[Federal Register Volume 70, Number 164 (Thursday, August 25, 2005)]
[Proposed Rules]
[Pages 49885-49891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-16981]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 983

[Docket No. FV05-983-2 PR]


Pistachios Grown in California; Establishment of Additional 
Inspection Requirements

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule invites comments on the establishment of additional 
inspection requirements authorized under the California pistachio 
marketing order (order). The order regulates the handling of pistachios 
grown in California and is administered locally by the Administrative 
Committee for Pistachios (Committee). This rule would modify sampling 
procedures for dark-stained pistachios which are intended to be dyed or 
color-coated. It would also establish reinspection requirements for 
lots of pistachios, which are materially changed after meeting initial 
aflatoxin, quality, and size requirements. This action is expected to 
assure the quality of pistachios, improve the marketability of 
pistachios, and provide handlers more marketing flexibility. The 
benefits of this action are expected to offset the increased inspection 
costs.

DATES: Comments must be received by September 1, 2005.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. Comments must be sent to the Docket Clerk, 
Marketing Order Administration Branch, Fruit and Vegetable Programs, 
AMS, USDA, 1400 Independence Avenue SW, STOP 0237, Washington, DC 
20250-0237; Fax: (202) 720-8938, or E-mail: <a href="/cdn-cgi/l/email-protection#1b76747a79357f7478707e6f78777e69705b6e687f7a357c746d"><span class="__cf_email__" data-cfemail="711c1e10135f151e121a1405121d14031a31040215105f161e07">[email protected]</span></a>, 
or Internet: http://www.regulations.gov. All comments should reference 
the docket number and the date and page number of this issue of the 
Federal Register and will be made available for public inspection in 
the Office of the Docket Clerk during regular business hours, or can be 
viewed at: http://www.ams.usda.gov/fv/moab.html.

FOR FURTHER INFORMATION CONTACT: Rose Aguayo or Terry Vawter, Marketing 
Specialists, California Marketing Field Office, Marketing Order 
Administration Branch, Fruit and Vegetable Programs, AMS, USDA; 
Telephone: (559) 487-5901, Fax: (559) 487-5906; or George Kelhart, 
Technical Advisor, Marketing Order Administration Branch, Fruit and 
Vegetable Programs, AMS, USDA, 1400 Independence Avenue SW, STOP 0237, 
Washington, DC 20250-0237; Telephone: (202) 720-2491, Fax: (202) 720-
8938.
    Small businesses may request information on complying with this 
regulation by contacting Jay Guerber, Marketing Order Administration 
Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence 
Avenue SW, STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-
2491, Fax: (202) 720-8938, or E-mail: <a href="/cdn-cgi/l/email-protection#d399b2aafd94a6b6a1b1b6a193a6a0b7b2fdb4bca5"><span class="__cf_email__" data-cfemail="713b10085f3604140313140331040215105f161e07">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing 
Order No. 983 (7 CFR part 983), regulating the handling of pistachios 
grown in California, hereinafter referred to as the ``order.'' The 
order is effective under the Agricultural Marketing Agreement Act of 
1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the 
``Act.''
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Order 12866.
    This proposal has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is not intended to have retroactive effect. 
This proposal will not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. A 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed not later than 20 days after the date of 
the entry of the ruling.
    This rule would modify sampling procedures for dark-stained 
pistachios which are intended to be dyed or color-coated. It would also 
establish reinspection requirements for lots of pistachios, which are 
materially changed after meeting initial aflatoxin, quality, and size 
requirements. This action is expected to assure the quality of 
pistachios, provide handlers more marketing flexibility, and improve 
the marketability of pistachios. The benefits of this action are 
expected to offset the increased inspection costs. For the purposes of 
this proposed rule, the terms ``marketing year'' and ``production 
year'' are synonymous.
    Section 983.46 of the order authorizes the Committee to recommend 
that the Secretary modify or suspend the order provisions contained in 
Sec. Sec.  983.38 through 983.45. These sections took effect August 1, 
2005.

Sampling Procedures

    Sections 983.38 and 983.39 of the order specify maximum aflatoxin, 
minimum quality and minimum size requirements, respectively, that must 
be met prior to the shipment of pistachios.
    Sections 983.38(d)(1) and 983.39(e)(1) of the order specify that a 
sample must be drawn from each lot, and that this lot sample must be 
divided into two samples--one portion for aflatoxin testing and one for 
minimum quality and size testing.
    Section 983.39(b)(3)(iv) of the order currently defines dark stain 
and specifies that pistachios that are dyed or color-coated to improve 
their marketing

[[Page 49886]]

quality are not subject to the maximum permissible defects for dark 
stain.
    Pistachios grow on trees in grape-like clusters and are encased in 
an outer skin, or hull. During the pistachio harvest process, the nuts, 
which contain a significant amount of moisture when harvested, must 
arrive at the handling facility as soon as possible and the hulls 
covering the shell must be removed. If the hulls are not removed from 
the nuts within 24 hours of their removal from the tree, staining of 
the outer shell occurs. After being hulled, the pistachios are then 
dried, and placed in storage containers. When the nuts are removed from 
storage, they are sorted, sized, graded, and mechanically separated 
into open and closed shell product (pin-picked), and placed into lots 
for aflatoxin and minimum quality testing. Some handlers have the 
pistachios tested for aflatoxin prior to these processes. A ``lot'' is 
any quantity of pistachios that is designated for testing.
    During the sorting process, the inshell pistachios are separated by 
the color of the shells and the amount of stain on the shells. On 
average, approximately 95 percent of the harvested inshell pistachios 
are placed into lots designated as non-stained or light-stained 
pistachios. Such pistachios are typically marketed without any 
treatment to cover the stains. The remaining 5 percent are placed into 
lots consisting primarily of dark-stained inshell pistachios. Handlers 
typically dye or color-coat the dark-stained inshell pistachios to 
cover the stains, because they are generally not marketable in their 
natural state. The staining detracts from their appearance.
    The color-coating process usually consists of applying a white 
coating or a flavoring to the shells of the pistachios. The dyeing 
process consists of applying a dye to the shells. These pistachios are 
marketed after either of these processes are performed by the handler.
    Under the regulatory requirements of the order, one test sample 
will be drawn per lot and divided into two portions--one for aflatoxin 
testing and the other for minimum quality and size testing. Handlers or 
the inspection service will draw this sample while the pistachios are 
in their natural state (prior to dyeing or color-coating) because false 
positive test results may occur when dyed or color-coated pistachios 
are used in conducting aflatoxin tests. Lots of badly stained natural 
condition pistachios would likely exceed the maximum permissible 3 
percent by weight tolerance for dark stain. Thus, they would fail to 
meet existing voluntary minimum quality requirements under the U.S. 
Grade Standards for Pistachios in the Shell (7 CFR 51.2540 through 
51.2549) or the minimum quality requirements under the order, that 
became effective August 1, 2005.
    On dark stained lots, it is common practice for handlers to use or 
submit the portion of the initial natural sample designated for 
aflatoxin testing for the aflatoxin testing at a USDA or USDA approved 
laboratory. If the sample meets the aflatoxin requirements, handlers 
then return the sample portion designated for the minimum quality and 
minimum size testing to the lot, dye or color-coat the lot, and draw or 
have drawn a second representative dyed or color-coated sample for 
minimum quality and size testing. The second representative sample is 
taken after the pistachios have been dyed or color-coated to assure 
that the coloring is uniform and adequately covers the stained 
pistachios.
    Because the inspection requirements do not provide for a second 
sample after dyeing or color-coating, the Committee, on December 15, 
2004, recommended modifying the order's sampling procedures and 
establishing a new section entitled ``Sec.  983.138--Samples for 
testing.'' The vote was 8 in favor and 0 opposed.
    For those lots that consist of primarily light-stained or non-
stained inshell pistachios, one sample would continue to be drawn as 
specified in Sec. Sec.  983.38(d)(1) and 983.39(e)(1) of the order.
    The Committee estimated that the total 2005-06 inshell pistachio 
crop will be approximately 200 million pounds and that approximately 5 
percent (6 million pounds or 600 lots) of all inshell pistachios 
marketed domestically would be dyed or color-coated to cover dark-
stained shells.
    While this modification to sampling procedures under the order is 
expected to result in a slight increase in inspection costs for lots 
which are dyed or color-coated, the improvement in the marketability of 
these pistachios is expected to offset the additional costs. When the 
dark-stained pistachios are shelled out, the kernels generally have an 
approximate value of $1.00 per pound, which is substantially less than 
the $2.00 per pound value of dyed or color-coated inshell pistachios.
    Producers, handlers, and consumers benefit from dyeing or color-
coating, because dyeing or color-coating dark-stained inshell 
pistachios results in nuts having a more desirable color. This makes 
the nuts more appealing to retailers and consumers. Thus, retailers are 
willing to pay on average $2.00 per pound for these previously 
unmarketable dark-stained inshell pistachios. This increased value also 
is expected to contribute to improved or maintained producer returns.

Reinspection

    Sections 983.38 and 983.39 of the order will specify maximum 
aflatoxin, and minimum quality and minimum size requirements, 
respectively. These sections took effect August 1, 2005.
    Section 983.39(e) of the pistachio order will provide minimum 
quality testing and inspection procedures and require each lot of 
pistachios to be certified, be uniquely identified, and traceable from 
testing through shipment by the handler.
    Section 983.41 of the pistachio order provides handlers who handle 
less than 1 million pounds of assessed weight (dried weight) pistachios 
per production year (September 1-August 31) with certain aflatoxin 
testing options and allows such handlers to apply to the Committee for 
an exemption from minimum quality testing. Handlers granted an 
exemption will be required to pull the samples, make them available for 
review by the Committee, and maintain these samples in their handling 
facilities for 90 days. Handlers who do not apply or who are not 
granted an exemption from minimum quality testing, must test all lots 
for aflatoxin, quality, and size requirements under the order. This 
section also took effect August 1, 2005.
    Section 983.42 of the pistachio order provides that handlers may 
commingle aflatoxin and minimum quality certified lots with other 
certified lots. This section took effect August 1, 2005.
    Section 983.43 of the pistachio order provides authority for the 
Committee to recommend the establishment of rules and regulations to 
specify conditions under which pistachios would be subject to 
reinspection. This section, too, took effect August 1, 2005.
    Section 983.70 of the pistachio order exempts handlers who handle 
1,000 pounds or less of dried weight pistachios during any marketing 
year (dried to 5 percent moisture) within the production area from all 
aflatoxin and minimum quality requirements.
    As mentioned earlier, during the production year handlers typically 
hull and dry pistachios and place the nuts into storage containers. 
These nuts usually remain in storage until an order is received from a 
buyer. When the nuts are removed from storage, handlers have the option 
of sampling and having the nuts tested for aflatoxin prior to further 
processing (i.e., sorting, sizing, grading, and pin-picking 
(segregating the split-

[[Page 49887]]

and closed-shell pistachios)), or placing the nuts into lots for 
aflatoxin and minimum quality and size testing after these processes 
have been performed. The first option is expected to be used primarily 
by those handlers who have been granted an exemption from minimum 
quality and size testing pursuant to Sec.  983.41(b). Most handlers are 
expected to perform these processes, segregate the pistachios into 
lots, and then draw or have drawn the samples for the required 
aflatoxin, quality, and size tests.
    Typically, handlers who handle a million or more pounds of assessed 
weight pistachios per marketing year further process the nuts prior to 
testing for aflatoxin, quality, and size requirements. Such handlers, 
pursuant to Sec.  983.38(d) are required to uniquely identify each lot 
so that it can be traced from the point of testing through shipment.
    Pistachio handlers who handle less than a million pounds of 
assessed weight pistachios per marketing year and whose pistachios pass 
aflatoxin testing requirements would not have to comply with the 
traceability procedures set forth in Sec.  983.38(d). Furthermore, 
pursuant to Sec.  983.41(a) of the order, such handlers may test their 
entire inventory (maximum lot size of 150,000 pounds) or segregate 
receipts into various sized lots and have an inspector sample and test 
each specified lot for aflatoxin and may also, pursuant to Sec.  
983.41(b) of the order, apply to the Committee for an exemption from 
minimum quality testing.
    Because it is more economical for smaller handlers to test larger 
lots for aflatoxin and to be exempt from minimum quality testing, it is 
expected that the majority, if not all such handlers, will apply for 
the exemption from minimum quality testing.
    Exempted handlers, who handle more than 1,000 pounds and less than 
a million pounds of assessed weight pistachios per marketing year, 
would draw or have one sample drawn per lot. This sample would be 
divided into two portions, one for aflatoxin and one for minimum 
quality testing. Typically, when such handlers receive notice that the 
lots have passed aflatoxin testing requirements, they return the sample 
portion designated for minimum quality testing to the lot. Such lots 
are then further processed (i.e., sized, sorted, air-legged, pin-
picked, and graded). Handlers would then draw a new sample, which is 
required to be maintained for 90 days at the handler's facilities and 
required to be made available for review or auditing by the Committee. 
Those handlers who handle more than 1,000 pounds and less than a 
million pounds and who are not granted such an exemption by the 
Committee are required to meet the traceability procedures as specified 
in Sec.  983.38(d) of the order and the aflatoxin, quality, and size 
requirements under the order.
    After certification for aflatoxin, quality, and size or pulling and 
retaining required samples, the majority of these lots are shipped 
directly into the channels of commerce. However, some certified lots 
are readied and retained in the handler's facility in anticipation of 
future orders.
    When handlers receive new orders, they typically either resort or 
resize existing certified lots of inshell pistachios or create new lots 
from uncertified stored nuts. When existing certified lots are used 
they generally have to be reworked to meet specific buyer needs. For 
instance, light-stained nuts, dark-stained nuts, insect infested nuts, 
smaller or larger-sized nuts, closed shell or open shell nuts may have 
to be removed via hand-sorting, color-sorting, pin-picking and/or 
resizing. Removal of these nuts results in new lots which no longer 
have representative inspection certificates. Such lots would be 
considered to have been ``materially changed''.
    Thus, the Committee at its November 3, 2004, meeting, unanimously 
recommended establishing a new section entitled ``Sec.  983.143--
Reinspection'' to define the term ``materially changed'' and to specify 
handler reinspection requirements to assure the quality of pistachios 
entering market channels.
    The Committee, at its April 12, 2005, meeting, reconsidered and 
further clarified its previous recommendation. The Committee 
unanimously recommended that, effective August 1, 2005, lots which are 
color-sorted, hand-sorted, pin-picked, and/or resized after being 
initially certified for aflatoxin, quality, and size requirements under 
the order be considered ``materially changed'' and that any portion of 
a lot (the portion resorted and resized to meet buyer specifications or 
the portion that was removed from the original lot) be inspected as new 
lots. The Committee clarified, that Sec.  983.42 which provides that 
previously certified lots can be commingled with other certified lots, 
does not apply to portions of lots which are materially changed under 
the order, as such newly formed lots may no longer contain the same 
quantity or quality of inshell pistachios as the original lots.

Initial Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), AMS has considered the economic impact of this action on 
small entities. Accordingly, AMS has prepared this initial regulatory 
flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses would 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and the rules issued thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    There are approximately 24 handlers of California pistachios 
subject to regulation under the order and approximately 741 producers 
in the production area. Small agricultural producers are defined by the 
Small Business Administration (13 CFR 121.201) as those having annual 
receipts less than $750,000, and small agricultural service firms are 
defined as those whose annual receipts are less than $6,000,000. 
Seventeen of the 24 handlers subject to regulation have annual 
pistachio receipts of less than $6,000,000. In addition, 722 producers 
have annual receipts less than $750,000. Thus, the majority of handlers 
and producers of California pistachios may be classified as small 
entities.
    This rule would modify sampling procedures for dark-stained 
pistachios which are intended to be dyed or color-coated. It would also 
establish reinspection requirements for lots of pistachios, which are 
materially changed after meeting initial aflatoxin, quality, and size 
requirements. This action is expected to assure the quality of 
pistachios, provide handlers more marketing flexibility, improve the 
marketability of pistachios, and enhance the marketability of reworked 
pistachios. These benefits are expected to offset increased inspection 
costs.
    Section 983.46 of the order authorizes the Committee to recommend 
that the Secretary modify or suspend order provisions contained in 
Sec. Sec.  983.38 through 983.45. These provisions took effect August 
1, 2005.

Sampling Procedures

    Sections 983.38 and 983.39 of the order specify maximum aflatoxin, 
minimum quality and minimum size requirements, respectively, that must 
be met prior to the shipment of pistachios.
    Sections 983.38(d)(1) and 983.39(e)(1) of the order specify that a 
sample must

[[Page 49888]]

be drawn from each lot, and that this lot sample must be divided into 
two samples--one portion for aflatoxin testing and one for minimum 
quality and size testing.
    Section 983.39(b)(3)(iv) of the order defines dark stain and 
specifies that pistachios that are dyed or color-coated to improve 
their marketing quality are not subject to the maximum permissible 
defects for dark stain.
    Pistachios grow on trees in grape-like clusters and are encased in 
an outer skin, or hull. During the pistachio harvest process, the nuts, 
which contain a significant amount of moisture when harvested, must 
arrive at the handling facility as soon as possible and the hulls 
covering the shell must be removed. If the hulls are not removed from 
the nuts within 24 hours of their removal from the tree, staining of 
the outer shell occurs. After being hulled, the pistachios are then 
dried, and placed in storage containers. When the nuts are removed from 
storage, they are sorted, sized, graded, and mechanically separated 
into open and closed shell product (pin-picked) and placed into lots 
for aflatoxin and minimum quality testing. A ``lot'' is any quantity of 
pistachios that is segregated for testing.
    During the sorting process, the inshell pistachios are separated by 
the color of the shells and the amount of stain on the shells. On 
average, approximately 95 percent of the harvested inshell pistachios 
are placed into lots designated as non-stained or light-stained 
pistachios. Such pistachios are typically marketed without any 
treatment to cover or remove the stains. The remaining 5 percent are 
placed into lots consisting primarily of dark-stained inshell 
pistachios. Handlers typically dye or color-coat the dark-stained 
inshell pistachios to cover the stains, because they are generally not 
marketable in their natural state.
    The color-coating process usually consists of applying a white 
coating or a flavoring to the shells of the pistachios. The dyeing 
process consists of applying a dye to the shells.
    Prior to placing pistachios into the domestic channels of commerce 
on August 1, 2005, and later, handlers will be required to draw or have 
drawn a sample and test or have tested each sample for aflatoxin, 
quality, and size requirements, unless exempted under Sec. Sec.  983.41 
or 983.70 of the order.
    Under the regulatory requirements of the order, one test sample 
will be drawn per lot and divided into two portions--one for aflatoxin 
testing and the other for minimum quality and size testing. Handlers 
will draw this sample while the pistachios are in their natural state 
(prior to dyeing or color-coating) because false positive test results 
may occur when dyed or color-coated pistachios are used in conducting 
aflatoxin tests.
    When handlers believe that lots of natural condition pistachios 
exceed the maximum permissible 3 percent by weight tolerance for dark 
stain under the existing voluntary minimum quality requirements of the 
U.S. Grade Standards for Pistachios in the Shell (7 CFR part 51.2540 
through 51.2549), or the minimum quality requirements under the order, 
they will have the natural condition portion of the sample designated 
for aflatoxin testing tested. If the sample meets the aflatoxin 
requirements, handlers then return the sample portion designated for 
the minimum quality and minimum size testing to the lot, dye or color-
coat the lot, and draw or have drawn a second representative dyed or 
color-coated sample to be tested for minimum quality and size. This 
second sample is taken after the pistachios have been dyed or color-
coated to assure that the color is uniform and adequately covers the 
staining.
    Because the inspection requirements do not provide for sampling and 
inspections at this stage of the process, the Committee, on December 
15, 2004, recommended modifying the order's sampling procedures and 
establishing a new section entitled ``Sec.  983.138 Samples for 
testing.'' The vote was 8 in favor and 0 opposed.
    The first alternative considered was to leave the order provisions 
unchanged, but this alternative was not adopted, as handlers, 
producers, and consumers would benefit from permitting the orderly 
marketing of pistachios containing edible nutmeats that fail minimum 
quality for external cosmetic reasons. The Committee also considered 
providing handlers with more flexibility in removing dark-stained 
inshell pistachios from lots, but decided that modifying the sampling 
procedures for lots intended for dyeing or color-coating would allow 
handlers to market these dark-stained pistachios without having to 
implement lengthy and costly removal processes.
    The Committee estimated that the total 2005-06 inshell pistachio 
crop will be approximately 200 million pounds and that approximately 5 
percent (6 million pounds or 600 lots) of all inshell pistachios 
marketed domestically would be dyed or color-coated to cover dark-
stained shells.
    While this modification to sampling procedures under the order is 
expected to result in a slight increase in inspection costs for lots 
which are dyed or color-coated, the improvement in the marketability of 
these pistachios is expected to offset the additional costs. When the 
dark-stained pistachios are shelled out, the kernels are expected to 
have an approximate value of $1.00 per pound, which is substantially 
less than the $2.00 per pound value of dyed or color-coated inshell 
pistachios.
    Accordingly, producers, handlers, and consumers would benefit, as 
dyeing and color-coating dark-stained inshell pistachios results in 
nuts with a more pleasing appearance. Covering the dark stain would 
allow these edible pistachios to meet minimum quality requirements 
under the order and also make the pistachios more appealing to 
retailers and consumers. Retailers are expected to be willing to pay on 
average $2.00 per pound for these nuts that were previously 
unmarketable as inshell nuts. This increased value also is expected to 
contribute to improved or maintained producer returns.

Reinspection

    Sections 983.38 and 983.39 of the order specify maximum aflatoxin 
requirements, and minimum quality and minimum size requirements, 
respectively.
    Section 983.39(e) of the pistachio order provides minimum quality 
testing and inspection procedures and requires that each lot of 
pistachios to be certified be uniquely identified and traceable from 
testing through shipment by the handler.
    Section 983.43 of the pistachio order provides authority for the 
Committee to recommend the establishment of rules and regulations to 
specify conditions under which pistachios would be subject to 
reinspection.
    Section 983.41 of the pistachio order provides handlers who handle 
less than 1 million pounds of assessed weight (dried weight) pistachios 
per production year (September 1-August 31) with certain aflatoxin 
testing options and allows such handlers to apply to the Committee for 
an exemption from minimum quality testing. Handlers granted an 
exemption must pull the samples and maintain these samples in their 
handling facilities for 90-days for review and audit by the Committee 
when requested. Handlers who are not granted an exemption from minimum 
quality testing, must test all lots for aflatoxin, quality and size 
requirements under the order.
    Section 983.42 of the pistachio order provides that handlers may 
commingle aflatoxin and minimum quality certified lots with other 
certified lots. This section took effect August 1, 2005.

[[Page 49889]]

    Section 983.43 of the pistachio order provides authority for the 
Committee to recommend the establishment of rules and regulations to 
specify conditions under which pistachios would be subject to 
reinspection. This section, too, took effect August 1, 2005.
    Section 983.70 of the pistachio order exempts handlers who handle 
1,000 pounds or less of dried weight pistachios during any marketing 
year (dried to 5 percent moisture) within the production area from all 
aflatoxin and minimum quality requirements.
    As mentioned earlier, during the production year handlers typically 
hull and dry pistachios and place the nuts into storage containers. 
These nuts usually remain in storage until an order is received from a 
buyer. When the nuts are removed from storage, handlers have the option 
of testing the nuts for aflatoxin prior to further processing (i.e., 
sorting, sizing, grading, pin-picking (segregating the split- and 
closed-shell nuts), or placing the nuts into lots for aflatoxin and 
minimum quality and size testing after these processes have been 
completed.
    Typically, handlers who handle a million or more pounds of assessed 
weight pistachios per marketing year further process the nuts prior to 
testing for aflatoxin, quality, and size requirements. Such handlers, 
pursuant to Sec.  983.38(d) are required to uniquely identify each lot 
so that it can be traced from the point of testing through shipment.
    Pistachio handlers who handle less than a million pounds of 
assessed weight pistachios per marketing year and whose pistachios pass 
aflatoxin testing requirements would not have to comply with the 
traceability procedures set forth in Sec.  983.38(d). Furthermore, 
pursuant to Sec.  983.41(a) of the order, such handlers may test their 
entire inventory (maximum lot size of 150,000 pounds) or segregate 
receipts into various sized lots and have an inspector sample and have 
each specified lot tested for aflatoxin and may also, pursuant to Sec.  
983.41(b) of the order, apply to the Committee for exemption from 
minimum quality testing.
    Because it is more economical for smaller handlers to test larger 
lots for aflatoxin and to be exempt from minimum quality testing, it is 
expected that the majority, if not all such handlers, will apply for 
the exemption from minimum quality and size testing.
    Thus, those exempted handlers, who handle more than 1,000 pounds 
and less than a million pounds of assessed weight pistachios per 
marketing year, would draw or have one sample drawn per lot. This 
sample would be divided into two portions, one for aflatoxin and one 
for minimum quality testing. Typically, when such handlers receive 
notice that the lots have passed aflatoxin testing requirements, they 
return the sample portion designated for minimum quality testing to the 
lot. Such lots are then further processed (sized, sorted, air-legged, 
pin-picked, and graded). Handlers would then draw a new sample, which 
is required to be maintained for 90-days at the handler's facilities 
and made available for review or auditing by the Committee.
    Those handlers who handle more than 1,000 pounds and less than a 
million pounds and who are not granted such an exemption by the 
Committee are required to meet the traceability procedures as specified 
in Sec.  983.38(d) of the order and the aflatoxin, quality, and size 
requirements under the order for each lot of pistachios.
    After certification for aflatoxin, quality, and size or pulling and 
retaining required samples, the majority of these lots are shipped 
directly into the channels of commerce. However, some certified lots 
are readied and retained in the handler's facility in anticipation of 
future orders.
    When handlers receive new orders, they typically either resort or 
resize existing certified lots of inshell pistachios or create new lots 
from uncertified stored nuts. When existing certified lots are used 
they generally have to be reworked to meet specific buyer needs. For 
instance, light-stained nuts, dark-stained nuts, insect infested nuts, 
smaller or larger sized nuts, closed shell or open shell nuts may have 
to be removed via hand-sorting, color-sorting, pin-picking and/or 
resizing. Removal of these nuts, results in new lots which no longer 
have representative inspection certificates. Such lots would be 
considered to have been ``materially changed''.
    Thus, the Committee at its November 3, 2004, meeting, unanimously 
recommended establishing a new section entitled ``Sec.  983.143--
Reinspection'' to define the term ``materially changed'' and to specify 
handler reinspection requirements.
    The Committee, at its April 12, 2005, meeting, reconsidered and 
further clarified its previous recommendation. The Committee 
unanimously recommended that, effective August 1, 2005, lots which are 
color-sorted, hand-sorted, pin-picked, and/or resized after being 
initially certified for aflatoxin, quality, and size requirements under 
the order be considered ``materially changed'' and that any portion of 
a lot (the portion resorted and resized to meet buyer specifications or 
the portion that was removed from the original lot) be inspected as new 
lots. The Committee clarified, that Sec.  983.42 which provides that 
previously certified lots can be commingled with other certified lots, 
does not apply to portions of lots which are materially changed under 
the order, as such newly formed lots may no longer contain the same 
quantity or quality of inshell pistachios as the original lots.
    Lastly, the Committee recommended that some handlers be exempt from 
reinspection requirements under the order. As previously mentioned, 
Sec.  983.70 of the pistachio order exempts handlers who handle 1,000 
pounds or less of dried weight pistachios during any marketing year 
(dried to 5 percent moisture) from all aflatoxin and minimum quality 
requirements. Thus, the Committee recommended that such handlers also 
be exempt from any reinspection requirements under the order.
    Additionally, Sec.  983.41 of the pistachio order provides that 
handlers who handle less than 1 million pounds of assessed weight 
(dried weight) pistachios per production year (September-August 31) 
with certain aflatoxin testing options and allows such handlers to 
apply to the Committee for an exemption from minimum quality and size 
testing. The order further provides that handlers, who are granted an 
exemption, shall pull and maintain for 90 days representative lot 
samples of any lots intended to be shipped into the domestic channels 
of commerce for review and audit by the Committee as requested.
    The Committee recommended exempting such handlers from reinspection 
requirements, as typically such handlers pull or have pulled 
representative lot samples immediately prior to shipment, do not 
materially change the lots, and ship such lots directly into the 
domestic channels of commerce and because the Committee believed such 
smaller handlers could be negatively impacted by the additional cost of 
reinspection. However, because such handlers could materially change 
their lots prior to shipment into the domestic channels of commerce, 
USDA is proposing to require such handlers to pull or have pulled 
representative samples of the materially changed lots to assure the 
quality of the pistachios and to keep the sampling and inspection 
procedures consistent with order authority. As noted in this document, 
the costs for reinspection are expected to be small compared to the 
benefit of assuring the quality of the pistachios entering commercial 
channels.

[[Page 49890]]

    Such representative lot samples would be divided into two parts, 
one part would be retested for aflatoxin and the other part would be 
maintained for 90 days at the handler's facilities. Such samples would 
be stored in the handler's facility and should not add to the handler's 
cost. Additionally, handlers would be required to make those samples 
maintained for 90 days available for auditing by the Committee.
    While handlers who handle less than a million pounds may apply to 
the Committee for a minimum quality testing exemption, there may be 
occasions when the Committee does not grant these handlers such an 
exemption. The Committee unanimously recommended that such handlers and 
any handler who handles more than a million pounds of assessed weight 
pistachios during per marketing year and who materially changes any lot 
of pistachios shall test or have tested such lots for aflatoxin, and 
minimum quality and size requirements under the order before shipping 
such pistachios into the domestic channels of commerce, when the order 
requirements took effect on August 1, 2005.
    The Committee also discussed alternatives to this change, including 
not establishing these reinspection requirements, but believes that 
consumers should be provided with assurance of a certified high quality 
product that does not currently exist when a certified lot is 
``materially changed.'' Also, the Committee discussed but decided not 
to include the following processes in the definition of ``materially 
changed'': (1) Roasting, salting, flavoring, dyeing, color-coating, 
were discussed but not included in the definition as these processes do 
not alter a lot's minimum quality or maximum aflatoxin levels; (2) 
cleaning was considered but not included because cleaning typically is 
accomplished prior to the initial inspection; and (3) air-legging which 
is performed to remove loose shells, was considered but not included 
because this process does not significantly change a lot.
    Lastly, the Committee discussed whether tracing a lot would provide 
assurance that materially changed lots would continue to meet the 
order's maximum aflatoxin and minimum quality requirements and believed 
that it would not provide such assurance. It is of the view, that the 
best way to assure the quality of materially changed lots was through 
resampling and retesting.
    The Committee also discussed the slight increase in the cost of 
inspection and the benefits of this action for handlers, consumers, and 
producers. Typically, nuts removed from materially changed lots are 
blended into other lots of uninspected inshell pistachios, shelled out 
into kernels, dyed or color-coated, or discarded. Very few inshell 
pistachios are discarded, as handlers typically further process the 
nuts to obtain as many marketable nuts as possible.
    Closed-shell pistachios that are not blended into other uninspected 
lots are typically shelled out into kernels. Kernels are marketed on 
average for $1.00 per pound on the domestic market and can be marketed 
in some export markets for $2.00 to $3.00 per pound. Ordinarily, the 
dark-stained pistachios that are not blended into other uninspected 
lots are dyed or color-coated and are marketed for $2.00 per pound in 
the domestic market, slightly less than the price received for natural 
condition, inshell pistachios. Dyed or color-coated nuts occasionally 
can be marketed in export markets as well. The Committee mentioned that 
the cost of resorting and resizing lots varies from lot to lot, and 
that such costs are dependent upon whether the product is hand sorted 
or mechanically sorted, the size of the lot, the percentage of the lot 
removed, and other similar factors. The Committee believes that the 
overall handler cost for resorting and/or resizing such lots is 
typically insignificant compared to the prices received for better 
quality lots.
    In reviewing inspection costs, the Committee believes that a 
typical initial aflatoxin certification costs approximately $70 per lot 
and an initial minimum quality inspection costs $100 per lot. Buyers 
and consumers are willing to pay more for more appealing pistachios. 
Therefore, the Committee expects that handlers will market these 
materially changed lots at prices that will offset the combined costs 
of initial inspection, reprocessing, and reinspection.
    Thus, this action is expected to benefit handlers, buyers, and 
consumers. Handlers and buyers would be able to offer higher quality 
lots and consumers would receive more appealing, higher quality 
pistachios. These higher quality lots also should contribute to 
improved grower returns.
    The Committee does not foresee any industry problems that may 
result from implementation of this recommendation.
    This action would not impose any additional reporting or 
recordkeeping requirements on either small or large pistachio handlers. 
As with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this proposed rule.
    In addition, the Committee's meetings were widely publicized 
throughout the pistachio industry and all interested persons were 
encouraged to attend the meetings and participate in the Committee's 
deliberations on all issues. Like all Committee meetings, the November 
3, December 15, 2004, and April 12, 2005, meetings, were public 
meetings and all entities, both large and small, were able to express 
their views on these issues. Finally, interested persons are invited to 
submit information on the regulatory and informational impacts of this 
action on small businesses.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab.html. Any questions about the compliance 
guide should be sent to Jay Guerber at the previously mentioned address 
in the FOR FURTHER INFORMATION CONTACT section.
    A 7-day comment period is provided to allow interested persons to 
respond to this proposal. Seven days is deemed appropriate because any 
changes resulting from this proposed rule should be in place by mid-
September. The beginning of harvest for the 2005-06 season is expected 
to start at the end of August and handlers are expected to begin 
reworking their lots of pistachios by mid-September. All written 
comments timely received will be considered before a final 
determination is made on this matter.

List of Subjects in 7 CFR Part 983

    Pistachios, Marketing agreements and orders, Reporting and 
recordkeeping requirements.

    For the reasons set forth in the preamble, 7 CFR part 983 is 
proposed to be amended as follows:

PART 983--PISTACHIOS GROWN IN CALIFORNIA

    1. The authority citation for 7 CFR part 983 continues to read as 
follows:

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

    2. In part 983, Subpart--Rules and Regulations is amended by adding 
new Sec. Sec.  983.138 and 983.143 to read as follows:


Sec.  983.138  Samples for testing.

    Prior to testing, a sample shall be drawn from each lot and divided 
into two subsamples to be used to test pistachios for aflatoxin and for

[[Page 49891]]

minimum quality. The lot subsamples shall be of sufficient weight to 
comply with Tables 1 and 2 of Sec.  983.38 and Table 4 of Sec.  983.39: 
Provided, that lots of pistachios which are intended for dyeing or 
color-coating shall be sampled for minimum quality after the dyeing or 
color-coating process.


Sec.  983.143  Reinspection.

    (a) Any lot of inshell pistachios that is pin-picked, hand-sorted, 
color-sorted, and/or resized is considered to be ``materially 
changed.'' Pistachios which are roasted, salted, flavored, air-legged, 
dyed, color-coated, cleaned, and otherwise subjected to similar 
processes are not considered to be materially changed.
    (b) Each handler who handles pistachios shall cause any lot or 
portion of a lot initially certified for aflatoxin, quality, and size 
requirements, and subsequently materially changed, to be reinspected 
for aflatoxin, quality, and size, and certified as new lots: Provided, 
that: (1) Pursuant to Sec.  983.41(b) handlers exempted from minimum 
quality testing shall pull or have pulled representative lot samples 
for aflatoxin testing of any materially changed lots intended to be 
shipped into the domestic channels of commerce. Such representative lot 
samples shall be divided into two parts, one part shall be retested for 
aflatoxin and the other part shall be maintained for 90 days at the 
handler's facilities. Handlers shall make the samples maintained for 90 
days available for auditing by the Administrative Committee for 
Pistachios; and (2) handlers exempted from order requirements under 
Sec.  983.70 are exempted from all reinspection requirements.

    Dated: August 22, 2005.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. 05-16981 Filed 8-23-05; 11:52 am]
BILLING CODE 3410-02-P


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