[Federal Register Volume 85, Number 28 (Tuesday, February 11, 2020)]
[Proposed Rules]
[Pages 7669-7672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02387]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 85, No. 28 / Tuesday, February 11, 2020 / 
Proposed Rules  

[[Page 7669]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 984

[Docket No. AO-SC-20-J-0011; AMS-SC-19-0082; SC19-984-1]


Walnuts Grown in California; Hearing on Proposed Amendment of 
Marketing Order No.984

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Notice of hearing on proposed rulemaking; advance notice of 
proposed rulemaking.

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SUMMARY: Notice is hereby given of a public hearing to receive evidence 
on proposed amendments to Federal Marketing Order No. 984 (Order) 
regulating the handling of walnuts grown in California. The California 
Walnut Board (Board), which locally administers the Order, recommended 
proposed amendments that would add authority for the Board to provide 
credit for certain market promotion expenses paid by handlers against 
their annual assessments due under the Order and establish requirements 
to effectuate the new authority. In addition, the Agricultural 
Marketing Service (AMS) proposes to make changes to the Order as may be 
necessary to conform to any amendment that may result from the hearing.

DATES: The hearing will be held March 16, 2020, from 9:00 a.m. to 5:00 
p.m. and, if deemed necessary by the presiding administrative law 
judge, will continue March 17, 2020, from 9:00 a.m. until 5:00 p.m. or 
until any other such time as determined by the judge.

ADDRESSES: The hearing will be held at the Sacramento Marriott Rancho 
Cordova, 11211 Point East Drive, Rancho Cordova, CA 95742.

FOR FURTHER INFORMATION CONTACT: Melissa Schmaedick, Marketing Order 
and Agreement Division, Specialty Crops Program, AMS, USDA, Post Office 
Box 952, Moab, UT 84532; Telephone: (435) 265-5092, Fax: (435) 259-
1502, or Andrew Hatch, 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] or 
[email protected].
    Small businesses may request information on this proceeding by 
contacting Richard E. 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 administrative action is instituted 
pursuant to the Agricultural Marketing Agreement Act of 1937, as 
amended (7 U.S.C. 601-674), hereinafter referred to as the ``Act.'' 
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, 13563 and 13175. AMS provided 
notice of the upcoming hearing to tribal governments through USDA's 
Office of Tribal Relations.
    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) seeks to 
ensure that within the statutory authority of a program, the regulatory 
and informational requirements are tailored to the size and nature of 
small businesses. Interested persons are invited to present evidence at 
the hearing on the possible regulatory and informational impacts of the 
proposals on small businesses.
    The amendments proposed herein have been reviewed under Executive 
Order 12988, Civil Justice Reform. They are not intended to have 
retroactive effect.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. A 
handler is afforded the opportunity for a hearing on the petition. 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 no later than 20 days 
after the date of the entry of the ruling.
    The hearing is convened in accordance with the provisions of the 
Act and the applicable rules of practice and procedure governing the 
formulation of marketing agreements and orders (7 CFR part 900).
    The proposed amendments to Marketing Order No. 984 (7 CFR 984) were 
recommended to the Secretary by the Board on September 13, 2019, and a 
request for a public hearing and proposed rulemaking was submitted to 
USDA on September 16, 2019. After reviewing the proposals and other 
information submitted by the Board, USDA concludes that the proposed 
amendments to part 984 (referred to as ``the Order'') will tend to 
effectuate the declared policy of the Act, and therefore, made a 
determination to schedule this matter for hearing.
    The Board administers the Order, with the oversight of USDA. The 
Board's proposed change would authorize the Board to set aside funds 
every year during its budget discussions to fund a credit-back program. 
The proposal would also authorize certain market promotion expenses 
paid directly by handlers within a marketing year to be ``credited-
back'' to the handler against their assessment obligation paid to the 
Board. The credit-back amount available to each handler would be 
determined by that handler's percentage of the industry's total volume 
of walnuts handled during the prior marketing year multiplied by the 
current marketing year's credit-back program budget. If the new 
authority is approved by growers in a grower referendum, the resulting 
final rule would include rules and regulations to effectuate the new 
authority.
    In its request to USDA for a public hearing, the Board stated that 
the proposed amendments are necessary to encourage handlers to 
undertake market promotion activities in addition to the marketing 
order's generic marketing efforts, and to increase market demand for 
the industry's increasing supply of walnuts.

[[Page 7670]]

    The Board's request explained that the industry has grown since the 
program's inception in 1946, with production nearly doubling in the 
past decade to an estimated 672,000 short tons. Current bearing acres 
total 350,000 and an additional 60,000 are due to come into production 
over the next five years. As such, the Board is forecasting production 
to reach over 850,000 short tons, or a 26-percent increase, within that 
time.
    The Board's justification for its recommendation stated that demand 
for walnuts needs to increase to stabilize future market returns. The 
Board stated that future increases in supply without additional 
increases in demand could result in weaker market returns. Further, the 
Board's analysis of domestic walnut consumption reveals untapped growth 
potential, with domestic household penetration only reaching 40 
percent. Thus, the proposed credit-back authority could stimulate 
demand and stabilize future market prices.
    The Board explained that it is only authorized to conduct generic 
marketing activities for the promotion of inshell and shelled walnuts 
under the Order. The Board has previously developed new product 
formulations for handler use; however, because the Board does not 
manufacture or otherwise sell walnuts, it is incumbent upon the 
handlers to further develop and deliver new products to the market. The 
proposal for credit-back authority is intended to encourage handler 
product development and overall marketing and promotion of California 
walnuts. If the proposal is approved, the Board would be authorized to 
establish a credit-back program and recommend an annual credit-back 
rate, subject to approval by the Secretary.
    In its hearing request, the Board stated the need to implement a 
credit-back program for the 2020/2021 marketing year, which begins 
September 1, 2020. The Board is recommending a credit-back rate of 
$0.70 cents for each handler dollar spent on qualified activities up to 
each handler's pro-rata share of assessments paid into the allocated 
credit-back fund. During its annual budget process, the Board would 
designate a credit-back fund based on forecasted production and 
anticipated assessment revenue. The per handler pro-rata share of the 
credit-back fund would be calculated by multiplying the budgeted 
credit-back fund by each handler's percentage of walnuts handled of the 
previous marketing year's total walnuts. The Board would then 
communicate to handlers the availability of the credit-back fund and 
their pro-rata portion of that fund.
    Handlers would be able to apply for credit-back on the expenses of 
qualified activities completed within the marketing year. Handlers 
would provide proof of payment and documentation of qualified 
activities to the Board for review. Once the Board has approved the 
claim, the handler would receive a reimbursement for 70 percent of the 
expense of the qualified activity up to the handler's pro-rata share of 
the credit-back fund. If a credit-back claim for expenses is made prior 
to the end of the marketing year, the handler must also have paid 
sufficient assessments into the credit-back fund to cover their 
reimbursement. The Board's proposal also states that claims for credit-
back on expenses must be made within 15 days after the end of the 
marketing year. If a claim for credit-back is not sufficiently 
documented or does not reflect qualified credit-back activities, the 
Board will deny a claim. An appeal process would afford a handler with 
a denied claim the opportunity to appeal the denial.
    Regarding activities qualified for credit-back, the Board stated 
that direct expenditures for marketing promotion, including paid 
advertising, that promote the sale of walnuts, walnut products, or 
their uses could be eligible. The Board recommended that qualified 
activities would include: Paid media directed to end-users, trade or 
industrial users, and paid advertising space or time, including, but 
not limited to, newspapers, magazines, radio, television, online, 
transit, and outdoor media (including standard agency commission costs 
not to exceed 15 percent of gross expense); market promotion, marketing 
research (except pre-testing and test-marketing of paid advertising), 
and trade and consumer product public relations (not including 
advertising or public relations agency fees); in-store demonstrations, 
production of promotional materials, sales and marketing presentation 
kits, etc. (excluding couponing); and trade show booth rentals, 
services, and promotional materials.
    The Board's recommendation also addresses promotional activities 
involving joint activities, handler-owned distribution of products, and 
promotional activities conducted under a State or Federal trade 
program.
    For qualified credit-back activity involving joint participation by 
a handler and a manufacturer or seller of a complementary product(s), 
or a handler selling multiple complementary products, including other 
nuts, the Board recommended the amount allowed for credit-back should 
reflect that portion of the activity represented by walnuts. In 
addition, the handler's name or brand may be included on the product 
packaging, but the words ``California Walnuts'' must always be included 
on the product packaging.
    For products owned or distributed by the handler, the Board 
recommended that the product must list the ownership or distributorship 
on the package and display the handler's name and the handler's brand. 
The words ``California Walnuts'' must always be included on the primary 
face label.
    Regarding handler promotional activities pursuant to a contract 
with the Foreign Agricultural Service (FAS), USDA, and/or the 
California Department of Food and Agriculture (CDFA), the Board 
recommended that these activities not be eligible for credit-back 
unless the Board is administering the foreign marketing program, and 
the handler certifies that he or she would not be reimbursed by either 
FAS or CDFA for the amount claimed for credit-back. Foreign market 
expenses paid by third parties as part of a handler's contract with FAS 
or CDFA would not be eligible for credit-back.
    In its recommendation, the Board states that the proposed changes 
have the broadest possible support from the industry. The proposed 
amendments were presented and discussed at several meetings involving 
California walnut handlers and growers. Ultimately, the Board 
recommended the proposed amendments at a public meeting on September 
13, 2019, where stakeholders were provided the opportunity to express 
their views and provide input. The proposed amendments were unanimously 
supported by the Board.
    In addition to the proposed amendments submitted by the Board, AMS 
proposes to make any such changes to the Order as may be necessary to 
conform to any amendment that may result from the hearing, or to 
correct minor inconsistencies and typographical errors.
    USDA will oversee this formal rulemaking proceeding. The issuance 
of this notice of public hearing is the first of several steps in the 
amendatory rulemaking process, including the issuance of a recommended 
decision, public comment period, Secretary's decision, grower 
referendum, and handler sign-up (if the prior steps prove favorable).
    The public hearing process will further explain the industry's 
barriers to marketing and the merits of the proposed amendments in 
addressing these issues. At the hearing, interested persons may provide 
testimony in support of or in opposition to the proposed amendments. In 
addition, interested persons will be invited to

[[Page 7671]]

testify on the possible regulatory and informational impact of the 
proposed amendments on small businesses.
    Interested persons will also be provided the opportunity to file 
briefs in support of or in opposition to the proposed amendments after 
the hearing, as well as file exceptions to any recommended decision 
that may be issued. Finally, any proposed amendments must be approved 
in a grower referendum before they can be implemented.
    USDA will hold the public hearing for the purposes of: (i) 
Receiving evidence about the economic and marketing conditions which 
relate to the proposed amendments of the Order; (ii) determining 
whether there is a need for the proposed amendments to the Order; (iii) 
determining if there are other alternatives to this program or 
duplicates of the proposed program; and (iv) determining whether the 
proposed amendments or appropriate modifications thereof will tend to 
effectuate the declared policy of the Act.
    Testimony is invited at the hearing on all the proposals and 
recommendations contained in this notice, as well as any appropriate 
modifications or alternatives.
    All persons wishing to submit written material as evidence at the 
hearing should be prepared to submit four copies of such material at 
the hearing. Four copies of prepared testimony for presentation at the 
hearing should also be made available. To the extent practicable, eight 
additional copies of evidentiary exhibits and testimony prepared as an 
exhibit should be made available to USDA representatives on the day of 
appearance at the hearing. Any requests for preparation of USDA data 
for this rulemaking hearing should be made at least 10 days prior to 
the beginning of the hearing.
    From the time the notice of hearing is issued until the issuance of 
a final decision in this proceeding, USDA employees involved in the 
decisional process are prohibited from discussing the merits of the 
hearing issues on an ex parte basis with any person having an interest 
in the proceeding. The prohibition applies to employees in the 
following organizational units: Office of the Secretary of Agriculture; 
Office of the Administrator, AMS; Office of the General Counsel; and 
the Specialty Crops Program, AMS.
    Procedural matters are not subject to the above prohibition and may 
be discussed at any time.
    USDA would make other such changes to the Order as may be necessary 
to conform with amendments that may result from the hearing, or correct 
minor inconsistencies and typographical errors.

List of Subjects in 7 CFR Part 984

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

    Testimony is invited on the recommended proposals to 7 CFR part 
984, or appropriate alternatives or modifications to such proposals, 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. Revise Sec.  984.46 to read as follows:


Sec.  984.46   Research and development.

    (a) Research and development authorities. The Board, with the 
approval of the Secretary, may establish or provide for the 
establishment of production research, marketing research and 
development projects, and marketing promotion, including paid 
advertising, designed to assist, improve, or promote the marketing, 
distribution, and consumption or efficient production of walnuts. The 
expenses of such projects shall be paid from funds collected pursuant 
to Sec.  984.69 and Sec.  984.70, and may be credited back pursuant to 
paragraph (c) of this section.
    (b) Credit-back for promotion expenses. The Board may provide for 
crediting the pro rata expense assessment obligations of a handler with 
such portion of his or her direct expenditure for marketing promotion, 
including paid advertising, as may be authorized. The credit-back 
amount available to each handler shall be determined by that handler's 
percent of the industry's total volume of walnuts handled during the 
prior marketing year multiplied by the current marketing year's credit-
back program budget. No handler shall receive credit back for any 
creditable expenditures that would exceed the total amount of credit-
back available to him or her for the applicable marketing year. 
Further, no handler shall receive credit back in an amount that exceeds 
that handler's assessments paid in the applicable marketing year at the 
time the credit-back application is made. Marketing promotion expenses 
shall be credited at a rate recommended by the Board and approved by 
the Secretary, where the credit rate is based on the amount per dollar 
of marketing promotion expenses for creditable expenditures paid by a 
handler during the applicable marketing year. Credit may be paid 
directly to the handler as a reimbursement of assessments paid or may 
be issued as recommended by the Board and approved by the Secretary. 
The Board may also establish, subject to the approval of the Secretary, 
different credit rates for different products or different marketing 
promotion activities according to priorities determined by the Board 
and its marketing plan.
    (c) Creditable expenditures. The Board, with the approval of the 
Secretary, may credit-back all or any portion of a handler's direct 
expenditures for marketing promotion including paid advertising that 
promotes the sale of walnuts, walnut products or their uses. Such 
expenditures may include, but are not limited to, money spent for 
advertising space or time in newspapers, magazines, radio, television, 
transit, and outdoor media, including the actual standard agency 
commission costs not to exceed 15 percent, or as otherwise recommended 
by the Board and approved by the Secretary.

0
3. Add subpart D to read as follows:

Sec
984.546 Credit for marketing promotion activities, including paid 
advertising
984.547 [Reserved]

Subpart D--Research and Development Requirements


Sec.  984.546  Credit for marketing promotion activities, including 
paid advertising.

    (a) Timeliness of reimbursement claim and credit-back rate. For a 
handler to receive credit-back for his or her own marketing promotional 
activities pursuant to Sec.  984.46, the Board shall determine that 
such expenditures meet the applicable requirements of this section. 
Credit-back may be granted in the form of reimbursement for all 
creditable expenditures paid within the applicable marketing year 
subject to the effective credit-back rate; Provided, that such 
creditable expenditures are documented to the satisfaction of the Board 
within 15 days after the end of that marketing year. Credit may be 
granted for a handler's creditable expenditures in an amount not to 
exceed that handler's pro-rata share of the credit-back fund. No more 
than 70 cents ($0.70) shall be credited back to a handler for every 
dollar spent on qualified activities.
    (b) Assessment payments. The handler assessment is due as defined 
in Sec.  984.69. A handler shall be current on all assessment payments 
prior to receiving credit-back for creditable expenditures.

[[Page 7672]]

    (c) Handler eligibility for reimbursement. The Board shall grant 
credit-back for qualified activities only to the handler who performed 
such activities and who filed a claim for credit-back in accordance 
with this section.
    (d) Applicability to marketing year. Credit-back shall be granted 
only for creditable expenditures for qualified activities that are 
conducted and completed during the marketing year for which credit-back 
is requested.
    (e) Qualified activities. The following requirements shall apply to 
all creditable expenditures resulting from qualified activities:
    (1) Credit-back granted by the Board shall be that which is 
appropriate when compared to accepted professional practices and rates 
for the type of activity conducted. In the case of claims for credit-
back activities not covered by specific and established criteria, the 
Board shall grant the claim if it is consistent with practices and 
rates for similar activities.
    (2) The clear and evident purpose of each qualified activity shall 
be to promote the sale, consumption or use of California walnuts.
    (3) No credit-back will be given for any activity that targets the 
farming or grower trade.
    (4) Credit-back will not be allowed in any case for travel 
expenses, or for any promotional activities that result in price 
discounting.
    (5) Credit-back shall be granted for those qualified activities 
specified below:
    (i) Credit-back shall be granted for paid media directed to end-
users, trade or industrial users, and for money spent on paid 
advertising space or time, including, but not limited to, newspapers, 
magazines, radio, television, online, transit and outdoor media, and 
including the standard agency commission costs not to exceed 15 percent 
of gross.
    (ii) Credit-back shall be granted for market promotion other than 
paid advertising, for the following activities:
    (A) Marketing research (except pre-testing and test-marketing of 
paid advertising);
    (B) Trade and consumer product public relations: Provided, that no 
credit-back shall be given for related fees charged by an advertising 
or public relations agency;
    (C) Sales Promotion (in-store demonstrations, production of 
promotional materials, sales and marketing presentation kits, etc., 
excluding couponing);
    (D) Trade shows (booth rental, services, and promotional 
materials).
    (iii) For any qualified activity involving joint participation by a 
handler and a manufacturer or seller of a complementary product(s), or 
a handler selling multiple complementary products, including other 
nuts, with such activity including the handler's name or brand, or the 
words ``California Walnuts'', the amount allowed for credit-back shall 
reflect that portion of the activity represented by walnuts. If the 
product is owned or distributed by the handler, in order to receive any 
amount of credit back, the product must list the ownership or 
distributorship on the package and display the handler's name and the 
handler's brand. The words ``California Walnuts'' must be included on 
the primary, face label. Such activities must also meet the 
requirements of paragraphs (e)(1), (2), (3), (4), and (5) of this 
section.
    (iv) If the handler is engaged in marketing promotion activities 
pursuant to a contract with the Foreign Agricultural Service (FAS), 
USDA, and/or the California Department of Food and Agriculture (CDFA), 
unless the Board is administering the foreign marketing program, such 
activities shall not be eligible for credit-back unless the handler 
certifies that he or she was not and will not be reimbursed by either 
FAS or CDFA for the amount claimed for credit-back, and has on record 
with the Board all claims for reimbursement made to FAS and/or the 
CDFA. Foreign market expenses paid by third parties as part of a 
handler's contract with FAS or CDFA shall not be eligible for credit-
back.
    (6) Credit-back Reimbursement claims. A handler must file claims 
with the Board to obtain credit-back for creditable expenditures, as 
follows:
    (i) All claims submitted to the Board for any qualified activity 
must include:
    (A) A description of the activity and when and where it was 
conducted;
    (B) Copies of all invoices from suppliers or agencies;
    (C) Copies of all canceled checks or other proof of payment issued 
by the handler in payment of these invoices; and
    (D) An actual sample, picture or other physical evidence of the 
qualified activity.
    (ii) Handlers may receive reimbursement of their paid assessments 
up to their pro-rata share of available dollars to be based on their 
percentage of the prior marketing year crop total. In all instances, 
handlers must remit the assessment to the Board when billed, and 
reimbursement will be issued to the extent of proven, qualified 
activities.
    (iii) Checks from the Board in payment of approved credit-back 
claims will be mailed to handlers within 30 days of receipt of eligible 
claims.
    (iv) Final claims for the marketing year pertaining to such 
qualified activities must be submitted with all required elements 
within 15 days after the close of the Board's marketing year.
    (f) Appeals. If a determination is made by the Board staff that a 
particular marketing promotional activity is not eligible for credit-
back because it does not meet the criteria specified in this section, 
the affected handler may request the Executive Committee review the 
Board staff's decision. If the affected handler disagrees with the 
decision of the Executive Committee, the handler may request that the 
Board review the Executive Committee's decision. If the handler 
disagrees with the decision of the Board, the handler, through the 
Board, may request that the Secretary review the Board's decision. 
Handlers have the right to request anonymity in the review of their 
appeal. The Secretary maintains the right to review any decisions made 
by the aforementioned bodies at his or her discretion.


Sec.  984.547   [Reserved]

    Dated: February 3, 2020.
Bruce Summers,
Administrator, Agricultural Marketing Service.
[FR Doc. 2020-02387 Filed 2-10-20; 8:45 am]
 BILLING CODE 3410-02-P