UNITED STATES DEPARTMENT OF AGRICULTURE

AGRICULTURAL MARKETING SERVICE

════════════════════════════╦

║

7 CFR Part 981 ║ Docket No.

║ AO‑214‑A7;

Almonds Grown in California; ║ AMS‑FV‑07‑0050;

Changes to Incoming Quality ║ FV07‑981‑1

Control Requirements ║

║

#════════════════════════════╝

Hearing on Proposed Amendment

of Marketing Order No. 981

Thursday, August 2, 2007

Day 1 of 1

BEFORE:

MARC R. HILLSON

Chief Administrative Law Judge

U.S. Department of Agriculture

Office of Administrative Law Judges

1400 Independence Ave SW

South Building 1049

Washington, D.C. 20250‑9202

\(202\) 720‑6383, telephone

\(202\) 690‑0790, fax

Held at: The Stanislaus County Farm Bureau

1201 L Street

Modesto, California

From the USDA on behalf of the AMS:

Heather M. Pichelman, Attorney

U.S. Department of Agriculture

Office of the General Counsel

Marketing Division

1400 Independence Ave, SW

Room 2325A South Building

Washington, D.C. 20250

\(202\) 720‑4977, telephone

\(202\) 690‑4299, fax

Martin Engeler, Marketing Specialist

Laurel May, Marketing Specialist

Maureen T. Pello, Assistant Regional Manager

Suzanne Dash, Economist

U.S. Department of Agriculture

Marketing Field Office

Agricultural Marketing Service

2202 Monterey Street, Suit 102B

Fresno, California 93721

\(559\) 487‑5901, telephone

\(559\) 487‑5906, fax

Donald L. Hinman, Ph.D., Senior Agricultural

Economist

U.S. Department of Agriculture

Agricultural Marketing Service

Fruit and Vegetable Programs

Economic Analysis and Program Planning Branch

1400 Independence Ave, SW, Room 2545

Stop 0241

Washington, D.C. 20250‑0241

\(202\) 690‑0265, telephone

\(202\) 720‑3927, fax

For the Almond Board of California:

Frank Martin, Jr., Attorney

U.S. Department of Agriculture

Office of the General Counsel

Marketing Division

14th and Independence Ave, SW

Room 2014, South Building

Washington, D.C. 20250

\(202\) 720‑9242, telephone

Richard Waycott, President and CEO

Julie Adams, Senior Director for Industry

Relations, Global, Technical, and Regulatory

Affairs

Almond Board of California

1150 Ninth Street, Suite 1500

Modesto, California 95354

\(209\) 549‑8262, telephone

\(209\) 549‑8267, fax

For Blue Diamond Growers:

Julian B. Heron, Counselor at Law

Tuttle Taylor & Heron

1015 Fifteenth Street, NW, Suite 1200

Washington, D.C. 2005

\(202\) 289‑3388, telephone

\(202\) 289‑3399, fax

I‑N‑D‑E‑X

Witnesses: Direct Cross

Donald Hinman: 14

Julie Adams: 28 68

Stuart McAllister: 90 99

Dean Nelson: 109 124

Richard Waycott: 131 132

Doug Wells: 136 145

Joseph MacIlvaine: 157 170

Wendy Larson: 176 189

Mel Machado: 200 209

William E. Hoskins: 212 224

Rex Lake: 232 244

Glen Anderson: 250 255

Exhibits Marked

Received

Hearing Exhibit 1: 9 12

Hearing Exhibit 2: 11 12

Hearing Exhibits 3, 4: 11 12

Hearing Exhibit 5: 12 12

Hearing Exhibit 6: 17 26

Hearing Exhibit 7: 29 67

Hearing Exhibit 8: 32 67

Hearing Exhibit 9: 34 67

Hearing Exhibit 10: 35 67

Hearing Exhibits 11, 12: 37 67

Hearing Exhibits 13, 14: 38 67

Hearing Exhibit 15: 40 67

Hearing Exhibit 16: 41 67

Hearing Exhibit 17: 42 67

Hearing Exhibit 18: 53 67

Hearing Exhibit 19: 90 98

Hearing Exhibit 20: 109 122

Hearing Exhibit 21: 135 144

Hearing Exhibit 22: 156 165

Hearing Exhibit 23: 175 186

P‑R‑O‑C‑E‑E‑D‑I‑N‑G‑S

(9:00 a.m.)

JUDGE HILLSON: Good morning. It

is nine o\'clock on August 2nd, 2007. We\'re in

Modesto, California for a Hearing on almonds

Grown in California. My name is Marc Hillson.

I\'m the Administrative Law Judge presiding

over the hearing.

The case is Docket Number AO‑214‑

A7; AMS‑FV‑07‑0050; FV07‑981‑1. And this is

a public hearing. Anyone is invited to

testify on the two proposals that we have

before us, plus the AMS proposal considering

the changes to be made. Anyone, as well, can

cross‑examine.

Just a word about my role. I\'m

just here to make sure that the hearing

proceeds in an orderly fashion, to mark the

exhibits, to certify the record. I\'m not the

decisionmaker in this case. That\'s

technically the Secretary of Agriculture.

According to the list I have we\'re

going to have one witness from AMS, followed

by six witnesses on behalf of the Board,

followed by three witnesses on behalf of Blue

Diamond. If there\'s anyone else who wants to

testify at the hearing, you can let me know

during the break. I intend to take a morning

break, a lunch break, an afternoon break.

We\'re supposed to be out of this

building by five o\'clock. So if we don\'t

finish today, we have the room continued

tomorrow. I\'m told that we\'re probably going

to finish today, but I don\'t know that.

I need to just note for the ‑‑ I

need to have everyone who\'s going to appear at

this proceeding introduce themselves for the

record ‑‑ anyone who is here in a

representational capacity. I\'ll start with

Ms. Pichelman.

MS. PICHELMAN: Good morning. My

name is Heather Pichelman. I am with the U.S.

Department of Agriculture, Office of the

General Counsel, and I\'m representing the

Secretary.

MR. ENGELER: Yes. I\'m Martin

Engeler. I\'m also with the USDA and

Agricultural Marketing Service.

MS. MAY: I\'m Laurel May. I\'m a

Marketing Specialist with the Ag Marketing

Service also.

MS. PELLO: Good morning. I\'m

Maureen Pello. I\'m also with USDA,

Agricultural Marketing Service in Fresno,

California.

DR. HINMAN: Good morning. I\'m

Donald Hinman. I\'m an Economist with the USDA

Agricultural Marketing Service based in

Washington, D.C.

MS. DASH: Suzanne Dash, USDA AMS.

I\'m also an Economist.

MR. HERON: Good morning, Your

Honor. My name is Julian Heron. I\'m here

representing Blue Diamond Growers of

Sacramento.

MR. MARTIN: Good morning, Your

Honor. My name is Frank Martin. I\'m an

Attorney with the Office of the General

Counsel, United States Department of

Agriculture, and I\'m representing the Almond

Board of California.

MS. ADAMS: Good morning, Your

Honor. My name is Julie Adams. I\'m with the

Almond Board of California.

MR. WAYCOTT: Good morning. I\'m

Richard Waycott, President and CEO of the

Almond Board of California.

JUDGE HILLSON: Thank you. Anyone

else here in a representational capacity?

(No audible response.)

JUDGE HILLSON: Okay. And the

witness chair is to my right and that\'s where

when you\'re called as a witness that\'s where

you\'ll come up to testify.

All testimony is sworn. I\'ll be

swearing people in. There will be direct

examination under the direction of the

respective counsel and then the other counsel

and any other participant is free to cross‑

examine as long as it\'s within reasonable

bounds, basically.

Normally at the start of these

hearings there are certain procedural exhibits

that are introduced into evidence. And I\'m

going to turn it over to you, Ms. Pichelman,

so you can tell me what documents they are and

I\'ll get them marked.

MS. PICHELMAN: Yes. We have some

preliminary exhibits here. The first is the

Federal Register Notice of this hearing. It\'s

Volume 72, Number 129, dated Friday, July 6th,

2007\. It\'s on pages 36900 through 36901.

JUDGE HILLSON: Okay. I\'m going

to mark that as Exhibit 1.

(Hearing Exhibit 1

marked for

identification.)

MS. PICHELMAN: Your Honor, at

this time I did want to mention something

regarding this notice. It looks like there

was a minor spacing issue. If you turn to the

second page, page 36901, Proposal Number 2,

looking at the proposed language that the

Board was submitting, if you look at that, the

last line of that ‑‑ well, the whole thing

reads, \"The Board may, want approval of the

Secretary, recommend different outgoing

quality requirements for different markets,\"

and that is where the proposed language ends.

However, a proposal submitted by

USDA is also on that line. I wanted to

clarify that that is not part of the proposed

language submitted by the Board.

JUDGE HILLSON: Okay. The

clarification is noted. I\'m just going to put

a \"1\" here for Exhibit 1.

What\'s your next exhibit?

MS. PICHELMAN: The second one is

the press release regarding this hearing,

entitled \"HEARING SET FOR PROPOSED AMENDMENTS

TO CALIFORNIA ALMOND MARKETING ORDER,\" dated

July 5th, 2007.

JUDGE HILLSON: That\'s a one‑page

document?

MS. PICHELMAN: That is correct.

JUDGE HILLSON: Okay. I\'ll mark

that as Exhibit 2.

(Hearing Exhibit 2

marked for

identification.)

MS. PICHELMAN: The third item is

\"CERTIFICATE OF OFFICIALS NOTIFIED.\" It is

dated July 2007. It is signed by Kathleen M.

Finn. And this is essentially citing that the

Governor of the State of California and the

Secretary of the California Department of Food

and Agriculture has been notified regarding

this hearing.

JUDGE HILLSON: Okay. I\'ll mark

that as Exhibit 3.

(Hearing Exhibit 3

marked for

identification.)

MS. PICHELMAN: Next is the

\"CERTIFICATE OF MAILING.\" It is dated July

13th, 2007, signed by Maureen T. Pello, and it

essentially indicates that interested persons

have been also notified regarding today\'s

hearing.

JUDGE HILLSON: Okay. That\'s

marked as Exhibit 4.

(Hearing Exhibit 4

marked for

identification.)

MS. PICHELMAN: And, finally, we

have the \"Certificate re\[garding\] MAKING NEWS

RELEASE AVAILABLE TO LOCAL NEWSPAPERS,

TELEVISION, AND RADIO STATIONS.\" This is

dated July 5th, 2007, signed by Jimmie Turner,

stating again essentially what it says in the

beginning, letting the news media know about

this hearing today.

JUDGE HILLSON: Okay. And I\'ve

marked that as Exhibit 5. And I will receive

Exhibits 1 through 5 into evidence.

(Hearing Exhibit 5

marked for

identification. USDA

Exhibits 1 through 5

received in evidence.)

MR. MARTIN: Excuse me, Your

Honor. We weren\'t provided with copies of

Exhibits 4 and 5.

Will someone provide those copies

for us?

MS. MAY: (Distributes copies to

Mr. Martin.)

JUDGE HILLSON: I\'m presuming you

don\'t have any objection to them, Mr. Martin?

MR. MARTIN: No, Your Honor.

JUDGE HILLSON: Okay. They are

received into evidence, Exhibits 1 through 5

are in evidence.

And unless there is any other

preliminary matters, Ms. Pichelman, you may

call your witness.

MS. PICHELMAN: Your Honor, I

would like to call Dr. Donald Hinman, please.

JUDGE HILLSON: Please raise your

right hand, sir.

Whereupon,

DONALD L. HINMAN,

called as a witness by the USDA, having been

duly sworn by the Administrative Law Judge,

testified as follows:

THE WITNESS: I do.

JUDGE HILLSON: Okay. Can you

please state your name and spell it for the

record?

THE WITNESS: My name is Donald

Hinman, D‑o‑n‑a‑l‑d H‑i‑n‑m‑a‑n.

JUDGE HILLSON: Okay. He\'s your

witness, Ms. Pichelman.

DIRECT EXAMINATION

BY MS. PICHELMAN:

Q Good morning, Dr. Hinman.

A Good morning.

Q Could you please tell us a little

bit about your educational background since

high school?

A Yes. I have a bachelor\'s degree

in political science and economics from

Colorado College and a master\'s and Ph.D.

degrees in agricultural economics from

Michigan State University.

Q And what date did you get your

Ph.D.?

A 1994.

Q Could you tell us your current job

title?

A Yes. I\'m Senior Economist in the

Economic Analysis and Program Planning Branch,

Fruit and Vegetable Programs, Agricultural

Marketing Service, USDA.

Q And how long have you held that

position?

A Six years.

Q Prior to working at the USDA,

where did you work?

A I was an economics instructor at

the University of Wisconsin in Superior,

Wisconsin.

Q Could you briefly describe your

current job duties at USDA?

A Yes. The job has two main parts.

About half of my time is devoted to assessing

economic impacts of marketing orders in

procedures such as these and other work

similar to work going on in Washington, D.C.

And the second half of the work

relates to tracking market trends for fruit

and vegetable and nuts for potential purchases

school lunch and other feeding programs.

Q As part of those job duties did

you prepare anything for today\'s hearing?

A Yes. I prepared an Almond

Statistical Summary.

Q Could you please read the title?

A The title is: \"Almond Statistical

Summary.\"

MS. PICHELMAN: Your Honor, if I

may, I would like to have this marked as

Exhibit Number 6.

JUDGE HILLSON: Okay. It is so

marked.

(Hearing Exhibit 6

marked for

identification.)

BY MS. PICHELMAN:

Q Dr. Hinman, if you would like to

maybe go through this and explain exactly

what\'s included in this exhibit.

A Yes. The exhibit, as I\'m showing

the audience here, it consists of three

tables. And I will give the title and briefly

describe the contents of each table.

I prepared them as an overview of

the almond market to serve as a reference

document for the hearing. It will be made

available to those at the hearing. And it

consists of three tables over six double‑sided

pages. And the sources of these documents

are, the data from which it was compiled is

the National Agricultural Statistic Service,

the Foreign Agricultural Service, and the

Economic Research Service, all of the USDA.

The first table is entitled

\"Almonds: Acreage, Yield, Production, Season‑

average Grower Price, Value, Consumption, and

Imports, 1980/81 Season to Date.\"

In the first several columns it

displays the number of Bearing Acres, Yields,

and Production. And production is expressed

on a Shelled Basis, also known as kernel

weight.

The next several columns show the

season‑average Grower Price, the Value of the

Crop, and the computation of the Value per

Bearing Acre.

The following column shows U.S.

Per Capita Consumption, and the final column

of Table 1 shows Imports, which is a very

small part of U.S. total domestic consumption.

Q Dr. Hinman, I know you started

with the 1980/81 season. And why did you do

that?

A That was a sufficiently long time

to show the trends of the almond market.

Q And in some of your ‑‑ the

2006/2007 season and then 2007/2008 column

\[sic\], I see that you have areas that are

\"n/a,\" not available?

A Yeah. Because those figures are

not available until there is more complete

data compiled, you know, which will be six

weeks to two months after the completion of

the season. So that data is not available as

yet.

Q If you wanted to, go to Table 2

then.

A Actually I wanted to make one more

comment on that, just deferring that.

Noted in this table is the steady

rise in Acreage and Production. And the last

row of that table does show the recently

reforecast figure for the 2007/08 season,

which began on August 1st, and the ‑‑ it is

excepted to be 1.33 billion, and that would be

the fifth year with a crop size over 1 billion

pounds. And, according to the estimate, it is

likely to be a second record crop in a row.

Turning to Table 2, this presents

export quantities and values from the \'80/81

season through 2005/06, the last season for

which complete data is available for the full

marketing year, which runs from August to

July.

Inshell and Shelled Almonds are

presented separately and are summed in the

column labeled, \"All Almonds,\" which is

presented on a shelled‑equivalent basis.

Exports in recent years, not shown

in this table, but have generally been running

in the area of 70 percent of total production.

The total in this table is that

the portion of exports represented by inshell

almonds has risen, as shown by the changes in

percentages. The proportion of the crop sold

on a shelled basis ‑‑ sold shelled, rather,

has declined from 99 percent in \'80/81 to

between 81 and 87 percent in recent years.

The proportion of the count value

represented by inshell almonds in recent years

has been between 83 and 86 percent of exports.

Q Again, Dr. Hinman, you started

with the 1980/81 season, was that for the same

reason?

A The same reason, for a long time

period to show the trends.

Q And on this table there is no

forecasting, as you had done in Table 1, and

was there a reason that you did not do that,

according to this?

A The only forecast available at

this time is the recently‑released forecast

from the National Agricultural Statistic

Service, which includes acreage, yields, and

production only.

Q Footnote 2 has a \"Conversion

factor of 0.6, inshell to shelled equivalent.\"

Could you just give a brief explanation as to

what that is?

A That\'s a standard factor used by

the USDA and the industry to show what is the

weight of the kernel within the shell, the

shelled almond ‑‑ or the inshell. Yeah, still

in the shell.

Q And then your source for this

Table 2 then is at the bottom?

A Foreign Agricultural Service,

USDA.

Table 3 is entitled: \"Almonds:

Export Quantities and Area/Countries of

Destination, 2001/02 to 2005/06 Seasons.\" And

this table provides more in exports for the

last five years, for which we have complete

data.

And a comment about how this table

was organized: It is ‑‑ it shows U.S. almond

exports for each region of the world,

displayed from the largest quantity to the

smallest quantity in order of magnitude.

And the largest almond export

destination evident from this table is Europe.

And then the other regions are presented in a

declining order of magnitude.

And then within each region the

individual countries that are destinations for

U.S. almonds are also arrayed from largest to

smallest.

The importance of Europe as an

export destination is apparent from this

table. Export quantities have exceeded 400

million pounds for the last three seasons

shown on the table, through 2005/06. Spain

imported over 100 million pounds of U.S.

almonds per season. And three other European

countries received over 40 million pounds:

Germany, Italy, and the Netherlands.

Other countries with at least 40

million pounds of U.S. almonds includes Japan,

India, and Canada.

And, again, let me state that all

three tables are provided as reference

material for the hearing.

And that concludes my statement,

Your Honor.

Q Dr. Hinman, I noticed that you

started in Table 3 with 2001/2002. Was that

a calendar year or is that a season?

A This is the marketing season,

August to July.

Q Marketing. And why did you begin

with that year?

A Again, because I wanted to show

the more detail by country but in a short

timeframe so it all could be readable in this

format.

Q And the sources of this table you

have again at the end of the table?

A Foreign Agricultural Service,

USDA. And I should mention that the source of

that is it\'s originally compiled by the ‑‑ by

Customs at ports and is transmitted to the

Census Bureau. And then the USDA Foreign Ag

Service compiles it from that source and makes

it available for analyses such as these.

Q Thank you. Dr. Hinman, did you

prepare each of these tables in Exhibit 6?

A Yes, based on the sources that I

mentioned.

Q Have you had a chance then to

review the enter exhibit?

A I have.

Q And do you believe that the

information in Exhibit 6 is accurate to the

best of your knowledge?

A Yes, and according to the sources,

the official U.S. sources from which they

come.

Q And, finally, do you support or

oppose any of the proposed amendments being

presented at the hearing today?

A I have no position on any of the

amendments, proposed amendments.

MS. PICHELMAN: Thank you.

Your Honor, I\'d like to move for

the admission of Exhibit 6.

JUDGE HILLSON: Any objection to

Exhibit 6 being received?

MR. MARTIN: No, Your Honor.

MR. HERON: No, Your Honor.

JUDGE HILLSON: Okay. Exhibit 6

is received in evidence.

(Hearing Exhibit 6

received in evidence.)

JUDGE HILLSON: And are you all

done with his direct examination?

MS. PICHELMAN: I have no further

questions. Thank you.

JUDGE HILLSON: Mr. Martin, do you

have any questions of Dr. Hinman?

MR. MARTIN: I have no questions,

Your Honor.

JUDGE HILLSON: And how about you,

Mr. Heron?

MR. HERON: No questions.

JUDGE HILLSON: Anyone else have

any questions of this witness?

Thank you, sir. You may step

down.

(Witness excused.)

JUDGE HILLSON: Mr. Martin, you

may call your first witness.

MR. MARTIN: Thank you, Your

Honor.

The Almond Board, the proponents

of the two proposed amendments, would like to

call Mrs. Julie Adams as a witness.

JUDGE HILLSON: Please raise your

right hand.

Whereupon,

JULIE ADAMS,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: I do.

JUDGE HILLSON: Okay. Can you

please state and spell your name for the

record?

THE WITNESS: My name is Julie

Adams. Last name is A‑d‑a‑m‑s.

JUDGE HILLSON: Okay. Your

witness, Mr. Martin.

MR. MARTIN: Thank you, Your

Honor.

DIRECT EXAMINATION

BY MR. MARTIN:

Q Good morning, Mrs. Adams.

A Good morning.

Q Mrs. Adams, would you just state

your occupation, please?

A My position is Senior Director for

Industry Relations, Global, Technical, and

Regulatory Affairs at the Almond Board of

California.

Q Now, Ms. Adams, have you prepared

written testimony in support of the two

amendments?

A Yes, I have, and I would like that

entered as an exhibit for the record.

MR. MARTIN: Well, Your Honor, I

believe you\'re just marking them as exhibits

at this point; is that correct?

JUDGE HILLSON: Yes, I am.

MR. MARTIN: Yes. Well, could we

mark her written statement?

JUDGE HILLSON: Her written

statement, I\'m marking as Exhibit 7.

(Hearing Exhibit 7

marked for

identification.)

JUDGE HILLSON: Do you want her to

read her statement at this time?

MR. MARTIN: Yes, Your Honor.

BY MR. MARTIN:

Q Ms. Adams, would you proceed to

read your statement into the record?

A Yes. Thank you.

I\'ve been with the Almond Board

now for seven years and am responsible for

monitoring market access and technical issues

which could impact on the trade of almonds.

I\'ve also been one of the Almond Board staff

members providing support to the Food Quality

and Safety Committee, which has been

responsible for the oversight of Marketing

Order compliance, research, food safety, and

grower education programs.

The almond industry has

experienced significant changes over the past

ten years, and has proactively addressed the

challenges posed by food safety concerns and

record crop production. There the voluntary

efforts of a motivated industry and the

dedication of an experienced staff, the Board

is poised to set new growth and demand records

for its growers and stakeholders.

Before speaking in support of the

two proposed amendments, I would like to

provide an overview of the Almond Board and

the almond industry. This is critical to

understanding the industry\'s motivation for

supporting the two general amendments to the

Market Order, which have been unanimously

recommended by an ABC Committee and the Board

of Directors.

The Board was established in 1950

and is responsible for administering the

Almond Marketing Order contained in 7 CFR Part

981\. The Board works with USDA in

establishing Marketing Order regulations which

include the compilation of statistics,

outgoing quality standards,

marketing/promotions, and research efforts to

support almond growers and handlers.

The Board has a committee

structure which includes participation by

growers and handlers, both large and small,

conventional and organic. All committee

meetings are notified in advance, are open to

the public, and are posted on the Board\'s

website.

The ABC\'s ten‑member Board of

Directors is comprised of five growers and

five handlers. They review and approve

committee actions, forwarding approved

recommendations onto USDA.

Now during my testimony I will be

referring to several exhibits. For many of

these the source of the data is the ABC\'s

Almond Almanac. The most recent edition is

2006\.

MR. MARTIN: Your Honor, at this

time I would like to have the Almond Board of

California Almond Almanac marked as Exhibit 8.

JUDGE HILLSON: Okay. I so mark

it.

(Hearing Exhibit 8

marked for

identification.)

MR. MARTIN: Thank you, Ms. Adams.

Your Honor, may the witness

proceed?

JUDGE HILLSON: She may.

THE WITNESS: The Almanac is

considered the definitive resource for the

almond industry and is published annually in

December by the Almond Board. Statistical

information included in the Almanac is based

on the monthly production and shipment data

which handlers are required under the Order to

report to the Board.

The Almanac also contains

statistics generated by the National

Agricultural Statistic Service and USDA,

including the value of the crop and competitor

almond production. The Almanac provides

historical data on production trends, domestic

and export shipments, and acreage. It also

contains information on the composition of the

industry; strategic priorities agreed by the

Board of Directors; committee activities; and

pertinent food safety, quality, research, and

consumer issues which impact on the sale of

almonds.

There are approximately 6,000

almond growers in California. Based on data

for the most recently completed year, USDA

reported in the Federal Register, and I do

have a citation in my written testimony, ‑‑

MR. MARTIN: Excuse me, Your

Honor. At this time I would like for the

Federal Register Notice, which Ms. Adams just

referred to, to be taken official notice of

and, for the convenience of the parties, to be

marked as Exhibit 9 to be included in the

record.

JUDGE HILLSON: Okay. I am going

to ‑‑ this is the March 30th, 2007 Federal

Register Notice, and I am marking it as

Exhibit 9 and I will take official notice of

it ‑‑ or the Secretary will take official

notice when the time comes, I\'m sure.

(Hearing Exhibit 9

marked for

identification.)

MR. MARTIN: Thank you, Your

Honor.

May the witness proceed?

JUDGE HILLSON: Go ahead.

THE WITNESS: In that Federal

Register Notice it states that a majority of

almond producers may be classified as small

entities as defined by the Small Business

Administration. The growers in California

produce approximately 80 percent of the

worldwide production of almonds. And

California is the only state in the U.S. where

almonds are under commercial production.

The exhibit titled \"2006 World

Almond Production\" provides a graphic

depiction of world almond supply trends over

the past ten years.

JUDGE HILLSON: And I\'ll mark that

as Exhibit 10, to save Mr. Martin the trouble

of asking for that.

(Hearing Exhibit 10

marked for

identification.)

MR. MARTIN: Thank you, Your

Honor.

THE WITNESS: The information is

based on data provided by the USDA\'s Foreign

Agricultural Service as reported by their

International Agricultural Offices. And these

reports can be found on the FAS website, and

I have included that citation in my testimony.

MR. MARTIN: And, Your Honor, I

would like at this time to ask that you take

official notice of that website and citation.

JUDGE HILLSON: Okay, but you know

I\'m not one who\'s going to be ‑‑ I could take

official notice of it, but it\'s up to the

Secretary or his designees to actually take a

look at these documents. Do you have ‑‑ is

there a particular cite you\'re talking about

here?

MR. MARTIN: Yes, Your Honor.

It\'s actually ‑‑

JUDGE HILLSON: The one that\'s

cited in the ‑‑

MR. MARTIN: ‑‑ on page 4. It\'s

cited in her testimony.

JUDGE HILLSON: Okay. Well, I\'ll

take official notice of it and I\'m sure that

the Secretary will as well.

MR. MARTIN: Thank you, Your

Honor.

JUDGE HILLSON: Go ahead.

THE WITNESS: Over the past five

years, California\'s share has ranged from 77

to 85 percent of worldwide production.

Almond plantings in California

have steadily increased over the past 25

years. Acreage has reached 615,000 bearing

acres, based on estimates by the NASS in their

\"2006 California Almond Acreage Report,\" which

was released on May 1st, 2007.

MR. MARTIN: Your Honor, at this

time I ask that the report be marked as

Exhibit 11.

JUDGE HILLSON: Okay. Done. And

I\'ll save the trouble on the \"\...Bearing

Acreage,\" I\'m going to mark that as 12 in

advance of her mentioning it.

(Hearing Exhibits 11 and

12 marked for

identification.)

THE WITNESS: The increasing trend

has been graphically depicted in the Exhibit

titled, \"California Bearing Acreage.\" This

shows the NASS reported acreage through 2007

and then acreage has been projected out to

2010, based on historical trends. These

estimates are the basis for forecasts used by

the almond industry in preparing for future

world demand.

Increased plantings coupled with

improved agricultural practices have resulted

in record production in California. The

exhibit titled \"2007\...Almond Objective

Measurement Report,\" released on June 29th by

NASS forecasts the 2007/2008 crop, which will

be harvested beginning in August 2007. It\'s

estimated this crop will reach 1.33 billion

pounds, the largest almond crop ever produced.

JUDGE HILLSON: Okay. And I will

mark that as Exhibit 13, the California ‑‑ \'07

California Almond Objective Measurement

Report. Continue.

(Hearing Exhibit 13

marked for

identification.)

MR. MARTIN: Thank you, Your

Honor.

THE WITNESS: Taking the handler

shipment and production information, which is

reported monthly in the Board\'s Position

Report, the exhibit titled, \"Almond Supply and

Consumption,\" shows how shipment demand over

the past ten years has increased in line with

production, providing a positive economic

return to growers throughout the state.

JUDGE HILLSON: Okay. And I\'ll

mark that as Exhibit 14 ‑‑

MR. MARTIN: Thank you, Your

Honor.

JUDGE HILLSON: ‑‑ for

identification.

(Hearing Exhibit 14

marked for

identification.)

JUDGE HILLSON: Continue.

THE WITNESS: California growers

market their almonds through approximately 104

handlers. These are the companies responsible

for putting almonds into commercial channels

and responding to customer requirements.

Again, based on the Small Business

Administration definitions, approximately half

of the handlers would be considered small

agricultural service firms. But in industry

terms a small handler is considered to be a

company handling less than five million pounds

per year. Over two‑thirds of handlers fall

into this category, but are responsible for

handling less than ten percent of the crop.

The largest handlers number less

than 30 companies but are handling over 80

percent of total production.

The exhibit titled, \"World Almond

Shipments,\" shows how domestic and export

shipments have trended upward since 2000.

JUDGE HILLSON: I\'ll mark that as

Exhibit 15.

(Hearing Exhibit 15

marked for

identification.)

MR. MARTIN: Thank you, Your

Honor.

THE WITNESS: Over two‑thirds of

California\'s crop is exported. With the

anticipated increase in acreage and larger

crop sizes, the importance of these export

markets will continue to grow. California

almonds are shipped to approximately 90

countries worldwide.

The exhibit titled, \"Almond Export

Shipments,\" shows that the largest export

destination is Europe, and over 75 handlers,

small and large, rely on shipments to the EU.

JUDGE HILLSON: And I\'ll mark that

as Exhibit 16.

(Hearing Exhibit 16

marked for

identification.)

JUDGE HILLSON: Continue.

THE WITNESS: Increasing supplies

will not continue to benefit growers

economically unless demand remains strong.

This has been a key focus for the entire

almond industry and is reflected in the

industry\'s strategic vision to be the

healthiest specialty crop in the world.

The vision encompasses all aspects

including financial returns to the grower,

quality supply, and nutritional attributes.

Marketing and promotional activities

undertaken by the Board have been carefully

developed with significant industry

participation, anticipating the need to ensure

demand in all markets continues to grow.

This was further emphasized when

the almond industry recently completed an

extensive global demand analysis. The result

was a global strategic framework for sustained

growth and grower returns.

MR. MARTIN: Your Honor, at this

time I would like the document titled

\"Global\...Strategic Framework\" marked as

Exhibit 17.

JUDGE HILLSON: Okay. It is so

marked.

(Hearing Exhibit 17

marked for

identification.)

JUDGE HILLSON: Continue.

THE WITNESS: Europe, India, and

China will be a key focus under the Strategic

Framework. In fact, Europe alone is projected

to absorb over 200 million additional pounds

over the next five years.

The Board has been investing

millions of dollars in marketing, advertising,

and nutritional research in support of key

messages throughout the world, extolling the

virtues of almonds. Our risk, however, is the

potential negative effect a food safety or

quality incident can have on consumer demand.

Budgets for promotional efforts

are quickly diverted when a food safety scare

or a quality concern undermines confidence.

In the almond industry\'s experience, with two

Salmonella outbreaks between 2001 and 2004,

the Board diverted \$570,000 to \$900,000

annually away from positive demand‑building

programs to instead fund technical research,

industry education, expert advice, crisis

management, and additional staff resources to

address these food safety issues.

Our success as an industry will be

determined by our ability to continue to meet

both domestic and export requirements which

are shaped not only by the positive

information we disseminate, but by the quality

standards established by customers, changing

legislation, and overall consumer perceptions

of foods.

The general authority provided by

the two proposed amendments to the Almond

Marketing Order are important tools which are

essential to ensuring the orderly marketing of

almonds and positive economic returns to our

growers, as we face a changing and ever‑more

competitive global environment.

Your Honor, I\'d like to now speak

in favor of the first amendment.

JUDGE HILLSON: Go ahead.

THE WITNESS: Given the industry

overview and significance of the export

markets, I\'d like to testify in support of the

proposed amendment to Section 981.42 of the

Marketing Order, Different Outgoing Quality

Requirements for Different Markets.

The proposed amendment would

modify the Outgoing section of the Quality

Control provision by adding the sentence:

\"The Board may, with the approval of the

Secretary, recommend different outgoing

quality requirements for different markets.\"

The proposed amendment is

necessary in that it addresses the need to be

able to respond appropriately and

proportionally to differing regulatory and/or

customer requirements to maintain confidence

in almonds worldwide. The proposed amendment

is consistent with current provisions which

authorize the Board to recommend, with USDA

approval, outgoing quality standards

applicable to almonds to be handled or to be

processed into manufactured products, which

ensure the orderly marketing of almonds.

The proposed amendment would only

provide general authority under the Marketing

Order. If adopted, the industry, through

notice and comment rulemaking involving the

entire industry and other interested parties,

could recommend specific actions and/or

programs to USDA. Informal rulemaking

involving appropriate comments periods and

compliance with statutory and other regulatory

requirements would be pursued before any

specific actions related to establishing

different outgoing quality requirements for

different markets would be mandated.

An example of how this proposed

amendment would benefit the industry is

illustrated by a current situation regarding

aflatoxin concerns in Europe. There are no

harmonized global aflatoxin standards. As a

result, different countries have established

their tolerances based on their individual

risk assessments.

Often importing countries

establish extremely restrictive limits, as the

commercial impact on their own internal

markets is limited. This is certainly the

case in Europe where aflatoxin limits are

among the most stringent worldwide. European

surveillance has increased on imported nuts,

including almonds, which has resulted in

increased rejections for aflatoxin

contamination.

Previously each European country

determined the proportion of almond imports

they would inspect. And, in fact, a number of

countries did not control almonds at all.

However, because of the increased rejections

that were being noted in some countries,

European authorities decided to impose

mandatory aflatoxin testing on almond imports.

This means all countries must inspect a

specified percentage of imported almonds on

arrival.

European authorities have imposed

these mandatory controls on other crops,

resulting in increased rejections, cost to

producers, market disruption, and loss of

market share. Under the Marketing Order there

are no requirements for outgoing aflatoxin

testing or certification of almonds.

The almond industry did develop a

voluntary sampling and testing plan, known as

VASP, in an effort to build more confidence in

U.S. procedures and avoid implementation of

mandatory controls in Europe. While the EU

did recognize this effort, in their view a

voluntary program did not provide sufficient

consumer health protection to preclude the

need for mandatory testing.

It is anticipated that by

September 1st, when the EU begins mandatory

inspections, most handlers will be shipping

under the VASP protocol. Their concern is

that by not testing prior to shipment they run

a greater risk of rejections in Europe.

However, with this voluntary

program it is not possible to ensure all

handlers are operating consistently. If

European authorities find results are not

improving, they could increase the level of

control or timeframe in which the mandatory

testing will continue. In fact, we understand

most buyers are currently requiring mandatory

aflatoxin testing prior to shipment.

Industry members shipping to

Europe who have experienced rejections have

reported to the Board that the cost of a

rejection is about \$10,000. Now this is

factoring in costs associated with demurrage

for delays at the port beyond the days

normally allowed within a shipping contract,

warehousing the almonds at the port while

awaiting official import testing results,

shipping rejected consignment back to the

U.S., and shipping a replacement container

back to Europe. This equates to approximately

44 cents per pound based on a 44,000‑pound

load.

Now in contrast, testing prior to

shipping requires the handler to pull a 15‑

kilo sample, which is then tested by a USDA‑

approved lab and an official certificate is

provided. The overall cost of VASP

participation is estimated to range anywhere

from \$300 to \$550 per container, and this

includes approximately \$75 for the value of

almonds sampled, overnight courier of the

sample to the lab, and return courier of the

certificate to the handler, as well as

analytical fees of approximately \$180 to \$250.

Depending on the handler

operation, there could also be costs

associated with personnel to take probe

samples from cartons. If the handler\'s using

an inline sampler, costs associated with

drawing the sample may not be substantial.

Overall, this equates to about one cent per

pound based on a 44,000‑pound load.

European authorities will continue

to maintain mandatory controls until they have

sufficient confidence in the quality of the

almonds imported to Europe. Had the industry

been able to recommend a consistent, uniform

certification program for exports of almonds

to Europe under the Outgoing Quality

Requirement provision of the Marketing Order,

it may have been possible to avoid a European‑

imposed mandatory control program on imports,

which would have resulted in a lower

percentage of imports being inspected and a

lower percentage being rejected.

Last year there were 36 aflatoxin

rejections in Europe as a result of these

official import controls. Applying the

estimated cost of \$10,000 per rejection, not

including the intangible cost to reputation

and consumer confidence, this would amount to

a loss of \$360,000.

Aflatoxin controls prior to export

would be a cost‑effective way to build

confidence and maintain market share. In

August 2005 the pistachio industry implemented

a federal marketing order which specified

outgoing quality requirements for pistachios

marketed in the U.S.

The requirements include a

specific aflatoxin tolerance. In addition,

shipments must have a mandatory aflatoxin

inspection certificate from an accredited lab.

In the analysis provided in the exhibit

entitled, \"Giannini Foundation Monograph 46,\"

across the full range of parameters used in

the analysis, the benefit cost analysis was

always favorable to the policy of mandatory

aflatoxin inspection ‑‑ to the producer, the

U.S., or the world, the benefits well exceeded

the corresponding measure of costs, typically

by many times.

MR. MARTIN: Excuse me, Your

Honor. At this time I would ask that the

Giannini Foundation Monograph 46 be marked as

Exhibit 18.

JUDGE HILLSON: Okay. I\'ve so

marked it. I just want to note that many of

the pages in my copy at least are pointing in

‑‑ are upside down.

(Hearing Exhibit 18

marked for

identification.)

MR. MARTIN: I would also like to

note that my copy seems to be collated in the

same way. I don\'t ‑‑ I didn\'t have the ‑‑

JUDGE HILLSON: Okay. I mean for

the first half of it, if you hold it up, it

reads fine. But the second half of it it\'s ‑‑

you\'d be flipping it back and forth a number

of times. You may want to substitute a copy

some time before the hearing\'s over or after

the hearing.

MR. MARTIN: Yes, Your Honor.

We\'ll have a properly‑collated copy provide

later for everyone.

JUDGE HILLSON: That would be

good.

MR. MARTIN: Thank you.

JUDGE HILLSON: But in the

meantime I\'ve marked this as Exhibit 18 for

identification.

You may continue with your

testimony.

THE WITNESS: Thank you.

The pistachio measures only apply

to U.S. shipments which represent 51 percent

of their market. This is similar to the

almond situation, where Europe represents 41

percent of total shipments. The pistachio

analysis goes on to point out that the initial

costs associated with the policy of mandatory

aflatoxin inspection, in terms of expenditures

incurred in compliance, are largely on the

processors. But the costs are redistributed

through supply‑and‑demand responses.

The same report point out how food

scares damage consumer trust and demand,

affecting producer and consumer well being.

In the case of Iran, for example, in 1997

Europe banned Iranian pistachio imports

because of aflatoxin rejections. Imports

dropped 42 percent, from 224,800 pounds to

130,000 pounds in 1998. If this were applied

to almond, export shipments in Europe ‑‑

excuse me ‑‑ European shipments for the

2005/2006 crop year were 373 million pounds.

A drop in shipments of 42 percent would be 157

million pounds. At the 2006 farm price of

\$2.05 per pound of almonds, which was quoted

in the Almond Acreage Report previously cited,

such a drop would result in a loss to almond

producers of more than \$321,000,000.

During numerous Food Quality and

Safety Committee meetings, the industry

debated how to implement a mandatory program.

A significant problem was that under the

current Marketing Order authority, an informal

rule change to mandate aflatoxin testing under

the Outgoing Quality Control section would

have to apply to a hundred percent of

California shipments, not only those shipments

to a specific market. This would have placed

an unnecessary burden on the industry, given

that aflatoxin limits and analytical

procedures differ across markets. Also,

aflatoxin has not proven to be an impediment

in all export and domestic markets.

If this proposed amendment were

approved and the industry decided to recommend

an Outgoing Quality Control provision to

address aflatoxin testing for consignments

shipped to Europe, all industry members

shipping to that region would benefit. The

cost impact is likely to be minimal given the

fact that many handlers have already made

adjustments in terms of additional testing,

due to the mandatory European controls and in

response to insistence by their buyers. Those

not shipping to Europe would continue to be

unaffected by the change.

The industry believes that a

mandatory program prior to shipment would

encourage European authorities to discontinue

mandatory controls on imported almond

consignments, which could affect hundreds of

containers across Europe and return instead to

less‑frequent random controls, reducing

handler risks of rejections and potential

economic impact.

Customers in Europe would have

more confidence in the quality of almond

supplies from California if they knew there

was a consistent, uniform, and mandatory

certification program in place. There would

also be less likelihood that \"just in time\"

deliveries would be disrupted by rejections on

import control, potentially resulting in a

four‑ to six‑week delay in their manufacturing

schedules while they have to wait for

replacement containers.

Accepted of this proposed

amendment would enable the industry to use the

experience of the voluntary program and

through notice and comment rulemaking to

establish different outgoing quality

requirements for different markets, which

ensure all shipments meet appropriate

standards, to gain confidence of customers and

ensure that economic returns are not

interrupted.

This is only one example of how

providing general authority to recommend

different outgoing quality requirements for

different markets could be used. Other

examples could include outgoing pesticide

residue certification for Japan, minimum grade

standards, or other similar requirements.

The estimated costs discussed here

are limited to the aflatoxin discussion. An

example: Any cost benefits of any other

specific requirements would be thoroughly

weighed and evaluated through notice and

comment rulemaking to ensure that no sector of

the industry is unduly disadvantaged.

That completes my comments on the

first amendment.

I would like to now testify in

support of the general amendment to Market

Order 981, adding Section 981.43, Marking or

Labeling of Containers, which states: The

Board may, with the approve of the Secretary,

recommend regulations to require handlers to

maker or label their containers that are used

in packaging or handling of bulk almonds. For

the purposes of the proposed amendment,

container means a box, bin, bag, carton, or

any other type of receptacle used in the

packaging or handling of bulk almonds.

I want to emphasize that this

proposed amendment would apply to bulk almonds

at the industry level. We have revised the

language that appeared in the Federal Register

Notice to clarify this point. This proposed

amendment would address the inability of the

Board to require necessary identification and

labeling. It would not, however, apply to

retail or consumer labeling.

The proposed amendment only

provides general authority under the Marketing

Order. If adopted, the industry, through the

Board, would have to recommend specific

actions and/or programs to USDA. Notice and

comment rulemaking would then have to be

pursued before any specific requirements

related to markings or labeling would be

imposed.

I would like to discuss two

examples of how the general authority could

subsequently be used by the almond industry.

Food safety is a growing concern

and a majority responsibility of all food‑

processing industries. Quite often, clear

labeling for product identification is the

foundation for avoiding or, at a minimum,

mitigating a food safety incident.

In 2001 and 2004 there were two

Salmonella outbreaks which necessitated almond

product recalls. As an immediate action, the

industry considered requiring bulk cartons of

almonds be labeled \"unpasteurized\" as an

advisory to customers. However, this rapid

response was not possible due to the lack of

authority in the Marketing Order to recommend

marking or labeling.

Since handlers often apply

stickers or stencils to boxes, bins, bags,

cartons, or other receptacles used in

packaging bulk almonds in response to market

or customer specifications, the economic

impact of this proposed amendment would be

negligible. Handlers already have equipment

in place which is programmed based on the

needs of the consignment which is being

packed. Any incidental cost would be

outweighed by the importance of protecting the

industry\'s reputation, maintaining customer

confidence, and generating sales.

With something as important as

food safety, where uniformity and consistency

are paramount, general authority under this

amendment would provide resolution and a

unified approach on an industry‑wide basis to

address and identify concern. The cost of

such marking and labeling by industry would

have minimal impact. Small and large handlers

must apply markings and labels which are

specific to the consignment, and this may

include lot codes, production dates, or

grades.

Marking or labeling which

uniformly conveys information and indicates

what measures have been undertaken presents a

significant benefit in avoiding potential

future food safety issues by enabling those

who use the product down the supply stream to

rapidly know the state of the almonds they\'ve

received.

General authority to recommend

labeling would also support situations

described in conjunction with the first

proposed amendment, to enable recommending

different outgoing quality requirements for

different markets. As previously discussed,

specific protocols are necessary for aflatoxin

sampling and testing of consignments destined

for Europe. Having the authority in the

Marketing Order to recommend a uniform mark be

included on the receptacle used in package

bulk almonds would readily identify those

consignments which have been tested prior to

shipment. It would also provide a mechanism

for segregating consignments, which should be

subject to random patrols on arrival in

Europe.

In this instance, labeling would

encourage customer confidence and also enable

import surveillance authorities to take a

risk‑based approach to determining which

consignments would be subject to further

controls.

It is anticipated that the

proposed amendment to provide general

authority for labeling would enhance customer

and regulator confidence, as they would know

measures had already been taken to mitigate

shipping almonds that might not meet their

import standards. These are only two examples

of how general authority for marking or

labeling bulk containers could be applied.

The estimated cost aspects are limited to

these examples and any specific requirements

would be thoroughly evaluated in conjunction

with notice and comment rulemaking to ensure

that no sector of the industry is unduly

disadvantaged and to also ensure that all

interested parties have an opportunity to

participate.

In conclusion, these proposed

amendments to the Marketing Order would enable

almond growers and handlers to recommend

further notice and comment rulemaking related

to different outgoing quality requirements for

different markets and labeling bulk almonds in

order to maintain economic returns to growers

and ensure the orderly marketing of California

almonds.

The Almond Board, operating

through its public process of committees,

ensures that all interested parties would have

the opportunity to participate in recommending

any notice and comment rulemaking which is

ultimately pursued.

With a farmgate value of more than

\$2 billion, almonds are California\'s leading

agricultural export and the U.S.\'s largest

horticultural export on a value basis. As the

industry grows and production increases, we

face greater dependence on a diverse global

environment with changing standards and

requirements. Not adopting these proposed

amendments will preclude the industry from

pursuing notice and comment rulemaking to deal

with current challenges and those challenges

it may experience in the future.

The almond industry needs the

flexibility and tools provided by these two

proposed amendments to the Marketing Order to

ensure we will continue to provide a product

that meets global needs and helps us achieve

the industry vision: To be the healthiest

specialty crop in the world.

Thank you for your attention.

MR. MARTIN: Your Honor, I just

have one question for the witness, just to

clarify the record.

BY MR. MARTIN:

Q Mrs. Adams, would you turn to page

8 of your testimony, please? Would you look

to the second‑to‑last paragraph, the last

sentence?

A Yes.

Q Ma\'am, I don\'t know, I believe

that there may be a typographical error when

you refer to 44 cents per pound. Would you

look at that last sentence and determine what

the correct figure should be, based upon the

cost estimate you gave in the first sentence?

A Yes. I do apologize. I believe

this should be noted as 22.7 cents per pound.

MR. MARTIN: Thank you, Mrs.

Adams.

Your Honor, I have no further

questions for the witness.

JUDGE HILLSON: Okay. Yes.

MR. MARTIN: At this time I move

that Exhibit 7 through 18 be admitted into the

record.

JUDGE HILLSON: Any objection to

Exhibit 7 through 18 being admitted?

MR. HERON: No objection, Your

Honor.

MS. PICHELMAN: No objection.

JUDGE HILLSON: Okay. Exhibits 7

through 18 received in evidence.

(Hearing Exhibits 7

through 18 received in

evidence.)

JUDGE HILLSON: Ms. Pichelman, do

you have any questions of this witness, or you

or any of your colleagues in line have any

questions of this witness?

MS. PICHELMAN: No.

MR. ENGELER: I do, Your Honor.

JUDGE HILLSON: Okay. Just a

reminder, everyone, that you need to identify

yourselves each time you ask a question in

cross‑examination. So go right ahead.

MR. ENGELER: Yes.

CROSS‑EXAMINATION

BY MR. ENGELER:

Q Again my name is Martin Engeler

and I have a couple of questions for you, Mrs.

Adams.

You testified that these proposals

would only add authority to the Marketing

Order to ‑‑ but they would have ‑‑ there would

be no regulations? They in and of themselves

would not implement any regulatory

requirements on the industry and to implement

any regulations would require notice of

comment rulemaking, which we call informal

rulemaking. And I was wondering if you could

explain to us, give us a little information on

what process the Board would go through before

they would make such a recommendation to

implement any regulatory requirements.

A Within the Almond Board if an

issue is identified which requires further

action or where industry has identified

additional requirements are necessary, these

discussions would take place first in the Food

Quality and Safety Committee or such committee

in the Almond Board. Through that process,

they would fully discuss what the requirements

are and what would be necessary in

consultation as well as with USDA to determine

if the discussions and concerns could be

addressed within the Marketing Order

provisions. If it was determined that that

were possible, they would then fully discuss

the options, ensuring that all members of the

industry are able to provide comments.

In the case of informal

rulemaking, proposals are generally fully

discussed, sent out to the various industry

members for comment and participation. The

documents would then be refined, the arguments

fully developed and then discussed again in

conjunction with USDA.

If informal rulemaking is pursued

it would involve developing the appropriate

documents, going through full reviews of

impact on various industry sectors, costs to

the industry, ensuring that no sector is

disadvantaged. That would then be provided to

USDA for further review and would continue

through the notice and comment period.

Q Thank you.

One other question and it relates

specifically to the proposal to ‑‑ to add

labeling authority to the Order. And, as your

testimony indicated, the Almond Board proposes

changing what was actually submitted initially

and what was published in the Notice of

Hearing.

I was wondering if maybe you could

explain to us what the rationale was there for

the change. I noticed that you\'re only

proposing that it be applied to bulk almond,

containers of bulk almonds, and if you could

give us a little bit on that, please.

A That is correct. The handlers in

the industry and under the Almond Board are

shipping bulk almonds. These are bulk almonds

that have not been processed. They are either

brown skin or inshell. They may have been

blanched or sliced, but they\'re generally sold

still in bulk containers and then sold onto

manufacturers who will further process into

consumer packaging.

The intention of the amendment was

to apply to markings and labeling for

containers that are at the industry level.

And so this would be the bulk almonds, not

customer retail labeling. We do not have any

authority over consumer and retail level

labeling.

MR. ENGELER: Thank you.

I have nothing further.

JUDGE HILLSON: Any other

questions from this side of the room?

MS. PELLO: Yes, Your Honor, I had

a question.

I\'m Maureen Pello with USDA.

BY MS. PELLO:

Q Mrs. Adams, are there any handlers

in the industry that actually pack in consumer

packs prior to shipment?

A There are.

Q Do you have ‑‑ do you have any

idea of, like an estimate of what percentage

of those shipments are packed in consumer

packs and then shipped?

A I\'m sorry. I don\'t have that

information.

Q So is it the Board\'s intent ‑‑

just a follow up a question ‑‑ is it the

Board\'s intent, you know, for those handlers

who actually ship in consumer packs, that the

labeling requirement would not apply to that

portion of the industry?

A That is correct. This would only

apply to bulk containers at the industry

level.

Q And you don\'t envision, you know,

something that could come up in the future

where the industry may want the need or the

flexibility to have that authority?

A That would ‑‑

MR. MARTIN: Objection, Your

Honor. That calls for speculation and I don\'t

think this witness ‑‑ it\'s purely speculative

what would happen in the future.

JUDGE HILLSON: She can answer the

question if she knows the answer ‑‑ if she has

an answer.

THE WITNESS: It would be

speculation. The discussion within the Board

and committee has always focused on bulk, bulk

containers and bulk labeling and marking.

MS. PELLO: Okay. Thank you.

JUDGE HILLSON: Anything else ‑‑

go ahead.

MS. MAY: I have some questions.

Laurel May.

BY MS. MAY:

Q Mrs. Adams, on page 13 of your

testimony you said that \"Small and large

handlers\" ‑‑ this is the last complete

paragraph ‑‑ \"Small and large handlers must

apply markings and labels which are specific

to the consignment,\" does that mean ‑‑ when

you say \"must apply\" is that a requirement in

the Marketing Order or what do you mean they

must apply markings?

A Those are individual industry

markings. Currently they do put on the boxes

lot codes for identification of when those

goods were processed, to be able to trace back

within their own production facility, ‑‑

Q Um‑hum.

A ‑‑ so those would be internal

industry records which all handlers utilize to

identify various consignments.

Q But it\'s not a legal requirement?

A It\'s not a requirement by the

Almond Board. I believe there are a number of

requirements when shipping food into

commercial channels that they do have to have

on the boxes.

Q Okay. You seem to have addressed

food safety primarily in your discussion. Can

you foresee other incidents where that kind of

labeling might be useful?

A Yes. I think another example is

instructions on handling of the product. It

might be storage instructions on how to

warehouse or handle the almonds. There could

also be a situation where product of the USA

or other similar information is determined to

be necessary to include on a carton or bin or

box. That would be something that would be

fully discussed within the committee process

before any such recommendation would be put

forward.

MS. MAY: Okay. Thank you.

JUDGE HILLSON: Anything else from

this side?

Go ahead.

BY DR. HINMAN:

Q Donald Hinman, USDA. Good

morning.

A Good morning.

Q If you could turn to page 8 of

your testimony, please. In the middle

paragraph ‑‑ or the paragraph that starts, \"It

is anticipated that by September 1,\" the last

sentence there is, \"In fact, we understand

that most buyers are currently requiring

mandatory aflatoxin testing prior to

shipment.\" Do you see that?

A Yes.

Q Given that, I\'ll ask you why ‑‑ is

that not a strong enough market incentive, the

fact that most, you know, Europeans and other

buyers are demanding it, most buyers \[sic\] are

currently complying, what is the ‑‑ can you

explain why it would need to be mandatory?

A Again this is a voluntary program

and the difficulty is it is inconsistent in

the application. Not all buyers have the same

requirements and so shippers are held to

differing standards. The view is that if

determined by the industry to be an

appropriate approach and once they have an

opportunity for full discussion, a mandatory

program would put the industry in a position

to avoid some of the inconsistencies that are

inherent in a voluntary program.

Q Turning to page 9, I just want to

explore a little bit the cost computations on

those pages ‑‑ on that page there. And

you\'ve given some of the figures there, the

analytical fees \$180 to \$250, the value of the

almonds sampled. But can you give us some

more detail on how you arrived at that

particular range of \$300 to \$550 per

container?

A From some of the laboratories and

handlers who are in the process of

implementing this program now, they have

provided input as far as costs for overnight

couriers to ship 30 pounds of almonds to a

laboratory either in California or possibly

back east, as well as then receiving a

certificate back to the handler prior to

shipment.

They\'ve also indicated they do

have hourly costs if they were to use their

own employees or a third party to come in and

help pull a sample, a probe sample, versus

pulling a sample online which would be part of

their normal operating costs. So these were

some of the estimates that were included.

Q And does this represent averages

of ‑‑ you know, talking to various handlers,

averages across the number of handlers that

you\'ve asked?

A Yes, it does.

Q And, again, how did you ‑‑ the

one‑cent‑per‑pound computation is based on

what?

A That is based on \$300 to \$550 per

container over 44,000 pounds.

Q Thank you.

In the next paragraph you talk

about the 36 aflatoxin rejections in Europe as

a result of official import controls.

A Yes.

Q This is 36 European rejections of

U.S. exports to Europe ‑‑

A Yes.

Q Strictly U.S., no other countries

are involved?

A This is export ‑‑ I\'m sorry ‑‑

rejections of California almonds in Europe.

Q And you estimate the cost of

\$10,000 per rejection multiplied to get

360,000, and intangible costs to reputation

and consumer confidence. Do you have any

other estimates of what a range of costs that

might entail?

A Just a correction. It\'s customer

confidence, not consumer.

Q Excuse me. Customer confidence.

Thank you.

A It\'s difficult I think to assign a

cost to a company who has lost some of the

confidence and perhaps is then required to go

through additional surveillance or delays

because their customers may require additional

testing or authorities may focus on their

consignments rather than others.

I would say that perhaps one of

the other witnesses can provide some

additional information that would provide more

information in this area.

Q You quoted the Giannini Foundation

Report on pistachios.

A Yes.

Q That\'s a very comprehensive study

done for promulgation of a marketing order.

They do some cost‑benefit computations. Have

you been able to, on a very basic level, to

make any kind of cost‑benefit comparison?

You\'ve stated cost and you\'ve stated benefits.

Have you tried to merge those into a single

computation?

A We have not. Again, the

discussion of general authority is one where

it would provide an opportunity to further

consider more detailed notice and comment

procedures or informal rulemaking. At that

point, with a specific requirement, we would

certainly undertake that full cost‑benefit

evaluation.

Q On page 10, in the middle

paragraph, third sentence, \"Imports dropped 42

percent\...in 1998,\" and this is again

referring to the Giannini Report\'s analyses,

correct?

A Correct.

Q And is that basically Iranian

imports to Europe, world imports to Europe, or

what ‑‑ what is the actual unit involved that

involved the decline in imports to Europe?

A Those were Iranian pistachio

imports in Europe ‑‑

Q Iranian only?

A ‑‑ which dropped, yes.

Q So their market was dropped a very

large amount based on the food scale?

A Yes.

Q On page 11, the middle of the

second paragraph ‑‑ excuse me. The end of the

second paragraph, you talk about \"just in

time\" deliveries, \"potentially resulting in a

four‑ to six‑week delay in the manufacturing

schedules,\" did you have any kind of a cost

computation associated with that damage to the

market?

A I\'m sorry. I don\'t have those

figures, no.

Q Going to the ‑‑ on page 13 of your

testimony on the other proposed amendment, in

the first paragraph, the sentence is toward

the end, it says, \"\...the economic impact of

this proposed amendment would be negligible.

Handlers already have equipment in place,\" and

the cost would be nothing or incidental. Do

you think this applies to virtually all

handlers, all handlers? Are there some small

number of handlers that might not have the

equipment to which the labeling requirement

would require some additional investment?

A Even small handlers if they don\'t

have automated systems would certainly be

using stickers, stencils, or other similar

procedures for marking their consignment. So

I would expect it would be negligible.

Q On page 14, the last sentence in

the first paragraph, the second‑to‑the‑last

line, \"\...to take a risk‑based approach in

determining which consignments would be

subject to further controls.\" So briefly

define what \"risk‑based approach\" means.

A In the case of import surveillance

they often determine what food imports present

a greater risk or greater likelihood of

contamination. And certainly in their

evaluations, if they have confidence in the

documentation and certifications that are

accompanying a consignment, that would be

considered a lower risk compared to an import

which has not had prior testing or

certification in which they have confidence.

Q Stepping back to the general idea

of the benefits of your proposals here, you

mentioned two main benefits, particularly of

the ‑‑ one of them was avoiding lost sales and

the other one you mentioned was avoiding

diverted promotion expenditures. Would you

consider those sort of the two main, two

distinctive main categories of benefits from

the proposal?

A I think ultimately the greatest

benefit to the industry of these two proposed

amendments would be adding to the general

authority, providing the industry with the

tools to better respond to situations it would

face in the future, and ensure that those

responses are proportional and appropriate to

the situation that they\'re meeting.

Q I\'m going to ask you to think in

terms of ‑‑ this will be something, a question

we\'ll be asking of all witnesses in terms of

trying to distinguish any different impacts

according to the Small Business Administration

definition of large and small. A large

handler, larger agricultural service firm

being \$6.5 million or above and small is

below. For a farm, \$750,000 is large and

below that is small.

And if you could say just based on

your general knowledge of the industry, and

you\'ve talked about, you know, certain costs

and benefits there, can you see any

distinction between the benefits or costs

you\'ve described between a large and a small

agricultural service firm and a large or a

small farmer? Or do you believe that they

would be approximately proportional, no

distinction between large and small in terms

of benefits or costs?

A I would believe there is no

distinction between large and small since

these two proposed amendments only add

authority to the Marketing Order. Any

specific requirements which would require a

full cost evaluation in determining what the

impact would be on the industry would be

subsequent to these amendments being adopted,

if the industry decided to pursue that.

DR. HINMAN: Okay. Thank you.

No further questions.

JUDGE HILLSON: Anything else at

this end?

MS. MAY: Laurel May, USDA.

BY MS. MAY:

Q Julie, on your ‑‑ on page 11 of

your testimony you mentioned other examples of

necessity for outgoing regs, and one of those

that you cited was pesticide residue

certification for Japan. Is that currently an

issue that the industry has been dealing with?

A The Japanese do have very strict

requirements as far as pesticide residue,

MRLs, and testing. And so it could be a

situation in the future where a certificate

could be beneficial to avoid additional

testing or additional delays on imports. So

it is a situation we\'re aware of that has been

developing.

MS. MAY: Okay. Good. Thank you.

JUDGE HILLSON: Anything else?

BY MS. PICHELMAN:

Q Just very quickly, Ms. Adams.

JUDGE HILLSON: You need to

identify yourself again. Sorry, Ms.

Pichelman.

MS. PICHELMAN: Heather Pichelman,

USDA.

BY MS. PICHELMAN:

Q Based just on your work with the

industry, would you say that there is

widespread support for both of these proposed

amendments?

A Yes, I would. The amendments were

fully discussed within the committee process,

recommended to the Board of Directors, and

unanimously approved for submission.

Q If there was any concern or

hesitation from anyone that maybe did not

support it, what were the kinds of things that

maybe they were questioning or had any

concerns, what were some of the main things

that you heard from industry?

A I think the concerns mainly

stemmed from understanding that this process

only added authority to the Marketing Order

and did not require any specific action on the

industry.

MS. PICHELMAN: Thank you.

I don\'t have any other questions.

JUDGE HILLSON: All done on this

side?

Mr. Heron, do you have any

questions of this witness?

MR. HERON: No questions, Your

Honor.

JUDGE HILLSON: Any redirect, Mr.

Martin?

MR. MARTIN: No, Your Honor.

JUDGE HILLSON: Thank you very

much, ma\'am. You may step down.

THE WITNESS: Thank you.

(Witness excused.)

JUDGE HILLSON: And you may call

your next witness.

MR. MARTIN: Thank you, Your

Honor. The Almond Board would like to call

Mr. Stuart McAllister.

JUDGE HILLSON: Please raise your

right hand.

Whereupon,

STUART P. MCALLISTER,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: I do.

JUDGE HILLSON: Please state and

spell your name for the record.

THE WITNESS: My name is Stuart

McAllister. My last name is spelled

M‑c‑A‑l‑l‑i‑s‑t‑e‑r.

JUDGE HILLSON: Okay. And I\'m

going to presume, Mr. Martin, that you want me

to mark his statement as Exhibit Number 19?

MR. MARTIN: Yes. Thank you, Your

Honor.

JUDGE HILLSON: Okay. It\'s so

marked.

(Hearing Exhibit 19

marked for

identification.)

JUDGE HILLSON: Go ahead. Go

ahead, Mr. Martin.

DIRECT EXAMINATION

BY MR. MARTIN:

Q Good morning, Mr. McAllister.

A Good morning.

Q Mr. McAllister, I understand that

you have prepared written testimony for

inclusion in the record; is that correct, sir?

A Yes.

Q Would you like to proceed to read

your written testimony ‑‑

A Yes.

Q ‑‑ into the record?

A My name is Stuart McAllister. My

current office address is 255 Third Street,

Oakland, California.

I am a partner in Terra Nova

Trading, Incorporated, based at the above

address. It is one of the largest exporters

of California almonds to various markets

around the world. I am also a member of the

Global Technology and Regulatory Affairs

subcommittee of the Almond Board of

California, which is responsible for tackling

various regulatory issues in all of the global

export markets.

In overview, the important role of

Terra Nova Trading is to provide important

export and shipping expertise to handlers as

well as the vital role of guaranteed contract

performance and payment in difficult export

markets. We are not considered a \"small

business\" under the Small Business

Administration because our annual receipts are

in excess of six and a half million dollars.

Our role also includes being a

\"market maker\" for small and medium‑size

handlers who require almonds to be purchased

on the day they decide to sell rather than

wait when a suitable buyer might be in the

market. This is a service that provides for

the economic well being of growers and

handlers throughout the almond industry.

The single largest export market

of Terra Nova Trading and the almond industry

is the European market that uses around 40

percent of the total California almond supply.

In the past year we have seen enormous changes

in the regulations on food safety and

specifically aflatoxin regulations within the

European Union. This has led to an increase

in the number of inspections at various

European ports and a large number of

containers of almonds are being refused entry

into the European Union.

The refused loads under current

regulations must be returned to California and

all of the costs associated with shipment to

Europe and their return voyage are passed back

to the handlers, and ultimately the growers

bear this cost in the growers\' returns each

season.

Recent changes in regulations

within the European Union have called for 100

percent of containers to be inspected at

shipping ports unless much more rigorous

aflatoxin testing is conducted in California

prior to shipment of all almond containers.

This will lead to a greater number of

containers being refused entry into our

largest export market and ultimately will lead

to increased cost for the handler and the

grower for returned containers.

The Almond Board of California has

developed a voluntary aflatoxin sampling

program in order to standardize food safety,

testing procedures, provide greater food

safety, and improve confidence in all the

worldwide markets that almonds remain a

healthy specialty crop. The European health

authorities have recognized the importance of

this VASP program and have agreed to inspect

substantially less almond containers, five

percent instead of 100 percent, tested under

the program during export from California.

However, the general authority to implement a

mandatory program under the Almond Marketing

Order is essential to continued orderly

marketing of almonds in the European Union

because almond buyers are already insisting

that the program be mandatory.

Given the earlier overview and the

huge significance of the European market for

Terra Nova Trading and the almond industry, I

would like to speak in support of the proposed

amendment, to Section 981.42 of the Marketing

Order.

This proposed amendment would

allow modifications of the outgoing section of

quality control provision by adding language

that would enable the Almond Board to

recommend the establishment of different

outgoing quality requirements for different

markets through notice and comment rulemaking.

As an example, the different

outgoing quality requirements could include

VASP certification for European Union markets

in order to substantially reduce the number of

inspected almond containers. This would

dramatically reduce the chance of refused

containers and reduce the costs to handlers

and growers who most bear the approximate

\$10,000 in costs to return to California a

container refused entry into the European

Union.

As nearly all of our suppliers

have already registered for the VASP program,

we see no additional cost being incurred by

growers or handlers in adopting the proposed

amendment to the Marketing Order, and would

reiterate our support for this amendment.

In conclusion, with a total value

of the almond industry at close to two and a

half billion dollars today and expected to

grow, I believe this amendment is necessary

for the industry to tackle different

regulatory issues, both known and yet unknown,

in different, new, and emerging markets. In

addition, this proposed amendment would allow

for specific changes to be implemented through

notice and comment rulemaking, which would

allow all interested parties to participate.

In my opinion, this proposed

amendment is necessary in order to protect

existing and important markets as well as

react to any necessary changes required in

other export markets around the world.

Thank you for your kind attention.

MR. MARTIN: I just have one

question for Mr. McAllister.

BY MR. MARTIN:

Q Mr. McAllister, could you speak to

the costs incurred by rejections of almonds in

European countries a little more in detail?

A Yes. Each of the shipments that

are refused entry, we have already paid

freight to go to our buyer in Europe. The

goods are then decided to be inspected by each

of the individual European health authorities.

Containers are left on the quay until the

health authorities can get round to testing

that container. Demurrage, quay rent, and

other charges to the shipping lines and the

ports at various European country ‑‑

JUDGE HILLSON: You want to spell

\"quay\" for us, please? I know it\'s going to

‑‑ just looking at ‑‑

THE WITNESS: Q‑u‑a‑y.

All these charges are incurred and

the shipping line passes them back to the

shipper of record, which in this instance

would be Terra Nova Trading. And if the

container is refused entry, then the container

has to come back to California, and the

shipping lines again charge freight to return

the product to California, including

importation costs at the Port of Oakland or

Long Beach. And also the freight is

approximately 6,‑ to \$7,000 for the voyage

there and the voyage back. Demurrage charges

can be anything from \$2,000 to \$7,000.

Importing costs, they send ‑‑

reimporting costs are approximately 500 to a

thousand dollars. And so each container that

is rejected, it could be anything from \$7,000

to as much as \$15,000.

MR. MARTIN: Thank you, Mr.

McAllister.

I don\'t have any further questions

for this witness.

JUDGE HILLSON: Do you want

Exhibit 19 received into evidence?

MR. MARTIN: Yes, Your Honor.

Would you accept Exhibit 19 into the record,

please?

JUDGE HILLSON: Any objection to

that?

MS. PICHELMAN: No objection.

JUDGE HILLSON: Exhibit 19 is

received in evidence.

(Hearing Exhibit 19

received in evidence.)

JUDGE HILLSON: Do we have any

cross‑examination from the AMS side?

MR. ENGELER: Yes, I have a couple

of questions, Your Honor. Again my name is

Martin Engeler with the USDA.

CROSS‑EXAMINATION

BY MR. ENGELER:

Q In your testimony you indicated

that you\'re an exporter of almonds, that your

company provides service to the industry in

that regard. And are you a handler of almonds

at all?

A No.

Q And could you explain for the

record what the difference with between your

company and what a typical handler in the

industry does?

A A handler, for simplicity, is

somebody that would take almonds from a grower

and size them, grade them, and pack them into

bulk containers. What we do as an exporter is

to buy from a handler and to sell to European

industry or importers at various different

markets in Europe and others around the world.

But essentially our role is to organize the

shipping of that container, to ship on time,

and to pay the handler as agreed on the day

agreed.

Q Now essentially your business ‑‑ I

guess the economic well being of the almond

industry, even though you\'re not a handler, is

‑‑ your company\'s economic well being is

directly tied to the economic well being of

the industry, correct?

A Yes.

MR. ENGELER: That\'s all I have

for now.

JUDGE HILLSON: Anything else on

this side of the table?

MS. PICHELMAN: Heather Pichelman,

USDA as well.

BY MS. PICHELMAN:

Q I just had a question for you.

You said in your testimony that almond buyers

are insisting that the program be mandatory.

Why is that? What have you been told as to

why they\'re insisting?

A They\'re insisting on it because

our buyers, if they do not have the

certificate, are guaranteed that the container

will be stopped and tested. If the container

is passed, there are still costs involved due

to demurrage, even if the container passes.

And I have run into many situations where my

buyers have insisted on it because they do not

want to run the risk of their products not

arriving to their factories on time to be

packed. Or also they don\'t want to face the

500, \$1,000, sometimes \$1500 demurrage costs

while the health authorities at the port

decide to go and test that load. And then the

final part must be just the greater chance of

the product being rejected by the authorities

and returned to California.

MS. PICHELMAN: I have no other

questions.

JUDGE HILLSON: Any other

questions from AMS?

DR. HINMAN: Yes.

BY DR. HINMAN:

Q You heard ‑‑

JUDGE HILLSON: You need to

identify yourself.

BY DR. HINMAN:

Q Yes. Don Hinman. USDA. Good

morning.

A Good morning.

Q Yeah. You gave a more complete

detailing of the costs involved from a

rejected lot. You gave a range of 7‑ to

\$15,000, I believe. And you heard Ms. Adams\'

testimony about ‑‑ you know, and you also

cited \$10,000 is kind of an average figure

within that range.

A Yes.

Q And then would you then consider

that the computation made there that

approximately 22 cents per pound, dividing

that figure into 44,000, represents a

reasonable estimate of cost per pound?

A Yes.

Q And could you make a range of cost

per pounds by the same computation, dividing

7 and 15 into that; would that also be a

reasonable estimate of the range of costs?

A Yes. I would suggest, rough math,

I would say from 15 cents to 35 cents a pound.

Q Thank you.

And if you ‑‑ now the cost of the

actual laboratory work, you heard Ms. Adams\'

testimony about the range of \$300 to \$550 per

container; do you believe that is also

representative of the costs, industry ‑‑ or

the costs you would face ‑‑

A Yes.

Q ‑‑ for the laboratory testing?

A Yes.

DR. HINMAN: Okay. No further

questions.

MS. MAY: Laurel May, USDA.

BY MS. MAY:

Q You addressed the situation in the

European Union with aflatoxin. Can you think

of any other examples in your ‑‑ that you work

with, other countries, with their restrictions

how you might be affected?

A You know, Terra Nova\'s business is

predominantly domestic or European Union.

Q Oh.

A And really, you know, some of the

other issues, being a member of the GTRA

Subcommittee, the mention of Japan and the

different requirements for pesticide residues,

that\'s one example I could think of.

Q Okay.

A But essentially European Union

seems more focused towards aflatoxin

regulations than anything else.

MS. MAY: Okay. Thank you.

JUDGE HILLSON: Anything else?

DR. HINMAN: One additional

question. Donald Hinman, USDA.

BY DR. HINMAN:

Q The previous testimony, Ms. Adams

stated that the cost of the labeling, you

know, would be negligible. Do you accept

that, that the cost ‑‑ you would ‑‑ virtually

the other person involved or entity involved

in export, the cost of labeling would be

negligible?

A I think it would be negligible.

We work with small handlers who are one‑

million‑pound handlers and we work with some

of the largest, the largest in the industry.

And, I think as Ms. Adams mentioned, the ‑‑

each of the handlers has their own respective

system for labeling. It\'d be as simple as a

computer and a laserjet on labels and they put

on the cartons, to fancy systems that would,

you know, cope with much more volume going

through. So I believe the cost would be

negligible and the systems are available for

each and all of the handlers.

Q And you\'ve just mentioned the

small handlers that you deal with. Do you

have any reason there would be any

differential impact between large and small of

these proposed amendments here?

A No.

DR. HINMAN: Okay. Thank you.

JUDGE HILLSON: Anything else from

this side?

MR. HERON: No questions, Your

Honor.

MR. MARTIN: Your Honor, I would

just like to clarify for the record that there

are no direct costs associated with these two

proposed amendments that are under

consideration today. What we\'re actually

talking about, Mr. Hinman was referring to,

are the costs that could potentially be

associated with any specific requirements that

may or may not be imposed on the industry.

And that would be done through a notice‑and‑

comment proceeding, and all those costs would,

at that time, be looked at.

So the costs that have been

referred to by the witnesses are only

estimates of examples on how the general

authority could potentially be used. I just

wanted to clarify that. Thank you, Your

Honor.

JUDGE HILLSON: Well, there being

apparently no other questions for this

witness, thank you for testifying. You may

step down.

(Witness excused.)

JUDGE HILLSON: Let\'s take our

morning break and come back at quarter of.

(Recess taken from 10:30 a.m. to

10:46 a.m.)

JUDGE HILLSON: Let\'s go back on

the record.

Mr. Martin has just told me that

they have properly‑collated examples of ‑‑

properly‑collated copies of Exhibit 18. So

I\'m going to ‑‑ I need ‑‑ this is my old copy.

MR. MARTIN: I\'ll take that from

you.

JUDGE HILLSON: Thank you. So I\'m

going to replace those.

They\'ll be available on the table

for anyone else who wants them.

And I guess at this point, Mr.

Martin, you may call your next witness.

MR. MARTIN: Thank you, Your

Honor. The Almond Board of California would

like to call Mr. Dean Nelson.

JUDGE HILLSON: Good morning.

Raise your right hand.

Whereupon,

DEAN NELSON,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: Yes.

JUDGE HILLSON: Please state and

spell it for the record.

THE WITNESS: My name is Dean

Nelson. My last name is spelled N‑e‑l‑s‑o‑n.

JUDGE HILLSON: And, Mr. Martin,

you want me to mark as Exhibit 20 this

witness\' statement?

MR. MARTIN: Yes, Your Honor.

JUDGE HILLSON: Okay. It is so

marked.

(Hearing Exhibit 20

marked for

identification.)

JUDGE HILLSON: You may proceed,

Mr. Martin.

MR. MARTIN: Thank you, Your

Honor.

DIRECT EXAMINATION

BY MR. MARTIN:

Q Good morning, Mr. Nelson.

A Good morning.

Q Mr. Nelson, I understand that

you\'ve prepared a written statement of your

testimony for inclusion in the record. Is

that correct, sir?

A Yes, that\'s correct.

Q Would you like to proceed to read

your testimony into the record at this time?

A Yes.

As I mentioned, my name\'s Dean

Nelson. My current office address is 12800

West Shields Avenue in Kerman, California.

I am a small handler in Fresno

County and would be considered a small to mid‑

sized handler in the industry terms. However,

under the Small Business Administration

definition my firm exceeds the definition of

a small enterprise.

For nine years I worked for Harris

Woolf Almonds as general manager. In that

capacity I directly managed or supervised

every facet of almond processing and

marketing. Those duties included: 1),

Receiving and caring for field‑run product

delivered to our facility; 2) Remove the hulls

and shells from field‑run deliveries, which is

referred to in our industry as hulling and

shelling; 3) Sizing, fumigating, grading,

sorting, and securing incoming USDA quality

certificates for growers, and making payment

to the Almond Board based on established

assessments. All of those collective

activities are referred to in our industry as

handling.

Finally, I marketed the finished

product, processed almonds to buyers in

markets throughout the world. In 2006 I

established my own handling operation, Sierra

Valley Almonds.

Before joining the almond industry

I worked in banking for ten years. My banking

career included loan officer responsibilities

which required comprehensive evaluations of

crop and term loan requests. Prior to my

departure, I served as assistant manager of

the bank\'s ag loan department with a \$150

million loan portfolio.

As assistant manager I had direct

responsibility for the bank\'s crop, dairy, and

California loans. Those experiences have

helped me to prepare for the challenging

aspects of forming a company, and ensuring

that you can be competitive in good and bad

times.

I know what it means to evaluate

the costs and benefits of various decisions.

I know in the dynamic world of business it is

not only important to address the problems you

face today but anticipate and prepare for the

challenges that will surely arise tomorrow.

Long‑term planning and risk

management have become part of my daily

thought process. I\'ve also come to understand

that particularly in the almond industry our

strength and future economic well being

depends on our ability to adapt to consumer

and customer demands in the changing global

environment. That is why these two amendments

are so important for our industry and why I

support their adoption.

I have been indirectly involved in

industry activity since becoming a member of

the almond industry in 1997 and have been

directly involved in the Almond Board of

California as a member of the Board and by

participating in various committee ‑‑

committees, pardon me, for more than five

years.

Last March I was elected to serve

as the Chairman of the Almond Board of

Directors. Over this ten‑year period I have

been able to participate as an industry member

and work directly with other industry

volunteers on the Board and committees to help

guide the industry through issues that we have

felt are some of the most difficult issues

which an industry can face.

Food is not just a business, it\'s

an emotional, fundamental need that we all

expect to be perfect. And that doesn\'t mean

people won\'t accept a slightly‑dented can or

a piece of bruised fruit. It means consumers

expected to have confidence in the overall

safety and quality of the food that they rely

on to nourish their families. Confidence and

the feeling of security are key elements that

are the basis for all consumers.

The almond industry has taken the

responsibility to address those needs very

seriously, acting proactively. Because

confidence in the nutritional value and safety

of almonds has been maintained, almond

consumption has more than doubled in the U.S.

over the past six to seven years. Over the

past ten years, millions of dollars have been

invested by our industry, composed of growers

and processors alike, to support this

phenomenal increase in demand.

It is important to note that we

have been successful to this point because

we\'ve had the necessary tools available to us

that suited the challenge we faced. With the

heightened food safety issues and increased

demands on agriculture, we need to ensure that

the Marketing Order under which we operate

keeps up with the changing times and continues

to be an effective mechanism which supports

rather than hinders the economic well being of

almond growers and provides that confidence to

almond consumers around the world.

Before becoming Chairman of the

Almond Board I spent over four years chairing

the Food Quality and Safety Committee. We

were not just dealing with Marketing Order

compliance or improving good manufacturing

practices, during that time our committee and

the industry had to contend with a second

Salmonella outbreak, increased import controls

in Europe, new pesticide rules in Japan,

stricter air and quality regulations in

California, and numerous other food quality

issues.

Almonds are shipped to more than

90 countries worldwide. And as suppliers to

those customers, we have to be ready to

address all the changing regulations and

consumer priorities in these various regions

and countries. That is why the proposed

amendment to Section 981.42 of the Almond

Marketing Order, to provide general authority

to recommend different quality requirements

for different markets is so important.

Markets around the world consume

and use almonds in many different ways and

have varying requirements, infrastructures,

and systems in place. For example, one of our

largest markets in the EU requires brown skin

almonds that are processed to a lesser degree,

as they themselves have a large processing

infrastructure that blanches, manufactures,

roasts, and prepares almond products for use

as an ingredient in candy, baking, and

snacking.

The EU population also consumes

large quantities of almonds in such products

as marzipan, as ingredients in baked goods,

and as enhancements to favorite dishes. Each

country has its own unique use of the product.

In contrast, the market in India

requires that inshell almonds are processed by

hand, utilizing the massive laborforce

available in that region, because of the

tariff differentials and because the

appearance of the almond is so important to

them. In this region and in the Middle East

almonds are given as treasured gifts during

various holidays, as part of wedding

invitations and as gifts, as foods acceptable

during religious periods of fasting and other

cultural traditions.

Thus many countries have unique

needs and degrees of processing that they

require for those of us who market California

almonds to them.

Handlers have the ability to

determine which markets they wish to operate

in and whether or not they want to meet the

needs of that particular country. Having the

ability within the Marketing Order to

establish different outgoing quality

requirements for different markets would not

compromise the ability to choose which market

an individual company wishes to supply, but

would ensure that the important standards that

differentiate a market are consistently met by

all handlers.

The other amendment I\'d like to

speak in support of is to add Section 981.43

to the Almond Marketing Order, to have general

authority to propose container marking and

labeling for industry containers such as

boxes, bins, bags, cartons, or any other type

of receptacle used in the packaging or

handling of bulk almonds. It\'s important to

keep in mind that the amendment does not apply

to retail or consumer packaging. Let me

explain.

Almonds are shipped in

standardized formats, usually one‑ton fiber

bins, 50‑ or 25‑pound cartons, and sometimes

one‑ton tote bags. More often than not, the

customers have requirements in their markets

for specific information to be included on

these various types of bulk packaging that

almonds are shipped in. Sometimes it\'s as

simple as storage instructions in another

language or origin identification that the

almonds are a product of the USA.

Because of these varied labeling

customer requirements, handlers have the

ability and the equipment to adapt the

information on their packaging before

shipping. Adding the general authority to

proposed labeling requirements through notice

and comment rulemaking would, therefore, not

add any costs to our operations, because it

would be incorporated into existing procedures

and processes. But it would give the almond

industry another tool which would help it

respond more quickly to a market change or a

food safety issue in a consistent uniform way

across the entire industry and with no

additional burden.

It\'s important to keep in mind

that almonds are dependent on family farms

throughout California. The industry has taken

several years to discuss these critical issues

and arrive at solutions that are reasonable

and in balance with the costs and benefits in

mind.

Thousands of manhours have been

spent in committee, Board, and industry

discussions with numerous communications to

assure that full discussion and opportunity

has been made available to all who have a

vested interest in seeing our industry

continue on the path of success.

Suffice it to say when decisions

are made at the Almond Board committees and

accepted at the Board level, they have been

thoroughly discussed by a broad cross section

of small and large operations, organics and

nonorganic. Often it takes time to get

consensus, particularly on difficult

decisions. But we do want to ensure that no

sector is put in an avoidable economic

disadvantage.

These two proposed amendments to

the Marketing Order have been widely discussed

and recommended by all sectors to benefit the

industry without creating any unnecessary

burden either financial or otherwise. The

proposed amendments would provide general

authority for the industry to subsequently

impose specific requirements through notice

and comment rulemaking, where all interested

parties have the opportunity to participate.

These amendments will ensure that

we are ready to meet any future challenge by

having the necessary tools to discuss issues

fully, exploring all strategies and options

under the provisions of the Marketing Order,

allowing the industry the ability to agree on

a decision that is ultimately in the best

interests of our growers.

Thank you.

MR. MARTIN: Your Honor, at this

time I move that Exhibit marked as Number 20

be admitted into evidence in the record,

please.

JUDGE HILLSON: Any objection?

MS. PICHELMAN: (Shakes head.)

JUDGE HILLSON: Hearing none,

Exhibit 20 is received into evidence.

(Hearing Exhibit 20

received in evidence.)

JUDGE HILLSON: Do you have any

other questions of this witness, Mr. Martin?

MR. MARTIN: No, Your Honor ‑‑ oh,

I\'m sorry. I have one question.

BY MR. MARTIN:

Q Sir, as Chairman of the Almond

Board of California, are there processes in

place which allow all interested parties to

have input into decisions that are made?

Could you address that?

A Yes, there are. Would you like me

to describe, ‑‑

Q Would you, please?

A ‑‑ summarize them for you?

The Almond Board operates under a

board and a committee structure. And those

meetings are open meetings. There\'s always

invitation for public comment, for public

input. We meet and discuss things. We

communicate. We\'ve communicated over the past

several years, in particular, numerous times

trying to keep people informed, put things on

the website. There\'s many opportunities for

participation and input from the industry.

MR. MARTIN: I just have one

further question, Your Honor.

BY MR. MARTIN:

Q Mr. Nelson, as Chairman of the

California Almond Board, is it your

understanding that the proposed amendment for

labeling would only apply to bulk almonds and

not to retail or consumer packages?

A That is correct.

MR. MARTIN: Thank you, sir.

I have no further questions, Your

Honor.

JUDGE HILLSON: Ms. Pichelman, do

any of your colleagues have questions?

CROSS‑EXAMINATION

BY MR. ENGELER:

Q I guess I have one, just ‑‑ Martin

Engeler again with USDA ‑‑ just to follow up

on Mr. Martin\'s question about the labeling

provision or labeling amendment which would

only require ‑‑ or give authority for labeling

on bulk containers. And I was just wondering

if you can maybe expand on that a little bit

and what some of the rationale was for not

including other containers besides bulk?

I know you talked about it a

little bit here, but I didn\'t quite ‑‑

A Sure.

Q ‑‑ didn\'t quite follow it.

A Our industry ‑‑ I guess the proper

term, we\'re kind of a wholesaler of sorts. We

provide products that are in various forms,

inshell, brown skin, blanched, sliver,

whatever, but those products are delivered to

customers, for the most part, there are a few

handlers that have retail presence, but for

the most part the handlers sell to companies

that process them and do the retail marketing

and labeling on their own.

Q Okay. I guess the reason I asked

the question, and I asked it earlier, is not

that we want to ‑‑ USDA wants to tell the

industry how they should or what they should

be doing with their Marketing Order. But it

takes ‑‑ given the time it takes to go through

this process of amending a marketing order,

we\'re just wondering if it ‑‑ I guess I need

to form this in the form of a question, don\'t

I?

JUDGE HILLSON: Sooner or later,

yes.

(Laughter.)

THE WITNESS: For the benefit of

the other witnesses that are going to be

coming up here.

BY MR. ENGELER:

Q In your opinion would it not be a

good idea to have flexibility built into the

order to allow labeling on other than bulk

containers if some situation arose in the

future, so that we wouldn\'t have to go back

through this amendment process?

A We don\'t have authority over our

customers or the retail segment, so I think

that\'d beyond the scope of, you know, the

general authority that we\'re seeking here.

Whether or not it would be beneficial to the

retail folks, I guess would be their decision.

It would be up to them.

MR. MARTIN: Your Honor, in light

of Mr. Engeler\'s question, I know he\'s not on

my witness list, but I have the President and

CEO of the California Almond Board here, Mr.

Richard Waycott, and I believe he can address

Mr. Engeler\'s question in more detail. If you

would allow, I would call him as a witness.

You could swear him in, and he could testify

regarding that question.

JUDGE HILLSON: When the time

comes. I mean if you want to have him as your

seventh witness, that\'s fine by me.

MR. MARTIN: Okay.

JUDGE HILLSON: I don\'t have a

problem with that. Assuming you want to get

an answer to your question from someone else.

MR. ENGELER: Sure, I\'d love to.

Thank you.

I have nothing further. Thanks.

JUDGE HILLSON: Anything else from

the AMS side?

BY DR. HINMAN:

Q Some other question I asked a

previous witness in terms of Ms. Adams\'

general testimony ‑‑ sorry, Donald Hinman,

USDA. Excuse me ‑‑ Ms. Adams\' testimony

about, you know, sort of average estimated

costs if the proposal went into effect. If

the authority was given and used, cost

estimates were in the nature of, you know,

\$10,000 per container and cost per pound of

about 22 cents. Is that ‑‑ do you believe

that is a reasonable industrywide estimate of

the costs of a rejected lot?

A Well, this ‑‑ my testimony today

and my support are for two general authority

rules, which would have no costs until we had

gone through a process to evaluate them,

identify those costs. I think you\'re asking

about something outside of that, but ‑‑ so

there\'s really no costs with regard to these

two rules, because there would be a process

that I described earlier where we would go

through a lengthy process of discussing,

identifying the pros and cons, the costs and

such would happen subsequent to this, for

these two rules.

DR. HINMAN: Okay. Thank you.

JUDGE HILLSON: Any other

questions from this side of the room? Ms.

Pichelman.

MS. PICHELMAN: Heather Pichelman,

USDA.

BY MS. PICHELMAN:

Q If ‑‑ as the Chairman again, if in

the future you were ‑‑ there was authority out

there to ‑‑ to do both of these proposed

amendments, do you foresee that the Board

would request informal rulemaking on specific

regulations? Is there an idea that if the

authority was there that pretty soon after

there would be a request for some informal

rulemaking to create specific regulations?

A In our preparation and, again,

trying to put the right tools in our toolbox

to anticipate what\'s coming down the line,

there have been several thoughts about

possible things that may or may not be needed.

And, you know, we\'re trying to prepare for

that date in case there is something that

comes down the pike, you know, the future

brings to us that we aren\'t already aware of.

MS. PICHELMAN: Thank you. I have

no other questions.

JUDGE HILLSON: Anything else?

Any further questions of this witness?

MR. HERON: No questions, Your

Honor.

JUDGE HILLSON: Any redirect, Mr.

Martin?

MR. MARTIN: No, Your Honor.

JUDGE HILLSON: Okay. You may

step down, sir. Thank you very much.

(Witness excused.)

JUDGE HILLSON: And, Mr. Martin,

you may call your next witness.

MR. MARTIN: Your Honor, at this

time I would like to call Mr. Richard Waycott,

President and CEO of the Almond Board of

California. And I believe his testimony will

be brief, just to address Mr. Engeler\'s

question.

JUDGE HILLSON: Okay. Please

raise your right hand.

Whereupon,

RICHARD WAYCOTT,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: I do.

JUDGE HILLSON: And could you

state and spell your name for me, please?

THE WITNESS: Yes. Richard

Waycott, R‑i‑c‑h‑a‑r‑d W‑a‑y‑c‑o‑t‑t.

JUDGE HILLSON: Go ahead, Mr.

Martin.

DIRECT EXAMINATION

BY MR. MARTIN:

Q Good morning, Mr. Waycott. Would

you please state your office address for the

record, please?

A Yes. It\'s 1150 Ninth Street,

Modesto, California.

Q And would you please state your

occupation for the record?

A It\'s President and CEO of the

Almond Board of California.

MR. MARTIN: I have no further

questions, Your Honor.

JUDGE HILLSON: Oh, you just put

him on so he can ask ‑‑ answer Mr. Engeler\'s

question?

MR. MARTIN: Yes, Your Honor.

That\'s correct.

JUDGE HILLSON: Do you need to

have the question reasked or do you want to

just recite it?

THE WITNESS: I\'d love to hear Mr.

Engeler restate it.

(Laughter.)

CROSS‑EXAMINATION

BY MR. ENGELER:

Q I\'ll restate it in a different

way. Thank you.

Could you ‑‑ to the extent that

the proposal only ‑‑ the proposal on labeling

only calls for authority to label bulk

containers of almonds, do you ‑‑ to the extent

that some handlers in the industry pack

consumer packs, could you envision a scenario

where ‑‑ or could you see a need where

handlers ‑‑ there may be a need to or desire

to require labeling on consumer packs if that

became an issue in the future and to the

extent that the authority authorized it ‑‑ or

the Order authorized it?

A No. And that\'s certainly not the

intention of this rule amendment. To do so

would be to require something of a limited

number of consumer products companies in a

much larger industry, and that would be

prejudicial to them and really goes way beyond

what the intention of this is.

I think the genesis of this

request for rule change came through the

informal rulechange process with the

Pasteurization Program, where the desire to

label was not available to us. We were able

to achieve that through an exemption, but it\'s

just the industry\'s desire to be able to think

ahead and perhaps react to a situation much

more quickly involving labeling that will

facilitate our ability in world trade and to

perhaps be ‑‑ provide more information in

labeling for our customers around the world.

Q So in your meetings and so forth

was that issue discussed, that it wasn\'t just

an oversight? The issue was discussed and

decided specifically to word it the way you

did, the proposal?

A The bulk?

Q The bulk proposal, yeah.

A Yes. That was the only

consideration, was bulk.

MR. ENGELER: Okay. Thank you.

JUDGE HILLSON: Any other

questions for this witness?

MR. HERON: No, Your Honor.

MR. MARTIN: No, Your Honor.

JUDGE HILLSON: Okay. You may

step down. Thank you for testifying.

(Witness excused.)

JUDGE HILLSON: Call your next

witness, Mr. Martin.

MR. MARTIN: Thank you, Your

Honor. The Almond Board of California would

like to call Mr. Doug Wells as its next

witness.

JUDGE HILLSON: And I\'m going to

label his written testimony as Exhibit 21.

(Hearing Exhibit 21

marked for

identification.)

MR. MARTIN: Thank you, Your

Honor.

JUDGE HILLSON: Please raise your

right hand.

Whereupon,

DOUG WELLS,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: I do.

JUDGE HILLSON: Please state and

spell your name for the record.

THE WITNESS: Doug Wells. Last

name, W‑e‑l‑l‑s.

JUDGE HILLSON: He\'s your witness,

Mr. Martin.

MR. MARTIN: Thank you, Your

Honor.

DIRECT EXAMINATION

BY MR. MARTIN:

Q Good morning, Mr. Wells.

A Good morning.

Q Sir, would you please state your

current address?

A 16508 West River Road, Livingston,

California.

Q And, sir, what is your occupation?

A I\'m a farmer, specifically an

almond farmer.

Q And, sir, I understand that you

have prepared written testimony for inclusion

in the record. Is that correct?

A That\'s correct.

Q Would you like to read your

written testimony into the record at this

time?

A Yes, I would.

Q Would you proceed, please.

A My name is Doug Wells. My last

name is spelled W‑e‑l‑l‑s and my current

address is 16508 West River Road in

Livingston, California.

I\'m a small almond grower in

Merced County. I\'m a small grower as defined

under the Small Business Administration

definition, not exceeding \$750,000 in revenue.

I\'ve been farming almonds for 26 years and

have 67 acres of almonds.

I always been active in the

industry as a grower by attending meetings and

serving as grower liaison with Blue Diamond

Growers and serving as a director on the board

of a local huller/sheller co‑op, the

Livingston Farmers Association, for over ten

years.

I began attending Almond Board

meetings in 1990 and became involved in the

Production and Research Committee. I later

became a member of the Board of Directors, for

six years, and the Food Quality and Safety

Committee, (FQ&S), for seven years.

My testimony is in support of the

proposed amendments to Section 981.42 of the

Almond Marketing Order, to have general

authority to recommend different quality

requirements for different markets through

notice and comment rulemaking; and the

proposed amendment to add Section 981.43 to

the Marketing Order to have general authority

to propose labeling requirements through

notice and comment rulemaking.

Farming profitability and grower

returns are definitely tied to supply and

demand, more so than most other industries.

When the supply is up, demand and prices are

down. We have been able to maintain and/or

increase demand for our product while

increasing production. This has been

accomplished partially by creating an image

and message for the consumer of almonds that

they are healthy, nutritional, versatile, and

great tasting.

Amendment Number 1, different

outgoing quality requirements.

In 2001 and 2004 the industry

experienced, for example, Salmonella

outbreaks. One in Canada and one in the

United States. These events had the potential

of destroying demand for our products and the

healthy image of almonds, which could affect

the financial returns to growers.

After the first outbreak in 2001

the industry went to work on a solution to the

problem. One of the issues the FQ&S Committee

encountered was the fact that not all markets

required pasteurized products. We know that

consumers of raw, natural almonds ultimately

needed pasteurization, but what about almond

being utilized in manufactured products that

would already pasteurize the almonds? Also

the market in India takes inshell product to

be shelled by hand in family homes, would not

benefit from the pasteurization process due to

potential recontamination of the product

during the shelling process.

I believe that the proposed

amendment 981.42 is needed to provide general

authority to ensure the orderly marketing of

almonds. Any specific requirement would be

implemented through notice and comment

rulemaking, where all interested parties would

have the opportunity to participate.

Quality standards for almonds

differ throughout the world. An example would

be the acceptable aflatoxin levels in the

United States, European Union, and other

international markets. The EU standards are

by far the most restrictive. But this is a

major destination for almond shipments. In

order to meet these EU standards, the industry

developed a Voluntary Aflatoxin Sampling

Program, VASP. However, I\'m aware that

foreign almond buyers are insistent that the

program be mandatory.

If my handler cannot supply the

quality of almonds that their customers

require, it\'s going to result in lost sales,

and eventually these lost sales will affect

the price my handler pays me. The industry

could use this general authority to propose

specific requirements through notice and

comment rulemaking, to develop appropriate

quality standards which meet the needs of

different markets. I want to emphasize that

any specific requirement would be a dressed in

a notice and a comment rulemaking, where all

segments of the industry and other interested

parties would have an opportunity to

participate.

Amendment Number 2, marking or

labeling of containers.

I would like to testify in support

of the proposed amendment to Marketing Order

981, adding Section 981.43 to provide

authority for marking or labeling of bulk

containers. This amendment will allow the

industry to pursue notice and comment

rulemaking to address specific marking and/or

labeling requirements for the industry with

all interested parties having an opportunity

to participate.

The need for this amendment became

very evident when the industry was dealing

with the 2001 and 2004 Salmonella outbreaks.

Handlers wanted the ability to mark containers

as to their pasteurization status, i.e.

pasteurized versus unpasteurized. This would

have helped the handler and their customers

down the line, since the status of the almonds

would be clear on the bulk container. Since

almonds can be traded several times before

reaching the final manufacturer, this is an

important consideration. This is one example,

because of different customer requirements and

those imposed by different countries, I

believe that the proposed amendment 981.43 is

necessary to continue the orderly marketing of

almonds.

In conclusion. I\'m a small‑sized

farmer who enjoys growing a product that has

a worldwide reputation for being healthy and

good for you. With the 2001 and 2004

Salmonella outbreaks, this image of a healthy

almond was tarnished. Our product made some

people sick. I\'m not in the business of

farming almonds to make people sick,

especially if there\'s a solution to the

problem.

The two biggest limiting factors

within the Marketing Order are the lack of

general authority for labeling and the lack of

general authority to have different quality

requirements for different markets. Accepting

these proposed amendments will allow the

industry to be more responsive, to make our

decisions, and pursue notice and comment

rulemaking based on what\'s best for the

grower, handler, customer, and consumer ‑‑ not

what we are limited to because of a lack of

the Marketing Order authority.

Thank you for your time and your

attention.

MR. MARTIN: Thank you, Your

Honor.

At this time I move that Exhibit

21 be admitted into evidence in the record.

JUDGE HILLSON: Any objection?

Not hearing any, Exhibit 21 is

received into evidence.

(Hearing Exhibit 21

received in evidence.)

JUDGE HILLSON: Do you have any

other questions of this witness, Mr. Martin?

MR. MARTIN: I have no questions

for the witness, Your Honor.

JUDGE HILLSON: Ms. Pichelman, do

you or your colleagues have any questions of

this witness?

Go ahead, Mr. Engeler.

MR. ENGELER: I have a couple.

Martin Engeler again.

CROSS‑EXAMINATION

BY MR. ENGELER:

Q Good morning, Mr. Wells.

A Good morning.

Q There\'s been testimony given here

this morning, and you included in this some of

your testimony as well, regarding informal

rulemaking and notice and comment rulemaking.

And based on your experience as a Board member

and also you mentioned you\'re a small grower,

based on those experiences, do you believe ‑‑

when the Almond Board goes through that

process, do you believe they give due

consideration to the impacts of any of their

proposed regulatory actions on small

businesses?

A I do. It always amazes me.

Sometimes as we have an issue come before the

committees and/or the Board, it may take time

to grow in the industry as part of what the

issues are. But those issues come forward.

The committees and the Board does a very good

job of drawing out those issues, putting them

on the table, discussing them. And even the

smallest individual to the biggest

individuals, their voices are being heard.

We recently had a meeting

yesterday and there was a four‑hour‑plus

meeting and there were some serious issues

that were brought up and the Board was very

responsive to those issues and acted

accordingly.

MR. ENGELER: Thank you.

I don\'t have anything else.

JUDGE HILLSON: Any further

questions? Go ahead.

MS. PICHELMAN: No.

MS. MAY: I have a question.

Laurel May, USDA.

BY MS. MAY:

Q Good morning.

A Good morning.

Q You talked about handlers wanting

the ability to mark containers. You\'re not

prohibited ‑‑ or your handlers ‑‑ you\'re a

grower, I know ‑‑ handlers are not currently

prohibited from marketing ‑‑ marking their

containers, are they, with any ‑‑

A Yes and no.

Q Okay.

A Well, they put marks on it, but

it\'s my understanding that if you put

\"pasteurization\" on a container, there\'s other

regulatory agencies that say that that

container has to receive a five‑log kill in

order to use the word \"pasteurization.\" And

so you have to be careful how you use that

word on a container right now. It\'s not

governed by our Marketing Order, it\'s not

governed by the Almond Board. I think, it\'s

my understanding there\'s other agencies that

can prohibit certain wording on containers.

Q So then the authority that the

Almond Board is seeking to add to their Order

would then benefit the industry in what way?

A I see it is as a building block.

Without labeling, that\'s the one item we

talked about, we cannot pursue labeling on

containers, bulk containers. And we need to

have that in place. Once that\'s in place this

industry can go to work on labeling and try to

find out what is appropriate, what do we need,

what do our customers need on that bulk

package, and what works for everybody.

And, to be honest, how that\'s

going to come out, I wouldn\'t even venture a

guess, after looking at what we\'ve been

through on the informal rulemaking to this

point ‑‑

Q Uh‑huh.

A ‑‑ on other issues. But it would

‑‑ I will say this, it will represent the

industry. When we get there, it will

represent the industry.

Q Okay. So then you think that

there would be a benefit to the Marketing

Order being able to require certain labeling

of all handlers?

A Definitely. When we had the

informal rulemaking and we hit that snag when

we started wanting to label packaging of bulk

containers and we went to USDA, said, \'Well,

if you need this let\'s work on it.\' And at

that point in time, my understanding, based on

other issues that we had going, we tabled that

and held off on that. Now we\'re back to that

point where we\'re requesting the labeling be

put into the Marketing Order.

MS. MAY: Okay. Thank you.

THE WITNESS: You\'re welcome.

JUDGE HILLSON: Anything else? Do

you have a question, Dr. Hinman?

DR. HINMAN: Yes.

BY DR. HINMAN:

Q Donald Hinman, USDA. Good

morning.

A Good morning.

Q You were talking about labeling.

So would you say that the benefit you see is

that the greater clarity in distinguishing

pasteurized and unpasteurized almonds is going

to affect with the long‑term result in more

sales of almonds?

A Is that in itself going to

generate more sales? I don\'t know if I can

say it will, but as we develop more and more

markets and we\'re pushing bulk product into

those markets, you know, it\'s all over the

world and not every market reads English. Put

a symbol on for pasteurization versus

unpasteurized, we could make it very clear

what type of product is in that bulk

container.

So I think what we can tell our

buyers in those markets is: When you receive

product that has a label on it, you know

exactly what the status of that product is in

relation, at least in this case, maybe to

pasteurization, whether it was treated or not

treated. So that allows us to, I think,

present a better market ‑‑ or not a better

market ‑‑ a better product to those markets.

Q Okay. So that ‑‑ you expect that

in the long term to bring greater returns to

you as a small grower?

A I think that allows us to maintain

and keep increasing our demand and providing

a service to our buyers out there.

Q Then on the ‑‑ on Number 1 I think

you stated that if implemented would avoid

destruction of demand; is that correct?

A Yeah.

Q And you see personally that that

would benefit your operation, if that

amendment was to be ‑‑ if authority was

granted and that was to be implemented?

A Um‑hum.

JUDGE HILLSON: You need to answer

those yes or no. Just ‑‑

THE WITNESS: Yes. I\'m a small

grower, like I say, 67 acres. And you asked

one of the questions to one of the testifiers

up here, small versus big. When this market

of almonds, if it goes soft, and it wasn\'t too

long in the past here that we received 85

cents a pound for our product, if you don\'t

service debt load you don\'t stay in business

very long. And a small grower may not have

flexibility to ride those issues out.

Sometimes bigger growers have more assets.

They can have more borrowing power.

So anything that will prevent that

market from getting soft ‑‑ and food‑borne

illnesses, look at the Spanish market. It\'s

very easy to understand. You go out there and

talk to farmers who already got their capital

investment into that crop, up to the point

he\'s ready to harvest it he\'s lost it all,

he\'s received no revenue, he\'s got all

expenses, almonds I don\'t think will ever

reach that point except when that price goes

from two dollars and something a pound down to

80 cents a pound. That\'s a big impact on the

small guy. It\'s a big impact on the whole

industry.

BY DR. HINMAN:

Q And to achieve those benefits on

either amendment, do you foresee any costs

being imposed on your operation? And, if so,

do you expect the benefits to substantially

exceed the costs?

A Far exceed the cost. Far exceed

it. It\'s a tool we need and I welcome it.

Q Just one more question then.

A Sure.

Q In your comment on page 3 ‑‑ or,

I\'m sorry, on page 2 it says supply is up,

demand, and prices are down, which is a good

general economic principle.

A Yes.

Q But would you, you know, with the

grower price, sort of average estimate that I

presented in testimony, would you admit there

there are some years in which that did not

occur?

A Oh, yes.

Q Production went up and price went

up also, so it\'s not a universal principle.

A It\'s not a universal principle,

but, you know, the coffee shop talk among

farmers, you go in there and that farmer next

to you raises almonds. He\'s got a lousy crop.

The other farmer over here has got a lousy

crop. You\'ve got a bumper crop. Guess what,

you\'re going to benefit from your neighbors

and your fellow farmers. By having lousy

crop, they\'re going to have a weak year.

You\'ve got the supply, you\'re going to have

the price. That\'s why the man still works

down here at the farming level.

Q Okay.

A It holds pretty true.

DR. HINMAN: Thank you very much.

THE WITNESS: You\'re welcome.

DR. HINMAN: No further questions,

Your Honor.

JUDGE HILLSON: Anything else from

the AMS side?

MS. PICHELMAN: No.

JUDGE HILLSON: Any other

questions of this witness?

MR. HERON: No questions, Your

Honor.

JUDGE HILLSON: Any redirect, Mr.

Martin?

MR. MARTIN: No, Your Honor.

JUDGE HILLSON: Thanks a lot, sir,

for testifying. You may step down.

THE WITNESS: Thank you.

(Witness excused.)

JUDGE HILLSON: Mr. Martin, you

may call your next witness.

MR. MARTIN: Thank you, Your

Honor. The Almond Board of California would

like to call Mr. Joe MacIlvaine.

JUDGE HILLSON: And I\'m going to

mark Mr. MacIlvaine\'s written statement as

Exhibit 22, ‑‑

MR. MARTIN: Thank you, Your

Honor.

JUDGE HILLSON: ‑‑ for

identification.

(Hearing Exhibit 22

marked for

identification.)

JUDGE HILLSON: Would you please

raise your right hand, sir?

Whereupon,

JOSEPH MACILVAINE,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: Yes.

JUDGE HILLSON: Okay. And if you

please state and spell your name for the

record?

THE WITNESS: My name is Joseph

MacIlvaine. My last name is spelled M‑a‑c

capital I‑l‑v‑a‑i‑n‑e.

JUDGE HILLSON: Okay, Mr. Martin,

he\'s your witness.

MR. MARTIN: Thank you, Your

Honor.

DIRECT EXAMINATION

BY MR. MARTIN:

Q Good morning, Mr. MacIlvaine. How

are you?

A I\'m just fine. Thank you.

Q Sir, would you state your address

for the record, please? Your office address.

A My office address is 33141 East

Lerdo Highway, Bakersfield, California.

Q And sir, would you state your

occupation for the record?

A I\'m a farm manager.

Q For almonds?

A Almonds and other crops.

Q Thank you, sir. I believe that

you\'ve prepared some written testimony for

inclusion in the record; is that correct, sir?

A I have.

Q And would you like to read that

testimony into the record at this time?

A Yes.

Q Would you like to proceed.

A My name is Joseph MacIlvaine. I\'m

President of Paramount Farming Company in

Bakersfield, California. Paramount Farming

Company is one of the largest growers of

almonds in California, with over 40,000 acres

devoted to almond production.

In terms of the Small Business

Administration, Paramount would not be

considered a small business because our annual

receipts are in excess of \$6.5 million. In

industry terms, our processing and marketing

company, Paramount Farms Incorporated, would

be considered a large handler.

I\'ve been President of Paramount

Farming Company since 1987 and during that

time I have been active in almond industry

affairs, including many years of service with

the Almond Board of California. Over the

years I have served as a member of most of the

committees, including Production Research,

Marketing, Environmental, International,

Preserve, and Quality Control. I served as

Chairman of the Almond Board in the late

1990s.

I\'m very much in favor of adopting

the proposed two amendments, 981.42 and

981.43, to amend the Almond Marketing Order.

I\'m convinced that they are necessary for the

continued growth and economic well being of

all participants in the almond industry in

California.

Almond growers generally rely upon

the handlers in the industry to process and

market their crops each year. Typically, the

grower will harvest and deliver his crop to a

handler in the fall, allow the handler to

market the crop in an orderly way during the

year, and receive progress payments during the

course of the year, with the final value of

the crop being determined the following fall

with the final crop payment.

The grower is thus dependent upon

the stability and reputation of the entire

almond industry for his economic well being.

The relationship between his handler and the

end customers, the confidence of the end

customers in the quality and the reliability

of the product, the reputation of the shippers

and the supply chain, and the overall

perception of the industry and our products

all will have a profound impact on the

economic health of all growers, large and

small.

I would note that any problem

encountered by a handler goes directly back to

the grower in terms of impacts and costs. A

few years ago Paramount needed to issue a

recall for a small percentage of our nonpareil

crop ‑‑ that\'s a variety of almonds. Not only

were there direct costs associated with the

recall but there were huge indirect costs and

time involved in tracking product, tracing it

back to the field, and double‑checking the

environmental factors in the field associated

with the recalled product.

We estimated at that time that

just in manpower along and not counting the

value of the lost product, the recall cost

three to five years manyears of effort and

perhaps a million dollars. Any improvements

in the tracking and correct labeling of

products will benefit the grower as well as

the handlers of almonds.

Because the actions of one or a

few handlers can have such an effect on the

industry as a whole, the Almond Board for its

entire history has implemented a strictly‑

controlled quality assurance program aimed at

eliminating damaged almonds from the supply

chain. This self‑imposed quality assurance

program has benefitted all the growers in the

industry by bolstering the confidence of

customers and consumers in the reliability and

quality of our products. In addition, the

USDA grades and standards for California

almonds have allowed handlers to communicate

clearly with customers regarding the

attributes of the particular products in both

domestic and international markets, and to

reliably meet customer requirements and

expectations.

The two proposed amendments,

981.42 and 981.43, to the Marketing Order,

will allow the Almond Board to continue and

expand these beneficial functions in a

rapidly‑developing international marketplace

for almonds.

As awareness of food safety and

quality issues continues to explode

internationally, we can expect countries or

groups of countries to adopt import

regulations from time to time. These

restrictions will not always be harmonized

across all markets, and the industry will very

likely have to respond these concerns on a

case‑by‑case basis.

For example, Japan has its own

tolerance for pesticide residue in almonds,

which it enforces regardless of the

corresponding tolerances recognized in the

United States. Particularly with some of our

newer and safer protection materials, it is

possible that a shipment perfect acceptable

for domestic consumption would have traces of

residue for which no tolerance is in place in

Japan, no matter how safe the product.

In a case such as this the

industry may want to avoid product rejections

and the accompanying cost and detrimental

publicity by establishing standards

appropriate to the destination of the product.

This is why proposed amendment

981.42 is important, to give the Almond Board

general authority to impose, through notice

and comment rulemaking specific requirements

depending on the country to which the almonds

are being shipped.

Likewise, the industry needs

proposed amendment 981.43 to mark or label

bulk almond packaging for a number of reasons.

For example, the question of labeling

pasteurized and nonpasteurized almonds is a

current concern, but the industry will

confront other issues equally in need of the

proposed amendment.

Some examples can include storage

or warehousing conditions or even fumigation

certification for a market like India. Any

costs associated with implementing any

requirements would, in my opinion, be minimal

and the benefits would substantially outweigh

the costs. Specific bulk labeling

requirements would be imposed through notice

and comment rulemaking where all members of

the industry and the public would have the

opportunity to participate.

In summary, the proposed

amendments 981.42 and 981.43 will give the

Almond Board of California valuable tools to

provide the most appropriate products to

various markets around the globe and

communicate with customers regarding vital

product attributes.

Thank you for your opportunity to

provide this input.

MR. MARTIN: Your Honor, at this

time I move that the exhibit marked 22 be

admitted as evidence into the record.

JUDGE HILLSON: Any objection?

Hearing none, I will received

Exhibit 22 into evidence.

(Hearing Exhibit 22

received in evidence.)

JUDGE HILLSON: Do you have any

questions of this witness, Mr. Martin?

MR. MARTIN: I just have one

question.

BY MR. MARTIN:

Q Mr. MacIlvaine, would you turn to

page 3 of your testimony?

A Sure.

Q In the first full paragraph where

you discussed in general terms some of the

costs that you incurred, I was wondering if

you could just go into a little more detail in

general terms and estimates as to how that

situation affected your operation?

A Let me just provide a little

background on that subject. We ‑‑ this was a

case in which Salmonella was at least

suspected of being associated with some of the

almonds that we had shipped into consumer

channels. And we issued an immediate recall

on that product. And as part of that of

course there are the direct costs of the

recall which involves flying back product and

getting it back and reprocessing it and taking

care of it. In that case we were able to ‑‑

Salmonella is killed by heat, so we were

actually to process that product and resell

the bulk of the returned product. But there

were indirect costs that directly affected me

as a grower of almonds that I wanted to point

out here.

Whenever a grower\'s product is

suspected of having some concern in terms of

food safety, and one of the immediate

questions that comes up is how did that

contamination happen, where did it come from,

and how could that be prevented. And in the

case of natural products being grown in the

field, these questions are not always easy to

answer.

In our case we did a very

exhaustive research into how that product was

contaminated with Salmonella, in this case, in

the field. And we were ‑‑ we actually spent

a great deal of time and effort, as I say

here, perhaps a million dollars and years of

manhours in terms of trying to ascertain the

cause of that contamination, and never really

could pin it down. We never actually found

the strain of Salmonella that was purported to

cause the food illness that we had.

But my point in bringing up this

example is that to the extent we can foresee

these issues as an industry, deal with them as

an industry, we can help growers, large and

small, avoid this type of incident. And I

think that\'s the important thing to note.

So I don\'t know, in terms of costs

a manhour of ‑‑ a year worth of a person\'s

time might be valued at something between

\$150,000 and \$200,000, depending on how you

figure indirect costs and whatnot. But it\'s

a substantial cost to the grower.

Q So, sir, do you believe that these

two general authorities to the Marketing Order

that are being proposed today would benefit

you and would ‑‑ any costs you incur as a

result of them, would those costs be

outweighed by those benefits?

A Yes, clearly.

Q And could you just explain for the

record why?

A Well, I think the costs ‑‑ other

witnesses have testified, and I agree with

this, that the costs associated with these

amendments, first of all, those costs would be

considered when specific proposals are

considered. But, in general, labeling costs

are very small. We\'re labeling all the boxes,

anyway. So it\'s a matter of changing the

wording that we\'re actually stenciling on

these boxes, we\'re placing on them. Labeling

are costs are fairly insignificant.

The cost of establishing

requirements for different countries would

depend on the actual cost. But the benefit

could be substantial in each of those two

cases.

In the case of different

standards, and the question has come up as to

mandatory versus voluntary standards. For

example, we\'ve talked about aflatoxin. This

voluntary program for aflatoxin. I would just

point out that there\'s a big difference in the

customer\'s mind between a voluntary and a

mandatory program. Whether there exists any

difference in fact seems to make no

difference.

And I think a great example of

that is what\'s being proposed for the leafy

green vegetables right now. A mandatory

program simply carries much more significant

weight in the customer\'s mind than a voluntary

program does. They hear the word \"voluntary,\"

and it doesn\'t matter if everyone in the

industry is complying, if it\'s a voluntary

program they think: Well, it might be there

or it might not. And if it\'s a mandatory

program, they say: Ah, this is a mandatory

program. And I think some cultures more than

others, but I think at least in some cultures,

that\'s a big difference. We certainly see it

in our efforts.

MR. MARTIN: Thank you very much,

sir.

I have no further questions, Your

Honor.

MS. PICHELMAN: Your Honor,

Heather Pichelman, USDA. I just wanted to

quickly clarify something.

CROSS‑EXAMINATION

BY MS. PICHELMAN:

Q I\'m not sure if I heard this

correctly or not, but I think Mr. Martin had

asked whether the costs outweighed the

benefits, and you said yes. And I think from

your testimony, were you stating that the

benefits outweigh costs?

A Yes. If I said the opposite I

misheard the question. There\'s no question

that the benefits outweigh the costs here.

The costs are de minimis and the benefits are

potentially great.

MS. PICHELMAN: Thank you very

much for the clarification.

THE WITNESS: Thank you.

JUDGE HILLSON: Any other

questions?

MR. ENGELER: I just have one.

BY MR. ENGELER:

Q Mr. ‑‑ Martin Engeler with the

USDA again. Mr. MacIlvaine, are you

testifying on behalf of the farming entity and

the handler entity both on these orders?

A Yes. I\'m here specifically on

behalf of Paramount Farming Company which is

the farming entity today. I\'m not employed at

Paramount Farms, although it shares the same

ownership. So but today I\'m here as a grower.

MR. ENGELER: As a grower, okay.

My question was related to the handling side,

so I guess I won\'t ask you that then. Thank

you.

JUDGE HILLSON: Any other

questions?

MS. PICHELMAN: Heather Pichelman.

I just had a very, very quick question.

BY MS. PICHELMAN:

Q When you were in your testimony

discussing the proposed amendment, 981.43,

regarding labeling, you had given some

examples of ways that this authority could be

used, including storage and warehousing

conditions?

A Yes.

Q Could you just give me an example

of what kind of labeling, what exactly you

meant by that?

A Years ago when I was Chairman of

the International Committee I traveled to

China to visit and try to encourage the growth

of use of almonds in China. And it became

very clear to me in that visit while I was

there for a couple of weeks that once you are

outside the centers of importation, Hong Kong,

for example, once you got anywhere a little

further back into China, they had not the

slightest clue as to how to handle almonds,

how to keep them fresh. And freshness was a

real issue in that case. They have a very

warm, humid climate on most of the coast of

China. And in our sampling of product there

we found that we could definitely see evidence

that product had been improperly stored.

Well, that might provide you an

example, for example, that would come back to

discussion at the Almond Board as to whether

it would be appropriate to label product

destined to China with specific instructions

in Chinese on the properly handling and

storage of almonds so that they would maintain

freshness. And that would ultimately have the

effect of increasing the demand for almonds

consumption and therefore demand for almonds

in China. So that\'s an example of the type of

thing I was thinking about there.

MS. PICHELMAN: Thank you.

I have no further questions.

JUDGE HILLSON: Anything else from

this side of the room?

Any other questions of this

witness?

DR. HINMAN: No questions, Your

Honor.

JUDGE HILLSON: No redirect?

MR. MARTIN: No, Your Honor.

JUDGE HILLSON: You may step down,

sir. Thank you.

THE WITNESS: Thanks.

(Witness excused.)

JUDGE HILLSON: Off the record for

a second.

(Off the record from 11:42 a.m. to

11:43 a.m.)

JUDGE HILLSON: Back on the

record.

MR. MARTIN: Thank you, Your

Honor. The Almond Board of California would

like to call Ms. Wendy Larson.

JUDGE HILLSON: And that would be

Exhibit 23, the statement?

MR. MARTIN: Yes, Your Honor.

JUDGE HILLSON: Okay. I\'m going

to mark Ms. Larson\'s statement as Exhibit 23.

(Hearing Exhibit 23

marked for

identification.)

JUDGE HILLSON: Raise your right

hand.

Whereupon,

WENDY LARSON,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: Yes.

JUDGE HILLSON: Okay. Could you

please state and spell your name for the

record?

THE WITNESS: Yes. My name is

Wendy Larson. Last name is spelled

L‑a‑r‑s‑o‑n.

JUDGE HILLSON: Go ahead, Mr.

Martin.

MR. MARTIN: Thank you, Your

Honor.

DIRECT EXAMINATION

BY MR. MARTIN:

Q Good morning, Ms. Larson. How are

you?

A Thank you. Good morning. I\'m

well. Thank you.

Q Would you please state your office

address for the record, please?

A Yes. My office is at 2801

Lassiter Lane, Turlock, California.

Q And, ma\'am, would you please state

your occupation for the record?

A Yes, sir. I am general manager of

Big Tree Organic Farms.

Q Ma\'am, I understand that you have

prepared written testimony to be included in

the record in this proceeding; is that

correct?

A That\'s correct.

Q And would you like to read your

written testimony into the record at this

time?

A Yes, I would.

Q Would you proceed, please.

A Thank you.

I\'m General Manager of Big Tree

Organic Farms. We\'re a grower‑owned organic

almond marketing cooperative. I\'ve worked

with this cooperative since its formation in

late 1998 and I\'m responsible for its

planning, operations, sales, marketing, and

grower relations.

Big Tree Organic Farms is a small

almond handler with production under one

million pounds per year. We would also be

classified as a small agricultural service

firm under the Small Business Administration\'s

definition, with average annual receipt totals

under \$3 million.

Currently, Big Tree Organic Farms

serves 21 grower‑owners by receiving, grading,

packing, and selling their certified organic

and certified transitional almonds. We

represent nearly 600 acres, which is

approximately 15 percent of the 4,189 acres

currently registered with the State of

California as producing organic almonds.

Our grower‑owners would be

classified as small agricultural producers

under the Small Business Administration\'s

definition, with no single entity receiving

over \$750,000 in annual receipts from organic

almond sales.

My involvement with the Almond

Board of California includes three years of is

voice as an alternate on the Production

Research Committee. Additionally, I\'ve served

on the Almond Quality Evaluation Taskforce

since it was established. Most recently, the

Almond Board of California requested I serve

as a media contact on topics impacting the

organic sector.

I\'d like to speak in support of

the two Marketing Order amendments, 981.42 and

981.43, under consideration today. Before

providing my testimony on the two amendments,

I\'d like to provide an overview of the organic

almond market as well as the organic market in

general.

I believe that the 4,189 acres of

organic almonds currently registered with the

State of California contribute approximately

six million pounds, or less than one‑half of

one percent, to the overall production amount

of the 1.3 billion pound estimated 2007 almond

crop.

While the overall production of

almonds has been increasing steadily, my

estimate of organic almond production has

remained static due to the production

challenges of organic farming and economic

challenges to domestically‑produced organic

almonds.

Production challenges include

orchard diseases, pest control, and limited

production research for organic almond

farming. Economic challenges include rising

costs for labor, fuel, and insurance, combined

with unique competition from other almond

production countries.

Due to cost‑of‑production

differentials, organic almonds can be imported

from Spain, Italy, and Turkey, and sold at

significantly lower prices than domestically

produced organic almonds. Meanwhile, the

organic food industry has posted double‑digit

growth over the last 20 years, which is

extraordinary when compared with the

conventional food industry growth average of

two to three percent.

Part of this sustained growth can

be credited to the establishment of the USDA\'s

National Organic Program back in 2001. With

the National Organic Program there\'s greater

consumer confidence resulting from consistent,

well‑defined standards including labeling.

Additionally, the National Organic

Program gives responsibility and authority to

USDA certifying agents for administering

complaints to the standards. The National

Organic Program defines organic for trade in

the United States and anyone growing or

producing items labeled as organic must meet

these USDA and NOP standards. This is a basic

standard. However, other countries may have

different standards for organic. Thus, there

is opportunity for operations to be certified

to additional standards depending upon the

market in which it intends to sell its

product.

I\'d like to speak in support of

the general amendment, 981.42, which would

enable the Board to recommend different

outgoing requirements for different markets.

With the experience I have in complying with

different organic standards for different

markets, I understand how important it is to

provide our foreign customers with products

that meet their expectations and how

complicated that process can be.

This proposed amendment is

valuable to the almond industry because it

helps us to potentially avoid costly mistakes

that could be associated with not

understanding an import requirement.

Using the example of aflatoxin

standards, a small handler may not be aware of

the European mandatory testing and could

experience costly tests, delays, and even

product rejections. A single container of

certified organic almonds at today\'s market

price has a value of nearly \$300,000. If that

container is delayed for additional testing,

would no fumigants to product it from insect

reinfestation, even a couple of weeks could

ruin the entire load. This would be a costly

mistake, and having general authority to

recommend specific requirements would

alleviate this problem.

When a food safety issue comes up,

our customers begin to question quality. The

entire industry is often painted with the same

brush, regardless of internal procedures.

With a mandatory outgoing ‑‑ I\'m sorry ‑‑

there\'s a typo. With mandatory outgoing

quality requirements, all almond handlers

shipping to a specific market would benefit

through less risk of return and greater

consumer confidence in that market. This

ensure we all maintain safe ‑‑ excuse me ‑‑

this ensures we all maintain sales levels and

measure.

As with any changes in the

Marketing Order, specific requirements would

be implemented through notice and comment

rulemaking, which allows broad participation

among growers and handlers. It also ensures

that any costs associated with a specific

requirement would be addressed.

I would also like to support the

general amendment, 981.43, which would add

authority for the Board to recommend container

marking or labeling for boxes, bins, bags,

cartons, or other types of receptacles used in

packaging or handling bulk almonds.

Again, drawing on experience

gained with organic standards, labeling is an

essential part of credible standards. And

authority for compliance with labeling

standards is critical at the front line, i.e.,

local authority.

The National Organic Program

included labeling when it was created, knowing

that consistent standards can only be

effectively communicated when there are

consistent labels. The almond industry is no

different. Once general authority is

established for the Almond Board, the industry

can move forward with developing specific

labeling through notice and comment rulemaking

to serve and protect its customers. This

proposed amendment is a cost‑effective way to

ensure almonds continue to flow into the

marketplace in an orderly fashion with easy

identification for customers.

Since all handlers already label

their products in some way, this proposed

amendment would have no additional costs or

impact on small handlers and, in my opinion,

have no additional cost or impact on the rest

of the industry.

In conclusion, these proposed

amendments, 981.42 and 981.43, are efficient

and timely. The economic impact on small

handlers and producers would be minimal. And

the returns through increased customer

confidence would generate continued sales.

Thank you for your attention.

MR. MARTIN: Your Honor, at this

time I move that the exhibit marked 23 be

admitted into evidence in the record.

JUDGE HILLSON: Any objection?

Hearing none, Exhibit 23 is

received in evidence.

(Hearing Exhibit 23

received in evidence.)

JUDGE HILLSON: Do you have any

questions you want to ask this witness, Mr.

Martin?

MR. MARTIN: Yes. Yes, Your

Honor.

BY MR. MARTIN:

Q Ms. Larson, as a small organic

grower ‑‑ and I believe you\'ve testified you

were also a handler; is that correct?

A I am just a handler. I\'m not a

grower.

Q Okay. As a small organic handler

then, do you believe that your views are taken

into account by the Almond Board of California

when considering specific recommendations that

may be forwarded to USDA for consideration?

A Yes. I found the Almond Board\'s

format of committee and public notice is very

well communicated. It provides every

opportunity for handlers and growers to

participate in the decisionmaking.

Q And as an organic handler, are

your views taken into consideration as a

conventional handler\'s views would be?

A Yes.

MR. MARTIN: Thank you.

I have no further questions, Your

Honor.

JUDGE HILLSON: Before I turn it

over for cross‑examination, not knowing how

many questions you\'re going to have, I\'m

thinking this might be ‑‑ assuming you\'ll

promise to come back after lunch ‑‑ this might

be a logical time to break for lunch. I\'m not

sure how quickly people get served around

here, so I\'m going to say why don\'t we break

until 1:15. That way we\'ll finish Ms.

Larson\'s ‑‑ we\'ll have Ms. Larson\'s cross‑

examination and then Mr. Heron\'s going to have

three witnesses. And also Mr. Anderson told

me he wanted to testify as well.

So I\'m pretty sure we\'ll get out

of here today, so ‑‑ but it\'s pretty clear

we\'re not going to get out of here by lunch

time. So rather than rush it, I\'d just as

soon we take our lunch now.

MS. PICHELMAN: Your Honor, we\'d

be more than happy to just do Ms. Larson\'s

questions, to let her off the hook, so if she

wanted to leave, she could. And time ‑‑ time

isn\'t an issue.

JUDGE HILLSON: You mean you\'ll

get done in less than five minutes, is that

what you\'re saying, or that time isn\'t an

issue ‑‑

MS. PICHELMAN: No. That time

isn\'t ‑‑ no, it may take ‑‑

JUDGE HILLSON: You\'re not ‑‑

MS. PICHELMAN: It may take more

than five minutes, but we don\'t need to be out

of the building by a certain time.

JUDGE HILLSON: Oh, okay, who told

me that?

MS. PICHELMAN: We\'re modifying

our standards on ‑‑ that\'s fine.

(Laughter.)

JUDGE HILLSON: In that case why

don\'t we ‑‑ let us then finish up when was Ms.

Larson.

Do you have any questions, Ms.

Pichelman?

MS. PICHELMAN: I\'m going to see

if AMS has any.

CROSS‑EXAMINATION

BY MR. ENGELER:

Q Martin Engeler with USDA. I just

have one question, sort of somewhat related to

Mr. Martin\'s question. I was looking at page

3 of your testimony. You were talking about

sort of comparing the almond ‑‑ the organic

industry\'s growth compared to the overall

industry\'s growth. And you indicated that

it\'s fairly static, I believe.

A Um‑hum.

Q I was wondering ‑‑ and you

attributed that to some factors there. And I

was just wondering what ‑‑ in your experience

as an almond handler and your experience with

the Almond Board, has the Almond Marketing

Order or the Almond Board in any way been a

contributing factor to lack of growth in the

organic sector?

A No.

Q Through their regulations or

anything?

A No. Not at all. As a matter of

fact, if I can elaborate just a bit, one of my

purposes in serving on the Production Research

Committee, which I volunteered for and they

gladly accepted me as an alternate, was to

hopefully be a voice for some production

research funding to go towards more organic‑

type research. And I\'m delighted to say that

I feel very satisfied that there has been more

of a direction headed that way. I can\'t hold

myself responsible for it, but just in general

it seems the consensus that we should all as

an industry be looking at more

environmentally‑friendly production methods.

MR. ENGELER: Thank you.

MS. MAY: I have a question.

BY MS. MAY:

Q Laurel May, USDA. You talked

about certified transitional almonds. Am I

correct in assuming that those are almonds

that are in the process of going from

conventional to organic production?

A Yes. Organic standards require a

three‑year transition process for ‑‑ at least

for orchard product, like almonds. Certified

transitional is not a supervised labeling by

the USDA Organic Standard. It is a

marketplace labeling that\'s allowed through

our local certifying agency.

Q I had never heard of certified

transitional. I just wondered what that was.

A It\'s ‑‑

Q You mentioned NOP standards. Are

there any current NOP regulations that would

duplicate or conflict with some of the

regulations that we\'re anticipating that would

be a result of the authority implemented with

this ‑‑ these amendments?

A No. There are no conflicts, not

to my knowledge.

Q Any duplications?

A Any duplications, no, not to my

knowledge.

Q Also you talked about the

perception with your customers. Do you agree

with one of our previous witnesses who

mentioned that there\'s a perception that

mandatory regulations are more ‑‑ what was the

word he used, I can\'t think ‑‑ better than

voluntary, better respected, ‑‑ darn, what\'s

the word? I can\'t think of it.

A More credible.

Q More credible. That\'s the word.

‑‑ more credible than voluntary?

A I think that\'s a great question

because I had hoped my testimony would give

weight to that statement. I believe that the

continued growth of the organic market as an

overall market in the grocery stores has

actually been elevated by the National

Standards because the National Standards

define a mandatory structure, more organic.

It\'s more readily understood because it is

mandated now by the NOP requirements.

So where we had originally an

industry that was well regulated in its

segments, we did have some different

misunderstandings between perhaps one

certification agency and the other. And there

was always this confusion, if you will, about

my standard says this, but my standard says

that.

Q Um‑hum.

A Whereas once the National Organic

Program drew something as just a mandated,

this is the overall umbrella of organic

standards, there was a greater understanding.

It allowed product to flow much more readily

and it allowed us to really progress in the

marketplace, creating a whole new opportunity

for multi‑ingredient products and new, you

know, grocery store skews, this very, very

good growth in the industry.

MS. MAY: Okay. Thank you.

THE WITNESS: You\'re welcome.

DR. HINMAN: I have a

clarification.

BY DR. HINMAN:

Q On page 4 where you mentioned the

\$300,000 of the value of a certified

container, would you break that down in terms

of maybe what an average cost per pound would

be times the size of that container?

A Sure. And you\'re supposed to say

your name first, by the way.

(Laughter.)

DR. HINMAN: Donald Hinman. And I

thank the witness for the helpful response.

THE WITNESS: You\'re welcome. I

took a calculation based on a 44,000‑pound

load.

BY DR. HINMAN:

Q Okay.

A And last year\'s example is our

shipment off to France was priced at \$7.95 per

pound. And actually that ends up being closer

to \$348,000, I believe, but I tried to take

more of an average of the last few years.

Q Thank you for that.

You\'re 21 members, grower members,

right?

A Yes, sir.

Q And to the extent possible could

you say that your views ‑‑ you said that the

both ‑‑ neither would impose any cost and

would provide substantial benefits. Is that

correct that you stated that?

A I\'m sorry. Could you repeat that?

Q That these amendments if

implemented would impose no cost and would

provide substantial benefits?

A Yes, sir.

Q Do you believe that ‑‑ can you

represent the views of the grower, do you

think all or most of the growers would hold a

similar view in terms of their growing

operations?

A Yes, sir.

Q And you had characterized to the

extent that you had conversations with other

similarly‑sized handlers, do you think a

number of them would also agree with your

characterization?

A Based upon my experience as a

handler, most of us ‑‑ as the other witnesses

have already testified, most of us have

similar machinery or protocol for labeling and

preparing sales for our customers.

Q Right.

A And I would say that because we\'re

all using kind of the same format, computers

and laserjet printers and xerox copiers for

our labels, I\'d have to say everyone would

have pretty much the same response. I don\'t

foresee any additional costs.

DR. HINMAN: Okay. Thank you.

JUDGE HILLSON: Anything else from

this side?

MS. PICHELMAN: No. Thank you.

JUDGE HILLSON: Any other

questions of this witness?

MR. HERON: No questions, Your

Honor.

JUDGE HILLSON: Any more redirect?

MR. MARTIN: No further questions,

Your Honor.

JUDGE HILLSON: Okay. Ms. Larson,

thank you for testifying. You\'re excused.

You may step down.

(Witness excused.)

JUDGE HILLSON: We\'re going to

take a lunch break. Is 1:15 enough time? I\'m

not familiar much with the places to eat

around here. Is 1:15 fine?

MR. WAYCOTT: Yeah, it\'s fine.

JUDGE HILLSON: Okay. We\'ll come

back at 1:15.

(Luncheon recess taken from 12:01

p.m. to 1:15 p.m.)

JUDGE HILLSON: Okay, let\'s go on

the record. Okay, it\'s 1:15. Right on

schedule. And I\'ll just ask one more time.

Right now we have scheduled Mr. Heron\'s going

to call three witnesses on behalf of Blue

Diamond. And then Mr. Anderson is going to

testify on his own, I guess. And any other

people who want to testify need to let me know

now. Anyone who wants to as long as it\'s

related to these issues can testify, so I\'m

extending the invitation one more time.

Okay. Mr. Heron, you may call

your first witness.

MR. HERON: Thank you, Your Honor.

We\'ll call Mr. Mel Machado. And the next

three witnesses will not have exhibits to

submit. They will be testifying from notes.

JUDGE HILLSON: Okay. Are you

going to be ‑‑ is there going to be question

and answer or they\'re just going to do a

narrative based on ‑‑

MR. HERON: No, they\'ll do a

narrative, Your Honor, and then stand for

cross‑examination.

JUDGE HILLSON: Very good.

Please raise your right hand, sir.

Whereupon,

MEL MACHADO,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: I do.

JUDGE HILLSON: Okay. Could you

please state your name and then spell it for

me?

THE WITNESS: Mel Machado. Last

name\'s M‑a‑c‑h‑a‑d‑o.

JUDGE HILLSON: Okay. He\'s your

witness if you want to ask him any opening

questions.

MR. HERON: No. Thank you, Your

Honor. He will go ahead and proceed.

JUDGE HILLSON: Okay, you may

testify.

DIRECT EXAMINATION

THE WITNESS: My name is Mel

Machado. My address is 4800 Sisk Road,

Modesto, California 95356. I\'m employed by

Blue Diamond Growers in Salida, California.

I\'m the Special Projects Coordinator and a

Field Supervisor within Membership department

at Blue Diamond.

In this capacity I\'m responsible

for working with growers in the San Joaquin

and Northern Stanislaus County areas,

providing technical assistance in the areas of

variety selection, pest and disease

management, orchard fertility, and the

cultural practices required in the production

of their almond crops.

The driving force behind all of

this work is to ensure that all of the growers

marketing through Blue Diamond deliver the

cleanest, best‑quality crops possible. This,

in turn, provides for a clean, wholesome

product for our customers and for the highest

possible payments for our growers.

I have spent the past 15 years

working in the California almond industry. My

experience includes working with plant health,

soil fertility, pest management, and

irrigation management.

I have represented the almond

industry before: The California Department of

Pesticide Regulation; the Central Valley

Regional Water Quality Control Board; the San

Joaquin Valley Air Pollution Control District;

the Cooperative State Research, Education, and

Extension Service of the USDA; and the

California Farm Bureau Federation.

My work includes work on air and

water pollution within the almond industry.

Additionally, I am an alternate member of the

Almond Board of California\'s Production

Research Committee and the Environmental

Committee. I have also been an instructor in

the areas of plant sciences and agricultural

computer applications and the Farm Coordinator

at Merced Community College.

I am testifying in support of both

Proposal Number 1 and Proposal Number 2, which

are the subject of this hearing. These two

proposals were published in the Federal

Register of Friday, July 8th, 2007, on page

36901\.

Blue Diamond Growers is the

largest almond handler in the world. It is

owned by almond farmers and we are a nonprofit

farmer‑owned market cooperative. We work for

our farmer members. More almond farmers in

California belong to Blue Diamond than any

other almond marketing organization.

Our members average approximately

50 acres of almond productions. A small

grower would grow 50 acres of almonds. And

the majority of the almond growers in

California are small growers of this size.

The 1974 crop was the largest in

history, totaling 232 million pounds of

almonds. Today our industry is on the verge

of producing 1.33 billion pounds of almonds,

a 5.7‑fold increase. We have gone from

150,000 producing acres to 615,000 this

season, with production per acre more than

doubling. Furthermore, we have enough acreage

planted today to increase our bearing acreage

to 765,000 acres by the year 2010. This

acreage base will easily give us the capacity

to produce crops in excess of 1.5 billion

pounds annually.

He early \'70s the producing area

‑‑ excuse me ‑‑ acreage was mainly

concentrated in the Upper Sacramento Valley

and the northern portion of the San Joaquin

Valley. Today, plantings stretch from Red

Bluff in the north to the Tehachapi Mountains

in the south.

The conversion of row crop

farmland that once grew cotton, alfalfa,

carrots, tomatoes, and other vegetable and

field crops to almond production has happened

at a rapid pace. In the northern San Joaquin

Valley almonds have been planted in former

range lands along the eastside, while the

grapevine vineyards on the valley floor have

been pulled and planted in almonds as well.

As almond consumption has grown,

5.4 percent compounded annual growth rate over

the last 25 years, the success of our industry

has convinced growers of other crops to

convert to almonds. This enabled them to

participate in a profitable‑growth industry.

California produces over 80

percent of the world almond production,

followed by Spain, Australia, and several

other Mediterranean countries producing minor

amounts.

Almonds are now sold in virtually

all nations throughout the world and they\'re

revered for their health attributes, taste,

and texture. Again, my testimony today is in

support of the Proposals Number 1 and 2 as

published in the Federal Register of Friday,

July 8, 2007, on page 36901. Both of these

proposals are necessary and should be adopted.

Our industry has always been

concerned and proactive in addressing quality

issues through the Marketing Order. For the

length of my tenure in the industry, we have

always crafted rules to ensure removal of

reject kernels in order to maintain top

quality while working with growers to reduce

the incidence of rejects.

Several years ago when other farm

commodities began experiencing occasional

problems, Blue Diamond began rigorous testing

of the product for food‑borne pathogens in

order to eliminate this risk as much as

possible, to maintain a consistently safe and

healthy product. Blue Diamond has encouraged

its growers to use the best production

practices and eliminate the use of all but

compost manures in the field due to their

direct connection with Salmonella and E. coli.

However, has the growth and

production rapidly escalated, the industry

experienced its first Salmonella incident in

2001, propelling the industry to change

rapidly and for the better. Although growers

and some handlers in our industry adopted

safety processes to protect all natural

almonds, which were intended to be consumed in

their natural ground almond state, many did

not. This resulted in a second Salmonella

outbreak in 2004.

Our industry adopted changes to

ensure safe products, such as using good

agricultural practices and supplying good

manufacturing practices to the entire

industry. Unfortunately, there were handlers

who did not adopt these practices.

At the farm level, Blue Diamond

and the Almond Board provided growers with

quality controls in the form of the good

agricultural practices, to do as much as

possible to deliver the cleanest products to

handlers. However, due to the ‑‑ excuse me ‑‑

due to the presence of various animals, mainly

avian, it is virtually impossible to totally

eliminate Salmonella or E. coli without a

pasteurization step.

All of the growers I come in

contact with are very concerned about the food

safety aspects of their product. Given the

problems at other commodities, most recently

the leafy green vegetable industry, have had

with food‑borne pathogens, my growers want to

be sure that the crops they produce are

wholesome and safe for the consumer.

Growers spend over \$2,000 per acre

a year on cultural and harvest costs. Many

are now up to \$2,200 with the escalation of

bee costs and petroleum‑based product

increases. That\'s between 1.23 and \$1.35

billion per year industrywide. Couple this

with the need to increase consumption

worldwide, presume the projected increase in

production, it\'s easy to understand why the

industry needs to guarantee it will deliver a

safe, healthy product to the consumers

throughout the world.

Growers want these rules adopted

because they understand that there is an

increased potential for economic loss through

the risk of lost markets or additional rules

imposed by foreign nations resulting from

another food safety incident on almonds.

Additional details will be given

by Mr. Bill Hoskins, Blue Diamond\'s Quality

Control Manager, and Mr. Rex Lake, Blue

Diamond\'s Director of Sales.

For all these reasons, the

adoption of Proposals Number 1 and 2 are

necessary to ensure that all industry members

work together to provide a safe and healthy

product, both domestically and

internationally. Recent history clearly

establishes that these charges are required.

I urge the Secretary to adopt both proposals

so as to benefit consumers and almond

producers.

This completes my testimony.

JUDGE HILLSON: Thank you. Do you

have any direct questions you want to ask?

MR. HERON: No, Your Honor. Thank

you.

JUDGE HILLSON: Okay. Ms.

Pichelman, do you or your colleagues have

questions of this witness?

MS. PICHELMAN: Yes, Your Honor.

MR. ENGELER: I have a couple,

Your Honor. Martin Engeler with USDA.

CROSS‑EXAMINATION

BY MR. ENGELER:

Q Mr. Machado, you mentioned that in

your employment you\'ve come into contact with

a lot of growers as part of your job. Is that

correct?

A Yes, sir.

Q And in your contact with the

growers that you visit, have you discussed ‑‑

do you routinely discuss these kinds of issues

with them?

A Yes.

Q And do you then believe that the

views you\'ve expressed here represent the

views of a substantial amount of the growers

that you talk to?

A Yes. The growers I come in

contact are very concerned with the food

safety aspects, given the two incidents that

have happened.

MR. ENGELER: That\'s all I have.

Thanks.

JUDGE HILLSON: Any other

questions on this side?

MS. PICHELMAN: No, Your Honor.

JUDGE HILLSON: Mr. Martin, do you

have any questions for this witness?

MR. MARTIN: No, Your Honor.

JUDGE HILLSON: Okay. Thank you,

sir. You may step down.

MR. HERON: May this witness be

permanently excused, Your Honor?

JUDGE HILLSON: He sure may.

MR. HERON: Thank you.

(Witness excused.)

MR. HERON: Our next witness is

Mr. Bill Hoskins.

JUDGE HILLSON: Please raise your

right hand, sir.

Whereupon,

WILLIAM E. HOSKINS,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: I do.

JUDGE HILLSON: Would you please

state your name and then spell it for the

record, please?

THE WITNESS: My name is William

E. Hoskins. The spelling of the last name is

H‑o‑s‑k‑i‑n‑s.

JUDGE HILLSON: Okay. You want to

follow the same format as before? He\'s just

going to read his statement without any

question by you?

MR. HERON: Yes, Your Honor.

JUDGE HILLSON: Okay. Then you

may proceed to give your statement, please.

DIRECT EXAMINATION

THE WITNESS: Thank you.

My name is William E. Hoskins. My

address is 1802 C Street, Sacramento,

California 95812. I am employed by Blue

Diamond in Sacramento, California.

I am the Director of Quality

Assurance. In this capacity I am responsible

for the quality and safety of all Blue Diamond

growers\' food products. This include bulk

almonds, retail products, and all of the other

almond items that we sell domestically and

worldwide.

I\'ve spent the past 38 years

working in the California almond industry.

Most of this time I have been involved in the

management of production, engineering, and

quality assurance. My experience includes

employment by both large almond handlers and

handlers considered small. These small

handlers would process 10 to 15 million pounds

per year.

I have represented the almond

industry at the UNECE Quality Standards

Meeting in Geneva on two occasions. I have

been asked to give technical presentations at

food safety conventions. My experience

includes serving on numerous panels discussing

almond quality and safety. Additionally, I

have been a member of the Almond Board of

California Food Safety and Quality Committee

for seven years. I have also been a member of

the Global Technology and Regulatory Affairs

Subcommittee since its formation.

I am testifying in support of both

Proposal Number 1 and Proposal Number 2, which

are the subject of this hearing. These two

proposals were published in the Federal

Register on Friday, July 8th, 2007, on page

36901\.

My testimony is in support of

these proposed changes and urges the Secretary

to adopt both proposals.

Proposed Rule Number 1 would

permit mandatory marking or labeling of

containers that are used in packaging or

handling bulk almonds. A mark is something in

addition to standard labeling.

For the purpose of the proposal,

\"container\" means box, bin, bag, carton, or

any other type of receptacle used in the

package or handling of industrial bulk

almonds. This definition is consistent with

commercial practices. Today handlers use many

different types of containers. This proposed

rule will recall all of these containers to be

labeled uniformly.

This proposal does not apply to

retail packaging in any form or manner. If

the rule were to apply to retail packaging

almonds that are packed for the retail market

by handlers such as Blue Diamond, Paramount

Farms, and others that have a retail brand

would be subject to the labeling requirements.

However, the majority of almonds that are not

packed by handlers such as Planter\'s,

Fisher\'s, Emerald, and many other private‑

label brands would be exempt from the

requirements of the labeling as they do not

fall under the Almond Marketing Order.

In addition, retail labeling is

very highly regulated by the Food and Drug

Administration in the area of ingredient

statements and nutritional labeling. And it

also falls under many other commercial codes

and regulations.

Today the Almond Marketing Order

has no provision which regulates labeling. As

a result of this, there is no uniformity as to

what is labeled on the containers, the

location on the container of any labeling, and

the size or style or font that is used. This

could be very confusing to authorities in

foreign countries and to foreign customers.

Clear, precise labeling can be

critical when describing quality or food

safety concerns of the packaged product. A

recent example of where consistent labeling

would aid our industry comes from

pasteurization of almonds. The pasteurization

rule, which is scheduled to go into effect

this ‑‑ excuse me ‑‑ September, provides a

perfect example of a necessity for Proposal

Number 1. Even if this rule is delayed, it is

still a good example of why we need Rule

Number 1.

Had there been authority to

mandate labeling, the pasteurization rule

would have contained specific requirements

requiring the mandatory marking of containers

with specific marks or labels that would have

confirmed the almonds were pasteurized or not

pasteurized. This would provide clarity and

consistency as to whether the almonds in the

container were or were not pasteurized. This

would address concern expressed both by

regulators and customers. Pasteurization is

a good example of the way the mandatory

labeling rule would be applied.

Having the authority to require

labels critical to describing the quality or

food safety information will facilitate

commerce. This will also satisfy regulatory

requirements that require clear information to

the customer as to the quality or food safety

concerns of the food product.

An example of this, of the marking

of some products would be perhaps if the

product was marked as a kosher product for a

specific market. Once in the Marketing Order,

if any unforeseen quality of food safety issue

were to occur, industry could require

mandatory labeling of the product of concern.

The Food Quality and Safety Committee would

recommend to the Almond Board of Directors a

specific labeling of product take place. If

the board of directors agreed with the

recommendation, the board could recommend to

the USDA Ag Marketing Service that the

labeling requirement be adopted by industry.

After proceeding through the

informal rulemaking process, a rule mandating

labeling would be enacted and industry would

be required to comply. Should the proposed

rule not be enacted there likely will be

further unanticipated quality or food safety

issues that will not be dealt with in a timely

and efficient example.

For example, issues related to

product sabotage, by terrorists is a major

concern and a top priority for a our homeland

security agency. It also potentially could

make negotiations with regulators difficult if

they recommended or required any type of

warning label on the product.

Proposal number 2 provides for

different outgoing quality standards

requirements for different markets, whether

domestic or foreign. Today California almonds

are exported to over 80 different markets

throughout the world. Although Blue Diamond

enjoys a rising demand from all markets for

safe, high‑quality almonds, we frequently find

unique quality standards from specific

markets.

A good example of this can be seen

in the market of India. India requires

fumigation for the tobacco moth and the

Mediterranean flower moth, insects not found

in California. No other country has this

requirement for almonds.

Another example could be here in

California we have the carcinogen warning or

better known as the Prop. 65 requirements.

This is requires specifically for California

but not necessarily for any other state in the

union or country.

Another example that has been

talked about previously is in Japan where

Japan has recently published new maximum

residue limits on pesticides that are

completely different in many cases from the

California or the U.S. maximum residue levels.

Every U.S. almond exporter has

experienced the unreasonably low aflatoxin

limits found in EU regulations. These EU

regulations currently jeopardize a billion

dollar export market and is forcing industry

to change its practices. All of these

different requirements could be better

addressed if there were a provision in the

Almond Marketing Order to establish different

mandatory outgoing quality requirements for

different markets. This is resolved by

Proposal Number 2 for foreign and domestic

markets. Adopting this provision would allow

the Almond Board to recommend to the Secretary

that the rule be adopted through informal

rulemaking. This would allow expedited action

by our industry to deal with quality issues

that might otherwise have a negative impact on

almond sales.

Once in the Marketing Order, if a

quality standard for a specific market becomes

necessary for the benefit of the entire

industry, the Food Quality and Safety

Committee would recommend to the Almond Board

of Directors that a new standard be

established for the market in question. If

the Board of Directors agreed with the

recommendation from the Food Quality and

Safety Committee, the Board could recommend to

the USDA AMS that the new standard be adopted

by industry. After proceeding through the

informal rulemaking process, the mandatory

rule would be enacted by industry and industry

would have to comply with the new rule.

Should the proposed rule not be

adopted we can be certain that there will

eventually be a major issue with a specific

market requirement that will have a negative

impact through the overall almond market. The

proposed rule will give industry the

flexibility to react to a specific requirement

in a timely manner without having a negative

impact on other markets.

The EU aflatoxin issue is a

current example of why this rule truly is

necessary. Both Proposal Number 1 and Number

2 will provide the California almond industry

tools that are not available today.

Quality and food safety concerns

continue to be of growing importance to all.

Having the ability to mandate different

quality standards for different markets and

that built to mandate labeling for critical

quality issues will help our industry protect

the greater‑than‑\$2‑billion‑farmgate value of

California almonds.

I urge the adoption of the

proposed amendments. That concludes my

testimony.

JUDGE HILLSON: Do you have any

further questions of your witness?

MR. HERON: No, Your Honor.

JUDGE HILLSON: Okay. Ms.

Pichelman.

MS. PICHELMAN: Your Honor, I just

wanted to make a quick clarification.

Mr. Hoskins, and I believe

actually the individual who testified right

before him, Mr. Machado, both said that they

were testifying in support of the proposals

that were cited in the Federal Register

Notice. They cited it as published on July

8th. And I believe in fact it was published

on July 6th, 2007. I just wanted to clarify

for the record that that was ‑‑ I believe the

hearing notice that they were testifying in

support of the proposals that were published

on July 6th, 2007.

JUDGE HILLSON: Okay. No

questions, though?

MS. PICHELMAN: I have no

questions.

JUDGE HILLSON: Okay. How about

your colleagues?

MR. ENGELER: I have a couple.

JUDGE HILLSON: Okay.

MR. ENGELER: Martin Engeler,

again with the USDA.

CROSS‑EXAMINATION

BY MR. ENGELER:

Q I wanted to explore this issue

that I was talking ‑‑ asked of some of the

other witnesses earlier this morning, and I

appreciate your comments it, but I want to

make sure that I understand your testimony,

and to help clear it up for the record.

Does Blue Diamond and perhaps

other handlers, is it true that they ship

almonds in retail packages?

A That is accurate, yes.

Q And does your company and perhaps

other companies sell almonds to other entities

that are not handlers that may be located in

different parts of the country that are not

handlers and they would repackage them for

retail?

A That is correct. Also we sell

almonds to our competitors, if you will, on

the retail level.

Q Okay. And if the Marketing Order

did have authority to regulation labeling of

retail packages, would it be true that a

substantial amount of the almonds that are

sold in that fashion may not be subject to the

regulation because they\'re not handlers?

A Probably a larger amount that we

sell at the wholesale level, we would not be

subjected to the rule, versus the volume that

we sell under our own label, yes.

MR. ENGELER: Okay. Thank you.

That\'s what I wanted to clarify.

JUDGE HILLSON: Any further

questions of this witness on the AMS side?

Go right ahead.

DR. HINMAN: Yes. Donald Hinman,

USDA.

BY DR. HINMAN:

Q Good afternoon. You used the

phrase, \"unreasonably low aflatoxin standard.\"

If you could elaborate a little bit more on

that, maybe state what reasonable would be?

(Laughter.)

A Well, I defer to our federal

government as establishing a reasonable

standard, which is 20 parts per billion. By

contrast, the European Union\'s standard is

four parts per billion total or two parts per

billion b1, without going into the science of

how you break out aflatoxin.

The United States has conducted

risk assessments that believe our population

is fully protected at the 20 parts per

billion. Recently the European Union in

addition to Codex have recently conducted

additional risk assessments, and it would

appear that their data is indicating that a

number certainly higher than the four parts

per billion provides more than adequate

protection for the population in Europe.

However, they have not officially adopted a

higher standard. We hope that will happen.

Q If they didn\'t adopt that higher

standard and you had this authority, then you

would impose ‑‑ one of the possible uses of

the authority would be to say: We don\'t like

this stringent a standard but we\'ll,

nevertheless, impose that on shipments to

Europe?

A Well, we have ‑‑ we are as an

industry and as individual handlers, we are

processing and testing to the European

standard today.

Q Right.

A I might add, though, that we are

getting a tremendous amount of rejections or

failures at this very low rate due to the

randomness of aflatoxin. We can test and

clear the product here using all the right

protocols, only to have it subsequently

rejected once it arrives in Europe should they

test it.

Q And you cited two examples there

of standards that are very different in their

countries than are applied elsewhere or in the

event in the U.S. One was maximum residue

limits in Japan and the other was fumigation

for insects in India. Tell me how this

authority might work for those two examples.

A Well, we have recently gone

through the example with the Indian market

where essentially the Indian government

mandated initially that we treat all of our

almonds with methyl bromide, which is a

chemical fumigant which is being phased out.

We were absolutely confident that we were

getting an effective kill using phosphine

phosphene gas, which is the industry standard.

But we had to go through efficacy studies to

demonstrate that phosphine does in fact kill

the insects of concern; and, again, identified

two of the insects that they had a concern

about, two of which are not even found in

California and, to my knowledge, have never

been found in California. But, nonetheless,

we had to go source these insects and

demonstrate that our gas or fumigant will kill

them.

If we had the ability to establish

a separate standard, certainly we could as an

industry, if we felt it was going to

jeopardize shipments or sales to India,

mandate that every handler treat the product

with the chemical using the right dosage in

the right exposure periods. Right now we

technically can\'t do that.

Q And does Blue Diamond expect any

significant cost to be imposed on your

operations from the imposition of either or

both of these standards and to what extent do

you see that the benefits exceed the costs

that might result from them?

A Yeah. Well, as a general

statement we obviously believe that the

benefits far outweigh any potential cost.

Without understanding the specific issue that

we would be addressing and the specific

measure we would take, it\'s difficult to

quantify what the costs may be. But we can\'t

envision any significant cost by imposing

either of these regulations and we believe

they are both tools which will give us a lot

of protection should we ever have major issues

in the future that would require changes to

the Marketing Order.

DR. HINMAN: Thank you very much.

No further questions.

JUDGE HILLSON: Any further

questions from the AMS side?

MS. PICHELMAN: No.

JUDGE HILLSON: How about you, do

you have any questions?

MR. MARTIN: I have no questions,

Your Honor.

JUDGE HILLSON: Any on redirect?

MR. HERON: No, Your Honor. Thank

you.

JUDGE HILLSON: Okay, Mr. Hoskins,

you may step down and you are permanently

excused.

THE WITNESS: Thank you, Your

Honor.

(Witness excused.)

JUDGE HILLSON: You may call your

final witness.

MR. HERON: Yes. Thank you.

Mr. Rex Lake.

MR. LAKE: Good afternoon.

JUDGE HILLSON: Good afternoon.

If you would please raise your

right hand, sir.

Whereupon,

REX LAKE,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: I do.

JUDGE HILLSON: Okay. If you

would please state your spell your name for

the record?

THE WITNESS: My name is Rex Lake.

Last name is spelled L‑a‑k‑e.

JUDGE HILLSON: Okay. And are we

following the same protocol here?

MR. HERON: Yes, Your Honor.

JUDGE HILLSON: Okay. Then you

may give your testimony.

DIRECT EXAMINATION

THE WITNESS: Thank you, Your

Honor.

My name is Rex Lake. My work

address is 1802 C Street, Sacramento,

California 95812. I\'m employed by Blue

Diamond Growers in Sacramento, California.

I\'m the Director of Industrial Sales. In this

position I am responsible for sales and

marketing of Blue Diamond almonds packaged in

bulk containers, which means cartons, bags, or

bins, or the like, in U.S. and all export

markets worldwide.

I have been employed by Blue

Diamond Growers for the past 26 years. My

responsibility includes international almond

marketing and sales. Prior to joining Blue

Diamond Growers I worked for the farm credit

system, where I was involved in financing

cooperatives throughout California.

I earned a bachelor\'s degree in

economics from the University of California at

Santa Cruz and a master\'s degree in

agricultural economics from the University of

California at Davis.

I represent the almond industry as

an alternate member of the California ‑‑ or

the Almond Board of California. Additionally,

I serve on a number of its committees,

including: The Food Quality and Safety

Committee; the International Committee; the

Administrative and Finance Committee; the

Reserve Committee; and the Global, Technical,

and Regulatory Affairs Taskforce.

I\'m testifying in support of

Proposals Number 1 and 2 as published in the

Federal Register as of Friday, July 6th, 2007,

on page 36901. Both of these proposals are

necessary and should be adopted.

These two proposed rules are

essential to maintaining the high quality of

U.S. almonds, which is recognized and demanded

worldwide. My position as Director of

Industrial Sales, which means sale of Blue

Diamond almonds in bulk containers, allows me

to experience on a daily basis the demand from

both domestic and foreign customers for a

high‑quality product that is properly labeled

and meets the regulatory requirements of both

domestic and foreign markets.

The importance of satisfying the

customer\'s demand for these two items cannot

be over emphasized. The reason that Blue

Diamond is the largest almond marketer in the

world is that we recognize these requirements

and meet or exceed them.

At present, the Almond Marketing

Order contains no provision to mandate

labeling of almond containers. A recent

example provides support for the necessity of

Proposal Number 1. The authority provided by

Proposal Number 1 would have been useful for

our industry as it pursues the goal of

ensuring food safety and consumer protection

in the implementation of almond pasteurization

requirements under the recently‑adopted action

plan.

Even though the rule is now

scheduled to be implemented on March 1 as

opposed to September 1, it would have been a

useful step to the industry in the promotion

of food safety worldwide to have been able to

immediately require on all bulk packages of

almonds that they be clearly marked as treated

under the rules that require a four‑log

destruction of Salmonella or unpasteurized,

indicating that no such treatment has taken

place.

This labeling would reduce the

possibility that a customer receiving an

almond product would be uncertain as to his

risk to the consumer or need for further

processing. Similar labeling that would

indicate whether the almond products had been

cleared under certain import tolerances or

testing protocols for other possible defects

would be equally useful.

Proposal Number 1 provides for the

authority to properly label or mark containers

of almonds. This is beneficial to both

consumers and customers. The ability to label

containers of almonds with uniform information

that states that the regulatory requirements

have been met would facilitate trade. This

will also satisfy food safety requirements

imposed by various countries.

Our industry will be able to give

customers and regulators clear information

throughout the various steps in the supply

chain. This will enhance uniform ‑‑ this will

enhance and facilitate international almond

trade.

As explained by earlier witnesses,

the proposed rule applies only to bulk

packages of almonds that are in a box, bin,

carton, or other type of receptacle used in

the packaging and handling of bulk almonds.

Proposal Number 1 does not apply

to labeling of retail consumer bags. Proposal

Number 1 does not give the Secretary the

authority to require labeling of retail

consumer packages. If the need for labeling

bulk almond containers is established and such

labeling is recommended by the Almond Board

Food Quality and Safety Committee, it would

then be subject to approval of the full Almond

Board. If approved, it would then be

forwarded to the USDA for adoption under the

informal rule process.

Failure to enact this change will

result in an increased likelihood of the

serious failure in the area of food safety or

regulatory compliance. This is due to the

difficulty in tracking almonds that have or

have not been processed through the complexity

of the supply chain. Because the change will

only enable the Almond Board to establish

specific rules in the future, if and when the

need arises, this change will not impose any

immediate cost to the industry.

The California almond industry

currently exports to approximately two‑thirds

of its annual production to more than 80

countries worldwide. The United States

remains the largest single market and the most

important market in the world.

Annual production in California

has increased rapidly from approximately 500

million pounds ten years ago to more than 1.3

billion pounds expected during the 2007

harvest season. As California almond

production increases, the industry becomes

even more heavily dependent on development of

new markets in all areas of the world.

As markets grow and become more

sophisticated, they often impose unique and

more complex technical requirements. In

addition, as countries around the world

struggle to keep up with the need to ensure

food safety with regards to imported and

locally produced foodstuffs, new standards are

often imposed on imports of California

almonds.

In the past, almonds were traded

internationally as a basic commodity with

little in the way of regulation of quality

standards. However, the industry now faces a

much more complex array of regulations and

standards that are unique to individual

markets. Some examples include differences in

tolerances in testing methodologies in

markets, such as the EU, Japan, and the United

States. We also face varying import

tolerances and testing requirements for

agricultural chemicals in markets like Japan.

These differing requirements make

the one‑size‑fits‑all approach to outgoing

almond quality standards difficult if not

impossible to apply. The industry needs the

flexibility to establish varying quality

standards to meet the requirements of one

market without unnecessarily impacting the

standards set for a different world market.

Often the requirements of one country, if met,

would prohibit the same almonds from entering

another country. This is why it is necessary

to adopt different outgoing quality

requirements for different markets. This will

increase almond sales, since we have the

ability to meet the market requirements for

each market, if necessary.

By enabling the industry to use

informal rulemaking under the Marketing Order

to establish outgoing standards to satisfy new

or changing requirements in an individual

market, we may avoid the complication of

applying a new standard to markets where they

may not be required or appropriate. The

establishment of this authority in the

Marketing Order will not impose any direct

costs on the industry unless the Almond Board

subsequently acts to impose those specific

standards.

If the provision to allow

establishment of differing outgoing standards

to individual markets is added to the

Marketing Order, the process of establishment

would begin with the Almond Board Food Quality

and Safety Committee. Should the committee

recommend establishment of new standards, they

would then go to the full Almond Board for

consideration and approval. Once approved by

the Board, they would be forwarded to the USDA

for enactment through the informal rulemaking

process.

If the proposed rule is not

adopted, the industry will continue to be

faced with the currently‑existing dilemma. On

the one hand, it is required to adopt an

outgoing standard for exports to the EU to

meet the mandatory EU aflatoxin clearance

procedures. This facilitates trade with the

EU by avoiding rejections. But, on the other

hand, it imposes unnecessary and expensive

requirements on sales to other foreign markets

with different aflatoxin standards. Adopt of

Proposal Number 2 is clearly more desirable

than doing nothing and thereby continuing to

expose the industry to trade restrictions

caused by failure to meet import tolerances in

the EU or those of other countries which are

inconsistent with the EU regulations. A

failure by any one shipper creates the risk of

unfavorable consequences to the entire almond

industry.

The two proposals set forth in the

Federal Register which would change the Almond

Marketing Order, which are under

consideration, will provide the industry with

necessary, useful, and reasonable tools to

meet the daily challenges of expanding world

markets. These two proposals, if adopted,

will assist our industry in meeting

increasingly complex challenges relating to

regulatory requirements and growing consumer

concern with food safety. These two changes

will provide necessary mandatory requirements

to assist almond sales. These changes will

enable our industry to continue its rapid

growth and facilitate the development of new

markets for California almonds throughout the

world. This will benefit almond producers in

California.

It\'s recommended that the

Secretary adopt Proposal Number 1 for labeling

of bulk almond containers and Proposal Number

2 for the domestic ‑‑ for establishing

different standards for domestic and export

markets.

Thank you very much.

JUDGE HILLSON: Do you have any

further questions of the witness?

MR. HERON: No, Your Honor.

JUDGE HILLSON: Okay. How about

on the AMS side, does anyone have any

questions of this witness?

MS. MAY: I have a quick one.

JUDGE HILLSON: Go ahead.

MS. MAY: Laurel May, USDA.

CROSS‑EXAMINATION

BY MS. MAY:

Q Earlier in your testimony you kind

of hinted about trace back and some other

witnesses today have mentioned that, but

nobody\'s really developed that idea. Could

you expand on that a little bit so we

understand what ‑‑ how this amendment would

help with that?

A I think I was actually referring

in terms of following the product through the

food chain or the supply chain to trace

forward.

Q Okay.

A In other words, the information

about whether the product has been treated or

what standard it applies to would stay with

the product as it\'s sold and resold through

the supply chain forward.

Q Oh, okay.

A It\'s very ‑‑ oftentimes in the

almond business our customer is not the final

buyer or user of the product. It\'s traded and

retraded. The information that might be in

some of the ‑‑ the information that we may

give our customer can tend to get lost in the

process. And so the final customer who takes

delivery of the product somewhere in the world

may not have an easy way of knowing whether it

was treated, not treated, what EU standard ‑‑

what aflatoxin standard applies. If it\'s

marked on the carton, it\'ll go with the

product all the way to the end user.

Q Okay. Thank you.

Other question I had was about you

mentioned that applying standards for specific

markets would be better than doing nothing,

which is one alternative. Do you know if the

Board considered any other alternatives to

this proposed amendment?

A Well, because the amendment is

kind of a nonspecific ability to use this as

a tool, I think the only two alternatives were

to add it as a tool or not to add it. When we

get to the point of actually implementing it

in a specific case where we\'re using this tool

to accomplish a specific purpose, then I

suppose it\'ll be appropriate to consider more

than one possibility.

MS. MAY: Okay. Thank you.

JUDGE HILLSON: Do you have any

further questions?

Go ahead.

DR. HINMAN: Donald Hinman, USDA.

BY DR. HINMAN:

Q Good afternoon. You, in other

words, have mentioned the issue of different

standards around the world. And I think ‑‑

help me understand if I heard you correctly

when you said that this is an ongoing

situation and new standards have recently been

imposed and, you know, that differ from the

U.S., differ from other countries? Could you

cite a few examples and maybe some recently

examples of that?

A In terms of standards there\'s, as

I think Mr. Hoskins mentioned, the fumigation

requirements or standards for India. We have

pesticide regulations that are changing and

developing in Japan that will the California

‑‑ or will California almonds to meet a

certain standard that has no relationship to

pesticide standards in the United States or

Europe. We have EU aflatoxin standards that

are being imposed or have been imposed. We

have completely different Japanese aflatoxin

standards. In fact, we have probably, I\'d

venture to say, ten different aflatoxin

standards around the world that are imposed by

individual countries. So as time develops,

countries tend to borrow standards from other

countries and then modify them, so they tend

to proliferate and become more complex.

Q And I think you also mentioned

that not only the tolerances themselves but

the testing methodology can become part of the

requirement. Could you cite examples of that,

please?

A I\'m not your best source in terms

of ‑‑ I know it differs. Giving you examples

would be difficult for me because I\'m not a

chemist, but I do know that not only testing

methodologies but also analysis methodologies

are part of the standards that are written and

they do vary from market to market.

DR. HINMAN: Thank you.

No further questions.

JUDGE HILLSON: Any further

questions from the AMS side?

Any questions from Mr. Martin?

MR. MARTIN: I have no further

questions of this witness.

JUDGE HILLSON: Any redirect?

MR. HERON: No, Your Honor.

JUDGE HILLSON: Then you may step

down, Mr. Lake. Thank you for testifying.

THE WITNESS: Thank you.

(Witness excused.)

JUDGE HILLSON: And that\'s your

last witness; is that correct?

MR. HERON: That\'s correct. And

may Mr. Lake be permanently excused?

JUDGE HILLSON: Oh, yes, he is.

Okay. Mr. Anderson, I believe you

are last main witness, so why don\'t you come

on up.

MR. ANDERSON: This might wake me

up and the rest of us. I am ‑‑

JUDGE HILLSON: I need to swear

you in first.

Please raise your right hand, sir.

Whereupon,

GLEN ANDERSON,

called as a witness on behalf of the Almond

Board of California, having been duly sworn by

the Administrative Law Judge, testified as

follows:

THE WITNESS: Yes.

JUDGE HILLSON: Can you please

state your name and spell your name for the

record, sir?

THE WITNESS: It is Glen Anderson,

A‑n‑d‑e‑r‑s‑o‑n.

JUDGE HILLSON: Okay. And you may

make your statement.

DIRECT EXAMINATION

THE WITNESS: Thank you for this

opportunity. I am a very small handler. Over

the years, the last 18 years, since I became

certified organic, I have sold as little as

14,000 pounds and as much as 200,000 pounds.

And I am approaching the age where increasing

that volume is not very appetizing to me. But

I want to be able to retain a secure market.

First of all, I am totally in

favor of these two amendments that are being

proposed. But I am left with one question.

After hearing all of the testimony today, I

think I\'ve answered most of my questions, the

one that remains ‑‑ well, first of all, I am

serving three markets: One in Japan and

Canada, and then across the United States.

The United States market is the

one that concerns me the most because what has

happened over the years, I have increasingly

sold household direct. People that want to

buy my product, and we have a website and

people access me through the internet. And I

go ahead and fill orders directly from my

farm, UPS, primarily in 25‑pound cases and get

a good premium. The returns have been good.

I have a concern with the

implementation of the pasteurization

requirement and now the two amendments, just

how this market will be impacted. One of the

things that I\'ve discovered over the 18 years

is that a large percentage of these people

consider themselves to be part of the rapidly‑

developing raw food movement.

We have no idea where that\'s going

to go over time. And the raw food customers,

some of them are buying conventional almonds,

some of them are by certified organic almonds.

I think it\'s probably divided maybe a third

organic and probably two‑thirds conventional.

The price differential dissuades some people

from participating in that as a certified

organic customer.

But from my reading on it, and

this is a pretty good reading, I talk to a lot

of people, some of them are direct, some of

them are people who sell or redistribute the

product. Not everyone that buys product from

me in the U.S. is a household purchaser.

They\'re really wondering whether or not the

pasteurized product will be raw once they

receive it, and I can\'t answer that question

very clearly.

I\'m not totally clear about it.

And then of course comes the question of what

method can be utilized with certified organic.

And I don\'t want to leave that segment of the

market. It\'s a good place to be. It has

served me well for the 18 years I have been in

it.

So I\'m just left with this

overarching question: How will this play out

over time going forward, how can I answer

people\'s questions when they make inquiry of

me. I would like to serve this community as

best I know how. I realize full well that

pasteurization is not a factor in Japan. It

is a factor into Canada. My Canadian customer

happens to be a distributor up there and

they\'re very active in the organic segment as

well. I have served two or three outlets into

Canada over the years. Right now it\'s

narrowed down to one, and these people are

very loyal, very faithful, very well

established by my estimation.

So I\'m just left with a question.

I think rather than making a statement I\'m

asking a question of all of you: How will

this work out March 1st on?

JUDGE HILLSON: I don\'t know if we

have someone here to answer that question now.

MR. MARTIN: Your Honor, may I,

just so the record is clear? I believe the

gentleman is referring to a rule that has

already been published.

Is that correct?

THE WITNESS: Um‑hum.

MR. MARTIN: And I don\'t believe

that rule is relevant to the two proposed

amendments to the Marketing Order that we\'re

discussing today. That rule went through

notice and comment procedure, and all members

of the public had an opportunity to

participate.

To be honest with you, I haven\'t

read the rule completely, but I know it\'s been

finalized and I don\'t think any questions

about that rule are really relevant to this

proceeding.

JUDGE HILLSON: You may be right,

but given the timing of this proceeding, I

thought we were getting done with it, I wasn\'t

sure Mr. Anderson\'s testimony was going to be

right on point. I said why don\'t ‑‑ I\'ll

allow him to make his ‑‑ to give his testimony

and if the Secretary decides that he doesn\'t

need to look at it, that\'s his call. So I\'m

letting it in and if somebody wants either to

answer his questions or ask him other

questions, then that\'s fine.

I\'ll turn it over to you first,

Ms. Pichelman, if you have any questions or if

there\'s anyone over there who can answer Mr.

Anderson\'s question.

MS. PICHELMAN: Heather Pichelman,

USDA.

CROSS‑EXAMINATION

BY MS. PICHELMAN:

Q Yes, just to focus on that, the

pasteur‑ ‑‑ that rule has been published and

that is a final rule. You had ‑‑ you had

mentioned that you were ‑‑ regarding the two

amendments, that you were in support of both

of those, those two ‑‑

A Yes. Definitely ‑‑

Q ‑‑ those two proposals?

A Definitely am, um‑hum. I think

that gives me some flexibility, but I\'m not

quite sure what the extent of that will be.

Q And I wanted to ask you, I know

you had cited that you were a small business.

Do you know if you fit into the definition

that the Small Business Administration cites

as a small business?

A Surely. I do.

Q You do?

A Um‑hum.

Q Okay. And then I guess then

specifically as a small business, I know you

said that you ‑‑ do you support these two

proposals, but do you feel that as a small

business, specifically, that these will ‑‑

these proposed amendments could and hopefully

would benefit you specifically as a small

business?

A Yes, um‑hum.

MS. PICHELMAN: I have no further

questions.

JUDGE HILLSON: Anyone there who

can provide questions or answers to him?

MS. MAY: Well, I was going to ask

him more questions, too. I thought we\'d take

advantage of him being here. Laurel May,

USDA.

BY MS. MAY:

Q Since you did say that you are in

favor of the two amendments that have been

proposed, how do you envision those amendments

helping you in your capacity as a small

handler?

A Yeah. Actually I think I\'ve

answered part of that. I want to be able to

clearly identify what it is I am selling to my

customers. And as I move forward through time

I think I will make discoveries about how I

can utilize that.

Q And how about the regulation, the

different regulations for different

destinations or different markets?

A Yes. It will apply in this

circumstance because of the three markets I

identified. Selling into Japan, selling into

Canada, and then across the United States, it

will give us some flexibility ‑‑ or give me

some flexibility there.

Q Are you currently encountering

difficulties meeting the requirements of those

different markets?

A No.

MS. MAY: Okay. Thank you.

THE WITNESS: You\'re welcome.

JUDGE HILLSON: Anything else from

this side?

MS. PICHELMAN: Dr. Hinman.

DR. HINMAN: Donald Hinman, USDA.

THE WITNESS: Um‑hum.

BY DR. HINMAN:

Q If ‑‑ ask you: Would you propose

to sell raw almonds, unpasteurized, and you

would label them as unpasteurized; is that

correct?

A I would like to be able to do

that. Where the customer is calling for that,

I would like to hold that option open.

DR. HINMAN: Okay. No further

questions.

JUDGE HILLSON: Mr. Martin, do you

have any questions?

MR. MARTIN: I have no questions,

Your Honor.

JUDGE HILLSON: How about you,

sir?

MR. HERON: No, Your Honor. Thank

you.

JUDGE HILLSON: Okay. Thank you

for testifying. You may be excused.

THE WITNESS: Thank you so much.

(Witness excused.)

JUDGE HILLSON: There aren\'t any

more witnesses, if I\'m correct, over here; is

that ‑‑ no one else has any more witnesses to

call?

I am presuming that the Board and

perhaps Blue Diamond wants to file some sort

of brief in this matter; is that a fair

statement?

MR. MARTIN: Yes, Your Honor.

MR. HERON: Yes, Your Honor.

JUDGE HILLSON: Okay. So I guess

we need to set up a briefing schedule,

correct?

MS. PICHELMAN: Your Honor, before

we do that, I just wanted to put on record

that the USDA does have one of its own

proposals ‑‑

JUDGE HILLSON: Oh, yes.

MS. PICHELMAN: ‑‑ to make such

changes as may be necessary to the order or

its administrative rules and regulations, to

conform with any amendment that may result

from the hearing. So we have that proposal,

but we have no witnesses.

JUDGE HILLSON: That\'s right.

Okay. That\'s what you told me, that there

were no witnesses on it. So I just said

there\'s no more witnesses, so. Anyway, that\'s

fine. That\'s on the table.

So today is the 2nd. I figure

it\'s about probably two or three weeks before

‑‑ I\'m not sure what the contract requires in

the transcript, but I usually give it about

two weeks, just to play it safe.

MS. PICHELMAN: Right.

JUDGE HILLSON: Another question

is how much time do the parties who are filing

briefs want to file their briefs. I would

have you file them at the same time.

MS. PICHELMAN: I would suggest ‑‑

I would throw out 30 days. See how that ‑‑

MR. HERON: That\'s agreeable, Your

Honor.

JUDGE HILLSON: And you\'re not

even writing one of the briefs, are you?

MS. PICHELMAN: No, I\'m not.

JUDGE HILLSON: Does 30 days sound

fair to you, Mr. Martin? Thirty days from

three weeks from now, basically, in other

words.

MR. MARTIN: Does anyone have a

calendar?

JUDGE HILLSON: I do.

MR. MARTIN: Okay. What would

that be then?

JUDGE HILLSON: Okay. Three weeks

from today is the 23rd of August and 30 days

from there is the 22nd, which is a Saturday,

so we\'re talking about September 24.

MR. MARTIN: September 24th?

JUDGE HILLSON: Yes.

MR. MARTIN: That\'s fine with me,

Your Honor.

JUDGE HILLSON: Okay. That\'s fine

with you?

MR. HERON: That\'s fine with me,

Your Honor. If the reporter would indicate

that she believes the transcript ‑‑

JUDGE HILLSON: She doesn\'t know.

But she said she\'s a subcontractor and she

sends it ‑‑ she\'s going to send her stuff back

to D.C. to where the contractor is at. I will

say this: If you do not receive the

transcript ‑‑ the transcript is not posted ‑‑

I guess it\'s going to be posted, right? Is

that correct?

MS. PICHELMAN: Yes.

JUDGE HILLSON: Okay. If the

transcript is not posted by the 23rd, then

someone needs to let me know that, and the

brief from 30 days will slide depending on

what day the transcript is posted, okay? Does

that sound fair?

MR. HERON: Thank you, Your Honor.

JUDGE HILLSON: So at the same

time you file the brief, which is September

24th, that\'s when any transcript corrections

would also be due. Once I get the transcript

and the requested corrections, all I do is I

certify the record, the exhibits, and the

transcript, and then I basically say good‑bye

to this matter forever, I guess. Then it goes

onto someone else to make the decision.

Okay. Is there any other business

to be discussed today in this matter?

MR. MARTIN: No, Your Honor.

Thank you very much.

JUDGE HILLSON: Okay. It\'s almost

2:15 and the hearing\'s adjourned.

(The hearing was adjourned at 2:12

p.m.)