[Federal Register Volume 59, Number 131 (Monday, July 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16731]
[[Page Unknown]]
[Federal Register: July 11, 1994]
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OFFICE OF PERSONNEL MANAGEMENT
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 981
[Docket No. FV93-981-2FIR]
Almonds Grown in California; Finalize Revision of Administrative
Rules and Regulations Concerning Creditable Promotion and
Advertising Requirements
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
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SUMMARY: The Department of Agriculture (Department) is adopting as a
final rule, with modifications, the provisions of an interim final rule
that changed the focus of the Almond Board of California's (Board)
advertising and promotion program by broadening the scope of creditable
advertising and promotion activities available to handlers and
expanding the Board's ability to engage in a significant generic
advertising and promotion program to benefit the entire industry. This
action provides for more effective and efficient use of industry
advertising and promotion funds.
EFFECTIVE DATE: July 11, 1994.
FOR FURTHER INFORMATION CONTACT: Kathleen M. Finn, Marketing
Specialist, Marketing Order Administration Branch, Fruit and Vegetable
Division, AMS, USDA, Room 2536-S., P.O. Box 96456, Washington, DC
20090-6456; telephone: (202) 720-1509, or FAX (202) 720-5698; or Martin
Engeler, Assistant Officer-in-Charge, California Marketing Field
Office, Fruit and Vegetable Division, AMS, USDA, 2202 Monterey Street,
Suite 102-B, Fresno, California 93721; (209) 487-5901 or FAX (209) 487-
5906.
SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing
Agreement and Order No. 981 [7 CFR Part 981], both as amended,
hereinafter referred to as the ``order'' regulating the handling of
almonds grown in California. 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.''
This final rule has been determined to be not significant for
purposes of Executive Order 12866 and therefore has not been reviewed
by OMB.
This final rule has been reviewed under Executive Order 12778,
Civil Justice Reform. This action is not intended to have retroactive
effect. This final rule will not preempt any State or local laws,
regulations, or policies, unless they present an irreconcilable
conflict with this rule.
The Act provides that administrative proceedings must be exhausted
before parties may file suit in court. Under section 8c(15)(A) of the
Act, any handler subject to an order may file with the Secretary 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 a hearing the Secretary will 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 in equity to review the
Secretary's ruling on the petition, provided a bill in equity is filed
not later than 20 days after date of entry of the ruling.
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA), the Administrator of the Agricultural Marketing Service
(AMS) has considered the economic impact of this final rule 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 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.
There are approximately 115 handlers of almonds that are subject to
regulation under the marketing order and approximately 7,000 producers
in the regulated area. Small agricultural service firms are defined by
the Small Business Administration [13 CFR 121.601] as those whose
annual receipts are less than $5,000,000, and small agricultural
producers have been defined as those having annual receipts of less
than $500,000. The majority of the almond handlers and producers may be
classified as small entities.
This action finalizes an interim final rule which revised
Sec. 981.441 of Subpart--Administrative Rules and Regulations and is
based on recommendations of the Board, comments received in response to
the interim final rule, comments received in response to the reopening
of the comment period of the interim final rule, and other available
information. The interim final rule was published in the Federal
Register [58 FR 43500], on August 17, 1993. The rule amended
Sec. 981.441 of the rules and regulations in effect under the order. It
provided a 30 day comment period which ended September 16, 1993. During
this period, one comment was received from Cal-Almond, Inc., an
independent almond handler.
On December 22, 1993, the United States Court of Appeals for the
Ninth Circuit in California issued a ruling on a district court order
involving an action against the Department by three independent almond
handlers wherein such handlers alleged, among other things, that the
Board's advertising program during the 1980's was unconstitutional
because the program violated the handlers' First Amendment Rights. The
district court had ruled that the advertising program was
constitutional. The Ninth Circuit Court of Appeals acknowledged the
substantial public interest in designing effective advertising and
promotion programs to stimulate demand and to increase returns to
growers but concluded that the almond program in place during the
1980's was sufficiently flawed in that it did not meet the
constitutional standards.
In light of the potential effect of the Ninth Circuit Court of
Appeal's decision on the newly established Credit-Back advertising and
promotion program and on the almond industry as a whole, the Department
determined that it was in the public interest to reopen the comment
period for the interim final rule. Accordingly, the comment period was
reopened on January 31, 1994, [59 FR 4247]. Reopening of the comment
period provided interested persons an opportunity to review the rules
for the new Credit-Back advertising and promotion program and to submit
additional written opinions and information regarding the potential
effect of the Court's decision on that program. The Department also
sought comments on how to best address the issues raised in the Court's
decision. The second comment period closed on March 2, 1994. Seven
additional comments were received. All of the comments received on the
interim final rule will be discussed herein.
Statutory and Regulatory Background
The Almond Marketing Order is promulgated pursuant to the
Agricultural Marketing Agreement Act of 1937 (``Act''). Congress
enacted this statute in 1937, a time of economic upheaval for many
farmers, in order to stabilize market conditions and ameliorate
shortages and surpluses. Congress believed that ``establish[ing] and
maintain[ing]'' such orderly marketing conditions would be in the
public interest, ultimately benefitting both farmers and consumers. See
7 U.S.C. 602 (declarations of policy).
The principal means by which Congress sought to effectuate these
goals is the promulgation of marketing orders under 7 U.S.C. Sec. 608c.
Marketing orders are regulations issued by the Secretary of
Agriculture, after notice and hearing, and after a finding by the
Secretary that the order's terms ``will tend to effectuate the declared
policy of [the Act].'' See 7 U.S.C. Sec. 608c(4). Most orders do not
become effective until it is approved by two-thirds or more of the
affected producers voting in a referendum. See 7 U.S.C. Secs. 608c (8)
and (9). Conversely, a vote of a simple majority of the affected
producers can terminate an order. See 7 U.S.C. Sec. 608c(16)(B).
Although producers vote on the marketing order, the order imposes
direct regulatory obligations only on the activities of ``handlers'' or
processors of agricultural commodities. See 7 U.S.C. 608c(1).
Section 608c(6)(I) of the Act provides for the ``establishment of
production research, marketing research and development projects
designed to assist, improve, or promote the marketing, distribution,
and consumption or efficient production of any such commodity or
product, the expense of such projects to be paid from funds collected
pursuant to the marketing order.'' Section 608c(6)(I) also provides
``[t]hat with respect to orders applicable to almonds * * * such
projects may provide for any form of marketing promotion including paid
advertising and with respect to almonds * * * may provide for crediting
the pro rata expense assessment obligations of a handler with all or
any portion of his direct expenditures for such marketing promotion
including paid advertising as may be authorized by the order * * *''
Pursuant to this statutory scheme, the Secretary has promulgated a
marketing order regulating the handlers of almonds grown in California.
The Order is administered by the Almond Board of California
(``Board''), which is composed of industry representatives, whose
function it is to administer the Order and to recommend amendments to
the Order. The duties of the Board also include acting as intermediary
between the Secretary and industry members; investigating and
collecting data on growing, shipping, and marketing conditions with
respect to almonds; furnishing pertinent information to the Secretary;
and keeping record of its acts and transactions. Funds to cover the
Board's expenses are generated by levying assessments on each handler,
in proportion to the kernel weight of almonds received.
Background of the California Almond Industry
The California Almond Marketing Order has been in effect since
1950. It provides a means for growers and handlers to work together to
address various problems which affect the marketing of California
almonds, including varying weather conditions which can lead to annual
swings in production.
One way in which the Almond Marketing Order has helped to address
problems affecting the industry is by establishing salable and reserve
percentages for all almonds received by handlers during a given crop
year. The establishment of reserve percentages has allowed the
Department to regulate the supply of almonds marketed and avoid
dramatic price drops during years of excess production. In years when
the anticipated annual crop is large, a reserve percentage may be
established and handlers withhold a percentage of the almonds received
from growers from the market. Conversely, in years when the annual crop
proves to be small, reserve almonds are released for sale. In addition,
small quantities of reserve almonds are sometimes used to develop new
products or are disposed of in secondary markets such as oil or
livestock feed.
The Department has analyzed the production and sale of almonds
since the inception of the Almond Marketing Order. Over the past forty
years, the production and sale of almonds, both in this country and
abroad, have increased dramatically. In the 1950's, almond production
grew from 19 million to 84 million pounds per year and the value
increased from $15 to $38 million. By 1969, production had reached 132
million pounds per year at a value of $74 million.
During the 1950's and 1960's, the domestic market was the primary
outlet for California almonds. Supplies which exceeded the needs of the
domestic market were exported or put to other ``non-competitive'' uses,
such as sliced, diced and slivered almonds. In 1969, shipments of
almonds to export markets exceeded domestic shipments for the first
time. Most export shipments were of reserve almonds which were sold at
prices below domestic levels.
The Almond Marketing Order was amended in 1971 to provide for
further market development through the establishment of a creditable
advertising and generic promotion program. These programs have been in
effect since 1972. In recommending that the Almond Marketing Order be
amended to authorize advertising and promotion programs, proponents
within the almond industry believed that advertising almonds would tend
to increase almond consumption and enhance grower returns. The
Department's analysis of sales figures for almonds during the last
twenty-two years demonstrate that this belief was correct.
The adoption of the creditable advertising and generic promotion
programs has fostered a period of steady growth in the demand for
almonds, both domestically and abroad. From 1972 to 1992, domestic
shipments of almonds increased from 75 million pounds to 186 million
pounds and their value increased from $63 million in 1972 to $318
million in 1992. During these years, the creditable advertising and
generic promotion programs fostered an even greater rate of growth in
the export market. Annual exports of almonds went from 69 million
pounds in 1972 to 350 million pounds in 1992 and the value increased
from $58 million to $598 million. The industry has benefitted from
increased production and sales as consumption grew and almonds expanded
into new markets.
Currently, the majority of almonds produced in the United States
are sold abroad, with the largest markets in Germany and Japan. The
California almond industry has become an established supplier of high
quality almonds to markets throughout the world and has maintained a
dominant share (over 60%) of the overall world almond market for the
past ten years. Substantial growth has also occurred in the demand for
sliced, diced and slivered almonds, once considered a secondary almond
market. Due to market expansion, shipments of almonds for such uses are
now considered normal commercial sales.
The relative proportion of annual crop sold to ingredient
manufacturers in bulk quantities has also increased substantially
during the last two decades. Currently, the majority of almonds sold in
the United States are sold for use as ingredients in candy, cereal, ice
cream, baked goods, cookies, granola bars, prepared meals, and other
manufactured products. The Department's data on almond sales to export
markets also indicates that the vast majority of almonds sold to
European countries are intended for use as ingredients.
Since the adoption of the creditable advertising and generic
promotion programs there has been an increase in the number of almond
handlers operating in the United States. In 1971, there were 15 almond
handlers in California and the four largest handled about 95% of the
annual crop. By 1991, there were 115 almond handlers in California and
the four largest handled 62% of the annual crop. The growth of the
almond market has enabled small handlers to enter the industry in
greater numbers.
The Former Creditable Advertising Program
At the time of its adoption in 1971, the almond Marketing Order's
advertising and promotion program was structured with a strong emphasis
on individual handler advertising and promotion, with a complementary
generic program conducted by the Board. Since its implementation, the
Secretary has instituted numerous rulemaking actions to revise and
update the creditable advertising and promotion program to address
changing circumstances in the industry.
In revising the program, the Secretary relied, in part, on industry
production and sales data and the Board's consistent belief that the
industry's advertising and promotion program provided an effective
means of increasing almond sales. The Board, on behalf of the industry,
responds to changing industry practices and trends by recommending to
the Secretary modifications to the Order's implementing regulations and
by redesigning its activities to better reflect these changes, thereby
ensuring further development of the almond industry. In addition, the
Secretary also relied on comments received from almond industry
representatives and other interested persons prior to adopting certain
amendments to the regulations.
Section 981.41 of the Order provides the Board, with the approval
of the Secretary, authority to credit a handler's direct expenditures
for marketing promotion, including paid advertising, against the
applicable portion of their assessment obligation. The requirements
that a handler needed to fulfill before obtaining credit for promotion
are set forth in Sec. 981.441 of the Administrative Rules and
Regulations. The purpose of these requirements was to ensure that
creditable activities undertaken by handlers were forms of promotion
recognized and accepted by advertising and promotion industry norms,
and could reasonably be expected to increase almond consumption. In
addition, the requirements were devised to ensure that creditable
activities could be documented and costs could be measured in
conformance with industry standards.
From the time of the program's inception, the list of handler
activities for which credit could be obtained has frequently been
revised and expanded in order to meet the changing needs of the
industry. In all, over twenty-five Board recommendations have been made
and adopted by the Secretary in an effort to improve the Order's
advertising and promotion program. Some examples of these revisions are
described below.
On September 16, 1982, [47 FR 40783], the creditable advertising
and promotion program was revised in order to allow handlers to receive
credit against their creditable assessment obligations for distributing
sample packages of almonds to charitable and educational institutions
(up to 150% credit allowed depending on volume), and for purchasing
almond promotional materials from the Board (100% credit allowed). The
Board believed that these revisions would provide handlers with
additional opportunities to obtain credit for their promotion of
almonds, especially for handlers who did not market almonds under a
specific brand name. These revisions were also intended to be
advantageous to small handlers.
On April 23, 1987, [52 FR 13427], the program was revised to expand
provisions already in place concerning the crediting of certain handler
marketing promotion expenditures related to mail order promotions.
Specifically, the costs of purchasing mailing lists to conduct mail
order promotions and the costs of postage and envelopes to mail printed
promotional materials became creditable at a rate of up to $25,000 per
crop year. The revision was intended to give all handlers a new
opportunity to take advantage of crediting. In 1990, [55 FR 41826] the
creditable amount was further relaxed to allow handlers to obtain
credit for mail order promotions at a rate of up to $25,000 per crop
year or 25 percent of their creditable assessment obligations,
whichever was greater.
On October 13, 1987, [52 FR 37926], the program was revised to
increase the amount of credit that handlers could obtain for media
advertising in certain foreign markets. The revision was made because
the export market for California almonds was steadily increasing and
the need for advertising in foreign countries was increasing
accordingly. Under this revised rule, handlers became eligible to
receive a 100% credit for all qualified brand advertising media
expenditures conducted in designated foreign markets.
On February 15, 1989, [54 FR 6866], the program was again revised
to allow handlers credit against their creditable assessment
obligations for payments for in-store supermarket generic or brand
advertising using fixed position (i.e. stationary) display
advertisements, or video media. In addition, the provisions were
further expanded to allow handlers to receive a 150% credit for
payments to the Board for the Board's generic advertising and promotion
program. These changes gave handlers additional flexibility in meeting
their assessment obligations and particularly benefited small handlers
which did not have brand names and/or did not market their almonds in
retail outlets.
On October 16, 1990, [55 FR 41826], the program was further revised
to provide handlers with additional opportunities to receive credit
against their creditable assessment obligations for their own branded
or generic advertising and promotional activities by (1) allowing
credit for in-store supermarket advertisements using light emitting
diode (LED) signs (a new form of in-store supermarket advertising which
was being offered by advertising firms at that time); (2) expanding the
provisions under which handlers could receive credit for in-store
supermarket advertisements using fixed position media; (3) allowing
handlers credit for brand advertisements in all foreign countries where
California almonds were sold; and (4) increasing credit for certain
mail order promotion costs. These revisions were intended to better
reflect current industry practices as they related to advertising and
promotion.
Over the years, other revisions to the program have been adopted in
order to expand activities eligible for credit, improve program
administration and generally bring the program into line with industry
practices. These numerous revisions to the program demonstrate the
Board's, as well as the industry's, recognition of changing conditions
within the market and their willingness and ability to adapt the almond
advertising and promotional program to address these changes.
The Ninth Circuit's Review of the Former Creditable Advertising Program
The Ninth Circuit Court of Appeals recently reviewed the Almond
Marketing Order's former creditable advertising and promotion program
in Cal-Almond v. U.S. Department of Agriculture. The case was brought
by three independent almond handlers, each of which challenged the
constitutionality of the Almond Marketing Order's former creditable
advertising program on the grounds that the mandatory nature of the
program violated their First Amendment rights. The Department's
Judicial Officer upheld the validity of the Order. The handlers sought
review in the United States District Court, which affirmed the
Secretary's decision. The handlers then appealed to the Ninth Circuit
Court of Appeals.
In reviewing the District Court's decision, the Court of Appeals
held that the former advertising and promotion program imposed a burden
on almond handlers' First Amendment rights, and, therefore, it was
necessary to evaluate the nature and scope of the burden imposed on
those rights to determine whether the program was constitutional.
The Ninth Circuit evaluated the constitutionality of the former
almond advertising and promotion program under a three-pronged test:
(1) Is the governmental interest in establishing and carrying out
an advertising and promotion program substantial?
(2) Does the program directly advance that interest?
(3) Is the program no more extensive than necessary to achieve the
government's purpose?
In evaluating the almond program under this test, the Court held
that there was in fact a substantial governmental interest in
establishing a program that would stimulate the demand for almonds and
help maintain and expand markets so as to enhance returns to almond
growers. The Court went on to find, however, that there was
insufficient record evidence to establish that the former almond
advertising and promotion program was effective enough to directly
advance the government's interest in increasing almond sales, and that
the rules providing for credit against a handler's assessment
obligation for its own advertising were more extensive and cumbersome
than necessary. Thus, it held that the advertising regulations were an
unconstitutional restriction on the handlers' First Amendment rights.
It is important to note that in Cal-Almond, the Ninth Circuit did
not find inherent constitutional harm in the establishment of research
and promotion programs designed to increase sales and enhance grower
returns. In fact, the Court acknowledged the substantial governmental
interest in establishing such programs in order to maintain and expand
the markets for agricultural commodities. The Court's complaint lay
with the unique design of the former almond advertising and promotion
program, with the lack of record proof that it directly advanced the
stated interests, and with the fact that the former creditable
advertising requirements seemed more extensive than necessary to
achieve the approved goals.
The New Credit-Back Advertising and Promotion Program
An interim final rule published in the Federal Register on August
17, 1993, [57 FR 43500] represents the most recent and extensive
revision to the Order's advertising and promotion program. Due to
changes in the size and structure of the California almond industry
during the 1980's and 1990's, as well as the fact that more handlers
were beginning to sell almonds for use as ingredients in manufactured
products rather than for direct consumption, there was a general
perception within the industry that a new and innovative program needed
to be implemented which would be even more effective than the former
program in promoting the sale of California almonds.
This prompted the Board and its Public Relations and Advertising
Committee to seek to create a new and widely accepted advertising and
promotion program designed to aid the further development of the almond
industry. On April 20, 1993, by a vote of 9-1, the Board recommended
the new Credit-Back advertising and promotion program. The sole Board
member opposing the new program was generally opposed to the entire
concept of creditable advertising and promotion. This Board member
asserted that all handlers should be required to fund a generic
promotion program equally and that any brand advertising done on their
own should be carried out at their own expense without any type of
Board oversight.
The new Credit-Back advertising and promotion program recognizes
new marketing techniques which have been developed by the industry over
the years, and is intended to work with and complement a strong generic
advertising and promotion program which will be undertaken by the
Board. The premise of the new program is that individual handlers will
be most effective in promoting their own portion of the almond crop
while the Board will be the most effective vehicle through which to
enhance total demand for almonds through a generic advertising and
promotion program. Some of the significant features of the new program
are as follows.
Under the new program, as modified in this final rule, handlers
conducting their own advertising and promotional activities will
receive credit against their Credit-Back assessment up to the amount of
the Credit-Back assessment installment due if they conduct and document
their advertising and promotional activities at least two weeks prior
to assessment billings. If handlers do not conduct any advertising and
promotional activities prior to assessment billings, they will be
required to submit their advertising and promotional assessment when
billed. If handlers conduct advertising and promotional activities
after assessment billings and file appropriate documentation, they will
be eligible for a refund or Credit-Back. Handlers will be billed in
four equal installments during the crop year. Handlers are not
obligated to take part in the new program. Each handler must make an
individual decision whether or not to participate in the new program.
The new Credit-Back program substantially expands the list of
advertising and promotional activities which will be eligible for
credit under the regulations. The range of activities eligible for
credit cover virtually every sales assistance, promotional, publicity
and advertising area which a brand or individual company could use to
aid in product sales, with the exception of price reductions. In all,
there are now fourteen advertising, promotion and public relations
categories of activities which will be eligible for credit. These
include marketing research, paid media advertising directed to end-
users, trade or industrial users, in-store demonstrations, trade fairs,
seminars and exhibits, couponing, sponsorships, printing costs, trade
and consumer product publicity, direct mailings, sales and marketing
presentation kits, and 50/50 advertising with retailers. Each of these
activities are widely used and accepted forms of marketing advertising
and promotion.
Another aspect of the new program is the elimination of the 33%
discount which was formerly allowed to handlers who paid their
assessments directly to the Board by a specified date. Under the former
creditable advertising and promotion program, handlers who paid their
assessments to the Board by a specific date received a 150% credit
against the advertising and promotional portion of their assessments.
These payments were then used by the Board for generic advertising and
promotion. In effect, this allowed handlers a 33% discount on a portion
of their assessments. The purpose of the discount at the time was to
encourage smaller handlers which did not have individual advertising
and promotional programs to contribute to the Board's generic
advertising and promotion program. Many members of the industry
believed, however, that handlers who received the benefit of the
discount did not always pass it on to growers and thus achieved a
competitive advantage over handlers who engaged in individual
advertising and promotional programs.
Another feature of the new program is an appeals process whereby
handlers have the option of anonymity in the event a claim for a
promotional activity is denied. Handlers may request that the Public
Relations and Advertising Committee review Board staff decisions
concerning denied claims. If not satisfied with that committee's
decision, handlers may request that the Board review the issue.
Handlers have the option of anonymity when their appeal is brought
before the Board. Finally, handlers may request that the Department
review the Board's decisions. The Department may review all decisions
at any point during the appeals process.
The new Credit-Back program also offers handlers more flexibility
in getting credit against their assessments for their own advertising
and promotional activities compared with the former creditable
advertising and promotion program. Some examples of the ways in which
the new Credit-Back program offers handlers more flexibility are as
follows.
Under the former program, handlers were denied credit for
individual advertisements if those advertisements directed consumers to
a specific retail store. Under the new program, this type of activity
will be covered under the 14 broad categories for which credit will be
allowed. Thus, the new program eliminates previous restrictions on
handlers and will allow them greater flexibility in the promotion of
their own products.
Also, under the former program credit was denied for advertisements
which also promoted competing nuts. Under the new program,
advertisements which contain references to almonds as well as competing
nuts will be eligible for reimbursement. Any reimbursement will,
however, be limited to that percentage of the advertisement's cost
which is equal to the percentage of the advertisement which is devoted
to almonds or the percentage of the product's weight which is almonds.
The Board believes that the percentage rule is logical and fair because
the handler credit originates from assessments on almonds, not on other
products. The Board believes that to allow more credit than provided in
the percentage rule would not serve the best interests of the industry
because handlers would receive credit for promoting products which have
nothing to do with the almond industry.
Previously, handlers were not allowed credit for advertisements
which promoted complementary branded products. Under the new program,
credit will be allowed for advertisements that promote both almonds and
complementary branded products. For the reasons described above,
however, the amount of the reimbursement will be directly related to
the percentage of the advertisement which is devoted to the promotion
of almonds. This will allow the almond industry to operate under a
system which is as unrestricted as possible without sacrificing the
objectives of the Almond Marketing Order.
Finally, under the old program, credit was denied for
advertisements which promoted products which were less than 50%
almonds. Under the new program, credit will be granted for all
advertisements of products which contain almonds, regardless of the
amount of almonds which are actually in the product. Again, the amount
of the reimbursement will be directly related to the percentage of the
advertisement which is devoted to the promotion of almonds.
In recommending the new Credit-Back program, the Board concluded
that because of the fundamental changes which have occurred in the
almond industry in recent years, it has become more difficult for
individual handlers to directly reach end consumers through their own
advertising and promotion. Therefore, the importance of a collective
industry effort to generically promote the overall use of almonds has
grown. For these reasons, the Board elected to strengthen its generic
promotion program while at the same time providing increased
opportunities and incentives for handlers who wished to continue to
advertise their own brand products in order to receive Credit-Back
against their assessments.
The Board believes that the implementation of the new Credit-Back
advertising and promotion program will directly advance the industry's
collective goal of increasing almond sales and enhancing grower
returns. In addition, the new program encourages and empowers handlers
to protect their own interests by promoting their own brand of products
in order to get Credit-Back. The new program also recognizes that the
collective interests of the industry are better served if brand
advertising and promotion is combined with the generic advertising and
promotion of almonds. Both generic and brand advertising and promotion
are proven promotional tools which have fostered the growth of the
almond market over the last twenty years.
The new advertising and promotion program has been carefully
structured so that the rules which govern its efficient administration
are no more extensive than necessary to meet the desired goals of
increasing almond sales and enhancing grower returns. Virtually all
aspects of the former creditable advertising and promotion program have
been modified or eliminated so as to increase efficiency while at the
same time imposing a minimum of restrictions on handlers. The Board,
the elective body composed of industry representatives, has carefully
considered all aspects of this program and believes that its
implementation will lead to even greater strides in the development of
the almond market.
The new advertising and promotion program is intended to enable the
almond industry to have an advertising and promotion program which
better reflects its current needs. The Board believes that there is
widespread industry support for the new program. Overall, the new
Credit-Back program is expected to foster the worldwide demand for
California almonds through the provision of a more efficient and
effective program which will encompass both generic and brand
advertising and promotion.
Discussion of the Comments
As was previously stated, USDA provided two comment periods for the
new Credit-Back program. The first comment period ended on September
16, 1993. One comment was received during this period from Cal-Almond,
Inc., an independent almond handler.
The second comment period ended on March 2, 1994. During this
period, seven comments were received. Five comments were from
independent almond handlers. They were Wiggin Farms, Arbuckle, CA;
Western Nut Company, Chico, CA; Waterford Nut Company, Waterford, CA;
Rotteveel Orchards, Dixon, CA; and Cal-Almond, Inc., Hughson, CA. A
sixth comment was received from the U.S. Small Business Administration,
Washington, DC. The seventh comment was received from Mr. Rodger
Wasson, President and CEO of the Almond Board of California. All of the
comments will be discussed below. Because many of the comments by the
independent almond handlers contained similar concerns, they have been
combined where appropriate and are addressed collectively.
In its first comment submitted on September 14, 1993, Cal-Almond,
Inc., stated that the issuance of an interim final rule rather than a
proposed rule to establish the new Credit-Back program was arbitrary
and capricious. The commenter asserted that the former creditable
advertising and promotion program has been substantially altered by the
interim final rule and the burden on handlers has been drastically
increased.
It is the Department's position that the issuance of the interim
final rule met each of the requirements of the Administrative Procedure
Act (APA) which pertain to the promulgation of regulations. The Board
requested that the new regulations for the Credit-Back program be
effective for the 1993-94 crop year. The only way to accomplish this
was through the utilization of interim final rulemaking procedures, as
authorized by the APA. Also, the Department was advised by the Board
that the action was widely supported by the industry. While there was
one dissenting vote among the ten Board members who voted on the
establishment of the new program, that person was opposed to the
imposition of any advertising assessments on members of the industry.
The dissenting Board member had no specific criticisms of the new
Credit-Back program. Finally, contrary to the commenter's assertion,
the interim final rule represented a relaxation of the then-existing
regulations. Moreover, the new Credit-Back program, as modified in this
final rule, is further relaxed. The new program is carefully structured
so that the rules which govern its efficient administration are no more
extensive than necessary to meet the desired industry goals of
increasing almond sales and enhancing grower returns. The new program
substantially increases the advertising and promotional activities for
which handlers can receive credit against their assessment obligations.
At the same time, it decreases the number of reporting deadlines and
recordkeeping requirements imposed on handlers.
Cal-Almond further asserted that the Department does not have the
authority to regulate how handlers pay growers and that the new Credit-
Back program's elimination of the provision which allowed handlers to
receive a 150% credit against the promotional advertising portion of
their assessments because of concerns about grower returns was
therefore arbitrary and capricious. The commenter contended that: (1)
the Almond Marketing Order does not permit the Department to insure
that growers receive a certain amount of returns on their products, and
(2) the Order does not permit the Department to become involved in
contracts which handlers have with their growers.
Contrary to the commenter's assertions, the interim final rule
establishing the new Credit-Back program does not specify how handlers
should pay almond growers, nor does it seek to regulate the returns
which growers receive for their almonds. It is, however, the Act's
intent that marketing orders help growers and handlers to work together
to solve problems which affect their industry. Thus, industry practices
which have a potentially negative effect on growers should be
considered when making recommendations on changes to marketing order
regulations.
Cal-Almond and another independent almond handler, Western Nut
Company, also commented that the new Credit-Back program requires
handlers to make expenditures of $3 in order to get back $1, thus
placing an incredible financial burden on handlers. Cal-Almond stated
that this, in turn, will reduce handlers' initial payments to growers.
In addition, independent almond handler, John Rotteveel on behalf
of Rotteveel Orchards, indicated that he did not believe that the 50%
return for creditable activities was enough to warrant any investment
in the program. Grant Ecker on behalf of Waterford Nut Company, stated
the new Credit-Back program places a larger economic burden on small
handlers than the old program did.
Cal-Almond also objected to the new Credit-Back program's
imposition of a 50 percent Credit-Back limit for promotional activities
in foreign markets. Cal-Almond stated that this is not an expansion of
the previous rule, but is instead a restriction because the former rule
allowed 100% credit for qualified promotional activities in foreign
markets.
The former creditable advertising and promotion program allowed for
variable levels of credit for different activities, between 50 percent
and 150 percent depending on the activity. The new Credit-Back program
is designed to be more equitable because the credit allowed for all
activities is the same. The amount of credit granted for foreign
advertising expenditures is identical to the amount given for domestic
advertising.
The Department believes that having the same credit amount for each
activity provides equity for all handlers' advertising and promotional
activities. No preference is given in the new Credit-Back program for
one type of advertising and promotional activity over another.
The range of Credit-Back activities has been expanded so that
handlers will be able to receive credit for 13 additional categories of
promotion and advertising. This expansion could offset any increased
outlays which handlers must make for brand promotion and advertising
projects due to the reduced rate of credit.
The new Credit-Back program is designed to provide handlers with
more flexibility in conducting their advertising and promotional
activities. The commenters seem to be suggesting that it would be more
desirable for the new program to have an increased credit amount than
what is currently allowed.
On May 16, 1994, the Board met and discussed possible revisions
that could be made to the new Credit-Back program. It was expressed at
this meeting that the 50 percent Credit-Back amount may impose a
greater financial burden on handlers than was anticipated. The Board
unanimously recommended that the Credit-Back amount be modified from 50
percent to 66\2/3\ percent ($1.00 for every $1.50 spent). It was
determined that this amount would provide incentive for handlers to
maintain their individual advertising and promotional efforts and still
allow adequate funds for the generic portion of the new advertising and
promotion program.
The Department believes that the new Credit-Back program's expanded
activities along with an increased credit amount will provide handlers
with more incentive to maintain and more flexibility to conduct their
individual advertising and promotional efforts. Therefore, we are
modifying the new Credit-Back program in this final rule by increasing
the amount of credit allowed for approved promotional activities from
50 percent to 66\2/3\ percent.
Cal-Almond also claimed that the requirement that handlers file an
application with the Board to obtain pre-approval of creditable
activities means that handlers cannot change their advertising plan for
the entire year. Cal-Almond also objected to the requirement that
handlers submit proof of at least one approved advertising activity by
January 15 of each year. Sharon Wiggin, on behalf of Wiggin Farms, also
stated that the form filing requirements and deadlines contained in the
interim final rule are difficult to meet. The Department has determined
that these comments have merit. The purpose of the requirement that
handlers file an application with the Board to obtain pre-approval of
creditable activities under the new program was to ensure that handlers
were aware that the activity was eligible for Credit-Back prior to
expending funds for the activity. In the past, the Board occasionally
had to reject claims for activities that did not qualify after the
promotional activity had already been conducted by the handler. The
pre-approval provision was only intended to assist handlers by helping
them avoid any unnecessary outlays of funds for activities that did not
qualify for credit.
This aspect of the new program was also discussed at the recent
Board meeting. The Board unanimously recommended that the pre-approval
provision was not essential to the successful administration of the
program. As previously explained, this provision was only intended to
assist handlers. Handlers will no longer be required to obtain pre-
approval of creditable activities from the Board under the new program
as modified in this final rule. The Board will continue to assist any
handler in determining whether an advertising and promotional activity
is eligible for Credit-Back under the new program prior to the handler
expending funds for the activity.
Cal-Almond also objected to the provision which allows Credit-Back
payments only for the portion of product weight represented by almonds
or the handler's actual payment, whichever is less. The commenter
claims that this provision works against those handlers who apply for
Credit-Back for advertising of processed products that contain only a
small percentage of almonds. The new Credit-Back program is, however,
intended to allow Credit-Back only for money actually spent for
advertising California almonds, not for advertising another product. As
discussed previously, the Board believes that the percentage rule is
logical and fair because the handler's credit originates from
assessments on almonds, not on other products. Without the percentage
rule, the best interests of the entire industry would not be served
because handlers would receive credit for promoting products which have
nothing to do with the almond industry.
Cal-Almond also objected to the provision which requires a
handler's name, brand, or the words ``California almonds,'' to appear
on the product's primary face label in order for the handler to be
eligible for Credit-Back. The commenter contended that, because nearly
all almonds produced in the United States are grown in California, the
requirement that the word ``California'' be placed on the label is
unnecessary and may limit marketing opportunities for some handlers in
their negotiations with product manufacturers. The intent, however, of
the new advertising and promotion program is to promote the sale and
consumption of ``California'' almonds, not other ingredients in
products or almonds not grown in California. This provision will help
ensure that advertising generated by the new Credit-Back program is,
indeed, for almonds grown in California. In addition, the provision is
not limited to the word ``California'' being placed on the product's
primary face label in order for the handler to be eligible for Credit-
Back. Handlers can also negotiate with product manufacturers for the
appearance of the handler's name or brand on the primary face label in
order to be eligible for Credit-Back. Handlers have three alternatives
under the new program, all of which ensure the promotion of
``California'' almonds.
Cal-Almond, Thomas L. Motta, on behalf of Western Nut Company,
Grant Ecker, and Sharon Wiggin objected to handlers being required to
expend advertising and promotion funds up-front in order to be eligible
for a Credit-Back refund at a later date. Cal-Almond also stated that
handlers should not have to wait until February 15 of the crop year to
begin receiving Credit-Back refunds and that they should not have to
wait 30 days after submission of claims to receive a refund. The
Department has determined that these comments have merit. Because
payment practices have been changed under the new Credit-Back program,
the up-front payment may not provide some handlers with enough
flexibility early in the crop year to conduct their advertising and
promotional activities.
This aspect of the new program was also discussed at the recent
Board meeting. The Board unanimously recommended that handlers
conducting their own advertising and promotional activities may now
receive credit against their Credit-Back assessment up to the amount of
the Credit-Back assessment installment due if they conduct and document
their advertising and promotional activities at least two weeks prior
to assessment billings.
The Department has determined that in order to allow handlers more
flexibility early in the crop year to conduct their advertising and
promotional activities, this final rule will be modified to allow
handlers to receive credit against their Credit-Back assessment up to
the amount of the Credit-Back assessment installment due if they
conduct and document their advertising and promotional activities at
least two weeks prior to assessment billings.
Cal-Almond also objected to the appeal process for determining
whether a handler should receive Credit-Back for a particular
promotional activity. The commenter claimed that competitors of some
handlers will determine the outcome of their appeals. As previously
discussed, handlers have the option of anonymity when their appeal is
brought before the Board. In addition, the process allows for further
appeal to the Department. The Department also has the right to review
all decisions at any point during the appeal process.
During the second comment period, Cal-Almond, as well as another
independent almond handler, Rotteveel Orchards, commented that under
the new Credit-Back program there are many types of promotional and
advertising activities which handlers use to promote their products
which will be ineligible for Credit-Back. John Rotteveel, on behalf of
Rotteveel Orchards, stated the best forms of advertising for his
company--``word-of-mouth'' advertising and personal contact with
potential buyers--are not creditable activities under the new Credit-
Back program. In addition, Rotteveel indicated that he did not believe
that the 50% return for creditable activities was enough to warrant any
investment in the program.
As has already been pointed out, the range of promotional
activities eligible for reimbursement under the new Credit-Back program
have been significantly expanded. The Department has also modified the
new Credit-Back program in this final rule by increasing the amount of
credit allowed for approved promotional activities from 50 percent to
66\2/3\ percent.
Cal-Almond also objected to the Board's television advertisements
because it believes that they have a religious connotation which should
not be used to promote almonds. The advertising campaign referred to is
not intended to be offensive toward any religion, nor does it contain
any negative connotations.
Cal-Almond also objected to the portion of the provision which
requires individual handlers to determine and declare, within 15 days
after the start of the season, the extent to which they intend to use
the advertising program. According to the commenter, a handler should
not be required to report a year in advance how he/she intends to
advertise over an entire year's period.
The intent of this provision, in part, was to help the Board plan
its finances for the upcoming crop year. With this information
available, the Board could determine who was participating and who was
not participating in the new program for that year. They would know at
that time that all handlers who did not declare their intent would be
paying the entire assessment to the Board and that amount could be
earmarked for the generic advertising and promotion program.
The provision did not require handlers to give a dollar amount or
an advertising plan to the Board, but merely an anticipated percentage
of their entire advertising assessment they believed would be used
under the new program. The deadline was not intended to limit a
handler's use of the program. Handlers were not restricted to any types
of advertising or any specific amounts. However, the total Credit-Back
amount could not exceed the original percentage reported to the Board.
Although Cal-Almond's interpretation of this provision is not
accurate, the Department considered all aspects of this provision to
determine if there were other ways that the Board could obtain this
information without requiring handlers to declare their intent to
utilize the program. The new Credit-Back program is intended to provide
handlers with more flexibility to conduct their own advertising and
promotional activities.
The Department believes that the Board has other alternatives to
accomplish the objectives discussed above, such as reviewing handler
participation during past years to obtain an estimate of participation
in the new Credit-Back program for the new crop year. The Department
has determined that in order to allow handlers more flexibility to
participate in the new Credit-Back program, this provision should be
eliminated from the regulations. Accordingly, this final rule will be
revised to reflect that change.
During the second comment period, another independent handler,
Wiggin Farms, stated that a referendum should be conducted every three
years to offer growers an opportunity to vote on increasing or
decreasing advertising expenditures and for voting on continuation of
the Order.
The Department notes that the Board currently has the authority to
recommend annual changes in program expenditures. Determining the
merits of holding periodic continuance referenda is outside the scope
of this rulemaking. The referenda issue was addressed last year when
the Board and other industry groups recommended, during a formal
rulemaking hearing in Modesto, California, that periodic referenda be
held. The Department is in the process of reviewing and evaluating the
record of the formal rulemaking proceeding.
Many comments, as requested, addressed the Ninth Circuit decision.
These comments are as follows:
Cal-Almond stated that all of the rules and regulations contained
in the interim final rule deprive handlers of their First Amendment
rights and suggested that the entire creditable program be eliminated.
The commenter asserted that a determination has never been made by the
Board as to whether the Order or individual handlers are better at
promoting and advertising almonds. The commenter further stated that
there have never been any studies conducted to indicate whether the
current advertising program is effective and contended that the
Department is unable to show that the regulations are required in order
to advance the stated goal of selling more almonds and increasing
returns to producers. In addition, the commenter contended that the
regulations contained in the interim final rule are more extensive than
necessary to serve the governmental interest of increasing almond
sales.
One independent almond handler, Thomas Motta on behalf of Western
Nut, stated that if the Marketing Order's advertising program is deemed
constitutional at some future date, the Secretary should evaluate what
type of advertising program best serves the almond industry. Motta
further stated that the Ninth Circuit ruled that compelled advertising
violates a handler's First Amendment rights and that regardless of what
the Board calls it, it is still forced collection. Motta suggested that
the advertising provisions of the order be put on hold until they are
proven to be beneficial to the industry and are determined to be legal
by the appropriate Court.
Another independent almond handler, Grant Ecker on behalf of
Waterford Nut Company, stated that he agrees with the Ninth Circuit
Court ruling that the regulations hinder handler's efforts to increase
sales and returns to growers. He stated that the new Credit-Back
program places a larger economic burden on small handlers than the old
program did.
John Rotteveel, on behalf of Rotteveel Orchards, stated that the
current and former advertising programs violate his constitutional
rights. He believes that the program is a waste of money and does
nothing to increase the consumption of almonds that almond handlers
could not do themselves. Finally, Rotteveel stated that there is no way
to prove that the advertising programs have increased world demand for
almonds. He believes that growers and handlers are expanding these
markets without the help of the Order and does not think that the
increase in the number of handlers and growers in the United States can
be attributed to the Order. Rotteveel suggested phasing out the Order
and letting the almond industry run itself.
It is the Department's position that the former creditable
advertising program and the new Credit-Back program meet each of the
criteria set forth in the Ninth Circuit decision which pertain to
constitutionality. The Department believes that both programs are
authorized under the Act and that the regulations do not infringe upon
the First Amendment rights of any handler. Importantly, the Court in
Cal-Almond did not hold that all advertising and promotion programs are
unconstitutional or illegal on their face. Rather, the court recognized
the substantial government interest in promoting almond consumption in
order to stimulate the demand for almonds and enhance grower returns.
As previously discussed, the new Credit-Back advertising and
promotion program has been carefully structured so that the rules which
govern its efficient administration are no more extensive than
necessary to meet the desired goals of increasing almond sales and
enhancing grower returns. Virtually all aspects of the former
creditable advertising and promotion program have been modified or
eliminated so as to increase efficiency while at the same time imposing
a minimum of restrictions on handlers.
An additional comment in the form of an exception to another
comment was received from Cal-Almond well after the second comment
period closed. Because Cal-Almond's comment was received after the
close of the comment period, it has not been considered.
Another comment was received from the Office of Chief Counsel for
Advocacy of the United States Small Business Administration (SBA). The
SBA contended that the Secretary did not comply with the Regulatory
Flexibility Act (RFA) in issuing the interim final rule. It recommended
that the Department perform a regulatory flexibility analysis, which
would study the impact of advertising programs on small handlers and
would consider alternatives to the program. The SBA further stated that
the Secretary's assertion about small entity orientation and
compatibility did not meet the requirements of the RFA. The SBA stated
that the RFA does not provide exceptions for statutes that are not
compatible with its goals. The SBA commented further that: (1) most
small handlers sell to ``food processors'' and have no reason to
promote fresh consumption of almonds, and (2) advertising expenses
designed to increase use by ingredient manufacturers were not
creditable under the old program and are not creditable under the new
program. Finally, the SBA stated that the Credit-Back program was
promulgated with no evidence that it would advance the government's
interest, or that it is the least restrictive program needed to enhance
almond sales.
For these reasons, the SBA indicated that the Secretary should
consider alternatives to the current advertising program, including no
program at all, or, at a minimum, a program that imposes less
restrictions on handlers. The SBA also recommended that promotional
efforts targeting ingredient manufacturers should be given the same
credit as those targeting fresh consumption.
Advertisements resulting from joint participation by a handler and
manufacturers or sellers of two complementary products or commodities
were eligible for credit under the former advertising and promotion
program provided that the brand name was used.
Under the new Credit-Back program, advertising and promotion
activities to trade, industrial or end users are specifically eligible
for Credit-Back, with no requirement for a brand name. In addition, the
Board's generic program contains consumer advertising designed to
communicate the message that almonds enhance any product to which they
are added. Research has found such consumer advertising is successful
in promoting consumption of products used as ingredients. Increased
consumption of almonds benefits the entire industry.
The Department disagrees with the SBA's assertion that this action
fails to meet the requirements for the Regulatory Flexibility Act. The
SBA's concerns regarding the program's impact on small businesses have
been properly addressed in this document and the interim final rule.
Finally, a comment was received from Rodger Wasson, CEO of the
Almond Board, which supported the new Credit-Back program and supplied
documentation to substantiate the Board's position. Mr. Wasson
discussed the history of the almond industry and beneficial changes
that have taken place since the implementation of the creditable
advertising program. He stated that the program has provided a variety
of services designed to increase the demand for California almonds. In
addition, it has continually been revised to meet the needs of the
industry. Mr. Wasson stated that the Credit-Back provisions were
recommended in order to more fully address the needs of the changing
industry.
He stated there are major differences between the previous
creditable advertising program and the new Credit-Back program. Some
examples are as follows: (1) The previous program allowed handler
credit for paid media advertisements only. There were separate systems
for ``generic packs'' and ``150 percent credit''. The new Credit-Back
program adds 13 advertising, promotion and public relations categories
(only travel is excluded across-the-board); (2) The previous program
contained many reporting periods, carryovers, and recordkeeping on
different systems. Credit-Back is simplified with one system, no
carryovers, and a basic report-as-you-go reporting system; (3) The
previous program did not allow credit for almonds used as an ingredient
if the product contained less than 50 percent of almonds by weight.
Credit-Back allows credit for the weight represented by almonds as an
ingredient; (4) The previous program did not allow credit for
advertisements directing consumers to one or more named retail outlets,
other than handler-operated outlets. Credit-Back allows such
advertisements if they include mention of almonds; (5) The previous
program did not allow credit for advertisements promoting ``competing
nuts.'' Credit-Back allows credit for this activity determined by the
portion of the product represented by almonds and/or product weight,
and (6) The previous program did not allow credit for advertisements
that promote more than two complementary products. Credit-Back allows
credit up to the portion represented by almonds.
In addition, Mr. Wasson submitted materials on the benefits of
generic advertising. A summary of the materials is as follows.
Generic Advertising and Promotion Programs
Generic advertising, i.e., advertising activities which focus on
the general properties of a product such as flavor, nutritional
benefits and convenience, rather than touting specific brand names, is
a proven promotional tool which is often used to increase demand for
agricultural commodities. When used in conjunction with brand name
promotion, generic advertising has proven to be highly successful.
For these reasons, generic advertising of agricultural commodities
has grown steadily since the first commodity board was created more
than 50 years ago. In 1990, about 350 generic promotion programs were
in effect at the federal and state levels, covering more than 80
commodities at a cost of over $530 million annually.
Each of the federal programs referred to above are overseen by
USDA. The Agricultural Marketing Service (``AMS'') of the USDA
currently oversees promotional programs contained in various federal
marketing orders authorized under the Agricultural Marketing Agreement
Act of 1937 (the AMAA). These marketing orders cover fruits,
vegetables, specialty crops and milk. In addition, AMS has oversight
responsibility for numerous federal statutes which authorize research
and promotion programs for a variety of commodities, including beef,
cotton, dairy, eggs, honey, limes, mushrooms, pork, potatoes, soybeans,
milk, and watermelons.
The success of many of these advertising and promotion programs has
been well documented. For instance, an advertising campaign conducted
by the Potato Board has yielded dramatic results.
The Potato Board was founded in 1972 at a time when potato
consumption was steadily declining. Many people had poor images of
potatoes, did not know of their nutritional value and believed that
they were fattening. In the years after its formation, the Board
initiated numerous advertising campaigns designed to improve the
potato's poor reputation and increase consumer sales. As a result,
potato consumption has increased by 12% and 96% of the public is now
aware that potatoes are a high fiber, low fat food which can be
included in any healthy diet.
Efforts of the National Dairy Promotion and Research Board to
promote milk and milk products have also met with success. The Board
was founded in 1984 and since then has spent more than $75 million
annually on the promotion of dairy products. As a result, dairy product
consumption rose by 12% between 1983 and 1990.
Another example of a successful generic program is provided by the
California Prune Board. In the 1980's, prunes were not a popular fruit
and most members of the public had little knowledge of their
nutritional value, specifically, their high fiber content. In 1987, the
prune Board began a campaign to highlight the link between consumption
of high fiber foods (such as prunes, which were marketed as a good
tasting, high fiber fruit) and cancer prevention. The program included
direct mailings of product samples to physicians, publicity and media
appearances by experts about the health benefits of prunes, and
sampling programs in shopping malls and on domestic airline flights.
Combined with generic advertising and promotion, the program resulted
in a 12% increase in prune sales in 1987 alone. To date, the sales of
California prunes continue to rise.
The success of certain commodity programs has also been measured
through technical economic studies on the effects of generic
advertising on industry sales. The results are impressive.
For instance, in a recent study of the Washington apple industry
(Olan D. Forker and Ronald W. Ward, 1991) it was estimated that between
1988 and 1991, the industry received a rate of return of $6.63 for
every dollar of assessments spent on the promotion of apples. In all,
this represented a $133.76 million dollar return on a $17.5 million
investment and the market price which Washington apple growers received
for their apples between 1988 and 1991 was estimated to be 12.9% higher
than it would have been without generic advertising.
Similarly, a recent study sponsored by the Cattlemen's Beef
Promotion and Research Board (Ronald W. Ward, 1993) examined the
effects of generic advertising on the beef industry. Based on extensive
economic analysis, it was estimated that between 1987 and 1992, the
beef industry realized an average return rate of $5.80 for every dollar
spent on promotional activities. By February 1992, the total economic
return to the industry was estimated at $2.99 billion.
A study by Ronald Ward and Bruce Dixon in 1989 provides an economic
analysis of the effects of generic advertising on fluid milk
consumption. The authors of this study found that such promotion,
authorized under the National Dairy and Tobacco Adjustment Act of 1983,
``confirm[s] a statistically significant relationship between fluid
milk consumption and generic fluid milk advertising * * *'' Other
research conducted by O.D. Forker and H.M. Kaiser of Cornell University
indicates that between 1984 and 1990, dairy farmers realized a farm
level return rate of 4.6 to 1 on investments in generic advertising
authorized under the National Dairy Promotion Program.
Mr. Wasson also submitted materials on the benefits of branded
advertising. A summary of the materials is as follows.
Branded Advertising
The usefulness of branded advertising to increase the sales of a
particular product is also well documented. Within the private sector,
companies unfailingly recognize the importance of advertising and
collectively spend billions of dollars a year on advertising and
promotion activities in order to generate sales. In 1992 alone, the
nation's top 20 advertisers spent more than $500 million on
advertising. (Advertising Age, August 29, 1993).
Within the agricultural field, brand advertising is also a useful
tool which has been found to benefit not only the actual brand
advertiser, but the overall industry as well. Through brand
advertising, handlers seek to move their own products from the shelf to
the consumer. A recent study conducted by an economist at the
University of California at Davis, Department of Agricultural Economics
(Jason Christian, 1994) concluded that brand advertising has afforded
substantial benefits to all California almond growers.
In his analysis, Christian examined the market effects of brand
advertising by one large almond cooperative as well as other
independent handlers, between 1972 and 1992. Based on Christian's
analysis, it was estimated that the average rate of return to the
industry as a result of brand advertising by the cooperative was
substantial. During the 1980's the average rate of return for each
additional dollar spent on advertising expenditures was about $5.00.
Aside from the individual brand advertiser, other handlers in the
industry also benefited from the advertising because it created an
increased demand for all almonds. Between 1979 and 1990, the benefits
received by other almond handlers actually exceeded the returns
received by the brand advertiser.
Mr. Wasson also submitted materials on the effects of almond
promotion on the industry, including documentation on imports and
exports of almonds and statistical tables on the almond industry. A
summary of the materials is as follows.
Effects of Almond Promotion on the Almond Industry
Aside from the studies described above, there are numerous other
indications that the combined creditable and generic advertising
program administered by the Almond Board has been highly successful.
Statistics indicate that both the supply and demand of California
almonds have increased significantly since the inception of the Almond
Marketing Order's advertising and promotion program.
In the early 1980's the U.S. almond crop averaged about 300 million
pounds. By the early 1990's the almond crop averaged about 550 million
pounds. Almonds have thus attained a level of market growth which few
other agricultural commodities can claim.
Significantly, grower prices for almonds have remained relatively
stable throughout these years of increased production. One basic theory
of economic analysis is that prices for a product will fall if supply
increases without a corresponding increase in demand. The relative
stability of prices within the almond industry throughout the years of
increased production indicate that demand for California almonds has
increased dramatically over the years.
Another measure of the growing popularity of almonds can be
obtained through analysis of per capita consumption. USDA figures
indicate that the United States' per capita consumption of almonds is
well ahead of that of any competing nuts. In 1970-71, the average
American's per capita consumption of almonds was about .34 pounds per
person. In 1987-88, the average per capita consumption of almonds was
.58 pounds per person. By 1991-92, per capita consumption had risen to
.82 pounds per person. This represents a 40% increase in per capita
consumption between 1987 and 1992. Importantly, no tree nut was
promoted more aggressively than almonds during this period.
Additionally, the tree nut with the second largest per capita
consumption between 1987 and 1992 was walnuts, at just .54 pounds per
person.
Further evidence of the growth of the almond industry is provided
by the fact that the use of almonds as ingredients in new products
continues to increase. In 1992, almonds were most often included in all
new foods containing tree nuts or peanuts which were introduced on the
market. In all, 35% of all new products containing any type of nuts
which were introduced in 1992 contained almonds.
The Department notes that economic studies of the almond industry
also show that advertising is a good use of industry funds. In his 1985
study of the relationship between advertising, risk and domestic sales
of almonds, Dr. John Baritelle, a research agricultural economist and a
professor at the University of California-Riverside, concluded that
advertising has been a good investment for the industry.
As the basis for his study, Baritelle posed the initial question,
``What does the industry get for its advertising dollar, and what would
we get if we advertised even more?'' (Non-Technical Statement on Almond
Advertising Model and Domestic Sales, at p. 2) (July, 1985). Almond
crops for the years 1981 through 1983 were analyzed.
The study found that for the crop year 1981, when almond production
was at an all time high of 408 million pounds and the advertising
budget was 10.86 million dollars, total estimated returns on
advertising ranged from $1.21 to $4.51 for each dollar spent. This
figure included the estimated returns that advertising dollars expended
in 1981 would yield in 1982 since the study found that advertising has
an impact on per capita sales in the year of expenditure as well as in
the following year. Importantly, Baritelle found that even if the 1981
advertising budget had been increased by 25% to $13.58 million, the
industry would still have received a total return of at least $1.02 on
every dollar spent.
In 1982, when almond production returned to more normal levels and
the advertising budget was $8.85 million, total estimated returns on
advertising ranged from $1.75 to $6.26 for each dollar spent. Again,
this figure included the estimated returns that advertising dollars
expended in 1982 would yield in 1983. Additionally, Baritelle noted
that even if the 1982 budget had been increased by 75% to $15.49
million, the return to the industry would have been at least $1.04 for
every dollar spent.
Finally, the Department notes that in 1983, when almond production
was low due to poor weather conditions and the advertising budget was
$6.10 million, estimated returns ranged from $2.34 to $8.37. Again,
this figure took into account returns that were expected to be realized
in 1984.
Mr. Wasson went on to state that although investing in the
advertisement of almonds is a proven way to increase sales, it is
significant that, when compared to other commodity boards, the Almond
industry spends relatively little on promotional activities. For
instance, the Washington Apple and Almond industries have similar crop
sizes--about $1 billion--yet the Almond Board spends substantially less
on advertising than the Washington Apple Commission. The Almond Board's
promotional budget for the year 1993-94 was $5.4 million. The
Washington Apple Commissions' advertising expenses for that same period
was a little over $7.0 million.
It is also significant that the Almond Board's lengthy process of
developing and implementing generic advertising campaigns is consistent
with advertising industry norms. Testing and monitoring is performed at
various stages in the development and airing of advertisements and
follow-up research on their effectiveness is conducted.
Different concepts regarding the best method of promoting almonds
are also explored. For example, focus group concept testing was
conducted prior to the 1993-94 advertising campaign, and a concept was
chosen from four alternatives. Advertisements were then developed,
presented to a consumer audience for reaction, and adjustments and
refinements were made before a final product was developed.
After airing an advertisement, consumer awareness is measured since
this is a basic measurement of an advertisement's effectiveness.
Results of these tests recently showed that the television
advertisement approved for use by the Almond Board during the 1993-94
campaign was very successful. In addition, based on the experience
gained from the 1993-94 campaign, the Board has conducted research to
assist in developing a new program for 1994-95.
The Order and its regulations were initiated by the industry for
the benefit of the industry. Without majority industry support, the
Order, or any part of it, could have been suspended or terminated. Mr.
Wasson concluded by stating that the advertising and promotional
programs instituted by the Board have received continual majority
support since their inception.
The Department's Conclusion
The Department's experience has been that whenever a segment of any
industry is ``required'' to do certain things in order to make a
program work for all, it is not unusual to find members of the industry
who do not agree with any or all aspects of the program. There are some
who just do not want to participate in any advertising or promotion
programs. In order for a marketing order to be successful, however,
participation by everyone is very important.
With the decision of the Ninth Circuit, the Department's oversight
responsibilities of the almond marketing order were carefully analyzed
and considered. It was determined that it is in the best interest of
the majority of the almond industry that the advertising and promotion
program continue as modified herein.
Based on the above, the Administrator of the AMS has determined
that this final rule will not have a significant economic impact on a
substantial number of small entities.
The information collection requirements contained in these
regulations have been previously approved by the Office of Management
and Budget (OMB) and have been assigned OMB Control Number 0581-0071.
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 action until
30 days after publication in the Federal Register because: (1) the new
Credit-Back program, as modified herein, will be more beneficial to the
industry if it is implemented at the beginning of the 1994-95 crop year
which begins July 1, 1994; (2) this action provides handlers with
additional flexibility in the types of promotion and advertising
allowed for crediting; (3) this action relaxes requirements currently
in effect; (4) the interim final rule provided two comment periods
which were addressed in this action and modifications were made based
on the comments and other relevant information.
After consideration of the all relevant material presented, the
information and recommendations submitted by the Board, the comments
received, and other information, the Department has determined that
finalizing the interim final rule, with modifications, as published in
the Federal Register [58 FR 43500, August 17, 1993] will tend to
effectuate the declared policy of the Act.
List of Subjects in 7 CFR 981
Almonds, Marketing agreements, Nuts, Reporting and recording
requirements.
For the reasons set forth in the preamble, 7 CFR Part 981 is
amended as follows:
PART 981--ALMONDS GROWN IN CALIFORNIA
1. The authority citation for 7 CFR Part 981 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
2. Section 981.441 is revised to read as follows:
Sec. 981.441 Credit for market promotion activities, including paid
advertising.
(a) In order for a handler to receive credit for his/her own
promotional activities from his/her pro rata portion of advertising
assessment payments, pursuant to Sec. 981.41(c), the Board must
determine that such expenditures meet the applicable requirements of
this section. Credit will be granted either in the form of a payment
from the Board, or as an offset to the advertising assessment if
activities are conducted and documented to the satisfaction of the
Board at least two weeks prior to assessment billings. Credit,
hereinafter termed ``Credit-Back'', will be granted in an amount not to
exceed 66\2/3\ percent of a handler's proven expenditures for qualified
activities.
(b) The portion of the handler assessment for which credit may be
received under this section will be billed, and is due and payable, at
the same time as the portion of the handler assessment used for the
Board's administrative expenses, unless the handler(s) conduct and
document activities at least two weeks prior to assessment billings. In
the latter case, handlers' advertising assessment obligations will be
reduced according to the amount of proven activities approved by the
Board.
(c) The Board shall grant Credit-Back for qualifying activities
only to the handler who performed such activities and who filed a claim
for Credit-Back in accordance with this section.
(d) Credit-Back shall be granted only for qualified promotional
activities which are conducted and completed during the crop year for
which Credit-Back is requested.
(e) The following requirements shall apply to Credit-Back for all
promotional 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. To this end, the Board may issue
guidelines for qualifying activities from time to time as warranted.
For activities in markets other than the United States and Canada,
paragraph (e)(5) of this section shall also apply.
(2) The clear and evident purpose of each activity shall be to
promote the sale, consumption or use of California almonds, and nothing
therein shall detract from this purpose.
(3) No Credit-Back will be given for advertising placed in
publications that target the farming or grower trade. No Credit-Back
shall be given for any outdoor advertising or sponsorships in the
California almond growing counties of Butte, Colusa, Fresno, Glenn,
Kern, Madera, Merced, Sacramento, San Joaquin, Stanislaus, and Tulare
counties, except that, outdoor advertising in these counties which
specifically directs consumers to a handler-operated outlet offering
direct purchase of almonds will be eligible for Credit-Back.
(4) Credit-Back shall be granted for those qualified activities
specified below, except that Credit-Back for travel expenses will not
be allowed in any case.
(i) Paid advertising directed to end-users, trade or industrial
users. Credit-Back shall be granted for money spent on paid advertising
space or time including, but not limited to, newspapers, magazines,
radio, television, transit and outdoor media, and including the
standard agency commission costs not to exceed 15 percent of gross.
(ii) Other market promotion activities. 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 publicity;
(C) Printing costs for promotional material;
(D) Direct mail printing and distribution;
(E) Retail in-store demonstrations;
(F) Point-of-sale materials (not including packaging);
(G) Sales and marketing presentation kits;
(H) Trade fairs and exhibits;
(I) Trade seminars;
(J) 50/50 advertising with retailers;
(K) Couponing (printing, distribution and handling costs only);
(L) Purchase of Board produced promotional materials; and
(M) Sponsorships
(iii) For any qualified activity involving joint participation by a
handler and a manufacturer or seller of a complementary product(s), or
a handler selling multiple complementary products, including other
nuts, with such activity including the handler's name or brand, or the
words ``California Almonds'', the amount allowed for Credit-Back claim
shall reflect that portion of the activity represented by almonds, or
the handler's actual payment, whichever is less.
(iv) When products containing almonds are promoted, the amount
allowed for Credit-Back shall reflect that portion of the product
weight represented by almonds, or the handler's actual payment,
whichever is less. In addition, the product must display the handler's
name or brand, or the words ``California Almonds'' on the primary, face
label.
(5) Credit-Back for promotional activities in a foreign market
shall be granted at 66\2/3\ percent of a handler's unreimbursed
expenditures for qualified activities in any foreign market, if the
handler is promoting pursuant to a contract with the Foreign
Agricultural Service, USDA (FAS) and/or the California Department of
Food and Agriculture (CDFA). Such activities must also meet the
requirements of paragraphs (e) (1), (2), (3), (4), and (6) of this
section. Unless the Board is administering the foreign marketing
program, such activities shall not be eligible for Credit-Back unless
the handler certifies that he/she was not and will not be reimbursed by
either FAS or the 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 will not be eligible for Credit-
Back.
(6) A handler must file claims with the Board to obtain Credit-Back
for promotional 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 issued by the handler in payment
of these invoices; and
(D) An actual sample, picture or other physical evidence of the
activity.
(ii) Handlers may receive credit against their assessment
obligation up to the advertising amount of the assessment installment
due; Provided: That the handler submits the required documentation for
a qualified activity at least two weeks prior to the mailing of
assessment notices from the Board. In all other instances, handlers
must remit the advertising assessment to the Board when billed, and a
refund 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 on February 15, April 15, June 15,
and 30 days after submission of final claims for the crop year pursuant
to paragraph (e)(6)(iv) of this section. To receive payment on these
dates, handler claims must be submitted, with all required elements, at
least one month prior to the payment date. A handler can receive
Credit-Back for his/her allowable direct expenditures only up to the
amount of that portion of the handler's assessment designated for
marketing promotion, including paid advertising.
(iv) A statement of the Credit-Back commitments outstanding as of
the close of a crop year must be submitted in full to the Board within
15 days after close of that crop year. Final claims must be submitted
within 105 days after the close of that crop year.
(f) Appeals. If a determination is made by the Board staff that a
particular promotional activity is not eligible for Credit-Back because
it does not meet the criteria specified herein, or for any other
reason, the affected handler may request the Public Relations and
Advertising Committee to review the Board staff's decision. If the
affected handler disagrees with the decision of the Public Relations
and Advertising Committee, the handler may request that the Board
review the Committee 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/her discretion.
Dated: July 6, 1994.
Robert C. Keeney,
Deputy Director, Fruit and Vegetable Division.
[FR Doc. 94-16731 Filed 7-6-94; 4:14 pm]
BILLING CODE 3410-02-P
