[Federal Register Volume 85, Number 203 (Tuesday, October 20, 2020)]
[Proposed Rules]
[Pages 66491-66498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22334]


 ========================================================================
 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. 203 / Tuesday, October 20, 2020 / 
Proposed Rules  

[[Page 66491]]



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; Secretary's Decision and Referendum 
Order on Amendments to Marketing Order No. 984

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule and referendum order.

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

SUMMARY: This decision proposes amendments to Marketing Order No. 984 
(Order), which regulates the handling of walnuts grown in California 
and provides growers with the opportunity to vote in a referendum to 
determine if they favor the changes. 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) proposed to make any such changes as may be necessary to 
conform to any amendment that may result from the public hearing.

DATES: The referendum will be conducted from November 30, 2020, through 
December 11, 2020. The representative period for the purpose of the 
referendum is September 1, 2018, through August 31, 2019.

ADDRESSES: Marketing Order and Agreement Division, Specialty Crops 
Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, Washington, 
DC 20250-0237.

FOR FURTHER INFORMATION CONTACT: Matthew Pavone, Chief, Rulemaking 
Services Branch, Marketing Order and Agreement Division, Specialty 
Crops Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, 
Washington, DC 2025-0237; Telephone: (202) 720-2491, Fax: (202) 720-
8938, or Andrew Hatch, Deputy Director, 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 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: Prior documents in this proceeding: Notice 
of Hearing issued on February 2, 2020, and published in the February 
11, 2020, issue of the Federal Register (85 FR 7669); a Correction to 
the Notice of Hearing issued on April 9, 2020, and published in the 
April 10, 2020, issue of the Federal Register (85 FR 20202); and a 
Recommended Decision issued on July 8, 2020, and published in the 
August 5, 2020, issue of the Federal Register (85 FR 47305).
    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 Orders 12866, 13563, and 13175. 
Additionally, because this rule does not meet the definition of a 
significant regulatory action it does not trigger the requirements 
contained in Executive Order 13771. See the Office of Management and 
Budget's (OMB) Memorandum titled ``Interim Guidance Implementing 
Section 2 of the Executive Order of January 30, 2017, titled `Reducing 
Regulation and Controlling Regulatory Costs' '' (February 2, 2017).
    Notice of this rulemaking action was provided to tribal governments 
through the Department of Agriculture's (USDA) Office of Tribal 
Relations.

Preliminary Statement

    The proposed amendments are based on the record of a public hearing 
held via videoconference technology on April 20 and 21, 2020. The 
hearing was held pursuant to the provisions of the Agricultural 
Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), 
hereinafter referred to as the ``Act,'' and the applicable rules of 
practice and procedure governing the formulation of marketing 
agreements and orders (7 CFR part 900). Notice of this hearing was 
published in the Federal Register on February 11, 2020 (85 FR 7669) 
followed by a Correction to the Notice of Hearing issued on April 9, 
2020, and published in the April 10, 2020, issue of the Federal 
Register (85 FR 20202). The notice of hearing contained one proposal 
submitted by the Board and one submitted by USDA.
    The amendments proposed by the Board in this decision 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 would establish requirements to effectuate the new 
authority.
    USDA proposed to make any such changes as may be necessary to 7 CFR 
part 984 (referred to as ``the Order'') to conform to any amendment 
that may be adopted, or to correct minor inconsistencies and 
typographical errors. As such, USDA is recommending two clarifying 
changes: One to the proposed language in Sec.  984.46(a) and the other 
to the proposed regulatory text in Sec.  984.546(e)(5)(iii).
    The proposed language in Sec.  984.46(a) would add credit-back 
authority to the Order. USDA has determined that the language presented 
in the Notice of Hearing lacked a reference to the proposed, new 
paragraph (b) and only included a reference to proposed, new paragraph 
(c). This correction was discussed at the hearing and a witness 
clarified that proposed, new paragraphs (b) and (c) were both necessary 
references in the proposed revision to Sec.  984.46(a), and that the 
omission of the reference to paragraph (b) was an oversight. USDA has 
revised the proposed language so that both proposed new paragraphs are 
referenced in the proposed regulatory text of this decision.
    USDA is also recommending a clarifying change to the proposed 
regulatory text in Sec.  984.546(e)(5)(iii). The originally proposed 
wording of this paragraph by the Board does not adequately state that 
in all promotional

[[Page 66492]]

activities, regardless of whether a handler is operating independently 
or in conjunction with a manufacturer, or whether promoting a product 
that is solely walnut content or walnuts are a partial ingredient, the 
words ``California Walnuts'' must be included in the labeling in order 
for that activity to qualify as a creditable expenditure. USDA is 
recommending this change in conformance with witness testimony 
clarifying the intent of the proposed language. The revised language is 
included in the proposed regulatory text of this decision.
    Upon the basis of evidence introduced at the hearing and the record 
thereof, the Administrator of AMS on July 8, 2020, filed with the 
Hearing Clerk, USDA, a Recommended Decision and Opportunity to File 
Written Exceptions thereto by September 4, 2020. No exceptions were 
filed.

Final Regulatory Flexibility Analysis

    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (RFA), 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 so that small businesses will not be 
unduly or disproportionately burdened. Marketing orders and amendments 
thereto are unique in that they are normally brought about through 
group action of essentially small entities for their own benefit.
    During the hearing held on April 20 and 21, 2020, interested 
parties were invited to present evidence on the probable regulatory 
impact on small businesses of the proposed amendment to the Order. The 
evidence presented at the hearing shows that the proposed amendment 
would not have a significant negative economic impact on a substantial 
number of small agricultural producers or handlers.
    Eight grower and handler witnesses testified at the hearing. All 
eight witnesses were growers and five were also handlers. Four 
testified that they were small walnut growers according to the Small 
Business Administration (SBA) definition and four were large. Of the 
five who were handlers, one was small, and four were large.
    All five who were both handlers and growers expressed support for 
the proposed amendment. Of the three remaining grower witnesses, two 
stated their support. One grower reported that he had concerns but did 
not specifically oppose the amendment. Therefore, in their role as 
growers, 7 out of 8 witnesses supported the amendment, and stated that 
they expected to see significant benefits from the additional promotion 
expenditure that would be authorized by the amendment and would not 
incur additional costs. The benefits and impacts of the proposed 
amendment are explained in the following three sections: (a) Walnut 
Industry Background and Overview, (b) Domestic Market Demand for 
Walnuts, and (c) Estimated Economic Impact of the Proposed Credit-Back 
Program.

Walnut Industry Background and Overview

    According to the hearing record, there are approximately 4,400 
producers and 92 handlers in the production area. Record evidence 
includes reference to a study showing that the walnut industry 
contributes 85,000 jobs to the economy, directly and indirectly.
    A small handler as defined by the SBA (13 CFR 121.201) is one that 
grosses less than $30,000,000 annually. A small grower is one that 
grosses less than $1,000,000 annually.
    Record evidence showed that approximately 82 percent of 
California's walnut handlers (75 out of 92) shipped merchantable 
walnuts valued under $30 million during the 2018-2019 marketing year 
and would therefore be considered small handlers according to the SBA 
definition.
    Data in the hearing record from the 2017 Agricultural Census, 
published by USDA'S National Agricultural Statistics Service (NASS), 
showed that 86 percent of California farms growing walnuts had walnut 
sales of less than $1 million.
    In an alternative computation using NASS data from the hearing 
record, the 3-year average crop value (2016-2017 to 2018-2019) was 
$1.24 billion. Average bearing acres over that same 3-year period were 
333,000. Dividing crop value by acres yields a revenue per acre 
estimate of $3,733. Using these numbers, it would take approximately 
268 acres ($1,000,000/$3,733) to yield $1 million in annual walnut 
sales. The 2017 Agricultural Census data show that 80 percent of walnut 
farms in 2017 were below 260 acres. Therefore, well over three-fourths 
of California walnut farms would be considered small businesses 
according to the SBA definition.
    Walnuts bloom in March and April, and the harvest of the earliest 
varieties begins in the first part of September. As later varieties 
mature, the harvest continues into November. The crop comes in from the 
field at about 25 percent moisture and the hulling and drying process 
typically takes place within 24 hours. The nuts are hulled (removal of 
the green husks) and dried to about seven percent moisture before 
delivery to a handler. Some growers have their own hulling and drying 
equipment and others pay for this service. Drying to seven percent 
moisture keeps the nuts stable in storage and minimizes deterioration.
    Once received by the handler, shelling varieties are shelled and 
have a shelf-life of approximately 12 months. Unshelled varieties are 
cleaned, sized, and put into storage. Both shelled and unshelled nuts 
are shipped and distributed to customers throughout the marketing year. 
Approximately 75 percent of the California walnut crop is sold as 
kernels (shelled). Witnesses testified that advances in processing and 
packaging technologies continue to improve product quality, 
consistency, and shelf-life.
    Weather is one of two main factors driving crop size variability, a 
significant feature of the walnut market. In some years, climatic 
conditions may contribute to fungus or other issues that damage the 
crop and cause nuts to fall prior to harvest. With walnuts grown over a 
large geographic area, some regions will have better weather than 
others in any particular year. Crops were larger in 2015 and 2018 and 
smaller in 2017 and 2019.
    The other key variability factor is ``alternate bearing'' (a 
natural tendency of several types of tree nuts, in which a large crop 
is often followed by a small crop). As trees mature, alternate bearing 
can become more pronounced, and for many years this had a big impact on 
crop size variability. With recent new plantings, the average age of 
producing trees in California has dropped. There is less of an 
alternate bearing tendency with younger trees. Crop sizes have become 
less variable as younger trees reach bearing age, which typically 
occurs in the fifth year. Older trees are replaced with varieties with 
improved quality characteristics to meet changing consumer demand. 
Newer varieties are generally more productive, contributing to higher 
yields per acre and greater production.
    The hearing record shows that crop size variability, particularly 
the reduced availability of walnuts in short crop years, continues to 
contribute to loss of demand, as some buyers of kernels as ingredients 
in baked goods and other products shift to other tree nuts. These lost 
market opportunities are additional factors in the industry's interest 
in product diversification through a credit-back program.
    Additional factors that affect current market conditions are the 
longer-term supply impacts of growers responding to market signals. If 
producers decide to

[[Page 66493]]

plant more trees because of strong market prices, such as in the 2011-
2014 time period, they receive those trees one or two years later, 
based on contracts that vary with the type of nursery stock. This time 
lag, and penalties associated with dropping a planting contract, 
contribute to continued planting even after market prices drop and 
growers might otherwise not want to plant. For these reasons, there is 
a delayed response in planting new trees, and a delayed response in 
reducing the level of planting when prices and revenue per acre 
decline, such as in 2015-2018. One witness estimated that the rate of 
tree planting in recent years is about three times greater than tree 
removal. Another key factor is that the time from tree planting to 
bearing nuts is typically five years.
    Record evidence shows that walnut production exceeded 600,000 
inshell tons every season starting in 2015-2016. Witnesses testified 
that a key factor in their support of new demand expansion initiatives 
is their expectation that walnut production is likely to be at or above 
700,000 tons within one or two seasons and may exceed 800,000 tons a 
few years later.
    The hearing record shows that farm management decisions made years 
ago have a significant impact on walnut supply for the coming years, 
contributing to grower and handler support for major initiatives meant 
to increase demand, including credit-back.
    About two-thirds of the walnut crop is typically exported, and for 
many years, increasing international demand facilitated expansion of 
the walnut market. China emerged as a major walnut buyer, but also 
began large scale planting of walnuts. Prices continued to improve for 
years, reaching $1.86 per pound ($3,710 per ton) in 2013-2014. As 
China's new plantings started coming into production, world walnut 
prices began to decline. By 2017-2018, walnut prices rebounded as 
Turkey and other Middle Eastern countries took up some of the slack in 
world market demand, according to the hearing record.
    Hearing evidence provided various reasons for the decline in walnut 
crop value since the peak level of $1.9 billion in 2014-2015. One was 
reduced export market opportunities. With increased trade barriers from 
China and India, significant volumes were shifted into other export 
markets, driving prices downward. Walnut production was also growing in 
Chile and Europe. The 2018-2019 price fell to $0.65 per pound ($1,300 
per ton). With the reduced reliability of the international market, the 
industry is increasingly looking for ways to increase demand in the 
U.S. domestic market.
    The hearing record shows that most of the grower and handler 
witnesses stated that a key reason for seeking credit-back authority 
was the need to increase demand after years of unfavorable marketing 
conditions. Witnesses stated that a key factor in their support of 
seeking new ways to increase market demand was several years of 
deteriorating profitability.
    Hearing evidence included data that facilitated comparing farm 
revenue per acre to cost of production, a key measure of walnut farm 
profitability. Tables 2 and 3 illustrate the decline in profitability 
by comparing two four-year periods with very different financial 
outcomes, 2011 to 2014 and 2015 to 2018.

          Table 2--California Walnuts: Cost of Production Data From University of California Extension
----------------------------------------------------------------------------------------------------------------
                                                                                Sample yield
                                                                                (from Table 5     Sample costs
                                           Average yield:                       of UC study)        per acre
                  Year                      Tons per acre    Average yield:    that is closest  associated  with
                                                 \1\        Pounds per  acre    to NASS yield    yield  shown in
                                                                                in column (b)    column (c) \2\
                                                                                     \2\
                                                       (a)               (b)               (c)               (d)
----------------------------------------------------------------------------------------------------------------
2011....................................              1.74             3,480  ................  ................
2012....................................              1.84             3,680             3,400            $3,318
2013....................................              1.76             3,520             4,000             4,015
2014....................................              1.97             3,940  ................  ................
                                         -----------------------------------------------------------------------
    2011-2014 avg.......................              1.83  ................  ................             3,667
----------------------------------------------------------------------------------------------------------------
2015....................................              2.02             4,040             4,500             4,509
2016....................................              2.19             4,380  ................  ................
2017....................................              1.88             3,760             4,500             5,574
2018....................................              1.93             3,860             4,500             5,283
                                         -----------------------------------------------------------------------
    2015-2018 avg.......................              2.01  ................  ................             5,122
----------------------------------------------------------------------------------------------------------------
\1\ Source: NASS, USDA.
\2\ Source: ``Table 5. Ranging Analysis--Walnuts--Costs per Acre and Per Pound at Varying Yields to Produce
  Walnuts.'' Table 5 appears in each of the following five UC Cooperative Extension studies: ``Walnuts Cost and
  Returns Study, Sacramento Valley,'' UC Coop. Extension--2012, 2015, 2018. ``Walnuts Cost and Returns Study,
  San Joaquin Valley North'', UC Coop. Extension--2013, 2017. Sample yields appear in column 2 of Table 5 in
  each publication.

    Table 2 displays cost of production numbers that represent both 
time periods. University of California Extension conducted two cost of 
production studies in the 2011-2014 time period, and three studies 
between 2015 and 2019. Each of the five studies had ranges of 
production cost figures associated with different yields. To be 
representative of a typical or average walnut producer, the costs 
selected to present in column (d) were associated with University of 
California study yields (column c) closest to the NASS average annual 
yields for that year (column b).
    The average production cost per acre figures for 2011-2014 and 
2015-2018 were $3,667 and $5,122, respectively. Those figures were 
transferred to column (d) of Table 3, and the associated average yields 
(1.83 and 2.10 tons per acre) appear in column (b) of Table 3.

[[Page 66494]]



               Table 3--California Walnuts: Producer Gross Return, Cost of Production, Net Return
----------------------------------------------------------------------------------------------------------------
                                Season average                                                     Producer net
                                   producer     Average yield:  Producer gross   Total cost of   return per acre
        Range of years           price, $/ton    Tons per acre    return per     production per    (gross return
                                      \1\             \2\            acre           acre \3\       minus cost)
                                           (a)             (b)   (c) (a) * (b)              (d)      (e) (c)-(d)
----------------------------------------------------------------------------------------------------------------
2011-2014.....................          $3,245            1.83          $5,930           $3,667           $2,264
2015-2018.....................           1,828            2.01           3,664            5,122           -1,458
----------------------------------------------------------------------------------------------------------------
\1\ Source: NASS, USDA.
\2\ Four-year averages computed in Table 1, based on annual NASS yield data.
\3\ Computed in Table 1, based on U. of California Extension cost of production studies. For 2011-2014, the cost
  of production per acre is a two-year average (2012, 2013). For 2015-2018, the cost per acre is a 3-year
  average (2015, 2017, 2018).

    Table 3 uses the data from Table 2 to show how the walnut farm 
profitability declined between the two time periods. Producer gross 
returns per acre for each of the two four-year time periods (column 
(c)) were computed by multiplying average yield by average price. 
Subtracting cost of production in column (d) yields the producer net 
return in column (e).
    The two producer net return numbers in column (e) of Table 3 are 
the key results of this cost and return analysis. Four years of walnut 
farm profitability, represented by producer net return per acre of 
$2,264 for 2011-2014, were followed by four years of difficult market 
conditions (2015-2018), with a negative average net return figure (-
$1,458). This analysis provides a numerical estimate that bears out the 
witness testimony that emphasized that a dramatic downward shift in 
their economic fortunes in recent years was a major factor in their 
support for a credit-back program that would leverage additional 
financial resources for handler-based promotional expenditures oriented 
toward increasing domestic demand for walnut products.

Domestic Market Demand for Walnuts

    With reduced export market opportunities, the California industry 
focused in recent years on ways to expand the domestic market. Record 
evidence showed that domestic per capita consumption has been 
approximately one-half pound for many years.
    The Board commissioned a consumer survey (with 1,000 respondents) 
showing that walnut products were reaching 40 percent of U.S. 
households, indicating significant expansion potential. The study 
pointed out significant differences among age groups, with 22 percent 
of those aged 18 to 24 being walnut consumers. Certain age groups are 
therefore the targets for demand expansion.
    The majority of walnuts going into the domestic market are kernels 
(shelled). One key segment is retail sales, with the main product being 
bags of raw kernels. Another major segment is industrial--use as an 
ingredient by food manufacturers in making pastries and other products. 
Record evidence shows that walnut industry participants consider these 
two segments to be a narrow group of uses which needs to be expanded.
    Witnesses reported that among the Board's strategic objectives, the 
top priority is retail sector growth, and the snack category in 
particular. However, current Board marketing programs are generic in 
nature and focus largely on the traditional form of walnuts: Raw. Raw 
walnuts as a snack product are important components but expanding 
retail market development beyond the raw product is considered critical 
by industry participants, according to the hearing record. New 
consumption growth will mainly be achieved through new products and 
forms that appeal to a larger consumer audience, witnesses stated.
    According to the hearing record, opportunities for significant 
walnut demand expansion include snack products such as roasted, salted, 
glazed, and trail mixes, and other new products such as beverages, 
spreads and meat alternatives. Witnesses stated that these demand 
expansion opportunities are best achieved through brand advertising and 
other handler-based promotional approaches, rather than the generic 
promotion currently authorized through the Order. Witnesses reported 
that this is a key reason why adding credit-back authority would be 
helpful for demand expansion--by providing incentives for handler-based 
product development and promotion.
    A small handler stated that if credit-back authority is added to 
the marketing order, his firm would likely partner with another company 
to create a snack product, providing evidence that credit-back 
authority would help small handlers as well as large ones.

Estimated Economic Impact of the Proposed Credit-Back Program

    The hearing record included evidence of the estimated impact of the 
credit-back program on walnut grower total revenue and net return. 
Table 4 illustrates the impact of handlers taking advantage of the 
credit-back incentive by increasing their promotional spending. Based 
on the assumptions shown in the table, walnut growers would see 
increased total revenue of $21.1 million (row K) and increased net 
return of $16.8 million (row L). The table shows that there are four 
computational steps that lead up to the final computations in rows K 
and L.
    The first step is to estimate a typical annual budget of the Board 
($25 million in row C) by multiplying the current assessment rate paid 
to the Board ($0.04) by a number representing an annual walnut 
production level representative of recent years (625 million 
hundredweight [cwt]).

   Table 4--Calculating the Impact of the Walnut Credit-Back Program on Producer Total Revenue and Net Return
----------------------------------------------------------------------------------------------------------------
                                                                       Calculation                    Value
----------------------------------------------------------------------------------------------------------------
A. Total production (cwt)...............................  ....................................       625,000,000
B. Assessment rate ($/cwt)..............................  ....................................             $0.04
C. Total Board budget...................................  C = A * B                                  $25,000,000

[[Page 66495]]

 
D. Share of budget allocated to Credit-Back program (%).  ....................................               10%
E. Credit-Back program budget...........................  E = C * D                                   $2,500,000
F. Credit-Back rate(%)..................................  ....................................               70%
G. Total advertising and promotion expenditures with      G = E/F                                     $3,571,429
 Credit-Back program.
H. Increase in advertising and promotion expenditure....  H = G-E                                     $1,071,429
I. Increase in TOTAL revenue per dollar of advertising/   ....................................            $19.75
 promotion \1\.
J. Increase in NET return per dollar of advertising/      ....................................            $15.67
 promotion \1\.
K. Increase in TOTAL revenue............................  K = H * I                                  $21,160,714
L. Increase in NET return...............................  L = H * J                                  $16,789,286
----------------------------------------------------------------------------------------------------------------
\1\ Estimates of total revenue and net return per dollar spent on promotion are from a report prepared for the
  Board by Dr. Harry M. Kaiser of Cornell University entitled ``Economic Evaluation of the California Walnut
  Board's Advertising and Promotion Programs: An Analysis of the Direct and Indirect Impacts'', July 5, 2018.

    If the Board allocated 10 percent of a $25 million annual budget to 
the credit-back program, the funds available to allocate to pay 
handlers for eligible promotional spending would be $2.5 million (row 
E). According to the hearing record, this is a level of credit-back 
funding supported by growers and handlers.
    Handlers would receive 70 percent of the amount they expended on 
creditable expenditures. If the Board expended its full annual credit-
back budget of $2.5 million, the total promotional expenditure would 
rise to $3.57 million ($2.5/0.70) as shown in row G. The credit-back 
expenditure would create the incentive for handlers to spend the $2.5 
million plus an additional $1.07 million (row H).
    The final step is the overall economic impact on the walnut market 
of the increased spending on advertising and promotion. A 2018 economic 
analysis of walnut promotion impacts by Dr. Harry Kaiser (cited in the 
footnote of Table 4) showed that each dollar of walnut advertising and 
promotional expenditure yielded $19.75 in total revenue and $15.67 in 
net return to walnut growers (rows I and J). Multiplying $1.07 million 
by those two promotional impact-per-dollar figures yields the estimated 
increase in total revenue per year and net return per year of $21.16 
million and $16.79 million, respectively, shown in rows K and L. Net 
return is what is returned to walnut growers after accounting for the 
cost of the promotion program.
    Record evidence indicates that all industry members, growers and 
handlers, would benefit proportionally from an increase in demand 
brought about due to the credit-back program. The credit-back program 
would be funded by allocating to the credit-back program a portion of 
the total Board promotional budget, funded at the current assessment 
rate. With no increase in the Board's assessment rate, there would be 
no increased costs to growers or handlers.
    All handlers, large and small, would benefit proportionally by 
participating in the credit-back program. Handlers will participate 
only if they decide that they will benefit, and would incur no costs if 
they choose not to participate. No handler can benefit 
disproportionately from the program, since a handler's maximum credit-
back payment from the Board is based on that handler's share of total 
industry acquisitions from the prior year, according to the hearing 
record. As cited above, a small handler testified that their smaller 
size would not be a hindrance to using the credit-back program, because 
his walnut processing operation could develop a new product in 
partnership with another firm.
    Consumers would benefit from product diversification of the walnut 
market. They could choose to buy any of the new products that become 
available, thereby adding new foods to their diet, at prices that fit 
within their food budget.
    The record shows that the proposal to add authority to establish 
the credit-back program would, in itself, have no significant economic 
impact on producers or handlers of any size. If the proposed authority 
and the accompanying requirements were implemented, both benefits and 
costs could be anticipated. Costs of complying with the new program 
could include handler maintenance and delivery of receipts and 
documentation for reimbursement of creditable expenditures, but these 
would be minimal and are considered standard business practices. For 
the reasons described above, it is determined that the benefits of 
adding authority for a credit-back program would outweigh the potential 
costs of future implementation.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this proposed rule. These amendments are 
intended to improve the operation and administration of the Order and 
to assist in the marketing of California walnuts.
    Board meetings regarding these proposals, as well as the hearing 
date and location, were widely publicized throughout the California 
walnut industry, and all interested persons were invited to attend the 
meetings and the hearing to participate in Board deliberations on all 
issues. All Board meetings and the hearing were public forums, and all 
entities, both large and small, were able to express views on these 
issues. Interested persons are invited to submit information on the 
regulatory impacts of this action on small businesses.
    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.

Paperwork Reduction Act

    Current information collection requirements that are part of the 
Federal marketing order for California walnuts (7 CFR part 984) are 
approved under OMB No. 0581-0178 Vegetables and Specialty Crops. No 
changes in these requirements are anticipated as a result of this 
proceeding. Should any such changes become necessary, they would be 
submitted to OMB for approval.
    As with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies.
    AMS is committed to complying with the Government Paperwork 
Elimination Act, which requires Government agencies in general to 
provide the public the option of submitting information or

[[Page 66496]]

transacting business electronically to the maximum extent possible.

Civil Justice Reform

    The amendments to the Order proposed herein have been reviewed 
under Executive Order 12988, Civil Justice Reform. They are not 
intended to have retroactive effect. If adopted, the proposed 
amendments would not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
proposal.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. A 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing, USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed no later than 20 days after the date of 
entry of the ruling.

Findings and Conclusions

    The findings and conclusions, rulings, and general findings and 
determinations included in the Recommended Decision set forth in the 
August 5, 2020, issue of the Federal Register (85 FR 47305) are hereby 
approved and adopted.

Marketing Order

    Annexed hereto and made a part hereof is the document entitled 
``Order Amending the Order Regulating the Handling of Walnuts Grown in 
California.'' This document has been decided upon as the detailed and 
appropriate means of effectuating the foregoing findings and 
conclusions.
    It is hereby ordered, That this entire decision be published in the 
Federal Register.

Referendum Order

    It is hereby directed that a referendum be conducted in accordance 
with the procedure for the conduct of referenda (7 CFR 900.400 through 
900.407) to determine whether the annexed order amending the order 
regulating the handling of walnuts grown in California is approved or 
favored by growers, as defined under the terms of the order, who during 
the representative period were engaged in the production of walnuts in 
the production area.
    The representative period for the conduct of such referendum is 
hereby determined to be September 1, 2018, through August 31, 2019.
    The agents of the Secretary to conduct such referendum are hereby 
designated to be Terry Vawter and Jeffery Rymer, California Marketing 
Field Office, Marketing Order and Agreement Division, Specialty Crops 
Program, AMS, USDA; telephone: 559-487-5901; or fax: 559-487-5906 or 
Email: [email protected] or [email protected], respectively.

Order Amending the Order Regulating the Handling of Walnuts Grown in 
California \1\
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    \1\ This order shall not become effective unless and until the 
requirements of Sec.  900.14 of the rules of practice and procedure 
governing proceedings to formulate marketing agreements and 
marketing orders have been met.
---------------------------------------------------------------------------

Findings and Determinations

    The findings and determinations hereinafter set forth are 
supplementary to the findings and determinations that were previously 
made in connection with the issuance of the marketing order; and all 
said previous findings and determinations are hereby ratified and 
affirmed, except insofar as such findings and determinations may be in 
conflict with the findings and determinations set forth herein.
(a) Findings and Determinations Upon the Basis of the Hearing Record
    Pursuant to the provisions of the Agricultural Marketing Agreement 
Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of 
practice and procedure effective thereunder (7 CFR part 900), a public 
hearing was held upon proposed further amendment of Marketing Order No. 
984, regulating the handling of walnuts grown in California.
    Upon the basis of the record, it is found that:
    (1) The marketing order, as amended, and as hereby proposed to be 
further amended, and all of the terms and conditions thereof, would 
tend to effectuate the declared policy of the Act;
    (2) The marketing order, as amended, and as hereby proposed to be 
further amended, regulates the handling of walnuts grown in the 
production area in the same manner as, and is applicable only to, 
persons in the respective classes of commercial and industrial activity 
specified in the marketing order upon which a hearing has been held;
    (3) The marketing order, as amended, and as hereby proposed to be 
further amended, is limited in its application to the smallest regional 
production area that is practicable, consistent with carrying out the 
declared policy of the Act, and the issuance of several orders 
applicable to subdivisions of the production area would not effectively 
carry out the declared policy of the Act;
    (4) The marketing order, as amended, and as hereby proposed to be 
further amended, prescribes, insofar as practicable, such different 
terms applicable to different parts of the production area as are 
necessary to give due recognition to the differences in the production 
and marketing of walnuts grown in California; and
    (5) All handling of walnuts grown in the production area as defined 
in the marketing order is in the current of interstate or foreign 
commerce or directly burdens, obstructs, or affects such commerce.

Order Relative to Handling

    It is therefore ordered, that on and after the effective date 
hereof, all handling of walnuts grown in California shall be in 
conformity to, and in compliance with, the terms and conditions of the 
said order as hereby proposed to be amended as follows:
    The provisions of the proposed marketing order amending the order 
contained in the Recommended Decision issued on July 8, 2020, and 
published in the August 5, 2020, issue of the Federal Register (85 FR 
47305) will be and are the terms and provisions of this order amending 
the order and are set forth in full herein.

List of Subjects in 7 CFR Part 984

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

Recommended Further Amendment of the Marketing Order

    For the reasons set out in the preamble, 7 CFR part 982 is proposed 
to be 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. 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

[[Page 66497]]

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. Sec.  984.69 and 984.70 and may be credited back pursuant to 
paragraphs (b) and (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:
Subpart D--Research and Development Requirements
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.
    (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 in paragraphs (e)(5)(i) through (iv) of this section:
    (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); and
    (D) Trade shows (booth rental, services, and promotional 
materials).
    (iii) For any qualified activity involving a handler promoting 
branded products, a handler selling multiple complementary products, 
including other nuts, with such activity including the handler's name 
or brand, or joint participation by a handler and a manufacturer or 
seller of a complementary product(s), 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

[[Page 66498]]

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) 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]

Bruce Summers,
Administrator, Agricultural Marketing Service.
[FR Doc. 2020-22334 Filed 10-19-20; 8:45 am]
BILLING CODE P