2015-27359. Walnuts Grown in California; Increased Assessment Rate

AGENCY:

Agricultural Marketing Service, USDA.

ACTION:

Final rule.

SUMMARY:

This rule implements a recommendation from the California Walnut Board (Board) for an increase of the assessment rate established for the 2015-16 and subsequent marketing years from $0.0189 to $0.0379 per kernelweight pound of walnuts handled under the marketing order. The Board locally administers the marketing order and is comprised of growers and handlers of walnuts operating within the area of production. Assessments upon walnut handlers are used by the Board to fund reasonable and necessary expenses of the program. The marketing year begins September 1 and ends August 31. The assessment rate will remain in effect indefinitely unless modified, suspended, or terminated.

DATES:

Effective October 29, 2015.

FOR FURTHER INFORMATION CONTACT:

Terry Vawter, Senior Marketing Specialist, or Martin Engeler, Regional Manager, California Marketing Field Office, Marketing Order and Agreement Division, Specialty Crops Program, AMS, USDA; Telephone: [phone], Fax: [phone], or Email: [e-mail] or [e-mail].

Small businesses may request information on complying with this regulation by contacting Jeffrey Smutny, Marketing Order and Agreement Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250-0237; Telephone: [phone], Fax: [phone], or Email: [e-mail].

SUPPLEMENTARY INFORMATION:

This rule is issued under Marketing Order No. 984, as amended (7 CFR part 984), regulating the handling of walnuts grown in California, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Orders 12866, 13563, and 13175.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, California walnut handlers are subject to assessments. Funds to administer the order are derived from such assessments. It is intended that the assessment rate as issued herein will be applicable to all assessable walnuts beginning on September 1, 2015, and continue until amended, suspended, or terminated.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This rule increases the assessment rate established for the Board for the 2015-16 and subsequent marketing years from $0.0189 to $0.0379 per kernelweight pound of assessable walnuts handled.

The California walnut marketing order provides authority for the Board, with the approval of USDA, to formulate an annual budget of expenses and collect assessments from handlers to administer the program. The members of the Board are growers and handlers of California walnuts. They are familiar with the Board's needs and with the costs for goods and services in their local area and are thus in a position to formulate an appropriate budget and assessment rate. The assessment rate is formulated and discussed in a public meeting. Thus, all directly affected persons have an opportunity to participate and provide input.

For the 2013-14 and subsequent marketing years, the Board recommended, and USDA approved, an assessment rate of $0.0189 per kernelweight pound of assessable walnuts that would continue in effect from marketing year to marketing year unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the Board or other information available to USDA.

The Board met on June 4, 2015, and unanimously recommended 2015-16 expenditures of $22,668,980, and an assessment rate of $0.0379 per kernelweight pound of assessable walnuts. In comparison, last year's budgeted expenditures were $9,861,810. The assessment rate of $0.0379 is $0.019 per pound higher than the rate currently in effect. The quantity of assessable walnuts for the 2015-16 marketing year is estimated at 518,000 tons inshell or 466,200,000 kernelweight pounds, which is the five-year average of walnut production. At the recommended higher assessment rate of $0.0379 per kernelweight pound, the Board should collect approximately $17,668,980 in assessment income. The Board also recommended using $5,000,000 from its monetary reserve to help fund the increase in the expenditures. Assessments and funds from the reserve will be adequate to cover its 2015-16 budgeted expenses of $22,668,980.

The Board noted that sales of California walnuts in the domestic market have been declining in recent years, and believes that more market development and promotion would reverse the trend. Thus, they are committed to increasing expenditures on domestic marketing promotion projects and programs.

The following table compares major budget expenditures recommended by the Board for the 2014-15 and 2015-16 marketing years:

Chart 1

Budget expense categories	2014-15	2015-16
Employee Expenses	$ 1,711,000	$1,846,500
Travel/Board Expenses/Annual Audit	190,000	191,000
Office Expenses	241,000	254,000
Controlled Purchases	10,000	10,000
Crop Acreage Survey	0	100,000
Crop Estimate	126,000	130,000
Production Research Director	94,500	94,500
Production Research	1,600,000	1,700,000
Sustainability Project	75,000	75,000
Grades and Standards Research	600,000	600,000
Domestic Market Development	5,742,000	18,478,440
Reserve for Contingency	166,310	32,790

The assessment rate recommended by the Board was derived by dividing anticipated assessment revenue needed by estimated shipments of California walnuts certified as merchantable. The 518,000 ton (inshell) estimate for merchantable shipments is an average of shipments during five prior years. Pursuant to § 984.51(b) of the order, this figure is converted to a merchantable kernelweight basis using a factor of 0.45 (518,000 tons x 2,000 pounds per ton x 0.45), which yields 466,200,000 kernelweight pounds. At $0.0379 per pound, the new assessment rate should generate $17,668,980 in assessment income. Along with $5,000,000 from the Board's monetary reserve, this assessment rate will allow the Board to cover its expenses.

Section 984.69 of the order authorizes the Board to carry over excess funds into subsequent marketing years as a reserve, provided that funds already in the reserve do not exceed approximately two years' budgeted expenses. Using $5,000,000 of reserve funds would leave an estimated $5,895,932 in reserve at the end of the 2015-16 marketing year, well within the requirements of the marketing order.

The assessment rate will be in effect indefinitely unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the Board or other available information.

Although this assessment rate established by this rule will be in effect for an indefinite period, the Board will continue to meet prior to or during each marketing year to recommend a budget of expenses and consider recommendations for modification of the assessment rate. The dates and times of Board meetings are available from the Board or USDA. Board meetings are open to the public and interested persons may express their views at these meetings. USDA would evaluate Board recommendations and other available information to determine whether modification of the assessment rate is needed. Further rulemaking would be undertaken as necessary. The Board's 2015-16 budget and those for subsequent marketing years would be reviewed, and, as appropriate, approved by USDA.

Final Regulatory Flexibility Analysis

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.

There are approximately 4,500 growers of California walnuts in the production area and approximately 90 handlers subject to regulation under the marketing order. The Small Business Administration (SBA) defines small agricultural producers as those having annual receipts of less than $750,000, and small agricultural service firms are defined as those having annual receipts of less than $7,000,000. (13 CFR 121.201)

According to USDA's National Agricultural Statistics Service's (NASS's) 2012 Census of Agriculture, approximately 89 percent of California's walnut farms were smaller than 100 acres. Further, NASS reports that the average yield for 2014 was 1.95 tons per acre, and the average price received for 2013 was $3,710 per ton. The average price for 2014 has not been reported yet.

A 100-acre farm with an average yield of 1.95 tons per acre would therefore have been expected to produce about 195 tons of walnuts during 2010-11. At $3,710 per ton, that farm's production would have had an approximate value of $723,450. Since Census of Agriculture information indicates that the majority of California's walnut farms are smaller than 100 acres, it could be concluded that the majority of the growers had receipts of less than $723,450 in 2014-15, below the SBA threshold of $750,000. Thus, the majority of California's walnut growers would be considered small growers according to SBA's definition.

According to information supplied by the Board, approximately two-thirds of California's walnut handlers each shipped merchantable walnuts valued under $7,000,000 during the 2014-15 marketing year and would, therefore, be considered small handlers according to the SBA definition.

This rule increases the assessment rate established by the Board and applicable to handlers for the 2015-16 and subsequent marketing years from $0.0189 to $0.0379 per kernelweight pound of assessable walnuts. The Board unanimously recommended 2015-16 expenditures of $22,668,980 and an assessment rate of $0.0379 per kernelweight pound of assessable walnuts. The assessment rate of $0.0379 is $0.019 higher than the 2014-15 rate. The quantity of assessable walnuts for the 2015-16 marketing year is estimated at 518,000 tons inshell weight, or 466,200,000 kernelweight pounds. Thus, the $0.0379 rate should provide $17,668,980 in assessment income.

The Board also recommended using $5,000,000 from its monetary reserve to augment the assessment income. Thus, assessment income plus the $5,000,000 should be adequate to meet this year's expenses. The increased assessment rate is primarily due to increased domestic marketing promotion and programs. The Board has become concerned with the declining sales of California walnuts in the domestic market, and believes that sagging sales can be improved through increased promotional activities. Thus, they recommended an increase in domestic market development from approximately $5.7 million during the 2014-15 marketing year to approximately $18.4 million for the 2015-16 marketing year.

The major expenses for the 2015-16 marketing year, as outlined in Chart 1 include: $1,846,500 for employee expenses; $191,000 for travel, board, and annual audit expenses; $254,000 for office expenses; $10,000 for controlled purchases; $100,000 for the crop acreage survey; $130,000 for the crop estimate; $94,500 for the salary of the Production Research Director; $1,700,000 for production research; $75,000 for a sustainability project; $600,000 for grades and standards research; $18,478,440 for domestic market development projects; and $32,790 for the contingency reserve.

In comparison, these expenditures for the 2014-15 marketing year were: $1,711,000 for employee expenses; $190,000 for travel, board, and annual audit expenses; $241,000 for office expenses; $10,000 for controlled purchases; $126,000 for the crop estimate; $94,500 for the salary of the Production Research Director; $1,600,000 for production research; $75,000 for the sustainability project; $600,000 for grades and standards research; $5,742,000 for domestic market development projects; and $166,310 for the contingency reserve. There was no acreage survey expense in the 2014-15 marketing year.

The Board reviewed and unanimously recommended 2015-16 expenditures of $22,668,980. Prior to arriving at this budget, the Board considered alternative expenditure levels, such as spending an additional $5,000,000, or $10,000,000 for domestic market development projects, as well as alternate assessment rate levels. They ultimately determined that the recommended expenditure and assessment levels were reasonable and necessary to assist in improving domestic sales, as well as properly administering the order.

The assessment rate of $0.0379 per kernelweight pound of assessable walnuts was derived by dividing anticipated assessment revenue needed by expected shipments of California walnuts certified as merchantable. Merchantable shipments for the year are estimated at 466,200,000 pounds. It was determined that $17,668,980 in assessment income was needed, and assessment income combined with funds from the monetary reserve should allow the Board to cover its expenses of $22,668,980.

The Board also considered information from various committees who deliberate and formulate their own budgets of expenses and make recommendations to the Board. The committees include the Market Development, Production Research, Budget and Personnel, and Grades and Standards Committees.

Unspent funds may be retained in a financial reserve, provided that funds in the financial reserve do not exceed approximately two years' budgeted expenses.

According to NASS, the season average grower prices for the years 2012 and 2013 were $3,030 and $3,710 per ton, respectively. Prices have not yet been reported for 2014. The 2012 and 2013 prices provide a range within which the 2015-16 season average price could fall. Dividing these average grower prices by 2,000 pounds per ton provides an inshell price per pound range of $1.52 to $1.86. Dividing these inshell per pound prices by the 0.45 conversion factor (inshell to kernelweight) established in the order yields a 2015-16 price range estimate of $3.38 to $4.13 per kernelweight pound of assessable walnuts.

To calculate the percentage of grower revenue represented by the assessment rate, the assessment rate of $0.0379 per kernelweight pound is divided by the low and high estimates of the price range. The estimated assessment revenue for the 2015-16 marketing year as a percentage of total grower revenue will thus likely range between 0.92 and 1.11 percent.

This action increases the assessment obligation imposed on handlers. While assessments impose some additional costs on handlers, the costs are minimal and uniform on all handlers. These costs are offset by the benefits derived by the operation of the marketing order. In addition, the Board's meeting was widely publicized throughout the California walnut industry, and all interested persons were invited to attend the meeting and encouraged to participate in Board deliberations on all issues. Like all Board meetings, the June 4, 2015, meeting was a public meeting and all entities, both large and small, were free to express views on this issue.

In accordance with the Paperwork Reduction Act of 1995, (44 U.S.C. Chapter 35), the order's information collection requirements have been previously approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581-0178 (Walnuts Grown in California). No changes in those requirements are necessary as a result of this action. Should any changes become necessary, they would be submitted to OMB for approval.

This rule imposes no additional reporting or recordkeeping requirements on either small or large California walnut handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. As noted in the initial regulatory flexibility analysis, USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this action.

AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

A proposed rule concerning this action was published in the Federal Register on August 18, 2015, (80 FR 49930). Copies of the proposed rule were also provided to all walnut handlers. Finally, the proposal was made available through the Internet by USDA and the Office of the Federal Register. A 30-day comment period ending September 17, 2015, was provided for interested persons to respond to the proposal. No complete comments were received. Accordingly, no changes will be made to the rule as proposed.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/​MarketingOrderSmallBusinessGuide. Any questions about the compliance guide should be sent to Jeffrey Smutny at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

After consideration of all relevant material presented, including the information and recommendation submitted by the Board and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because handlers are already receiving 2015-16 crop walnuts from growers, the marketing year began on September 1, 2015, and the assessment rate applies to all walnuts received during the 2015-16 and subsequent marketing years. Further, handlers are aware of this rule which was recommended at a public meeting. Also, a 30-day comment period was provided in the proposed rule.

List of Subjects in 7 CFR Part 984

• Marketing agreements
• Nuts
• Reporting and recordkeeping requirements
• Walnuts

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

PART 984—WALNUTS GROWN IN CALIFORNIA

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

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

2. Section 984.347 is revised to read as follows:

§ 984.347

Assessment rate.

On and after September 1, 2015, an assessment rate of $0.0379 per kernelweight pound is established for California merchantable walnuts.

Dated: October 22, 2015.

Rex A. Barnes,

Associate Administrator, Agricultural Marketing Service.