Almonds Grown in California; Final Rule Revising Quality Control Provisions

SUMMARY: This final rule revises the quality control provisions

established under the Federal marketing order for California almonds.

This rule better reflects current almond processing capabilities,

marketing standards and practices. This rule is based on a

recommendation of the Almond Board of California (Board), which is

responsible for local administration of the order.

EFFECTIVE DATE: July 1, 1994.

FOR FURTHER INFORMATION CONTACT: Kathleen M. Finn, Marketing

Specialist, Marketing Order Administration Branch, Fruit and Vegetable

Division, AMS, USDA, room 2523-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,

regulating the handling of almonds grown in California. The marketing

agreement and order are authorized by the Agricultural Marketing

Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter

referred to as the Act.

The Department of Agriculture (Department) is issuing this rule in

conformance with Executive Order 12866.

This final rule has been reviewed under Executive Order 12778,

Civil Justice Reform. This rule 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 requesting a modification of the order or to be exempted

therefrom. A handler is afforded the opportunity for a hearing on the

petition. After a hearing the Secretary would rule on the petition. The

Act provides that the district court of the United States in any

district in which the handler is an inhabitant, or has his or her

principal place of business, has jurisdiction 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 producers have been defined

by the Small Business Administration (13 CFR 121.601) as those having

annual receipts of less than $500,000, and small agricultural service

firms are defined as those whose annual receipts are less than

$3,500,000. The majority of the almond producers and handlers may be

classified as small entities.

This rule revises Sec. 981.442--Subpart--Administrative Rules and

Regulations and is based on a recommendation (by a 5-4 vote) of the

Almond Board of California (Board) on May 11, 1993, and other available

information.

The processing of almonds involves various steps taken by growers

and handlers prior to shipment to market. Initially, growers take their

almonds to a huller/sheller operation where the hulls and shells are

mechanically removed. The almonds are then delivered to a handler, who

has the almonds inspected by the Federal-State Inspection Service.

Through sampling procedures, the inspector determines the percentage of

inedible almond kernels, as defined in Sec. 981.408, in each lot.

Under the quality control provisions of the marketing order,

handlers incur a disposition obligation of inedible almonds, based on

the results of this inspection. The weight of inedible kernels in

excess of 0 percent of the kernel weight determined by the inspection

service constitutes the inedible disposition obligation. In order to

meet this disposition obligation, handlers must deliver packer

pickouts, kernels rejected in blanching, pieces of kernel, meal

accumulated in manufacturing, or other material to crushers, feed

manufacturers, feeders or dealers in nut wastes on record with the

Board as accepted users.

The Board maintains a list of approved accepted users, which

includes feedlots and oil mills. Handlers must notify the Board at

least 72 hours prior to delivery to an accepted user.

The quality control provisions previously required that the almond

meat content of the inedible shipments must be at least 10 percent of

the shipment to the accepted user or it cannot be used as a credit

against the handler's disposition obligation.

Although there are no minimum grade requirements under the

marketing order, USDA standards for almonds do exist and are widely

used in the industry. The highest USDA standard allows for a tolerance

of 1\1/2\ percent inedible almonds per container, based on an outgoing

inspection.

The standards recognize that handlers may not be able to separate

100% of the inedible nuts from the end product. However, the current

quality control provisions under the marketing order require that

handlers dispose of a quantity of almonds equal to 100% of the inedible

obligation as determined by incoming inspections. When this was first

implemented, it was thought that handlers could meet the disposition

obligation by supplementing pickouts with material generated in

handlers' processing operations (slicing, dicing, etc.). However, many

handlers do not have a processing operation wherein excess almond

material is generated. In order to meet their disposition obligation,

they often purchase a mixture of almonds and foreign material such as

hulls, shells, etc., mixed with a low percentage of almond meats from a

hulling and/or shelling operation and mix it with their inedibles.

These low percentage lots are usually disposed of to feedlots, whereas

the higher meat percentage lots are usually disposed of to oil mills.

The Board contends that the intent of the quality control

provisions of the rules and regulations was not being met with these

requirements. For the above-mentioned reasons, the Board recommended,

by a 5 to 4 vote, that the base tolerance level be revised from 0

percent to 1 percent and that the minimum meat content for inedible

deliveries available for credit be revised from 10 percent to 50

percent. The Board feels that these changes will better reflect current

industry processing and marketing capabilities while maintaining the

integrity of the quality control provisions of the marketing order.

With a 1 percent tolerance, these changes are expected to enable

handlers to pick out enough inedible material to satisfy their

disposition obligations. Because the foreign material has already been

removed in the hulling and shelling operation, the inedible portion of

the shipments should most likely contain well over 50 percent meat

content. Although it is likely these lots will be primarily sold to oil

mills, those shipments with less than 50 percent meat content will also

likely continue to go to accepted users, either directly from hullers

and shellers or from handlers. However, handlers will not receive

credit against their disposition obligation on shipments with less than

50 percent meat content. Handlers will no longer have to supplement

their shipments with huller and sheller purchases because sufficient

inedibles will be picked out by the handlers. The marketing of inedible

almonds should not be affected by the changes.

The members who voted against the recommendation were concerned

that a negative perception might be projected by increasing the

tolerance to 1 percent; i.e., that the industry is relaxing its quality

requirements. The members believed that buyers may question the

industry's commitment to quality control. They also felt that it may

appear that the tolerance is being increased in order for the handlers

to have more product to sell. For the reasons previously stated, the

Board members in favor of this rule believed that the changed tolerance

and minimum meat content requirement will improve the quality control

program administered under the marketing order.

The proposed rule was published in the Federal Register (58 FR

64175), on December 6, 1993. That rule provided a 30-day comment period

which ended January 5, 1994. Two comments were received within the

prescribed time period, and one comment was received late. The late

comment cannot be considered. However, it was essentially the same as

those received on a timely basis. The comments were all from

independent almond handlers.

The commenters supported the recommended changes but objected to

the decision regarding the effective date of this rule, July 1, 1994.

The first commenter stated that he relied on the original

recommendation of the Board and planned his business operations for

this crop year as if the recommendation was in effect. He believed that

the recommendation was intended for the 1993 crop and the Board would

reconsider the issue for the 1994 crop at an appropriate time.

The second commenter stated, among other things, that he understood

that the provisions on base tolerance for inedibles were designed to

apply to conditions particular to a specific crop year. He further

stated that handlers, in the past, have made operating decisions based

on recommendations of the Board, such as reserve recommendations, even

though the rule did not become final until later in the crop year. He

believed that the intent of the Board was to have this recommendation

effective in the 1993-94 crop year. He added that the failure to

implement this recommendation in the current crop year could have

serious financial implications for several handlers who have been

operating on the assumption it would be effective for the 1993-94 crop

year. Finally, he stated that most inedible shipments are more at the

end of the crop year, thus implementing the rule in mid-year should not

cause a problem for handlers.

These commenters are correct that the Board recommended that this

rule become effective in the 1993-94 crop year, which began on July 1,

1993. However, many factors were considered in the Department's

decision to make this change effective beginning with the 1994-95 crop

year. The vote on these recommendations was a divided 5 to 4 decision.

The Department deemed it necessary to solicit comments from interested

parties prior to implementing the rule. In addition, the required

explanation and justification for the proposed changes was not received

by the Department until after the 1993-94 crop year had begun. Thus,

the Department was unable to complete this rulemaking proceeding prior

to the beginning of the 1993-94 crop year.

The Department also believes that making this change effective in

the middle of a crop year would be difficult to administer fairly. It

would be inequitable to handlers who disposed of inedible almonds

during the early part of the crop year based on the 0 percent base

tolerance because this action relaxes that tolerance to 1 percent. With

this change, an additional 1 percent of almonds becomes available for

sale on the open market. Also, dispositions made prior to the issuance

of this rule would have been disallowed if they were below the 50

percent nut meat content.

While it is true that the base tolerance for inedible dispositions

is considered annually by the Board, the information received by the

Department indicates that the recommended changes in the base tolerance

and minimum nut meat content of the lots to be disposed of in

satisfaction of inedible obligations should be treated as a package

(not individually). The increase in the base tolerance relaxes handler

requirements while the increase of the meat content tightens handler

requirements, but together the two changes are intended to better

reflect handler processing capabilities and improve the quality of

almonds made available to consumers. Accordingly, handlers should be

allowed ample time to modify their operations.

With respect to the commenter's belief that the Board's

recommendation was intended solely for the 1993-94 crop year, the

recommendation was not limited to the 1993-94 crop year, but was

presented as an overall improvement of the quality control provisions.

For the reasons stated, the Department is making no changes based

on these comments.

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.

After consideration of the Board's recommendation, the comments

received, and other relevant information, it is found that this final

rule 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 is revised to read as

follows:

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

2. Section 981.442(a)(4) is amended by changing the words ``0

percent'' to read ``1 percent''.

3. Section 981.442(a)(5) is amended by changing the words ``10

percent'' to read ``50 percent''.

Dated: March 16, 1994.

Martha B. Ransom,

Acting Deputy Director, Fruit and Vegetable Division.

[FR Doc. 94-6653 Filed 3-21-94; 8:45 am]

BILLING CODE 3410-02-P