[Federal Register Volume 80, Number 208 (Wednesday, October 28, 2015)]
[Proposed Rules]
[Pages 66372-66412]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27098]



[[Page 66371]]

Vol. 80

Wednesday,

No. 208

October 28, 2015

Part IV





Department of Agriculture





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Agricultural Marketing Service





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7 CFR Part 986





Pecans Grown in the States of Alabama, Arkansas, Arizona, California, 
Florida, Georgia, Kansas, Louisiana, Missouri, Mississippi, North 
Carolina, New Mexico, Oklahoma, South Carolina, and Texas; Recommended 
Decision and Opportunity To File Written Exceptions to Proposed 
Marketing Agreement and Order No. 986; Proposed Rule

  Federal Register / Vol. 80 , No. 208 / Wednesday, October 28, 2015 / 
Proposed Rules  

[[Page 66372]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 986

[Docket No. AO-FV-15-0139; AMS-FV-15-0023; FV15-986-1]


Pecans Grown in the States of Alabama, Arkansas, Arizona, 
California, Florida, Georgia, Kansas, Louisiana, Missouri, Mississippi, 
North Carolina, New Mexico, Oklahoma, South Carolina, and Texas; 
Recommended Decision and Opportunity To File Written Exceptions To 
Proposed Marketing Agreement and Order No. 986

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule and opportunity to file exceptions.

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SUMMARY: This Recommended Decision proposes the issuance of a marketing 
agreement and order (order) under the Agricultural Marketing Agreement 
Act of 1937 to cover pecans grown in the states of Alabama, Arkansas, 
Arizona, California, Florida, Georgia, Kansas, Louisiana, Missouri, 
Mississippi, North Carolina, New Mexico, Oklahoma, South Carolina, and 
Texas. The proposed order would provide authority to collect industry 
data and to conduct research and promotion activities. In addition, the 
order would provide authority for the industry to recommend grade, 
quality and size regulation, as well as pack and container regulation, 
subject to approval by the Department of Agriculture (USDA). The 
program would be financed by assessments on pecan handlers and would be 
locally administered, under USDA oversight, by a Council of seventeen 
growers and shellers (handlers) nominated by the industry and appointed 
by USDA. This rule also announces the Agricultural Marketing Service's 
intention to request approval by the Office of Management and Budget of 
new information collection requirements to implement this program.

DATES: Written exceptions must be filed by November 27, 2015. Pursuant 
to the Paperwork Reduction Act, comments on the information collection 
burden must be received by December 28, 2015.

ADDRESSES: Four copies of all written exceptions should be filed with 
the Hearing Clerk, U.S. Department of Agriculture, Room 1031-S, 
Washington, DC 20250-9200, Facsimile number (202) 720-9776. All 
comments should reference the docket number and the date and page 
number of this issue of the Federal Register. Comments will be made 
available for public inspection in the Office of the Hearing Clerk 
during regular business hours, or can be viewed at: http://www.ams.usda.gov/fv/moab.html.

FOR FURTHER INFORMATION CONTACT: Melissa Schmaedick, Marketing Order 
and Agreement Division, Rulemaking Branch, Specialty Crops Program, 
Agricultural Marketing Service (AMS), USDA, Post Office Box 1035, Moab, 
UT 84532, telephone: (202) 557-4783, fax: (435) 259-1502; or Michelle 
P. Sharrow, Marketing Order and Agreement Division, Rulemaking Branch, 
Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., Stop 
0237, Washington, DC 20250-0237; telephone: (202) 720-2491, fax: (202) 
720-8938. Small businesses may request information on this proceeding 
by contacting Jeff Smutny, Marketing Order and Agreement Division, 
Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., Stop 
0237, Washington, DC 20250-0237; telephone: (202) 720-2491, fax: (202) 
720-8938.

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding: Notice 
of Hearing issued on June 26, 2015, and published in the July 2, 2015, 
issue of the Federal Register (80 FR 38021).
    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

    Notice is hereby given of the filing with the Hearing Clerk of this 
Recommended Decision with respect to the proposed marketing agreement 
and order regulating the handling of pecans grown in the states of 
Alabama, Arkansas, Arizona, California, Florida, Georgia, Kansas, 
Louisiana, Missouri, Mississippi, North Carolina, New Mexico, Oklahoma, 
South Carolina, and Texas.
    This Recommended Decision is issued pursuant to the provisions of 
the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 
601-674), hereinafter referred to as the ``Act,'' and the applicable 
rules of practice and procedure governing the formulation of marketing 
agreements and orders (7 CFR part 900). The proposed marketing order is 
authorized under section 8(c) of the Act.
    The proposed marketing agreement and order are based on the record 
of a public hearing held July 20 through July 21, 2015, in Las Cruces, 
New Mexico; July 23 through July 24, 2015, in Dallas, Texas; and, July 
27 through July 29, 2015, in Tifton, Georgia.
    The hearing was held to receive evidence on the proposed marketing 
order from growers, handlers, and other interested parties located 
throughout the proposed production area. Notice of this hearing was 
published in the Federal Register on July 2, 2015.
    A request for public hearing on the proposed program was submitted 
to USDA on May 22, 2015, by the American Pecan Board (Board), a 
proponent group established in 2013 to represent the interests of 
growers and handlers throughout the proposed fifteen-state production 
area. A subsequent, modified draft of the proposed regulatory text was 
submitted on June 10, 2015.
    Witnesses at the hearing explained that the provisions of this 
proposal aim to assist the industry in addressing a number of 
challenges, namely: a lack of organized representation of industry-wide 
interests in a single organization; a lack of accurate data to assist 
the industry in its analysis of production, demand and prices; a lack 
of coordinated domestic promotion or research; and a forecasted 
increase in production as a result of new plantings. Witnesses believed 
that these factors combined have resulted in the under-performance of 
the pecan industry compared to other nut industries.
    At the conclusion of the hearing, the Administrative Law Judge 
fixed August 31, 2015, as the final date for interested persons to file 
proposed findings and conclusions or written arguments and briefs based 
on the evidence received at the hearing. That date was subsequently 
extended to September 9, 2015, at the request of USDA and the Board. 
One brief was filed on behalf of the Board in support of the proposed 
program and its provisions. The brief also recommended certain changes 
in the regulatory text of the proposed order as a result of the public 
hearing sessions held in Las Cruces, New Mexico, from July 20 through 
July 22, 2015; Dallas, Texas, from July 23 to July 24, 2015; and 
Tifton, Georgia, from July 27 through July 29, 2015. These changes are 
discussed as appropriate later in this document.

Material Issues

    The material issues presented on the record of hearing are as 
follows:
    1. Whether the handling of pecans produced in the proposed 
production area is in the current of interstate or foreign commerce or 
directly burdens, obstructs, or affects such commerce;
    2. Whether the economic and marketing conditions are such that they 
justify a need for a Federal marketing agreement and order which would 
tend

[[Page 66373]]

to effectuate the declared policy of the Act;
    3. What the definition of the production area and the commodity to 
be covered by the order should be;
    4. What the identity of the persons and the marketing transactions 
to be regulated should be;
    5. What the specific terms and provisions of the order should be, 
including:
    (a) The definitions of terms used therein which are necessary and 
incidental to attain the declared objectives and policy of the Act and 
order;
    (b) The establishment, composition, maintenance, procedures, powers 
and duties of an administrative Council for pecans that would be the 
local administrative agency for assisting USDA in the administration of 
the order;
    (c) The authority to incur expenses and the procedure to levy 
assessments on handlers to obtain revenue for paying such expenses;
    (d) The authority to conduct research and promotion activities;
    (e) The authority to recommend grade, quality and size regulation, 
as well as pack and container regulation, for pecans grown and handled 
in the proposed production area;
    (f) The establishment of requirements for handler reporting and 
recordkeeping;
    (g) The requirement for compliance with all provisions of the order 
and with any regulation issued under it;
    (h) An exemption for handlers of non-commercial quantities of 
pecans;
    (i) The requirement for periodic continuance referenda; and
    (j) Additional terms and conditions as set forth in Sec.  986.88 
through Sec.  986.93, and Sec.  986.97 through Sec.  986.99 that are 
common to marketing agreements only.

Findings and Conclusions

    The following findings and conclusions on the material issues are 
based on the record of the hearing.

Material Issue Number 1--Whether the Handling of Pecans Grown in 
Alabama, Arkansas, Arizona, California, Florida, Georgia, Kansas, 
Louisiana, Missouri, Mississippi, North Carolina, New Mexico, Oklahoma, 
South Carolina, and Texas is in the Current of Interstate or Foreign 
Commerce

    The record indicates that the handling of pecans grown in the 
proposed production area is in the current of interstate or foreign 
commerce or directly burdens, obstructs or affects such commerce.
    Witnesses testifying at the hearing stated that the proposed 
production area covers all known commercial production of pecans. The 
proposed production area would include the states of Alabama, Arkansas, 
Arizona, California, Florida, Georgia, Kansas, Louisiana, Missouri, 
Mississippi, North Carolina, New Mexico, Oklahoma, South Carolina, and 
Texas.

Domestic Utilization

    The record shows that domestic utilization of pecans has remained 
relatively constant at an average of 136 million shelled pounds per 
year, or just below one half pound per person, over the past 10 years.
    While the record indicates that U.S. utilization of pecans is 
predominant in the states where they are produced, pecans are shipped 
throughout the country. Witnesses stated that domestic prices of pecans 
are impacted by supply and demand within the pecan industry and that 
demand for pecans in one part of the U.S. influences the pecan market 
price throughout the market.
    Witnesses explained that shipments of pecans between handlers 
within the production area are common. For example, pecans produced in 
the eastern part of the production area may be bought by a sheller who 
operates in the central or western parts of the production area. These 
pecans may be shelled to create whole meats or pieces, which may then 
be sold to pecan ingredient users in yet another part of the production 
area or outside thereof.
    One witness gave the example of pecan pieces used by the 
confectionary industry. If demand increased for pecan pieces for candy 
makers located outside of the production area, the price for pieces to 
satisfy that demand will rise throughout the pecan industry, regardless 
of where the pecans are sourced from within the production area.
    According to the record, because of the movement of pecans both 
within and outside of the production area, the pricing between regions 
is often correlated or interdependent.

Exports and Imports

    The record states that the U.S. is the world leader in both 
production and export of pecans. The record also shows that export 
markets are increasingly important to pecan growers and handlers, with 
exports averaging 27 percent of total U.S. supply between 2009 and 2013 
compared to averaging 12 percent of total supply between 1991 and 1995 
(shelled basis).
    The U.S. primarily exports to China with an annual average of 23.7 
million inshell pounds per year between 2009 and 2013. The other main 
importers of U.S. inshell pecans are Vietnam and Mexico with 5.87 
million pounds and 7.47 million pounds, respectively, during the same 
time period. China, Vietnam and Mexico together comprise roughly 95 
percent of the total U.S. inshell pecan exports.
    Main importers of U.S. shelled pecans are Canada, the Netherlands, 
the United Kingdom, Israel and Mexico, who have imported in aggregate 
57.7 million inshell pounds on average over the same 2009 to 2013 time 
period.
    While the U.S. is generally a net exporter of pecans, the trade 
balance in pecans is negative with Mexico. United States imports of 
pecans are sourced almost exclusively from Mexico (over 99 percent of 
the total imports), with an average of 50 million pounds per year in 
the period between 2010 and 2014. During this period, roughly half of 
the imports were inshell pecans with the balance being shelled.
    Witnesses explained that demand for pecan exports directly impacts 
pecan prices in the domestic market. Chinese markets typically demand 
larger, inshell pecans, which are given as gifts during the Chinese New 
Year celebration or otherwise symbolize health and longevity. The 
increase in Chinese demand for pecans has resulted in a correlated 
increase in prices for larger, inshell pecans paid to U.S. pecan 
producers.
    Moreover, the increasing export demand for pecans in general has 
impacted U.S. grower prices as more of total supply is directed out of 
the domestic market. Witnesses representing pecan sheller interests at 
the hearing explained that tighter supply of pecans in the domestic 
market can cause pecan prices to increase. However, these witnesses 
also explained that, due to a general lack of accurate production and 
cold storage data, price instability can be attributed to both 
increased export demand and the industry's inability to identify total 
supply. The lack of accurate industry data is further explored in 
Material Issue 2.
    Evidence presented at the hearing confirmed that any handling of 
pecans in market channels, including intrastate shipments, exerts an 
influence on all other handling of such pecans. Several witnesses 
stated that a high price of pecans in the export market results in a 
higher price for pecans in the domestic market. Similarly, the market 
price for pecans shipped to states outside the production area impact 
market prices in producing states. Given the amount of shipments 
between handlers within the production area (for example, the movement 
of inshell pecans to shellers

[[Page 66374]]

between regions or from shellers to pecan ingredient users), the 
pricing between regions also has a market impact. Thus, it is concluded 
that the handling of pecans grown in the proposed production area is in 
the current of interstate and foreign commerce and directly affects 
such commerce.

Material Issue Number 2--The Need for a Pecan Marketing Order

    The record evidence demonstrates that there is a need for a 
marketing order for pecans grown and handled in Alabama, Arkansas, 
Arizona, California, Florida, Georgia, Kansas, Louisiana, Missouri, 
Mississippi, North Carolina, New Mexico, Oklahoma, South Carolina, and 
Texas.
    A summary of the challenges addressed by witnesses testifying in 
favor of the proposed program includes: A lack of organized 
representation of industry-wide interests in a single organization; a 
lack of accurate data to assist the industry in its analysis of 
production, demand and prices; a lack of coordinated domestic promotion 
or research; and a forecasted increase in production as a result of new 
plantings.
    Proponents of the proposed program believe that these above-
mentioned factors have resulted in the under-performance of the pecan 
industry compared to other nut industries. They further believe that 
the proposed program would increase demand, stabilize grower prices, 
create sustainable margins, and provide a consistent supply of quality 
pecans for consumers.
    According to the record, the proposed order would provide authority 
to collect industry data and to conduct research and promotion 
activities. In addition, the order would provide authority for the 
industry to recommend grade, quality and size regulation, as well as 
pack and container regulation, subject to approval by USDA.

Need for Industry Organization

    According to the record, there is currently no single organization 
that represents both pecan grower and handler interests industry-wide. 
There are two state pecan commissions (Georgia and Texas), ten state 
producer organizations, one national growers' association, and one 
national shellers' association. Witnesses from many of the state grower 
organizations explained that their activities primarily relate to 
grower education outreach within their respective areas. Witnesses from 
the two state commissions explained that assessments collected under 
those programs were used to support generic funding for pecans produced 
in the respective states, as well as to fund some research.
    Witnesses from the national growers' association explained that the 
organization's primary focus is to promote U.S. pecan sales to foreign 
markets through USDA's Foreign Agricultural Service's Market Access 
Program. However, that organization also provides some support services 
to growers, such as information on Federal crop insurance and other 
government assistance programs. Lastly, the national growers' 
association also represents grower interests to government 
policymakers.
    Witnesses from the national shellers' association described their 
organization's role as educating culinary and health professionals, 
food technologists and the general public about the nutritional 
benefits and uses of pecans. Additionally, the organization represents 
sheller interests in the handling and preparing of product for pecan 
ingredient users, improving handling and food safety technologies, and 
working with food product developers to identify new uses for pecans. 
Lastly, the national shellers' association also represents sheller 
interests to government policymakers.
    Witnesses from the above-described organizations all stated that 
the proposed program would not duplicate or adversely affect their 
efforts and that an organization representing the industry as a whole 
would complement their efforts. These proponents explained that the 
proposed program would unify and represent industry interests through a 
coordinated selection of industry representatives to act and manage 
program activities on the industry's behalf. Moreover, these witnesses 
explained that the program's activities should include the hiring of a 
full-time professional staff to: Develop a comprehensive, professional 
marketing strategy; collect, assemble, and inform the industry with 
predictable supply numbers as a result of accurate data; and manage 
research and development projects focusing on disease and pest 
resistance, product development, and nutritional benefits of pecans.

Need for Data

    According to the record, the only regularly published data on pecan 
production, supply, demand and market price is compiled by USDA's 
National Agricultural Statistical Service. Some additional data is 
compiled by USDA's Economic Research Service and the Foreign 
Agricultural Service. However, while helpful in a general analysis of 
the pecan industry as a whole, many witnesses explained that the USDA 
information is not readily available when market decisions need to be 
made. Moreover, USDA data is not offered at a level of detail that is 
sometimes needed when making sales decisions.
    The U.S. pecan industry does not regularly compile its own data, 
and most data is reported on a voluntary basis. As a result, accurate 
market information is difficult for growers and handlers to obtain. 
Lack of timely information hampers both grower and handler decisions 
regarding pricing and available supply.
    According to the record, under the proposed program handlers would 
be required to file reports on volume handled, carryover inventories, 
and other data deemed to be important to the proposed Council's ability 
to analyze the pecan industry and market. The proposed Council would 
also be required to make crop reports to the USDA at least yearly. 
These reports would provide all parties with more reliable product 
data. Increased confidence in the data on pecans would benefit growers, 
handlers and consumers, leading to more accurate product pricing and 
better information regarding product supply and demand.
    Acreage of improved pecans throughout the proposed production area 
increased by 5 percent from just over 266,000 bearing acres in 2007 to 
approximately 279,300 bearing acres in 2012. During the same time 
period, the number of non-bearing acres of improved pecans (i.e., acres 
less than 7 years old, not yet in full production) increased by 10 
percent from 42,600 to approximately 46,860. Witnesses reported that 
new improved pecan plantings are being added each year, with 
significant production increases expected in the coming ten years. One 
witness estimated that the western region had added 15,000 to 20,000 
acres of improved pecans in the previous five years. The number of 
native and seedling acres has declined, but the upcoming significant 
increase in improved pecan production is expected to have a major 
impact on future market conditions.
    Witnesses stated that the additional production could potentially 
have a negative impact on price and be a challenge for the pecan 
industry in the coming years if no unified marketing efforts are made. 
They stated that future stability of market returns will likely be 
reliant on continually increasing consumer demand for pecans.
    Witnesses further stated that strong consumer demand, which is 
ultimately related to consumer perceptions of product quality, is 
essential to the

[[Page 66375]]

continued economic well-being of the pecan industry. Moreover, 
witnesses discussed the importance of implementing a marketing order 
program that would provide a regulatory structure to monitor and ensure 
that minimum quality standards are not compromised as pecan production 
increases.

Need for Promotion

    The record shows that generic promotion over a wide variety of 
agricultural products stimulates product demand and translates into 
higher prices for growers than would have been the case without 
promotion. Witnesses stated that the expected significant increase in 
production is one of the primary reasons for implementing a full-scale 
marketing program, with an emphasis on national generic promotion.
    Promotional impact studies of other tree nuts (almonds and walnuts) 
and of Texas pecans showed that 0 to 3 percent was a representative 
range of price increases from promotion. Since the other tree nut 
promotion programs are well-established, the record shows that a middle 
(most likely) scenario would be a price increase from promotion of 1.5 
percent for the early years of a new pecan promotion program. Based on 
a simulation of historical prices, and applying the 1.5 percent price 
impact, the projected increases in grower prices from promotion for 
improved and native/seedling pecans were 6.3 and 3.6 cents per pound, 
respectively, with a combined average of 5.7 cents. The weighted 
average was computed using a representative farm allocation of improved 
versus native/seedling pecans of 78 and 22 percent, respectively.
    The record shows that the proposed initial range of assessments per 
pound is 2 to 3 cents for improved pecans and 1 to 2 cents for native 
pecans. The midpoints of these ranges (2.5 and 1.5 cents, respectively) 
are used to compute a cost-benefit ratio from promotion, with a 
weighted average of 2.3 cents.
    Dividing the projected benefit of 5.7 cents per pound by the 
expected cost of 2.3 cents yields a cost-benefit ratio of approximately 
2.5. For each dollar spent on pecan promotion through a Federal 
marketing order, the U.S. average grower price per pound is expected to 
increase by $2.50.

Need for Research

    Research activities are currently conducted as funding is available 
by the independent organizations mentioned above with little 
coordination among projects. Witnesses cited a number of topics for 
research that would greatly benefit the pecan industry. One key issue 
was the need for more research on the nutritional and health benefits, 
such as impacts on cardiovascular disease and cancer. Pecan industry 
worker safety standards, including protection against dust particles, 
were also mentioned as topics for research that could be funded by the 
marketing order. Research topics cited by witnesses also included 
additional uses for pecans as ingredients, developing new pecan-
containing products, understanding consumer trends, and determining the 
most effective methods to market pecan products. Additional topics 
cited included crop-related research on tree yields and preventing the 
spread of the pecan weevil.

Need for Handling Regulation

    The relationship among product quality, consumer demand, and grower 
returns in the pecan industry was explained at the hearing.
    Proponents of the proposed order assert that poor quality pecans 
impact demand and the potential growth of demand for pecans. 
Characteristics routinely deemed as ``poor quality'' by witnesses 
testifying at the hearing include dark coloration and rancidity. 
Witnesses stated that the authority to implement grade and quality 
regulation under the proposed order would lead to a higher level of 
consistent, quality product in the market, increased consumer demand, 
and stabilized grower returns.
    Witnesses stated that when poor quality pecans reach certain 
consumers, they may cease buying pecan products. The way to minimize 
that outcome is to develop industry-wide minimum standards relating to 
size, color, rancidity and other characteristics. Improved quality 
standards and standardization of packaging can lead to higher quality 
products, with greater consistency, reaching store shelves and 
industrial (ingredient) users. The resulting increase in consumer 
confidence is the key to increasing demand as well as increasing and 
stabilizing grower returns, according to the record.

Stabilizing Grower Prices

Costs of Production

    According to the record, farming pecans is a costly investment with 
a significant delay in benefits and, when mature trees are in 
production, an unreliable crop yield. To remain economically viable, 
growers must maintain a level of return per pound harvested that covers 
their cost of production.
    Record evidence indicates that production costs can be divided into 
three categories: the orchard establishment costs, cultural costs, and 
administrative costs.
    Establishment costs, or the overall cost to develop and maintain an 
acre of pecans until revenue exceeds growing expenses, are estimated at 
between $1,938 and $2,560 per acre per year, not including equipment or 
land costs, with an average tree maturation period of 7 years. The 
range of establishment costs reflects the differing needs and input 
costs in the different regions (See Table 1). Establishment costs 
include the purchase of trees, installation of irrigation systems, and 
input costs (labor, pest and disease control, etc.) prior to the trees 
being mature enough to yield a full crop.
    Annual per acre cultural costs average between $1,479 and $2,478 
per acre per year once the trees are productive. Again, the range in 
cost reflects differences in regional production environments. Cultural 
costs include water, labor, fertilizer, pest and disease control, and 
harvesting expenses incurred on an annual, per acre basis once the 
orchard has been established and is producing a commercial crop.
    For the purpose of this Recommended Decision, administrative costs 
include equipment financing and insurance. Information gathered from 
witnesses indicates administrative costs are roughly $20,464 per year 
for a farm of 30 acres. Not included in this cost estimate is 
management labor or other related business expenses. Witnesses 
explained that this estimate would be applicable to orchards having 
between 30 and 80 acres operating as commercial producer businesses. 
Orchards of larger acreage would require greater investments in 
equipment and therefore have greater annual administrative costs.
    Witnesses speaking to the varying production costs offered the 
following figures divided generally between the Carolinas to east Texas 
and west Texas to California.

[[Page 66376]]



                                          Table 1--Costs of Production
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                   Orchard Establishment (not including land)
----------------------------------------------------------------------------------------------------------------
Carolinas to East-Texas                            West-Texas to California
----------------------------------------------------------------------------------------------------------------
Well & Pump.........................  $7,800-$34,000+.*         Well & Pump............  $7,800-$34,000+.*
Drip Irrigation.....................  $800/acre.                Irrigation.............  $75/acre.
Equipment...........................  $513,000.*                Equipment..............  $513,000.*
Trees...............................  $580/acre.                Trees..................  $580/acre.
Fertilizer, Pest, Disease, Weed       $287/acre.                Fertilizer, Pest,        $605-$1055/acre.
 Control.                                                        Disease, Weed Control.
Labor, Fuel, Repairs................  $271/acre.                Labor, Fuel, Repairs...  $336.58/acre.
----------------------------------------------------------------------------------------------------------------
Sample Total........................  $1,938/acre + $520,800-   Sample Total...........  $2,110-$2,560/acre +
                                       >$547,000 Equipment &                              $520,800->$547,000
                                       Well.*                                             Equipment & Well.*
----------------------------------------------------------------------------------------------------------------
                                          Cultural Costs (annual/acre)
----------------------------------------------------------------------------------------------------------------
Fertilizer, Pest, Disease, Weed       $555-$650/acre.           Fertilizer, Pest,        $605-$1,055/acre.
 Control.                                                        Disease, Weed Control.
                                      ........................  Water..................  $325-375/acre.
Labor, Fuel, Repairs, Maint.........  $430/acre.                Labor, Fuel, Repairs...  $337.
Hedging.............................  $40-50.                   Hedging................  $140.
Harvest.............................  $454.                     Harvest................  $580.
----------------------------------------------------------------------------------------------------------------
Sample Total........................  $1,479-$1,584.            Sample Total...........  $1,987-$2,487.
----------------------------------------------------------------------------------------------------------------
                                        Administrative Costs ** (annual)
----------------------------------------------------------------------------------------------------------------
Equip Interest......................  $17,955.                  Equip Interest.........  $17,955.
Equip Insurance.....................  $2,507.                   Equip Insurance........  $2,507.
----------------------------------------------------------------------------------------------------------------
Sample Total........................  $20,464.                  Sample Total...........  $20,464.
----------------------------------------------------------------------------------------------------------------
* Not including interest.
** Not including management pay.

    In order to recover these investment costs and annual expenditures, 
growers need to sell their crop at a price that covers production cost. 
To understand the extent to which growers have positive revenue, or 
conversely, are losing money on their pecan operations, Table 2 
presents grower prices that can be used to compare grower revenue to 
grower costs. The table shows the six most recent years of U.S. season 
average grower price data, which covers both improved and native/
seedling pecans for all of the U.S. from 2009 to 2014. The third row is 
a computation of weighted average price, combining both categories of 
pecan varieties. As mentioned in the previous section on the Need for 
Promotion, the weighted averages were computed using a representative 
farm allocation of improved versus native/seedling pecans of 78 and 22 
percent, respectively.

               Table 2--U.S. Season Average Grower Prices (2009-2014) and Computed Weighted Prices
----------------------------------------------------------------------------------------------------------------
                                        2009         2010         2011         2012         2013         2014
----------------------------------------------------------------------------------------------------------------
Improved *........................        $1.53        $2.49        $2.59        $1.73        $1.90        $2.12
Native/seedling *.................         0.93         1.58         1.61         0.88         0.92         0.88
Weighted average of improved and           1.40         2.29         2.38         1.54         1.68         1.85
 native/seedling prices **........
----------------------------------------------------------------------------------------------------------------
* Price data NASS/USDA.
** Indicates the computed price using weights for improved and native/seedling pecans of 78% and 22%,
  respectively, which is the acreage allocation of a representative U.S. pecan farm, according to the record.

    The weighted average prices also appear in Table 3 below. The 
purpose of the table is to compare grower revenues and grower costs 
using alternative scenarios of yields per acre. Witnesses reported that 
an average yield that represents all states, and both improved and 
native/seedling varieties, is 1,666.67 pounds per acre. That yield 
level appears in Table 3 as the middle (most likely) scenario figure of 
1,667 pounds. The two alternative scenario yields (1,300 and 2,000 
pounds) are approximately 20 percent above and below, respectively, the 
most likely scenario.
    Gross revenue per acre in Table 3 is annual average price for each 
year multiplied by the three alternative yield levels.
    In addition to the three yield levels, Table 3 also presents three 
alternative levels of grower costs. Analyses of variable costs per acre 
entered into the record ranged from approximately $1,500 to $2,500, so 
these levels were used as the low and high variable cost scenarios; the 
midpoint of that range is included as the middle scenario.
    A fixed cost per acre estimate of $600 was also entered into the 
record. Adding $600 to the three alternative variable costs yields 
three total cost per acre scenarios: $2,100, $2,600 and $3,100.
    With three levels each of yield and total cost of production, Table 
3 shows

[[Page 66377]]

nine rows of net revenue estimates (gross revenue minus total cost). 
Positive values mean that growers with pecan farms with the 
corresponding level of yield and total costs are making money. Negative 
net revenue per acre means that grower costs exceed grower revenue from 
the sale of pecans.
    The scenarios in Table 3 demonstrate that many pecan growers have 
faced difficult financial circumstances in four of the last six years. 
In two years of high prices (2010 and 2011), there was positive net 
revenue per acre in nearly every scenario, except in the highest cost 
and lowest yield. During the other four years, however, there are a 
number of cells with negative net revenue figures. Looking at the most 
likely yield scenario (1,667 pounds) and the alternative cost levels 
for the year 2013 provides a useful look at potential farm financial 
conditions. The 2013 weighted average grower price of $1.68 is close to 
the average of the most recent three years: $1.69 for 2012 to 2014. 
With the $2,100 cost scenario, net revenue per acre for 2013 is $707. 
When the cost rises to $2,600 per acre in the middle scenario, net 
revenue falls to $207. With costs at $3,100, net revenue per acre turns 
negative (-$293). Since this example is a ``middle scenario,'' many 
growers are better off than illustrated by this example, but many are 
also in worse financial condition.

  Table 3--Gross and Net Revenue per Acre of Pecans at Alternative U.S. Average Yields, Based on Weighted U.S.
                                    Annual Average Grower Prices (2009-2014)
----------------------------------------------------------------------------------------------------------------
                                        2009         2010         2011         2012         2013         2014
----------------------------------------------------------------------------------------------------------------
                                                                  Dollars per pound
----------------------------------------------------------------------------------------------------------------
Price *...........................        $1.40        $2.29        $2.38        $1.54        $1.68        $1.85
                                   -----------------------------------------------------------------------------
Yield ** lbs/acre.................           Grower Gross Revenue *** at Alternative Yields, $ per Acre
                                   -----------------------------------------------------------------------------
1,300.............................        1,818        2,977        3,088        2,006        2,190        2,403
1,667.............................        2,331        3,816        3,958        2,571        2,807        3,080
2,000.............................        2,798        4,580        4,750        3,086        3,369        3,696
                                   -----------------------------------------------------------------------------
                                           (Variable plus fixed costs: $1,500 + $600 = $2,100 Total Cost)
                                   -----------------------------------------------------------------------------
                                          2,100        2,100        2,100        2,100        2,100        2,100
                                   -----------------------------------------------------------------------------
                                                Grower Net Revenue at Alternative Yields, $ per Acre
                                   -----------------------------------------------------------------------------
1,300.............................         -282          877          988          -94           90          303
1,667.............................          231        1,716        1,858          471          707          980
2,000.............................          698        2,480        2,650          986        1,269        1,596
                                   -----------------------------------------------------------------------------
                                           (Variable plus fixed costs: $2,000 + $600 = $2,600 Total Cost)
                                   -----------------------------------------------------------------------------
                                          2,600        2,600        2,600        2,600        2,600        2,600
                                   -----------------------------------------------------------------------------
                                                Grower Net Revenue at Alternative Yields, $ per Acre
                                   -----------------------------------------------------------------------------
1,300.............................         -782          377          488         -594         -410         -197
1,667.............................         -269        1,216        1,358          -29          207          480
2,000.............................          198        1,980        2,150          486          769        1,096
                                   -----------------------------------------------------------------------------
                                           (Variable plus fixed costs: $2,500 + $600 = $3,100 Total Cost)
                                   -----------------------------------------------------------------------------
                                          3,100        3,100        3,100        3,100        3,100        3,100
                                   -----------------------------------------------------------------------------
                                                Grower Net Revenue at Alternative Yields, $ per Acre
                                   -----------------------------------------------------------------------------
1,300.............................       -1,282         -123          -12       -1,094         -910         -697
1,667.............................         -769          716          858         -529         -293          -20
2,000.............................         -302        1,480        1,650          -14          269          596
----------------------------------------------------------------------------------------------------------------
* Weighted averages, combining season average grower prices for improved and native/seedling.
** Based on record evidence, 1,666.67 pounds is a representative estimate of average yield per acre across all
  states and regions, including improved and native/seedling pecans. The range of alternative yields is
  approximately 20 percent above and below, rounded to the nearest hundred.
*** Gross Revenue per acre is annual average price multiplied by alternative yields per acre without subtracting
  costs. Net Revenue is Gross Revenue minus Total Cost. A negative net revenue value means that grower cost
  exceeds grower revenue from the sale of pecans.

    Witnesses pointed out that without an improved, full-scale national 
marketing program in the face of increased future production, prices 
would remain volatile, and there could be a number of future years 
where grower prices will be as low as those experienced in 2012 ($1.54) 
and in 2009 ($1.40), with corresponding negative net revenue for many 
growers.
Qualified Grower
    ``Grower'' should be defined to identify those persons who are 
eligible to vote for, and serve as, grower members and alternate 
members of the council and those who are eligible to vote in any 
referendum. The term should mean any person engaged within the 
production area in a proprietary capacity in the commercial production 
of pecans.
    Witnesses stated that the minimum size of a commercial grower is 30 
acres and a representative average yield across the entire production 
area is

[[Page 66378]]

1,666.67 pounds per acre. This combination of acreage and yield results 
in a minimum threshold level of commercial production of approximately 
50,000 pounds. Witnesses stated that expenditures for the minimum level 
of inputs required for commercial pecan production cannot be justified 
for any operation smaller than this. Any smaller operation is 
considered a ``hobby farmer.''
    Given the record evidence outlined above, the term ``grower'' 
should mean any person engaged within the production area in a 
proprietary capacity in the production of pecans. ``Proprietary 
capacity'' would include scenarios in which the grower owns an orchard 
and harvests its pecans for sale (even if a custom harvester is used) 
or in which the grower is a lessee of a pecan orchard and has the right 
to sell the harvest (even if the lessee must remit a percentage of the 
crop or rent to a lessor). The definition of ``grower'' should also 
stipulate that, for the purpose of eligibility to participate in grower 
referenda, in nomination votes, and to serve as Council members, 
qualified growers should produce a minimum of 50,000 pounds of inshell 
pecans during a representative period (average of four years) or own a 
minimum of 30 pecan acres. In measuring acres of native pecan trees, 
the USDA's Farm Service Agency definition should be used (see Material 
Issue 5(a)). The proposed Council should also have the authority to 
recommend changes to this definition subject to the approval of the 
Secretary. In all cases, the term ``grower'' is synonymous with the 
term ``producer.''
    As a conforming change to the addition of a new Sec.  986.10, 
Cracks, discussed below, the proposed section number for the definition 
of ``grower'' has changed from Sec.  986.16 to Sec.  986.17 and is 
incorporated into the proposed regulatory text of this Recommended 
Decision.
    The record further supports that each business unit (such as a 
corporation or partnership) should be considered a single grower and 
should have a single vote in nomination proceedings and referenda. The 
term ``grower'' should include any person who owns or shares in the 
ownership of pecans. For example, a person who rents land and produces 
pecans resulting in that person's ownership of all or part of the 
pecans produced on that land would be considered a grower.
    Also, any person who owns land, which that person does not farm 
but, as rental for such land, obtains ownership of a portion of the 
pecans produced thereon, should be regarded as a grower for that 
portion of the pecans received as rent. The tenant on such land should 
be regarded as a grower for the remaining portion produced on such 
land.
    A joint venture is one whereby several persons contribute resources 
to a single endeavor to produce and market a pecan crop. In such 
venture, one party may be the farmer who contributes one or more 
factors, such as labor, time, production facilities or cultural skills, 
and the other party may be a handler who contributes money and 
cultural, harvesting, and marketing supervision. Normally, a husband 
and wife operation would be considered a partnership. Any individual, 
partnership, family enterprise, organization, estate, or other business 
unit currently engaged in the production of pecans for market would be 
considered a grower under the proposed order and would be entitled to 
vote in referenda and council nominations. Each party would have to 
have title to at least part of the crop produced, electing its 
disposition, and receiving the proceeds there from. This control would 
come from owning and farming land producing pecans, payment for farming 
services performed, or a landlord's share of the crop for the use of 
the producing land. A landlord who only receives cash for the land 
would not be eligible to vote. A business unit would be able to cast 
only one vote regardless of the number and location of its orchards, 
but each legal entity would be entitled to one vote.
    Evidence presented at the hearing supports a Federal marketing 
order for pecans grown in Alabama, Arkansas, Arizona, California, 
Florida, Georgia, Kansas, Louisiana, Missouri, Mississippi, North 
Carolina, New Mexico, Oklahoma, South Carolina, and Texas. In view of 
the foregoing, and based on the record of the proceeding, it is 
concluded that current economic and marketing conditions justify a need 
for a marketing order for pecans. The order would meet many needs of 
the industry and would tend to effectuate the declared policy of the 
Act.

Material Issue Number 3--Definition of Pecan and Production Area

    Definitions of the terms ``pecan'' and ``production area'' should 
be included in the order to delineate the commodity and the area that 
would be regulated under the provisions of the proposed program.

Pecans

    According to the record, the term ``pecan'' should be defined to 
include any and all varieties or subvarieties of the tree Genus: Carya, 
Species: Illinoensis, also referred to as Carya illinoinensis (syn. C. 
illinoenses). The term ``varieties'' should mean and include all 
cultivars, classifications, or subdivisions of Carya illinoinensis. The 
record clarifies that trees classified as ``Hicans'' should not be 
included among the varieties of Carya illinoinensis. Instead, the term 
``Hican'' refers to a tree resulting from a cross between a pecan and 
some other type of hickory (also members of the genus Carya) or the nut 
from such a hybrid tree and the product of that tree. Hican production 
would not be regulated under the proposed order. As a conforming change 
to the addition of a new Sec.  986.10, Cracks, discussed below, the 
proposed section number for the definition of ``pecan'' has changed 
from Sec.  986.28 to Sec.  986.29 and is incorporated into the proposed 
regulatory text of this Recommended Decision.
    The pecan (Carya illinoinensis) is a perennial tree native to North 
America and produced extensively throughout the southern region of the 
USA and the northern portion of Mexico. One witness reported that a 
pecan tree can produce for over 300 years.

Native and Improved Pecans

    Record evidence explains that there are two broad categories of 
pecans: ``native or seedling'' and ``improved.'' Native pecans are 
pecan varieties that are harvested and sold from non-grafted or 
naturally propagated trees. Native groves are typically found along 
rivers and in alluvial bottomlands and are randomly spaced, depending 
upon soils and topography. Native pecans are grown primarily in the 
states of Arkansas, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, 
and Texas. According to the record, a native tree can take ten to 
twelve years to produce.
    Improved pecans are pecan varieties bred or selected for superior 
traits of nut size, ease of shelling, production characteristics, and 
resistance to certain insects and diseases. Improved orchards are 
intentionally planted trees grafted to rootstock in rows with uniform 
tree spacing. The NASS definition of improved varieties is ``budded, 
grafted, or top-worked.'' According to the record, the first grafted 
trees were sold in the 1880s, followed by growth in the commercial 
planting of improved varieties in the early 1900s. There are hundreds 
of pecan varieties around the world which can be classified as native 
or improved varieties; however, most of the horticulture advances have 
taken place in commercial orchards producing improved varieties. 
According to the record, the most common varieties of

[[Page 66379]]

improved pecans currently in production include but are not limited to: 
Desirable, Elliot, Forkert, Sumner, Creek, Excel, Gloria Grande, Kiowa, 
Moreland, Sioux, Mahan, Mandan, Moneymaker, Morrill, Cunard, Zinner, 
Byrd, McMillan, Stuart, Pawnee, Eastern and Western Schley, Wichita, 
Success, Cape Fear, Choctaw, Cheyenne, Lakota, Kanza, Caddo, and 
Oconee.
    Witnesses explained that two additional varieties, the Gracross and 
the Gratex, should also be included in the list of commonly produced 
varieties even though they were not included in the proposed language 
published in the Notice of Hearing. The Board recommended adding both 
Gracross and Gratex to the list of varieties included in the renumbered 
Sec.  986.29(a)(2), the proposed classification of improved varieties 
under the definition of ``pecan.'' This modification has been 
incorporated into the proposed regulatory text of this Recommended 
Decision.
    While the list of improved varieties proposed to be included into 
the proposed definition of pecan is non-exhaustive, proponents stated 
that the introduction of future improved varieties would take 
considerable time to breed and develop into commercial production. 
Witnesses did state, however, that the authority to add new varieties 
to the improved list would be important in order for the definition of 
pecan to remain current with industry practices.
    Witnesses evaluated the production of pecans in the U.S. separately 
for native and improved varieties. Record evidence indicates that over 
the past 10 years, production from improved varieties has increased, 
while the production from the native varieties has remained stagnant. 
Production from improved varieties was, on average, 225 million pounds 
per year from 2005 to 2014, representing 81 percent of total 
production. Native pecan production in the same period was 52 million 
pounds, which represents 19 percent of total production.
    According to USDA data, total U.S.-utilized production of inshell 
pecans increased 10 percent on average each year from 2005 to 2014. 
Production of improved varieties increased more than 12 percent, while 
production of natives increased 8 percent on average over the same ten-
year time period.
    From 2005 to 2014, prices for improved variety pecans fell four 
percent on average each year, while prices for native pecans remained 
relatively stagnant, increasing by less than one percent each year.
    On average, U.S. crop value for native and improved varieties of 
pecans was nearly $464 million per year from 2005 to 2014. Of that 
total, 88 percent was improved with more than $409 million in crop 
value, and 12 percent was native with a crop value of almost $55 
million. Growth in production of both native and improved varieties 
from 2005 to 2014 increased total crop value 9 percent on average each 
year.

Substandard Pecans

    A third classification of ``pecan'' is included in proposed Sec.  
986.29: Substandard pecans. Witnesses explained that this 
classification is intended to capture pecans that are identified as 
being of an inferior quality yet, with further handling, would have 
market value. Witnesses described some of the inferior traits of 
substandard pecans to include those that are lightweight or 
underdeveloped or those whose outer shuck has adhered to the shell.
    According to the record, pecans that are underdeveloped and yield 
smaller nut meats should be defined as ``blowouts.'' This term 
describes the process of running inshell pecans through forced-air 
tubes to separate fully developed nuts from underdeveloped nuts. Fully 
developed nuts are heavier than the underdeveloped nuts. Therefore, the 
culled underdeveloped nuts ``blow out'' of the air tubes in the process 
of separation. The term ``blowout'' is defined in proposed Sec.  986.4.
    Witnesses further explained that pecans that are presented to the 
handler with the outer shuck adhered to the shell are also considered 
inferior due to the additional work required to remove the outer layer. 
These nuts are commonly referred to as ``stick-tights'' and fetch a 
lower value than pecans that are free of their outer hull. The proposed 
definition of ``stick-tight'' as published in the Notice of Hearing was 
identified as Sec.  986.37. However, as a conforming change to the 
addition of a new Sec.  986.10, Cracks, described below, the proposed 
section number for the definition of ``stick-tight'' has changed from 
Sec.  986.37 to Sec.  986.38 and is incorporated into the proposed 
regulatory text of this Recommended Decision.
    Section 986.9 of the Notice of Hearing included a definition for 
``crack or cracks'' that read as follows: ``Crack means to break, 
crack, or otherwise compromise the outer shell of a pecan so as to 
expose the kernel inside to air outside the shell. Cracks refer to an 
accumulated group or container of pecans that have been cracked in 
harvesting or handling.'' However, according to record evidence, the 
terms ``crack'' and ``cracks'' are not used interchangeably. The former 
is a verb that describes an action taken either accidentally during 
harvest or purposefully in the handling process. The latter term 
``cracks'' refers to a group of pecans that have either been damaged 
during harvest or have intentionally had their shells opened in the 
handling process.
    Witnesses further explained that cracks that occur naturally or 
during harvest are considered of lesser value as the outer shell has 
been compromised and may have resulted in exposure to dirt or insects. 
For this reason, ``cracks'' are also included in the list of 
substandard pecan attributes. However, these cracks are different from 
intentional ``cracks'' produced in a handling facility.
    In order to clarify the difference between ``crack'' and 
``cracks,'' the Board recommended separating the definition Sec.  986.9 
published in the Notice of Hearing into two definitions. This 
modification has been incorporated into the proposed regulatory text of 
this Recommended Decision at Sec.  986.9.

Production Area

    The term ``production area'' should be defined to mean the states 
of Alabama, Arkansas, Arizona, California, Florida, Georgia, Kansas, 
Louisiana, Missouri, Mississippi, North Carolina, New Mexico, Oklahoma, 
South Carolina, and Texas. The record shows that the production area 
defined in the proposed order is the major pecan producing area in the 
United States. As a conforming change to the addition of a new Sec.  
986.10, Cracks, the proposed section number for the definition of 
``production area'' has changed from Sec.  986.30 to Sec.  986.31 and 
is incorporated into the proposed regulatory text of this Recommended 
Decision.
    Witnesses testifying at the hearing stated that 100 percent of the 
pecans produced in the United States are grown in the fifteen-state 
area. Witnesses explained that while pecan trees may be found growing 
outside of these fifteen states, commercial production from those trees 
would be highly unlikely. Climate factors would prohibit them from 
consistently yielding commercially viable crops. For example, pecan 
trees are found growing as far north as the state of Illinois, but the 
cooler temperatures in that state compared to the southern U.S. states 
prevent the trees' production cycle from producing nuts that are 
commercially viable. The nuts produced would be fewer in volume and 
yield a smaller meat,

[[Page 66380]]

thereby making commercial production less viable.

Regions

    The record supports dividing the production area into three 
regions, where ``region'' would be defined to mean each geographic 
subdivision of the proposed production area described in the marketing 
order. The regional delineations would be important for the purposes of 
Council nominations of grower and sheller Council members who would 
represent the interests of their geographic peers.
    According to the hearing record, the production area should be 
divided into three regions, each representing roughly one third of 
total domestic production. These regions are: The Eastern Region, 
consisting of Alabama, Florida, Georgia, North Carolina, South 
Carolina; the Central Region, consisting of Arkansas, Kansas, 
Louisiana, Mississippi, Missouri, Oklahoma, Texas; and the Western 
Region, consisting of Arizona, California, New Mexico.
    Witnesses testifying in support of the proposed regional boundaries 
and the authority of the Council to propose changes to those 
boundaries, if approved by the Secretary, noted that the proposed 
language published in the Notice of Hearing included a reference to 
``district.'' As a clarifying change, the Board recommends replacing 
the word ``district'' with the word ``region'' in the first sentence of 
paragraph Sec.  986.32(b) so that the terminology is consistent. In 
addition, as a conforming change to the addition of a new Sec.  986.10, 
Cracks, the proposed section number for the definition of ``region'' 
has changed from Sec.  986.32 to Sec.  986.33 and is incorporated into 
the proposed regulatory text of this Recommended Decision.
    As the data given below indicates, overall production is 
concentrated in three states, one in each region: Georgia, New Mexico, 
and Texas, with 32 percent, 22 percent and 18 percent of the total U.S. 
production of pecans, respectively. A similar distribution of shares of 
production holds for improved variety pecans. Improved varieties are 
produced in all three regions.
    As previously mentioned, total production is relatively evenly 
distributed across the three regions of the production area. The 
Eastern Region produces 36 percent of the nation's pecans, while the 
Central and Western Regions produce 32 and 31 percent, respectively. 
All three regions produce improved varieties of pecans, with 40 percent 
coming from the Eastern Region, 39 percent from the Western Region, and 
21 percent from the Central Region. As already noted, three states--one 
from each region--produce the highest volume of improved pecans. They 
are Georgia, New Mexico, and Texas with 36 percent, 28 percent, and 17 
percent, respectively, of the total improved variety production.
    Native variety production only occurs in the Central and Eastern 
Regions, however. The Central Region produces 81 percent of total 
native variety volume in the U.S., while the East produces 19 percent. 
The states of Oklahoma, Texas, and Louisiana in the Central Region 
together make up 72 percent of total native production. In the Eastern 
Region, Georgia produces 14 percent of the U.S. native crop.
    As stated earlier, improved varieties represent 88 percent of total 
crop value, and natives represent 12 percent. Crop value is divided 
fairly evenly among the three regions of the production area. The 
Eastern and Western Regions each represent 36 percent of total crop 
value, with the remaining 28 percent in the Central Region. Of improved 
variety crop value, the Western Region, Eastern Region, and Central 
Region represent 41, 38, and 21 percent, respectively. Together, 
Georgia, New Mexico, and Texas make up 81 percent of total crop value 
of improved varieties. Crop value of native varieties is concentrated 
in the Central Region, particularly in Texas, Oklahoma, and Louisiana 
with 26, 25, and 17 percent, respectively. Georgia, in the Eastern 
Region, represents 16 percent of native variety crop value as well.
    According to the record, farm sizes also differ by region. Evidence 
entered into the record indicates that less than 30 percent of the 
reported farms in the proposed production area have less than 50 acres 
under production. In the Central and Western regions, almost half of 
the farms have between 50 and 499 acres under production, but less than 
30 percent of the farms are this size in the East. The very large farms 
of 500 acres or more represent 23 percent, 28 percent and 44 percent of 
the acreage in the Central, Western, and Eastern regions, respectively, 
showing a higher concentration of large producers in the Eastern 
region.
    Witnesses testifying to regional differences in farm operations 
across the proposed production area stated that generally, in the 
Eastern Region and the eastern part of the Central Region, trees are 
planted at a range of 20 to 40 per acre. This is less dense than the 30 
to 50 trees per acre found in the western part of the Central Region 
and the Western Region.
    Horticultural practices also differ from east to west. Generally, 
in the Eastern Region and eastern part of the Central Region, insect 
and fungicide management are required while irrigation water is 
supplemental. In the Western Region and western part of the Central 
Region, pest management is less of a factor. Instead of irrigation many 
Western orchards use ``flooding'' by diverting nearby rivers or 
streams.
    The record shows that dividing the production area into the three 
above-described regions would provide for adequate grower 
representation on the Council.
    Allocation of grower membership among the regions would be based, 
in large part, on the relative levels of acreage and production among 
the regions, as well as the number of growers in each of the regions. 
Furthermore, the regional allocation identifies three distinct areas 
having unique combinations of farm size and distribution, cultural 
practices, and production challenges. By allocating membership 
representation on the proposed Council by region, future grower and 
sheller members will be able to represent the individual concerns of 
their area and peers. Allocation of grower membership among the regions 
is discussed further under material issue 5(b).

Reapportionment and Redefining of Regions

    Testimony indicated that authority should be provided to allow the 
Council to recommend to USDA the redefining of regional boundaries and 
reapportionment of grower and sheller membership among the regions. 
This would allow changes in grower and sheller representation on the 
Council to reflect any future shifts in pecan acreage and production 
within the production area.
    For these reasons, witnesses testified in support of including the 
authority to reestablish regional boundaries as part of the proposed 
program. Any changes to the regions would require a recommendation of 
the Council, and approval by USDA through the rulemaking process. 
Authority for reallocation of grower and sheller membership among the 
regions is included in the proposal. This authority would allow the 
Council to recommend changes to regional representation in the number 
of members if production were no longer equally distributed among 
regions and regional boundaries were not changed. Both the authority 
for redefining of regions and reallocation were supported by witnesses 
explaining the need for the proposed order to have the flexibility to 
accommodate future changes in the industry.

[[Page 66381]]

    Section 986.59 was entitled ``reapportionment and redistricting'' 
in the regulatory text of the Notice of Hearing. USDA recommends 
modifying the section heading for Sec.  986.58 by removing the term 
``redistricting'' and replacing it with ``redefining of regions.'' This 
modification reflects the usage of the term ``region'' throughout the 
proposed regulatory text, and the absence of the term ``district.'' 
This modification has been included in the proposed regulatory text of 
this Recommended Decision.

Smallest Practicable Area

    The Act requires that marketing orders be limited in their 
application to the smallest regional production area found practicable. 
For the reasons given above, including the movement of pecans between 
growers and handlers of different regions and the interdependency of 
pecan prices among the states included in the proposed production area, 
it is concluded that the proposed production area meets the smallest 
practicable area requirement of the Act. A production area covering 
pecans grown in the states of Alabama, Arkansas, Arizona, California, 
Florida, Georgia, Kansas, Louisiana, Missouri, Mississippi, North 
Carolina, New Mexico, Oklahoma, South Carolina, and Texas under the 
proposed order is consistent with carrying out the declared policy of 
the Act and, therefore, should be defined as hereinafter set forth.

Material Issue Number 4--Definition of Handler and Handle

    The term ``handler'' should be defined to identify the persons who 
would be subject to regulation under the order. Such term should apply 
to any person who handles pecans within the production area or places 
pecans in the current of commerce within the production area or in the 
current of commerce between the production area and any point outside 
thereof. A handler could be an individual, a joint venture, 
partnership, corporation, or other business entity.
    This term is further defined in the proposed order as the person 
who would be responsible for paying assessments and submitting reports 
and other information required for the administration of the proposed 
program. As a conforming change to the addition of a new Sec.  986.10, 
Cracks, the proposed section number for the definition of ``handler'' 
has changed from Sec.  986.18 to Sec.  986.19 and is incorporated into 
the proposed regulatory text of this Recommended Decision.
    The term ``handle'' should be defined in the order to establish the 
specific functions that would place pecans in the current of commerce 
within the production area, or between the production area and any 
point outside thereof, and to provide a basis for determining which 
functions are subject to regulation under the authority of the proposed 
marketing order.
    According to the record, ``handle'' should be defined to mean: To 
receive, shell, crack, accumulate, warehouse, roast, pack, sell, 
consign, transport, export, or ship (except as a common or contract 
carrier of pecans owned by another person), or in any other way to put 
inshell or shelled pecans into any and all markets in the stream of 
commerce either within the area of production or from such area to any 
point outside thereof. Again, as a conforming change to the addition of 
a new Sec.  986.10, Cracks, the proposed section number for the 
definition of ``handle'' has changed from Sec.  986.19 to Sec.  986.20 
and is incorporated into the proposed regulatory text of this 
Recommended Decision.
    Witness testimony generally describes the handling process as 
beginning with the receipt of inshell pecans that have been harvested 
either by the grower or by a custom harvester on the grower's behalf. 
Receipt of pecans can be at a handler's facility or at an accumulator's 
collection point. ``Accumulator,'' defined as a person who compiles 
inshell pecans from other persons for the purpose of resale or 
transfer, often operates as a collection point for smaller volumes of 
pecans being delivered on an ad hoc basis. These deliveries can be from 
smaller producers, individuals with producing pecan trees in their 
yard, or from individuals that collect pecans from untended orchards. 
Accumulators typically accrue these smaller deliveries to compile into 
larger lots for sale to larger handlers, including shelling facilities 
and exporters. The term ``accumulator'' is defined in proposed Sec.  
986.1 of this order.
    According to the record, commercial growers generally sell their 
product directly to handlers, including shellers. In this scenario, 
pecans can either be cleaned by the grower prior to delivery or cleaned 
by the handler after receipt. If a grower operation is large enough to 
cover the cost of operating cleaning equipment, the harvest will be 
cleared of debris and substandard pecans to determine volumes of 
improved and native pecans prior to transfer to a handler for sale. The 
sale of pre-cleaned pecans is referred to as ``grower-cleaned 
production'' in the proposed order. As a conforming change to the 
addition of a new Sec.  986.10, Cracks, the proposed section number for 
the definition of ``grower-cleaned production'' has changed from Sec.  
986.17 to Sec.  986.18 and is incorporated into the proposed regulatory 
text of this Recommended Decision.
    Alternatively, ``handler-cleaned production'' is production that is 
received, purchased or consigned from a grower by a handler prior to 
processing through a cleaning plant. Once received by the handler, the 
pecans are processed through a cleaning plant so as to determine 
volumes of improved pecans, native and seedling pecans, and substandard 
pecans. As a conforming change to the addition of a new Sec.  986.10, 
Cracks, the proposed section number for the definition of ``handler-
cleaned production'' has changed from Sec.  986.21 to Sec.  986.22 and 
is incorporated into the proposed regulatory text of this Recommended 
Decision.
    According to the record, shelling is an important handling activity 
as it provides the consumer and the ingredient industry with a readily-
useable pecan product. As such, the term ``sheller'' should be defined 
as a person or business that converts inshell pecans to shelled pecans 
for the purpose of placing shelled pecans, or ``pecan meats,'' into the 
stream of commerce.
    As discussed in Material Issue 5b, ``sheller'' should also be 
defined as those persons who are eligible to vote for, and serve as, 
sheller members and alternate members on the Council. In order to 
fulfill the eligibility requirements of a sheller member, witnesses 
stated that the term ``sheller'' should only include those who shell 
more than 1 million pounds of inshell pecans in a fiscal year. 
Witnesses explained that the proposed 1 million pound threshold 
delineates a commercial shelling operation from smaller operations used 
for personal use or by a larger grower that also shells. As a 
conforming change to the addition of a new Sec.  986.10, Cracks, the 
proposed section number for the definition of ``sheller'' has changed 
from Sec.  986.35 to Sec.  986.36 and is incorporated into the proposed 
regulatory text of this Recommended Decision.
    The proposed order also includes proposed definitions for inshell 
and shelled pecans. These definitions were identified as Sec.  986.23 
and Sec.  986.36, respectively, in the Notice of Hearing. As a 
conforming change to the addition of a new Sec.  986.10, Cracks, the 
proposed section numbers for these definitions are changed to Sec.  
986.24 and Sec.  986.37, respectively. These changes are incorporated 
into the proposed

[[Page 66382]]

regulatory text of this Recommended Decision.
    As discussed in Material Issue 5(e) below, the proposed order would 
include the authority for the Council to recommend handling regulation. 
If the order were implemented and handling regulation effectuated, all 
pecans grown and handled within the proposed production area would be 
subject to mandatory compliance. According to the record, pecans 
subject to handling regulation would be referred to as ``merchantable 
pecans'' or pecans meeting the minimum grade requirements implemented 
under proposed Sec.  983.69. Witnesses explained that minimum grade 
requirements could be implemented for both inshell and shelled pecans. 
The proposed definition for merchantable pecans was identified as Sec.  
986.26 in the Notice of Hearing. However, as a conforming change to the 
addition of a new Sec.  986.10, Cracks, the proposed section number for 
the definition of ``merchantable pecans'' has changed from Sec.  986.26 
to Sec.  986.27 and is incorporated into the proposed regulatory text 
of this Recommended Decision.
    In further discussing the need for the proposed definition of 
``merchantable pecans,'' witnesses explained the need for accurate 
industry data. As further discussed in Material Issue 5(f), the 
proposed order includes handler reporting provisions for handler 
receipts, inventory, and merchantable pecans, among other information. 
This data would allow the Council to calculate production and supply of 
pecans in the market. However, in order to arrive at an accurate 
calculation of the above, witnesses explained the need to capture the 
loss of pecan volume between the volume of cleaned pecans and those 
meeting any regulation in effect. Witnesses referred to this loss of 
volume as ``disappearance'' and recommended that the term be defined.
    As defined in Sec.  986.12 of the Notice of Hearing, the term 
disappearance means ``the difference between the sum of grower-cleaned 
production and handler-cleaned production'' and the sum of 
``merchantable pecans and merchantable equivalent of shelled pecans.'' 
Witnesses clarified that in the absence of handling regulation, 
disappearance would be zero.
    Record evidence also indicates that the calculation of 
``disappearance'' should be on an inshell basis. The phrase 
``merchantable equivalent of shelled pecans'' at the end of this 
proposed definition is unclear given the proposed definition of 
``merchantable'' does not factor in equivalency between inshell and 
shelled. USDA recommends further modifying the definition of 
``disappearance'' by replacing the phrase ``the sum of available supply 
of merchantable pecans and merchantable equivalent of shelled pecans'' 
with ``the sum of inshell and shelled merchantable pecans reported on 
an inshell weight basis.'' This modification has been incorporated into 
the proposed regulatory text of this Recommended Decision. Also, as a 
conforming change to the addition of a new Sec.  986.10, Cracks, the 
proposed section number for the definition of disappearance has changed 
from Sec.  986.12 to Sec.  986.13 and is incorporated into the proposed 
regulatory text of this Recommended Decision.
    According to the record, the term ``pack'' should be included as a 
handling activity and should be defined to mean clean, grade, or 
otherwise prepare pecans for market as inshell or shelled pecans. 
Witnesses explained that this term is often used as a general reference 
to handling activities. As a conforming change to the addition of a new 
Sec.  986.10, Cracks, the proposed section number for the definition of 
pack has changed from Sec.  986.27 to Sec.  986.28 and is incorporated 
into the proposed regulatory text of this Recommended Decision.
    Record evidence indicates that pecans are customarily traded among 
handlers. As further discussed in Material Issue 5(c), trade among 
handlers predominantly occurs as a means for individual handlers to buy 
or sell pecans to meet the specific needs of their respective 
customers. Witnesses also explained that some handlers are better 
equipped than others to handle pecans that require additional work, 
such as substandard pecans or pecans that require shelling or roasting.
    According to the record, ``inter-handler transfer'' should be 
defined to mean the movement of inshell pecans from one handler to 
another inside the proposed production area for the purpose of 
additional handling. Witnesses further clarified that if pecans are 
transferred from one handler to another, any assessments due or 
compliance with any handling requirement that may be in effect under 
the proposed order could be assumed by the receiving handler.
    The proposed definition of ``inter-handler transfer'' was published 
as Sec.  986.25 in the Notice of Hearing. As a conforming change to the 
addition of a new Sec.  986.10, Cracks, the proposed section number for 
the definition of ``inter-handler transfer'' has changed to Sec.  
986.26 and is incorporated into the proposed regulatory text of this 
Recommended Decision.
    The record shows that all of these activities, from initial receipt 
of the pecans at the handling facility, to final packaging of the 
product, should be included in the definition of ``handle.'' These 
activities were identified as those necessary to prepare pecans for 
entering the stream of commerce and, as such, should be included in the 
definition of the process that makes a person a ``handler'' and, thus, 
subject to regulation under the proposed order.
    In addition, the hearing record indicates that placing pecans into 
the current of commerce from within the production area to points 
outside thereof for the purpose of hulling and drying, further 
processing, or exporting would also constitute handling. In such cases, 
the individual responsible for placing pecans into the current of 
commerce, even if it is initially the grower, would be considered a 
handler and would be subject to the provisions of the proposed order.

Material Issue Number 5(a)--Other Definitions

    Certain terms should be defined for the purpose of specifically 
designating their applicability and limitations whenever they are used 
in the order. According to the record, these include the following:
    ``Act'' should be defined as the Agricultural Marketing Agreement 
Act of 1937, as amended (7 U.S.C.. 601-674). This is the statute under 
which the proposed regulatory program would be operative, and this 
definition avoids the need to refer to the citation throughout the 
order.
    According to record evidence, ``affiliation'' should be defined, as 
it is important within the context of proposed eligibility requirements 
for Council members and their alternates. Witnesses explained that 
``affiliation'' should be defined to mean a person who is: A grower or 
handler that directly, or indirectly through one or more 
intermediaries, owns or controls, or is controlled by, or is under 
common control with the grower or handler specified; or a grower or 
handler that directly, or indirectly through one or more 
intermediaries, is connected in a proprietary capacity, or shares the 
ownership or control of the specified grower or handler with one or 
more other growers or handlers. According to the hearing record, the 
term ``control'' should be further defined to mean ``the possession, 
direct or indirect, of the power to direct or cause the direction of 
the management of policies of a handler or a grower whether through 
voting securities, membership in a cooperative, by contract or 
otherwise.''

[[Page 66383]]

    Witnesses explained that this definition of ``affiliation'' is 
proposed to ensure that persons who are in business together as 
handlers or growers are limited in their representation on the 
administrative Council. The record evidence is that the membership of 
the Council should be representative of the industry as a whole. No one 
group of people who share common business interests should be able to 
gain control of Council decision making. To accomplish this goal, the 
order should limit the number of positions the members of any one 
affiliated group could hold.
    The term ``affiliation'' should be defined broadly so that it 
encompasses the many different relationships through which people have 
common business interests.
    Witnesses at the hearing gave several examples to illustrate their 
view of how this limitation on Council membership should work. In the 
case of a corporate handler, all of its shareholders should be 
considered an affiliated group because they would be connected in a 
proprietary capacity and share in the ownership and control of the 
corporate handler. In this scenario, the shareholders and employees of 
the corporation would be limited to one handler member on the Council; 
they could not hold both handler positions. If the corporation was also 
a pecan grower, a grower member could also represent the affiliated 
group. In no case could more than two Council members represent that 
affiliated group.
    According to the record, the term ``to certify'' means the issuance 
of a certification of inspection of pecans by the inspection service. 
Witness testimony explained that this term would be relevant in the 
context of grade, size, or quality regulation that may become effective 
under the proposed order and the need for handlers to have their 
product inspected as to meeting those requirements. If regulation were 
implemented, inspection and certification would be required of handlers 
handling product grown within the production area. This term is 
revisited under the discussion of Material Issue 5(e).
    ``Confidential data or information'' should be defined to mean 
reports and records furnished or submitted by handlers to the Council 
which include data or information constituting trade secrets or 
disclosing the trade position, financial condition, or business 
operations of a particular handler or its customers. This term is 
relevant to proposed Sec.  986.81 pertaining to disclosure of handler 
information. The confidentiality requirements in that provision of the 
order, discussed under Material Issue 5(f), are consistent with those 
contained in the Act.
    According to the record, ``container'' should be defined to include 
a box, bag, crate, carton, package (including retail packaging), or any 
other type of receptacle used in the packaging or handling of pecans. 
Witness testimony explained that this term would become relevant in the 
context of pack and container regulation that may become effective 
under the proposed order. Witnesses discussed the potential need to 
standardize consumer packaging or bulk, wholesale containers for 
pecans. Standardized bulk or wholesale containers would provide for 
consistency and ease of wholesale price comparison between handlers. 
Consumer packaging could also become standardized to include improved 
packing material developed to prolong freshness or pecan quality.
    ``Council'' should be defined to mean the administrative Council, 
which would be established pursuant to the proposed provisions of Sec.  
986.45. The Act authorizes USDA to appoint an agency or agencies to 
assist in the administration of a marketing order program. This 
definition would identify the agency to locally administer the proposed 
pecan order. The Council would be comprised of nine pecan growers, six 
shellers, one at-large accumulator member, and one public member. The 
establishment of a Council would be important to ensure representation 
of the industry and consumers to USDA.
    ``Department'' or ``USDA'' should be defined to mean the United 
States Department of Agriculture, which is the governmental body 
responsible for oversight of Federal marketing orders and agreements. 
This definition allows the usage of the USDA acronym or reference to 
the USDA as the Department throughout the language of the proposed 
order. As a conforming change to the addition of a new Sec.  986.10, 
Cracks, the proposed section number for the definition of 
``Department'' or ``USDA'' has changed from Sec.  986.11 to Sec.  
986.12 and is incorporated into the proposed regulatory text of this 
Recommended Decision.
    Farm Service Agency should be defined to mean that agency of the 
USDA. This definition also allows the usage of the FSA acronym 
throughout the language of the proposed order. The FSA is important in 
the context of the term ``pecan acres,'' as identified in newly 
numerated Sec.  986.17, as it is the USDA agency responsible for 
defining appropriate definitions of pecan acres for native pecan 
orchards that do not organize their pecan trees in intentional rows. As 
a conforming change to the addition of a new Sec.  986.10, Cracks, the 
proposed section number for the definition of ``Farm Service Agency'' 
has changed from Sec.  986.13 to Sec.  986.14 and is incorporated into 
the proposed regulatory text of this Recommended Decision.
    ``Fiscal year'' should be defined to mean the period beginning on 
October 1 and ending on September 30 of each year or such other period 
as may be recommended by the Council and approved by the Department. 
This period starts roughly one month prior to the beginning of the 
harvest season for pecans and would prescribe the period of conduct for 
the Council's administrative activities, such as preparing an annual 
budget of expenses and accounting for receipts and expenditures of 
funds. As a conforming change to the addition of a new Sec.  986.10, 
Cracks, the proposed section number for the definition of ``fiscal 
year'' has changed from Sec.  986.14 to Sec.  986.15 and is 
incorporated into the proposed regulatory text of this Recommended 
Decision.
    According to the record, ``grade and size'' means the official 
grades of pecans and the official sizes of pecans as set forth in the 
United States Standards for Grades of Pecans in the Shell (1976) and 
United Stated Standards for Shelled Pecans (1969). Moreover, grade and 
size could refer to any future regulation recommended by the Council 
and approved by the Secretary. Witnesses explained that the authority 
to recommend such regulation under the proposed order would be 
important in updating the current U.S. grade standards. The U.S. grade 
standards were established in the late 1960s and early 1970s and are no 
longer reflective of grade and size terms currently used by the pecan 
industry. This authority to recommend grade and size regulation is 
further discussed in Material Issue 5(e). As a conforming change to the 
addition of a new Sec.  986.10, Cracks, the proposed section number for 
the definition of ``grade and size'' has changed from Sec.  986.15 to 
Sec.  986.16 and is incorporated into the proposed regulatory text of 
this Recommended Decision.
    The term ``handler inventory'' should mean all pecans, shelled or 
inshell, as of any date and wherever located within the production 
area, held and owned by a handler. Witnesses explained that collecting 
data regarding handler inventory, especially at the end of a fiscal 
year, is important to the industry's ability to assess the total amount 
of pecans available in the market. Handler

[[Page 66384]]

inventory, which was also referred to as ``carry-in inventory'' by some 
witnesses, refers to handler-warehoused pecans from one fiscal year 
into the next. Data on handler inventory is essential to the industry's 
ability to estimate prices for the upcoming crop. Witnesses stated 
that, out of all data, the lack of accurate handler inventory data is 
detrimental to understanding market trends within the pecan industry. 
As a conforming change to the addition of a new Sec.  986.10, Cracks, 
the proposed section number for the definition of ``handler inventory'' 
has changed from Sec.  986.20 to Sec.  986.21 and is incorporated into 
the proposed regulatory text of this Recommended Decision.
    ``Inspection service'' should be defined to mean any inspection 
service authorized or approved by the USDA to inspect pecans. This term 
would be used in connection with any mandatory grade, size, or quality 
requirements that may be implemented under the proposed order. The 
inspection service would be responsible for inspecting and certifying 
that pecans meet the requirements of the order.
    The record shows that the Federal or Federal-State Inspection 
Service would be designated as the agency responsible for conducting 
these activities. However, to provide maximum flexibility, the order 
should provide that any inspection service so authorized or approved by 
the Department may perform these functions. As a conforming change to 
the addition of a new Sec.  986.10, Cracks, the proposed section number 
for the definition of ``inspection service'' has changed from Sec.  
986.24 to Sec.  986.25 and is incorporated into the proposed regulatory 
text of this Recommended Decision.
    According to record evidence ``person'' should be defined to mean 
an individual, partnership, corporation, trust, association, or any 
other business unit. This definition is consistent with the definition 
contained in the Act. As a conforming change to the addition of a new 
Sec.  986.10, Cracks, the proposed section number for the definition of 
``person'' has changed from Sec.  986.29 to Sec.  986.30 and is 
incorporated into the proposed regulatory text of this Recommended 
Decision.
    ``Proprietary capacity'' should be defined to mean the capacity or 
interest of a grower or handler that, either directly or through an 
intermediary, is a property owner together with the rights of an owner, 
including the right to vote the interest in that capacity as an 
individual, shareholder, member of a cooperative, partner, trustee, or 
in any other capacity with respect to any other business unit. As a 
conforming change to the addition of a new Sec.  986.10, Cracks, the 
proposed section number for the definition of ``proprietary capacity'' 
has changed from Sec.  986.31 to Sec.  986.32 and is incorporated into 
the proposed regulatory text of this Recommended Decision.
    Witnesses explained that this term is important to the proposed 
order and its provisions in that this language would make persons who 
are sharing ownership of a common business entity ``affiliated'' (see 
previous definition) for purposes of eligibility to serve on the 
Council. The term ``proprietary capacity'' is intended to imply 
ownership of a business as compared to an employee status only.
    According to the record, the term ``representative period'' should 
mean the previous four fiscal years for which a grower's annual average 
production is calculated. This term is relevant in the context of 
determining a grower's eligibility to participate in a grower 
referendum or to qualify as eligible to sit as a member or alternate 
member on the Council. Because of the cyclical production and yield 
nature endemic to pecans, proponents of the order stated that the 
average of four years of production data would be necessary in order to 
appropriately determine a grower's production yield. As a conforming 
change to the addition of a new Sec.  986.10, Cracks, the proposed 
section number for the definition of ``representative period'' has 
changed from Sec.  986.33 to Sec.  986.34 and is incorporated into the 
proposed regulatory text of this Recommended Decision.
    ``Secretary'' means the Secretary of Agriculture of the United 
States or any officer or employee of the United States Department of 
Agriculture who is, or who may hereafter be, authorized to act in the 
Secretary's stead. The term includes any other officer or employee of 
the United States Department of Agriculture who has been delegated or 
who may be delegated the authority to act on behalf of the Secretary. 
As a conforming change to the addition of a new Sec.  986.10, Cracks, 
the proposed section number for the definition of ``Secretary'' has 
changed from Sec.  986.34 to Sec.  986.35 and is incorporated into the 
proposed regulatory text of this Recommended Decision.
    ``Trade supply'' should mean the quantity of merchantable inshell 
or shelled pecans that growers will supply to handlers during a fiscal 
year for sale in the United States and abroad. Witnesses clarified 
that, in the absence of Sec.  986.69, setting forth minimum grade 
regulation for merchantable pecans, trade supply should be the sum of 
handler-cleaned production and grower-cleaned production. A revision to 
the definition of ``trade supply'' as published in the Notice of 
Hearing to include the above language was proposed by the Board. This 
change is reflected in the proposed order language included in this 
Recommended Decision. Moreover, as a conforming change to the addition 
of a new Sec.  986.10, Cracks, the proposed section number for the 
definition of ``trade supply'' has changed from Sec.  986.38 to Sec.  
986.39 and is also incorporated into the proposed regulatory text of 
this Recommended Decision.
    ``Unassessed inventory'' should mean inshell pecans held by growers 
or handlers for which no assessment has been paid to the Council. 
Witness testimony explained that this term is necessary in the context 
of both assessment collection and reporting requirements. As discussed 
under Material Issue 5(c), unassessed pecan inventory could be 
warehoused (defined below) by either a grower or a handler. If 
unassessed inventory is warehoused by a handler, on August 31 of any 
given fiscal year that inventory would be subject to assessment. This 
provision would allow for accurate recordkeeping and timely assessment 
collection for that fiscal year. If unassessed inventory is warehoused 
by a grower, that inventory would be assessed upon its receipt by a 
handler and would not be eligible to be transferred to a subsequent 
handler through an inter-handler transfer. As a conforming change to 
the addition of a new Sec.  986.10, Cracks, the proposed section number 
for the definition of ``unassessed inventory'' has changed from Sec.  
986.39 to Sec.  986.40 and is incorporated into the proposed regulatory 
text of this Recommended Decision.
    As discussed above, ``warehousing'' means to hold unassessed 
inventory. According to witness testimony, both growers and handlers 
may decide to hold inventory in storage rather than place product on 
the market. Witnesses explained that this practice is common when 
market prices are unstable immediately after harvest. By holding 
inventory until later in the season, a grower or handler may benefit 
from a more stable market or an increased market price due to perceived 
supply shortages.
    Witnesses also explained that warehoused inventory could refer to 
either assessed or unassessed inventory. A revision to the definition 
of ``warehousing'' as published in the Notice of Hearing to include 
assessed inventory was proposed by the Board. This change is reflected 
in the proposed

[[Page 66385]]

order language included in this Recommended Decision. Moreover, as a 
conforming change to the addition of a new Sec.  986.10, Cracks, the 
proposed section number for the definition of ``warehousing'' has 
changed from Sec.  from 986.41 to Sec.  986.42 and is incorporated into 
the proposed regulatory text of this Recommended Decision.
    ``Weight'' means pounds of inshell pecans, received by handler 
within each fiscal year. To convert the weight of shelled or kernel 
pecans into an equivalent inshell weight, the kernel weight would be 
multiplied by two. According to the record, the term weight would be 
used in the context of assessments, which would be calculated on the 
inshell weight handled by handlers. As a conforming change to the 
addition of a new Sec.  986.10, Cracks, the proposed section number for 
the definition of ``weight'' has changed from Sec.  986.42 to Sec.  
986.43 and is incorporated into the proposed regulatory text of this 
Recommended Decision.

Material Issue Number 5(b)--Administrative Council

    Pursuant to the Act, it is necessary to establish an agency to 
locally administer the order and to provide for effective and efficient 
function of its operation. The establishment and membership of an 
administrative Council is addressed in Sec. Sec.  986.45 and 986.46 of 
the proposed order.
    The hearing record shows that the Council should consist of 17 
members. Nine members should be growers, six members should be 
shellers, one member should be an at-large accumulator, and one member 
should be selected from the general public. Each member should have an 
alternate member who, possessing the same qualifications as the member, 
could serve in that member's place and stead in the event that the 
Council member could not fulfill his or her duties. Grower and sheller 
members and their alternates would be selected by the Secretary from 
nominees submitted by the Council. The two at-large seats would be 
nominated by the Council and appointed by the Secretary.

Allocation of Membership

    For the purpose of grower and sheller representation, the proposed 
order provides that the production area be divided into three regions 
(see Material Issue 3). The record indicates that grower representation 
from each region should be based, in large part, on the relative volume 
of production in each region. As such, witnesses testifying to the 
establishment of the administrative Council stated that each region 
should be allocated three grower seats and two sheller seats to 
represent the interests and needs of their respective region. This 
allocation equally distributes grower and sheller representation among 
the three proposed regions.
    Witnesses explained further that grower and sheller seats should be 
allocated such that small business entities are given the opportunity 
to represent their unique perspective within each region. To achieve 
this, witnesses explained that each region should have two grower seats 
allocated to growers whose acreage is equal to or exceeds 176 pecan 
acres. These seats should be referred to as Seat 1 and Seat 2. Each 
region should also have a grower Seat 3 allocated to a grower whose 
acreage does not exceed 176 pecan acres. Witnesses explained that the 
175 acre threshold is intended to delineate grower operations that are 
comparatively small to those above the threshold.
    It is important to note that the order language included in the 
Notice of Hearing defined grower Seat 3 as growers whose acreage does 
not exceed 175 pecan acres. Witnesses pointed out that this language 
left a gap in the seat definition for growers whose acreage fell 
between 175 and 176 acres. For example, would a grower who had 175.5 
acres be eligible to serve in grower Seats 1 and 2, or would he or she 
be eligible for grower Seat 3? To correct this oversight, the Board 
recommended changing the definition of grower Seat 3 to include growers 
whose acreage is less than 176 acres. This revision has been 
incorporated into the proposed order language of this Recommended 
Decision.
    To accommodate the smaller sheller operations, witnesses explained 
that each region should have one sheller seat (Seat 1) allocated to a 
sheller who handles more than 12.5 million pounds of inshell pecans and 
a second seat (Seat 2) allocated to a sheller who handles less than or 
equal to 12.5 million pounds of inshell pecans.
    According to the record, grower and sheller nominees and their 
alternates must be growers and shellers at the time of their nomination 
and must remain so for the duration of their tenure. If a member ceases 
to satisfy this requirement, he or she would be subject to the proposed 
terms of the eligibility and vacancy requirements under sections 986.48 
and 986.51, discussed below.

Council Nominations and Voting for Nominees

    In order for the proposed Council to function, a mechanism is 
required by which members and alternate members would be nominated by 
their peers and selected and appointed by the Secretary. Nomination 
procedures are set forth in the proposed provisions of Sec.  986.46.

Initial Council

    The proposed order provides that USDA would conduct nominations for 
initial grower and sheller members of the Council. It also states that 
the first nominees must meet the same qualifications as required for 
their successors. USDA would conduct the initial nominations of grower 
and sheller members and alternates only. The initial public member and 
alternate would be nominated by the industry members of the Council, as 
described later in this document.
    According to witness testimony, initial grower and sheller member 
nominations could be made either at industry meetings, by mail, or by 
email. Names of nominees would be submitted to USDA for inclusion on 
the nomination ballot on approved nomination forms. Witnesses explained 
that approved forms should include: The name of the nominated grower or 
sheller; the name and signature of the nominating grower or sheller; 
and two additional names and respective signatures of growers in 
support of the nomination or, in the case of a sheller nomination, one 
additional signature of a sheller. The names of additional supporters 
of the nominee are intended to ensure that any candidates put forward 
for consideration have a base of support prior to the nomination vote. 
In addition to this information, subject to the approval of the 
Secretary, the Council could require more information.
    Sample nomination forms, along with all of the other requisite 
forms needed for nomination and selection of the first Council, were 
submitted as evidence into the record for USDA consideration. These 
forms are further discussed under the Paperwork Reduction Act section 
of this Recommended Decision.
    While the Department would have discretion in determining a 
reasonable process to conduct initial Council nominations, witnesses 
stated that it would be preferable that the procedures provided in 
proposed Sec.  986.46(b) for identifying member and alternate nominees, 
casting nomination ballots, and the accounting thereof, be followed. 
Paragraph (b) of Sec.  986.46, which outlines the procedures for 
successor Councils, is discussed below.

Successor Councils

    The record evidence indicates that the Council staff should conduct 
subsequent nominations for grower and

[[Page 66386]]

sheller members of the Council. At the end of the first four-year term 
of the initial Council and in the nomination and selection of the 
second Council only, roughly half of the Council seats would be 
eligible for terms of two years while the remaining would be eligible 
for four years. Proponents of the order recommended this provision so 
that Council membership terms would be staggered. These witnesses 
stated that staggered terms would prevent the Council from potentially 
having a membership full of individuals unfamiliar with the working of 
the program. To initiate the staggered terms, Sec.  986.50(a) proposes 
that member and alternate seats assigned two-year terms for the seating 
of the second Council only shall be as follows:
    (1) Grower member Seat 2 in all regions shall be assigned a two-
year term;
    (2) Grower member Seat 3 in all regions shall, by drawing, identify 
one member seat to be assigned a two-year term; and,
    (3) Sheller Seat 2 in all regions shall be assigned a two-year 
term.
    The record evidence shows that grower and sheller member 
nominations for the Council would entail several steps.
    The first step would be a call for nominations. As mentioned above, 
names of nominees would be submitted to the Council for inclusion on 
the nomination ballot on approved nomination forms. If a grower or a 
sheller is engaged in business in more than one region, that grower or 
sheller would be nominated in the region in which they conduct the 
largest volume of their business. Witnesses explained that this 
requirement would ensure that peer growers and shellers are nominating 
individuals that represent the region in which the grower or sheller is 
most heavily vested. This would also prevent grower or sheller 
businesses from using their voting to influence Council representation 
in regions where they have relatively small portions of their business.
    The next step in the Council establishment process would be the 
placement of nominees on the nomination ballot and the voting for 
nominees by peers.

Grower Nominees

    Witnesses explained that individuals seeking candidacy for 
nomination to a grower seat would be required to designate the region 
in which they seek nomination and substantiate their qualification as a 
grower, or designated representative of a grower, in that region. 
However, testimony also clarified that the order would not require that 
the candidate be a resident of that region. Witnesses explained that it 
would not be reasonable to impose such a requirement since not all 
growers live in the same region in which they produce pecans. Such a 
residency requirement would, therefore, preclude a number of pecan 
growers from being able to serve on the Council.
    Record evidence states that only growers would be qualified to 
serve as grower members and to participate in the nomination of grower 
members and their alternates. A grower can be a corporation, 
partnership, limited liability company, trust or other legal entity, as 
well as a sole proprietorship owned by an individual. Owners of pecan 
orchards could designate an officer or employee to seek membership and 
to cast the votes on their behalf. As proposed, officers and employees 
would not include professional farm managers who perform farm 
management services for a number of different growers without being an 
employee or an officer of the grower. The intent is to limit those 
eligible to serve as grower members to persons who are involved, either 
as a grower with a proprietary interest in the pecan industry or an 
employee working in the industry for a grower.
    Once nominee candidates are identified as being eligible, the 
Council would mail nomination information to all growers who are on 
record with the Council. Nomination information would include official 
nomination ballots indicating the nominees for each of the three grower 
member seats in that region, along with voting instructions. Growers 
would then cast ballots at either meetings of growers, by mail, or by 
email, as designated by the Council.
    On the ballot, growers would indicate their nomination for the 
grower seats and also indicate their average annual volume of inshell 
pecan production for the preceding four fiscal years.
    Each grower would be entitled to cast one vote, either in person or 
through an authorized officer or employee, for each grower member 
position to be filled in his or her region. A grower would only be able 
to cast his or her vote in the region in which that grower produces 
pecans. If the grower were engaged in producing pecans in more than one 
region, then the grower would need to select a region in which to 
participate as a nominee and/or as a voter. As discussed above, record 
evidence shows that the grower would cast his or her ballot in the 
region in which that grower grows the largest volume of his or her 
production. A grower would not be allowed to vote for nominee 
candidates in more than one region.
    Grower nominee voting instructions would direct voters to identify 
candidates to fill the designated grower Seats 1, 2 and 3. Ballots for 
grower Seat 1 would be counted based on the volume of production 
represented in the ballots cast. The nominee candidate for this seat in 
each region would be the grower receiving the highest volume of 
production votes. The grower receiving the second highest volume of 
production votes would be the alternate member nominee for this seat. 
In case of a tie vote, the nominee would be selected by a drawing.
    Grower nominees for Seats 2 and 3 receiving the highest number of 
votes would be designated nominees for their respective region. 
Alternates for each nominee would be the candidates receiving the 
second highest number of votes in the same region. In the case of a 
tie, witnesses recommended that final nominees and their alternates be 
selected by a drawing.
    The order language published in the Notice of Hearing did not 
specify whether or not the volume of production would be calculated on 
an inshell or shelled weight basis. Witnesses explained that a grower's 
volume of production should be reported and calculated on an inshell 
basis. The Board recommended adding the phrase in parenthesis ``(pounds 
of inshell pecans)'' to the first full sentence of Sec.  
986.46(b)(3)(iii) to clarify that volume should be calculated as such. 
This clarification has been incorporated into the proposed order 
language included in the Recommended Decision.
    Witnesses explained that both grower Seats 1 and 2 are designated 
to growers with equal to or more than 176 acres of pecans. By assigning 
one seat (Seat 1) to be voted upon by volume and the other seat (Seat 
2) to be voted upon by number of ballots cast, two different 
perspectives would be represented. According to the record, the volume 
weighted vote would likely represent the larger grower business of the 
two seats, and the ballot vote would likely represent a mid-to-large 
grower.

Sheller Nominees

    The nomination procedure for sheller seats on the Council would be 
conducted similarly to the grower seat nominations. Individuals seeking 
candidacy for nomination to a sheller seat would be required to 
designate the region in which they seek election and substantiate their 
qualification as a sheller, or designated representative of a sheller, 
in that region. However, as

[[Page 66387]]

mentioned above, testimony also clarified that the order would not 
require that the candidate be a resident of that region.
    Record evidence states that only shellers would be qualified to 
serve as sheller members and to participate in the nomination of 
sheller members and their alternates. Shellers can be corporations, 
partnerships, limited liability companies, trusts or other legal 
entities, as well as sole proprietorships owned by individuals. The 
owners of pecan shelling operations could designate an officer or 
employee to seek membership and to cast votes on their behalf.
    Once nominee candidates are identified as being eligible to serve 
in either sheller Seat 1 or 2, the Council would mail nomination 
information to all shellers who are on record with the Council. 
Nomination information would include official nomination ballots 
indicating the nominees for each of the two sheller member seats in 
that region, along with voting instructions. Shellers would then cast 
ballots at either a meeting of shellers by mail, or by email, as 
designated by the Council.
    Each sheller would be entitled to cast one vote, either in person 
or through an authorized officer or employee, for each sheller member 
position to be filled in his or her region. A sheller would only be 
able to cast his or her vote in the region in which that sheller 
conducts their business. If the sheller were engaged in shelling pecans 
in more than one region, then the sheller would need to cast their 
ballot in the region in which he or she shelled the largest volume of 
pecans in the preceding fiscal year. A sheller would not be allowed to 
vote for nominee candidates in more than one region.
    Sheller nominee voting instructions would direct voters to identify 
candidates to fill the designated sheller Seats 1 and 2. The sheller 
nominees receiving the highest number of votes would be designated 
nominees for their respective region. Alternates for each nominee would 
be the candidates receiving the second highest number of votes in the 
same region. In the case of a tie, final nominees and their alternates 
would be selected by a drawing.
    Members of the Council, at the time of their selection and during 
their term of office, must be pecan growers or shellers or officers or 
employees of a grower or handler. If that relationship should terminate 
during the member's or alternate's term on the Council, that person 
would become disqualified from further serving, and the position would 
be deemed vacant.

At-large Member Nominees

    According to the record, once the grower and sheller members of the 
Council are selected and appointed by the Secretary, the Council would 
identify nominees for a public member and an accumulator member, plus 
respective alternates. These provisions are proposed under Sec.  
986.46(b)(6). The public member and alternate public member may not 
have any financial interest, individually or corporately, or be 
affiliated with persons vested in the pecan industry. The accumulator 
member and alternate accumulator member must meet the criteria set 
forth in Sec.  986.1, Accumulator, and may reside or maintain a place 
of business in any region.
    Witnesses explained that industry Council members would be in the 
best position to identify individuals who are qualified and willing to 
serve. Once the Council identified these candidates, the Council would 
make a recommendation to USDA for final approval and selection by the 
Secretary.

Selection by Secretary

    Record evidence states that once the nomination process for grower 
and sheller members is completed, and the industry has voted on Council 
member and alternate candidates, a nomination report would be sent to 
the Secretary. The nomination report would include a certified summary 
of the nomination results and any other information deemed necessary by 
the Council for consideration by the Secretary. Other information could 
include, for example, the background and acceptance statements of the 
nominee candidates. According to the proposal, the report should be 
submitted on or before the 15th of July of the fiscal year in which the 
candidates would begin their term so that the Secretary has time to 
review, select and appoint Council members and their alternates prior 
to the beginning of the program's next fiscal year.
    As previously mentioned, the Council would nominate the public 
member and accumulator member and their alternates. The proposal 
indicates that these nominations should be submitted to the Secretary 
by the 15th of September of the fiscal year in which their nomination 
is due. As with the other members of the Council, the Secretary would 
also be responsible for selecting and appointing those members.
    Nominees would be required to indicate in advance of their 
selection that they are willing to accept the position for which they 
were nominated. Agreeing in advance to serve as a Council member or 
alternate would avoid possible delays in the appointment of the 
Council.
    In the event that any of the above nominations are not made within 
the time and manner specified in the proposed order, the Secretary 
could appoint members and alternates without regard to nominations.
    One witness suggested that the Secretary's authority to select and 
appoint members to the Council would be limited to only considering the 
nominees having received the highest votes for their respective seats. 
To the extent that record evidence supports that the nomination process 
is intended to present the Secretary with the industry's preferred 
candidates, this witness's explanation is consistent with the record. 
However, the results of the proposed process would not limit the 
Secretary's authority to select and appoint members of the Council.
    According to the Act, the power to promulgate marketing orders, as 
well as to identify and appoint members to locally oversee the 
program's operation, rests with the Secretary. Moreover, all 
authorities, duties, and responsibilities assigned to a marketing 
order's administrative body are subject to review and approval by USDA.
    As several witnesses explained, the nomination process is intended 
to present the Secretary with qualified candidates that have the 
support of their peers to represent their interests in the activities 
and management of the marketing order program. In the selection and 
appointment process, these results are strongly considered and, more 
often than not, accepted. However, the proposed Council's authority to 
oversee nominations does not include the authority to select and 
appoint members of the Council. Therefore, the testimony stating that 
the Secretary's power to appoint and select members of the Council is 
not consistent with the Act and the issuance of any marketing order 
Recommended Decision.
    Included in the one brief that was filed on behalf of the Board, 
the issue of limiting the Secretary's power to select and appoint 
members of the Council was raised. This brief presents an 
interpretation of the Act that concludes the Council is delegated by 
the Secretary under the authorities of such Act to select members to 
administer the program. The brief continues to offer examples of the 
Federal marketing orders for pistachios, walnuts and dates, as current 
programs whose administrative bodies have authority to ``vote'' for 
their membership for

[[Page 66388]]

presentation to the Secretary. The brief infers that the said authority 
to ``vote'' results in a limiting of the Secretary's power in that 
those candidates must be selected and appointed. In these two 
assumptions, the brief is not entirely correct.
    As stated above, the Secretary has complete authority and oversight 
of Federal marketing orders, including promulgation, amendment, 
selection and appointment of industry representatives (including 
program staff), budgets, assessment rates, implementation of 
regulation, and termination. This is further explained under proposed 
Sec.  986.56. Therefore, to the extent that the proposed Council would 
act as a delegate of the Secretary with the appurtenant powers and 
duties described in proposed Sec. Sec.  986.53 and 986.54, that 
delegation is subject to USDA oversight and Secretary approval.
    Regarding the brief's interpretation of the administrative 
functioning of other orders, the brief's understanding of the context 
in which the term ``vote'' is used is misunderstood. As with all 
Federal marketing orders, the industry is called upon to identify its 
nominees to represent its interests as members of an administrative 
body. The process by which these nominees are identified is commonly 
referred to as a ``nomination vote.'' In this process, industry members 
cast nomination ballots and, in essence, ``vote.'' However, the results 
of those votes do not result in the election of members; the results 
identify nominee candidates that are forwarded for the Secretary's 
consideration prior to selection and appointment with the Secretary's 
approval.
    The brief correctly states that, in the event that an industry 
nominee is not selected and appointed by the Secretary, the resulting 
action would be to hold a second nomination process. The brief also 
correctly raises a concern of timing. Currently, the proposed language 
in Sec.  986.46(5) would require nominations to be reported to the 
Secretary on or before July 15 of nomination years. USDA recommends a 
modification to this language in order to accommodate an extension of 
this deadline if a second nomination process were needed. Accordingly, 
USDA recommends inserting the following sentence after the second 
sentence in paragraph Sec.  986.46(5): ``In the event that a second 
nomination process is required to identify nominee candidates, the 
resulting nominee information may be reported to the Secretary after 
July 15 and before September 15.'' This language has been incorporated 
into the proposed regulatory text of this Recommended Decision.
    The record also shows that the Council should have authority (with 
USDA approval) to establish additional rules and regulation governing 
the nomination process, if deemed necessary. This authority would apply 
to both grower and sheller member nominations.
    One clarifying change to Sec.  986.45 as published in the Notice of 
Hearing was recommended by the Board. The Board proposed removing the 
phrase ``nominated and selected in the same way and'' from the first 
sentence of the first paragraph. Witnesses stated that this language is 
incorrect as alternate member nominees are identified as those 
candidates receiving the second highest number of votes in the vote for 
nominee Council membership. The above-identified phrase could lead to 
confusion and the misunderstanding that a separate voting process for 
alternate member nominees would be held. The proposed modification is 
intended to remove this potential for misunderstanding. This change is 
reflected in the proposed regulatory text included in this Recommended 
Decision.
    Two clarifying changes to Sec.  986.46 as published in the Notice 
of Hearing were recommended by the Board. These changes include:
    (1) In the second sentence of Sec.  986.46(a), inserting the words 
``votes on'' between ``cast'' and ``nomination.'' Witnesses explained 
that this modification would clarify the sentence's intended reference 
to the eligibility to vote as proposed in the order.
    (2) In the first sentence of Sec.  986.46(b)(3)(ii), the phrase 
``vote for the grower nominee candidates'' should replace the word 
``nomination'' between ``their'' and ``for.'' Witnesses stated that 
this modification would clarify that this paragraph relates to the 
casting of ballots for nominee candidates rather than the submittal of 
a nomination.
    These changes are reflected in the proposed regulatory text 
included in this Recommended Decision.

Alternate Members

    Proposed Sec.  986.47 of the order provides for the nomination and 
selection of an alternate member for each Council member. Alternates 
would be subject to the same eligibility requirements as Council 
members. They would act in the place and stead of the Council members 
for whom they are alternates when the Council members cannot fulfill 
their obligations. Alternates would provide continuity and stability to 
Council operations by ensuring full representation of the industry, 
including their particular region and group.
    Alternate members would be nominated in the same manner as Council 
members, except that the recommended alternate(s) would be the 
individual(s) receiving the next highest votes after the nominee(s) 
receiving the highest number of votes.
    When serving in the place and stead of their Council members, 
alternate members would be able to exercise all of the rights, duties 
and powers of those members as though they were serving as full members 
of the Council.
    Witnesses also explained that in the event any member of the 
Council and his or her alternate are both unable to attend a meeting of 
the Council, any alternate for any other member representing the same 
group as the absent member may serve in the place of the absent member. 
According to the hearing record, ``same group'' would mean that growers 
would be alternate alternates for growers, and shellers would be 
alternate alternates for shellers. To the extent practicable, the 
alternate alternates should also be from the same region. This 
provision would allow Council quorum and meeting requirements to be met 
in the event that business needed to be conducted and rescheduling of 
the Council meeting would cause an undue burden or delay.
    Record evidence also shows that an alternate member should succeed 
his or her member in the event of that member's death, removal, 
resignation or disqualification. The alternate would then serve until a 
successor was selected and appointed by the Secretary.
    Proposed Sec.  986.48 of the order would clarify eligibility 
requirements for individuals wanting to serve as Council members or 
alternates.
    As evidenced above, witnesses stipulated that grower and sheller 
members and alternates should be, at the time of selection and during 
their term of office, a grower or sheller (as identified by their 
appointed seat) or an officer or employee of a grower or sheller in the 
region and in the classification for which nominated. Witnesses 
explained that the term ``classification'' referred to the business 
size categories as identified by grower Seats 1, 2 or 3, and sheller 
Seats 1 and 2.
    If a grower qualified to serve as both Seat 1 and 2, that grower 
would be required to select the seat for which he or she desires to be 
nominated, and the grower ballot shall reflect that selection. A grower 
could not be included on the ballot for two different member seats.
    Record evidence also clarifies that any member or alternate member 
who, at the

[[Page 66389]]

time of selection and appointment by the Secretary, was serving as an 
employee or affiliate of a grower or sheller operation may no longer be 
eligible to fill their seat if their employment or affiliation is 
terminated. At the end of such relationship, the position would be 
deemed vacant.
    Lastly, the proposed eligibility requirements also indicate that 
any person nominated to serve as a public member or alternate public 
member may not have a financial interest in any pecan grower or 
handling operation.

Term of Office

    Record evidence suggests that the term of office lasts for four 
years and that the nomination process and beginning of the term should 
take place in late summer. The months of July and August represent a 
natural break in the pecan production cycle, with each new harvest 
beginning typically in October, or at the latest in December, depending 
on the region. Moreover, witnesses indicated that this time frame would 
allow adequate time for Council members and staff to prepare an annual 
budget, develop a marketing policy for the upcoming production year, 
and make any recommendations to the Department for any needed 
regulatory changes prior to harvest activities.
    In addition, witnesses at the hearing indicated that terms should 
be staggered so that approximately half of the Council members' 
positions would be filled every two years. This provision would ensure 
that continuity in experience among Council members was maintained, yet 
provide for new members with new ideas and fresh perspectives to 
participate in the administration of the order. To initiate this 
process, witnesses recommended that the second Council members 
nominated be divided into two groups, by a drawing where necessary, to 
determine whether they would be seated for a term of two years or four 
years. According to the record, the staggering of terms should result 
in the following:
    (1) Grower member Seat 2 in all regions would be assigned a two-
year term;
    (2) Grower member Seat 3 in all regions would, by drawing, identify 
one member seat to be assigned a two-year term; and,
    (3) Sheller Seat 2 in all regions would be assigned a two-year 
term.
    As a result, four of the grower member and alternate seats and 
three of the sheller member and alternate seats shall be seated for 
terms of two years. Remaining industry members and the public member 
(and their alternates) would serve an initial term of four years. This 
staggering of terms would cause approximately half of the members' and 
alternates' terms to expire every two years thereafter.

Term Limits

    Record evidence supports term limits to increase the involvement of 
pecan growers and shellers and increase industry participation in 
administering the marketing order. Term limits should apply to all 
Council members and alternates, including those representing the 
public. The maximum number of terms that an individual would be allowed 
to serve would be two consecutive four-year terms of office or a 
maximum of eight consecutive years on the Council. The tenure 
requirements would apply to both Council members and alternate members. 
Once a person has served as a member and/or alternate for eight years, 
that person would not be eligible for re-nomination. In the case of the 
second Council seating in which half of the initial Council members 
would be given a two-year term, the two-year term would be counted as a 
full four-year term in the calculation of that member's tenure. 
Witnesses explained that this would be necessary in order to avoid 
allowing those members to potentially serve a total of ten years, as 
would be the case if the two-year term were not counted as tenure. 
Lastly, the shorter, two-year term is only applicable once as it is 
necessary to create staggered terms for subsequent Councils.
    However, witnesses also explained that, if selected, an alternate 
having served up to two consecutive terms could immediately serve as a 
member for two consecutive terms without any interruption in service. 
The same is true for a member who, after serving for up to two 
consecutive terms, could serve as an alternate if nominated without any 
interruption in service. If a person were to serve in either one of the 
above scenarios, that person would not be able to serve again as a 
member or an alternate for at least twelve consecutive months. He or 
she would be eligible to serve again after 12 consecutive months out of 
office.
    Witnesses clarified that in all cases, each member and alternate 
member would continue to serve until a qualified successor is selected.

Vacancies

    According to the record, any vacancy on the Council would be filled 
by a majority vote of the Council members remaining for the remaining 
unexpired term of the vacant position. This authority appears in 
proposed Sec.  986.51. The replacement must meet all of the 
qualifications set forth as required for any other nominee for the 
position, and that person's qualifications would have to be certified 
to USDA. The Secretary could then appoint the nominee to serve the 
balance of the term.
    This procedure would eliminate the need to conduct a special 
nomination to fill a vacancy for the balance of a term. It would also 
serve to address situations in which a member's position is vacant and 
the alternate declines the position or is not available to fill the 
vacancy, as provided in proposed Sec.  986.51. The authority could also 
be used to fill a vacancy for an alternate member.

Compensation

    While testimony supported reimbursement of necessary expenses 
incurred by Council members attending meetings, witnesses testified 
that no compensation should be made to pecan growers and shellers for 
their service on the Council. There was also testimony that to the 
extent the Council requested the attendance of alternate members, those 
alternates would also be entitled to reimbursement of their expenses.
    Record evidence considered compensation, in addition to the 
necessary expenses, of the public member. Witnesses explained that in 
order to get the level of experience and background required to serve 
as a qualified, effective public member, it might be necessary to 
compensate that person for his or her time. However, witnesses also 
stated that compensation would need to be set at a reasonable level and 
should be consistent with that person's experience and background.
    In conclusion, the hearing record supports the reimbursement of 
expenses necessary and incidental to performing one's duties as a 
Council member, but not the compensation of time or service in that 
position.

Council Powers and Duties

    The Council, under proposed Sec.  986.53, should be given those 
specific powers that are set forth in section 608c(7)(C) of the Act. 
Such powers are necessary for an administrative agency, such as the 
proposed Council, to carry out its proper functions. According to 
record evidence, the Council would have four general powers under the 
proposed provisions of this order:
    (1) To administer the provisions of the order;
    (2) To adopt by-laws, rules, and regulation for the implementation 
of the order with the approval of the Department;

[[Page 66390]]

    (3) To receive, investigate, and report to the Department 
complaints regarding violations of the order; and
    (4) To recommend marketing order amendments to the Department.
    These powers are necessary to carry out the Council's functions 
under both the proposed order and the Act. Witnesses indicated that 
these powers would enable the Council to make recommendations to the 
Department that reflect the conditions in the industry from their 
knowledge and experience.
    The specific duties of the Council as set forth in Sec.  986.54 of 
the proposed order are necessary for the discharge of its 
responsibilities. These duties are similar to those typically specified 
for administrative agencies under other marketing order programs. They 
pertain to specific activities authorized under the order, such as 
investigating and compiling information regarding pecan marketing 
conditions, and to the general administration of the program, including 
hiring employees, appointing officers, and keeping records of all 
Council transactions. The proposed order delineates the Council's 
duties as follows:
    (a) To act as intermediary between the Secretary and any handler or 
grower;
    (b) To keep minute books and records which will clearly reflect all 
of its acts and transactions, and such minute books and records shall 
at any time be subject to the examination of the Secretary;
    (c) To furnish to the Secretary a complete report of all meetings 
and such other available information as he or she may request;
    (d) To appoint such employees as it may deem necessary and to 
determine the salaries, define the duties, and fix the bonds of such 
employees;
    (e) To cause the books of the Council to be audited by one or more 
competent public accountants at least once for each fiscal year and at 
such other times as the Council deems necessary or as the Secretary may 
request, and to file with the Secretary three copies of all audit 
reports made;
    (f) To investigate the growing, shipping and marketing conditions 
with respect to pecans and to assemble data in connection therewith;
    (g) To investigate compliance with the provisions of this part; 
and,
    (h) To recommend by-laws, rules and regulation for the purpose of 
administering this part.
    Witnesses explained that the above-outlined duties are important to 
the efficient and functional operation of the Council and that they 
reflect necessary and standard business practices.

Quorum and Voting Provisions

    The record evidence is that once the Council is appointed, a quorum 
of the Council would consist of twelve Council members. This would 
include shellers, growers, the at-large accumulator, and the public 
member. Except as discussed below, any action of the Council would 
require the concurring vote of a majority of the Council members 
present. An alternate could serve as a member for purposes of 
constituting a quorum and voting if the member is absent.
    Record evidence indicated, however, that certain issues are of 
sufficient significance to the industry that action should require a 
greater degree of consensus than a simple majority vote would 
demonstrate. Witnesses testified that there are ten areas that should 
require at least twelve concurring votes, prior to any recommendation 
being made to the USDA.
    The first of these issues include the establishment of or changes 
to the Council's by-laws. Witnesses felt that the importance of by-laws 
to the operation of the order merited a robust discussion and more than 
majority consensus in either their establishment or future 
modification. Several witnesses testified to the importance of by-laws 
and their role in providing a foundation to the business functioning of 
the order. Similarly, witnesses felt that the appointment of the 
proposed program's manager or chief executive officer, as well as 
administrative issues relating to their responsibilities and 
employment, were equally important and merited the same level of super-
majority consensus in decision-making thereto.
    The third and fourth issues witnesses claimed should require twelve 
concurrent votes are the formulation and approval of the annual budget 
and the annual assessment rates. Because these issues directly impact 
regulated entities and represent funds collected from the industry for 
the benefit of the industry, witnesses explained that a high level of 
consensus on these issues was paramount. Witnesses stated that Council 
members will be tasked with the judicious management of assessment 
funds, and any plan to spend them should require thorough discussion 
and widespread support.
    Similarly, witnesses stated that issues arising from non-compliance 
or audits would also require a super-majority determination. Because 
compliance and audit challenges have the potential to impact both the 
administration of the order as well as handler operations under 
regulation, decisions made with regard to these issues should measure 
and require widespread consensus.
    With regard to the potential need to redefine regions, reapportion 
or reallocate Council membership, or modify the eligibility 
requirements of growers or shellers, the record indicates that 
recommendations related to changes in these factors should require a 
higher level of Council member agreement. Because of the important role 
that growers have in the promulgation and continuance of the program, 
approval of future amendments and changes to representation on the 
Council, the eligibility of a person to qualify as ``grower'' under the 
order is essential to the order's existence. Witnesses explained in 
great detail the method by which the current proposed eligibility 
requirements were identified. They emphasized that not only were they 
appropriate for the proposed program but that they were widely 
accepted. Proponents of the proposed order felt strongly that if grower 
eligibility were to be modified at a future date, that modification 
should require robust discussion and widespread support.
    Witnesses expressed similar concerns for any future modification in 
the eligibility requirements for shellers. Because of the important 
role of shellers on the Council, future modification to the eligibility 
to serve as a sheller should be carefully reviewed prior to being 
modified. Again, proponents of the proposed order explained in great 
detail the method by which the current proposed eligibility 
requirements were identified. They moreover stressed that not only were 
they appropriate for the proposed program, but they were widely 
accepted by industry participants in discussion with the drafters of 
the initial proposal.
    Lastly, witnesses indicated that the recommendation of any research 
and promotion activities, as well as the proposal of new regulation for 
grade, quality, size, pack or containers to USDA, should be thoroughly 
discussed and widely supported.
    Because research and promotion activities are directly tied to the 
budget, which also requires a super-majority approval, spending of 
assessment monies on these activities should be judiciously reviewed. 
Witnesses stated that it would be important to identify research and 
promotion activities that would widely benefit industry participants. 
By requiring broad consensus, discussion of research needs across the 
industry would become necessary in order to develop an approved 
research strategy.

[[Page 66391]]

    Similarly, witnesses explained that promotion activities should be 
geared primarily towards generic promotion of pecans to U.S. consumers 
and designed to benefit the industry as a whole. Proponents of the 
order explained that the super-majority voting requirement would result 
in the identification of such activities or projects.
    According to the record, the proposal contains authority for the 
Council to recommend grade, size and quality regulation, as well as 
pack and container regulation. Such recommendations would be made by a 
super-majority of the Council for consideration and approval by USDA 
prior to implementation. Proponents of the proposed program explained 
that any recommended regulation should be based on a robust discussion, 
taking into consideration appropriate grade, size, and quality 
parameters in order to meet both customer demand and current industry 
tolerances. Regarding pack and container regulation, witnesses stated 
that consideration should be given to advances in packaging that could 
extend the shelf-life of pecans. Because pack and container 
requirements could result in increased costs for handlers, witnesses 
explained that any related regulation should be widely discussed and 
supported prior to becoming mandatory throughout the industry.
    Proponents of the proposed order identified one issue that would 
require a unanimous vote of the full Council: Securing a bank loan. 
According to the record, if a bank loan is required for the purpose of 
financing start-up costs of the Council and its activities or for 
securing financial assistance in emergency situations, such action 
would require a unanimous vote of all members present at an in-person 
meeting. Witnesses further explained that in the event of an emergency 
that warrants immediate attention sooner than a face-to-face meeting is 
possible, a vote for financing may be taken by other means. In such 
event, the Council's first preference would be a videoconference and 
its second preference would be a telephone conference, both followed by 
written confirmation of the members attending the meeting. Other 
parameters relating to the securing of a bank loan are discussed in 
Material Issue 5(c).
    In summary, Sec.  986.55 of this proposal provides that any 
recommended change or modification to the ten issues outlined above 
would require at least twelve concurring votes. Regarding the decision 
to secure a bank loan, the proposal indicates that a unanimous vote of 
the Council would be required. Any other actions by the Council could 
be determined by a simple majority of those voting.
    The record shows that at Council meetings, members could cast their 
votes by voice or in writing. Participation by telephone would be 
permitted as long as the equipment used would allow all meeting 
participants to hear and communicate with each other. Telephone or 
similar communication equipment could include conference call equipment 
and/or audio-visual equipment that would allow all members to 
participate in a meeting simultaneously.
    If for some reason an action must be taken without a meeting, the 
votes would have to be in writing. Witnesses testifying at the hearing 
stated that the types of Council actions contemplated without a meeting 
would be limited to issues of routine business or those of relatively 
minor importance, such as approval of meeting minutes. Such matters 
would not merit the time and expense of holding an assembled meeting. 
This proposed provision is common to several existing marketing orders 
and would enhance the Council's decision-making abilities on simple 
administrative matters.
    The Board recommended modifying the first sentence of Sec.  
986.55(c)(1) by deleting ``and must be approved at an in-person 
meeting.'' According to the record, in-person meetings are preferred by 
witnesses testifying to the importance of Council decision-making 
procedures and voting requirements. However, requiring in-person 
meetings may cause undue challenges in the future conducting of Council 
business. Section 986.55 proposes alternative methods for the proposed 
Council to meet and guidelines to follow in the event that decision-
making votes are cast at non-in-person meetings. The proposed 
modification would relieve the proposed requirement that all decision-
making votes made by the proposed Council be made at in-person 
meetings. This proposed language is incorporated into the proposed 
regulatory text of this Recommended Decision.
    Proposed Sec.  986.56, Right of the Secretary, clarifies the power 
of the Secretary in the oversight and administration of the marketing 
order. According to the proposal, the members and alternates as well as 
any agent or employee appointed by the Council shall be subject to 
removal or suspension by the Secretary at any time. Moreover, each and 
every regulation, decision, determination, or other act shall be 
subject to the continuing right of the Secretary to disapprove such 
actions. If disapproved of, the disapproved action would be deemed null 
and void. This proposed language is in compliance with the Act.
    Record evidence indicates that Sec.  986.57, Funds and other 
property, is necessary in order to clarify that any assessment funds, 
or otherwise contributed funds under the control of the Council, shall 
be used solely for the purposes of activities provided for under the 
proposed marketing order for pecans. To ensure that funds are properly 
administered, the Secretary may require the Council and its members to 
account for all receipts and disbursements.
    Further, upon the death, resignation, removal, disqualification, or 
expiration of the term of office of any member or employee, all books, 
records, funds, and other property in their possession belonging to the 
Council must be delivered to their successor in office or to the 
Council. If necessary, actions may be taken to ensure that any 
successor or the Council regain full title to all the books, records, 
funds, and other property in the possession of the former member or 
employee.

Material Issue Number 5(c)--Expenses and Assessments

    The Council should be required to prepare a budget showing 
estimates of income and expenditures necessary for the administration 
of the marketing order during each fiscal year. The budget, including 
an analysis of its component parts, should be submitted to USDA in 
advance of each fiscal period to provide for USDA's review and 
approval. The budget should also include a recommendation to USDA of 
rates of assessment designed to secure income required for such fiscal 
year.
    The Council should be authorized under Sec.  986.60 of the proposed 
order to incur such expenses as the Department finds are reasonable and 
likely to be incurred during each fiscal or production year. Such a 
provision is necessary to assure the maintenance and functioning of the 
Council and to enable the Council to perform its duties in accordance 
with the provisions of the order. USDA is recommending a clarifying 
change to the proposed order language that was published in the Notice 
of Hearing. USDA recommends adding a statement that specifies that any 
budget proposed by the Council would be subject to USDA approval. This 
clarifying change has been incorporated into the proposed regulatory 
text of this Recommended Decision.
    The record states that funds to cover the Council's expenses would 
be obtained through the collection of

[[Page 66392]]

assessments from handlers who handle pecans in the proposed production 
area. These assessments are intended to reflect each handler's 
proportional share of the Council's expenses. As such, assessments 
would be based on the total amount of pecans processed by each handler 
relative to the total amount of pecans processed by the industry as a 
whole during a given production year.
    Witnesses explained that it would be appropriate to apply 
assessment calculations to the handler who first handles a particular 
lot of pecans. By assessing the handler who initially receives a lot of 
pecans, the industry intends to prevent having assessments paid more 
than once for the same pecans. However, witnesses also explained that 
since pecans are often transferred between handlers for further 
preparation or packaging for market, an inter-handler transfer may 
apply.
    If an inter-handler transfer were to occur, the receiving second 
handler may assume the responsibility of paying the assessment. In 
cases of inter-handler transfers, the transaction and the assumption of 
the assessment responsibility by the second handler would be documented 
with the Council.
    For the purposes of separating each fiscal year's harvest, 
witnesses explained the importance of handler inventory reporting at 
the close of each season. According to the record, August 31 would be 
an appropriate day for such reporting to occur. This information would 
indicate how much of the crop was still being warehoused by handlers, 
thereby also giving an indication of how much of the previous year's 
crop was being carried into the new fiscal year.
    In addition, witnesses explained that on August 31 of each year, 
every handler warehousing inshell pecans would be identified as the 
first handler of those pecans and would be required to pay the then 
effective assessment rate on the category of pecans in their possession 
on that date. According to the record, this would allow the Council to 
collect all assessments on assessable pecans within the same year in 
which they are grown and harvested.
    With regard to pecan inventories warehoused by growers, witnesses 
explained that after August 31, those inventories would cease to be 
eligible for inter-handler transfer after initial receipt by a handler. 
Instead, such inventory would require that the first handler of the 
warehoused inventory pay the assessment thereon. The assessment rate 
that would be applied would be the prevailing assessment rates at the 
time of receipt of the warehoused inventory from the grower to the said 
handler.
    The loss of inter-handler transfer transaction authority would only 
be applicable to pecans warehoused by growers after August 31 of the 
year in which they were harvested. Witnesses explained that this 
provision would again allow the Council to track crop flow from one 
year to the next, thereby providing more accurate data on carry-in 
volume in the market. According to the record, this information would 
be helpful in better understanding the flow of product in the market 
and the potential impact of carry-in inventory on the total available 
supply.
    Proposed Sec.  986.62 describes the provisions of inter-handler 
transfers. The first sentence of this section states the exception of 
transfers not being available to handlers receiving product from 
growers after August 31, as described in proposed Sec.  986.61(i). 
Witnesses testifying to inter-handler transfers explained that the 
exception to inter-handler transfers should also include Sec.  
986.61(h), which states that the transfer of assessment responsibility 
for handler warehousing unassessed pecans could not be transferred. On 
August 31, the handler in possession of the unassessed inventory would 
be required to pay the assessment due. As such, the Board proposed, as 
a clarifying change, to include a reference to Sec.  986.61(h) 
alongside the reference to Sec.  986.61(i) in the first sentence of 
Sec.  986.62. This change has been incorporated into the proposed 
regulatory text of this Recommended Decision.
    Witnesses acknowledged that the proposals to report, assess, and 
limit inter-handler transfers of product warehoused by growers and 
handlers after August 31 would require additional recordkeeping on the 
part of both handlers and the Council. However, the recordkeeping 
requirement was not considered burdensome in light of the benefit of 
accurate carryover data and timely assessment collection. Witnesses 
also explained that the Council would have the authority to recommend 
guidelines to implement this provision and that such recommendations 
would be subject to USDA approval.
    Testimony in support of proposed Sec.  986.60 covering Council 
expenses indicates that prior to the beginning of each production year, 
and as may be necessary thereafter, the Council should prepare an 
estimated budget of expenses necessary for its effective administration 
of the order. Based upon this estimate, the Council would calculate and 
recommend to the Department rates of assessment that would provide 
adequate funds to cover the cost of projected expenditures. Preparing a 
budget for the Council prior to the beginning of each fiscal period is 
reasonable. A budget is necessary to provide the Council and the 
Department with a basis for determining the rates of assessment 
necessary to administer the order.
    The Council would present its annual budget to USDA for review and 
approval. Accompanying the budget would be a report showing the basis 
for its calculations, an explanation of each line item, and any 
proposed year-over-year increases or decreases. Assessments would be 
levied at the rates established by USDA. Establishment of such 
assessment rates would be accomplished through the informal rulemaking 
process. Such rates would be established on the basis of the Council's 
recommendations or other available information.
    Witnesses stated that any assessment rate recommended to the 
Department for native pecans should be limited to a maximum rate of two 
cents and a minimum of one cent per pound. Similarly, any assessment 
rate recommended to the Department for improved pecans should be 
limited to a maximum of three cents and a minimum of two cents per 
pound. The assessment rate recommended for substandard pecans should be 
between a maximum of two cents and a minimum of one cent per pound.
    The intent of the maximum limit on the assessment rates is to 
assure pecan growers and handlers that program expenses would be kept 
within specified limits. The proposed limit appears reasonable for the 
administration of a program of this nature.
    Witnesses also stated that the proposed limits may cease to be 
appropriate given the potential for future changes in the industry. For 
this reason, the proposed program also includes a provision that would 
allow the proposed Council to consider other assessment thresholds. 
Such a consideration could only be made after the current proposed 
assessment ranges are in effect for the initial four years of the 
order.
    Moreover, witnesses explained that any subsequent assessment rates 
could not exceed two percent of the aggregate average of all grower 
prices in each classification across the production area based on 
Council or USDA data. According to the record, the aggregate grower 
price average would be calculated for each classification for the 
preceding fiscal year. The recommended assessment rate for each 
respective classification could not exceed two

[[Page 66393]]

percent and would be approved by the Secretary.
    Witnesses reasoned that there could be times during a fiscal year 
when it would become necessary to revise the budget and/or increase an 
assessment rate. Such instances could include situations where actual 
harvest is lower than anticipated or the Council incurs unforeseen 
expenses. In this regard, witnesses stated that an assessment rate 
should not be increased without the Council first making a 
recommendation and securing approval of the Department to do so. Such 
recommendation would also need to be made prior to the issuance of that 
production year's final handler assessment bill. Any assessment 
increase would be applicable to all pecans received and processed by 
handlers within the proposed production area for that production year 
and within the limits specified in Sec.  986.61.
    In the event the order is promulgated, witnesses also discussed the 
potential need for administrative funds to cover expenses before 
sufficient operating income is available from assessments. In this 
case, witnesses stated that the Council should be able to accept the 
payment of assessments in advance. In addition, it was explained that 
the Council should also have the authority to borrow money for such 
purposes, provided that the recommendation to do so received a 
unanimous vote of the Council. Moreover, witnesses stated that 
financial prudence was important and that any loan secured by the 
Council could not exceed 50 percent of assessment revenue projected for 
the year in which the loan is secured and that the loan must be repaid 
within five years.
    Record evidence in support of proposed Sec.  986.61 indicates that 
if assessments are not paid within the time prescribed by the Council, 
the Council may apply a late payment fee and charge interest on the 
unpaid balance. Late payment charges and interest on unpaid balances 
are reasonable in encouraging timely payment of assessments and 
compensating the Council for expenses incurred in collecting unpaid 
assessments.
    While supporters of this proposal indicated that any assessments 
imposed under the program would be quite modest, timely collection of 
those assessments would be important in order to efficiently and 
effectively administer the provisions of the proposed program. 
Moreover, they indicated that if one handler were to become delinquent 
in paying his or her assessments, this could serve as an incentive for 
others to also become delinquent. Witnesses felt that the proposed late 
payment and interest charges would help to ensure stability in the flow 
of Council funds collected through assessments.
    Under the proposed Sec.  986.63 of the order, the Council would be 
allowed to accept voluntary contributions. Such contributions could 
only be accepted if they are free from any encumbrances or restrictions 
on their use from the donor. Witnesses explained that the Council would 
retain control over the use of contributions and their allocation 
towards budgetary needs. Witnesses also explained that the Council 
should have the authority to receive contributions from both within and 
outside of the production area.
    The Council may accept contributions, for example, to fund the 
operations of the order during the first part of a production year, 
before sufficient income is available from assessments on the current 
year's pecans. Another example offered by witnesses was the use of 
contributed funds to support research projects, either nutritional or 
production related.
    Proposed Sec.  986.64, Accounting, is necessary to assure handlers 
and the industry that funds would only be used for the purposes 
intended, that there would be a proper disposition of excess funds, and 
that a detailed accounting would be made of such disposition. Under the 
order, the Council would only be authorized to incur such expenses as 
USDA finds are reasonable and likely to be incurred by it during each 
production year for its maintenance and functioning and for such other 
purposes as the Department may determine to be appropriate.
    Paragraph (a)(2) of proposed Sec.  986.64 provides for situations 
where, at the end of the fiscal year, the assessments collected may be 
in excess of expenses incurred. According to record evidence, the 
provisions under this section would allow the Council, with the 
approval of the Department, to establish an operating monetary reserve. 
This would allow the Council to carry over to subsequent production 
years any excess funds in a reserve, provided that funds already in the 
reserve do not exceed approximately three fiscal years' expenses. If 
reserve funds do exceed that amount, the assessment rates should be 
reduced to bring the reserves within the maximum level authorized under 
the order. These reserve funds could be used to defray expenses during 
any production year before assessment income is sufficient to cover 
such expenses; to cover deficits incurred during any fiscal year when 
assessment income is less than expenses; to defray expenses incurred 
during any period when any or all provisions of the order were 
suspended or inoperative; and to cover necessary expenses of 
liquidation in the event of termination of the order.
    If any excess funds were not retained in a reserve, each handler 
who paid assessments would be entitled to a proportionate refund of the 
excess assessments collected. If excess assessments remained at the end 
of a given production year, the Council could apply each handler's 
excess as a credit for handlers towards the next production year's 
operating costs, or the Council could refund such funds to the 
handlers.
    Testimony states that all funds received by the Council pursuant to 
the provisions of the proposed order would be used solely for the 
purposes specified in the order. Moreover, Sec.  986.64 would authorize 
the Department at any time to require the Council and its members to 
account for all receipts, disbursements, funds, property or records for 
which they are responsible. This authority is necessary to ensure that 
proper accounting procedures are followed at all times.
    Whenever any person ceases to be a member of the Council, that 
individual should be required to account for all receipts and 
disbursements for which he or she was responsible. That person should 
also be required to deliver all property and funds in such person's 
possession to the Council. Finally, that person would execute such 
assignments and other instruments as might be necessary or appropriate 
to vest in the Council full title of all Council property and funds.
    In the event the proposed order were to be terminated or become 
inoperative, the Council, with the approval of USDA, would appoint one 
or more trustees for holding records, funds or other property of the 
Council. Any funds not required to defray the necessary expenses of 
liquidation would be returned, to the extent practicable, pro rata to 
the handlers from whom such funds were collected. Distribution of those 
funds would be carried out in a way that the Department deems 
appropriate.

Marketing Policy

    Proposed Sec.  986.65 would require that the Council prepare and 
submit to USDA, prior to the end of each fiscal year, an annual 
marketing policy. The marketing policy would serve as the basis for 
proposed marketing and promotion activities, as well as any proposed or 
modified handling regulation for the coming year. It would

[[Page 66394]]

also serve as a tool to identify the level of assessment rates needed 
to fund those activities.
    Record evidence explained that in developing its marketing policy, 
the Council should consider production, harvesting, processing and 
storage conditions, as well as current and prospective prices. 
Witnesses identified the following specific factors to be considered. 
Where applicable, these quantities would be calculated on an inshell 
basis.
    (1) Estimate of the grower-cleaned production and handler-cleaned 
production in the area of production for the fiscal year;
    (2) Estimate of disappearance;
    (3) Estimate of the improved, native, and substandard pecans;
    (4) Estimate of the handler inventory on August 31, of inshell and 
shelled pecans;
    (5) Estimate of unassessed inventory;
    (6) Estimate of the trade supply, taking into consideration trade 
inventory, imports, and other factors;
    (7) Preferable handler inventory of inshell and shelled pecans on 
August 31 of the following year;
    (8) Projected prices in the new fiscal year;
    (9) Competing nut supplies; and
    (10) Any other relevant factors.
    Witnesses explained that the above-outlined factors were important 
in any analysis of both the current and anticipated state of 
production, supply and demand. Both the analysis and the correlating 
recommendations for regulation, as provided for under proposed Sec.  
986.67, would need to be approved by at least two-thirds of the Council 
prior to presenting them to USDA.
    Witnesses also noted that the term ``trade inventory'' included in 
Sec.  986.65(f) was unclear as the term is not otherwise defined or 
used in the language of the proposed order. As such, the Board 
recommended the removal of that term from Sec.  986.65(f). This change 
has been incorporated into the proposed language of this Recommended 
Decision.

Material Issue Number 5(d)--The Authority To Conduct Research and 
Promotion Activities

    Record evidence indicates that the proposed order should include 
authority for the Council to recommend research and promotion 
activities. The provision for this authority is provided in proposed 
Sec.  986.68.
    As discussed in Material Issue 2, the need for research and 
promotion funding is viewed as essential by witnesses to the future 
success of the pecan industry. Witnesses from across the proposed 
production area testified in support of this authority.
    As mentioned previously, there are several grower and sheller 
organizations throughout the proposed production area. These 
organizations currently conduct or fund research and promotion 
activities related to pecans on a limited basis within their own 
geographic areas and with limited budget, according to record evidence.
    Research activities are currently conducted as funding is available 
by the independent organizations mentioned above, with little 
coordination among projects. Certain states, such as Georgia, Texas and 
New Mexico, also benefit from research conducted by State agricultural 
extension staff that assist growers with agricultural practices.
    Several witnesses speaking directly to the benefits of research 
stated that funding was needed to support disease and pest control 
studies. In the Eastern and Central Regions, where the growing climate 
is relatively more humid than in the West, Pecan scab, a fungal plant 
pathogen, regularly leads to loss of supply and quality if not 
aggressively treated.
    Similarly, significant insect management is required to address 
damage caused by Phyllo era, Pecan Nut Case bearer, Aphids (black and 
yellow), Nut Curculio, Hickory Shuck worm, Scorch Mites and Pecan 
Weevils. The cost of disease and pest management can vary significantly 
depending on seasonal rainfall. One witness stated that, in a typical 
year with average rainfall, spraying for disease and pests can occur 10 
times per orchard. In years of higher rainfall, spraying can increase 
up to 16 times per orchard. The additional spraying increases the cost 
of production by roughly $150 per acre.
    Witnesses concluded that the development of scab-resistant 
varieties, or more effective pest control methods, could lead to both 
meaningful savings in the cost of production, as well as greater supply 
and quality of nuts from trees impacted by these challenges.
    Another form of research important to witnesses was that of 
nutritional benefits of pecans. Several witnesses cited current studies 
linking health benefits to nut consumption. However, due to lack of 
consistent funding, nutritional research on pecans specifically has 
lagged behind other nuts, such as almonds and walnuts. Proponents of 
the order were confident that nutritional research of pecans would 
yield results that would greatly impact consumer demand for the 
product. Through the promulgation of the proposed order, both the 
financial resources to fund such research and publicize the results 
would be available. According to these witnesses, an economic impact 
study on the potential effects of nutritional research and promotion on 
consumer demand for pecans would also be realized from implementation 
of this authority as part of the proposed program.
    Record evidence also indicates that, with coordinated market 
research and promotion activities, U.S. consumer demand for pecans 
could be positively impacted. As previously discussed in Material Issue 
2, U.S. consumer demand for pecans has remained relatively flat for the 
past twenty years. Comparatively, demand for other nuts, such as 
almonds, walnuts and pistachios, have steadily increased. Witnesses 
also testified that consumer awareness of pecans in markets outside of 
the proposed production area was limited to the seasonal consumption of 
pecans during the winter holiday season. An active marketing campaign 
designed to educate U.S. consumers on the taste and uses of pecans 
could result in an increase in domestic demand for the nut. For these 
reasons, witnesses stated that the authority for research and promotion 
should include market research and development, and marketing 
promotion, including paid generic advertising, designed to assist, 
improve, or promote the marketing, distribution, and consumption of 
pecans.
    Witnesses also stated that research is needed to develop better 
packaging for pecans. According to the record, pecans need to be stored 
in air-tight packaging to prevent rancidity. Exposure to light and 
variations in temperature can also contribute to rancidity in pecans. 
The authority to develop packaging that could prolong the freshness and 
shelf-life of pecans would enhance the overall quality of the product 
received by consumers, thereby positively contributing to consumer 
perception and demand of the product. Witnesses also explained that, 
ideally, pecans should be displayed in grocery store coolers where 
lower temperatures stabilize the nut's oil and prolong freshness. These 
witnesses cited the importance of educating merchants and consumers on 
proper storage techniques for pecans in order to enhance the quality 
and consumer experience with the product. The proposed research and 
promotion authority would support packaging and product placement 
research as well as market education.
    As with other provisions proposed under the order, witnesses 
explained that the proposed Council should have authority to make 
recommendations,

[[Page 66395]]

subject to the approval of USDA, for the establishment of the above-
described programs and activities, including preparing a budget, hiring 
staff, and implementing procedures for their administration.
    Record evidence shows that the proposed Council should have the 
authority to conduct production research, marketing research and 
development projects, and marketing promotion, including paid generic 
advertising, designed to assist, improve, or promote the marketing, 
distribution, and consumption or efficient production of pecans, 
including product development, nutritional research, and container 
development. Furthermore, the expenses of such projects should be paid 
from assessment funds collected pursuant to the proposed program or 
contributions.

Material Issue Number 5(e)--The Authority To Regulate Grade, Size, Pack 
and Container

    According to record evidence, the proposed order should include the 
authority to regulate quality, including grade and size, as well as 
pack and container requirements. In addition, the proposed order should 
provide for the establishment of inspection and certification 
requirements. Provisions allowing for exemption from handling 
regulation under special circumstances should also be established, 
along with the authority to establish safeguards necessary to ensure 
compliance with handling regulation or exemption therefrom under 
specified circumstances. Lastly, the USDA and the proposed Council 
should be required to give prompt notice of any handling regulation in 
effect under the proposed order so that handlers may be in compliance. 
These provisions are captured under the proposed Sec. Sec.  986.69 
through 986.72.
    According to the record, U.S. grade standards are currently the 
only official guidelines established for pecans. These include ``United 
States Standards for Grades of Pecans in the Shell'' (1976) and 
``United States Standards for Grades of Shelled Pecans'' (1969). These 
regulations are voluntary in that they apply only to handlers who 
choose to request inspection and certification.
    The proposed handling regulation authority would authorize the 
proposed Council to recommend grade, quality and size requirements, 
subject to USDA review and approval. If such regulation were put in 
effect, they would become mandatory. As such, this authority would also 
include the proposed Council's ability to recommend inspection and 
certification for pecans handled within the proposed production area. 
The inspection and certification requirements would also be subject to 
USDA review and approval prior to becoming effective.
    According to the record, because of the differences in native and 
improved pecans, it may be necessary to develop quality requirements 
that are specific to each classification of pecan. Witnesses explained 
that, on average, pecans from native trees are smaller than those from 
improved trees. The nut yield between classifications often differs as 
well. For this reason, size regulation applicable to improved pecans 
may not be applicable to native pecans, and vice versa.
    Given that the current proposal would only provide the proposed 
Council with authority to recommend grade, quality, size, pack and 
container regulation, flexibility in the applicability of those 
potential regulation should exist. According to the proposal, handling 
requirements or minimum tolerances for particular grades, sizes, or 
qualities, or any combination thereof, could be recommended for any or 
all varieties of pecans and for any duration of time or period. 
Furthermore, the proposed language states that different handling 
requirements or minimum tolerances for particular grades, sizes, or 
qualities could also be considered for different containers, for 
different portions of the production area, or any combination thereof 
could also be considered.
    Witnesses stated that in the development of future handling 
regulation, the Council should be able to recommend regulation that is 
specific to either Native or Improved pecans. The proposed definition 
of pecans, Sec.  986.28, delineates these pecans into two 
classifications. In order to maintain consistency in terminology and to 
clarify that regulation could be recommended for individual or groups 
of varieties as well as classifications, the Board proposed a 
clarifying change. The Board proposed inserting the words ``and 
classifications'' after the word ``varieties'' in both paragraphs 
(a)(1) and (2) of Sec.  986.69. This change has been incorporated into 
the proposed regulatory text of this Recommended Decision.
    While witnesses did not provide examples for all of the proposed 
scenarios in which the above-outlined regulatory needs might exist, 
they did explain that flexibility would be needed in order for future 
Councils to develop regulation that is applicable to the specific 
demands of the pecan industry and its customers. For this reason, the 
proposed authority encompasses a wide range of factors that could apply 
to future regulatory situations.
    Along with the authority to recommend handling regulation, 
witnesses stated that the proposed Council should have the authority to 
recommend pack and container regulation. This type of authority could 
be used to establish size, capacity, weight, dimensions, or pack of the 
container or containers which may be used in the packaging, 
transportation, sale, preparation for market, shipment, or other 
handling of pecans. Witnesses explained that this authority would be 
important in the context of new packaging that may be developed as a 
result of product development authorized under the proposed research 
and promotion authority.
    Other witnesses explained that pack and container regulation could 
help to standardize transactions between pecan handlers and customers. 
If a standard container size were used by all handlers, for example, 
customers would be better able to compare market prices between 
handlers than if each handler quoted prices based on different size 
containers. Standardization could lead to greater transparency in the 
market, thereby also resulting in less price volatility.
    While record evidence is that handling regulation, including pack 
and container regulation, could benefit the pecan industry, witnesses 
also explained that authority to amend, modify, suspend, or terminate 
such regulation would be equally important. If handling regulation 
ceases to be applicable or produce their intended benefits, the 
proposed Council should have the authority to effectuate change. Such 
change would be recommended by the proposed Council and be subject to 
review and approval of USDA.
    The proposed language for Sec.  986.69(b)(1) does not include the 
stipulation that any such amendment, modification, suspension or 
termination recommended by the Council would be subject to approval by 
USDA. In order to maintain consistency within the proposed language and 
its conformity with Sec.  986.56, Right of the Secretary, the Board 
recommended a clarifying change. The clarifying change inserts the 
phrase ``and approval by the Secretary'' after the word ``Council'' in 
Sec.  986.56(b)(1). This change has been incorporated into the proposed 
language of this Recommended Decision.
    According to the record, the proposed authority to regulate 
handling as outlined in this Material Issue should not in any way 
constitute authority for the proposed Council to recommend volume 
regulation, such as reserve pools, producer allotments, or handler 
withholding requirements which limit

[[Page 66396]]

the flow of product to market for the purpose of reducing market 
supply. Proponents of the proposed order explained that the subject of 
volume regulation had been thoroughly discussed with industry 
participants throughout the proposed production area, and there was 
near-unanimous opposition to its inclusion in the proposed order. In 
order to clarify that volume regulation would not be considered in the 
future operation of the proposed order, the proponents proposed 
specific language found in proposed Sec.  986.69(c).
    Witnesses further explained that authority should exist for 
exempting the handling of pecans for special purposes. One of these 
purposes includes facilitating the delivery of pecans for relief or 
charity causes. Witnesses explained that if the opportunity were to 
arise for the industry to provide pecans for charitable purposes, their 
handling should be free from handling regulation, including 
assessments.
    Similarly, witnesses explained that pecans being used for product 
development or research should also be exempted from any handling 
regulation that may be in effect, including assessments.
    In order to ensure that handling for special purpose exemptions are 
used for their intended purposes, the proposed Council should have the 
authority to recommend rules and requirements necessary to oversee such 
shipments or usages.
    In all cases of handling regulation, record evidence is that the 
USDA and the proposed Council should be required to give prompt notice 
of any handling regulation in effect under the proposed order so that 
handlers may be in compliance.

Material Issue Number 5(f)--Reporting and Recordkeeping

    The record evidence indicates that the Council should have the 
authority, with USDA approval, to require handlers to submit such 
reports and information as the Council may need to perform its 
functions and fulfill its responsibilities under the order. The Council 
would need to collect information for such purposes as collecting 
assessments, compiling statistical data for use in market evaluation, 
and determining whether handlers are complying with order requirements. 
The types of information that could be collected to fulfill these 
reporting needs include, but are not limited to: Production, sales and 
inventory data, and information pertaining to transfers of pecans 
between handlers.
    Proposed Sec. Sec.  986.75 through 986.77 outline the types of 
reports identified by witnesses as being important to the functioning 
of the Council. The first of these reports would provide handler 
inventory of inshell and shelled pecans. It is proposed that the 
Council could prescribe the date ranges and frequency of this report as 
may be necessary to conduct administrative operations. Similarly, the 
volume of merchantable pecans, or those pecans meeting any handling 
regulation in effect under the proposed order, should be reported for 
both inshell and shelled, on a frequency to be determined by the 
Council. Reports of handler receipts of inshell or shelled pecans from 
growers, handlers or others should also be collected per the proposed 
Council's need for that data. Lastly, the proposed Council should also 
have the authority to recommend any other type of handler report that 
may become necessary to carry out the administrative activities of the 
program. In all cases, the proposed Council should have the authority 
to recommend the forms and filing requirements needed for the above-
outlined data collection.
    Additionally, under proposed Sec. Sec.  986.79 through 986.82, 
record evidence is that each handler should be required to maintain 
records with respect to pecans acquired and handled as would be 
necessary to verify the reports that the handler submits to the 
Council. All such records would be required to be maintained for at 
least three fiscal years after the end of the fiscal year in which the 
transaction occurred.
    Witnesses also stated that the order should provide the authority 
for USDA and authorized employees of the Council to examine those 
records pertaining to matters within the purview of the order. This 
provision would enable verification of compliance with requirements of 
the proposed order. Such access should be available at any time during 
reasonable business hours. Furthermore, each handler should be required 
to furnish all labor necessary to facilitate such inspections at no 
expense to the Council or the Secretary. The proposed verification 
authority is necessary in order for the Council to be able to certify 
to USDA the completeness and correctness of the information obtained 
from handlers.
    All reports and records submitted to the Council by handlers would 
be required to remain confidential and be disclosed only as authorized 
by USDA in accordance with the Act. However, the Council would be 
authorized to release composite information from any or all reports. 
Such composite information could not disclose the identity of the 
persons furnishing the information or any person's individual 
operation.
    The record shows that industry handlers already collect and 
maintain some of the information contemplated to be reported and 
retained under the proposed order provisions. Thus, compliance with the 
provisions of the order with regard to reporting and recordkeeping 
would entail minimal handler costs.

Material Issue Number 5(g)--Compliance

    No handler should be permitted to handle pecans except in 
conformity with the provisions of the order, as set forth in proposed 
Sec.  986.87.
    Witnesses stated that if the program is to be effective, compliance 
with its requirements is essential. Compliance with the mandatory 
provisions of the proposed order, if implemented, would provide 
assurance to industry participants that all handlers are subject to the 
same requirements. This requirement would, in effect, ``level-the-
playing-field,'' witnesses explained. By mandating that all handlers 
contribute assessments on a per-pound basis, the assessment 
contribution is relative to the amount handled, meaning smaller handler 
businesses pay relatively smaller assessment amounts than larger 
handler businesses.
    Similarly, if grade requirements were implemented, all pecans 
entering the market would have the same minimum quality. Witnesses 
explained that mandatory grade requirements, if implemented, would 
prevent the introduction of poorer quality product into the market, 
thereby lowering the consumer's expectations for quality pecans and 
depressing prices. Compliance would be necessary to ensure that 
mandatory requirements are being followed.
    Proponents of the proposed order explained that, if promulgated, 
the Council would have the responsibility of identifying and hiring a 
staff to administer the day-to-day operations of the program. One of 
these activities would be program compliance and would require the 
hiring of a compliance officer or staff. The compliance activities of 
this staff would include receiving and reviewing handler reports 
submitted to the Council, conducting on-site reviews of handler 
records, and facilitating assessment collections. Witnesses also 
explained that while the day-to-day compliance operations were to be 
assumed by the proposed Council, elevated cases of non-compliance would 
be reported to

[[Page 66397]]

the USDA for further review and oversight.

Material Issue Number 5(h)--Exemption for Small Quantities

    Proposed Sec.  986.86, Exemption, states that any handler who 
handles 1,000 pounds of inshell pecans or less, or 500 pounds of 
shelled pecans or less, during any fiscal year may handle pecans free 
of the regulatory and assessment provisions of the proposed order. As 
discussed earlier in this Recommended Decision, costs associated with 
operating a commercial handling facility are significant. Record 
evidence indicates that an individual would need to handle a minimum of 
one million pounds of inshell pecans in order to be commercially 
viable. Growers who engage in handling activities may own some 
equipment necessary to prepare pecans for market, but also frequently 
use contract handlers. Again, for these entities to be commercially 
viable, the volume handled would need to be much larger in order for 
the revenue generated to exceed the costs. The record shows that the 
purpose of this provision is to provide an exemption from the proposed 
requirements of the order for small quantities of pecans, such as those 
that are grown for home or personal use.
    An exception to the proposed exemption would be handlers engaged in 
mail order sales. Mail order sales would not be exempt. Mail order 
sales would be subject to any regulatory or assessment provisions in 
effect under the proposed order. Witnesses explained that the mail 
order business, also sometimes referred to as the ``fundraising 
business,'' should be regulated as these sales represent a significant 
portion of seasonal sales in parts of the Eastern and Central Regions. 
``Fundraising'' refers to sales of pecans to organizations that then 
resell the nuts as part of a fundraising activity. Moreover, witnesses 
explained that mail order and fundraising sales entail a more 
sophisticated business engagement than a small handler selling pecans 
at a roadside stand. For these reasons, the proposed exemption should 
not be applied to mail order sales, including fundraising sales.
    Additionally, implementing rules and regulation may be deemed 
necessary to ensure that handlers claiming this minimum exemption are 
not selling pecans in domestic human consumption outlets that are not 
in compliance with the minimum quality requirements of the order. Such 
rules and regulation could be implemented under the authority in 
proposed Sec.  986.86 of the order.

Material Issue Number 5(i)--Continuance Referenda, Amendments and 
Termination

    In accordance with proposed Sec.  986.94(d), the order should 
provide that the Department conduct periodic continuance referenda 
every 5 years. The initial continuance referendum should be conducted 
within 5 years of the effective date of the marketing order.
    Witnesses stated that the proposed continuance referendum 
requirement would be an important component of the proposed order. Many 
witnesses indicated that this provision would provide assurance that, 
if the industry determined that the program was not fulfilling its 
intended purpose, the program could be terminated.
    The Act provides that in the promulgation of a marketing order, at 
least two-thirds of the growers voting in the referendum, or two-thirds 
of the volume represented by those grower, must favor the issuance of 
the order. It is also the position of the Department that periodic 
referenda ensure that marketing order programs continue to be 
accountable to growers, obligate growers to evaluate their programs 
periodically, and involve them more closely in their operation. The 
record supports these goals.
    Witnesses explained that the same measure of support used in 
promulgation should also be used in the five-year periodic review of 
the order; at least two-thirds of growers voting would need to vote in 
favor of continuance. Witnesses also stated that prior to a continuance 
referendum, the Secretary would need to identify an appropriate period 
of time for which producers would report their production. Given that a 
continuance referendum measures votes cast in term of both number of 
eligible growers voting and the volume that each said grower produced, 
a production period needs to be identified.
    Section 986.94 of the proposed language as published in the Notice 
of Hearing indicated that the period of production in question should 
be the ``representative period'' as defined in Sec.  986.34 of the 
proposed language in this Recommended Decision. However, at the 
hearing, witnesses indicated that the four fiscal years identified in 
the definition may be too long of a time period. As such, the Board 
recommended modifying the proposed language in Sec.  986.94(d) to state 
that the period of time used to determine grower production volume 
should be determined by the Secretary. Moreover, according to the brief 
filed on behalf of the Board, this modification would also recognize 
the power of the Secretary to determine the preferred period of time 
for grower eligibility in continuance and termination referenda. 
Therefore, the words ``representative period'' in second sentence in 
paragraph (d) of this section should be changed to ``an appropriate 
period of time.'' This change has been incorporated into the proposed 
regulatory text of this Recommended Decision. A similar conforming 
change has been made to proposed Sec.  986.97, Counterparts.
    Section 608(C)(16)(B) of the Act also requires the Department to 
terminate the order whenever the Department finds that the majority of 
all growers favor termination, and that such majority produced more 
than 50 percent of the commodity for market. This provision is provided 
for in proposed Sec.  986.95.
    According to the record, if the order were terminated, the then-
serving Council members would continue serving as joint trustees for 
the purpose of liquidating all funds and property then in the 
possession or under the control of the Council, including claims for 
any funds unpaid or property not delivered at the time of such 
termination. The joint trustees would continue to serve in their 
capacity as such until discharged from their duties by the Secretary.
    The process of liquidating the order would require that these 
trustees account for all receipts and disbursements of program funds, 
and deliver all funds, program property, and books and records to the 
Secretary. Program funds would be used to meet any outstanding 
obligations and expenses of the program. Any remaining funds would be 
returned to industry handlers in a pro rata proportion to their 
assessment contributions.
    Lastly, the Secretary would have the authority to hold persons 
other than the Council members who may be holding program funds, 
property or claims, to the same obligations as the joint trustees.

Material Issue Number 5(j)--Common Terms

    The provisions of proposed Sec. Sec.  986.88 through 986.93 and 
Sec. Sec.  986.97 through 986.99 are common to marketing agreements and 
orders now operating. All such provisions are necessary to effectuate 
the other provisions of the marketing order and marketing agreement and 
to effectuate the declared policy of the Act. The record evidence 
supports inclusion of each provision. These provisions, which are 
applicable to both the marketing agreement and the marketing order, are 
identified by section number and heading as follows:

[[Page 66398]]

Sec.  986.88 Duration of immunities; Sec.  986.89 Separability; Sec.  
986.90 Derogation; Sec.  986.91 Liability; Sec.  986.92 Agents; and 
Sec.  986.93 Effective time. Those provisions applicable to the 
marketing agreement only are: Sec.  986.97 Counterparts; Sec.  986.98 
Additional parties; and, Sec.  986.99 Order with marketing agreement.

Small Business Consideration

    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has 
considered the economic impact of this action on small entities. 
Accordingly, the AMS has prepared this initial 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. Small agricultural producers 
have been defined by the Small Business Administration (SBA) (13 CFR 
121.601) as those having annual receipts of less than $750,000. Small 
agricultural service firms, which include handlers that would be 
regulated under the proposed pecan order, are defined as those with 
annual receipts of less than $7,000,000.
    Interested persons were invited to present evidence at the hearing 
on the probable regulatory and informational impact of the proposed 
pecan marketing order program on small businesses. The record evidence 
is that while the program would impose some costs on the regulated 
parties, those costs would be outweighed by the benefits expected to 
accrue to the U.S. pecan industry.
    Specific evidence on the number of large and small pecan farms 
(above and below the SBA threshold figure of $750,000 in annual sales) 
was not presented at the hearing. However, percentages can be estimated 
based on record evidence.
    The 2014 season average grower prices per pound for improved and 
native seedling pecans were $2.12 and $0.88, respectively. A weighted 
grower price of $1.85 is computed by applying as weights the percentage 
split between improved and native acreage on a representative U.S. 
pecan farm, which are 78 and 22 percent, respectively. The average 
yield on the representative farm is 1,666.67 pounds per acre. 
Multiplying the $1.85 price by the average yield gives total revenue 
per acre figure of $3,080. Dividing the $750,000 SBA annual sales 
threshold figure by the revenue per acre figure of $3,080 gives an 
estimate of 243 acres as the size of farm that would have annual sales 
about equal to $750,000, given the previous assumptions. Any farm of 
that size or larger would qualify as a large farm under the SBA 
definition.
    Data presented in the record show that about 52 percent of 
commercial U.S. pecan farms have 250 or more acres of pecans. Since the 
243 acre estimate above is close to 250 acres, it can be extrapolated 
that 52 percent is a reasonable approximation of the proportion of 
large farms and 48 percent is the proportion of small pecan farms. 
According to the record, this estimate does not include ``backyard'' 
production.
    According to record evidence, there are an estimated 250 handlers 
in the U.S. Of these handlers, which include accumulators, there are an 
estimated 50 commercially viable shellers with production over 1 
million pounds of inshell pecans operating within the proposed 
production area. Fourteen of these shellers meet the SBA definition for 
large business entity and the remaining 36 are small business entities.
    Record evidence indicates that implementing the proposed order 
would not represent a disproportionate burden on small businesses. An 
economic impact study of the proposed authority for generic promotion 
presented at the hearing provided that the proposed program would 
likely benefit all industry participants.

Impact of Generic Promotion Through a Marketing Order

    The record shows that generic promotion over a wide variety of 
agricultural products stimulates product demand and translates into 
higher prices for growers than would have been the case without 
promotion.
    Promotional impact studies of other tree nuts (almonds and 
walnuts), and of Texas pecans, show price increases as high as 6 
percent, but the record indicates that 0 to 3 percent is a more 
representative range. Since the other tree nut promotion programs are 
well-established, the record shows that a representative middle (most 
likely) scenario would be a price increase from promotion of 1.5 
percent for the early years of a new pecan promotion program. Low and 
high scenarios were 0.5 and 3.0 percent, respectively.
    The record indicates that an analytical method used historical 
yearly prices from 1997 to 2014 in a simulation covering that period to 
obtain an expected average price without promotion. In a subsequent 
step, the simulation applied a demand increase of 1.5 percent to the 
entire distribution of prices to represent the impact of promotion. The 
projected increases in grower prices from promotion for improved and 
native pecans were 6.3 and 3.6 cents per pound, respectively, as shown 
in Table 4. These two price increase projections represent a range of 
results. Based on a range of simulated price increases as high as 3 
percent, the low and high price increase projections for improved 
pecans were 4.0 and 9.6 cents, respectively. For native varieties, the 
results ranged from 2.7 to 4.2 cents.
    The record indicates that a key analytical step was developing an 
example farm with specific characteristics to explain market 
characteristics and marketing order impacts. An important 
characteristic of this ``representative farm'' is the acreage 
allocation between improved and native pecans of 78 and 22 percent, 
respectively. This is similar to the proportion of the U.S. pecan crop 
in recent years allocated to improved and native varieties. Average 
yield per acre of the representative farm (covering all states and 
varieties) is 1,666.67 pounds per acre.
    The acreage split of 78 and 22 percent are used as weights to 
compute weighted average prices (combining improved and native pecans) 
of 5.7 and 2.3 cents, respectively, as shown in the fourth column of 
Table 4.
    The record shows that the proposed initial ranges of marketing 
order assessments per pound are 2 to 3 cents for improved pecan and 1 
to 2 cents for native pecans. The midpoints of these ranges (2.5 and 
1.5 cents, respectively) are used to compute a benefit-cost ratio from 
promotion, with a weighted average assessment cost of 2.3 cents, as 
shown in Table 5. Assessments would be collected from handlers, not 
growers, but for purposes of this analysis, it is assumed that 100 
percent of the assessment cost would be passed through to growers.
    Table 4 shows that dividing the projected benefit of 5.7 cents per 
pound (weighted price increase from promotion) by the estimated 
assessment cost of 2.3 cents (weighted assessment rate per pound), 
yields a benefit-cost ratio of 2.5. For each dollar spent on pecan 
promotion through a Federal marketing order, U.S. average grower price 
per pound is expected to increase by $2.50.

[[Page 66399]]



           Table 4--Estimated Benefit-Cost Ratio of Pecan Promotion Through a Federal Marketing Order
----------------------------------------------------------------------------------------------------------------
                                                                     Improved
                                                                      pecans       Native pecans     Weighted
----------------------------------------------------------------------------------------------------------------
Benefit: Projected price increase from pecan promotion (cents               6.3             3.6             5.7
 per pound).....................................................
Cost: FMO Assessment rate (cents per pound).....................            2.5             1.5             2.3
Benefit-cost ratio..............................................            2.52            2.40            2.50
----------------------------------------------------------------------------------------------------------------
* Weights for improved and native pecans are 78% and 22%, respectively, which is the acreage allocation of a
  representative U.S. pecan farm, according to the record.

    Examining potential costs and benefits from promotion across 
different farm sizes is done in Table 5. Record evidence showed that 
the minimum size of a commercial pecan farm is 30 acres, and that a 
representative average yield across the entire production area is 
1,666.67 pounds per acre. This combination of acreage and yield results 
in a minimum threshold level of commercial production of 50,000 pounds. 
Witnesses stated that expenditures for the minimum necessary level of 
inputs for commercial pecan production cannot be justified for any 
operation smaller than this.
    In Table 5, a very small farm is defined as being at the minimum 
commercial threshold level of 30 acres and 50,000 pounds. Small and 
large farms are represented by farm size levels of 175 and 500 acres, 
respectively. Multiplying those acreage levels by the average yield for 
the entire production area gives total annual production level 
estimates of 291,667 and 833,335 pounds, respectively.
    Multiplying the 2014 grower price per pound of $2.14 by the 291,677 
pounds of production from the small farm (175 acres) yields an annual 
crop value estimate of about $618,000. This computation shows that the 
small farm definition from the record is consistent with the SBA 
definition of a small farm (annual sales value of up to $750,000).
    Table 5 shows for the three representative pecan farm sizes the 
allocation of total production levels between improved and native 
varieties (78 and 22 percent, respectively).
    Although marketing order assessments are paid by handlers, not 
growers, it is nevertheless useful to estimate the impact on growers, 
based on the assumption that handers may pass part or all of the 
assessment cost onto growers from whom they purchase pecans. To compute 
the marketing order burden for each farm size, the improved and native 
production quantities are multiplied by 2.5 and 1.5 cents per pound of 
improved and native pecans, respectively. For the representative small 
farm (175 acres), summing the improved and native assessments yields a 
total annual assessment cost of $6,650. For the large farm, the total 
assessment cost is $19,000.
    A parallel computation is made to obtain the total dollar benefit 
for each farm size. The improved and native quantities for the 
representative farm sizes are multiplied by the corresponding projected 
price increases of 6.3 and 3.6 cents. Summing the improved and native 
benefits for the small and large farm size yields projected annual 
total benefits for the small and large representative farm sizes of 
$16,643 and $47,550, respectively. The results of dividing the benefits 
for each farm size by the corresponding costs is 2.5, which equals the 
benefit-cost ratio shown in Table 5.

           Table 5--Costs and Benefits of Promotion for Three Sizes of Representative U.S. Pecan Farms
----------------------------------------------------------------------------------------------------------------
                                                                    Very small
                                                                       farm         Small farm      Large farm
----------------------------------------------------------------------------------------------------------------
Representative Pecan Farms: Acres and Production:
    Acres per farm..............................................              30             175             500
    Production on Representative Farms (Acres multiplied by               50,000         291,667         833,335
     estimated U.S. average yield of 1666.67 pounds per acre)...
    Improved pecan production (78% of farm acres)...............          39,000         227,500         650,001
    Native pecan production (22% of farm acres).................          11,000          64,167         183,334
Cost per farm: Grower burden of proposed program represented as
 cost per pound.
    Improved (2.5 cents)........................................            $975          $5,688         $16,250
    Native (1.5 cents)..........................................            $165            $963          $2,750
                                                                 -----------------------------------------------
        Total Estimated Cost per Farm...........................          $1,140          $6,650         $19,000
Benefit per farm: Price increase per pound from pecan promotion
 multiplied by improved and native production
    Improved (6.3 cents)........................................          $2,457         $14,333         $40,950
    Native (3.6 cents)..........................................            $396          $2,310          $6,600
        Total Estimated Benefit per Farm........................          $2,853         $16,643         $47,550
----------------------------------------------------------------------------------------------------------------

    The computations in Table 5 provide an illustration, based on 
evidence from the record, that there would be no disproportionate 
impact on smaller size farms from establishing a marketing order and 
implementing a promotion program. Costs are assessed per pound and thus 
represent an equal burden regardless of size. The projected benefits 
from promotion are realized through increases in price per pound and 
are thus distributed proportionally among different sizes of farms.
    All of the grower and handler witnesses, both large and small, 
testified that the projected price increases from promotion of pecans 
(6.3 and 3.6 cents per pound for improved and native pecans, 
respectively) were reasonable estimates of the benefits from generic 
promotion of pecans. A number of them expressed the view that the price 
increase estimates were conservative and that, over time, the price 
impact would be larger.
    As mentioned above, marketing order assessments are paid by 
handlers, not growers. However, since handlers may pass some or all of 
the assessment cost

[[Page 66400]]

onto growers, it is useful to provide this illustration of potential 
impact on both growers and handlers.
    Using the most recent three years of prices as examples of typical 
U.S. annual grower prices, Table 6 summarizes evidence from the record 
that shows the proposed marketing order assessment rates as percentages 
of grower and handler prices received. Based on record evidence that a 
representative handler margin is 57.5 cents per pound, handler prices 
are estimated by summing the grower price and handler margin.

                Table 6--Proposed Marketing Order Assessment Rates as a Percentage of Prices for Pecans Received by Growers and Handlers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Grower and handler prices                        Assessment rates as a percent of
                                                              ---------------------------------------  Assessment             prices received
                                                                                                       rates ***  --------------------------------------
                                                                   2012         2013         2014                      2012         2013         2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grower price *
    Improved.................................................        $1.73        $1.90        $2.12       $0.025         1.4%         1.3%         1.2%
    Native...................................................         0.88         0.92         0.88        0.015          1.7          1.6          1.7
Handler price **
    Improved.................................................         2.31         2.48         2.70        0.025         1.08         1.01         0.93
    Native...................................................         1.46         1.50         1.46        0.015         1.03         1.00         1.03
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Season average grower price per pound from NASS/USDA.
** Grower price plus average handler margin of 57.5 cents per pound, based on hearing evidence.
*** Midpoints of proposed initial marketing order assessment rates: Improved (2 to 3 cents); Native (1 to 2 cents). For growers this represents the cost
  of the marketing order burden and for handlers this represents the cost of the assessment paid.

    For both improved and native pecans, using 2012 to 2014 prices as 
examples, Table 6 shows that the potential burden of the proposed 
program can be calculated at between 1 and 2 percent of operating 
expenses for growers and are approximately 1 percent of operating 
expenses for handlers. Grower and handler witnesses, both large and 
small, covering both improved and native pecans, testified that the 
proposed initial marketing order assessment rates would not represent a 
significant burden to their businesses and that the benefits of the 
proposed generic promotion program substantially outweigh the cost. 
Sheller witnesses (large and small) that would likely become handlers 
under a Federal marketing order testified that the additional 
recordkeeping required to collect assessments to send to the marketing 
order board (American Pecan Council) would not be a significant 
additional burden and that the benefits would substantially outweigh 
the costs. Several witnesses stated that one reason that collecting the 
assessments would have only a minor impact is that they already perform 
similar functions for promotion and other pecan-related programs (or 
other commodity programs) organized under state law.

Additional Marketing Order Programs

    Statements of support for additional benefits that could come from 
a Federal marketing order came from grower and handler witnesses, both 
large and small, covering both improved and native pecans. The 
additional benefits cited included: (1) Additional and more accurate 
market information, including data on production, inventory, and total 
supplies, (2) funding of research on health and nutrition aspects of 
pecans, improved technology relating to the pecan supply chain and crop 
health, consumer trends, and other topics, and (3) uniform, industry-
wide quality standards for pecans, as well as packaging standards and 
shipping protocols. Witnesses testified that the burden of funding and 
participating in marketing order programs with these features would be 
minor, and that the benefits would substantially outweigh the costs.
    The proposed order would impose some reporting and recordkeeping 
requirements on handlers. However, testimony indicated that the 
expected burden that would be imposed with respect to these 
requirements would be negligible. Most of the information that would be 
reported to the Council is already compiled by handlers for other uses 
and is readily available. Reporting and recordkeeping requirements 
issued under other tree nut programs impose an average annual burden on 
each regulated handler of about 8 hours. It is reasonable to expect 
that a similar burden may be imposed under this proposed marketing 
order on the estimated 250 handlers of pecans in the proposed 
production area.
    The Act requires that, prior to the issuance of a marketing order, 
a referendum be conducted among the affected growers to determine if 
they favor issuance of the order. The ballot material that would be 
used in conducting the referendum would be submitted to and approved by 
OMB before it is used. It is estimated that it would take an average of 
10 minutes for each grower to complete the ballot. Additionally, it has 
been estimated that it would take approximately 10 minutes for each 
handler to complete the marketing agreement.
    Therefore, in compliance with OMB regulations (5 CFR part 1320) 
which implement the Paperwork Reduction Act of 1995 (Pub. L. 104-13), 
the information collection and recordkeeping requirements that may be 
imposed by this order would be submitted to OMB for approval. Those 
requirements would not become effective prior to OMB review. Any 
recordkeeping and reporting requirements imposed would be evaluated 
against the potential benefits to be derived, and it is expected that 
any added burden resulting from increased reporting and recordkeeping 
would not be significant when compared to those anticipated benefits 
derived from administration of the proposed order.
    The record evidence also indicates that the benefits to small as 
well as large handlers are likely to be greater than would accrue under 
the alternatives to the order proposed herein; namely, no marketing 
order.
    In determining that the proposed order and its provisions would not 
have a disproportionate economic impact on a substantial number of 
small entities, all of the issues discussed above were considered. 
Based on hearing record evidence and USDA's analysis of the economic 
information provided, the proposed order provisions have been carefully 
reviewed to ensure that every effort has been made to eliminate any 
unnecessary costs or requirements.
    Although the proposed order may impose some additional costs and 
requirements on handlers, it is

[[Page 66401]]

anticipated that the order will help to strengthen demand for pecans. 
Therefore, any additional costs would be offset by the benefits derived 
from expanded sales benefiting handlers and growers alike. Accordingly, 
it is determined that the proposed order would not have a 
disproportionate economic impact on a substantial number of small 
handlers or growers.
    A 30-day comment period is provided to allow interested persons to 
respond to this proposed decision to effectuate a marketing order. 
Thirty days is deemed appropriate so that any marketing order resulting 
from this rulemaking process may be implemented as soon as possible at 
the beginning of the nearest fiscal year. A 60-day comment period on 
the information collection burden is deemed appropriate as any 
paperwork burden imposed by this action will not become effective until 
the process is finalized. All written exceptions and comments timely 
received will be considered and a grower referendum will be conducted 
before these proposals are implemented.

Civil Justice Reform

    The marketing agreement and order proposed herein have been 
reviewed under Executive Order 12988, Civil Justice Reform. They are 
not intended to have retroactive effect. If adopted, the proposed order 
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 the Department a 
petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with law and request a modification of the order or to be exempted 
there from. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing, the USDA would rule on the petition. The 
Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the 
Department's ruling on the petition, provided an action is filed not 
later than 20 days after the date of the entry of the ruling.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), AMS announces its intention to request an approval of a 
new information collection for the marketing order regulating pecans 
grown in Alabama, Arkansas, Arizona, California, Florida, Georgia, 
Kansas, Louisiana, Missouri, Mississippi, North Carolina, New Mexico, 
Oklahoma, South Carolina, and Texas.
    Title: Pecans Grown in Alabama, Arkansas, Arizona, California, 
Florida, Georgia, Kansas, Louisiana, Missouri, Mississippi, North 
Carolina, New Mexico, Oklahoma, South Carolina, and Texas.
    OMB Number: 0581--NEW.
    Expiration Date of Approval: To be assigned by OMB.
    Type of Request: Intent to establish a new information collection.
    Abstract: The information collection requirements in this request 
are essential to carry out the intent of the Act, to provide the 
respondents the type of service they request, and to administer the 
proposed pecan marketing order program.
    The proposed pecan marketing order would authorize data collection, 
research and promotion authority, grade and size regulation, as well as 
pack and container regulation. AMS is the agency that would provide 
oversight of the order, and any administrative rules and regulations 
issued under the program.
    The Department must determine if sufficient grower support exists 
within the industry to initially establish the proposed marketing 
order. If the order were established, the USDA could also, given 
recommendation by the Council and adequate support by the industry, 
implement formal rulemaking to amend the order. Further, a continuance 
referendum would be conducted every 5 years to determine ongoing 
industry support for the order. In all of these instances, ballot 
information would be collected from growers and compiled in aggregate 
for purposes of determining grower support for the order (or any 
amendment to the order).
    Upon implementation of the order or during amendatory proceedings, 
handlers would be asked to sign a marketing agreement to indicate their 
willingness to comply with the provisions of the new or amended order. 
AMS would also provide a certificate of resolution for each handler 
organization to sign, documenting the handler's support of the 
marketing agreement and order.
    If the proposed order is established, handler and grower nomination 
forms, ballots, and confidential qualification and acceptance 
statements will be used to nominate and appoint the Council members.
    Pecan growers and handlers would be nominated by their peers to 
serve as representatives on the Council. Each grower and handler would 
have the opportunity to submit a nomination form with the names of 
individuals to be considered for nomination.
    Individuals who are nominated and wish to stand for election would 
be required to complete a confidential qualification and acceptance 
statement before the election. If qualified, the nominees would be 
placed on a nomination ballot.
    Growers and handlers would vote for the candidate(s) of their 
choice using the grower and handler nomination ballots. Names of 
candidates and their respective vote tallies would be submitted to AMS 
for selection and appointment as Council members and alternate members. 
The grower and handler members of the Council would nominate an at-
large accumulator and an alternate accumulator member, as well as a 
public member and alternate public member. Each would complete 
qualification and acceptance statement before being recommended to AMS 
for appointment.
    The forms covered under this information collection request 
submission of minimum information necessary to ascertain grower support 
for implementing the proposed order and to appoint initial Council 
members. Additional reporting and recordkeeping requirements may 
subsequently be recommended by the Council for its use in administering 
the order. The burden imposed by any additional requirements would be 
submitted for approval by the OMB.
    The information collected would be used only by authorized 
representatives of USDA, including AMS, Specialty Crops Program 
regional and headquarters' staff, and authorized employees of the 
Council, if established. Section 608(d)(2) of the Act provides that all 
information would be kept confidential.

Total Annual Estimated Burden

    The total burden for the proposed information collection under the 
order is as follows:
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 12.5 minutes per response.
    Estimated Number of Respondents: 1,789.
    Estimated Number of Responses per Respondent: .77.
    Estimated Total Annual Burden on Respondents: 469 hours.

[[Page 66402]]

Estimated Annual Burden for Each Form

    For each new form, the proposed request for approval of new 
information collections under the order are as follows:
    FV-313 Grower's Referendum Ballot (promulgation and continuance). 
Growers would use this ballot to vote whether they favor establishment 
of the order and, once every 5 years, whether they want the order to 
continue in effect. For the purpose of this calculation, it is 
estimated that 1,875 pecan growers (75 percent of the total) would vote 
in the promulgation referendum and in the continuance referenda.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 20 minutes per response.
    Respondents: Alabama, Arkansas, Arizona, California, Florida, 
Georgia, Kansas, Louisiana, Missouri, Mississippi, North Carolina, New 
Mexico, Oklahoma, South Carolina, and Texas pecan growers.
    Estimated Number of Respondents: 1,875.
    Estimated Number of Responses per Respondent: Once every 5 years.
    Estimated Total Annual Burden on Respondents: 125 hours.
    FV-242 Marketing Agreement. Handlers would use this form to 
indicate their willingness to comply with the provisions of the order. 
The marketing agreement would be completed if the proposed order is 
implemented and in any future amendment of the order.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 5 minutes per response.
    Respondents: Alabama, Arkansas, Arizona, California, Florida, 
Georgia, Kansas, Louisiana, Missouri, Mississippi, North Carolina, New 
Mexico, Oklahoma, South Carolina, and Texas pecan handlers.
    Estimated Number of Respondents: 50.
    Estimated Number of Responses per Respondent: Once every 5 years.
    Estimated Total Annual Burden on Respondents: .83 minute.
    FV-242A Certificate of Resolution. This would document corporate 
handlers' support for the order and marketing agreement. The marketing 
agreement would be completed if the proposed order is implemented and 
in any future amendment of the order.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 5 minutes per response.
    Respondents: Incorporated pecan handlers.
    Estimated Number of Respondents: 50.
    Estimated Number of Responses per Respondent: Once every 5 years.
    Estimated Total Annual Burden on Respondents: .83 minute.
    FV-311 and 312 Administrative Council for Pecans Confidential 
Grower/Sheller and Public Member Qualification and Acceptance 
Statement. There are 17 members and 17 alternate members on the 
Council. Each year after the initial Council is seated, half of the 34 
members would be replaced with new members. This form would be used by 
candidates for nomination to provide their qualifications to serve on 
the Council. For the purpose of this calculation, it is estimated that 
60 individuals will agree to be candidates to serve on the Council.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 10 minutes per response.
    Respondents: Alabama, Arkansas, Arizona, California, Florida, 
Georgia, Kansas, Louisiana, Missouri, Mississippi, North Carolina, New 
Mexico, Oklahoma, South Carolina, and Texas pecan growers, handlers and 
public member nominees.
    Estimated Number of Respondents: 60.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 5.7 hours.
    FV-308 Sheller Members and Alternate Sheller Members Ballot. Each 
sheller would use the ballot to vote on sheller member nominees to 
serve on the Council.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 5 minutes per response.
    Respondents: Alabama, Arkansas, Arizona, California, Florida, 
Georgia, Kansas, Louisiana, Missouri, Mississippi, North Carolina, New 
Mexico, Oklahoma, South Carolina, and Texas pecan handlers.
    Estimated Number of Respondents: 50.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 4.2 hours.
    FV-309 Grower Members and Alternate Grower Members Nomination Form. 
Pecan growers would use this form to nominate themselves or other 
growers to serve on the Council. For the purpose of this calculation, 
it is estimated that 50 growers will offer nominations.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 20 minutes per response.
    Respondents: Alabama, Arkansas, Arizona, California, Florida, 
Georgia, Kansas, Louisiana, Missouri, Mississippi, North Carolina, New 
Mexico, Oklahoma, South Carolina, and Texas pecan growers.
    Estimated Number of Respondents: 50.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 16.7 hours.
    FV-310 Sheller Members and Alternate Sheller Members Nomination 
Form. Pecan shellers would use this form to nominate themselves or 
other shellers to serve on the Council. For the purpose of this 
calculation, it is estimated that 10 shellers will offer nominations.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 20 minutes per response.
    Respondents: Alabama, Arkansas, Arizona, California, Florida, 
Georgia, Kansas, Louisiana, Missouri, Mississippi, North Carolina, New 
Mexico, Oklahoma, South Carolina, and Texas pecan handlers.
    Estimated Number of Respondents: 10.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 3.3 hours.
    FV-307 Grower Member and Alternate Grower Member Ballot. Pecan 
growers would use this ballot to vote on their choice of nominees to 
serve on the Council. For the purpose of this calculation, it is 
estimated that 1,250 growers (50 percent of all growers) will vote in 
nomination elections.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 15 minutes per response.
    Respondents: Alabama, Arkansas, Arizona, California, Florida, 
Georgia, Kansas, Louisiana, Missouri, Mississippi, North Carolina, New 
Mexico, Oklahoma, South Carolina, and Texas pecan growers.
    Estimated Number of Respondents: 1,250.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 313 hours.
    If this marketing order program is approved by growers in 
referendum and established by USDA, the Council could recommend to the 
Department other forms (such as monthly handler reports of acquisitions 
or dispositions of substandard pecans) which would be

[[Page 66403]]

needed to administer the order. All such forms would be subject to USDA 
and OMB review and approval.
    Comments: Comments are invited on: (1) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information would 
have practical utility; (2) the accuracy of the agency's estimate of 
the burden of the proposed collection of information, including the 
validity of the methodology and assumptions used; (3) ways to enhance 
the quality, utility, and clarity of the information to be collected; 
and (4) ways to minimize the burden of the collection of information on 
those who are to respond, including the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology.
    Comments should reference OMB No. 0581--NEW and the pecan marketing 
order, and be sent to USDA in care of the Docket Clerk at the 
previously mentioned address. All comments received will be available 
for public inspection during regular business hours at the same 
address.
    All responses to this notice will be summarized and included in the 
request for OMB approval of the above-described forms. All comments 
will become a matter of public record.

Rulings on Proposed Findings and Conclusions

    Briefs, proposed findings and conclusions, and the evidence in the 
record were considered in making the findings and conclusions set forth 
in this recommended decision. To the extent that the suggested findings 
and conclusions filed by interested persons are inconsistent with the 
findings and conclusions of this recommended decision, the requests to 
make such findings or to reach such conclusions are denied.

General Findings

    (1) The proposed marketing agreement and order and all of the terms 
and conditions thereof, would tend to effectuate the declared policy of 
the Act;
    (2) The proposed marketing agreement and order regulate the 
handling of pecans in Alabama, Arkansas, Arizona, California, Florida, 
Georgia, Kansas, Louisiana, Missouri, Mississippi, North Carolina, New 
Mexico, Oklahoma, South Carolina, and Texas 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 proposed marketing agreement and order are limited in their 
application to the smallest regional production area which is 
practicable, consistent with carrying out the declared policy of the 
Act, and the issuance of several orders applicable to subdivision of 
the production area would not effectively carry out the declared policy 
of the Act;
    (4) The proposed marketing agreement and order prescribe, insofar 
as practicable, such different terms applicable to different parts of 
the production area as are necessary to give due recognition to the 
differences in the production and marketing of pecans grown in the 
production area; and
    (5) All handling of pecans grown in the production area (Alabama, 
Arkansas, Arizona, California, Florida, Georgia, Kansas, Louisiana, 
Missouri, Mississippi, North Carolina, New Mexico, Oklahoma, South 
Carolina, and Texas) as defined in the proposed marketing agreement and 
order, is in the current of interstate or foreign commerce or directly 
burdens, obstructs, or affects such commerce.
    Provisions of the proposed marketing agreement and order follow. 
Those sections identified with an asterisk (*) apply only to the 
proposed marketing agreement.

List of Subjects in Proposed 7 CFR Part 986

    Marketing agreements, Pecans, Reporting and recordkeeping 
requirements.

    The Agricultural Marketing Service proposes to add 7 CFR part 986 
to read as follows:

PART 986--PECANS GROWN IN THE STATES OF ALABAMA, ARKANAS, ARIZONA, 
CALIFORNIA, FLORIDA, GEORGIA, KANSAS, LOUISIANA, MISSOURI, 
MISSISSIPPI, NORTH CAROLINA, NEW MEXICO, OKLAHOMA, SOUTH CAROLINA, 
AND TEXAS

Subpart A--Order Regulating Handling of Pecans

Sec.

Definitions

986.1 Accumulator.
986.2 Act.
986.3 Affiliation.
986.4 Blowouts.
986.5 To certify.
986.6 Confidential data or information.
986.7 Container.
986.8 Council.
986.9 Crack.
986.10 Cracks.
986.11 Custom harvester.
986.12 Department or USDA.
986.13 Disappearance.
986.14 Farm Service Agency.
986.15 Fiscal year.
986.16 Grade and size.
986.17 Grower.
986.18 Grower-cleaned production.
986.19 Handler.
986.20 To handle.
986.21 Handler inventory.
986.22 Handler-cleaned production.
986.23 Hican.
986.24 Inshell pecans.
986.25 Inspection service.
986.26 Inter-handler transfer.
986.27 Merchantable pecans.
986.28 Pack.
986.29 Pecans.
986.30 Person.
986.31 Production area.
986.32 Proprietary capacity.
986.33 Regions.
986.34 Representative period.
986.35 Secretary.
986.36 Sheller.
986.37 Shelled pecans.
986.38 Stick-tights.
986.39 Trade supply.
986.40 Unassessed inventory.
986.41 Varieties.
986.42 Warehousing.
986.43 Weight.

Administrative Body

986.45 American Pecan Council.
986.46 Council nominations and voting.
986.47 Alternate members.
986.48 Eligibility.
986.49 Acceptance.
986.50 Term of office.
986.51 Vacancy.
986.52 Council expenses.
986.53 Powers.
986.54 Duties.
986.55 Procedure.
986.56 Right of the Secretary.
986.57 Funds and other property.
986.58 Reapportionment and redefining of regions.

Expenses, Assessments And Marketing Policy

986.60 Budget.
986.61 Assessments.
986.62 Inter-handler transfers.
986.63 Contributions.
986.64 Accounting.
986.65 Marketing policy.

Authorities Relating to Research, Promotion, Data Gathering, Packaging, 
Grading, Compliance and Reporting

986.67 Recommendations for regulations.
986.68 Authority for research and promotion activities.
986.69 Authorities regulating handling.
986.70 Handling for special purposes.
986.71 Safeguards.
986.72 Notification of regulation.

Reports, Books and Other Records

986.75 Reports of handler inventory.
986.76 Reports of merchantable pecans handled.
986.77 Reports of pecans received by handlers.

[[Page 66404]]

986.78 Other handler reports.
986.79 Verification of reports.
986.80 Certification of reports.
986.81 Confidential information.

Administrative Provisions

986.86 Exemptions.
986.87 Compliance.
986.88 Duration of immunities.
986.89 Separability.
986.90 Derogation.
986.91 Liability.
986.92 Agents.
986.93 Effective time.
986.94 Termination.
986.95 Proceedings after termination.
986.96 Amendments.
986.97 Counterparts.
986.98 Additional participants.
986.99 Order with marketing agreement.

Subpart B--Reserved

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

Definitions


Sec.  986.1  Accumulator.

    Accumulator means a person who compiles inshell pecans from other 
persons for the purpose of resale or transfer.


Sec.  986.2  Act.

    Act means Public Act No. 10, 73d Congress, as amended and as 
reenacted and amended by the Agricultural Marketing Agreement Act of 
1937, as amended (7 U.S.C. 601 et seq.).


Sec.  986.3  Affiliation.

    Affiliation. This term normally appears as ``affiliate of'' or 
``affiliated with,'' and means a person such as a grower or sheller who 
is: A grower or handler that directly, or indirectly through one or 
more intermediaries, owns or controls, or is controlled by, or is under 
common control with the grower or handler specified; or a grower or 
handler that directly, or indirectly through one or more 
intermediaries, is connected in a proprietary capacity, or shares the 
ownership or control of the specified grower or handler with one or 
more other growers or handlers. As used in this part, the term 
``control'' (including the terms ``controlling,'' ``controlled by,'' 
and ``under the common control with'') means the possession, direct or 
indirect, of the power to direct or cause the direction of the 
management and policies of a handler or a grower, whether through 
voting securities, membership in a cooperative, by contract or 
otherwise.


Sec.  986.4  Blowouts.

    Blowouts mean lightweight or underdeveloped inshell pecan nuts that 
are considered of lesser quality and market value.


Sec.  986.5  To certify.

    To certify means the issuance of a certification of inspection of 
pecans by the inspection service.


Sec.  986.6  Confidential data or information.

    Confidential data or information submitted to the Council consists 
of data or information constituting a trade secret or disclosure of the 
trade position, financial condition, or business operations of a 
particular entity or its customers.


Sec.  986.7  Container.

    Container means a box, bag, crate, carton, package (including 
retail packaging), or any other type of receptacle Used in the 
packaging or handling of pecans.


Sec.  986.8  Council.

    Council means the American Pecan Council established pursuant to 
Sec.  986.45, American Pecan Council.


Sec.  986.9  Crack.

    Crack means to break, crack, or otherwise compromise the outer 
shell of a pecan so as to expose the kernel inside to air outside the 
shell.


Sec.  986.10  Cracks.

    Cracks refer to an accumulated group or container of pecans that 
have been cracked in harvesting or handling.


Sec.  986.11  Custom harvester.

    Custom harvester means a person who harvests inshell pecans for a 
fee.


Sec.  986.12  Department or USDA.

    Department or USDA means the United States Department of 
Agriculture.


Sec.  986.13  Disappearance.

    Disappearance means the difference between the sum of grower-
cleaned production and handler-cleaned production (whether from 
improved orchards or native and seedling groves) and the sum of inshell 
and shelled merchantable pecans reported on an inshell weight basis.


Sec.  986.14  Farm Service Agency.

    Farm Service Agency or FSA means that agency of the U.S. Department 
of Agriculture.


Sec.  986.15  Fiscal year.

    Fiscal year means the twelve months from October 1 to September 30, 
both inclusive, or any other such period deemed appropriate by the 
Council and approved by the Secretary.


Sec.  986.16  Grade and size.

    Grade and size means any of the officially established grades of 
pecans and any of the officially established sizes of pecans as set 
forth in the United States standards for inshell and shelled pecans or 
amendments thereto, or modifications thereof, or other variations of 
grade and size based thereon recommended by the Council and approved by 
the Secretary.


Sec.  986.17  Grower.

    (a) Grower is synonymous with producer and means any person engaged 
within the production area in a proprietary capacity in the production 
of pecans if such person:
    (1) Owns an orchard and harvests its pecans for sale (even if a 
custom harvester is used); or
    (2) Is a lessee of a pecan orchard and has the right to sell the 
harvest (even if the lessee must remit a percentage of the crop or rent 
to a lessor).
    (b) The term ``grower'' shall only include those who produce a 
minimum of 50,000 pounds of inshell pecans during a representative 
period (average of four years) or who own a minimum of 30 pecan acres 
according to the FSA, including acres calculated by the FSA based on 
pecan tree density. In the absence of any FSA delineation of pecan 
acreage, the regular definition of an acre will apply. The Council may 
recommend changes to this definition subject to the approval of the 
Secretary.


Sec.  986.18  Grower-cleaned production.

    Grower-cleaned production means production harvested and processed 
through a cleaning plant to determine volumes of improved pecans, 
native and seedling pecans, and substandard pecans to transfer to a 
handler for sale.


Sec.  986.19  Handler.

    Handler means any person who handles inshell or shelled pecans in 
any manner described in Sec.  986.20.


Sec.  986.20  To handle.

    To handle means to receive, shell, crack, accumulate, warehouse, 
roast, pack, sell, consign, transport, export, or ship (except as a 
common or contract carrier of pecans owned by another person), or in 
any other way to put inshell or shelled pecans into any and all markets 
in the stream of commerce either within the area of production or from 
such area to any point outside thereof. The term ``to handle'' shall 
not include: Sales and deliveries within the area of production by 
growers to handlers; grower warehousing; custom handling (except for 
selling, consigning or exporting) or other similar activities paid for 
on a fee-for-service basis by a grower who retains the ownership of the 
pecans; or transfers between handlers.

[[Page 66405]]

Sec.  986.21  Handler inventory.

    Handler inventory means all pecans, shelled or inshell, as of any 
date and wherever located within the production area, then held by a 
handler for their account.


Sec.  986.22  Handler-cleaned production.

    Handler-cleaned production is production that is received, 
purchased or consigned from the grower by a handler prior to processing 
through a cleaning plant, and then subsequently processed through a 
cleaning plant so as to determine volumes of improved pecans, native 
and seedling pecans, and substandard pecans.


Sec.  986.23  Hican.

    Hican means a tree resulting from a cross between a pecan and some 
other type of hickory (members of the genus Carya) or the nut from such 
a hybrid tree.


Sec.  986.24  Inshell pecans.

    Inshell pecans are nuts whose kernel is maintained inside the 
shell.


Sec.  986.25  Inspection Service.

    Inspection service means the Federal-State Inspection Service or 
any other inspection service authorized by the Secretary.


Sec.  986.26  Inter-handler transfer.

    Inter-handler transfer means the movement of inshell pecans from 
one handler to another inside the production area for the purposes of 
additional handling. Any assessments or requirements under this part 
with respect to inshell pecans so transferred may be assumed by the 
receiving handler.


Sec.  986.27  Merchantable pecans.

    (a) Inshell. Merchantable inshell pecans mean all inshell pecans 
meeting the minimum grade regulations that may be effective pursuant to 
Sec.  986.69, Authorities regulating handling.
    (b) Shelled. Merchantable shelled pecans means all shelled pecans 
meeting the minimum grade regulations that may be effective pursuant to 
Sec.  986.69, Authorities regulating handling.


Sec.  986.28  Pack.

    Pack means to clean, grade, or otherwise prepare pecans for market 
as inshell or shelled pecans.


Sec.  986.29  Pecans.

    (a) Pecans means and includes any and all varieties or subvarieties 
of Genus: Carya, Species: illinoensis, expressed also as Carya 
illinoinensis (syn. C. illinoenses) including all varieties thereof, 
excluding hicans, that are produced in the production area and are 
classified as:
    (1) Native or seedling pecans harvested from non-grafted or 
naturally propagated tree varieties;
    (2) Improved pecans harvested from grafted tree varieties bred or 
selected for superior traits of nut size, ease of shelling, production 
characteristics, and resistance to certain insects and diseases, 
including but not limited to: Desirable, Elliot, Forkert, Sumner, 
Creek, Excel, Gracross, Gratex, Gloria Grande, Kiowa, Moreland, Sioux, 
Mahan, Mandan, Moneymaker, Morrill, Cunard, Zinner, Byrd, McMillan, 
Stuart, Pawnee, Eastern and Western Schley, Wichita, Success, Cape 
Fear, Choctaw, Cheyenne, Lakota, Kanza, Caddo, and Oconee; and
    (3) Substandard pecans that are blowouts, cracks, stick-tights, and 
other inferior quality pecans, whether native or improved, that, with 
further handling, can be cleaned and eventually sold into the stream of 
commerce.
    (b) The Council, with the approval of the Secretary, may recognize 
new or delete obsolete varieties or sub-varieties for each category.


Sec.  986.30  Person.

    Person means an individual, partnership, corporation, association, 
or any other business unit.


Sec.  986.31  Production area.

    Production area means the following fifteen pecan-producing states 
within the United States: Alabama, Arkansas, Arizona, California, 
Florida, Georgia, Kansas, Louisiana, Mississippi, Missouri, North 
Carolina, New Mexico, Oklahoma, South Carolina, and Texas.


Sec.  986.32  Proprietary capacity.

    Proprietary capacity means the capacity or interest of a grower or 
handler that, either directly or through one or more intermediaries or 
affiliates, is a property owner together with all the appurtenant 
rights of an owner, including the right to vote the interest in that 
capacity as an individual, a shareholder, member of a cooperative, 
partner, trustee or in any other capacity with respect to any other 
business unit.


Sec.  986.33  Regions.

    (a) Regions within the production area shall consist of the 
following:
    (1) Eastern Region, consisting of: Alabama, Florida, Georgia, North 
Carolina, South Carolina
    (2) Central Region, consisting of: Arkansas, Kansas, Louisiana, 
Mississippi, Missouri, Oklahoma, Texas
    (3) Western Region, consisting of: Arizona, California, New Mexico
    (b) With the approval of the Secretary, the boundaries of any 
region may be changed pursuant to Sec.  986.58, Reapportionment and 
redefining of regions.


Sec.  986.34  Representative period.

    Representative period is the previous four fiscal years for which a 
grower's annual average production is calculated, or any other period 
recommended by the Council and approved by the Secretary.


Sec.  986.35  Secretary.

    Secretary means the Secretary of Agriculture of the United States, 
or any other officer or employee of the United States Department of 
Agriculture who is, or who may be, authorized to perform the duties of 
the Secretary of Agriculture of the United States.


Sec.  986.36  Sheller.

    Sheller refers to any person who converts inshell pecans to shelled 
pecans and sells the output in any and all markets in the stream of 
commerce, both within and outside of the production area; Provided, 
That the term ``sheller'' shall only include those who shell more than 
1 million pounds of inshell pecans in a fiscal year. The Council may 
recommend changes to this definition subject to the approval of the 
Secretary.


Sec.  986.37  Shelled pecans.

    Shelled pecans are pecans whose shells have been removed leaving 
only edible kernels, kernel pieces or pecan meal. Shelled pecans are 
synonymous with pecan meats.


Sec.  986.38  Stick-tights.

    Stick-tights means pecans whose outer shuck has adhered to the 
shell causing their value to decrease or be discounted.


Sec.  986.39  Trade supply.

    Trade supply means the quantity of merchantable inshell or shelled 
pecans that growers will supply to handlers during a fiscal year for 
sale in the United States and abroad or, in the absence of handler 
regulations Sec.  986.69 setting forth minimum grade regulations for 
merchantable pecans, the sum of handler-cleaned and grower-cleaned 
production.


Sec.  986.40  Unassessed inventory.

    Unassessed inventory means inshell pecans held by growers or 
handlers for which no assessment has been paid to the Council.

[[Page 66406]]

Sec.  986.41  Varieties.

    Varieties mean and include all cultivars, classifications, or 
subdivisions of pecans.


Sec.  986.42  Warehousing.

    Warehousing means to hold assessed or unassessed inventory.


Sec.  986.43  Weight.

    Weight means pounds of inshell pecans, received by handler within 
each fiscal year; Provided, That for shelled pecans the actual weight 
shall be multiplied by two to obtain an inshell weight.

Administrative Body


Sec.  986.45  American Pecan Council.

    The American Pecan Council is hereby established consisting of 17 
members selected by the Secretary, each of whom shall have an alternate 
member nominated with the same qualifications as the member. The 17 
members shall include nine (9) grower seats, six (6) sheller seats, and 
two (2) at-large seats allocated to one accumulator and one public 
member. The grower and sheller nominees and their alternates shall be 
growers and shellers at the time of their nomination and for the 
duration of their tenure. Grower and sheller members and their 
alternates shall be selected by the Secretary from nominees submitted 
by the Council. The two at-large seats shall be nominated by the 
Council and appointed by the Secretary.
    (a) Each region shall be allocated the following member seats:
    (1) Eastern Region: Three (3) growers and two (2) shellers;
    (2) Central Region: Three (3) growers and two (2) shellers;
    (3) Western Region: Three (3) growers and two (2) shellers.
    (b) Within each region, the grower and sheller seats shall be 
defined as follows:
    (1) Grower seats: Each region shall have a grower Seat 1 and Seat 2 
allocated to growers whose acreage is equal to or exceeds 176 pecan 
acres. Each region shall also have a grower Seat 3 allocated to a 
grower whose acreage is less than 176 pecan acres.
    (2) Sheller seats: Each region shall have a sheller Seat 1 
allocated to a sheller who handles more than 12.5 million pounds of 
inshell pecans in the fiscal year preceding nomination, and a sheller 
Seat 2 allocated to a sheller who handles less than or equal to 12.5 
million pounds of inshell pecans in the fiscal year preceding 
nomination.
    (c) The Council may recommend, subject to the approval of the 
Secretary, revisions to the above requirements for grower and sheller 
seats to accommodate changes within the industry.


Sec.  986.46  Council nominations and voting.

    Nomination of Council members and alternate members shall follow 
the procedure set forth in this section, or as may be changed as 
recommended by the Council and approved by the Secretary. All nominees 
must meet the requirements set forth in Sec. Sec.  986.45, American 
Pecan Council, and 986.48, Eligibility, or as otherwise identified by 
the Secretary, to serve on the Council.
    (a) Initial members. Nominations for initial Council members and 
alternate members shall be conducted by the Secretary by either holding 
meetings of shellers and growers, by mail, or by email, and shall be 
submitted on approved nomination forms. Eligibility to cast votes on 
nomination ballots, accounting of nomination ballot results, and 
identification of member and alternate nominees shall follow the 
procedures set forth in this section, or by any other criteria deemed 
necessary by the Secretary. The Secretary shall select and appoint the 
initial members and alternate members of the Council.
    (b) Successor members. Subsequent nominations of Council members 
and alternate members shall be conducted as follows:
    (1) Call for nominations. (i) Nominations for the grower member 
seats for each region shall be received from growers in that region on 
approved forms containing the information stipulated in this section.
    (ii) If a grower is engaged in producing pecans in more than one 
region, such grower shall nominate in the region in which they grow the 
largest volume of their production.
    (iii) Nominations for the sheller member seats for each region 
shall be received from shellers in that region on approved forms 
containing the information stipulated in this section.
    (iv) If a sheller is engaged in handling in more than one region, 
such sheller shall nominate in the region in which they shelled the 
largest volume in the preceding fiscal year.
    (2) Voting for nominees. (i) Only growers, through duly authorized 
officers or employees of growers, if applicable, may participate in the 
nomination of grower member nominees and their alternates. Each grower 
shall be entitled to cast only one nomination ballot for each of the 
three grower seats in their region.
    (ii) If a grower is engaged in producing pecans in more than one 
region, such grower shall cast their nomination ballot in the region in 
which they grow the largest volume of their production. Notwithstanding 
this stipulation, such grower may vote their volume produced in any or 
all of the three regions.
    (iii) Only shellers, through duly authorized officers or employees 
of shellers, if applicable, may participate in the nomination of the 
sheller member nominees and their alternates. Each sheller shall be 
entitled to cast only one nomination ballot for each of the two sheller 
seats in their region.
    (iv) If a sheller is engaged in handling in more than one region, 
such sheller shall cast their nomination ballot in the region in which 
they shelled the largest volume in the preceding fiscal year. 
Notwithstanding this stipulation, such sheller may vote their volume 
handled in all three regions.
    (v) If a person is both a grower and a sheller of pecans, such 
person may not participate in both grower and sheller nominations. Such 
person must elect to participate either as a grower or a sheller.
    (3) Nomination procedure for grower seats. (i) The Council shall 
mail to all growers who are on record with the Council within the 
respective regions a grower nomination ballot indicating the nominees 
for each of the three grower member seats, along with voting 
instructions. Growers may cast ballots on the proper ballot form either 
at meetings of growers, by mail, or by email as designated by the 
Council. For ballots to be considered, they must be submitted on the 
proper forms with all required information, including signatures.
    (ii) On the ballot, growers shall indicate their vote for the 
grower nominee candidates for the grower seats and also indicate their 
average annual volume of inshell pecan production for the preceding 
four fiscal years.
    (iii) Seat 1 (growers with equal to or more than 176 acres of 
pecans). The nominee for this seat in each region shall be the grower 
receiving the highest volume of production (pounds of inshell pecans) 
votes from the respective region, and the grower receiving the second 
highest volume of production votes shall be the alternate member 
nominee for this seat. In case of a tie vote, the nominee shall be 
selected by a drawing.
    (iv) Seat 2 (growers with equal to or more than 176 acres of 
pecans). The nominee for this seat in each region shall be the grower 
receiving the highest number of votes from their respective region, and 
the grower receiving the second highest number of votes shall be the 
alternate member nominee for this seat. In case of a tie vote, the 
nominee shall be selected by a drawing.

[[Page 66407]]

    (v) Seat 3 (grower with less than 176 acres of pecans). The nominee 
for this seat in each region shall be the grower receiving the highest 
number of votes from the respective region, and the grower receiving 
the second highest number of votes shall be the alternate member 
nominee for this seat. In case of a tie vote, the nominee shall be 
selected by a drawing.
    (4) Nomination procedure for sheller seats. (i) The Council shall 
mail to all shellers who are on record with the Council within the 
respective regions the sheller ballot indicating the nominees for each 
of the two sheller member seats in their respective regions, along with 
voting instructions. Shellers may cast ballots on approved ballot forms 
either at meetings of shellers, by mail, or by email as designated by 
the Council. For ballots to be considered, they must be submitted on 
the approved forms with all required information, including signatures.
    (ii) Seat 1 (shellers handling more than 12.5 million lbs. of 
inshell pecans in the preceding fiscal year). The nominee for this seat 
in each region shall be assigned to the sheller receiving the highest 
number of votes from the respective region, and the sheller receiving 
the second highest number of votes shall be the alternate member 
nominee for this seat. In case of a tie vote, the nominee shall be 
selected by a drawing.
    (iii) Seat 2 (shellers handling equal to or less than 12.5 million 
lbs. of inshell pecans in the preceding fiscal year). The nominee for 
this seat in each region shall be assigned to the sheller receiving the 
highest number of votes from the respective region, and the sheller 
receiving the second highest number of votes shall be the alternate 
member nominee for this seat. In case of a tie vote, the nominee shall 
be selected by a drawing.
    (5) Reports to the Secretary. Nominations in the foregoing manner 
received by the Council shall be reported to the Secretary on or before 
15 of each July of any year in which nominations are held, together 
with a certified summary of the results of the nominations and other 
information deemed by the Council to be pertinent or requested by the 
Secretary. From those nominations, the Secretary shall select the 
fifteen grower and sheller members of the Council and an alternate for 
each member, unless the Secretary rejects any nomination submitted. In 
the event the Secretary rejects a nomination, a second nomination 
process may be conducted to identify other nominee candidates, the 
resulting nominee information may be reported to the Secretary after 
July 15 and before September 15. If the Council fails to report 
nominations to the Secretary in the manner herein specified, the 
Secretary may select the members without nomination. If nominations for 
the public and accumulator at-large members are not submitted by 
September 15 of any year in which their nomination is due, the 
Secretary may select such members without nomination.
    (6) At-large members. The grower and sheller members of the Council 
shall select one public member and one accumulator member and 
respective alternates for consideration, selection and appointment by 
the Secretary. The public member and alternate public member may not 
have any financial interest, individually or corporately, or 
affiliation with persons vested in the pecan industry. The accumulator 
member and alternate accumulator member must meet the criteria set 
forth in Sec.  986.1, Accumulator, and may reside or maintain a place 
of business in any region.
    (7) Nomination forms. The Council may distribute nomination forms 
at meetings, by mail, by email, or by any other form of distribution 
recommended by the Council and approved by the Secretary.
    (i) Grower nomination forms. Each nomination form submitted by a 
grower shall include the following information:
    (A) The name of the nominated grower;
    (B) The name and signature of the nominating grower;
    (C) Two additional names and respective signatures of growers in 
support of the nomination;
    (D) Any other such information recommended by the Council and 
approved by the Secretary.
    (ii) Sheller nomination forms. Each nomination form submitted by a 
sheller shall include the following:
    (A) The name of the nominated sheller;
    (B) The name and signature of the nominating sheller;
    (C) One additional name and signature of a sheller in support of 
the nomination;
    (D) Any other such information recommended by the Council and 
approved by the Secretary.
    (8) Changes to the nomination and voting procedures. The Council 
may recommend, subject to the approval of the Secretary, a change to 
these procedures should the Council determine that a revision is 
necessary.


Sec.  986.47  Alternate members.

    (a) Each member of the Council shall have an alternate member to be 
nominated in the same manner as the member.
    (b) An alternate for a member of the Council shall act in the place 
and stead of such member in their absence or in the event of their 
death, removal, resignation, or disqualification, until the next 
nomination and elections take place for the Council or the vacancy has 
been filled pursuant to Sec.  986.48, Eligibility.
    (c) In the event any member of the Council and their alternate are 
both unable to attend a meeting of the Council, any alternate for any 
other member representing the same group as the absent member may serve 
in the place of the absent member.


Sec.  986.48  Eligibility.

    (a) Each grower member and alternate shall be, at the time of 
selection and during the term of office, a grower or an officer, or 
employee, of a grower in the region and in the classification for which 
nominated.
    (b) Each sheller member and alternate shall be, at the time of 
selection and during the term of office, a sheller or an officer or 
employee of a sheller in the region and in the classification for which 
nominated.
    (c) A grower can be a nominee for only one grower member seat. If a 
grower is nominated for two grower member seats, he or she shall select 
the seat in which he or she desires to run, and the grower ballot shall 
reflect that selection.
    (d) Any member or alternate member who at the time of selection was 
employed by or affiliated with the person who is nominated shall, upon 
termination of that relationship, become disqualified to serve further 
as a member and that position shall be deemed vacant.
    (e) No person nominated to serve as a public member or alternate 
public member shall have a financial interest in any pecan grower or 
handling operation.


Sec.  986.49  Acceptance.

    Each person to be selected by the Secretary as a member or as an 
alternate member of the Council shall, prior to such selection, qualify 
by advising the Secretary that if selected, such person agrees to serve 
in the position for which that nomination has been made.


Sec.  986.50  Term of office.

    (a) Selected members and alternate members of the Council shall 
serve for terms of four years: Provided, That at the end of the first 
four (4) year term and in the nomination and selection of the second 
Council only, four of the grower

[[Page 66408]]

member and alternate seats and three of the sheller member and 
alternate seats shall be seated for terms of two years so that 
approximately half of the memberships' and alternates' terms expire 
every two years thereafter. Member and alternate seats assigned two-
year terms for the seating of the second Council only shall be as 
follows:
    (1) Grower member Seat 2 in all regions shall be assigned a two-
year term;
    (2) Grower member Seat 3 in all regions shall, by drawing, identify 
one member seat to be assigned a two-year term; and,
    (3) Sheller Seat 2 in all regions shall be assigned a two-year 
term.
    (b) Council members and alternates may serve up to two consecutive, 
four-year terms of office. Subject to section (c) below, in no event 
shall any member or alternate serve more than eight consecutive years 
on the Council as either a member or an alternate. However, if 
selected, an alternate having served up to two consecutive terms may 
immediately serve as a member for two consecutive terms without any 
interruption in service. The same is true for a member who, after 
serving for up to two consecutive terms, may serve as an alternate if 
nominated without any interruption in service. A person having served 
the maximum number of terms as set forth above may not serve again as a 
member or an alternate for at least twelve consecutive months. For 
purposes of determining when a member or alternate has served two 
consecutive terms, the accrual of terms shall begin following any 
period of at least twelve consecutive months out of office.
    (c) Each member and alternate member shall continue to serve until 
a successor is selected and has qualified.
    (d) A term of office shall begin as set forth in the by-laws or as 
directed by the Secretary each year for all members.
    (e) The Council may recommend, subject to approval of the 
Secretary, revisions to the start day for the term of office, the 
number of years in a term, and the number of terms a member or an 
alternate can serve.


Sec.  986.51  Vacancy.

    Any vacancy on the Council occurring by the failure of any person 
selected to the Council to qualify as a member or alternate member due 
to a change in status making the member ineligible to serve, or due to 
death, removal, or resignation, shall be filled, by a majority vote of 
the Council for the unexpired portion of the term. However, that person 
shall fulfill all the qualifications set forth in this part as required 
for the member whose office that person is to fill. The qualifications 
of any person to fill a vacancy on the Council shall be certified in 
writing to the Secretary. The Secretary shall notify the Council if the 
Secretary determines that any such person is not qualified.


Sec.  986.52  Council expenses.

    The members and their alternates of the Council shall serve without 
compensation, but shall be reimbursed for the reasonable and necessary 
expenses incurred by them in the performance of their duties under this 
part.


Sec.  986.53  Powers.

    The Council shall have the following powers:
    (a) To administer the provisions of this part in accordance with 
its terms;
    (b) To make bylaws, rules and regulations to effectuate the terms 
and provisions of this part;
    (c) To receive, investigate, and report to the Secretary complaints 
of violations of this part; and
    (d) To recommend to the Secretary amendments to this part.


Sec.  986.54  Duties.

    The duties of the Council shall be as follows:
    (a) To act as intermediary between the Secretary and any handler or 
grower;
    (b) To keep minute books and records which will clearly reflect all 
of its acts and transactions, and such minute books and records shall 
at any time be subject to the examination of the Secretary;
    (c) To furnish to the Secretary a complete report of all meetings 
and such other available information as he or she may request;
    (d) To appoint such employees as it may deem necessary and to 
determine the salaries, define the duties, and fix the bonds of such 
employees;
    (e) To cause the books of the Council to be audited by one or more 
certified public accountants at least once for each fiscal year and at 
such other times as the Council deems necessary or as the Secretary may 
request, and to file with the Secretary three copies of all audit 
reports made;
    (f) To investigate the growing, shipping and marketing conditions 
with respect to pecans and to assemble data in connection therewith;
    (g) To investigate compliance with the provisions of this part; 
and,
    (h) To recommend by-laws, rules and regulations for the purpose of 
administering this part.


Sec.  986.55  Procedure.

    (a) The members of the Council shall select a chairman from their 
membership, and shall select such other officers and adopt such rules 
for the conduct of Council business as they deem advisable.
    (b) The Council 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. The Council shall give the Secretary the 
same notice of its meetings as is given to members of the Council.
    (c) Quorum. A quorum of the Council shall be any twelve voting 
Council members. The vote of a majority of members present at a meeting 
at which there is a quorum shall constitute the act of the Council; 
Provided, That:
    (1) Actions of the Council with respect to the following issues 
shall require a two-thirds (12 members) concurring vote of the Council:
    (i) Establishment of or changes to by-laws;
    (ii) Appointment or administrative issues relating to the program's 
manager or chief executive officer;
    (iii) Budget;
    (iv) Assessments;
    (v) Compliance and audits;
    (vi) Redefining of regions and reapportionment or reallocation of 
Council membership;
    (vii) Modifying definitions of grower and sheller;
    (viii) Research or promotion activities under Sec.  986.68;
    (ix) Grade, quality and size regulation under Sec.  986.69(a)(1) 
and (2);
    (x) Pack and container regulation under Sec.  986.69(a)(3); and,
    (2) Actions of the Council with respect to the securing of 
commercial bank loans for the purpose of financing start-up costs of 
the Council and its activities or securing financial assistance in 
emergency situations shall require a unanimous vote of all members 
present at an in-person meeting; Provided, That in the event of an 
emergency that warrants immediate attention sooner than a face-to-face 
meeting is possible, a vote for financing may be taken. In such event, 
the Council's first preference is a videoconference and second 
preference is phone conference, both followed by written confirmation 
of the members attending the meeting.


Sec.  986.56  Right of the Secretary.

    The members and alternates for members and any agent or employee 
appointed or employed by the Council shall be subject to removal or 
suspension by the Secretary at any time.

[[Page 66409]]

Each and every regulation, decision, determination, or other act shall 
be subject to the continuing right of the Secretary to disapprove of 
the same at any time, and, upon such disapproval, shall be deemed null 
and void, except as to acts done in reliance thereon or in compliance 
therewith prior to such disapproval by the Secretary.


Sec.  986.57  Funds and other property.

    (a) All funds received pursuant to any of the provisions of this 
part shall be used solely for the purposes specified in this part, and 
the Secretary may require the Council and its members to account for 
all receipts and disbursements.
    (b) Upon the death, resignation, removal, disqualification, or 
expiration of the term of office of any member or employee, all books, 
records, funds, and other property in their possession belonging to the 
Council shall be delivered to their successor in office or to the 
Council, and such assignments and other instruments shall be executed 
as may be necessary to vest in such successor or in the Council full 
title to all the books, records, funds, and other property in the 
possession or under the control of such member or employee pursuant to 
this subpart.


Sec.  986.58  Reapportionment and reestablishment of regions.

    The Council may recommend, subject to approval of the Secretary, 
reestablishment of regions, reapportionment of members among regions, 
and may revise the groups eligible for representation on the Council. 
In recommending any such changes, the following shall be considered:
    (a) Shifts in acreage within regions and within the production area 
during recent years;
    (b) The importance of new production in its relation to existing 
regions;
    (c) The equitable relationship between Council apportionment and 
regions;
    (d) Changes in industry structure and/or the percentage of crop 
represented by various industry entities; and
    (e) Other relevant factors.

Expenses, Assessments and Marketing Policy


Sec.  986.60  Budget.

    As soon as practicable before the beginning of each fiscal year, 
and as may be necessary thereafter, the Council shall prepare a budget 
of income and expenditures necessary for the administration of this 
part. The Council may recommend a rate of assessment calculated to 
provide adequate funds to defray its proposed expenditures. The Council 
shall present such budget to the Secretary with an accompanying report 
showing the basis for its calculations, and all shall be subject to 
Secretary approval.


Sec.  986.61  Assessments.

    (a) Each handler who first handles inshell pecans shall pay 
assessments to the Council. Assessments collected each fiscal year 
shall defray expenses which the Secretary finds reasonable and likely 
to be incurred by the Council during that fiscal year. Each handler's 
share of assessments paid to the Council shall be equal to the ratio 
between the total quantity of inshell pecans handled by them as the 
first handler thereof during the applicable fiscal year, and the total 
quantity of inshell pecans handled by all regulated handlers in the 
production area during the same fiscal year. The payment of assessments 
for the maintenance and functioning of the Council may be required 
under this part throughout the period it is in effect irrespective of 
whether particular provisions thereof are suspended or become 
inoperative. Handlers may avail themselves of an inter-handler 
transfer, as provided for in Sec.  986.62, Inter-handler transfers.
    (b) Based upon a recommendation of the Council or other available 
data, the Secretary shall fix three base rates of assessment for 
inshell pecans handled during each fiscal year. Such base rates shall 
include one rate of assessment for any or all varieties of pecans 
classified as native and seedling; one rate of assessment for any or 
all varieties of pecans classified as improved; and one rate of 
assessment for any pecans classified as substandard.
    (c) Upon implementation of this part and subject to the approval of 
the Secretary, initial assessment rates per classification shall be set 
within the following prescribed ranges: Native and seedling classified 
pecans shall be assessed at one-cent to two-cents per pound; improved 
classified pecans shall be assessed at two-cents to three-cents per 
pound; and, substandard classified pecans shall be assessed at one-cent 
to two-cents per pound. These assessment ranges shall be in effect for 
the initial four years of the order.
    (d) Subsequent assessment rates shall not exceed two percent of the 
aggregate of all prices in each classification across the production 
area based on Council data, or the average of USDA reported average 
price received by growers for each classification, in the preceding 
fiscal year as recommended by the Council and approved by the 
Secretary. After four years from the implementation of this part, the 
Council may recommend, subject to the approval of the Secretary, 
revisions to this calculation or assessment ranges.
    (e) The Council, with the approval of the Secretary, may revise the 
assessment rates if it determines, based on information including crop 
size and value, that the action is necessary, and if the revision does 
not exceed the assessment limitation specified in this section and is 
made prior to the final billing of the assessment.
    (f) In order to provide funds for the administration of the 
provisions of this part during the first part of a fiscal year, before 
sufficient operating income is available from assessments, the Council 
may accept the payment of assessments in advance and may also borrow 
money for such purposes; Provided, That no loan may amount to more than 
50 percent of projected assessment revenue projected for the year in 
which the loan is secured, and the loan must be repaid within five 
years.
    (g) If a handler does not pay assessments within the time 
prescribed by the Council, the assessment may be increased by a late 
payment charge and/or an interest rate charge at amounts prescribed by 
the Council with approval of the Secretary.
    (h) On August 31 of each year, every handler warehousing inshell 
pecans shall be identified as the first handler of those pecans and 
shall be required to pay the assessed rate on the category of pecans in 
their possession on that date. The terms of this paragraph may be 
revised subject to the recommendation of the Council and approval by 
the Secretary.
    (i) On August 31 of each year, all inventories warehoused by 
growers from the current fiscal year shall cease to be eligible for 
inter-handler transfer treatment. Instead, such inventory will require 
the first handler that handles such inventory to pay the assessment 
thereon in accordance with the prevailing assessment rates at the time 
of transfer from the grower to the said handler. The terms of this 
paragraph may be revised subject to the recommendation of the Council 
and approval by the Secretary.


Sec.  986.62  Inter-handler transfers.

    Any handler inside the production area, except as provided for in 
Sec.  986.61 (h) and (i), Assessments, may transfer inshell pecans to 
another handler inside the production area for additional handling, and 
any assessments or other marketing order requirements with respect to 
pecans so transferred may be assumed by the receiving handler. The 
Council, with the approval of the Secretary, may establish methods and 
procedures, including necessary reports,

[[Page 66410]]

to maintain accurate records for such transfers. All inter-handler 
transfers will be documented by forms or electronic transfer receipts 
approved by the Council, and all forms or electronic transfer receipts 
used for inter-handler transfers shall require that copies be sent to 
the selling party, the receiving party, and the Council. Such forms 
must state which handler has the assessment responsibilities.


Sec.  986.63  Contributions.

    The Council may accept voluntary contributions. Such contributions 
may only be accepted if they are free from any encumbrances or 
restrictions on their use and the Council shall retain complete control 
of their use. The Council may receive contributions from both within 
and outside of the production area.


Sec.  986.64  Accounting.

    (a) Assessments collected in excess of expenses incurred shall be 
accounted for in accordance with one of the following:
    (1) Excess funds not retained in a reserve, as provided in 
paragraph (a)(2) of this section shall be refunded proportionately to 
the persons from whom they were collected; or
    (2) The Council, with the approval of the Secretary, may carry over 
excess funds into subsequent fiscal periods as reserves: Provided, That 
funds already in reserves do not equal approximately three fiscal 
years' expenses. Such reserve funds may be used:
    (i) To defray expenses during any fiscal period prior to the time 
assessment income is sufficient to cover such expenses;
    (ii) To cover deficits incurred during any fiscal period 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 or are inoperative; and
    (iv) To cover necessary expenses of liquidation in the event of 
termination of this part.
    (b) Upon such termination, any funds not required to defray the 
necessary expenses of liquidation shall be disposed of in such manner 
as the Secretary may determine to be appropriate. To the extent 
practical, such funds shall be returned pro rata to the persons from 
whom such funds were collected.
    (c) All funds received by the Council pursuant to the provisions of 
this part shall be used solely for the purposes specified in this part 
and shall be accounted for in the manner provided for in this part. The 
Secretary may at any time require the Council and its members to 
account for all receipts and disbursements.
    (d) Upon the removal or expiration of the term of office of any 
member of the Council, such member shall account for all receipts and 
disbursements and deliver all property and funds in their possession to 
the Council, and shall execute such assignments and other instruments 
as may be necessary or appropriate to vest in the Council full title to 
all of the property, funds, and claims vested in such member pursuant 
to this part.
    (e) The Council may make recommendations to the Secretary for one 
or more of the members thereof, or any other person, to act as a 
trustee for holding records, funds, or any other Council property 
during periods of suspension of this subpart, or during any period or 
periods when regulations are not in effect and if the Secretary 
determines such action appropriate, he or she may direct that such 
person or persons shall act as trustee or trustees for the Council.


Sec.  986.65  Marketing policy.

    By the end of each fiscal year, the Council shall make a report and 
recommendation to the Secretary on the Council's proposed marketing 
policy for the next fiscal year. Each year such report and 
recommendation shall be adopted by the affirmative vote of at least 
two-thirds (2/3) of the members of the Council and shall include the 
following and, where applicable, on an inshell basis:
    (a) Estimate of the grower-cleaned production and handler-cleaned 
production in the area of production for the fiscal year;
    (b) Estimate of disappearance;
    (c) Estimate of the improved, native, and substandard pecans;
    (d) Estimate of the handler inventory on August 31, of inshell and 
shelled pecans;
    (e) Estimate of unassessed inventory;
    (f) Estimate of the trade supply, taking into consideration 
imports, and other factors;
    (g) Preferable handler inventory of inshell and shelled pecans on 
August 31 of the following year;
    (h) Projected prices in the new fiscal year;
    (i) Competing nut supplies; and
    (j) Any other relevant factors.

Authorities Relating to Research, Promotion, Data Gathering, Packaging, 
Grading, Compliance and Reporting


Sec.  986.67  Recommendations for regulations.

    Upon complying with Sec.  986.65, Marketing policy, the Council may 
propose regulations to the Secretary whenever it finds that such 
proposed regulations may assist in effectuating the declared policy of 
the Act.


Sec.  986.68  Authority for research and promotion activities.

    The Council, 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 generic advertising, designed to assist, improve, or promote the 
marketing, distribution, and consumption or efficient production of 
pecans including product development, nutritional research, and 
container development. The expenses of such projects shall be paid from 
funds collected pursuant to this part.


Sec.  986.69  Authorities regulating handling.

    (a) The Council may recommend, subject to the approval of the 
Secretary, regulations that:
    (1) Establish handling requirements or minimum tolerances for 
particular grades, sizes, or qualities, or any combination thereof, of 
any or all varieties or classifications of pecans during any period;
    (2) Establish different handling requirements or minimum tolerances 
for particular grades, sizes, or qualities, or any combination thereof 
for different varieties or classifications, for different containers, 
for different portions of the production area, or any combination of 
the foregoing, during any period;
    (3) Fix the size, capacity, weight, dimensions, or pack of the 
container or containers, which may be used in the packaging, 
transportation, sale, preparation for market, shipment, or other 
handling of pecans; and
    (4) Establish inspection and certification requirements for the 
purposes of (a)(1) through (3) of this section.
    (b) Regulations issued hereunder may be amended, modified, 
suspended, or terminated whenever it is determined:
    (1) That such action is warranted upon recommendation of the 
Council and approval by the Secretary, or other available information; 
or
    (2) That regulations issued hereunder no longer tend to effectuate 
the declared policy of the Act.
    (c) The authority to regulate as put forward in this subsection 
shall not in

[[Page 66411]]

any way constitute authority for the Council to recommend volume 
regulation, such as reserve pools, producer allotments, or handler 
withholding requirements which limit the flow of product to market for 
the purpose of reducing market supply.
    (d) The Council may recommend, subject to the approval of the 
Secretary, rules and regulations to effectuate this sub-part.


Sec.  986.70  Handling for special purposes.

    Regulations in effect pursuant to Sec.  986.69, Authorities 
regulating handling, may be modified, suspended, or terminated to 
facilitate handling of pecans for:
    (a) Relief or charity;
    (b) Experimental purposes; and
    (c) Other purposes which may be recommended by the Council and 
approved by the Secretary.


Sec.  986.71  Safeguards.

    The Council, with the approval of the Secretary, may establish 
through rules such requirements as may be necessary to establish that 
shipments made pursuant to Sec.  986.70, Handling for special purposes, 
were handled and used for the purpose stated.


Sec.  986.72  Notification of regulation.

    The Secretary shall promptly notify the Council of regulations 
issued or of any modification, suspension, or termination thereof. The 
Council shall give reasonable notice thereof to industry participants.

Reports, Books and Other Records


Sec.  986.75  Reports of handler inventory.

    Each handler shall submit to the Council in such form and on such 
dates as the Council may prescribe, reports showing their inventory of 
inshell and shelled pecans.


Sec.  986.76  Reports of merchantable pecans handled.

    Each handler who handles merchantable pecans at any time during a 
fiscal year shall submit to the Council in such form and at such 
intervals as the Council may prescribe, reports showing the quantity so 
handled and such other information pertinent thereto as the Council may 
specify.


Sec.  986.77  Reports of pecans received by handlers.

    Each handler shall file such reports of their pecan receipts from 
growers, handlers, or others in such form and at such times as may be 
required by the Council with the approval of the Secretary.


Sec.  986.78  Other handler reports.

    Upon request of the Council made with the approval of the Secretary 
each handler shall furnish such other reports and information as are 
needed to enable the Council to perform its duties and exercise its 
powers under this part.


Sec.  986.79  Verification of reports.

    For the purpose of verifying and checking reports filed by handlers 
on their operations, the Secretary and the Council, through their duly 
authorized representatives, shall have access to any premises where 
pecans and pecan records are held. Such access shall be available at 
any time during reasonable business hours. Authorized representatives 
of the Council or the Secretary shall be permitted to inspect any 
pecans held and any and all records of the handler with respect to 
matters within the purview of this part. Each handler shall maintain 
complete records on the receiving, holding, and disposition of all 
pecans. Each handler shall furnish all labor necessary to facilitate 
such inspections at no expense to the Council or the Secretary. Each 
handler shall store all pecans held by him in such manner as to 
facilitate inspection and shall maintain adequate storage records which 
will permit accurate identification with respect to inspection 
certificates of respective lots and of all such pecans held or disposed 
of theretofore. The Council, with the approval of the Secretary, may 
establish any methods and procedures needed to verify reports.


Sec.  986.80  Certification of reports.

    All reports submitted to the Council as required in this part shall 
be certified to the Secretary and the Council as to the completeness 
and correctness of the information contained therein.


Sec.  986.81  Confidential information.

    All reports and records submitted by handlers to the Council, which 
include data or information constituting a trade secret or disclosing 
the trade position, or financial condition or business operations of 
the handler shall be kept in the custody of one or more employees of 
the Council and shall be disclosed to no person except the Secretary.


Sec.  986.82  Books and other records.

    Each handler shall maintain such records of pecans received, held 
and disposed of by them as may be prescribed by the Council for the 
purpose of performing its duties under this part. Such books and 
records shall be retained and be available for examination by 
authorized representatives of the Council and the Secretary for the 
current fiscal year and the preceding three (3) fiscal years.

Additional Provisions


Sec.  986.86  Exemptions.

    (a) Any handler may handle inshell pecans within the production 
area free of the requirements of this part if such pecans are handled 
in quantities not exceeding 1,000 inshell pounds during any fiscal 
year.
    (b) Any handler may handle shelled pecans within the production 
area free of the requirements of this part if such pecans are handled 
in quantities not exceeding 500 shelled pounds during any fiscal year.
    (c) Mail order sales are not exempt sales under this part.
    (d) The Council, with the approval of the Secretary, may establish 
such rules, regulations, and safeguards, and require such reports, 
certifications, and other conditions, as are necessary to ensure 
compliance with this part.


Sec.  986.87  Compliance.

    Except as provided in this subpart, no handler shall handle pecans, 
the handling of which has been prohibited by the Secretary in 
accordance with provisions of this part, or the rules and regulations 
thereunder.


Sec.  986.88  Duration of immunities.

    The benefits, privileges, and immunities conferred by virtue of 
this part shall cease upon termination hereof, except with respect to 
acts done under and during the existence of this part.


Sec.  986.89  Separability.

    If any provision of this part is declared invalid, or the 
applicability thereof to any person, circumstance, or thing is held 
invalid, the validity of the remaining provisions and the applicability 
thereof to any other person, circumstance, or thing shall not be 
affected thereby.


Sec.  986.90  Derogation.

    Nothing contained in this part is or shall be construed to be in 
derogation of, or in modification of, the rights of the Secretary or of 
the United States to exercise any powers granted by the Act or 
otherwise, or, in accordance with such powers, to act in the premises 
whenever such action is deemed advisable.


Sec.  986.91  Liability.

    No member or alternate of the Council nor any employee or agent 
thereof, shall be held personally responsible, either individually or 
jointly with others, in any way whatsoever, to any party under

[[Page 66412]]

this part or to any other person for errors in judgment, mistakes, or 
other acts, either of commission or omission, as such member, 
alternate, agent or employee, except for acts of dishonesty, willful 
misconduct, or gross negligence. The Council may purchase liability 
insurance for its members and officers.


Sec.  986.92  Agents.

    The Secretary may name, by designation in writing, any person, 
including any officer or employee of the USDA or the United States to 
act as their agent or representative in connection with any of the 
provisions of this part.


Sec.  986.93  Effective time.

    The provisions of this part and of any amendment thereto shall 
become effective at such time as the Secretary may declare, and shall 
continue in force until terminated in one of the ways specified in 
Sec.  986.94.


Sec.  986.94  Termination.

    (a) The Secretary may at any time terminate this part.
    (b) The Secretary shall terminate or suspend the operation of any 
or all of the provisions of this part whenever he or she finds that 
such operation obstructs or does not tend to effectuate the declared 
policy of the Act.
    (c) The Secretary shall terminate the provisions of this part 
applicable to pecans for market or pecans for handling at the end of 
any fiscal year whenever the Secretary finds, by referendum or 
otherwise, that such termination is favored by a majority of growers; 
Provided, That such majority of growers has produced more than 50 
percent of the volume of pecans in the production area during such 
fiscal year. Such termination shall be effective only if announced on 
or before the last day of the then current fiscal year.
    (d) The Secretary shall conduct a referendum within every five-year 
period beginning from the implementation of this part, to ascertain 
whether continuance of the provisions of this part applicable to pecans 
are favored by two-thirds by number or volume of growers voting in the 
referendum. The Secretary may terminate the provisions of this part at 
the end of any fiscal year in which the Secretary has found that 
continuance of this part is not favored by growers who, during an 
appropriate period of time determined by the Secretary, have been 
engaged in the production of pecans in the production area: Provided, 
That termination of this part shall be effective only if announced on 
or before the last day of the then current fiscal year.
    (e) The provisions of this part shall, in any event, terminate 
whenever the provisions of the Act authorizing them cease to be in 
effect.


Sec.  986.95  Proceedings after termination.

    (a) Upon the termination of this part, the Council members serving 
shall continue as joint trustees for the purpose of liquidating all 
funds and property then in the possession or under the control of the 
Council, including claims for any funds unpaid or property not 
delivered at the time of such termination.
    (b) The joint trustees shall continue in such capacity until 
discharged by the Secretary; from time to time accounting for all 
receipts and disbursements; delivering all funds and property on hand, 
together with all books and records of the Council and of the joint 
trustees to such person as the Secretary shall direct; and, upon the 
request of the Secretary, executing such assignments or other 
instruments necessary and appropriate to vest in such person full title 
and right to all of the funds, property, or claims vested in the 
Council or in said joint trustees.
    (c) Any funds collected pursuant to this part and held by such 
joint trustees or such person over and above the amounts necessary to 
meet outstanding obligations and the expenses necessarily incurred by 
the joint trustees or such other person in the performance of their 
duties under this subpart, as soon as practicable after the termination 
hereof, shall be returned to the handlers pro rata in proportion to 
their contributions thereto.
    (d) Any person to whom funds, property, or claims have been 
transferred or delivered by the Council, upon direction of the 
Secretary, as provided in this part, shall be subject to the same 
obligations and duties with respect to said funds, property, or claims 
as are imposed upon said joint trustees.


Sec.  986.96  Amendments.

    Amendments to this part may be proposed from time to time by the 
Council or by the Secretary.


Sec.  986.97  Counterparts.

    Handlers may sign an agreement with the Secretary indicating their 
support for this marketing order. This agreement may be executed in 
multiple counterparts by each handler. If more than fifty percent of 
the handlers, weighted by the volume of pecans handled during an 
appropriate period of time determined by the Secretary, enter into such 
an agreement, then a marketing agreement shall exist for the pecans 
marketing order. This marketing agreement shall not alter the terms of 
this part. Upon the termination of this part, the marketing agreement 
has no further force or effect.


Sec.  986.98  Additional parties.

    After this part becomes effective, any handler may become a party 
to the marketing agreement if a counterpart is executed by the handler 
and delivered to the Secretary.


Sec.  986.99  Order with marketing agreement.

    Each signatory handler hereby requests the Secretary to issue, 
pursuant to the Act, an order for regulating the handling of pecans in 
the same manner as is provided for in this agreement.

    Dated: October 20, 2015.
Rex Barnes,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2015-27098 Filed 10-27-15; 8:45 am]
BILLING CODE 3410-02-P