[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Rules and Regulations]
[Pages 91643-91646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30307]



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  Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / 
Rules and Regulations  

[[Page 91643]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 984

[Doc. No. AMS-SC-16-0062; SC16-984-2 FR]


Walnuts Grown in California; Increased Assessment Rate

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

SUMMARY: This rule implements a recommendation from the California 
Walnut Board (Board) to increase the assessment rate established for 
the 2016-17 and subsequent marketing years from $0.0379 to $0.0465 per 
kernelweight pound of assessable walnuts. The Board locally administers 
the marketing order and is comprised of growers and handlers of walnuts 
operating within the area of production. Assessments upon walnut 
handlers are used by the Board to fund reasonable and necessary 
expenses of the program. The marketing year began on September 1 and 
ends August 31. The assessment rate will remain in effect indefinitely 
unless modified, suspended, or terminated.

DATES: Effective December 20, 2016.

FOR FURTHER INFORMATION CONTACT: Terry Vawter, Senior Marketing 
Specialist, or Jeffrey Smutny, Regional Director, California Marketing 
Field Office, Marketing Order and Agreement Division, Specialty Crops 
Program, AMS, USDA; Telephone: (559) 487-5901, Fax: (559) 487-5906, or 
Email: [email protected] or [email protected].
    Small businesses may request information on complying with this 
regulation by contacting Richard Lower, 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 rule is issued under Marketing Order 
No. 984, as amended (7 CFR part 984), regulating the handling of 
walnuts grown in California, hereinafter referred to as the ``order.'' 
The order is effective under the Agricultural Marketing Agreement Act 
of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the 
``Act.''
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Orders 12866, 13563, and 13175.
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. Under the order now in effect, California walnut 
handlers are subject to assessments. Funds to administer the order are 
derived from such assessments. It is intended that the assessment rate 
as issued herein will be applicable to all assessable walnuts beginning 
on September 1, 2016, and continue until amended, suspended, or 
terminated.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. Such 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing, USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed not later than 20 days after the date of 
the entry of the ruling.
    This rule increases the assessment rate for the 2016-17 and 
subsequent marketing years from $0.0379 to $0.0465 per kernelweight 
pound of assessable walnuts.
    The order provides authority for the Board, with the approval of 
USDA, to formulate an annual budget of expenses and collect assessments 
from handlers to administer the program. All members of the Board, but 
one, are growers and handlers of California walnuts. They are familiar 
with the Board's needs and with the costs for goods and services in 
their local area and are thus in a position to formulate an appropriate 
budget and assessment rate. The assessment rate is formulated and 
discussed in a public meeting. Thus, all directly affected persons have 
an opportunity to participate and provide input.
    For the 2015-16 and subsequent marketing years, the Board 
recommended, and USDA approved, an assessment rate of $0.0379 per 
kernelweight pound of assessable walnuts that would continue in effect 
from year to year unless modified, suspended, or terminated by USDA 
upon recommendation and information submitted by the Board or other 
information available to USDA.
    The Board met on June 9, 2016, and unanimously recommended 2016-17 
expenditures of $23,143,050 and an assessment rate of $0.0465 per 
kernelweight pound of assessable walnuts. In comparison, last year's 
budgeted expenditures were $22,668,980. The assessment rate of $0.0465 
is $0.0086 per pound higher than the rate currently in effect. The 
quantity of assessable walnuts for the 2016-17 marketing year is 
estimated at 553,000 tons inshell or 497,700,000 kernelweight pounds, 
which is the three-year average of walnut production. At the 
recommended higher assessment rate of $0.0465 per kernelweight pound, 
the Board should collect approximately $23,143,050 in assessment 
income, making income and expenses equal. The Board estimates it will 
begin the 2016-17 marketing year with $9,827,284 in its monetary 
reserve, which is well within the requirements of the order.
    The Board noted that sales of California walnuts in the domestic 
market have been declining in recent years, and embarked upon an 
enhanced market development and promotion program in the 2015-16 
marketing year that was designed to reverse the trend. Noting that 
making such a commitment for a single year would likely not result in 
long-term gains, they voted to continue such market development and 
promotion programs. Thus, it is

[[Page 91644]]

maintaining its programs at a level near that of the 2015-16 marketing 
year.
    In addition, personnel changes will result in an overlap of duties 
and expenses, as some positions will be added so that experience and 
continuity can be maintained despite staff retirements. Thus, employee 
costs are expected to be higher this marketing year. Added to that, the 
implementation of the Food Safety Modernization Act (FSMA) may result 
in added costs to the industry and, in some cases, to the Board as 
well. For that reason, the Grades and Standards Committee and the 
Production Research Committee requested increased budgets.
    The following table compares major budget expenditures recommended 
by the Board for the 2015-16 and 2016-17 marketing years:

------------------------------------------------------------------------
        Budget expense categories             2015-16         2016-17
------------------------------------------------------------------------
Employee Expenses.......................     $ 1,846,500     $ 2,292,000
Travel/Board Expenses/Annual Audit......         191,000         206,000
Office Expenses.........................         254,000         262,000
Controlled Purchases....................          10,000          10,000
Crop Acreage Survey.....................          10,000               0
Crop Estimate...........................         130,000         130,000
Production Research Director............          94,500         175,000
Production Research.....................       1,700,000       1,800,000
Sustainability Project..................          75,000          75,000
Grades and Standards Research...........         600,000         800,000
Domestic Market Development.............      18,478,440      18,398,040
Reserve for Contingency.................          32,790          59,010
------------------------------------------------------------------------

    The assessment rate recommended by the Board was derived by 
dividing anticipated assessment revenue needed by estimated shipments 
of California walnuts certified as merchantable. The 553,000 ton 
(inshell) estimate for merchantable shipments is an average of 
shipments during three prior years. Pursuant to Sec.  984.51(b) of the 
order, this figure is converted to a merchantable kernelweight basis 
using a factor of 0.45 (553,000 tons x 2,000 pounds per ton x 0.45), 
which yields 497,700,000 kernelweight pounds. At $0.0465 per pound, the 
new assessment rate should generate $23,143,050 in assessment income, 
which is equal to estimated expenses.
    Section 984.69 of the order authorizes the Board to carry over 
excess funds into subsequent marketing years as a reserve, provided 
that funds already in the reserve do not exceed approximately two 
years' budgeted expenses. Current reserve funds total $9,827,284 and 
are well within that requirement.
    The assessment rate established in this rule will continue in 
effect indefinitely unless modified, suspended, or terminated by USDA 
upon recommendation and information submitted by the Board or other 
available information.
    Although this assessment rate will be effective for an indefinite 
period, the Board will continue to meet prior to or during each 
marketing year to recommend a budget of expenses and consider 
recommendations for modification of the assessment rate. The dates and 
times of Board meetings are available from the Board or USDA. Board 
meetings are open to the public, and interested persons may express 
their views at these meetings. USDA will evaluate Board recommendations 
and other available information to determine whether modification of 
the assessment rate is needed. Further rulemaking will be undertaken as 
necessary. The Board's 2016-17 budget and those for subsequent 
marketing years would be reviewed and, as appropriate, approved by 
USDA.

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 rule on small entities. 
Accordingly, AMS has prepared this final regulatory flexibility 
analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and the rules issued thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf.
    There are approximately 5,700 growers of California walnuts in the 
production area and approximately 90 handlers subject to regulation 
under the order. The Small Business Administration (SBA) defines small 
agricultural businesses as those having annual receipts of less than 
$750,000, and small agricultural service firms are defined as those 
having annual receipts of less than $7,500,000 (13 CFR 121.201).
    According to USDA's National Agricultural Statistics Service's 
(NASS's) 2012 Census of Agriculture, approximately 86 percent of 
California's walnut farms were smaller than 100 acres. Further, NASS 
reports that the average yield for 2014 was 1.97 tons per acre, and the 
average price received for 2014 was $3,230 per ton.
    A 100-acre farm with an average yield of 1.97 tons per acre would 
therefore have been expected to produce about 197 tons of walnuts 
during the 2014-15 marketing year. At $3,230 per ton, that farm's 
production would have had an approximate value of $636,310. Since 
Census of Agriculture information indicates that the majority of 
California's walnut farms are smaller than 100 acres, it could be 
concluded that the majority of the growers had receipts of less than 
$636,310 in 2014-15, which is well below the SBA threshold of $750,000. 
Thus, the majority of California's walnut growers would be considered 
small growers according to SBA's definition.
    According to information supplied by the Board, approximately two-
thirds of California's walnut handlers shipped merchantable walnuts 
valued under $7,500,000 during the 2014-15 marketing year and would, 
therefore, be considered small businesses according to the SBA 
definition.
    This rule increases the assessment rate established for the Board 
and collected from handlers for the 2016-17 and subsequent marketing 
years from $0.0379 to $0.0465 per kernelweight pound of assessable 
walnuts. At its meeting on June 9, 2016, the Board unanimously 
recommended 2016-17 expenditures of $23,143,050 and an assessment rate 
of $0.0465 per kernelweight pound of assessable walnuts. The assessment 
rate of $0.0465 is $0.0086 higher than the 2015-16 rate. The quantity 
of assessable walnuts for the 2016-17 marketing year is estimated at 
553,000 tons inshell weight, or

[[Page 91645]]

497,700,000 kernelweight pounds. Thus, the $0.0465 rate should provide 
$23,143,050 in assessment income, which is equal to the estimated 
expenses.
    The increased assessment rate is due to continuing domestic 
marketing and promotion programs, as well as to increased personnel and 
committee expenses. The Board believes that California walnut sales can 
be improved in the domestic market through continued promotional 
activities. In addition, the Grades and Standards Committee and 
Production Research Committee have asked for additional funds in case 
the implementation of FSMA requires new methods or processes for 
growing, harvesting, and shipping walnuts.
    The major expenses for the 2016-17 marketing year include: 
$2,292,000 for employee expenses; $206,000 for travel, Board expenses, 
and annual audit expenses; $262,000 for office expenses; $10,000 for 
controlled purchases; $0 for the crop acreage survey; $130,000 for the 
crop estimate; $175,000 for the salary of the Production Research 
Director; $1,800,000 for production research; $75,000 for 
sustainability; $800,000 for grades and standards research; $18,398,040 
for domestic market development projects; and $59,010 for the 
contingency reserve.
    In comparison, the major expenses for the 2015-16 marketing year 
included: $1,846,500 for employee expenses; $191,000 for travel, board 
expenses, and annual audit expenses; $254,000 for office expenses; 
$10,000 for controlled purchases; $100,000 for the crop acreage survey; 
$130,000 for the crop estimate; $94,500 for the salary of the 
Production Research Director; $1,700,000 for production research; 
$75,000 for sustainability; $600,000 for grades and standards research; 
$18,478,440 for domestic market development projects; and $32,790 for 
the contingency reserve.
    The Board reviewed and unanimously recommended 2016-17 expenditures 
of $23,143,050 at its meeting on June 9, 2016. Prior to arriving at 
this budget, the Board considered a recommendation from the Budget and 
Personnel Committee (Committee), which also reviewed the proposed 
budget. The Committee debated the relative value of the increased 
assessment rate, given the focus on domestic promotion programs. It 
also considered information from various other committees, who 
deliberated and formulated their own budgets of expenses and made their 
recommendations to the Committee. Those committees include the Market 
Development, Production Research, and Grades and Standards Committees.
    The Budget and Personnel Committee considered alternative 
expenditure levels, such as reducing the proposed budgets recommended 
by the other committees and changing the funding for domestic marketing 
projects, as well as not increasing the assessment rate. The Committee 
ultimately decided that the proposed expenditures and assessment rate 
were reasonable and necessary to assist in improving domestic sales, 
maintaining staff continuity, and preparing for potential FSMA 
mandates. Thus, the Committee unanimously agreed to recommend the 
budget to the Board.
    The assessment rate of $0.0465 per kernelweight pound of assessable 
walnuts was derived by dividing anticipated assessment revenue needed 
by expected shipments of California walnuts certified as merchantable. 
Merchantable shipments for the year are estimated at 497,700,000 
pounds. It was determined that $23,143,050 in assessment income was 
needed, and assessment income will equal expenses of $23,143,050.
    Unexpended funds may be retained in a financial reserve, provided 
that funds in the financial reserve do not exceed approximately two 
years' budgeted expenses.
    According to NASS, the season average grower prices for the years 
2013 and 2014 were $3,710 and $3,230 per ton, respectively. These 
prices provide a range within which the 2016-17 season average price 
could fall. Dividing these average grower prices by 2,000 pounds per 
ton provides an inshell price per pound range of $1.62 to $1.86. 
Dividing these inshell per pound prices by the 0.45 conversion factor 
(inshell to kernelweight) established in the order yields a 2016-17 
price range estimate of $3.60 to $4.13 per kernelweight pound of 
assessable walnuts.
    To calculate the percentage of grower revenue represented by the 
assessment rate, the assessment rate of $0.0465 per kernelweight pound 
is divided by the low and high estimates of the price range. The 
estimated assessment revenue for the 2016-17 marketing year as a 
percentage of total grower revenue will thus likely range between 1.13 
and 1.29 percent.
    This action increases the assessment obligation imposed on 
handlers. While assessments impose some additional costs on handlers, 
the costs are minimal and uniform on all handlers. However, these costs 
are offset by the benefits derived by the operation of the marketing 
order. In addition, the Board's meeting was widely publicized 
throughout the California walnut industry, and all interested persons 
were invited to attend the meeting and encouraged to participate in 
Board deliberations on all issues. Like all Board meetings, the June 9, 
2016, meeting was a public meeting, and all entities, both large and 
small, were free to express views on this issue.
    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), the order's information collection requirements have been 
previously approved by the Office of Management and Budget (OMB) and 
assigned OMB No. 0581-0178 (Vegetable and Specialty Crop Marketing 
Orders). No changes in those requirements as a result of this action 
are necessary. Should any changes become necessary, they would be 
submitted to OMB for approval.
    This rule imposes no additional reporting or recordkeeping 
requirements on either small or large California walnut handlers. As 
with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies. USDA has not 
identified any relevant Federal rules that duplicate, overlap, or 
conflict with this action.
    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.
    A proposed rule concerning this action was published in the Federal 
Register on September 16, 2016 (FR 81 63718). Copies of the rule were 
provided to all walnut handlers, as well as to Board members. Finally, 
the proposal was made available through the internet by USDA and the 
Office of the Federal Register. A 30-day comment period, ending October 
17, 2016, was provided for interested persons to respond to the 
proposal. Two comments were received: one supportive of the increase 
and the other questioning the impact of the rule on small businesses.
    The commenter who questioned the increase noted that the budget for 
the 2016-17 marketing year contained not only funds to continue the 
expanded marketing programs but also to fund additional staff members 
hired to work alongside existing staff who are preparing to retire. The 
Board's goal is for the newly hired staff members to learn from the 
retiring employees so that minimal staff expertise is lost. While the 
commenter did not object to the practice, the commenter questioned why 
small California walnut handlers, who comprise the majority of walnut

[[Page 91646]]

handlers, have to bear the burden of the increased assessment rate.
    As previously noted, assessments are minimal and uniform on all 
handlers. Thus, small handlers bear a proportional burden compared to 
larger handlers. The increase was recommended unanimously by the Board, 
which is made up of small and large handlers, as well as small and 
large growers, representing the entire California walnut industry. The 
Board made the unanimous recommendation based upon deliberations by 
four of its standing committees: the Market Development Committee, 
Production Research Committee, Grades and Standards Committee, and 
Budget and Personnel Committee. All four committees reviewed the 
proposed expenses and crop size, and considered alternative assessment 
rates. All of the committees recommended the increased assessment rate 
and determined that the budget was prudent, resulting in a unanimous 
recommendation from the Board.
    Accordingly, no changes will be made to the rule as proposed, based 
on the comments received.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/rules-regulations/moa/small-businesses. Any questions 
about the compliance guide should be sent to Richard Lower at the 
previously mentioned address in the FOR FURTHER INFORMATION CONTACT 
section.
    After consideration of all relevant material 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.
    Pursuant to 5 U.S.C. 553, it is also found and determined that good 
cause exists for not postponing the effective date of this rule until 
30 days after publication in the Federal Register because handlers are 
already receiving 2016-17 crop walnuts from growers, the crop year 
began on September 1, 2016, and the assessment rate applies to all 
walnuts received during the 2016-17 and subsequent seasons. Further, 
handlers are aware of this rule, which was recommended at a public 
meeting. Also, a 30-day comment period was provided for in the proposed 
rule.

List of Subjects in 7 CFR Part 984

    Marketing agreements, Nuts, Reporting and recordkeeping 
requirements.

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

PART 984--WALNUTS GROWN IN CALIFORNIA

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

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

0
2. Section 984.347 is revised to read as follows:


Sec.  984.347   Assessment rate.

    On and after September 1, 2016, an assessment rate of $0.0465 per 
kernelweight pound is established for California merchantable walnuts.

    Dated: December 12, 2016.
Bruce Summers,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2016-30307 Filed 12-16-16; 8:45 am]
 BILLING CODE 3410-02-P