[Federal Register Volume 86, Number 58 (Monday, March 29, 2021)]
[Rules and Regulations]
[Pages 16287-16291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06207]



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 Rules and Regulations
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 This section of the FEDERAL REGISTER contains regulatory documents 
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  Federal Register / Vol. 86, No. 58 / Monday, March 29, 2021 / Rules 
and Regulations  

[[Page 16287]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 984

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


Walnuts Grown in California; Order Amending Marketing Order No. 
984.

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule amends Marketing Order No. 984, which 
regulates the handling of walnuts grown in California. The amendments 
were proposed by the California Walnut Board (Board) and add the 
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) made necessary 
changes to conform to the amendments adopted.

DATES: This rule is effective April 28, 2021.

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, or Andrew Hatch, 
Acting 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, 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, 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); a 
Recommended Decision issued on July 8, 2020, and published in the 
August 5, 2020, issue of the Federal Register (85 FR 47305); and a 
Secretary's Decision and Referendum Order issued October 5, 2020, and 
published in the October 20, 2020, issue of the Federal Register (85 FR 
66491).
    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.
    Notice of this rulemaking action was provided to tribal governments 
through the Department of Agriculture's (USDA) Office of Tribal 
Relations.

Preliminary Statement

    This action finalizes amendments to regulations issued to carry out 
a marketing order as defined in 7 CFR 900.2(j). This rule is issued 
under Marketing Order No. 984, as amended (7 CFR part 984), regulating 
the handling of walnuts grown in California. Part 984 (referred to as 
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 final rule was formulated 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 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.
    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.
    A Secretary's Decision and Referendum Order was published in the 
Federal Register on October 20, 2020 (85 FR 66491), directing that a 
referendum be conducted during the period of November 30 through 
December 11, 2020, among eligible California walnut growers to 
determine whether they favored the proposed amendments to the Order. To 
become effective, per the Order, the amendments had to be approved by 
at least two-thirds of those growers voting, or by voters representing 
at least two-thirds of the volume of walnuts represented by voters 
voting in the referendum. The amendment to add credit back authority 
and establish requirements to effectuate the new authority was favored 
by 80.5 percent of the growers voting in the referendum, representing 
82.8 percent of the total volume of walnuts produced by those voting.
    The amendments favored by voters and included in this final order 
authorize 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.
    AMS also recommended changes as were necessary to the Order so that 
all the Order's provisions conform to the effectuated amendments one to 
the language in Sec.  984.46(a) and the other to the regulatory text in 
Sec.  984.546(e)(5)(iii). The language in Sec.  984.46(a) adds 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). USDA revised the language so that both new paragraphs 
are referenced in the regulatory text of this decision. USDA also made 
a clarifying change to the regulatory text in Sec.  984.546(e)(5)(iii). 
The originally proposed wording of this paragraph by the Board does not

[[Page 16288]]

adequately state that in all promotional 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. The revised language is 
included in the regulatory text of this decision.

Small Business Considerations

    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.

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.
    During the hearing held April 20 and 21, 2020, interested parties 
were invited to present evidence on the probable regulatory impact of 
the amendments to the Order on small businesses. The evidence presented 
at the hearing shows that none of the amendments would have a 
significant economic impact on a substantial number of small 
agricultural growers or firms.

Material Issues

    This action amends the Order to add authority to provide credit for 
market promotion expenses paid by handlers against their annual 
assessments due under the Order and establishes rules and regulations 
to effectuate the new authority. These authorities will help build 
towards increasing domestic demand and utilizing the industry's 
expanding supply of walnuts.
    During the hearing held on April 20 and 21, 2020, interested 
persons were invited to present evidence on the probable regulatory and 
informational impact of the amendments to the Order on small 
businesses. The evidence presented at the hearing shows that the 
amendments would have no burdensome effects on small agricultural 
producers or firms.
    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.
    Record evidence indicates that all industry members, growers and 
handlers, will benefit proportionally from an increase in demand 
brought about due to the credit-back program. The credit-back program 
will 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 will be no 
increased costs to growers or handlers.
    All handlers, large and small, will benefit proportionally by 
participating in the credit-back program. Handlers will participate 
only if they decide that they will benefit, and will 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.
    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. Costs of complying with 
the new program will include handler maintenance and delivery of 
receipts and documentation for reimbursement of creditable 
expenditures, but these will be minimal and are considered standard 
business practices.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this final rule. These amendments are intended 
to improve the operation and administration of the Order and to assist 
in the marketing of California walnuts.

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 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

[[Page 16289]]

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.

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.
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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.

    Accordingly, AMS amends 7 CFR part 984 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. 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, consisting of Sec.  984.546, to read as follows:

[[Page 16290]]

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) through (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) 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

[[Page 16291]]

decisions made by the aforementioned bodies at his or her discretion.

Bruce Summers,
Administrator, Agricultural Marketing Service.

[FR Doc. 2021-06207 Filed 3-26-21; 8:45 am]
BILLING CODE P