both (18 U.S.C. 1001). 
Lastly, the form continues to include a section for the committee or 
board to fill out, indicating whether the application has been approved 
or disapproved. If disapproved, the reason(s) for denial must be 
listed.
    When the requirements for exemption no longer apply to a handler, 
the handler shall inform the committee or board within 30 days and pay 
the full assessment on all remaining assessable product for all 
committee or board assessments from the date the handler no longer is 
eligible to the end of the assessment period. The notification by the 
handler can be made in any manner the handler desires (telephone, fax, 
e-mail, etc.).
    This information is necessary to help the committees or boards to 
determine an applicant's eligibility and to verify compliance. 
Inclusion of this information on the form will assist the applicants in 
making their certifications and the committees or boards in properly 
administering the assessment exemption. The burdens associated with 
obtaining the certifications under the Organic Foods Production Act of 
1990 have already been approved by OMB under OMB Control No. 0581-0191.
    In the proposed rule, AMS estimated that this application would 
take 30 minutes to complete. With the application modifications, the 
estimated average per response time will remain at

[[Page 2770]]

30 minutes, resulting in no change to the total burden hours.
    If the applicant complies with these requirements and is eligible 
for a market promotion assessment exemption, the committee or board 
will approve the exemption and notify the applicant, in writing, within 
30 days of receiving the applicant's application, by filling out the 
bottom portion of the application. If the application is disapproved, 
the committee or board will notify the applicant, in writing, of the 
denial and the reason(s) for denial.
    The respective marketing orders (e.g., 7 CFR 932.61 and 7 CFR 
981.70) also provide that handlers maintain, and make available, all 
records necessary to demonstrate compliance with order requirements for 
two years. The burdens on handlers for such recordkeeping requirements 
are included in the information collection requests previously-approved 
by OMB for the respective marketing orders under the following OMB 
Control Numbers: OMB No. 0581-0178 for Marketing Order Nos. 947, 948, 
955, 956, 958, 959, 966, 979, 981, 982, 984, 987, 989, and 993; OMB No. 
0581-0189 for Marketing Order Nos. 906, 915, 916, 917, 922, 923, 924, 
925, 927, 929, 930, and 931; OMB No. 0581-0142 for Marketing Order No. 
932; and OMB No. 0581-0065 for Marketing Order No. 985.
    The information collection will be used only by authorized 
representatives of USDA, including AMS, Fruit and Vegetable Programs' 
regional and headquarters staff, and authorized Committee and Board 
employees. Authorized Committee and Board employees will be the primary 
users of the information, and AMS will be the secondary user.
    The request for OMB approval of the reinstatement, with change, of 
OMB No. 0581-0216 under the 28 Federal marketing orders is as follows:

Form FV-649, Certified Organic Handler Application for Exemption From 
Marketing Promotion Assessments Paid Under Federal Marketing Orders

    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 30 minutes per response.
    Respondents: Eligible Certified Organic Handlers.
    Estimated Number of Respondents: 84.
    Estimated Number of Responses per Respondent: 1
    Estimated Total Annual Burden on Respondents: 42 hours.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab.html. As previously discussed, AMS intends to 
revise the guide to list examples of the activities to which the 
exemption applies and does not apply. Any questions about the 
compliance guide should be sent to Jay Guerber at the previously 
mentioned address in the FOR OTHER INFORMATION CONTACT section.
    After consideration of all relevant material presented, including 
the information submitted by the commenters and other information, it 
is hereby found that this rule, as hereinafter set forth, tends to 
effectuate declared policy of the AMAA and 2002 Farm Bill.

List of Subjects in 7 CFR Part 900

    Administrative practices and procedures, Freedom of information, 
Marketing agreements, Reporting and recordkeeping requirements.


0
For the reasons set forth in the preamble, 7 CFR part 900 is amended to 
read as follows:

PART 900--GENERAL REGULATIONS

0
1. The authority citation for part 900 is revised to read as follows:

    Authority: 7 U.S.C. 601-674 and 7 U.S.C. 7401.


0
2. In part 900, a new subpart heading ``Assessment Exemptions'' is 
added after Sec.  900.601, and a new Sec.  900.700 is added to read as 
follows:

Subpart--Assessment of Exemptions


Sec.  900.700  Exemption from assessments.

    (a) This section specifies criteria for identifying persons 
eligible to obtain an assessment exemption for marketing promotion, and 
procedures for applying for an exemption under 7 CFR parts 906, 915, 
916, 917, 922, 923, 924, 925, 927, 929, 930, 931, 932, 947, 948, 955, 
956, 958, 959, 966, 979, 981, 982, 984, 985, 987, 989, 993, and such 
other parts (included in 7 CFR parts 905 through 998) covering 
marketing orders for fruits, vegetables, and specialty crops as may be 
established or amended to include market promotion. For the purposes of 
this section, the term ``assessment period'' means fiscal period, 
fiscal year, crop year, or marketing year as defined under these parts; 
the term ``marketing promotion'' means marketing research and 
development projects, and marketing promotion, including paid 
advertising, designed to assist, improve, or promote the marketing, 
distribution, and consumption of the applicable commodity.
    (b) Any handler who operates under an approved National Organic 
Program (7 CFR part 205)(NOP) process system plan, only handles or 
markets organic products that are eligible to be labeled 100 percent 
organic under the NOP, and are produced on a certified organic farm as 
defined in Sec.  2103 of the Organic Foods Production Act of 1990 (7 
U.S.C. 6502) and the NOP regulations issued under that Act, is not a 
split operation, and is subject to assessments under a part or parts 
specified in paragraph (a) of this section, shall be exempt from the 
portion of the assessment applicable to marketing promotion, including 
paid advertising. Any handler so exempted shall be obligated to pay the 
portion of the assessment for other authorized activities under such 
part or parts.
    (c) To be exempt from paying assessments for these purposes under a 
part or parts, the handler shall submit an application to the committee 
or board established under the applicable part or parts prior to or 
during the assessment period. This application, FV-649, ``Certified 
Organic Handler Application for Exemption from Market Promotion 
Assessments Paid Under Federal Marketing Orders,'' shall include: The 
applicable committee or board and Federal marketing order number; the 
date; handler's name; company name and address; telephone and fax 
numbers; an optional e-mail address; certification that the applicant 
is not a split operation, as defined by the Organic Foods Production 
Act of 1990 (OFPA) (7 U.S.C. 6502) and the NOP; certification that the 
applicant only handles and markets organic products eligible to be 
labeled 100 percent organic under the NOP, and that the applicant is 
subject to assessments under the Federal marketing order program for 
which the exemption is requested. The applicant shall list all 
commodities handled or marketed. The applicant shall list the number of 
producers for whom they handle or market. The applicant shall attach a 
copy of their organic handler operation certificate and all applicable 
producer certificates provided by a USDA-accredited certifying agent 
under the OFPA and the NOP. The applicant shall certify that the 
handler meets all of the applicable requirements for an assessment 
exemption as provided in this section. The handler shall file the 
application with the committee or board, prior to or during the 
applicable assessment period, and annually thereafter, as long as the 
handler continues to be eligible for the exemption. If the person 
complies with the requirements of this section and is

[[Page 2771]]

eligible for an assessment exemption, the committee or board will 
approve the exemption and notify the applicant, in writing, within the 
applicable timeframe as follows: For exemption requests received on or 
before August 15, 2005, the committee or board will have 60 days to 
approve the exemption request; after August 15, 2005, the committee or 
board will have 30 days to approve the exemption request. If the 
application is disapproved, the committee or board will notify the 
applicant, in writing, of the reason(s) for disapproval within the same 
timeframes.
    (d) The applicable assessment rate for any handler approved for an 
exemption shall be computed by dividing the committee's or board's 
estimated non-marketing promotion expenditures by the committee's or 
board's estimated total expenditures approved by the Secretary and 
applying that percentage to the assessment rate applicable to all 
persons for the assessment period. The committee's or board's estimated 
non-marketing promotion expenditures shall exclude the direct costs of 
marketing promotion and the portion of committee's or board's 
administrative and overhead costs (e.g., salaries, supplies, printing, 
equipment, rent, contractual expenses, and other applicable costs) to 
support and administer the marketing promotion activities. If a 
committee or board does not plan to conduct any market promotion 
activities in a fiscal year, the committee or board may submit a 
certification to that effect to the Secretary, and as long as no 
assessments for such fiscal year are used for marketing promotion 
projects, or the administration of projects funded by a previous fiscal 
period's assessments, the committee or board may assess all handlers, 
regardless of their organic status, the full assessment rate applicable 
to the assessment period. For each assessment period, the Secretary 
shall review the portion of the assessment rate applicable to marketing 
promotion for persons eligible for an exemption and, if appropriate, 
approve the assessment rate.
    (e) When the requirements of this section for exemption no longer 
apply to a handler, the handler shall inform the committee or board 
within 30 days and pay the full assessment on all remaining assessable 
product for all committee or board assessments from the date the 
handler no longer is eligible to the end of the assessment period.
    (f) Within 30 days following the applicable assessment period, the 
committee or board shall re-compute the applicable assessment rate for 
handlers exempt under this section based on the actual expenditures 
incurred during the applicable assessment period. The Secretary shall 
review, and if appropriate, approve any change in the portion of the 
assessment rate for market promotion applicable to exempt handlers, and 
authorize adjustments for any overpayments.
    (g) The exemption will apply at the beginning of the next 
assessable period following notification of approval of the assessment 
exemption, in writing, by the committee or board.

    Dated: January 5, 2005.
Kenneth C. Clayton,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 05-572 Filed 1-13-05; 8:45 am]
BILLING CODE 3410-02-P