2022-06521. Marketing Order for Walnuts Grown and Handled in California (M.O. No. 984); Hearing

AGENCY:

Agricultural Marketing Service, Department of Agriculture (USDA).

ACTION:

Notification of hearing on proposed rulemaking.

SUMMARY:

Notice is hereby given of a public hearing to receive evidence on proposed amendments to Federal Marketing Order No. 984 (Order) regulating the handling of walnuts grown in California. The California Walnut Board (Board), which locally administers the Order, recommended proposed amendments that would eliminate mandatory inspection and certification of inshelled and shelled walnuts, and of shelled walnuts for processing; create a new mechanism for determining and collecting handler assessments; add authority to charge interest for late payments; and remove volume control authority. In addition, the Agricultural Marketing Service (AMS) proposes to make changes to the Order as may be necessary to conform to any amendment that may result from the hearing.

DATES:

The hearing will be held April 19-20, 2022, from 8:00 a.m. to 5:00 p.m. Pacific Time (PT) and, if deemed necessary by the presiding administrative law judge, will continue until any other such time as determined by the judge.

ADDRESSES:

USDA will conduct the hearing remotely, without gathering in a central location, using the ZOOM audio-video conferencing system. Individuals will be able to testify before the administrative law judge for the hearing record through their own computer or any other technology that supports the ZOOM application. To participate remotely in the hearing via audio-video technology, participant's computers must have operating camera, microphone and audio functions. While not required, individuals wanting to participate as audience members may pre-register by providing their name, phone number and email address to Geronimo Quinones and Matthew Pavone of the Market Development Division, Specialty Crops Program, AMS, USDA, whose contact information is listed in the FOR FURTHER INFORMATION CONTACT section below, by 5:00 p.m. Eastern Time (ET), April 12, 2022. All pre-registered individuals will receive an invitation via email prior to the hearing. The invitation will include a link the individuals can click at the start of the hearing on April 19, 2022, and April 20, 2022. Individuals who choose not to pre-register may access the hearing on-line by cutting and pasting https://www.zoomgov.com/​j/​1609318451 into their web browser.

Cellular or land-line telephones may be used by individuals who do not have access to a computer with operating camera, microphone and audio functions. To access the on-line hearing by telephone, participants may dial either of the following Zoom generated phone numbers: [669-254-5252 or 646-828-7666 or 669-216-1590 or 551-285-1373].

Individuals who would like to testify (witnesses) may provide electronic copies of any prepared statements and supporting documents to LaShawn Williams of the Market Development Division, Specialty Crops Program, AMS, USDA, via email at [e-mail], so that they can be made public at the time of the hearing. These documents will be published to the AMS website at the following location https://www.ams.usda.gov/​rules-regulations/​moa/​984-california-walnuts.

FOR FURTHER INFORMATION CONTACT:

Geronimo Quinones, Market Development Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, Washington, DC 20250-0237; Telephone: [phone] or Andrew Hatch, Market Development Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, Washington, DC 20250-0237; Telephone: [phone], or Email: [e-mail] or [e-mail].

Small businesses may request information on this proceeding by contacting Richard E. Lower, Market Development Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, Washington, DC 20250-0237; Telephone: [phone], or Email: [e-mail].

SUPPLEMENTARY INFORMATION:

This administrative action is instituted pursuant to the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.” This action is governed by the provisions of sections 556 and 557 of title 5 of the United States Code and, therefore, is excluded from the requirements of Executive Order 12866, 13563, and 13175. The Agricultural Marketing Service (AMS) provided notice of the upcoming hearing to tribal governments through USDA's Office of Tribal Relations.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) seeks to ensure that within the statutory authority of a program, the regulatory and informational requirements are tailored to the size and nature of small businesses. Interested persons are invited to present evidence at the hearing on the possible regulatory and informational impacts of the proposals on small businesses.

The amendments proposed herein have been reviewed under Executive Order 12988, Civil Justice Reform. They are not intended to have retroactive effect.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed no later than 20 days after the date of the entry of the ruling.

The hearing is convened in accordance with the provisions of the Act and the applicable rules of practice and procedure governing the formulation and amendment of marketing agreements and orders (7 CFR part 900).

On October 28, 2021, the proposed amendments to Marketing Order No. 984 (7 CFR part 984 (hereinafter referred to as the “Order”)) were recommended to the Secretary with a request for a public hearing by the Board. The Board also requested the current moratorium on enforcement of mandatory inspection requirements be extended until the effective date of the proposed amendments summarized in this notification, if approved. After reviewing the proposals and other information submitted by the Board, USDA concludes that the proposed amendments to the Order will tend to effectuate the declared policy of the Act, and therefore decided to schedule this matter for a hearing.

The Board administers the Order, with the oversight of USDA. The Board's proposed amendments would modify quality control provisions to remove inspection and certification requirements, create a new mechanism for determining and collecting handler assessments, add authority to charge interest for late payments, and remove volume control authority. The proposals also include changes to various provisions in the “Assessment Rates” and “Administrative Requirements” subparts of the Order. As proposed, inspection and certification of outbound walnuts would no longer be required, and handler assessments would be calculated based on a proposed assessment rate recommended by the Board and applied to handlers' inbound walnuts instead of outbound walnuts.

In its request to USDA for a public hearing, the Board stated that the proposed amendments are necessary to streamline the Order and if implemented, the resulting Order will better meet current and future industry needs. The Board believes the proposed amendments would eliminate current redundancies in inspection, reduce costs and administrative burden to handlers and the Board, and provide a cost savings to growers.

The Board's request further explained that current handler quality control programs across industry have advanced since the enactment of the Order in 1948. For example, over 300,000 tons of growth of additional production in the last decade has coincided with higher consumer expectations and present-day customer specifications, and each exceed the grades and standards currently required under the Order. As such, the Board is seeking to modernize the Order by eliminating inspection and certification requirements and removing volume control provisions so that the Order focuses primarily on research and promotion.

In the Board's justification for its recommendation to remove volume control, the Board cited how this authority has not been utilized since 1987 and following the indefinite suspension of this authority on June 8, 2020 (85 FR 27107), no economic harm came to producers, handlers or consumers. The Board does not expect to use this authority in the future, and therefore proposed to permanently remove it from the Order.

In the justification for the recommendation on revising quality control regulations, the Board explains that significant investments in processing, storage, technology, and equipment have ensured better food safety programs that are able to maintain higher walnut quality and conditions that exceed the minimum grades and standards currently set forth in the Order. The Board further stated that it is common practice for industry to conduct quality inspections on inbound shipments of walnuts. Current quality regulations for grade and size under the Order require an additional inspection and certification on outbound walnuts. This resulted in two forms of inspections being conducted by handlers: One performed on inbound walnuts and a second on outbound walnuts. The Board stated that these inspections are redundant and unnecessary. Therefore, the Board proposes to remove current grade and size requirements; however, the authority to recommend regulation if needed in the future would remain in place. The inspection and certification requirements for outbound walnuts and walnuts for processing currently prescribed under the Order would also be removed under this proposal. If implemented, the Board states the proposed amendments would remove the redundancy of the outbound inspection, thus reducing costs to both handlers and producers and reducing administrative burden to the Board. Accordingly, inspection and certification requirements for imported walnuts would also be removed.

In the Board's justification for creating a new mechanism to determine assessments, the Board explained that current requirements established under the Order are based on kernelweight pound of walnuts inspected and certified. As such, the proposed elimination of mandatory inspection and certification requirements would remove the Board's ability to collect handler assessments. The proposed new mechanism would change the type of weight used in the calculation, replacing kernelweight with inshell pound. It would also establish the calculating of assessments on walnuts received rather than on walnuts shipped by handlers. If implemented, the Board states this new mechanism, which is adapted from the California Walnut Commission, would require handlers to provide inbound walnut receipts from growers to the Board. The Board has proposed an initial assessment rate of $0.0125 per inshell pound of walnuts that would go into effect with the start of the proposed new mechanism, if it were to be effectuated. The 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. If the assessment proposal is effectuated, the new assessment mechanism, the annual budget, and the assessment rate would be communicated to handlers through annual pre-season packets and bulletins.

The Board states the current Order language does not provide for the changes necessary for its alignment with current industry practices without undertaking substantive formal and informal rulemaking. As such, the Board recommended several amendments to the Order and associated administrative requirements, summarized as follows:

• Remove § 984.49 Volume regulation, reserve pool authority, and subsequent sections including provisions for volume control. This includes removing: §§ 984.23, 984.26, 984.33, 984.54, 984.56, 984.66, 984.69(b), 984.450(a) and (b), 984.451(c), 984.456, and 984.464(a), and revising: §§ 984.48 and 984.67.
• Modify § 984.50 Grade, quality, and size regulations to remove quality and size regulations and include only the Board's authority and eliminate §§ 984.51 and 984.52 inspection and certification of inshell and shelled walnuts and shelled walnuts for processing. This includes revising: §§ 984.12, 984.32, 984.64, 984.69, 984.77, 984.459(a)(3), and 984.472(b) and removing: §§ 984.450(c), 984.451(a) and (b), 984.452, and 984.464(b) and (c).
• Modifying the definition in § 984.13 “To handle” to include “receive”.

• Revise § 984.69 by changing the calculation of assessments from kernelweight to inshell pound in paragraph (a) and revising paragraph (b) to include an authority to charge for late payments and/or interest as prescribed by the Board with approval from the Secretary. Corresponding changes would be made to §§ 984.37, 984.48, 984.69, and 984.347.

• Revise § 984.347 to establish an assessment rate of $0.0125 per inshell pound of walnuts.
• Any additional conforming changes resulting from the above proposed amendments.

In its recommendation, the Board stated that the above proposed changes were discussed at several meetings where stakeholders were provided the opportunity to express their views and provide input, and have the broadest possible support from the industry. The Board discussed and recommended the proposed amendments at public meetings on August 17 and September 10, 2021. The Board then voted and approved the proposed amendments. Four of the five proposals received unanimous support, and the proposal to establish an initial assessment rate received seven votes in favor and two opposed.

In addition to the proposed amendments submitted by the Board, AMS proposes to make any such conforming changes to the Order as may be necessary to conform to any amendment that may result from the hearing, or to correct minor inconsistencies and typographical errors.

USDA will oversee this formal rulemaking proceeding. The issuance of this notification of public hearing is the first of several steps in the amendatory rulemaking process, including the issuance of a recommended decision, public comment period, Secretary's decision, grower referendum, and handler sign-up (if the prior steps prove favorable).

The public hearing process will further explain the merits of the proposed amendments. At the hearing, interested persons may provide testimony in support of or in opposition to the proposed amendments. Interested persons will be invited to testify on the possible regulatory and informational impact of the proposed amendments on small businesses.

Interested persons will also be provided the opportunity to file briefs in support of or in opposition to the proposed amendments after the hearing, as well as file exceptions to any recommended decision that may be issued. Finally, any proposed amendments must be approved in a grower referendum before they can be implemented.

USDA will hold the public hearing for the purposes of: (i) Receiving evidence about the economic and marketing conditions which relate to the proposed amendments of the Order; (ii) determining whether there is a need for the proposed amendments to the Order; (iii) determining if there are other alternatives to this program or duplicates of the proposed program; and (iv) determining whether the proposed amendments or appropriate modifications thereof will tend to effectuate the declared policy of the Act.

Testimony is invited at the hearing on all the proposals and recommendations contained in this notification, as well as any appropriate modifications or alternatives.

All persons wishing to submit written material as evidence at the hearing in advance should submit electronic copies of such material to LaShawn Williams of the Market Development Division, Specialty Crops Program, AMS, USDA, via email at [e-mail]. These documents will be published to the AMS website at the following location https://www.ams.usda.gov/​rules-regulations/​moa/​984-california-walnuts. Electronic copies of prepared testimony for presentation at the hearing and electronic copies of evidentiary exhibits and testimony prepared as an exhibit should also be made available on the day of appearance at the hearing. Any requests for preparation of USDA data for this rulemaking hearing should be made at least 10 days prior to the beginning of the hearing.

From the time the notification of hearing is issued until the issuance of a final decision in this proceeding, USDA employees involved in the decisional process are prohibited from discussing the merits of the hearing issues on an ex parte basis with any person having an interest in the proceeding. The prohibition applies to employees who are or may reasonably be expected to be involved in the decisional process of the proceeding in the following organizational units: Office of the Secretary of Agriculture; Office of the Administrator, AMS; Office of the General Counsel; and the Specialty Crops Program, AMS.

Procedural matters are not subject to the above prohibition and may be discussed at any time.

USDA may make other such changes to the Order as necessary to conform with amendments that may result from the hearing, or correct minor inconsistencies and typographical errors.

Testimony is invited on the recommended proposals to 7 CFR part 984, or appropriate alternatives or modifications to such proposals.

List of Subjects in 7 CFR Part 984

• Marketing agreements
• Nuts
• Reporting and recordkeeping requirements

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 984.12 is revised to read as follows:

§ 984.12

Substandard walnuts.

Substandard walnuts means all walnuts (whether inshell or shelled) that do not meet the minimum standard prescribed for merchantable walnuts whenever regulations are in effect pursuant to § 984.50.

3. Section 984.13 is revised to read as follows:

§ 984.13

To handle.

To handle means to receive, pack, sell, consign, transport, or ship (except as a common or contract carrier of walnuts owned by another person), or in any other way to put walnuts, inshell or shelled, into the current of commerce either within the area of production or from such area to any point outside thereof, or for a manufacturer or retailer within the area of production to purchase directly from a grower. However, sales and deliveries by a grower to handlers, hullers, or other processors within the area of production shall not, in itself, be considered as handling by a grower. The term “to handle” shall not include sales and deliveries within the area of production between handlers.

4. Section 984.21 is revised to read as follows:

§ 984.21

Handler inventory.

Handler inventory as of any date means all walnuts, inshell or shelled, wherever located, then held by a handler or for his or her account.

§§ 984.23 and 984.26

[Removed and Reserved]

5. Lift the stays on §§ 984.23 and 984.26 and remove and reserve the sections.

6. Section 984.32 is revised to read as follows:

§ 984.32

To certify.

To certify means the issuance of a certification of inspection of walnuts in accordance with regulations issued pursuant to § 984.50.

§ 984.33

[Removed and Reserved]

7. Lift the stay on § 984.33 and remove and reserve the section.

8. Amend § 984.37 by revising paragraphs (b) and (c)(4) to read as follows:

§ 984.37

Nominations.

* * * * *

(b) Nominations for handler members shall be submitted on ballots mailed by the Board to all handlers in their respective Districts. All handlers' votes shall be weighted by the weight of inshell walnuts handled by each handler during the preceding marketing year. Each handler in the production area may vote for handler member nominees and their alternates. However, no handler with less than 35% of the crop shall have more than one member and one alternate member. The person receiving the highest number of votes for each handler member position shall be the nominee for that position.

(c) * * *

(4) Nominations for handler members representing handlers that do not handle 35% or more of the crop shall be submitted on ballots mailed by the Board to those handlers. The votes of these handlers shall be weighted by the weight of inshell walnuts handled by each handler during the preceding marketing year. Each handler in the production area may vote for handler member nominees and their alternates of this paragraph (c)(4). However, no handler shall have more than one person on the Board either as member or alternate member. The person receiving the highest number of votes for a handler member position of this paragraph (c)(4) shall be the nominee for that position.

* * * * *

9. Amend § 984.48 by:

a. Revising paragraphs (a) introductory text and (a)(3);

b. Lifting the stays on paragraphs (a)(6) and (7); and

c. Removing paragraphs (a)(6) and (7) and redesignating paragraphs (a)(8) and (9) as paragraphs (a)(6) and (7), respectively.

The revisions read as follows:

§ 984.48

Marketing estimates and recommendations.

(a) Each marketing year the Board shall hold a meeting, prior to October 20, for the purpose of recommending to the Secretary a marketing policy for such year. Each year such recommendation shall be adopted by the affirmative vote of at least 60% of the Board and shall include the following:

* * * * *

(3) Its estimate of the walnuts in the production area;

* * * * *

§ 984.49

[Removed and Reserved]

10. Lift the stay on § 984.49 and remove and reserve the section.

11. Amend § 984.50 by lifting the stay on paragraph (e) and revising the section to read as follows:

§ 984.50

Grade, quality, and size regulations.

(a) The Board may recommend, subject to the approval of the Secretary, regulations that:

(1) Establish handling requirements for particular grades, sizes, or qualities, or any combination thereof, of any or all varieties or classifications of walnuts during any period;

(2) Establish different handling requirements and tolerance limits for particular grades, sizes, or qualities, or any combination thereof, for different market destinations;

(3) Establish different handling requirements for the processing of shelled walnuts and the handling thereof; and

(4) Establish inspection and certification requirements for the purposes of this paragraph (a) and paragraph (b) of this section.

(b) During any period regulations issued under this section are in effect, no handler shall handle or process walnuts into manufactured items or products unless they meet the applicable requirements under this section as evidenced by certification acceptable to the Board.

(c) Regulations issued under this section may be amended, modified, suspended, or terminated whenever it is determined:

(1) That such action is warranted upon recommendation of the Board and approval by the Secretary, or other available information; or

(2) That regulations issued under this section no longer tend to effectuate the declared policy of the Act.

§§ 984.51 and 984.52

[Removed and Reserved]

12. Remove and reserve §§ 984.51 and 984.52

§§ 984.54 and 984.56

[Removed and Reserved]

13. Lift the stays on §§ 984.54 and 984.56 and remove and reserve the sections.

14. Amend § 984.64 by:

a. Revising the first sentence; and

b. Removing “(a)” and “(b)” in the second sentence.

The revision reads as follows:

§ 984.64

Disposition of substandard walnuts.

During any period when regulations are in effect pursuant to § 984.50, substandard walnuts may be disposed of only for manufacture into oil livestock feed, or such others uses as the Board determines to be noncompetitive with existing domestic and export markets for merchantable walnuts and with proper safeguards to prevent such walnuts from thereafter entering channels of trade in such markets. * * *

§ 984.66

[Removed and Reserved]

15. Lift the stay on § 984.66 and remove and reserve the section.

§ 984.67

[Amended]

16. Amend § 984.67 by lifting the stay on paragraph (a) and removing and reserving paragraph (a).

17. Amend § 984.69 by lifting the stay on paragraph (b) and revising the section to read as follows:

§ 984.69

Assessments.

(a) Requirement for payment. Each handler shall pay the Board, on demand, his or her pro rata share of the expenses authorized by the Secretary for each marketing year. Each handler's pro rata share shall be the rate of assessment per inshell pound of walnuts fixed by the Secretary times the pounds of walnuts received by him or her for his or her own account (except as to receipt from other handlers on which assessments have been paid). At any time during or after the marketing year the Secretary may increase the assessment rate as necessary to cover authorized expenses and each handler's pro rata share shall be adjusted accordingly.

(b) Assessment rate. The rate set out in this section may be modified by the Secretary, based upon a recommendation of the Board or other available data.

(c) Late payment. If a handler does not pay assessments within the time prescribed by the Board, the assessment may be increased by a late payment charge and/or an interest rate charge at amounts prescribed by the Board with approval of the Secretary.

(d) Accounting. If at the end of a marketing year the assessments collected are in excess of expenses incurred, such excess shall be accounted for in accordance with one of the following:

(1) If such excess is not retained in a reserve, as provided in paragraph (d)(2) or (3) of this section, it shall be refunded to handlers from whom collected, and each handler's share of such excess funds shall be the amount of assessments he or she has paid in excess of his or her pro rata share of the actual expenses of the Board.

(2) Excess funds may be used temporarily by the Board to defray expenses of the subsequent marketing year provided each handler's share of such excess shall be made available to him or her by the Board within five months after the end of the year.

(3) The Board may carry over such excess into subsequent marketing years as a reserve: Provided, that funds already in reserve do not exceed approximately two years' budgeted expenses. In the event that funds exceed two marketing years' budgeted expenses, future assessments will be reduced to bring the reserves to an amount that is less than or equal to two marketing years' budgeted expenses. Such reserve funds may be used:

(i) To defray expenses, during any marketing year, prior to the time assessment income is sufficient to cover such expenses;

(ii) To cover deficits incurred during any year when assessment income is less than expenses;

(iii) To defray expenses incurred during any period when any or all provisions of this part are suspended; and

(iv) To meet any other such costs recommended by the Board and approved by the Secretary.

(e) Advanced assessments and commercial loans. To provide funds for the administration of the provisions of this part during the part of a fiscal period when neither sufficient operating reserve funds nor sufficient revenue from assessments on the current season's certifications are available, the Board may accept payment of assessments in advance or may borrow money from a commercial lending institution for such purposes.

(f) Termination. Any money collected from assessments hereunder and remaining unexpended in the possession of the Board upon termination of this part shall be distributed in such manner as the Secretary may direct.

18. Section 984.77 is revised to read as follows:

§ 984.77

Verification of reports.

For the purpose of verifying and checking reports filed by handlers or the operations of handlers, the Secretary and the Board through its duly authorized representatives shall have access to any premises where walnuts and walnut records are held. Such access shall be available at any time during reasonable business hours. Authorized representatives shall be permitted to inspect any walnuts held and any and all records of the handler with respect to matters within the purview of this part. Each handler shall maintain complete records on the receiving, holding, and disposition of both inshell and shelled walnuts. Each handler shall furnish all labor necessary to facilitate such inspections at no expense to the Board or the Secretary. Each handler shall store all walnuts held by him or her in such manner as to facilitate inspection and shall maintain adequate storage records, which will permit accurate identification of respective lots and of all such walnuts held or disposed of theretofore. The Board, with the approval of the Secretary, may establish any methods and procedures needed to verify reports.

19. Section 984.347 is revised to read as follows:

§ 984.347

Assessment rate.

An assessment rate shall be fixed at $0.125 per inshell pound of walnuts.

§ § 984.450 and 984.451

[Removed and Reserved]

20. Lift the stays on §§ 984.450(a) and (b) and 984.451(c) and remove and reserve the sections.

§ 984.452

[Removed and Reserved]

21. Remove and reserve § 984.452.

§ 984.456

[Removed and Reserved]

22. Lift the stay on § 984.456 and remove and reserve the section.

§ 984.459

[Amended]

23. Amend § 984.459 by removing and reserving paragraph (a)(3).

§ 984.464

[Removed and Reserved]

24. Lift the stay on § 984.464(a) and remove and reserve the section.

25. Amend § 984.472 by revising paragraph (b) to read as follows:

§ 984.472

Reports of merchantable walnuts, received, shipped, and committed.

* * * * *

(b) Reports of walnuts purchased directly from growers by handlers who are manufacturers or retailers shall be submitted to the Board on CWB Form No. 6, not later than the 5th day of the month following the month in which the walnuts were purchased. Such reports shall show the quantity of walnuts purchased.

* * * * *

26. Section 984.476 is revised to read as follows:

§ 984.476

Report of walnut receipts produced outside California or the United States.

Each handler who receives walnuts from outside California or the United States shall file with the Board, on CWB Form No. 7, a report of the receipt of such walnuts. The report shall be filed as follows: On or before December 5 for such walnuts received during the period September 1 to November 30; on or before March 5 for such walnuts received during the period December 1 to February 28 (February 29 in a leap year); on or before June 5 for such walnuts received during the period March 1 to May 31; and on or before September 5 for such walnuts received during the period June 1 to August 31. The report shall include the quantity of such walnuts received, the country of origin for such walnuts, and whether such walnuts are inshell or shelled.

Erin Morris,

Associate Administrator, Agricultural Marketing Service.