[Federal Register Volume 72, Number 134 (Friday, July 13, 2007)]
[Proposed Rules]
[Pages 38498-38511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-3412]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 984

[Docket No. AMS-FV-07-0004; AO-192-A7; FV06-984-1]


Walnuts Grown in California; Secretary's Decision and Referendum 
Order on Proposed Amendment of Marketing Agreement and Order No. 984

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule and referendum order.

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SUMMARY: This decision proposes amendments to Marketing Order No. 984, 
which regulates the handling of walnuts grown in California (order), 
and provides growers with the opportunity to vote in a referendum to 
determine if they favor the changes. The amendments were proposed by 
the Walnut Marketing Board (Board), which is responsible for local 
administration of the order. The amendments would: change the marketing 
year; include ``pack'' as a handler function; restructure the Board and 
revise nomination procedures; rename the Board and add authority to 
change Board composition; modify Board meeting and voting procedures; 
add authority for marketing promotion and paid advertising; add 
authority to accept voluntary financial contributions and to carry over 
excess assessment funds; broaden the scope of the quality control 
provisions and add the authority to recommend different regulations for 
different market destinations; add authority for the Board to appoint 
more than one inspection service; replace outdated order language with 
current industry terminology; and other related amendments.
    The Department of Agriculture (USDA) proposed three additional 
amendments: To establish tenure limitations for Board members, to 
require that continuance referenda be conducted on a periodic basis to 
ascertain producer support for the order, and to make any necessary 
conforming changes.
    The proposed amendments are intended to improve the operation and 
functioning of the marketing order program.

DATES: The referendum will be conducted from August 1 to 17, 2007. The 
representative period for the purpose of the referendum is August 1, 
2006, through July 31, 2007.

FOR FURTHER INFORMATION CONTACT: Melissa Schmaedick, 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].
    Small businesses may request information on this proceeding by 
contacting Jay Guerber, Marketing Order Administration Branch, Fruit 
and Vegetable Programs, AMS, USDA, 1400 Independence Avenue, SW., STOP 
0237, Washington, DC 20250-0237; telephone: (202) 720-2491, Fax: (202) 
720-8938, or e-mail: [email protected].

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding: Notice 
of Hearing issued on April 18, 2006, and published in the April 24, 
2006, issue of the Federal Register (71 FR 20902) and a Recommended 
Decision issued on March 19, 2007, and published in the March 27, 2007, 
issue of the Federal Register (72 FR 14368).
    This 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 proposed amendments are based on the record of a public hearing 
held on May 17 and 18, 2006, in Modesto, California. The hearing was 
held to consider the proposed amendment of the order. 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 marketing orders 
(7 CFR Part 900).
    Notice of this hearing was published in the Federal Register on 
April 24, 2006 (71 FR 20902). The notice of hearing contained proposals 
submitted by the Walnut Marketing Board (Board), which is responsible 
for local

[[Page 38499]]

administration of the order, and by the Agricultural Marketing Service 
(AMS).
    The proposed amendments to marketing order 984 would:
    1. Change the marketing year from August 1 through July 31 to 
September 1 through August 31. This proposal would amend Sec.  984.7, 
Marketing year, and would result in conforming changes being made to 
Sec.  984.36, Term of office, and Sec.  984.48, Marketing estimates and 
recommendations.
    2. Specify that the act of packing walnuts is considered a handling 
function. This proposal would amend Sec.  984.13, to handle, as well as 
clarify the definition of ``pack'' in Sec.  984.15 by including the 
term ``shell'' as a function of ``pack.''
    3. (a) Amend all parts of the order that refer to cooperative seats 
on the Board, redistribute member seats among districts, and provide 
designated seats for a handler handling 35 percent or more of 
production, if such handler exists. This proposal would amend Sec.  
984.35, Walnut Marketing Board, and Sec.  984.14, Handler.
    3. (b) Amend the Board member nomination process to reflect 
proposed changes in the Board structure, as outlined in 3(a). This 
proposal would amend Sec.  984.37, Nominations, and Sec.  984.40, 
Alternate.
    4. Require Board nominees to submit a written qualification and 
acceptance statement prior to selection by USDA. This proposal would 
amend Sec.  984.39, Qualify by acceptance.
    5. Change the name of the Walnut Marketing Board to the California 
Walnut Board. This proposal would amend Sec.  984.6, Board, and Sec.  
984.35, Walnut Marketing Board.
    6. Add authority to reestablish districts, reapportion members 
among districts, and revise groups eligible for representation on the 
Board. This proposal would add a new paragraph (d) to Sec.  984.35, 
Walnut Marketing Board.
    7. Add percentage requirements to Board quorum and voting 
requirements, add authority for the Board to vote by ``any other means 
of communication'' (including facsimile) and add authority for Board 
meetings to be held by telephone or by ``any other means of 
communication'', providing that all votes cast at such meetings shall 
be confirmed in writing. This proposal would amend Sec.  984.45, 
Procedure, and would result in a conforming change in Sec.  984.48(a), 
Marketing estimates and recommendations.
    8. Add authority to carry over excess assessment funds. This 
proposal would amend Sec.  984.69, Assessments.
    9. Add authority to accept voluntary financial contributions. This 
proposal would add a new Sec.  984.70, Contributions.
    10. Clarify that members and alternate members may be reimbursed 
for expenses incurred while performing their duties and that 
reimbursement includes per diem. This proposal would amend Sec.  
984.42, Expenses.
    11. Add authority for the Board to appoint more than one inspection 
service as long as the functions performed by each service are separate 
and do not duplicate each other. This proposal would amend Sec.  
984.51, Inspection and certification of in-shell and shelled walnuts.
    12. (a) Broaden the scope of the quality control provisions by 
adding authority to recommend different regulations for different 
market destinations. This proposal would amend Sec.  984.50, Grade and 
size regulations.
    12. (b) Add authority that would allow for shelled walnuts to be 
inspected after having been sliced, chopped, ground, or in any other 
manner changed from shelled walnuts, if regulations for such walnuts 
are in effect. This proposal would amend Sec.  984.52, Processing of 
shelled walnuts.
    13. Add authority for marketing promotion and paid advertising. 
This proposal would amend Sec.  984.46, Research and development.
    14. Replace the terms ``carryover'' with ``inventory,'' and 
``mammoth'' with ``jumbo,'' to reflect current day industry practices. 
This proposal would amend Sec.  984.21, Handler inventory, and Sec.  
984.67, Exemption, and would also result in conforming changes being 
made to Sec.  984.48, Marketing estimates and recommendations, and 
Sec.  984.71, Reports of handler carryover.
    15. (a) Clarify to simplify the interhandler transfer provision, 
and add authority for the Board to recommend to USDA regulations, 
including necessary reports, for administrative oversight of such 
transfers. This proposal would amend Sec.  984.59, Interhandler 
transfers.
    15. (b) Clarify that the Board may require reports from handlers or 
packers that place California walnuts into the stream of commerce. This 
proposal would amend Sec.  984.73, Reports of walnut receipts.
    16. Update and simplify the language in Sec.  984.22, Trade demand, 
to state ``United States and its territories,'' rather than name 
``Puerto Rico'' and ``The Canal Zone''.
    17. Amend the order by adding language that would acknowledge that 
the Board may deliberate, consult, cooperate, and exchange information 
with the California Walnut Commission. Any information sharing would be 
kept confidential. This would add a new Sec.  984.91, Relationship with 
the California Walnut Commission.
    In addition, USDA proposed adding two provisions that would help 
assure that the operation of the program conforms to current Department 
policy and that USDA can make any necessary conforming changes. These 
provisions would:
    18. Establish tenure requirements for Board members. This proposal 
would amend Sec.  984.36, Term of office.
    19. Require that continuance referenda be conducted on a periodic 
basis to ascertain industry support for the order and add more 
flexibility in the termination provisions. This proposal would amend 
Sec.  984.89, Effective time and termination.
    20. Make changes as may be necessary to the order, if any of the 
proposed changes are adopted, so that all of the order's provisions 
conform to the effectuated amendments. To the extent necessary, 
conforming changes have made to the amendments. These conforming 
changes have been identified in the above list of proposed amendments.
    Upon the basis of evidence introduced at the hearing and the record 
thereof, the Administrator of AMS on March 19, 2007, filed with the 
Hearing Clerk, U.S. Department of Agriculture, a Recommended Decision 
and Opportunity to File Written Exceptions thereto by April 16, 2007.
    Fifteen exceptions were filed during the exception period. The 
exceptions expressed concern over the discussion in the Recommended 
Decision regarding Material Issue No. 11. This proposal would add 
authority for the Board to appoint more than one inspection service as 
long as the functions performed by each service are separate and do not 
duplicate each other. Comments stated that, if this authority were 
implemented, private sector entities, in addition to USDA, should be 
able to offer non-traditional inspection services. Persons filing these 
comments claimed that the proposed amendatory language would prevent 
any service other than USDA from offering non-traditional inspection. 
The specifics of these exceptions are further discussed in the Findings 
and Conclusions; Discussion of Exceptions section of this document. One 
of the exceptions also offered a comment of general support for the 
proposal to implement term limits as a method to encourage 
participation of industry members that have not previously served on 
the Board.

[[Page 38500]]

Small Business Considerations

    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, 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 and amendments 
thereto are unique in that they are normally brought about through 
group action of essentially small entities for their own benefit.
    Small agricultural growers are 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 regulated under the order, are defined as those with annual 
receipts of less than $6,500,000.
    Interested persons were invited to present evidence at the hearing 
on the probable regulatory and informational impact on growers and 
handlers of the proposed amendments, and in particular the impact on 
small businesses. The record evidence shows that the proposed 
amendments are designed to enhance industry efficiencies and streamline 
administrative operations of the marketing order. The record evidence 
is that while some minimal costs may occur, those costs would be 
outweighed by the benefits expected to accrue to the California walnut 
industry.

Walnut Industry Background and Overview

    According to the record, the California walnut industry currently 
has 44 handlers and approximately 5000 producers. The crop is produced 
in a region that spans approximately 400 miles in California's Central 
Valley.
    Fifteen grower witnesses and 7 handler witnesses testified at the 
hearing. Using the SBA definition ($750,000 in gross annual walnut 
sales), 7 of the grower witnesses identified themselves as large 
business entities and 6 as small business entities. All 7 handler 
witnesses identified themselves as being large business entities 
according to the SBA definition. Some of the handler witnesses were 
also growers. According to witnesses, 37 out of an industry total of 44 
handlers would qualify as small business entities under the SBA 
definition. Also, under the order amendments contained herein, it is 
estimated that five packers would be considered handlers, the majority 
of whom would be considered small entities.
    Based on information presented at the hearing, calculations 
describing an average California walnut producer provide the following: 
Dividing 219,000 bearing acres in 2005 by 5,000 producers indicates an 
average of 44 bearing acres per producer. Dividing the two-year average 
crop value for 2003 and 2004 ($414,950,000) by 5,000 producers yields 
an average walnut revenue per producer estimate of about $83,000. 
According to the hearing record, more than 70 percent of California 
walnut producers would be classified as small producers according to 
the SBA definition.
    According to a study presented at the hearing, entitled ``Cost to 
Produce Walnuts in California'' (prepared by Dr. Karen Klonsky, 
Department of Agriculture and Resource Economics, University of 
California Davis, 2006), typical average costs for a walnut orchard in 
the Sacramento Valley are $2,460 per acre in full production. The costs 
are broken down as follows: (a) Land and trees, $678 (28 percent), (b) 
cultural costs, $667 (27 percent), (c) harvest, $538 (22 percent), (d) 
equipment and buildings, $302 (12%), and (e) cash overhead, $275 (11 
percent).
    At an average grower price in recent years of $0.62 per pound, a 
grower would need a yield of 2 tons per acre to break even, according 
to the study. The breakeven price at the State average yield of 1.5 
tons per acre is about $0.70 per pound, which is above the actual price 
received in most recent years, but equal to the 2004 average price 
received by growers.
    Individual grower costs can vary considerably due to such variables 
as horticultural practices and varieties grown, and also due to orchard 
location and year of acquisition, and water availability and cost.
    Although a majority of producers are considered small business 
entities, record evidence also indicates that producer revenue has 
increased over time. The National Agricultural Statistical Service 
(NASS) crop value estimate for 2004, $451.75 million, was 38 percent 
higher than in 1995, and was the sixth successive yearly increase. 
Average revenue per acre in 2004 reached a record $2,082.
    Record evidence also indicates that acreage and production are 
trending upward. Production did not exceed 300,000 tons until 2001, but 
has exceeded that level for 4 out of the last 5 years. Witnesses stated 
that the five-year average production for 1996-2000 was 244,000 tons, 
compared to the five-year average production (2001-2005), which was 
318,600 inshell tons.
    According to the hearing record, a number of factors have 
contributed to increased production in recent years. New acres have 
been planted at a rate of three to five thousand acres per year, some 
of which are new varieties with higher yields. Witnesses explained that 
older varieties may yield 1,500 to 3,000 pounds per acre, due to both 
planting patterns and the typical yield of the variety. New varieties, 
such as the Chandler, will yield up to 6,000 pounds per acre. Newer 
plantings have led to a reduction in the cyclical peaks and valleys 
associated with the alternate-bearing characteristic of tree nuts. 
This, in turn, has facilitated better inventory management and has made 
the walnut industry a more reliable ingredient supplier to the food-
processing industry.
    According to the hearing record, the growing season commences in 
March of each year with harvest occurring between September and 
November, depending upon the variety. Inshell California walnuts are a 
seasonal item with 95 percent of the volume shipped between the months 
of September and December. This represents roughly 25 percent of the 
industry's production. Inshell walnuts are marketed primarily as a 
winter holiday food. According to the hearing record, the purchase of 
significant quantities of inshell walnuts occurs due to the tradition 
in many markets of displaying them with other inshell nuts as part of 
winter holiday decor.
    Shelled walnuts are marketed on a year-round basis, and represent 
about 75 percent of utilization. Large handler infrastructure 
investments have contributed substantially to the growth of the year-
round shelled business, as well as the inshell business.
    Over the past ten years sophisticated laser-sorting equipment and 
new varieties such as the Chandler have contributed to improved 
quality. Higher customer expectations have accompanied the improvements 
in technology and quality, with more demand for high-quality, high-
specification California walnuts. Marketing success in Japan is cited 
as a prime example of this trend.
    According to the hearing record, shelled walnuts are utilized in a 
variety of ways, with commercial baking believed to be the single 
largest utilization category. Retail consumption of walnuts packaged 
for use in the home has increased dramatically over the past several 
years. Shelled walnuts may be sold in packages ranging from 2.75

[[Page 38501]]

ounce retail packages to large bulk containers of 25 pounds or more for 
industrial users, wholesalers, and distributors. The last 12 years have 
seen substantial increases in snack food uses of walnuts, in addition 
to expansion of ingredient use beyond baking and confectionery items to 
include usage with salads, rice, and pasta.
    A high degree of mechanization in the harvest has reduced the 
deleterious impact on nut quality from rain and other weather 
conditions. Once harvested, walnuts are taken to holding stations where 
a fibrous husk is removed, and the walnuts are then dried to 
approximately eight percent moisture. They are delivered to handlers 
for further processing, which includes cleaning, sorting, and shelling.
    According to the hearing record, California walnuts rank eighth in 
exports over all the commodities grown in the state. The top three 
inshell export markets are Spain, Italy, and Germany. Five-year average 
export value (2000/01-2004/05) is approximately $52 million, 
representing 63 percent of total export value for that five-year 
period. The key export markets for shelled-walnut utilization are: 
Japan, Germany, Spain, Israel, Korea, and Canada. Five-year average 
export value for those six countries is $91.8 million, which is about 
76 percent of the total value of shelled walnut exports.
    California walnuts compete with walnuts grown in China, Turkey, 
France, Italy, Chile, North Korea, India, Vietnam, Argentina, Brazil, 
and many areas within the former Soviet Union including Kazakhstan, 
Ukraine, Hungary, and Moldova. Within the European Union the major 
competition comes from France and Eastern Europe. In the Pacific Rim, 
major competitors include China and India.

Material Issues

    The amendments included in this decision would: Change the 
marketing year; include ``pack'' as a handler function; restructure the 
Board and revise nomination procedures; rename the Board and add 
authority to change Board composition; modify Board meeting and voting 
procedures; add authority for marketing promotion and paid advertising; 
add authority to accept contributions, and to carry over excess 
assessment funds; broaden the scope of the quality control provisions 
and add the authority to recommend different regulations for different 
market destinations; add authority for the Board to designate more than 
one inspection service; replace outdated order language with current 
industry terminology; and other related amendments.
    The USDA proposed three additional amendments: To establish tenure 
limitations for Board members, to require that continuance referenda be 
conducted on a periodic basis to ascertain producer support for the 
order, and to make any changes to the order as may be necessary to 
conform with any amendment that may result from the hearing.
    All of the proposals are intended to streamline and improve the 
administration, operation, and functioning of the program. Many of the 
proposed amendments would update the language of the order, thus better 
representing and conforming to current practices in the industry. The 
proposed amendments are not expected to result in any significant cost 
increases for growers or handlers. More efficient administration of 
program activities may result in cost savings for the Board. A 
description of the proposed amendments and their anticipated economic 
impact on large and small entities is outlined below.

Designation of More Than One Inspection Service

    Proposal 11 would amend the order to add authority for the Board to 
designate more than one inspection service, as long as the functions 
performed by each service are separate and do not conflict with each 
other.
    To ensure that walnuts are properly graded and meet marketing order 
minimum standards, the Board currently arranges for inspection of 
walnuts prior to shipping for all walnut handlers. The marketing order 
currently authorizes contracting with one agency, the California based 
Dried Fruit and Nut Association (DFA).
    DFA inspects all walnuts that leave California to certify that they 
meet marketing order minimum standards. Operating as an out-going 
inspection service, samples of packed walnuts are examined and 
certified by licensed DFA inspectors at the end of the handling and 
packing process.
    The following data representing current inspection costs, 
summarizing actual inspection cost data for 2004-05 for the entire 
industry (44 handlers), was presented at the hearing by Board 
representatives. According to the record, the 2004-05 cost to serve the 
44 handlers was $1.857 million, which is an average cost of just over 
$42,000 per handler.
    Since inspection costs depend largely on volume handled, the four 
largest handlers account for $1.282 million, or 69% of total inspection 
expenditure in the 2004-05 crop year. The 37 smaller handlers account 
for $412,172 in expenditure, about 22 percent of the total, averaging 
about $11,000 per handler.

       Annual Walnut Inspection Costs Using DFA, 2004-05 Crop Year
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                                                    No.      Average per
                                     DFA cost     handlers     handler
------------------------------------------------------------------------
Largest Handlers.................   $1,282,362            4     $320,591
Additional Large Handlers........      162,487            3       54,162
Other Handlers...................      412,172           37       11,140
All Handlers.....................    1,857,021           44      42,205
------------------------------------------------------------------------
Source: Walnut Marketing Board

    The Federal-State Inspection Service (FSIS) has developed 
effective, less costly alternative inspection programs.
    The Partners in Quality Program, or PIQ, is a documented quality 
assurance system. Under this program, individual handlers must 
demonstrate and document their ability to handle and pack product that 
meets all relevant quality requirements. Effectiveness of the program 
is verified through periodic, unannounced audits of each handler's 
system by USDA-approved auditors.
    Under the Customer-Assisted Inspection Program, or CAIP, USDA 
inspectors oversee the in-line sampling and inspection process 
performed by trained company staff. USDA oversight ranges from periodic 
visits throughout the day to a continuous on-site presence.
    DFA does not offer inspection services that operate similarly to 
the PIQ and CAIP programs.
    Cost savings would occur by reducing the prevalence of double 
inspections

[[Page 38502]]

under the current system. Currently, one inspection is undertaken to 
meet minimum USDA quality requirements specified in the marketing 
order. A second inspection is often necessary to meet the considerably 
higher standards of specific customers. Moving to a PIQ or CAIP program 
would greatly reduce inspection costs, because meeting higher standards 
under PIQ or CAIP would also ensure that an inspected lot met minimum 
marketing order standards.
    Witnesses at the hearing testified that the California walnut 
industry should allow handlers to take advantage of USDA's alternative 
inspection programs such as the CAIP and the PIQ. Handlers who do not 
wish to use the alternative inspection services offered by USDA would 
continue to use the services of the DFA for traditional inspection 
services, such as end-line and lot inspections.
    The proposal also specifies that ``each service shall be separate 
so as to not conflict with each other,'' meaning that each inspection 
service would offer distinct and different services (i.e. PIQ vs. lot 
inspections) so that the integrity of both programs can be maintained.
    Witnesses speaking in favor of this proposal explained the 
importance of a handler's ability to take advantage of inspection 
services that would most economically fit the size and functions of his 
or her operation. Currently, all walnut product is inspected by DFA. 
While this inspection service has worked well for the industry for many 
years, the DFA inspection service does not accommodate inspection 
procedures that support larger handler economies of scale. Witnesses 
stated that USDA programs, such as PIQ and CAIP, are designed to fit 
larger scale handling operations, and therefore offer cost saving 
advantages that the DFA service does not. This proposal, if 
implemented, would allow handlers to use the alternative inspection 
programs offered by USDA.
    Several witnesses indicated that lowering costs to handlers would 
benefit growers because they expect that the cost reduction would be 
reflected in increased payments to growers.
    Financial impact calculations provided by the Board (shown in the 
table below) indicate that introducing the option of using PIQ or CAIP 
programs could result in savings of $1.09 million, an average per 
handler savings of $156,067 for the industry's seven largest handlers. 
Due to the high volumes handled, most of the savings accrue to the four 
largest handlers, estimated at $1.05 million, or an average per handler 
of $263,169.

                       Walnut Inspection Cost Comparison: DFA vs. USDA for Top 7 Handlers
----------------------------------------------------------------------------------------------------------------
                                                                                           Cost savings
                                                        DFA        USDA PIQ/CAIP -------------------------------
                                                                                       Total        Per handler
----------------------------------------------------------------------------------------------------------------
Largest 4 handlers..............................      $1,282,362        $229,688      $1,052,674        $263,169
Additional 3 large handlers.....................         162,487         122,692          39,795          13,265
Largest 7 handlers..............................       1,444,849         352,380       1,092,469        156,067
----------------------------------------------------------------------------------------------------------------
Source: Walnut Marketing Board.

    Data from NASS indicate that the two-year average value of the 2003 
and 2004 crops was about $415 million. The current DFA inspection cost 
($1.857 million) represents a very small proportion of crop value, 
about 0.4 percent. If the largest 7 handlers used USDA for inspection 
at a cost of $352,380 and the remaining 37 handlers continue to work 
with DFA at an estimated cost of $412,172, then the combined cost of 
$764,552 would represent 0.2 percent of the recent-year crop value.
    Witnesses emphasized the cost effectiveness of having an additional 
inspection agency. If implemented, this proposal would facilitate the 
streamlining of handler operations to utilize the inspection service 
best suited to their operations.
    Since potential savings are correlated with economies of scale, 
record evidence indicates that PIQ and CAIP programs would be most 
beneficial for large handlers. It is unlikely that the smaller handlers 
would initially opt for these programs. Smaller handlers that expand 
their operations in the future may realize benefits from switching to 
PIQ or CAIP. Witnesses stated that no change in inspection costs is 
expected for handlers remaining with traditional DFA inspection 
services. Therefore, no financial disadvantages are expected to result 
from this proposed amendment. If implemented, this proposal may result 
in an overall decrease in costs of inspection to the industry.

Inspection of Sliced, Chopped or Ground Shelled Walnuts

    Proposal 12b would add authority for shelled walnuts to be 
inspected after having been sliced, chopped, or ground or in any manner 
changed from being shelled walnuts, if regulations for such walnuts are 
in effect.
    New walnut product forms are regularly requested by both domestic 
and foreign customers. In the last 20 years, the industry has become 
much more capable of producing at a considerably higher level quality 
and of developing more specific types of products that meet the 
differing needs of individual customers. To capitalize on this growing 
capability, a number of witnesses expressed the view that an important 
tool for increasing sales is the ability to establish standards for 
these walnut products.
    The order currently requires shelled product to be certified as 
merchantable, that is, meeting the minimum USDA requirements prior to 
further processing. When handlers are processing for end users that 
require further processing, this certification represents a costly 
extra step. After the initial shelled walnut certification, the 
handlers employ their own quality control procedures to meet the higher 
customer specifications. This proposal would allow a single inspection 
at the end of the process that would serve both purposes. If 
implemented, this proposal would allow the Board to recommend 
modifications to allow certification of product after it has been 
modified or chopped, leading to cost savings in the handling process.
    Witnesses contended that current standards focus on visually 
observed characteristics that are significant for consumer acceptance, 
but often do not adequately address specific quality concerns important 
to various export markets, including Europe. Such concerns include, for 
example, moisture content or aflatoxin tolerances. If implemented, this 
proposal would allow the Board to review scientific data and develop 
inspection procedures for recommendation and approval by USDA to assure 
customers that walnuts meet their specified criteria.

[[Page 38503]]

    Any new quality standards recommended by the Board would be subject 
to thorough review prior to seeking approval from USDA. Witnesses 
supported this amendment as it would give the Board authority to pursue 
quality regulations in addition to existing grade standards, both of 
which are important to industry customers.
    Witnesses emphasized that this proposal would grant authority to 
the Board to recommend quality standards that could exceed current 
standards or to develop new standards for product characteristics not 
currently covered. Witnesses also stated that no specific modifications 
are currently requested, just flexibility to create them in the future.
    While this proposed amendment may result in some cost increases 
associated with administration and oversight of new quality 
regulations, it is also expected that some handlers may benefit from 
lower inspection costs if the inspection requirements for specific 
markets were modified. Any costs associated with the implementation of 
this proposal are expected to be outweighed by the overall benefits 
accrued to the industry.

Marketing Promotion and Paid Advertising.

    Proposal 13 would amend the order by adding authority for marketing 
promotion and paid advertising.
    Current promotional activities for California walnuts are 
undertaken by the California Walnut Commission (CWC). Witnesses stated 
that the CWCs activities have led to considerable success in increasing 
demand for the industry's product.
    Witnesses explained that with price inelastic demand for walnuts, 
recent increases in production could have driven down prices and total 
grower revenue. The CWC's successful promotional activities have helped 
mitigate that potential impact, keeping average grower prices and 
grower revenue steady or increasing for several years.
    According to the hearing record, adding authority for paid 
advertising and promotion under the order would benefit the industry by 
allowing the Board to engage in activities that are currently supported 
by the Commission. Small businesses would be the greatest beneficiaries 
of an expanded generic advertising program, because they have the least 
financial resources to devote to selling their products, according to a 
witness.
    While an increase in advertising and promotional activities may 
result in increased Board expenditures, witnesses were confident that 
the positive results of the Board's promotional activities on consumer 
demand for California walnuts would more than outweigh any increases in 
costs to the industry.

Impact of Remaining Amendment Proposals

    Remaining amendment proposals are largely administrative in nature 
and would impose no new significant regulatory burdens on California 
walnut growers or handlers. They should benefit the industry by 
improving the operation of the program and making it more responsive to 
industry needs.

Marketing Year

    Proposal 1 would amend the order to change the marketing year from 
August 1 through July 31 to September 1 through August 31. Under the 
current definition of the order, the California walnut marketing year 
begins August 1 and continues through July 31. Witnesses explained 
that, over time, new varieties of walnuts have been introduced, and the 
areas in which walnuts are cultivated have shifted. The newer varieties 
mature later than the varieties grown at the time of the program's 
inception. At the same time, cultivation has slowly moved into areas 
that previously were not suited for walnut production. With differences 
in climate, soil, and water, witnesses explained that these new 
production areas have slightly later growing cycles. The proposed 
change in the marketing year would better reflect current crop cycles.
    Proposed conforming changes would ensure that Board member terms of 
office and marketing estimates calculated by the Board would conform to 
the modified marketing year. This amendment is not expected to result 
in any increases in costs to growers or handlers.

Definition of Pack

    Proposal 2 would amend the order by specifying that the act of 
packing walnuts is considered a handling function. In addition, the 
term ``pack'' would be amended to include shelling, and would be 
modified so that packing is applicable to both inshell and shelled 
walnuts.
    According to the hearing record, the order currently defines ``to 
handle'' as to ``sell, consign, transport, or ship, or in any other 
way, to put walnuts into the current of commerce''. The definition does 
not include the specific act of packing. ``To pack'', as currently 
defined in the order means, ``to bleach, clean, grade or otherwise 
prepare inshell walnuts for market''. Pack is not currently applicable 
to shelled walnuts. Witnesses stated that the proposed amendments to 
the definitions of ``handle'' and ``pack'' would more accurately 
reflect current industry operations.
    This amendment is not expected to result in any increases in costs 
to growers. If implemented, this proposal may result in some packing 
entities previously not considered to be handlers under the order to be 
redefined as handlers. According to witnesses, there are roughly five 
packer entities that would qualify as handlers under the new 
definition. While some increases in administration costs on the part of 
handlers could arise as a result of reporting requirements, record 
evidence indicates that the benefit of more accurate industry 
information would merit that expense.

Restructuring of the Board

    Proposal 3(a) seeks to amend all parts of the order that refer to 
cooperative seats on the Board, to redistribute member seats among 
districts, and to provide designated seats for a major handler, if such 
handler existed. A major handler would have to handle 35 percent or 
more of the crop.
    According to the hearing record, the recent transition of the 
industry's largest cooperative from a cooperative entity to a publicly 
held company was the impetus for this proposal. Witnesses expressed the 
need to modify the Board structure to provide for representation that 
accurately reflects the current industry. Witnesses advocated that the 
Board structure should maintain the current number of Board members and 
alternates, and that the allocation of member seats between grower and 
handler positions should remain the same (meaning 4 handler member 
seats, five grower member seats and one public member).
    Witnesses also recommended modifying the allocation of Board 
representation according to two possible scenarios. The two scenarios 
include: (1) Membership allocation that acknowledges the existence of a 
handler handling 35 percent or more of production and, (2) membership 
allocation in the absence of such handler. According to record 
evidence, these proposed amendments would not result in any increases 
in costs.

Nominations

    Proposal 3(b) would amend the Board member nomination process to 
reflect proposed changes in the Board structure, as outlined in 3(a). 
Current nomination procedures allow for all cooperative seat nominees 
to be selected

[[Page 38504]]

by the cooperative and forwarded to the Secretary for approval and 
appointment. The cooperative nominee selection process is independent 
of the Board. All non-cooperative seat nominees are selected through a 
ballot nomination process overseen by the Board staff, and forwarded to 
the Secretary for approval and appointment.
    According to the hearing record, the revised nomination procedures 
would allow a handler who handles 35 percent or more of the crop to 
nominate persons to fill its designated seats (as described in 3(a)) 
and to forward them to the Secretary for approval and appointment. 
Nomination of persons to fill all other seats would be conducted by the 
Board staff.
    In the event a handler handling 35 percent or more of the crop does 
not exist, all Board nominees would be selected through a ballot 
nomination process conducted by the Board staff.
    While some increases in administration costs could arise as a 
result of an increased number of ballots to be mailed by the Board if a 
major handler does not exist, record evidence indicates that the 
expense would be minor and would not directly burden growers or 
handlers.

Qualify by Acceptance

    Proposal 4 would require Board nominees to submit a written 
qualification and acceptance statement prior to selection by USDA. 
Currently, the acceptance procedure for persons nominated and selected 
to serve on the Board involves a two-step process. If this amendment 
were implemented, the two steps could be combined into one, thus 
resulting in less paperwork, a shorter acceptance procedure and 
improved efficiency in the acceptance process. This amendment is not 
expected to result in any increases in costs to growers or handlers.

California Walnut Board

    Proposal 5 would change the name of the Walnut Marketing Board to 
the California Walnut Board. Witnesses stated that the proposed name of 
``California Walnut Board'' would more accurately represent the Board's 
responsibilities. This amendment is not expected to result in any 
significant increases in costs to growers or handlers.

Authority To Reestablish Districts and Board Structure

    Proposal 6 would add authority to reestablish districts, to 
reapportion members among districts, and to revise groups eligible for 
representation on the Board. The intent of this proposal is to provide 
the Board with a tool to more efficiently respond to the changing 
character of the California walnut industry. In recommending any such 
changes, the following would be considered: (1) Shifts in acreage 
within districts and within the production area during recent years; 
(2) the importance of new production in its relation to existing 
districts; (3) the equitable relationship between Board apportionment 
and districts; (4) changes in industry structure and/or the percentage 
of crop represented by various industry entities resulting in the 
existence of two or more handlers handling 35 percent or more of the 
crop; and (5) other relevant factors. This amendment is not expected to 
result in any increases in costs to growers or handlers.

Voting Procedures

    Proposal 7 would amend Board quorum and voting requirements to add 
percentage requirements, add authority for the Board to vote by ``any 
other means of communication'' (including facsimile) and add authority 
for Board meetings to be held by telephone or by ``any other means of 
communication''.
    Witnesses stated that references to the meeting quorum requirements 
should be amended to include a percentage equivalent of the current 
six-out-of-10-member minimum, or sixty percent. In addition, witnesses 
supported modifying the order language regarding voting requirements to 
state that a sixty-percent super-majority vote of the members present 
at a meeting should be required of all Board decisions, except where 
otherwise specifically provided. The order currently states that a 
majority vote is needed, with no percentage equivalent specified.
    According to the record, the order currently requires that all 
Board meetings be held at a physical location. Witnesses stated that 
the order should be amended to allow for some meetings to be held using 
``other means of communication'', such as telephone or 
videoconferencing. Witnesses stated that use of new communication 
technology would result in timesavings while still allowing the Board 
to conduct its business. Witnesses stated that it is the intent of the 
Board that voting procedures for all types of non-traditional meetings 
can be recommended and adopted as appropriate for each type of 
technology used.
    Amendments proposed under this material issue are not expected to 
result in any significant changes in costs to growers or handlers.

Carryover of Excess Assessment Funds

    Proposal 8 would amend the order to add authority to carry over 
excess assessment funds. According to the hearing record, the order 
currently states that any assessment funds held in excess of the 
marketing year's expenses must be refunded to handlers. Refunds are 
returned to handlers in accordance with the amount of that handler's 
pro rata share of the actual expenses of the Board.
    This proposed amendment would allow the Board, with the approval of 
the Secretary, to establish an operating monetary reserve. This would 
allow the Board to carry over to subsequent production years any excess 
funds in a reserve, provided that funds already in the reserve do not 
exceed approximately two years' expenses. If reserve funds do exceed 
that amount, the assessment rate could be reduced so as to cause 
reserves to diminish to a level below the two-year threshold.
    According to the record, reserve funds could be used to defray 
expenses during any production year before assessment income is 
sufficient to cover such expenses, or to cover deficits incurred during 
any fiscal period when assessment income is less than expenses. 
Additionally, reserve funds could be used to defray expenses incurred 
during any period when any or all of the provisions of the order are 
suspended, or to meet any other such costs recommended by the Board and 
approved by the Secretary. This proposal is not expected to result in 
any significant increases in costs to growers or handlers.

Contributions

    Proposal 9 would amend the order by adding authority to accept 
contributions. If implemented, this proposed amendment would grant 
authority to the Board to accept voluntary contributions. Contributions 
could only be used to pay for research and development activities, and 
would be free from any encumbrances by the donor. According to the 
hearing record, the Board would retain oversight of the application of 
such contributions.
    Witnesses supported this proposal by stating that it would provide 
the Board and the industry with valuable resources to enhance research 
and development activities. It is not expected that this proposal would 
result in any additional costs to growers or handlers.

Reimbursement of Expenses

    Proposal 10 would amend the order to clarify that members and 
alternate

[[Page 38505]]

members may be reimbursed for expenses incurred while performing their 
duties and that reimbursement includes per diem. According to the 
hearing record, this proposed amendment would not have any impact on 
the current expense reimbursement activities of the Board. Rather, it 
would clarify and update order language to more clearly state that 
while Board members and alternates serve without compensation, expenses 
incurred while performing the duties of a Board member that have been 
authorized by the Board will be reimbursed. It is not expected that 
this proposal would result in any additional costs to growers or 
handlers.

Quality Regulations

    Proposal 12a would broaden the scope of the quality control 
provisions by adding authority to recommend different regulations for 
different market destinations. Witnesses emphasized the usefulness in 
terms of market development of being able to establish different 
regulations for individual markets and/or regions. Witnesses stated 
that allowing the Board to make such recommendations would help the 
walnut industry adapt to changing international market conditions.

Updating Order Terminology

    Proposal 14 would amend the order by replacing the terms 
``carryover'' with ``inventory,'' and ``mammoth'' with ``jumbo,'' to 
reflect current day industry procedures. This proposal would also 
result in conforming changes being made to the ``Marketing estimates 
and recommendations'' and ``Reports of handler carryover'' sections of 
the order.
    Handler carryover, defines the amount of California walnuts (both 
merchantable as well as the estimated quantity of merchantable walnuts 
to be produced from shelling stock and unsorted material), wherever 
located, held by California walnut handlers at any given time.
    Witnesses explained that the current term ``carryover'' is 
misleading in that the term implies the amount of inventory held by 
handlers from one marketing year to the next. Witnesses stated that the 
term ``inventory'' would more accurately convey the intent of this 
definition, and would also reflect current day calculations of walnut 
availability.
    Section 984.67, Exemptions, of the order provides for situations 
under which California walnuts may be exempted from complying with 
order regulations. One exemption is applicable to lots of merchantable 
inshell walnuts that are mammoth size or larger, as defined by the 
United States Standards for Walnuts in the Shell.
    Witnesses stated that given the new varieties currently being 
produced in the industry, the term ``mammoth'' no longer applies. 
According to record evidence, the current production's equivalent to 
``mammoth'' size is ``jumbo'' size, as defined by the United States 
Standards for Walnuts in the Shell. Thus, witnesses stated that the 
order language should be updated to reflect the industry's current 
terminology and size of walnuts being produced. This proposal is not 
expected to result in any increases in costs to growers or handlers.

Interhandler Transfers

    Proposal 15(a) would amend the order to clarify the term 
``transfer'' and to add authority for the Board to recommend methods 
and procedures, including necessary reports, for administrative 
oversight of such transfers.
    Witnesses stated that it would be beneficial to simplify current 
order language so that all interhandler transfers were considered a 
``sale of inshell and shelled walnuts within the area of production by 
one handler to another.'' Witnesses explained that the proposed 
language restated the current application of this provision in walnut 
transactions in simpler terms. This proposal is not expected to result 
in any increases in costs to growers or handlers.

Reporting Requirements

    Proposal 15(b) would amend the order to clarify that the Board may 
require reports from handlers and packers to include interhandler 
transfers or any other activity that involves placing California 
walnuts into the stream of commerce.
    According to the hearing record, current authority provided in this 
section only applies to the reporting of handler walnut receipts from 
growers. Witnesses stated that this authority should be broadened to 
include interhandler transfers, or receipts from any other entity as 
recommended by the Board and approved by the Secretary. This proposal 
is not expected to result in any increases in costs to growers or 
handlers.

Trade Demand

    Proposal 16 would update and simplify the language in Sec.  984.22, 
Trade demand, to state ``United States and its territories,'' rather 
than name ``Puerto Rico'' and ``The Canal Zone''. Witnesses explained 
that the reference to ``Puerto Rico'' and ``The Canal Zone'' in the 
order is outdated and should be updated to reference ``United States 
and its territories''.
    According to record evidence, this amendment would not impact trade 
demand calculations under the order since the purpose of the reference 
is to accurately identify the amount of shelled or inshell walnuts 
demanded by the United States, including its territories. Thus, while 
the terminology identifying the geographic regions included in the 
calculation would change, the intent of the original language would 
remain unchanged. This proposal is not expected to result in any 
increases in costs to growers or handlers.

Relationship With California Walnut Commission

    Proposal 17 would amend the order by adding language that would 
acknowledge that the Board may deliberate, consult, cooperate and 
exchange information with the California Walnut Commission (CWC). Any 
information sharing would be kept confidential.
    Recorded evidence indicates the CWC and the Federal marketing order 
program are currently administered out of the same office location and 
employ the same staff. Thus, this proposal, if implemented, would 
formalize the relationship that currently exists between the two 
entities. Witnesses stated that collaboration between the two programs 
leads to reduced administrative costs, as much of the information 
collected by each entity can be shared. This amendment is not expected 
to result in any increases in costs to growers or handlers.
    In addition, USDA proposed adding two provisions that would help 
assure that the operation of the program conforms to current Department 
policy.
    Proposal 18 would establish tenure requirements for Board members. 
Currently, the term of office of each member and alternate member of 
the Board is 2 years. There are no provisions related to term limits in 
the marketing order.
    The recorded evidence suggests that term limits for Board members 
could increase industry participation on the Board, provide for more 
diverse membership, provide the Board with new perspectives and ideas, 
and increase the number of individuals in the industry with Board 
experience. This amendment is not expected to result in any increases 
in costs to growers or handlers.
    Proposal 19 would require that continuance referenda be conducted 
on a periodic basis to ascertain industry

[[Page 38506]]

support for the order and add more flexibility in the termination 
provisions.
    Currently, there is no requirement in the order that continuance 
referenda be conducted on a periodic basis. The USDA believes that 
growers should have an opportunity to periodically vote on whether a 
marketing order should continue. Continuance referenda provide an 
industry with a means to measure grower support for the program. 
Experience has shown that programs need significant industry support to 
operate effectively. This amendment is not expected to result in any 
increases in costs to growers or handlers.
    The proposals put forth at the hearing would streamline program 
organization, but are not expected to result in a significant change in 
industry production, handling or distribution activities. In discussing 
the impacts of the proposed amendments on growers and handlers, 
recorded evidence indicates that the changes are expected to be 
positive because the administration of the programs would be more 
efficient, and therefore more effective, in executing Board duties and 
responsibilities. There would be no significant cost impact on either 
small or large growers or handlers.
    Interested persons were invited to present evidence at the hearing 
on the probable regulatory and informational impact of the proposed 
amendments to the order on small entities. The recorded evidence is 
that the amendments are designed to increase efficiency in the 
functioning of the order.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this proposed rule. These amendments are 
designed to enhance the administration and functioning of marketing 
order 984 to benefit of the California walnut industry.

Paperwork Reduction Act

    Current information collection requirements for Part 984 are 
approved by OMB under OMB No. 0581-0178, Vegetable and Specialty Crops. 
Any changes in those requirements as a result of this proceeding would 
be submitted to OMB for approval. Witnesses stated that existing forms 
could be adequately modified to serve the needs of the Board. While 
conforming changes to the forms would need to be made (such as changing 
the name of the Board), the functionality of the forms would remain the 
same.
    As with other similar marketing order programs, reports and forms 
are periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies.
    AMS is committed to complying with the Government Paperwork 
Elimination Act (GPEA), which requires Government agencies in general 
to provide the public the option of submitting information or 
transacting business electronically to the maximum extent possible.
    The AMS is committed to complying with the E-Government Act, to 
promote the use of the Internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

Civil Justice Reform

    The amendments to Marketing Order No. 984 proposed herein have been 
reviewed under Executive Order 12988, Civil Justice Reform. They are 
not intended to have retroactive effect. If adopted, the proposed 
amendments would not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
proposal.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA 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, 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 USDA'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 Conclusions; Discussion of Exceptions

    The findings and conclusions, rulings, and general findings and 
determinations included in the Recommended Decision set forth in the 
March 27, 2007, issue of the Federal Register (72 FR 14368) are hereby 
approved and adopted subject to the following additions and 
modifications:
    Based upon the briefs and exceptions filed, the findings and 
conclusions in material issue number 11 of the Recommended Decision 
concerning whether or not to add authority to designate more than one 
inspection service are amended by adding the following six paragraphs 
to read as follows:
    Exceptions to the Recommended Decision stated that if the authority 
to designate more than one inspection service were implemented, private 
sector entities, in addition to USDA, should be able to offer non-
traditional inspection services, such as the PIQ and the CAIP. 
Exceptions further stated that the current proposed language (meaning, 
``each service shall be separate so as to not duplicate each other'') 
would prevent any private sector company from offering those services.
    The proposed amendment, if implemented, would not prevent any 
private sector company from offering traditional or non-traditional 
inspection services, as long as the services were recommended by the 
Board and approved by USDA.
    The Agricultural Marketing Service is responsible for ensuring that 
all handlers regulated under a marketing order program are in 
compliance with any regulations that are in effect. Under the marketing 
order for California walnuts, the Board is responsible for locally 
administering the program, which includes monitoring industry's 
compliance with order requirements, and reporting any violations to 
USDA for enforcement measures.
    While the USDA supports and encourages cost-saving measures, it is 
important that the program maintains its integrity and that any quality 
or size regulations in effect are not compromised. Furthermore, it is 
important that inspection of product is conducted with uniformity and 
consistency. For this reason, it is important that the language stating 
that ``each service shall be separate so as to not duplicate each 
other'' be maintained.
    Finally, the proposed order language would provide authority for 
the Board to recommend the use of alternative inspection methods and 
services as they are developed and accredited. The proposed authority 
is intended to allow industry to benefit from cost-saving advances in 
technology while also ensuring uniform application of inspection 
methodology and standards industry wide.
    Based upon the exception filed, the findings and conclusions in 
material issue number 18 of the Recommended Decision concerning whether 
or not to establish a limit on the number of consecutive terms a person 
may serve as a member of the Board are amended by adding the following 
paragraph to read as follows:

[[Page 38507]]

    One of the exceptions filed offered a comment of general support 
for the proposal to implement term limits as a method to encourage 
participation of industry members that have not previously served on 
the Board.

Rulings on Exceptions

    In arriving at the findings and conclusions and the regulatory 
provisions of this decision, the exceptions to the Recommended Decision 
were carefully considered in conjunction with the recorded evidence. To 
the extent that the findings and conclusions and the regulatory 
provisions of this decision are at variance with the exceptions, such 
exceptions are denied.

Marketing Agreement and Order

    Annexed hereto and made a part hereof is the document entitled 
``Order Amending the Order Regulating the Handling of Walnuts Grown in 
California.'' This document has been decided upon as the detailed and 
appropriate means of effectuating the foregoing findings and 
conclusions.
    It is hereby ordered, That this entire decision be published in the 
Federal Register.

Referendum Order

    It is hereby directed that a referendum be conducted in accordance 
with the procedure for the conduct of referenda (7 CFR part 900.400 et 
seq.) to determine whether the annexed order amending the order 
regulating the handling of walnuts grown in California is approved or 
favored by growers, as defined under the terms of the order, who during 
a representative period were engaged in the production of walnuts in 
the production area.
    The representative period for the conduct of such referendum is 
hereby determined to be August 1, 2006, through July 31, 2007.
    The agents of the Secretary to conduct such referendum are hereby 
designated to be Shereen Marino and Kurt Kimmel, California Marketing 
Field Office, Marketing Order Administration Branch, Fruit and 
Vegetable Programs, AMS, USDA, 2202 Monterey Street, Suite 102B, 
Fresno, California 93721; telephone (559) 487-5901.

List of Subjects in 7 CFR Part 984

    Marketing agreements, Nuts, Reporting and recordkeeping 
requirements, Walnuts.

    Dated: July 9, 2007.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.

Order Amending the Order Regulating the Handling of Walnuts Grown in 
California \1\
---------------------------------------------------------------------------

    \1\ This order shall not become effective unless and until the 
requirements of Sec.  900.14 of the rules of practice and procedure 
governing proceedings to formulate marketing agreements and 
marketing orders have been met.
---------------------------------------------------------------------------

Findings and Determinations

    The findings and determinations hereinafter set forth are 
supplementary to the findings and determinations which were previously 
made in connection with the issuance of the marketing agreement and 
order; and all said previous findings and determinations are hereby 
ratified and affirmed, except insofar as such findings and 
determinations may be in conflict with the findings and determinations 
set forth herein.
    (a) Findings and Determinations Upon the Basis of the Hearing 
Record. Pursuant to the provisions of the Agricultural Marketing 
Agreement Act 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 the proposed amendments to 
Marketing Agreement and Order No. 984 (7 CFR part 984), regulating the 
handling of walnuts 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, as amended, and as hereby 
proposed to be further amended, and all of the terms and conditions 
thereof, would tend to effectuate the declared policy of the Act;
    (2) The marketing agreement and order, as amended, and as hereby 
proposed to be further amended, regulate the handling of walnuts grown 
in the production area 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, as amended, and as hereby 
proposed to be further amended, are limited in their application to the 
smallest regional production area that is practicable, consistent with 
carrying out the declared policy of the Act, and the issuance of 
several orders applicable to subdivisions of the production area would 
not effectively carry out the declared policy of the Act;
    (4) The marketing agreement and order, as amended, and as hereby 
proposed to be further amended, 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 walnuts grown in the production area; and
    (5) All handling of walnuts grown in the production area 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.

Order Relative to Handling

    It is therefore ordered, That on and after the effective date 
hereof, all handling of walnuts grown in California shall be in 
conformity to, and in compliance with, the terms and conditions of the 
said order as hereby proposed to be amended as follows:
    The provisions of the proposed marketing agreement and order 
amending the order contained in the Recommended Decision issued by the 
Administrator on March 19, 2007, and published in the Federal Register 
on March 27, 2007, will be and are the terms and provisions of this 
order amending the order and are set forth in full herein.

PART 984--WALNUTS GROWN IN CALIFORNIA

    1. The authority citation for 7 CFR part 984 continues to read as 
follows:

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

    2. Revise Sec.  984.6 to read as follows:


Sec.  984.6  Board.

    Board means the California Walnut Board established pursuant to 
Sec.  934.35.
    3. Revise Sec.  984.7 to read as follows:


Sec.  984.7  Marketing year.

    Marketing year means the twelve months from September 1 to the 
following August 31, both inclusive, or any other such period deemed 
appropriate and recommended by the Board for approval by the Secretary.
    4. Revise Sec.  984.13 to read as follows:


Sec.  984.13  To handle.

    To handle means to pack, sell, consign, transport, or ship (except 
as a common or contract carrier of walnuts owned by another person), or 
in any other way to put walnuts, inshell or shelled, into the current 
of commerce either within the area of production or from such area to 
any point outside

[[Page 38508]]

thereof, or for a manufacturer or retailer within the area of 
production to purchase directly from a grower: The term ``to handle'' 
shall not include sales and deliveries within the area of production by 
growers to handlers, or between handlers.
    5. Revise Sec.  984.14 to read as follows:


Sec.  984.14  Handler.

    Handler means any person who handles inshell or shelled walnuts.
    6. Revise Sec.  984.15 to read as follows:


Sec.  984.15  Pack.

    Pack means to bleach, clean, grade, shell or otherwise prepare 
walnuts for market as inshell or shelled walnuts.
    7. Revise Sec.  984.21 to read as follows:


Sec.  984.21  Handler inventory.

    Handler inventory as of any date means all walnuts, inshell or 
shelled (except those held in satisfaction of a reserve obligation), 
wherever located, then held by a handler or for his or her account.
    8. Revise Sec.  984.22 to read as follows:


Sec.  984.22  Trade demand.

    (a) Inshell. The quantity of merchantable inshell walnuts that the 
trade will acquire from all handlers during a marketing year for 
distribution in the United States and its territories.
    (b) Shelled. The quantity of merchantable shelled walnuts that the 
trade will acquire from all handlers during a marketing year for 
distribution in the United States and its territories.
    9. Revise Sec.  984.35 to read as follows:


Sec.  984.35  California Walnut Board.

    (a) A California Walnut Board is hereby established consisting of 
10 members selected by the Secretary, each of whom shall have an 
alternate nominated and selected in the same way and with the same 
qualifications as the member. The members and their alternates shall be 
selected by the Secretary from nominees submitted by each of the 
following groups or from other eligible persons belonging to such 
groups:
    (1) Two handler members from District 1;
    (2) Two handler members from District 2;
    (3) Two grower members from District 1;
    (4) Two grower members from District 2;
    (5) One grower member nominated at-large from the production area; 
and,
    (6) One member and alternate who shall be selected after the 
selection of the nine handler and grower members and after the 
opportunity for such members to nominate the tenth member and 
alternate. The tenth member and his or her alternate shall be neither a 
walnut grower nor a handler.
    (b) In the event that one handler handles 35% or more of the crop 
the membership of the Board shall be as follows:
    (1) Two handler members to represent the handler that handles 35% 
or more of the crop;
    (2) Two members to represent growers who market their walnuts 
through the handler that handles 35% or more of the crop;
    (3) Two handler members to represent handlers that do not handle 
35% or more of the crop;
    (4) One member to represent growers from District 1 who market 
their walnuts through handlers that do not handle 35% or more of the 
crop;
    (5) One member to represent growers from District 2 who market 
their walnuts through handlers that do not handle 35% or more of the 
crop;
    (6) One member to represent growers who market their walnuts 
through handlers that do not handle 35% or more of the crop shall be 
nominated at large from the production area; and,
    (7) One member and alternate who shall be selected after the 
selection of the nine handler and grower members and after the 
opportunity for such members to nominate the tenth member and 
alternate. The tenth member and his or her alternate shall be neither a 
walnut grower nor a handler.
    (c) Grower Districts:
    (1) District 1. District 1 encompasses the counties in the State of 
California that lie north of a line drawn on the south boundaries of 
San Mateo, Alameda, San Joaquin, Calaveras, and Alpine Counties.
    (2) District 2. District 2 shall consist of all other walnut 
producing counties in the State of California south of the boundary 
line set forth in paragraph (c)(1) of this section.
    (d) The Secretary, upon recommendation of the Board, may 
reestablish districts, may reapportion members among districts, and may 
revise the groups eligible for representation on the Board as specified 
in paragraphs (a) and (b) of this section: Provided, That any such 
recommendation shall require at least six concurring votes of the 
voting members of the Board. In recommending any such changes, the 
following shall be considered:
    (1) Shifts in acreage within districts and within the production 
area during recent years;
    (2) The importance of new production in its relation to existing 
districts;
    (3) The equitable relationship between Board apportionment and 
districts;
    (4) Changes in industry structure and/or the percentage of crop 
represented by various industry entities resulting in the existence of 
two or more major handlers;
    (5) Other relevant factors.
    10. Revise Sec.  984.36 to read as follows:


Sec.  984.36  Term of office.

    The term of office of Board members, and their alternates shall be 
for a period of two years ending on August 31 of odd-numbered years, 
but they shall serve until their respective successors are selected and 
have qualified. Board members may serve up to three consecutive, two-
year terms of office. In no event shall any member serve more than six 
consecutive years on the Board. For purposes of determining when a 
Board member has served three consecutive terms, the accrual of terms 
shall begin following any period of at least twelve consecutive months 
out of office. The limitation on tenure shall not apply to alternates.
    11. Revise Sec.  984.37 to read as follows:


Sec.  984.37  Nominations.

    (a) Nominations for all grower members shall be submitted by ballot 
pursuant to an announcement by press releases of the Board to the news 
media in the walnut producing areas. Such releases shall provide 
pertinent voting information, including the names of candidates and the 
location where ballots may be obtained. Ballots shall be accompanied by 
full instructions as to their markings and mailing and shall include 
the names of incumbents who are willing to continue serving on the 
Board and such other candidates as may be proposed pursuant to methods 
established by the Board with the approval of the Secretary. Each 
grower, regardless of the number and location of his or her walnut 
orchard(s), shall be entitled to cast only one ballot in the nomination 
and each vote shall be given equal weight. If the grower has orchards 
in both grower districts, he or she shall advise the Board of the 
district in which he/she desires to vote. The person receiving the 
highest number of votes for each grower position shall be the nominee.
    (b) Nominations for handler members shall be submitted on ballots 
mailed by the Board to all handlers in their respective Districts. All 
handlers' votes shall be weighted by the kernelweight of walnuts 
certified as merchantable by each handler during the preceding 
marketing year. Each handler in the production area may vote for 
handler

[[Page 38509]]

member nominees and their alternates. However, no handler with less 
than 35% of the crop shall have more than one member and one alternate 
member. The person receiving the highest number of votes for each 
handler member position shall be the nominee for that position.
    (c) A calculation to determine whether or not a handler who handles 
35 percent or more of the crop shall be made prior to nominations. For 
the first nominations held upon implementation of this language, the 35 
percent threshold shall be calculated using an average of crop handled 
for the year in which nominations are made and one year's handling 
prior. For all future nominations, the 35 percent handling calculation 
shall be based in the average of the two years prior to the year in 
which nominations are made. In the event that one handler handles 35% 
or more of the crop the membership of the Board, nominations shall be 
as follows:
    (1) Nominations of growers who market their walnuts to the handler 
that handles 35% or more of the crop shall be conducted by that handler 
and the names of the nominees shall be forwarded to the Board for 
approval and appointment by the Secretary.
    (2) Nominations for the two handler members representing the major 
handler shall be conducted by the major handler and the names of the 
nominees shall be forwarded to the Board for approval and appointment 
by the Secretary.
    (3) Nominations on behalf of all other grower members (Groups 
(b)(4), (5) and (6) of Sec.  984.35) shall be submitted after ballot by 
such growers pursuant to an announcement by press releases of the Board 
to the news media in the walnut producing areas. Such releases shall 
provide pertinent voting information, including the names of candidates 
and the location where ballots may be obtained. Ballots shall be 
accompanied by full instructions as to their markings and mailing and 
shall include the names of incumbents who are willing to continue 
serving on the Board and such other candidates as may be proposed 
pursuant to methods established by the Board with the approval of the 
Secretary. Each grower in Groups (Groups (b)(4), (5) and (6) of Sec.  
984.35), regardless of the number and location of his or her walnut 
orchard(s), shall be entitled to cast only one ballot in the nomination 
and each vote shall be given equal weight. If the grower has orchard(s) 
in both grower districts he or she shall advise the Board of the 
district in which he or she desires to vote. The person receiving the 
highest number of votes for grower position shall be the nominee.
    (4) Nominations for handler members representing handlers that do 
not handle 35% or more of the crop shall be submitted on ballots mailed 
by the Board to those handlers. The votes of these handlers shall be 
weighted by the kernelweight of walnuts certified as merchantable by 
each handler during the preceding marketing year. Each handler in the 
production area may vote for handler member nominees and their 
alternates of this subsection. However, no handler shall have more than 
one person on the Board either as member or alternate member. The 
person receiving the highest number of votes for a handler member 
position of this subsection shall be the nominee for that position.
    (d) Each grower is entitled to participate in only one nomination 
process, regardless of the number of handler entities to whom he or she 
delivers walnuts. If a grower delivers walnuts to more than one handler 
entity, the grower must choose which nomination process he or she 
participates in.
    (e) The nine members shall nominate one person as member and one 
person as alternate for the tenth member position. The tenth member and 
alternate shall be nominated by not less than 6 votes cast by the nine 
members of the Board.
    (f) Nominations in the foregoing manner received by the Board shall 
be reported to the Secretary on or before June 15 of each odd-numbered 
year, together with a certified summary of the results of the 
nominations. If the Board fails to report nominations to the Secretary 
in the manner herein specified by June 15 of each odd-numbered year, 
the Secretary may select the members without nomination. If nominations 
for the tenth member are not submitted by September 1 of any such year, 
the Secretary may select such member without nomination.
    (g) The Board may recommend, subject to the approval of the 
Secretary, a change to these nomination procedures should the Board 
determine that a revision is necessary.
    12. Revise Sec.  984.38 to read as follows:


Sec.  984.38  Eligibility.

    No person shall be selected or continue to serve as a member or 
alternate to represent one of the groups specified in Sec.  
984.35(a)(1) through (6) or Sec.  984.38(b)(1) through (6), unless he 
or she is engaged in the business he or she is to represent, or 
represents, either in his or her own behalf or as an officer or 
employee if the business unit engaged in such business. Also, each 
member or alternate member representing growers in District 1 or 
District 2 shall be a grower, or officer or employee of the group he or 
she is to represent.
    13. Revise Sec.  984.39 to read as follows:


Sec.  984.39  Qualify by acceptance.

    Any person nominated to serve as a member or alternate member of 
the Board shall, prior to selection by USDA, qualify by filing a 
written qualification and acceptance statement indicating such person's 
willingness to serve in the position for which nominated.
    14. Revise Sec.  984.40 to read as follows:


Sec.  984.40  Alternate.

    (a) An alternate for a member of the Board shall act in the place 
and stead of such member in his or her absence or in the event of his 
or her death, removal, resignation, or disqualification, until a 
successor for his or her unexpired term has been selected and has 
qualified.
    (b) In the event any member of the Board and his or her alternate 
are both unable to attend a meeting of the Board, any alternate for any 
other member representing the same group as the absent member may serve 
in the place of the absent member, or in the event such other alternate 
cannot attend, or there is no such other alternate, such member, or in 
the event of his disability or a vacancy, his or her alternate may 
designate, subject to the disapproval of the Secretary, a temporary 
substitute to attend such meeting. At such meeting, such temporary 
substitute may act in the place of such member.
    15. Revise Sec.  984.42 to read as follows:


Sec.  984.42  Expenses.

    The members and their alternates of the Board shall serve without 
compensation, but shall be allowed their necessary expenses incurred by 
them in the performance of their duties under this part.
    16. Amend Sec.  984.45 by revising paragraphs (b) and (c) and 
adding paragraph (d) to read as follows:


Sec.  984.45  Procedure.

* * * * *
    (b) All decisions of the Board, except where otherwise specifically 
provided (see Sec.  984.35(d)), shall be by a sixty-percent (60%) 
super-majority vote of the members present. A quorum of six members, or 
the equivalent of sixty percent (60%) of the Board, shall be required 
for the conduct of Board business.
    (c) The Board may vote by mail or telegram, or by any other means 
of communication, upon due notice to all members. The Board, with the 
approval of the Secretary, shall prescribe the minimum number of votes 
that must be

[[Page 38510]]

cast when voting is by any of these methods, and any other procedures 
necessary to carry out the objectives of this paragraph.
    (d) The Board may provide for meetings by telephone, or other means 
of communication and any vote cast at such a meeting shall be confirmed 
promptly in writing: Provided, That if any assembled meeting is held, 
all votes shall be cast in person.
    17. Revise Sec.  984.46 to read as follows:


Sec.  984.46  Research and development.

    The Board, with the approval of the Secretary, may establish or 
provide for the establishment of production research, marketing 
research and development projects, and marketing promotion, including 
paid advertising, designed to assist, improve, or promote the 
marketing, distribution, and consumption or efficient production of 
walnuts. The expenses of such projects shall be paid from funds 
collected pursuant to Sec.  984.69 and Sec.  984.70.
    18. Amend Sec.  984.48 by revising paragraphs (a) introductory 
text, (a)(2), (4), and (5) to read as follows:


Sec.  984.48  Marketing estimates and recommendations.

    (a) Each marketing year the Board shall hold a meeting, prior to 
October 20, for the purpose of recommending to the Secretary a 
marketing policy for such year. Each year such recommendation shall be 
adopted by the affirmative vote of at least 60% of the Board and shall 
include the following, and where applicable, on a kernel weight basis:
* * * * *
    (2) The Board's estimate of the handler inventory on September 1 of 
inshell and shelled walnuts;
* * * * *
    (4) The Board's estimate of the trade demand for such marketing 
year for shelled and inshell walnuts, taking into consideration trade 
inventory, imports, prices, competing nut supplies, and other factors;
    (5) The Board's recommendation for desirable handler inventory of 
inshell and shelled walnuts on August 31 of each marketing year;
* * * * *
    19. Amend Sec.  984.50 by revising the heading and paragraph (d) to 
read as follows:


Sec.  984.50  Grade, quality and size regulations.

* * * * *
    (d) Additional grade, size or other quality regulation. The Board 
may recommend to the Secretary additional grade, size or other quality 
regulations, and may also recommend different regulations for different 
market destinations. If the Secretary finds on the basis of such 
recommendation or other information that such additional regulations 
would tend to effectuate the declared policy of the Act, he or she 
shall establish such regulations.
* * * * *
    20. Revise Sec.  984.51 by revising paragraph (a) to read as 
follows:


Sec.  984.51  Inspection and certification of inshell and shelled 
walnuts.

    (a) Before or upon handling of any walnuts for use as free or 
reserve walnuts, each handler at his or her own expense shall cause 
such walnuts to be inspected to determine whether they meet the then 
applicable grade and size regulations. Such inspection shall be 
performed by the inspection service or services designated by the Board 
with the approval of the Secretary; Provided, That if more than one 
inspection service is designated, the functions performed by each 
service shall be separate, and shall not duplicate each other. Handlers 
shall obtain a certificate for each inspection and cause a copy of each 
certificate issued by the inspection service to be furnished to the 
Board. Each certificate shall show the identity of the handler, 
quantity of walnuts, the date of inspection, and for inshell walnuts 
the grade and size of such walnuts as set forth in the United States 
Standards for Walnuts (Juglans regia) in the Shell. Certificates 
covering reserve shelled walnuts for export shall also show the grade, 
size, and color of such walnuts as set forth in the United States 
Standards for Shelled Walnuts (Juglans regia). The Board, with the 
approval of the Secretary, may prescribe procedures for the 
administration of this provision.
* * * * *
    21. Amend Sec.  984.52 by revising paragraph (a) and adding a new 
paragraph (c) to read as follows:


Sec.  984.52  Processing of shelled walnuts.

    (a) No handler shall slice, chop, grind, or in any manner change 
the form of shelled walnuts unless such walnuts have been certified as 
merchantable or unless such walnuts meet quality regulations 
established under Sec.  984.50(d) if such regulations are in effect.
* * * * *
    (c) The Board shall establish such procedures as are necessary to 
insure that all such walnuts are inspected prior to being placed into 
the current of commerce.
    22. Revise Sec.  984.59 to read as follows:


Sec.  984.59  Interhandler transfers.

    For the purposes of this part, transfer means the sale of inshell 
and shelled walnuts within the area of production by one handler to 
another. The Board, with the approval of the Secretary, may establish 
methods and procedures, including necessary reports, for such 
transfers.
    23. Amend Sec.  984.67 by revising paragraph (a) to read as 
follows:


Sec.  984.67  Exemptions.

    (a) Exemption from volume regulation. Reserve percentages shall not 
apply to lots of merchantable inshell walnuts which are of jumbo size 
or larger as defined in the then effective United States Standards for 
Walnuts in the Shell, or to such quantities as the Board may, with the 
approval of the Secretary, prescribe.
* * * * *
    24. Amend Sec.  984.69 by revising paragraph (c) to read as 
follows:


Sec.  984.69  Assessments.

* * * * *
    (c) Accounting. If at the end of a marketing 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 (c)(2) or (c)(3) of this section, it shall be refunded to 
handlers from whom collected and each handler's share of such excess 
funds shall be the amount of assessments he or she has paid in excess 
of his or her pro rata share of the actual expenses of the Board.
    (2) Excess funds may be used temporarily by the Board to defray 
expenses of the subsequent marketing year: Provided, That each 
handler's share of such excess shall be made available to him or her by 
the Board within five months after the end of the year.
    (3) The Board may carry over such excess into subsequent marketing 
years as a reserve: Provided, That funds already in reserve do not 
exceed approximately two years' budgeted expenses. In the event that 
funds exceed two marketing years' budgeted expenses, future assessments 
will be reduced to bring the reserves to an amount that is less than or 
equal to two marketing years' budgeted expenses. Such reserve funds may 
be used:
    (i) To defray expenses, during any marketing year, prior to the 
time assessment income is sufficient to cover such expenses;

[[Page 38511]]

    (ii) To cover deficits incurred during any 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;
    (iv) To meet any other such costs recommended by the Board and 
approved by the Secretary.
* * * * *
    25. Add a new Sec.  984.70 to read as follows:


Sec.  984.70  Contributions.

    The Board may accept voluntary contributions but these shall only 
be used to pay expenses incurred pursuant to Sec.  984.46, Research and 
development. Furthermore, such contributions shall be free from any 
encumbrances by the donor and the Board shall retain complete control 
of their use.
    26. Revise Sec.  984.71 to read as follows:


Sec.  984.71  Reports of handler inventory.

    Each handler shall submit to the Board in such form and on such 
dates as the Board may prescribe, reports showing his or her inventory 
of inshell and shelled walnuts.
    27. Revise Sec.  984.73 to read as follows:


Sec.  984.73  Reports of walnut receipts.

    Each handler shall file such reports of his or her walnut receipts 
from growers, handlers, or others in such form and at such times as may 
be requested by the Board with the approval of the Secretary.
    28. Amend Sec.  984.89 by redesignating paragraph (b)(4) as (b)(5) 
and adding a new paragraph (b)(4) to read as follows:


Sec.  984.89  Effective time and termination.

* * * * *
    (b) * * *
    (4) Within six years of the effective date of this amendment 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 walnuts in 
the production area. Such termination shall be announced on or before 
the end of the production year.
* * * * *
    29. Add a new Sec.  984.91 to read as follows:


Sec.  984.91  Relationship with the California Walnut Commission.

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

[FR Doc. 07-3412 Filed 7-10-07; 9:28 am]
BILLING CODE 3410-02-P