[Federal Register Volume 81, Number 147 (Monday, August 1, 2016)]
[Rules and Regulations]
[Pages 50283-50290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18116]



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  Federal Register / Vol. 81, No. 147 / Monday, August 1, 2016 / Rules 
and Regulations  

[[Page 50283]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 996

[Doc. No. AMS-FV-15-0066; FV16-996-1 FR]


Minimum Quality and Handling Standards for Domestic and Imported 
Peanuts Marketed in the United States; Change to the Quality and 
Handling Requirements

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This rule implements a recommendation from the Peanut 
Standards Board (Board) to revise the minimum quality and handling 
standards for domestic and imported peanuts marketed in the United 
States (Standards). The Board advises the Secretary of Agriculture 
regarding potential changes to the Standards and is comprised of 
producers and industry representatives. This rule revises the minimum 
quality, positive lot identification, and reporting and recordkeeping 
requirements under the Standards. It also makes numerous other changes 
to better reflect current industry practices and revises outdated 
language. The Board believes these changes will make additional peanuts 
available for sale, help increase efficiencies, and reduce costs to the 
industry.

DATES: Effective August 31, 2016.

FOR FURTHER INFORMATION CONTACT: Steven W. Kauffman, Marketing 
Specialist, or Christian D. Nissen, Regional Director, Southeast 
Marketing Field Office, Marketing Order and Agreement Division, 
Specialty Crops Program, AMS, USDA; Telephone: (863) 324-3375, Fax: 
(863) 291-8614, or Email: [email protected] or 
[email protected].
    Small businesses may request information on complying with this 
regulation by contacting Antoinette Carter, 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, or Email: 
[email protected].

SUPPLEMENTARY INFORMATION: This final rule is issued under the Minimum 
Quality and Handling Standards for Domestic and Imported Peanuts 
Marketed in the United States (Standards), as amended (7 CFR part 996), 
as established pursuant to Public Law 107-171, the Farm Security and 
Rural Investment Act of 2002 (Act). The Standards regulate the quality 
and handling of domestic and imported peanuts marketed in the United 
States.

Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
This action has been designated as a ``non-significant regulatory 
action'' under section 3(f) of Executive Order 12866. Accordingly, the 
Office of Management and Budget (OMB) has waived the review process.

Executive Order 13175

    This action has been reviewed in accordance with the requirements 
of Executive Order 13175, Consultation and Coordination with Indian 
Tribal Governments. The review reveals that this regulation would not 
have substantial and direct effects on Tribal governments and would not 
have significant Tribal implications.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. It is not intended to have retroactive effect and shall 
not abrogate nor nullify any other statute, whether State or Federal, 
dealing with the same subjects as this Act; but is intended that all 
such statutes shall remain in full force and effect except in so far as 
they are inconsistent herewith or repugnant hereto (7 U.S.C. 587).
    There are no administrative procedures which must be exhausted 
prior to any judicial challenge to the provisions of this rule.
    The Act requires that USDA take several actions with regard to 
peanuts marketed in the United States. These include ensuring mandatory 
inspection on all peanuts marketed in the United States; developing and 
implementing peanut quality and handling requirements; establishing the 
Board comprised of producers and industry representatives to advise 
USDA regarding the quality and handling requirements under the 
Standards; and modifying those quality and handling requirements when 
needed. USDA is required by the Act to consult with the Board prior to 
making any changes to the Standards.
    Pursuant to the Act, USDA has consulted with Board members in its 
review of the changes to the Standards included in this final rule. 
This final rule implements the revisions to the minimum quality, 
positive lot identification, and reporting and recordkeeping 
requirements under the Standards. This final rule also makes numerous 
other changes to the Standards to better reflect current industry 
practices and to revise outdated language. The Board believes these 
changes will make additional peanuts available for sale, increase 
efficiencies, and reduce industry costs. These changes were recommended 
by the Board at its meetings on June 24, 2015, and November 18, 2015.
    The Standards establish minimum incoming and outgoing quality 
requirements for domestic and imported peanuts marketed in the United 
States. Mandatory inspection is required to ensure that the quality 
regulations are met. The Standards also require an identification 
process so peanuts can be identified and tracked during processing and 
disposition. Finally, the Standards specify reporting and recordkeeping 
requirements for handlers and importers.
    Sections 996.30 and 996.31 of the Standards outline the incoming 
and outgoing quality standards, respectively, for peanuts. The incoming 
standards

[[Page 50284]]

currently prescribe specific requirements for segregation, moisture 
content, and foreign material (stones, dirt, sticks, etc.). The 
outgoing standards include specific requirements for damage, foreign 
material, and moisture for both shelled and inshell peanuts. The 
outgoing standards also require peanuts to be positive lot identified 
and tested and certified as negative for aflatoxin. Both the incoming 
and outgoing standards require inspection and certification by the 
Federal-State Inspection Service.
    Section 996.15 establishes a definition for positive lot 
identification (PLI). Section 996.31 requires PLI on all peanuts 
designated for human consumption as part of the outgoing standards. 
Section 996.40 establishes handling standards for peanuts and includes 
specifics on how PLI will be used throughout the handling process, from 
initial identification through the sampling and testing process. 
Section 996.50 outlines the process for reconditioning failing lots and 
establishes PLI requirements to track and identify the peanuts 
throughout the reconditioning process. Section 996.74 outlines the 
compliance requirements for the Standards and includes penalties for 
failing to maintain proper PLI.
    Sections 996.71 and 996.73 establish the reporting and 
recordkeeping requirements under the Standards. These sections specify, 
in part, the reports required and establish what records need to be 
maintained and for how long.
    The Standards were last revised in 2005. In 2014, the American 
Peanut Shellers Association (APSA) started a review of the current 
Standards and developed a proposal to revise the Standards to reflect 
changes in the industry and to make other changes to bring the 
Standards up to date. These recommended revisions were shared with USDA 
and industry representatives and were then presented to the Board at 
its meeting on June 24, 2015. The Board voted to approve the 
recommendations from APSA in their entirety. In addition, a 
subcommittee was created to work with USDA to review and recommend any 
additional conforming changes to the Standards necessary to facilitate 
the revisions requested by the industry. At a meeting on November 18, 
2015, the Board reviewed the modifications and conforming changes from 
the subcommittee and USDA, and approved them unanimously. Consequently, 
this final rule makes the following recommended changes.
    This final rule revises the minimum quality requirements under both 
the incoming and outgoing standards. The industry originally thought 
the presence of foreign material in incoming peanuts could promote the 
growth of aflatoxin. Therefore, a limit on the amount of foreign 
material in incoming peanuts was established. However, the industry no 
longer believes there to be a correlation between foreign material and 
aflatoxin. In addition, due to advances in technology, foreign material 
is easily removed from incoming peanuts, and handlers are able to 
remove foreign material from incoming peanuts to a level that is lower 
than the limit currently specified in the incoming standards. Further, 
most handlers are setting their own tolerances for the presence of 
foreign material. Eliminating the maximum amount of foreign material 
that incoming farmers stock peanuts may contain from the Standards 
provides additional flexibility by allowing individual handlers to 
determine the amount of foreign material they are willing to accept. As 
such, this action removes the current limit of 10.49 percent on the 
amount of foreign material that incoming farmers stock peanuts may 
contain.
    The outgoing quality standards currently include a table that 
outlines, in part, requirements for damage, minor defects, foreign 
material, and moisture. Two of the columns of the table deal with 
damage and defects. The first of these columns provides the allowance 
for damage to unshelled peanuts and kernels, and the second column 
provides the allowance for minor defects. Currently the allowance for 
major damage is 1.5 percent for lots excluding splits and 2 percent for 
lots of splits. The current allowance for minor defects is 2.5 percent, 
except for No. 2 Virginia peanuts, for which the allowance for minor 
defects is 3 percent.
    Under the proposal from APSA, the two columns on damage will be 
merged into one column and will set one overall allowance for damage on 
unshelled peanuts, cleaned-inshell peanuts, and kernels at 3.5 percent. 
Over the years, the industry has found that growing practices such as 
no till farming and modern harvesting practices have increased the 
amount of damage to individual kernels. In addition, the shift to new 
peanut varieties that produce larger kernels has impacted the sampling 
of peanuts for damage. The larger kernels reduce the number of peanuts 
in the sample such that damaged kernels have a larger impact on the 
percentage of damage in the sample size. Increasing the allowable 
damage will allow additional peanuts to meet the Standards and be 
shipped for human consumption. In addition, relaxing the damage 
allowance will allow more lots of peanuts to move without being 
remilled, helping to reduce handling costs.
    Peanuts are also used for many different products, including 
outlets where cosmetic damage is not as important, such as peanut 
butter, where the manufacturers are willing to purchase lots with a 
higher percentage of damage. Most manufacturers are setting their own 
tolerance levels for damage based on the products they manufacture. By 
increasing the amount of allowable damage, more peanuts will be 
available to be manufactured for human consumption, helping to maximize 
shipments and improving returns. Therefore, this final rule relaxes the 
allowance for damage and defects to 3.5 percent for all unshelled 
peanuts, kernels, and for cleaned-inshell peanuts.
    This rule will also make changes to the PLI requirements and the 
recordkeeping and reporting requirements under the Standards. In the 
Standards, the PLI requirements are used to help maintain the identity 
of peanuts throughout the handling process, thus maintaining the 
integrity of lots being shipped to human consumption outlets, lots that 
are subject to the reconditioning process, and lots that are disposed 
of in non-human consumption outlets. PLI also helps ensure that peanuts 
certified for human consumption meet the outgoing standards for grade 
and aflatoxin. In addition, the PLI requirements are a useful tool in 
product traceability and helping to ensure compliance with the 
Standards.
    The reporting and recordkeeping requirements also play a role in 
ensuring compliance. Handlers and importers are required to maintain 
all relevant documentation on the disposition of inedible peanuts. The 
documentation maintained must be sufficient to document and 
substantiate the proper disposition of all peanut lots that do not meet 
grade or aflatoxin quality standards. Reports and records are used to 
track and document the disposition of peanuts and to substantiate 
handler and importer compliance with the Standards.
    In 2009, the peanut industry began the process of completely 
restructuring its tracking and reporting systems under an industry-wide 
food safety system, utilizing industry experts as well as guidance from 
the Food and Drug Administration, the Grocery Manufacturers 
Association, and finished product manufacturers. The industry also 
decided to work toward meeting the Global Food Safety Initiative (GFSI) 
standards that were being mandated by many major food manufacturers. 
GFSI

[[Page 50285]]

certification requires, in part, that a company shall be able to trace 
all raw material product lots, including packaging, from its suppliers 
through all stages of processing and dispatch to its customers. The 
industry reports that in 2010, the industry had its first audits 
performed against the GFSI standards, and many in the industry are now 
certified under a GFSI scheme.
    The purpose of this effort was to reduce the need for multiple 
audits while providing ongoing assurance of compliance within the 
industry with food safety initiatives. Under these new industry 
procedures, all raw peanuts are lot coded, and there is a traceability 
system in place to track them throughout the handling process. Handlers 
currently trace all peanuts from the warehouse to final disposition, 
including edible, blanched, and oil stock. Further, lots are segregated 
throughout the handling process in order to maintain identity should 
there be a recall notice issued.
    In reviewing the Standards, the APSA thought it is important to 
maintain PLI on all lots meeting outgoing requirements. This preserves 
the integrity of these lots and provides assurance to buyers that the 
peanuts have met all requirements, have not been commingled with lower 
grade peanuts, and are ready to be utilized for human consumption. In 
addition, all peanut manufacturers require the official grade and 
aflatoxin certificate before taking possession of the peanuts to 
confirm that the analytical and physical tests required by law have 
been conducted.
    However, given the industry's new requirements for tracking and 
traceability, the APSA found the remaining PLI requirements in the 
Standards to be redundant and no longer necessary. When the Standards 
were implemented in 2002, the current industry traceability systems had 
not yet been developed, and PLI was an important tool in maintaining 
compliance. The new traceability systems are used by the industry to 
help maintain the identity of peanuts throughout the handling process, 
the same way PLI is used. These systems are also used to track peanuts 
that are to be reconditioned or disposed of in non-human consumption 
outlets, such as for seed or animal feed. The industry reports that 
each peanut handler has designed a traceability system that is 
specifically integrated into their operations, and the industry 
believes that these systems largely perform all the same functions as 
PLI. Further, these systems were also designed to meet the new demands 
under food safety requirements, such as the Food Safety and 
Modernization Act, and the food safety and handling requirements set by 
the manufacturers. The industry believes having to utilize PLI in 
addition to its own tracking systems requires additional time and 
recordkeeping to follow peanuts that already have documented 
traceability.
    The APSA proposal, as approved by the Board, recommends revision to 
the Standards to reflect current industry traceability programs. The 
industry believes that these changes will reduce handling and 
inspection costs and help improve the efficiency of handling 
operations. Consequently, this final rule will add language to Sec.  
996.73 of the Standards to define the necessary requirements for an 
industry-based traceability system and will provide allowances for 
systems meeting these requirements to be used in place of PLI prior to 
inspection and certification. The existing PLI system will also remain 
in place as a requirement for any handler who does not have a system in 
place that meets the requirements for an industry-based traceability 
system and for any handler who uses PLI in conjunction with their own 
traceability system. However, PLI will still continue to be required 
for all peanuts meeting the outgoing standards.
    This final rule will also revise the reporting and recordkeeping 
requirements under the Standards. All handlers and importers are 
currently required to submit to USDA a monthly report documenting their 
monthly farmers stock acquisitions. Under these changes, the 
requirement to submit this monthly report will be eliminated. The 
industry stated that the information contained within the form was 
already being submitted to USDA on a daily basis as part of the farmers 
stock inspection process. Further, industry representatives stated that 
this data is maintained as part of the traceability systems now in 
place. Therefore, the industry supported the removal of this 
requirement.
    Additional changes were recommended to recognize the reporting and 
recordkeeping done by the industry to meet the tracking and 
traceability requirements now required of the industry for food safety 
initiatives. In addition to records relating to peanuts meeting the 
outgoing standards, handlers and importers are required to maintain all 
relevant documentation on the disposition of inedible peanuts as part 
of their food safety traceability requirements. Given the traceability 
and recordkeeping requirements recommended to be added to the Standards 
and the recordkeeping requirements demanded under food safety 
requirements, the industry questioned the continued need for USDA to 
have access to all such records under the Standards. Industry 
representatives stated that they no longer see the need for USDA to 
require regular access to records other than those pertaining to 
peanuts meeting the outgoing requirements. Consequently, pursuant to 
the Board-approved recommendation, this final rule will modify the 
reporting requirements to specify that USDA will be permitted to 
inspect any peanuts meeting outgoing standards and any and all records 
pertaining to peanuts meeting outgoing quality regulations. However, 
pursuant to the Act, the Secretary shall work to provide adequate 
safeguards regarding all quality concerns related to peanuts. 
Therefore, this change will not preclude USDA from having access to all 
materials and records necessary should there be a situation 
necessitating an investigation or review to ensure compliance. The 
documentation maintained must still be sufficient to document and 
substantiate the proper disposition of all peanuts failing grade or 
aflatoxin quality standards.
    Additionally, USDA would like to clarify that under this modified 
reporting requirement, USDA will continue to have access to all 
materials and records regarding any and all peanuts originally intended 
for human consumption. This applies whether the peanuts meet outgoing 
quality requirements or not.
    The APSA proposal as approved by the Board also recommended 
revising the Standards to clarify that handlers and importers are not 
producing a finished product and that the peanuts require further 
processing prior to human consumption. This includes amending the 
definition for peanuts in the Standards to indicate that the peanuts 
covered under the Standards are raw peanuts and intended for further 
processing by manufacturers prior to human consumption. The definitions 
for inshell and shelled peanuts will also be revised to reflect that 
the peanuts covered by the Standards are in their raw, natural state. 
The definition of peanuts will continue to provide that green peanuts, 
which are raw, for consumption as boiled peanuts are not subject to 
regulation under the Standards. However, these green peanuts are sold 
mostly by producers, not by handlers and importers, and make up a small 
share of the peanut market. The change to the definition for peanuts 
will also state that peanuts intended for wildlife are not subject to 
regulation under the Standards.

[[Page 50286]]

    This change will also eliminate all references to roasting in the 
Standards to further clarify that handlers and importers are not 
producing a finished product. At one time, roasting was used to reduce 
levels of aflatoxin and was included in the Standards for that purpose. 
However, roasting is no longer used to treat aflatoxin. The Board 
supported these changes to reduce any confusion that handlers and 
importers under the Standards are delivering a finished product ready 
for human consumption.
    Finally, this final rule will also make numerous other changes 
throughout the Standards to update language and to reflect current 
industry practices and changes. Such changes include a change to the 
crop year, eliminating language relating to the old quota system, and 
updating outdated information, such as incorrect addresses, titles, and 
other contact information. It will also remove the requirement that 
peanuts testing at or above 301 ppb of aflatoxin can only be disposed 
of through crushing or export, as cleaning technology has improved to 
the point that peanuts testing at or above this level may possibly be 
cleaned to meet the outgoing standards.
    The proposed changes approved by the Board also included a 
recommendation to remove the lot size limit of 200,000 pounds on 
peanuts presented for outgoing inspection. However, the 200,000 pound 
limit is required by USDA and the inspection service to ensure an 
accurate sampling protocol. Therefore, the 200,000 pound lot limit will 
be maintained.
    USDA is also adding an additional change under this final rule that 
will revise the requirements for imported peanuts under Sec.  
996.60(a). This change modifies how importers submit their entry 
information to USDA. This section currently references the ``stamp and 
fax'' entry process, which is being replaced by the International Trade 
Data System, a system that will automate the filing of import and 
export information. This change will revise this section to reflect the 
new electronic entry process.
    The Board believes these changes will bring the Standards closer in 
line with current industry practices, make additional peanuts available 
for sale, help reduce costs, and make operations more efficient. These 
changes are consistent with the Standards and the Act.

Final Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) 
has considered the economic impact of this action on small entities. 
Accordingly, AMS has prepared this final regulatory flexibility 
analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened.
    Small agricultural producers are defined by the Small Business 
Administration (SBA) as those having annual receipts of less than 
$750,000, and small agricultural service firms, including handlers and 
importers, are defined as those having annual receipts of less than 
$7,500,000 (13 CFR 121.201).
    There are approximately 7,500 peanut producers; 65 peanut handlers, 
operating approximately 70 shelling plants; and 25 importers subject to 
regulation under this peanut program.
    An approximation of the number of peanut farms that could be 
considered small agricultural businesses under the SBA definition can 
be obtained from the 2012 Agricultural Census, which is the most recent 
information on the number of farms categorized by size. There were 
3,066 peanut farms with annual agricultural sales valued at less than 
$500,000 in 2012, representing 47 percent of the total number of peanut 
farms in the U.S. (6,561). According to the National Agricultural 
Statistics Service (NASS), peanut production for the 2014 and 2015 crop 
years averaged 5.756 billion pounds. The average value of production 
for the two-year period was $1.088 billion. The average grower price 
over the two-year period was $0.25 per pound. Dividing the two-year 
average production value of $1.088 billion by the approximate number of 
peanut producers (7,500) results in an average revenue per producer of 
approximately $145,000, which is well below the SBA threshold for small 
producers. Based on information and reports received by USDA, more than 
50 percent of handlers may be considered small entities. Further, the 
estimated value of peanuts imported into the United States in 2014 was 
approximately $64 million. Based on that number, the majority of 
importers would meet the SBA definition for small agricultural service 
firms. Consequently, a majority of handlers, importers and producers 
may be classified as small entities.
    The current 10 custom blanchers, 4 custom remillers, 3 oil mill 
operators, and 1 USDA and 17 USDA-approved private chemical (aflatoxin) 
laboratories are subject to this rule to the extent that they must 
comply with reconditioning provisions under Sec.  996.50 and reporting 
and recordkeeping requirements under Sec.  996.71. These requirements 
are applied uniformly to these entities, whether large or small.
    This final rule will revise the minimum quality, positive lot 
identification, and reporting and recordkeeping requirements under the 
Standards. This action will also make numerous other changes to the 
Standards to better reflect current industry practices and to revise 
outdated language. The Board believes these changes will make 
additional peanuts available for sale, help increase efficiencies, and 
reduce costs to the industry.
    This final rule is issued under the Minimum Quality and Handling 
Standards for Domestic and Imported Peanuts Marketed in the United 
States, as amended (7 CFR part 996), as established pursuant to Public 
Law 107-171, the Farm Security and Rural Investment Act of 2002.
    It is not anticipated that this action will impose additional costs 
on handlers, producers, or importers, regardless of size. Rather, these 
changes should help the industry reduce costs by helping to increase 
efficiencies. The industry believes the requirement that they continue 
to use PLI in addition to its own internal traceability systems creates 
redundancy and additional costs. By recognizing its internal 
traceability programs as an alternative to PLI, this should improve 
efficiencies and reduce costs. In addition, this action should also 
make additional peanuts available for sale, helping to maximize 
shipments and improving industry returns.
    This final rule is expected to benefit the industry. The effects of 
this rule are not expected to be disproportionately greater or less for 
small handlers, producers or importers than for larger entities.
    USDA has considered alternatives to these changes. The Act requires 
USDA to consult with the Board on changes to the Standards. An 
alternative considered was to continue the Standards in their current 
form. However, the industry believes these changes will increase 
efficiencies, make additional peanuts available for sale, and help 
update the Standards. Therefore, because of the anticipated benefits of 
these changes, this alternative was rejected. USDA has met with the 
Board, which is representative of the industry, and has included nearly 
all of its recommendations in this final rule.
    The Act specifies in Sec.  1601(c)(2)(A) that the Standards 
established pursuant to it may be implemented without

[[Page 50287]]

regard to the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). 
However, USDA has considered the reporting and recordkeeping burden on 
handlers and importers under this program. Handlers and importers are 
only required to complete one form, the monthly acquisition of farmers 
stock peanuts. Under this final rule, this requirement will be removed, 
reducing the reporting burden. Recordkeeping requirements will remain 
the same. Accordingly, this rule will not impose any additional 
reporting or recordkeeping requirements on either small or large 
handlers or importers.
    AMS is committed to complying with the E-Government Act to promote 
the use of the internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this rule.
    The Board's meetings were widely publicized throughout the peanut 
industry, and all interested persons were invited to attend and 
participate in Board deliberations on all issues. Like all Board 
meetings, the June 26, 2015, and the November 18, 2015, meetings were 
public meetings, and all entities, both large and small, were able to 
express views on these issues.
    Section 1601 of the Act also provides that amendments to the 
Standards may be implemented without extending interested parties an 
opportunity to comment. However, due to the nature of the proposed 
changes, interested parties were provided with a 60-day comment period.
    A proposed rule concerning this action was published in the Federal 
Register on January 19, 2016 (81 FR 2775). Copies of the rule were 
mailed to all Board members, and a press release was issued regarding 
the proposed rule to notify the industry. Finally, the rule was made 
available through the internet by USDA and the Office of the Federal 
Register. A 60-day comment period ending March 21, 2016, was provided 
to allow interested persons to respond to the proposal.
    Fifteen comments were received during the comment period in 
response to the proposal. The commenters included growers, shellers, 
manufacturers, congressional representatives, and an interested 
consumer. Fourteen of the comments were in support of the proposed 
rule. One comment was in opposition to the proposed changes to the 
outgoing quality requirements. Most of the points made by the commenter 
in opposition were discussed at the public meetings on June 26, 2015, 
and November 18, 2015, prior to the Board's vote.
    All 14 of the positive comments expressed support for finalizing 
the proposed rule as issued. Five of these comments referenced support 
of the proposal's recognition of modern business management, food 
safety progress and technological change. Two commenters noted the 
changes will better reflect current industry practices while revising 
outdated language and reducing regulatory burden on the industry. One 
comment asserted that the changes will eliminate waste and costs to the 
industry. Another expressed that under the change to the outgoing 
requirements, users of peanuts can still request the desired level of 
damage by specification in their contracts. One commenter stated that 
food safety will not be affected by these changes since the outgoing 
standards for aflatoxin are unchanged.
    The one negative comment received was from a manufacturer and 
opposed the proposed changes to the outgoing quality requirements. 
Specifically, the comment opposed the changes that will merge the 
previously separate categories for damage and minor defects for 
unshelled peanuts and kernels into one overall allowance for damage and 
increases that allowance to 3.5 percent, stating that the current 
requirements for damage and defects aligned with their requirements.
    The commenter expressed concerns that the changes to the outgoing 
quality standards may hinder their ability to control the type of 
peanut being supplied from shellers and could result in additional 
inspections and added costs. However, the modification to the outgoing 
standards will not alter the customer's ability to specify conformity 
regarding damage or defect. The manufacturer's contract with the 
supplier can still specify the types of damage and defect, thereby 
maintaining the desired transparency and ensuring the visual and 
sensory product quality required by the manufacturer. The Federal-State 
Inspection Service can certify peanuts at the damage level requested, 
so this change should not result in the need for additional 
inspections.
    Further, peanut customer requirements can vary depending on the end 
use of the peanuts. This is why the Board recommended increasing the 
allowable damage under the Standards. Some segments of the peanut 
industry do not require the same threshold for damage and defect. The 
proposed changes will allow for additional peanuts to be utilized for 
manufacturing in segments of the industry where cosmetic damage to the 
peanut is not as important.
    The proposed changes to the outgoing quality requirement are 
designed to help improve the efficiency of handling operations and make 
additional peanuts available for all customers within the peanut 
industry. This was discussed during the public Board meetings on June 
26, 2015, and November 18, 2015, prior to the Board's vote. During the 
meetings, Board members discussed the implication of adjusting the 
damage level to 3.5 percent and noted that the customer can still 
request a more stringent level than the Standards require. In fact, 
some manufacturers may already require tighter specifications for 
damage than currently allowed.
    The commenter was also concerned with how these changes may affect 
aflatoxin levels and that the changes may result in more lots failing 
as to aflatoxin. All peanuts for human consumption will still be 
chemically analyzed by a USDA laboratory or a USDA-approved laboratory 
and certified ``negative'' as to aflatoxin. The criteria for the 
outgoing standard regarding aflatoxin was not modified as part of the 
proposed changes and still requires a certificate of analysis 
indicating that the level of aflatoxin does not exceed 15 parts per 
billion.
    Accordingly, no changes will be made to the rule as proposed, based 
on the comments received.
    After consideration of all relevant matter presented, including the 
information and recommendation submitted by the Board and other 
available information, it is hereby found that this rule, as 
hereinafter set forth, will tend to effectuate the declared policy of 
the Act.

List of Subjects in 7 CFR Part 996

    Food grades and standards, Marketing agreements, Peanuts, Reporting 
and recordkeeping requirements.
    For the reasons set forth in the preamble, 7 CFR part 996 is 
amended as follows:

PART 996--MINIMUM QUALITY AND HANDLING STANDARDS FOR DOMESTIC AND 
IMPORTED PEANUTS MARKETED IN THE UNITED STATES

0
1. The authority citation for 7 CFR part 996 continues to read as 
follows:

    Authority:  7 U.S.C. 7958.


0
2. Section 996.3 is revised to read as follows:

[[Page 50288]]

Sec.  996.3  Crop year.

    Crop year means the calendar year in which the peanuts were planted 
as documented by the applicant for inspection.
0
3. Section 996.9 is revised to read as follows:


Sec.  996.9  Inshell peanuts.

    Inshell peanuts means peanuts, the kernel or edible portions of 
which are contained in the shell in their raw or natural state which 
are milled but unshelled.


0
4. Section 996.10 is revised to read as follows:


Sec.  996.10  Inspection Service.

    Inspection Service means the Federal Inspection Service, Specialty 
Crops Program, Agricultural Marketing Service, USDA, or the Federal-
State Inspection Service.


0
5. Section 996.12 is revised to read as follows:


Sec.  996.12  Outgoing inspection.

    Outgoing inspection means the sampling, inspection, and 
certification of either: shelled peanuts which have been cleaned, 
sorted, sized, and otherwise prepared for further processing; or 
inshell peanuts which have been cleaned, sorted, and otherwise prepared 
for further processing.


0
6. In Sec.  996.13 revise the introductory text to read as follows:


Sec.  996.13  Peanuts.

    Peanuts means the seeds of the legume Arachis hypogaea and includes 
both inshell and shelled peanuts produced in the United States or 
imported from foreign countries and intended for further processing 
prior to consumption by humans or animals, other than those intended 
for wildlife or those in green form for consumption as boiled peanuts.
* * * * *


0
7. Section 996.15 is revised to read as follows:


Sec.  996.15  Positive lot identification.

    Positive lot identification is a means of identifying those peanuts 
meeting outgoing quality regulations as defined in Sec.  996.31 and 
relating the inspection certificate issued by the Inspection Service, 
as defined in Sec.  996.10, to the lot covered so that there is no 
doubt that the peanuts in the lot are the same peanuts described on the 
inspection certificate.


Sec.  996.17  [Removed and Reserved]


0
8. Section 996.17 is removed and reserved.
0
9. Section 996.19 is revised to read as follows:


Sec.  996.19  Shelled peanuts.

    Shelled peanuts means the kernels or portions of kernels of peanuts 
in their raw or natural state after the shells are removed.


Sec.  996.30  [Amended]

0
10. Section 996.30 is amended by removing paragraphs (c) and (d).
0
11. Section 996.31 is amended by revising the table following paragraph 
(a) and paragraph (b)(2) to read as follows:


Sec.  996.31  Outgoing quality standards.

    (a) * * *

                            Minimum Quality Standards--Peanuts for Human Consumption
                                 [Whole kernels and splits: Maximum limitations]
----------------------------------------------------------------------------------------------------------------
                                           Unshelled
                                          peanuts and   Total fall through sound
                                            damaged       whole kernels and/or        Foreign        Moisture
        Type and grade category           kernels and    sound split and broken      materials       (percent)
                                         minor defects           kernels             (percent)
                                           (percent)
----------------------------------------------------------------------------------------------------------------
                                          Excluding Lots of ``splits''
----------------------------------------------------------------------------------------------------------------
Runner................................            3.50  6.00%; 17/64 inch round              .20            9.00
                                                         screen.
Virginia (except No. 2)...............            3.50  6.00%; 17/64 inch round              .20            9.00
                                                         screen.
Spanish and Valencia..................            3.50  6.00%; 16/64 inch round              .20            9.00
                                                         screen.
No. 2 Virginia........................            3.50  6.00%; 17/64 inch round              .20            9.00
                                                         screen.
Runner with splits (not more than 15%             3.50  6.00%; 17/64 inch round              .20            9.00
 sound splits).                                          screen.
Virginia with splits (not more than               3.50  6.00%; 17/64 inch round              .20            9.00
 15% sound splits).                                      screen.
Spanish and Valencia with splits (not             3.50  6.00%; 16/64 inch round              .20            9.00
 more than 15% sound splits).                            screen.
----------------------------------------------------------------------------------------------------------------
                                               Lots of ``splits''
----------------------------------------------------------------------------------------------------------------
Runner (not less than 90% splits).....            3.50  6.00%; 17/64 inch round              .20            9.00
                                                         screen.
Virginia (not less than 90% splits)...            3.50  6.00%; 17/64 inch round              .20            9.00
                                                         screen.
Spanish and Valencia (not less than               3.50  6.00%; 16/64 inch round              .20            9.00
 90% splits).                                            screen.
----------------------------------------------------------------------------------------------------------------


[[Page 50289]]

    (b) * * *
    (2) Not more than 3.50 percent peanuts with damaged or defective 
kernels;
* * * * *

0
12. In Sec.  996.40, paragraph (a), the last sentence of paragraph 
(b)(2), and paragraphs (b)(5) and (6) are revised to read as follows:


Sec.  996.40  Handling standards.

    (a) Identification: Each lot of shelled or cleaned- inshell peanuts 
intended for human consumption shall be identified by positive lot 
identification prior to being shipped or otherwise disposed of. 
Positive lot identification (PLI) methods are tailored to the size and 
containerization of the lot, by warehouse storage or space 
requirements, or by necessary further movement of the lot prior to 
certification. Positive lot identification is established by the 
Inspection Service and includes the following methods of 
identification. For domestic lots and repackaged import lots, PLI 
includes PLI stickers, tags or seals applied to each individual package 
or container in such a manner that is acceptable to the Inspection 
Service and maintains the identity of the lot. For imported lots, PLI 
tape may be used to wrap bags or boxes on pallets, PLI stickers may be 
used to cover the shrink-wrap overlap, doors may be sealed to isolate 
the lot, bags or boxes may be stenciled with a lot number, or any other 
means that is acceptable to the Inspection Service. The crop year means 
the calendar year in which the peanuts were planted as documented by 
the applicant. All lots of shelled and cleaned-inshell peanuts shall be 
shipped under positive lot identification procedures. However, peanut 
lots failing to meet quality requirements may be moved from a handler's 
facility to another facility owned by the same handler or another 
handler without PLI so long as such handler maintains a satisfactory 
records system for traceability purposes as defined in Sec.  996.73.
    (b) * * *
    (2) * * * Both Subsamples 1-AB and 1-CD shall be accompanied by a 
notice of sampling or grade certificate, signed by the inspector, 
containing, at least, identifying information as to the handler or 
importer, and the positive lot identification of the shelled peanuts.
* * * * *
    (5) Handlers and importers may make arrangements for required 
inspection and certification by contacting the Inspection Service 
office closest to where the peanuts will be made available for 
sampling. For questions regarding inspection services, a list of 
Federal or Federal-State Inspection Service offices, or for further 
assistance, handlers and importers may contact: Specialty Crops 
Inspection Division, Specialty Crops Program, AMS, USDA, 1400 
Independence Avenue SW., Room 1536-S, (STOP 0240), Washington, DC, 
20250-0240; Telephone: (202) 720-5870; Fax: (202) 720-0393.
    (6) Handlers and importers may make arrangements for required 
chemical analysis for aflatoxin content at the nearest USDA or USDA-
approved laboratory. For further information concerning chemical 
analysis and a list of laboratories authorized to conduct such analysis 
contact: Science and Technology Program, AMS, USDA, 1400 Independence 
Avenue SW., STOP 0270, Washington, DC 20250-0270; Telephone (202) 690-
0621; Fax (202) 720-4631.
* * * * *

0
13. In Sec.  996.50:
0
a. Revise paragraph (a);
0
b. Remove paragraph (b)(2);
0
c. Redesignate paragraph (b)(1) as paragraph (b)(2); redesignate 
paragraph (b) introductory text as (b)(1) and revise it;
0
d. Remove paragraphs (e);
0
e. Redesignate paragraphs (f), (g), (h), and (i) as paragraphs (e), 
(f), (g), and (h), respectively; and
0
f. Revise newly redesignated paragraphs (e) and (f).
    The revisions read as follows:


Sec.  996.50  Reconditioning failing quality peanuts.

    (a) Lots of peanuts which have not been certified as meeting the 
requirements for disposition to human consumption outlets may be 
disposed for non-human consumption uses: Provided, That each such lot 
is positive lot identified using red tags, identified using a 
traceability system as defined in Sec.  996.73, or other methods 
acceptable to the Inspection Service, and certified as to aflatoxin 
content (actual numerical count), unless they are designated for 
crushing. However, on the shipping papers covering the disposition of 
each such lot, the handler or importer shall cause the following 
statement to be shown: ``The peanuts covered by this bill of lading (or 
invoice, etc.) are not to be used for human consumption.''
    (b)(1) Sheller oil stock residuals shall be positive lot identified 
using red tags, identified using a traceability system as defined in 
Sec.  996.73, or other methods acceptable to the Inspection Service, 
and may be disposed of domestically or to the export market in bulk or 
bags or other suitable containers. Disposition to crushing may be to 
approved crushers. However, sheller oil stock residuals may be moved 
from a handler's facility to another facility owned by the same handler 
or another handler without PLI so long as such handler maintains a 
satisfactory records system for traceability purposes as defined in 
Sec.  996.73.
* * * * *
    (e) Lots of shelled peanuts moved for remilling or blanching shall 
be positive lot identified and accompanied by valid grade inspection 
certificate, Except That, a handler's shelled peanuts may be moved 
without PLI and grade inspection to the handler's blanching facility 
that blanches only the handler's peanuts. Lots of shelled peanuts may 
be moved for remilling or blanching to another handler without PLI if 
the handler uses a traceability system as defined in Sec.  996.73, 
Except That, any grade inspection certificates associated with these 
lots would no longer be valid. The title of such peanuts shall be 
retained by the handler or importer until the peanuts have been 
certified by the Inspection Service as meeting the outgoing quality 
standards specified in the table in Sec.  996.31(a). Remilling or 
blanching under the provisions of this paragraph shall be performed 
only by those remillers and blanchers approved by USDA. Such approved 
entities must agree to comply with the handling standards in this part 
and to report dispositions of all failing peanuts and residual peanuts 
to USDA, unless they are designated for crushing.
    (f) Residual peanuts resulting from remilling or blanching of 
peanuts shall be red tagged, identified using a traceability system as 
defined in Sec.  996.73, or identified by other means acceptable to the 
Inspection Service, and returned directly to the handler for further 
disposition or, in the alternative, such residual peanuts shall be 
positive lot identified by the Inspection Service and shall be disposed 
of to handlers who are crushers, or to approved crushers, Except That, 
a handler may move the residual peanuts without PLI to a facility for 
crushing owned by the handler. Handlers who are crushers and crushers 
approved by USDA must agree to comply with the terms and conditions of 
this part.
* * * * *

0
14. In Sec.  996.60:
0
a. Revise paragraph (a);
0
b. Remove paragraphs (b) and (c); and
0
c. Redesignate paragraph (d) as paragraph (b).
    The revision reads as follows:

[[Page 50290]]

Sec.  996.60  Safeguard procedures for imported peanuts.

    (a) Prior to arrival of a foreign-produced peanut lot at a port-of-
entry, the importer, or customs broker acting on behalf of the 
importer, shall submit information electronically to the United States 
Customs and Border Protection, which includes the following: The 
Customs Service entry number; the container number(s) or other 
identification of the lot(s); the volume of the peanuts in each lot 
being entered; the inland shipment destination where the lot will be 
made available for inspection; and a contact name or telephone number 
at the destination.
* * * * *

0
15. In Sec.  996.71:
0
a. Remove paragraph (a);
0
b. Redesignate paragraphs (b) and (c) as paragraphs (a) and (b), 
respectively;
0
c. Revise newly redesignated paragraph (a); and
0
d. Revise the last sentence in newly redesignated paragraph (b).
    The revisions read as follows:


Sec.  996.71  Reports and recordkeeping.

    (a) Each handler and importer shall maintain a satisfactory records 
system for traceability purposes as defined in Sec.  996.73.
    (b) * * * USDA and USDA-approved laboratories shall file copies of 
all aflatoxin certificates completed by such laboratories with the 
Southeast Marketing Field Office, Marketing Order and Agreement 
Division, Specialty Crops Program, AMS, USDA, 1124 1st Street South, 
Winter Haven, Florida 33880; Telephone (863) 324-3375, Fax: (863) 291-
8614, or other address as determined by USDA.

0
16. Section 996.73 is revised to read as follows:


Sec.  996.73  Verification of reports.

    (a) For the purpose of checking and verifying reports kept by 
handlers and importers and the operation of handlers and importers 
under the provisions of this Part, the officers, employees or duly 
authorized agents of USDA shall have access to any premises where 
peanuts may be held at any time during reasonable business hours and 
shall be permitted to inspect any peanuts that meet outgoing quality 
regulations, so held by such handler or importer and any and all 
records of such handler with respect to the acquisition, holding, or 
disposition of all peanuts meeting outgoing quality regulations, which 
may be held or which may have been disposed by handler.
    (b) Reports shall be maintained by the handler for nonconforming 
products to assure traceability throughout the supply chain. The 
traceability system must include documented records, which enable a 
full product history to be produced in a timely manner and must ensure 
product can be traced forward (raw material to distribution) and 
backwards from distribution to the warehouse feeding the shelling 
plant, and ensure that all associated tests and all relevant records 
have been completed. The traceability system shall include 
identification of all raw materials, process parameters (for specific 
lot), packaging and final disposition. The handler shall be able to 
identify the warehouse in which the peanuts were stored immediately 
prior to shelling. Traceability must be maintained throughout 
production runs with specific lot codes, and there shall be complete 
linkage from raw material receipt through final disposition.

0
17. In Sec.  996.74:
0
a. Remove paragraph (a)(1);
0
b. Redesignate paragraphs (a)(2) through (7) as paragraphs (a)(1) 
through (6), respectively;
0
c. Revise newly redesignated paragraphs (a)(3) and (5); and
0
d. Revise paragraph (b).
    The revisions read as follows:


Sec.  996.74  Compliance.

    (a) * * *
    (3) Commingles failing quality peanuts with certified edible 
quality peanuts and ships the commingled lot for human consumption use 
without meeting outgoing quality regulations;
* * * * *
    (5) Fails to maintain and provide access to records, pursuant to 
Sec.  996.71, and the standards for traceability and nonconforming 
product disposition pursuant to Sec.  996.73, on the reconditioning or 
disposition of peanuts acquired by such handler or importer; and on 
lots that meet outgoing quality standards; or
* * * * *
    (b) Any peanut lot shipped which fails to meet the outgoing quality 
standards specified in Sec.  996.31, and is not reconditioned to meet 
such standards, or is not disposed to non-human consumption outlets as 
specified in Sec.  996.50, shall be reported by USDA to the Food and 
Drug Administration and listed on an Agricultural Marketing Service Web 
site.

0
18. Section 996.75 is revised to read as follows:


Sec.  996.75  Effective time.

    The provisions of this part, as well as any amendments, shall apply 
to current crop year peanuts, subsequent crop year peanuts, and prior 
crop year peanuts not yet inspected, or failing peanut lots that have 
not met disposition standards, and shall continue in force and effect 
until modified, suspended, or terminated.

    Dated: July 27, 2016.
Elanor Starmer,
Administrator, Agricultural Marketing Service.
[FR Doc. 2016-18116 Filed 7-29-16; 8:45 am]
 BILLING CODE 3410-02-P