[Federal Register Volume 61, Number 209 (Monday, October 28, 1996)]
[Rules and Regulations]
[Pages 55547-55550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27455]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 61, No. 209 / Monday, October 28, 1996 /
Rules and Regulations
[[Page 55547]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 998
[Docket No. FV96-998-3 FR]
Domestically Produced Peanuts Handled by Persons Subject to
Peanut Marketing Agreement No. 146; Changes in Terms and Conditions of
Indemnification
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
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SUMMARY: This final rule modifies, for 1996 and subsequent crop
peanuts, the indemnification program for signatory handlers under
Peanut Marketing Agreement No. 146 (Agreement). This rule reduces
indemnification payment coverage to certain costs involved with appeal
and product claims. The Peanut Administrative Committee (Committee),
which is responsible for local administration of the quality assurance
program under the Agreement, recommended the changes. This rule reduces
the Committee's indemnification payments for losses incurred by
signatory handlers in not being able to ship unwholesome peanuts for
edible purposes from a ceiling of $7 million for each of the last two
years, to about $300,000. With the reduction in indemnification claim
payments, the Committee will have adequate funds in its indemnification
reserve to cover costs. No handler assessments for indemnification will
be necessary. This will reduce signatory handlers' costs, enabling them
to be more competitive in the marketplace.
EFFECTIVE DATE: This final rule becomes effective October 29, 1996.
FOR FURTHER INFORMATION CONTACT: Jim Wendland, Marketing Order
Administration Branch, Fruit and Vegetable Division, AMS, USDA, P.O.
Box 96456, room 2525-S, Washington, D.C. 20090-6456; telephone: (202)
720-2170, or Fax: (202) 720-5698; or William G. Pimental, Marketing
Specialist, Southeast Marketing Field Office, Fruit and Vegetable
Division, AMS, USDA, P.O. Box 2276, Winter Haven, Florida 33883-2276;
telephone: (941) 299-4770, or Fax: (941) 299-5169. Small businesses may
request information on compliance with this regulation by contacting:
Jay Guerber, Marketing Order Administration Branch, Fruit and Vegetable
Division, AMS, USDA, P.O. Box 96456, room 2525-S, Washington, D.C.
20090-6456; telephone: (202) 720-2491, or Fax: (202) 720-5698.
SUPPLEMENTARY INFORMATION: This final rule is issued under Peanut
Marketing Agreement No. 146 (7 CFR part 998). The program regulates the
quality of domestically produced peanuts handled by Agreement signers.
The Agreement 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 U.S. Department of Agriculture (Department) is issuing this
final rule in conformance with Executive Order 12866.
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. This rule is intended to apply to 1996 (beginning
July 1, 1996) and subsequent crop year peanuts. This final rule will
not preempt any State or local laws, regulations, or policies, unless
they present an irreconcilable conflict with this rule.
Pursuant to the requirements set forth in the Regulatory
Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has
considered the economic impact of this action on small entities.
The purpose of the RFA is to fit regulatory actions to the scale of
business subject to such actions in order that small businesses will
not be unduly or disproportionately burdened. Marketing agreements and
orders issued pursuant to the Act, and rules issued thereunder, are
unique in that they are brought about through group action of
essentially small entities acting on their own behalf. Thus, both
statutes have small entity orientation and compatibility.
About 32 signatory peanut handlers subject themselves to regulation
under the Agreement. There are about 47,000 peanut producers in the 16-
State production area. Small agricultural service firms, which includes
handlers, have been defined by the Small Business Administration (13
CFR 121.601) as those having annual receipts of less than $5,000,000,
and small agricultural producers have been defined as those having
annual receipts of less than $500,000. Although approximately 25
percent of the signatory handlers may be classified as small entities,
they are seed shellers who ship almost no peanuts to human consumption
outlets. This final rule will have virtually no effect on them. A
majority of the producers may be classified as small entities.
Domestic peanut production in 1995 was 1.76 million tons, with a
farm value of $1 billion.
The objective of the Agreement is to ensure that only high quality
and wholesome peanuts enter human consumption markets in the United
States. About 70 percent of domestic handlers, handling approximately
95 percent of the crop, have signed the Agreement.
Under the regulations, farmers stock peanuts with visible
Aspergillus flavus mold (the principal source of aflatoxin) are
required to be diverted to non-edible uses. Each lot of milled peanuts
must be sampled and tested and those certified ``positive'' as to
aflatoxin must be diverted to non-edible uses. Handlers of such peanuts
currently may be eligible to receive indemnification payments for
losses incurred in not being able to ship the peanuts for edible uses.
Costs to administer the Agreement and make indemnification payments are
paid by assessments levied on signatory handlers.
The Committee, which is composed of producers and handlers of
peanuts, meets at least annually to review the Agreement's rules and
regulations, which are effective on a continuous basis from one year to
the next. Committee meetings are open to the public, and interested
persons may express their views at these meetings. The Department
reviews Committee recommendations and justifications, as well as
information from other sources, to determine whether modification of
the Agreement regulations would tend to effectuate the declared policy
of the Act.
[[Page 55548]]
The Committee believes that the domestic peanut industry is
undergoing a period of great change. The Committee endorses the
findings in a recent study entitled ``United States Peanut Industry
Revitalization Project'' developed by the National Peanut Council and
the Department's Agricultural Research Service. According to the study,
since 1991, the U.S. peanut industry has been in a period of dramatic
economic decline because of (1) decreasing consumption of peanuts and
peanut products, (2) decreasing U.S. peanut production and increasing
production costs, and (3) increasing imports of peanuts and peanut
products.
The study shows that peanut per capita consumption has steadily
declined; between 1991 and 1994, a total of 11 percent. Harvested acres
of peanuts in the U.S. have declined 25 percent between 1991 and 1995.
Production has fluctuated downward, with 1995 production 30 percent
below that of 1991. Farm value of peanut production has dropped 29
percent in the same period. Farmer production costs and revenue are
projected to be equal by the year 2000, as are handler costs and
revenue, which would leave no profit.
The Committee agrees that all of these factors combined show that
the domestic peanut industry is in decline and that the outlook is not
expected to change without some positive intervention by the industry.
The Committee has been meeting for the past two years to develop major
improvements and cut costs by streamlining handling procedures and
making them consistent with current industry economies and
technological developments.
Over the last several years, the Committee has been reducing the
indemnification benefits. This reduction has made indemnification of
failing peanuts a less viable economic option and has put more
responsibility on each handler to decide whether it is economical to
recondition a failing lot. Peanut processing machinery has improved
through technological advances to the point that virtually any lot of
peanuts, regardless of original (incoming) quality, can now be shelled,
remilled and/or blanched (processed) to meet outgoing quality
requirements established under the Agreement. The Committee concluded
that handlers should bear more responsibility for reconditioning their
own peanuts and in shipping quality peanuts to their customers, and
that Committee and handler indemnification costs should be reduced.
The Committee met on May 23, 1996, and recommended a substantial
reduction in indemnification coverage to reduce costs. Signatory
handlers have indicated they would rather have the Committee eliminate
the indemnification assessment currently collected from them than
continue the current indemnification coverage. The Committee's
indemnification payments for handler losses will decline from a record
high net loss of $21.6 million for crop year 1990, and ceilings of $9
million for crop years 1991-1993 and $7 million for each of the last
two years, to approximately $300,000. This will reduce signatory
handlers' costs, enabling them to be more competitive in the
marketplace.
The Committee has paid claims based on the initial sampling of any
peanut lot failing to meet aflatoxin requirements for human consumption
before the peanuts were shipped from the handler's plant to the buyer,
product and appeals claims. Payments were made for blanching fees and/
or remilling fees, freight charges for moving the peanuts from one
production area to another for marketing, and for losses for the
rejected peanuts.
Under the modified program, on an ``appeal claim'' the Committee
will pay only for freight costs from the handler's plant to the
manufacturer and return from manufacturer to the destination requested
by the handler (handler's plant, blancher, or remiller). ``Appeal
claims'' involve lots of peanuts, which had been certified as meeting
all quality requirements, prior to shipment, and then rejected by the
buyer on the basis of appeal aflatoxin test results. The deadline for
filing ``appeal'' indemnification claims with the Committee will remain
November 1 following the end of the crop year.
The Committee recommended that ``product claims'' continue to be
handled as they have been in the past. That is, claims may be filed by
any handler sustaining a loss as a result of a buyer withholding from
human consumption a portion or all of the product made from a lot of
peanuts which has been determined to be unwholesome due to aflatoxin.
The Committee will indemnify the amount of the raw peanuts in the
product at $0.35 per pound. The product is destroyed under the
supervision of USDA's Processed Products Branch inspectors and the
Committee pays these charges. The deadline for filing ``product
claims'' remains November 1 of the second year following the year in
which the peanuts were produced.
An estimated $2.0 to $2.5 million indemnification reserve (after
all 1995 crop claims are paid) should be available to cover claims
under the revised program. With annual costs under the program
estimated at $200,000 to $300,000, there is enough money in reserves to
cover claims for about 10 crop years. Thus, handlers will not be
required to pay indemnification assessments during that period.
Indemnification assessments during the 1994 and 1995 crop years totaled
approximately $3.4 million and $1.3 million, respectively.
If the Committee had recommended maintaining the current coverage
at the $7,000,000 ceiling, an indemnification assessment rate of about
$4.00 per ton on the 1996 crop would have been necessary to finance the
program. All signatory handlers, both large and small, will benefit
from the substantially lower costs associated with the elimination of
annual indemnification assessment obligations. Handlers who believe
they may be adversely impacted by aflatoxin can obtain private
insurance coverage against such losses.
Therefore, the AMS has determined that this action will not have a
significant economic impact on a substantial number of small entities.
The proposed rule concerning this action was published in the
August 28, 1996, issue of the Federal Register (61 FR 44192). That
proposal provided that interested persons could file comments,
including information on the regulatory and informational impacts of
the proposed rule on small businesses, through September 12, 1996. Six
comments were received, four favoring and two opposing the proposed
rule.
The comments in favor of implementing the changes set forth in the
proposed rule were submitted on behalf of four handlers. They
reiterated several of the justifications made in the proposed rule.
One commenter agreed that indemnification payments should be
limited to appeal and product claims. In support of this, he stated
that improvements in technology now allow normal aflatoxin problems to
be handled at each handler's shelling facilities and should not be an
extra cost to the industry.
Another commenter indicated that recent peanut shelling technology
and peanut buyer demands have forced the peanut industry to new heights
of peanut product safety and quality requirements. He also stated that
the outdated and unfair system of indemnification for sheller aflatoxin
claims needed to be changed. The proposed changes by the Peanut
[[Page 55549]]
Administrative Committee meet the needs of the peanut industry.
Two other commenters stated that it is time to limit
indemnification payments for aflatoxin to appeal claims and product
liability claims. They indicated there is no justification for those
indemnification payments for normal aflatoxin problems that exist
before blanching or remilling, since the industry has modern technology
that can detect these problems and these costs should be paid solely by
the individual sheller, not by the industry.
Two comments in opposition were submitted by two handlers. One
commenter indicated that eliminating indemnification insurance is to
``un-do'' a system of quality control that predecessors established
years ago, which has helped many small handlers survive. He agreed that
peanut processing machinery and technology is available to reduce the
aflatoxin content to an acceptable level on most any peanut lot, but he
thinks this is an expensive procedure and that few smaller independent
shellers can absorb the extra cost of reconditioning equipment
necessary to accomplish this. The commenter also stated that until the
industry greatly reduces or eliminates aflatoxin from occurring in
peanut production, the industry should not eliminate the time proven
system of handling it.
Another commenter stated that the small handler who is limited to a
specific area could be severely impacted if that area happened to be
dry or had other problems causing higher aflatoxin. He agreed that
state of the art processing equipment is available to recondition low
quality peanuts so they meet Outgoing Quality requirements.
The Department recognizes that the rule will place more
responsibility on shellers for meeting the needs of peanut buyers.
Information provided by the Committee indicates that the cost of the
current indemnification program is simply too high and the industry
must change to meet new world competition or face a serious decline.
The Committee is providing an opportunity for shellers to control the
quality of their own peanuts and eliminate their costs for
indemnification assessments. Those handlers who believe they may be
adversely impacted by aflatoxin can obtain private insurance coverage
against such losses. Such insurance coverage is readily available to
cover the current crop. We understand that some recent policies have
been written for a cost at or less than the Committee's previous
indemnification assessment rate. Although there may be some burden, not
having to pay indemnification assessments is a cost saving which is
expected to continue for several years due to the funds available in
the indemnification reserve. Therefore, after thoroughly analyzing the
comments received and other available information, the Department has
concluded that this final rule is appropriate.
After consideration of relevant matter presented, including the
information and recommendations submitted by the Committee, the six
comments received, and other available information, it is hereby found
that the final rule, as hereinafter set forth, will tend to effectuate
the declared policy of the Act.
It is further found that good cause exists for not postponing the
effective date of this rule until 30 days after publication in the
Federal Register (5 U.S.C. 553) because this final rule should be
implemented as close to the beginning of the crop year as possible. The
crop year began July 1, 1996. Further, handlers are aware of these
program changes, which were recommended at a public meeting of the
Committee on May 23, 1996, and need no additional time to take
advantage of the modified program. Also, at that meeting the Committee
did not recommend an indemnification assessment for 1996 crop peanuts.
Further, interested persons were given an opportunity to comment on the
proposed rule.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35), any information collection requirements that may be
contained in this final rule have been previously approved by the
Office of Management and Budget (OMB) and have been assigned OMB No.
0581-0067. This final rule will likely result in less reports having to
be filed, particularly because there will likely be less
indemnification claims filed under the reduced program coverage.
The Committee also recommended numerous relaxations to the
Agreement's incoming and outgoing quality regulations for 1996 and
subsequent crop peanuts, which have been proposed in a separate
rulemaking action which was published in the October 4, 1996, issue of
the Federal Register (61 FR 51811). Comments on that proposal must be
received by October 24, 1996.
List of Subjects in 37 CFR Part 998
Marketing agreements, Peanuts, Reporting and recordkeeping
requirements.
For the reasons set forth above, 7 CFR part 998 is amended as
follows:
1. The authority citation continues to read as follows:
Authority: 7 U.S.C. 601-674.
PART 998--MARKETING AGREEMENT REGULATING THE QUALITY OF
DOMESTICALLY PRODUCED PEANUTS
2. Section 998.300 is revised to read as follows:
Sec. 998.300 Terms and conditions of indemnification for 1996 and
subsequent crop peanuts.
(a) For the purpose of paying indemnities on a uniform basis
pursuant to Sec. 998.36 of the peanut marketing agreement, each handler
shall promptly notify or arrange for the buyer to notify the Manager,
Peanut Administrative Committee, of any lot of cleaned inshell or
shelled peanuts, milled into one of the categories listed in paragraph
(a) of the Outgoing quality regulation (7 CFR 998.200) or paragraph (j)
of this section, on which the buyer, including the user division of a
handler, has withheld usage due to a finding as to aflatoxin content as
shown by the results of further chemical assay, after shipment.
(b) To be eligible for indemnification, such a lot of peanuts shall
have been inspected and certified as meeting the quality requirements
for Indemnifiable Grades as specified in paragraph (a) of the Outgoing
quality regulation (7 CFR 998.200), shall have met all other applicable
regulations issued pursuant thereto, including the pretesting
requirements in paragraphs (a) and (c) of the Outgoing quality
regulation (7 CFR 998.200) and the lot identification shall have been
maintained. If the Committee concludes, based on further assays, that
the lot is so high in aflatoxin that it should be handled pursuant to
this section, and such is concurred in by the Agricultural Marketing
Service, the lot shall be accepted for indemnification.
(c) The indemnification payment shall be transportation expenses
(excluding demurrage, loading and unloading charges, custom fees,
border re-entry fees, etc.) from the handler's plant or storage to the
point within the Continental United States or Canada where the
rejection occurred and from such point to a delivery point specified by
the Committee if the lot is found by the Committee to be unwholesome as
to aflatoxin after such lot had been certified negative as to aflatoxin
prior to being shipped or otherwise disposed of for human consumption
by the handler pursuant to requirements of the
[[Page 55550]]
Outgoing quality regulation (7 CFR 998.200).
(d) Claims for indemnification may be filed by any handler
sustaining a loss as a result of a buyer withholding from human
consumption a portion or all of the product made from a lot of peanuts
which has been determined to be unwholesome due to aflatoxin. The
Committee shall pay such claims as it determines to be valid, to the
extent of the equivalent indemnification value applicable to the
peanuts used in the product so withheld. On products manufactured from
edible quality grades of peanuts, such claims may be filed with the
Committee no later than November 1 of the second year following the
year in which the peanuts were produced.
(e) Notice of claims for indemnification on peanuts of the current
crop year shall be received by the Committee (by mail or legible
facsimile) no later than the close of the business day on November 1,
following the end of the crop year. For the purpose of this paragraph,
``notice'' shall be defined as the covering (executed and signed) Form
PAC-5, accompanied by a copy of the applicable valid grade inspection
certificate and the lab certificate showing the aflatoxin assay results
which caused the request for rejection.
(f) Each handler shall include, directly or by reference, in the
handler's sales contract, the following provisions:
(1) Buyer shall give the Peanut Administrative Committee
(Committee) office notice of any request made to the Federal or
Federal-State Inspection Service for an ``appeal'' inspection for
aflatoxin. Results of the ``appeal'' inspection will be reported by the
Federal or Federal-State Inspection Service or other designated lab to
Committee management. If the Committee management determines that the
test results of the ``appeal'' sample show the lot to be high in
aflatoxin, Committee management shall inform the buyer and handler of
the results. In this case, the buyer may apply to reject the lot and
return it to the handler by filing a rejection letter with Committee
management. Upon a determination of the Committee, confirmed by the
Agricultural Marketing Service, authorizing rejection, such peanuts,
and title thereto, if passed to the buyer, shall be returned to the
seller. Buyer must return the rejected lot to the seller within 45 days
of the date on which Committee management informs buyer of the
``appeal'' sample test results, otherwise the buyer agrees that he/she
forfeits the right to reject the lot and return it to the seller.
(2) Seller shall, prior to shipment of a lot of shelled peanuts
covered by this sales contract, cause appropriate samples to be drawn
by the Federal or Federal-State Inspection Service from such lot, shall
cause the sample(s) to be sent to a USDA laboratory or if designated by
the buyer, a laboratory listed on the most recent Committee list of
approved laboratories to conduct such assay, for an aflatoxin assay and
cause the laboratory, if other than the buyer's to send one copy of the
results of the assay to the buyer. A portion of the costs of aflatoxin
sampling and testing, as provided in Sec. 998.200(c)(3), shall be for
the account of the buyer and the buyer agrees to pay such costs.
(g) Any handler who fails to include such provisions in his/her
sales contract shall be ineligible for indemnification payments with
respect to any claim filed with the Committee on current crop year
peanuts covered by the sales contract.
(h)(1) Any handler who fails to conform to the requirements of
paragraph (g) of the Incoming quality regulation (7 CFR 998.100) shall
be ineligible for any indemnification payments until such condition or
conditions are corrected to the satisfaction of the Committee.
(2) Any handler who fails to comply with the requirements of
paragraph (h)(1) or (h)(2) of the Outgoing quality regulation (7 CFR
998.200) shall be ineligible for any indemnification payments until
such non-compliance is corrected to the satisfaction of the Committee.
(i) Any handler who fails to cause positive lot identification on
any lot of peanuts to accurately reflect the crop year in which such
peanuts were produced, pursuant to paragraph (d) of the Outgoing
quality regulation (7 CFR 998.200), shall be ineligible for any
indemnification payments until such non-compliance is corrected to the
satisfaction of the Committee.
(j) Categories of cleaned inshell peanuts eligible for
indemnification are as follows:
(1) Cleaned inshell peanuts \1\
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\1\ Eligible lots of cleaned inshell peanuts which are found,
after shipment, to contain excessive aflatoxin, may be rejected to
the handler. Transportation expenses (excluding demurrage, loading
and unloading charges, custom fees, border reentry fees, etc.) from
the handler's plant or storage to the point within the Continental
United States or Canada where the rejection occurred and from such
point to a delivery point specified by the Committee shall be the
extent of the indemnification payment.
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(i) U.S. Jumbos
(ii) U.S. Fancy Handpicks
(iii) Valencia-Roasting Stock \2\
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\2\ Inshell peanuts with not more than 25 percent having shells
damaged by discoloration, which are cracked or broken, or both.
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(2) Reserved.
(k) The indemnification value for peanuts indemnified shall be 35
cents per pound.
Dated: October 18, 1996.
Robert C. Keeney,
Director, Fruit and Vegetable Division.
[FR Doc. 96-27455 Filed 10-25-96; 8:45 am]
BILLING CODE 3410-02-P
