[Federal Register Volume 75, Number 163 (Tuesday, August 24, 2010)]
[Rules and Regulations]
[Pages 51926-51929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-21010]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 984

[Doc. No. AMS-FV-09-0036; FV09-984-4 FR]


Walnuts Grown in California; Changes to the Quality Regulations 
for Shelled Walnuts

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule revises the quality regulations for shelled walnuts 
under the Federal marketing order for California walnuts (order). The 
order regulates the handling of walnuts grown in California and is 
administered locally by the California Walnut Board (Board). This rule 
requires inspection and certification of shelled walnut products after 
manufacturing instead of before manufacturing. It also establishes a 
process to specify that manufactured products smaller than eight sixty-
fourths of an inch in diameter are derived from walnut pieces that have 
been inspected and certified to U.S. Commercial grade standards. These 
changes will result in more efficient and cost-effective handler 
operations, and will certify the final Size And Grade Of All 
Manufactured Walnut Pieces.

DATES: Effective Date: August 25, 2010.

FOR FURTHER INFORMATION CONTACT: Jeff Smutny, Marketing Specialist, or 
Kurt J. Kimmel, Regional Manager, California Marketing Field Office, 
Marketing Order Administration Branch, Fruit and Vegetable Programs, 
AMS, USDA; Telephone: (559) 487-5901, Fax: (559) 487-5906, or E-mail: 
[email protected] or [email protected].
    Small businesses may request information on complying with this 
regulation by contacting Antoinette Carter, 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: This final rule is issued under Marketing 
Order No. 984, as amended (7 CFR part 984), regulating the handling of 
walnuts grown in California, hereinafter referred to as the ``order.'' 
The order is effective under the Agricultural Marketing Agreement Act 
of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the 
``Act.''
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Order 12866. This final rule has been 
reviewed under Executive Order 12988, Civil Justice Reform. This rule 
is not intended to have retroactive effect.
    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.
    This final rule revises the quality regulations for shelled walnuts 
to require inspection and certification after chopping or dicing them 
into smaller pieces (manufacturing) instead of before manufacturing, 
and to establish a process for specifying that manufactured products 
smaller than eight sixty-fourths of an inch in diameter are derived 
from walnut pieces that have been inspected and certified to U.S. 
Commercial grade standards. This will result in more efficient and 
cost-effective handler operations and will certify the final size and 
grade of all manufactured walnut pieces. This rule

[[Page 51927]]

was unanimously recommended by the Board at a meeting on September 12, 
2008.
    Section 984.50(d) of the order provides authority for the Board to 
recommend to the Secretary additional grade, size, or other quality 
regulations for California walnuts. Section 984.52 of the order 
provides that handlers shall not change the form of shelled walnuts 
unless such walnuts have been certified as merchantable or meet quality 
regulations established under Sec.  984.50(d).
    Currently, all shelled walnuts are inspected and certified before 
manufacturing by the American Council for Food Safety & Quality (also 
known as DFA of California and hereinafter referred to as ``DFA'') to 
ensure the walnuts meet marketing order requirements for U.S. 
Commercial grade. Following inspection, walnut pieces may be further 
manufactured by chopping them into smaller pieces, or ``end products.'' 
Pieces smaller than eight sixty-fourths of an inch that are accumulated 
during the manufacturing process are considered a byproduct of this 
process and are called ``meal.'' Walnut meal is sold into the market 
for industrial use, such as in commercial bakery products.
    Upon passing inspection, an inspection certificate is issued for 
the lot of shelled walnuts, and the certificate number follows the 
walnuts from that lot through the entire manufacturing process. The 
original inspection certificate number is noted on the certificates 
that accompany both the end products and the meal derived from the 
original lot of shelled walnuts. Providing information about the 
original lot of walnuts from which the end products and meal were 
derived assures customers that those products were derived from walnuts 
that meet quality standards under the order.
    The inspection certificate specifies the size of the shelled walnut 
pieces before manufacturing. The size may be stated as ``large pieces'' 
or ``halves and pieces,'' and that information is also noted on the 
certificates that accompany the end products and the meal, although it 
does not accurately describe the size of the manufactured end product 
pieces or meal. If a customer requires certification of the size of a 
finished end product, the handler must obtain a second inspection for 
that product, which may add expense to the process.
    Currently, meal may be co-mingled into one output bin as it is 
accumulated from the manufacturing of several different lots of shelled 
walnuts. When this occurs, the certificate number from each original 
lot of shelled walnuts is transferred to the meal certificate. As a 
result, the certificate for one output bin of meal may include multiple 
certificate numbers.
    Transferring the inspection certificate number from an original lot 
of shelled walnuts to various manufactured end products and meal is 
cumbersome and creates a potential for errors under the current system. 
Currently, all of a certified lot of shelled walnuts must be 
manufactured at one time to ensure the certificate number of that lot 
is properly transferred to the resulting end products and meal. If, at 
a future date, the end products from the original manufacturing run are 
remanufactured in order to be cut to a smaller size, the certificate 
numbers must be transferred from the first manufactured product to the 
second manufactured product. This additional process of transferring 
certificate numbers to and from multiple end products is cumbersome and 
further increases the potential for error.
    The Board's Grades and Standards Committee formed a work group in 
May 2008 to investigate alternatives to the current inspection and 
certification process of manufactured shelled walnuts. The work group 
recommended changing the existing process to allow handlers to 
manufacture shelled walnuts into smaller end products without prior 
inspection. Instead, handlers will be required to have all end products 
inspected. The manufactured pieces equal to or larger than eight sixty-
fourths of an inch in diameter will be inspected and certified to 
existing U.S. Commercial grade requirements specified in the United 
States Standards for Shelled Walnuts (Juglans regia). Each end product 
that passes inspection will be issued an inspection certificate, which 
will include the actual size of the end product.
    The U.S. Commercial grade requirements do not include standards for 
walnut meal. Therefore, the meal accumulated during the manufacturing 
process will not be inspected. Meal collected from multiple 
manufacturing runs will no longer be co-mingled in one output bin but 
will remain segregated.
    A document also referred to as a ``meal certificate'' will be 
issued for the walnut meal accumulated during each manufacturing run. 
Because the meal most closely resembles the color, freshness, and other 
characteristics of the smallest end product produced during 
manufacturing, the meal can be affiliated with that end product. If the 
end product passes inspection and is certified, the certificate number 
assigned to that end product will be referenced on the meal 
certificate. If that end product fails inspection, the meal created 
during the same manufacturing process will be rejected and disposed of 
pursuant to the requirements of Sec.  984.64. However, the end product 
that failed inspection can be reconditioned, re-sampled, and presented 
again for inspection and certification.
    These changes will improve the manufacturing process by eliminating 
the need for multiple inspections for the same product, and will 
improve handler efficiencies by eliminating duplicative inventory 
tracking. Consumers will be better served since each finished end 
product will be certified to U.S. Commercial grade requirements, and 
accurate size information for each end product will be provided on the 
individual inspection certificates. Handlers can continue to assure 
customers that walnut meal is derived from walnuts that have been 
inspected and certified. Accordingly, a new Sec.  984.450(c) containing 
these regulations will be added to the order's administrative rules and 
regulations.
    This rule also revises the first sentence in Sec.  984.450(a) 
regarding the minimum kernel content requirements of inshell walnuts 
for reserve disposition credit. The sentence incorrectly references 
requirements for inshell walnuts pursuant to Sec.  984.59(a). The 
correct reference is Sec.  984.50(a). The sentence is revised 
accordingly.

Final Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), 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 in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and the rules issued thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf.
    There are currently 58 handlers of California walnuts subject to 
regulation under the marketing order, and there are approximately 4,500 
growers in the production area. Small agricultural service firms are 
defined by the Small Business Administration (SBA) (13 CFR 121.201) as 
those having annual receipts of less than $7,000,000, and small 
agricultural producers are defined as those having annual receipts of 
less than $750,000.

[[Page 51928]]

    USDA's National Agricultural Statistics Service (NASS) reports that 
California walnuts were harvested from a total of 223,000 bearing acres 
during 2008-09. The average yield for the 2008-09 crop was 1.96 tons 
per acre, which is higher than the 1.56 tons per acre average for the 
previous five years. NASS reported the value of the 2008-09 crop at 
$1,210 per ton, which is lower than the previous five-year average of 
$1,598 per ton.
    At the time of the 2007 Census of Agriculture, which is the most 
recent information available, approximately 89 percent of California's 
walnut farms were smaller than 100 acres. Fifty-four percent were 
between 1 and 15 acres. A 100-acre farm with an average yield of 1.96 
tons per acre would have been expected to produce about 196 tons of 
walnuts during 2008-09. At $1,210 per ton, that farm's production would 
have had an approximate value of $237,000. Assuming that the majority 
of California's walnut farms are still smaller than 100 acres, it could 
be concluded that the majority of the growers had receipts of less than 
$237,000 in 2008-09. This is well below the SBA threshold of $750,000; 
thus, the majority of California's walnut growers would be considered 
small growers according to SBA's definition.
    According to information supplied by the industry, approximately 
one-half of California's walnut handlers shipped merchantable walnuts 
valued under $7,000,000 during the 2008-09 marketing year and would 
therefore be considered to be small handlers according to the SBA 
definition. The firm that currently inspects and certifies shelled 
walnuts before manufacturing would likely be considered a large 
agricultural business firm.
    This final rule amends Sec.  984.450 of the order's administrative 
rules and regulations by adding a new paragraph (c) that requires 
inspection and certification of shelled walnuts after manufacturing 
instead of before manufacturing, and establishes a process for 
specifying that walnut meal is derived from manufactured walnut pieces 
that have been inspected and certified to U.S. Commercial grade 
standards. This results in more efficient and cost-effective handler 
operations, and certifies the final size and grade of all manufactured 
walnut pieces. Authority for these changes is provided in Sec. Sec.  
984.50(d) and 984.52 of the order.
    Regarding the impact of the action on affected entities, this final 
rule should not impose any additional costs. It should reduce costs to 
handlers by streamlining and improving the production process. Handlers 
will no longer need to track lots of shelled walnuts through the 
manufacturing process in order to tie those original lots to the 
manufactured end products and meal. Handlers will be able to more 
easily manage inventory and production since they will no longer be 
required to manufacture an entire lot of shelled walnuts at one time in 
order to transfer the certificate number of the original lot to each 
end product and the meal. Since handlers will no longer be required to 
transfer certificate numbers from an entire lot of shelled walnuts to 
multiple manufactured end products, a portion of a lot could be held 
for manufacturing or remanufacturing at a later date.
    The potential for errors will be reduced under the proposed system 
because fewer certificate numbers will be transferred. Each end product 
will have its own certificate number, and the certificate number of the 
smallest end product will be referenced on the meal certificate for the 
meal that was accumulated during the same manufacturing process.
    Handler costs will also be reduced when customers require 
manufactured product to be certified to U.S. Commercial grade 
requirements since this will be automatically provided under the 
proposed regulations. Under the current system, if a customer requires 
this type of certification after manufacturing, handlers may pay 
additional fees if an inspector makes a special trip to perform a 
second inspection. If a DFA inspector is already onsite at a handler's 
facility, there is no additional charge for a second inspection. DFA 
charges $28.00 per hour with a four-hour minimum charge for a special 
visit to the handler's site, for a minimum total charge of $112 per 
visit.
    While discussing this change, the Board considered lab testing the 
meal as an alternative to transferring the inspection certificate 
number of the smallest manufactured end product to the meal. There is 
no U.S. Commercial grade standard for meal, so it is not currently 
possible to inspect and certify it as meeting a standard. Quality 
standards for meal would need to be developed in order to pursue this 
alternative. In addition, lab testing the meal could increase handler 
costs. This alternative would also cause a delay in shipping in order 
to allow time for lab testing, and this could adversely impact 
marketing efforts. As a result, lab testing of meal was not considered 
a viable alternative.
    This final rule will not impose any additional reporting or 
recordkeeping requirements on either small or large walnut handlers. As 
with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies.
    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.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this proposed rule.
    In addition, the Board's meeting on September 12, 2008, when this 
action was considered, was widely publicized throughout the walnut 
industry. This issue was also deliberated at a Grades and Standards 
Committee meeting on May 20, 2008; a Board meeting on May 28, 2008; and 
a Grades and Standards Committee work group meeting on September 2, 
2008. Like all Board meetings, these meetings were public meetings, and 
all interested persons were invited to attend the meetings and 
participate in deliberations on all issues. A proposed rule concerning 
this action was published in the Federal Register on June 21, 2010 (75 
FR 34950). Copies of the rule were mailed or sent via facsimile to all 
Board members and walnut handlers. Finally, the rule was made available 
through the Internet by USDA and the Office of the Federal Register. A 
15-day comment period ending July 6, 2010, was provided to allow 
interested persons to respond to the proposal.
    Two comments were received during the comment period in response to 
the proposal. Both comments were made in support of the proposal.
    Accordingly, no changes will be made to the rule as proposed, based 
on the comments received.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/AMSv1.0/ams.fetchTemplateData.do?template=TemplateN&page=MarketingOrdersSmallBusinessGuide. Any questions about the compliance guide should be sent to 
Antoinette Carter at the previously mentioned address in the FOR 
FURTHER INFORMATION CONTACT section.
    After consideration of all relevant matters presented, including 
the information and recommendation submitted by the Board and other 
available information, it is hereby found that this rule, as 
hereinafter set forth, will tend to effectuate the declared policy of 
the Act.

[[Page 51929]]

    It is further found that good cause exists for not postponing the 
effective date of this rule until 30 days after publication in the 
Federal Register (5 U.S.C. 553) because this rule should be in place 
for the upcoming marketing year, which begins September 1, 2010. 
Further, handlers are aware of this rule, which was recommended at a 
public meeting. Also, 15 days were provided for comments to the 
proposed rule.

List of Subjects in 7 CFR Part 984

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

0
For the reasons set forth in the preamble, 7 CFR part 984 is amended as 
follows:

PART 984--WALNUTS GROWN IN CALIFORNIA

0
1. The authority citation for 7 CFR part 984 continues to read as 
follows:

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


Sec.  984.450  [Amended]

0
2. Section 984.450 is amended by revising the first sentence in 
paragraph (a) and adding a new paragraph (c) to read as follows:


Sec.  984.450  Grade and size regulations.

    (a) Minimum kernel content requirements for inshell walnuts for 
reserve disposition credit. For purposes of Sec. Sec.  984.54 and 
984.56, no lot of inshell walnuts may be held, exported, or disposed of 
for use by governmental agencies or charitable institutions unless it 
meets the minimum requirements for merchantable inshell walnuts 
effective pursuant to Sec.  984.50(a). * * *
* * * * *
    (c) Inspection and certification of shelled walnuts that are 
manufactured into products. For purposes of Sec. Sec.  984.50(d) and 
984.52(c), shelled walnuts may be cut or diced without prior inspection 
and certification: Provided, That the end product, except for walnut 
meal, is inspected and certified. For purposes of this section, end 
product shall be defined as walnut pieces equal to or larger than eight 
sixty-fourths of an inch in diameter. Walnut meal shall be defined as 
walnut pieces smaller than eight sixty-fourths of an inch in diameter.
    (1) End product. End product must be sized, inspected and 
certified, and the size must be noted on the inspection certificate. 
The end product quality must be equal to or better than the minimum 
requirements of U.S. Commercial grade as defined in the United States 
Standards for Shelled Walnuts (Juglans regia).
    (2) Walnut meal. Walnut meal that is accumulated during the cutting 
or dicing of shelled walnuts to create end product must be presented 
with the smallest end product from that manufacturing run that is 
inspected and certified. If the end product meets the applicable U.S. 
Commercial grade requirements, the walnut meal accumulated during the 
manufacture of that end product shall be identified and referenced on a 
separate meal certificate as ``meal derived from walnut pieces that 
meet U.S. Commercial grade requirements.'' The certificate number of 
the smallest end product will be referenced on the meal certificate.
    (3) Failed lots. If the end product fails to meet applicable U.S. 
Commercial grade requirements, the end product may be reconditioned, 
re-sampled, inspected again, and certified. However, the walnut meal 
accumulated during the manufacture of that end product shall be 
rejected and disposed of pursuant to the requirements of Sec.  984.64.

    Dated: August 17, 2010.
Rayne Pegg,
Administrator, Agricultural Marketing Service.
[FR Doc. 2010-21010 Filed 8-23-10; 8:45 am]
BILLING CODE 3410-02-P