Almonds Grown in California; Revisions to Requirements Regarding Credit For Promotion and Advertising Activities

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 981

[Docket No. FV99-981-4 IFR]

Almonds Grown in California; Revisions to Requirements Regarding

Credit For Promotion and Advertising Activities

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: This rule revises the requirements regarding credit for

promotion and advertising activities prescribed under the

administrative rules and regulations of the California almond marketing

order (order). The order regulates the handling of almonds grown in

California and is administered locally by the Almond Board of

California (Board). The order is funded through the collection of

assessments from almond handlers. Under the terms of the order's

regulations, handlers may receive credit towards their assessment

obligation for certain expenditures for marketing promotion activities,

including paid advertising. This rule revises the requirements

regarding the activities for which handlers may receive such credit by

allowing maximum credit for promoting almond products, under certain

conditions. The changes are intended to encourage and support almond

product development and thus increase the demand for almonds. The

changes also clarify existing regulations.

DATES: This interim final rule becomes effective November 2, 1999;

comments received by January 3, 2000 will be considered prior to

issuance of a final rule.

ADDRESSES: Interested persons are invited to submit written comments

concerning this rule. Comments must be sent to the Docket Clerk, Fruit

and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456,

Washington, DC 20090-6456; Fax: (202) 720-5698 or E-mail:

[email protected]. All comments should reference the docket

number and the date and page number of this issue of the Federal

Register and will be available for public inspection in the Office of

the Docket Clerk during regular business hours.

FOR FURTHER INFORMATION CONTACT: Martin Engeler, Assistant Regional

Manager, California Marketing Field Office, Marketing Order

Administration Branch, F&V, AMS, USDA, 2202 Monterey Street, suite

102B, Fresno, California 93721; telephone: (559) 487-5901, Fax: (559)

487-5906; or George Kelhart, Technical Advisor, Marketing Order

Administration Branch, Fruit and Vegetable Programs, AMS, USDA, room

2525-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: (202)

720-2491, Fax: (202) 720-5698. Small businesses may request information

on complying with this regulation by contacting Jay Guerber, Marketing

Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA,

P.O. Box 96456, room 2525-S, Washington, DC 20090-6456; telephone (202)

720-2491, Fax: (202) 720-5698, or E-mail: Jay.G[email protected].

SUPPLEMENTARY INFORMATION: This rule is issued under Marketing Order

No. 981, as amended (7 CFR part 981), regulating the handling of

almonds grown in California, hereinafter referred to as the ``order.''

The marketing order is effective under the Agricultural Marketing

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

referred to as the ``Act.''

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

conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. This rule is not intended to have retroactive effect.

This 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 608c(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. A handler is afforded the opportunity for a hearing on the

petition. After the 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 to review the Secretary's

ruling on the petition, provided an action is filed not later than 20

days after the date of the entry of the ruling.

This rule revises the requirements regarding credit for promotion

and advertising activities prescribed under Sec. 981.441 of the

administrative rules and regulations of the order. The order is funded

through the collection of assessments from almond handlers. Under the

terms of the order's regulations, handlers may receive credit towards

their assessment obligation for certain expenditures for marketing

promotion activities, including paid advertising. This rule revises the

requirements regarding the activities for which handlers may receive

such credit by allowing maximum credit for promoting almond products,

under certain conditions. The changes also clarify existing

regulations. The changes are intended to encourage and support almond

product development and thus increase the demand for almonds. This rule

was unanimously recommended by the Board at a meeting on July 12, 1999,

with additional justification approved via facsimile vote during the

week of August 30, 1999.

The order provides authority for the Board to incur expenses for

administering the order and to collect assessments from handlers to

cover these expenses. Section 981.41(a) provides authority for the

Board to conduct marketing promotion projects, including projects

involving paid advertising. Section 981.41(c) allows the Board to

credit a handler's assessment obligation with all or a portion of his

or her direct expenditures for marketing promotion, including paid

advertising, that promotes the sale of almonds, almond products, or

their uses. Section 981.41(e) allows the Board to prescribe rules and

regulations regarding such credit for market promotion, including paid

advertising activities. Those regulations are prescribed in

Sec. 981.441.

The Department implemented several Board-recommended changes to the

regulations regarding the criteria that must be met in order for

handlers to receive credit for their promotional activities in July

1999 (64 FR 41023, July 29, 1999). However, the Department did not

implement one Board recommendation concerning credit for promoting

almond products at that time because of concerns regarding the lack of

specified criteria to be used in reviewing claims and concerns about

the claims review process. The Board and its staff reconsidered the

issue, further developed the concept, and submitted a revised

recommendation addressing the Department's concerns.

[[Page 58764]]

This rule implements the revised recommendation.

Current regulations crediting handlers' promotion of almond

products limit any such credit to the portion of the product weight

represented by almonds, or the handler's actual payment, whichever is

less. This limitation, as specified in Sec. 981.441(e)(iv), was

included because it was believed that while promoting almond products

was important, such activity might also promote and increase sales of

other ingredients in the product. Therefore, the amount of credit

handlers could receive was established at less than the maximum of

66\2/3\ percent. This maximum level is specified in Sec. 981.441(a).

The almond industry has historically been one of rapid growth.

Recent years have been no exception, as almond acreage has increased

substantially in the last decade. When coupled with increasing yields,

production is expected to achieve record levels in coming years. The

industry is faced with the prospect of selling these larger crops at a

profitable return to producers. In order to achieve this, it is

recognized that consumption and demand for almonds must be increased.

Because a substantial portion of almonds are used as ingredients, an

important method of increasing almond consumption is through increasing

the consumption of almond products.

The current regulations allowing only partial credit for promotion

of all almond products are believed to have created a disincentive for

handlers to develop, create and promote almond products. Therefore, the

Board recommended and the Department is implementing revised

regulations to allow maximum credit-back to handlers for promoting

almond products, under certain conditions.

After the effective date of this interim final rule, handlers will

be able to receive credit against their assessment obligations in an

amount not to exceed 66\2/3\ percent of their proven expenditures for

qualified activities for promotion of almond products. In order to

receive this level of credit, the product must be owned or distributed

by the handler and such ownership or distributorship must be stated on

the package. Handler ownership or distributorship is required in order

to eliminate the possible occurrence of utilizing industry funds to

promote businesses outside the almond industry.

In addition, the product must display the handler's brand, or the

words ``California Almonds'' on the primary, face label. This

requirement is intended to ensure that the clear intent is to promote

the consumption and use of California almonds, which is the basic

requirement for all promotion under the almond order.

Under the rule, maximum credit is not allowed for promotion of

mixed nut products. In the case of mixed nuts, and for other

promotional activities of almond products that do not meet the

aforementioned criteria, the amount of credit allowed continues to be

the lesser of 66\2/3\ percent of the handler's actual payment or that

portion of the product weight represented by almonds. Mixed nuts do not

qualify for the maximum credit because the thrust of eligible credit-

back promotion activities is to promote the consumption and use of

California almonds, not other nuts. Also, many almond handlers are

involved in handling and marketing other nuts, and almond funds could

possibly be used to promote other nut industries and other nuts.

Therefore, mixed nuts continue to be subject to the reduced level of

credit-back based on the portion of the product weight represented by

almonds. Accordingly, appropriate changes have been made to

Sec. 981.441(e)(4).

Finally, this rule adds specific language to the introductory text

of Sec. 981.441(e)(4) clarifying that no promotion of almonds or almond

products shall be eligible for credit-back if the promotion results in

price discounting of the handler's product. An example of price

discounting is as follows. A retail store routinely places

advertisements in a local newspaper for various products in an attempt

to attract customers. The advertisement includes a handler's almonds.

The handler makes arrangements with the retailer to pay for the

advertisement. In essence, this ``discounts'' the price of the product

to the retailer. While these types of arrangements occur, it is not the

intent of promotion under the almond order to subsidize such activities

through the credit-back program. Price discounting has not been allowed

under the program, and this rule adds specific language to the

regulations for clarity.

The Board recommended that this rule be applied retroactively to

August 1, 1999. This would allow the revised regulations to apply to

all promotional activities conducted from the beginning of the 1999-

2000 crop year forward. The crop year began August 1, 1999, and ends

July 31, 2000. Section 981.441 specifies the procedures that the Board

follows in granting credit and billing handlers. The effective date of

the rule is one day after publication in the Federal Register, and the

provisions of this revised regulation will be applied at that time.

Handler activities were conducted under program parameters in effect

prior to the effective date of this interim final rule. Therefore,

those parameters for activities conducted prior to this rule's

effective date should be followed. Accordingly, handlers promoting

products containing almonds prior to the effective date of this rule

will be eligible to receive Credit-Back based on the portion of the

product weight represented by almonds, or the handler's actual payment,

whichever is less. For activities conducted on or after the effective

date of this rule, the activities must meet the revised criteria, and

handlers will be eligible to receive Credit-Back at the maximum of

66\2/3\ percent for promoting almond products, if the percent for

promoting almond products, if the activities meet the revised criteria

in this rule. Submission of documentation should continue to be made in

accordance with the provisions of the regulations as amended by the

final rule that appeared in the July 29, 1999, Federal Register at 64

FR 41023.

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA), the Agricultural Marketing Service (AMS) has considered the

economic impact of this action on small entities. Accordingly, AMS has

prepared this initial regulatory flexibility analysis.

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 105 handlers of California almonds who are

subject to regulation under the order and approximately 6,000 almond

producers in the regulated area. Small agricultural service firms have

been defined by the Small Business Administration (13 CFR 121.601) as

those having annual receipts of less than $5,000,000, and small

agricultural producers are defined as those having annual receipts of

less than $500,000.

Based on the most current data available, about 54 percent of the

handlers ship under $5,000,000 worth of almonds and 46 percent ship

over $5,000,000 worth on an annual basis. In addition, based on

acreage, production, and grower prices reported by the National

Agricultural Statistics Service, and the total number of almond

growers, the average annual grower revenue is approximately $195,000.

In view of the foregoing, it can be

[[Page 58765]]

concluded that the majority of handlers and producers of California

almonds may be classified as small entities.

This rule revises the requirements regarding credit for promotion

and advertising activities prescribed under Sec. 981.441 of the

administrative rules and regulations of the order, and clarifies the

intent of one aspect of the existing regulations. The order is funded

through the collection of assessments from almond handlers. Under the

terms of the order's regulations, handlers may receive credit towards

their assessment obligation for certain expenditures for marketing

promotion activities, including paid advertising. This rule revises the

requirements regarding the activities for which handlers may receive

such credit by allowing maximum credit for promoting almond products,

under certain conditions. The revisions also clarify existing

regulations regarding disallowing promotional activities that result in

price discounting. The changes are intended to encourage and support

almond product development and thus increase the demand for almonds.

Current regulations concerning crediting handlers' promotion of

almond products limit any such credit to the portion of the product

weight represented by almonds, or the handler's actual payment,

whichever is less. This limitation was included because it was believed

that while promoting almond products was important, such activity may

also promote and increase sales of other ingredients in the product.

Therefore, the amount of credit handlers could receive was established

at less than the maximum of 66\2/3\ percent. It is now believed that

the potential for increasing demand for almonds by providing incentive

through allowing maximum credit alleviates the prior concerns regarding

promoting other ingredients.

Regarding the impact of this rule on affected entities, the changes

specified herein regarding credit for product development are designed

to provide incentive to almond handlers to create, develop, and promote

almond products. Almonds are widely used as ingredients in other

products, thus an important method of increasing almond consumption and

demand is through increasing sales of almond products. Handlers in the

almond industry will be rewarded for their innovation in developing

almond products, while the entire industry will benefit from the

resulting increased demand. Thus, the impact on all growers and

handlers in the almond industry is expected to be positive. This is an

additional tool for the industry to use to increase demand for their

product in the face of increasing supplies.

The changes regarding price discounting clarify that handlers can

not receive credit-back for promotional activities that result in price

discounting of product. This activity has not been allowed under the

regulations as it does not meet the intent of the program; the changes

merely clarify the existing regulations. Disallowing price discounting

results in a more efficient and effective use of industry promotion

funds.

Alternatives to the changes were considered. One alternative was to

leave the regulations as they currently exist. However, this does not

address the issue of providing incentive and encouragement to handlers

to promote almond products. Another alternative was to allow maximum

credit only for new or unique products, with the Board to determine

what products fit that description. This alternative was initially

recommended by the Board but was not implemented by the Department

because of concerns regarding the lack of specified criteria to be used

in reviewing claims, and concerns about the claims review process. A

third alternative considered was to allow maximum credit-back for all

promotions concerning almond products. However, it was determined that

certain criteria should be applied to product promotions to meet the

intent of the program, for the following reasons. To receive maximum

credit-back, the product must be owned or distributed by the handler,

to ensure that credit is not granted for promoting products or

businesses outside the almond industry. Packages must be labeled with

the handler's name or the words ``California Almonds'' to help ensure

the intent is to promote the consumption and use of California almonds,

which is the basic requirement for all promotion under the order. Mixed

nuts are subject to a reduced level of credit-back because handlers are

and can be involved in handling and marketing other nuts, and if

maximum credit were allowed, this could result in almond industry funds

being used to promote other nut industries and other nuts. Moreover,

the thrust of eligible credit-back promotion activities is to promote

the consumption of California almonds, not other nuts, and it would not

be appropriate to give mixed nut products the full 66\2/3\ credit.

This rule imposes no additional reporting or recordkeeping

requirements on either small or large almond handlers. In accordance

with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the

information collection requirements that are contained in this rule

have been previously approved by the Office of Management and Budget

(OMB) and have been assigned OMB No. 0581-0071. As with all Federal

marketing order programs, reports and forms are periodically reviewed

to reduce information requirements and duplication by industry and

public sector agencies. Finally, the Department has not identified any

relevant Federal rules that duplicate, overlap or conflict with this

rule.

Additionally, the Board meeting was widely publicized throughout

the almond industry and all interested persons were invited to attend

the meeting and participate in Board deliberations. Like all Board

meetings, the July 12, 1999, meeting was a public meeting and all

entities, both large and small, were able to express their views on

this issue. The Board itself is composed of 10 members, of which 5 are

producers and 5 are handlers.

Also, the Board has a number of appointed committees to review

certain issues and make recommendations to the Board. The Board formed

a task force in July 1998 to review its credit-back advertising

program. The task force met periodically during the following months to

review the program and consider appropriate changes. The task force

presented its recommendations to the Board's Public Relations and

Advertising Committee on November 13, 1998, and that committee

presented its recommendations to the Board on December 2, 1998, and

March 5, 1999. The Department subsequently implemented all of the

Board's recommended changes, except for those relating to almond

products. The Board again recommended the changes associated with

almond products on July 12, 1999, and its Public Relations and

Advertising Committee and staff developed further clarification and

justification for those changes which were approved by a Board

facsimile vote during the week of August 30, 1999. All of these

meetings were open to the public, and both large and small entities

were able to participate and express their views. Finally, interested

persons are invited to submit information on the regulatory and

informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable and

specialty crop marketing agreements and orders may be viewed at the

following website: http://www.ams.usda.gov/fv/moab/.html. Any questions

about the compliance guide should be sent to Jay Guerber at the

previously mentioned

[[Page 58766]]

address in the FOR FURTHER INFORMATION CONTACT section.

After consideration of all relevant matter presented, including the

information and recommendation submitted by the Board and other

available information, it is hereby found that this rule, as

hereinafter set forth, will tend to effectuate the declared policy of

the Act.

This rule invites comments on a change to the credit-back

promotional requirements prescribed under the California almond

marketing order. Any comments received will be considered prior to

finalization of this rule.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good

cause that it is impracticable, unnecessary, and contrary to the public

interest to give preliminary notice prior to putting this rule into

effect and that good cause exists for not postponing the effective date

of this rule until 30 days after publication in the Federal Register

because: (1) The almond crop year began on August 1, 1999, and this

rule should be in effect as closely as possible to that time so

handlers can avail themselves of the additional opportunities for

receiving promotional credit; (2) these changes were unanimously

recommended by the Board and interested persons had an opportunity to

provide input; (3) handlers are aware of these changes which were

recommended at a public meeting; and (4) a 60-day comment period is

provided for in this rule and any comments received will be considered

prior to finalization of this rule.

List of Subjects in 7 CFR Part 981

Almonds, Marketing agreements, Nuts, Reporting and recordkeeping

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. In Sec. 981.441, the introductory text of paragraph (e)(4) and

paragraph (e)(4)(iv) are revised and a new paragraph (e)(4)(v) is added

to read as follows:

Sec. 981.441 Credit for market promotion activities, including paid

advertising.

* * * * *

(e) * * *

(4) Credit-Back shall be granted for those qualified activities

specified below, except that Credit-Back will not be allowed in any

case for travel expenses, or for any promotional activities that result

in price discounting.

* * * * *

(iv) Except as otherwise provided in paragraph (e)(4)(v) of this

section, 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: Provided, That, except for mixed nut products, the

amount of Credit-Back for qualified promotional activities for products

containing almonds shall be granted at 66\2/3\ percent of proven

expenditures, if the product is owned or distributed by the handler and

such ownership or distributorship is stated on the package: Provided

Further, That to receive any level of credit, the product must display

the handler's name, the handler's brand, or the words ``California

Almonds'' on the primary, face label.

(v) When products containing almonds are promoted prior to November

2, 1999, 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.

* * * * *

Dated: October 25, 1999.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 99-28373 Filed 10-29-99; 8:45 am]

BILLING CODE 3410-02-P