[Federal Register Volume 70, Number 203 (Friday, October 21, 2005)]
[Rules and Regulations]
[Pages 61220-61226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-21167]



[[Page 61220]]

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 983

[Docket No. FV05-983-2 FR]


Pistachios Grown in California; Establishment of Additional 
Inspection Requirements

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule establishes 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 modifies sampling procedures for dark-stained 
pistachios which are intended to be dyed or color-coated. It also 
establishes reinspection requirements for lots of pistachios which are 
materially changed after meeting initial aflatoxin and quality 
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: Effective Date: October 22, 2005.

FOR FURTHER INFORMATION CONTACT: Terry Vawter, Marketing Specialist, 
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#652f041c4b2210001707001725101601044b020a13"><span class="__cf_email__" data-cfemail="175d766e3950627265757265576264737639707861">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: This final rule 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 final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is not intended to have retroactive 
effect. This rule will not preempt any State or local laws, 
regulations, or policies, unless they present an irreconcilable 
conflict with this rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with 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 modifies sampling procedures for dark-stained pistachios 
which are intended to be dyed or color-coated. It also establishes 
reinspection requirements for lots of pistachios, which are materially 
changed after meeting initial aflatoxin, quality, and size 
requirements. This action is expected to improve the quality and 
marketability 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 final 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, 
and minimum quality and 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 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 and size 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, as the staining limits their 
marketability and 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 is 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

[[Page 61221]]

are in their natural state (prior to dyeing or color-coating) because 
false-positive aflatoxin 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 on 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 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 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 
inspection. 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 unanimous.
    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 improvements in marketability of 
these pistachios are expected to offset the additional costs. When 
dark-stained pistachios are currently 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 dyes or color-
coated pistachios.
    Producers, handlers, and consumers benefit from dyeing or color-
coating inshell pistachios because dyeing and color-coating dark-
stained pistachios results in nuts having a more desirable color 
appearance. This makes the nuts more appealing to retailers and 
consumers. Thus, retailers are willing to pay an average of $2.00 per 
pound for these previously unmarketable dark-stained, inshell 
pistachios. This increased value is also expected to contribute to 
improved or maintained producer returns.

Reinspection

    Sections 983.38 and 983.39 of the order specify maximum aflatoxin 
and minimum quality and size requirements, respectively. These sections 
took effect August 1, 2005.
    Section 983.39(e) of the pistachio order provides minimum quality 
testing and inspection procedures; and requires each lot of pistachios 
to be certified, uniquely identified, and traceable from testing 
through shipment by the handler.
    Section 983.41 of the pistachio order provides that handlers who 
handle less than 1 million pounds of assessed weight (dried weight) 
pistachios per marketing 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 and size 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.
    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 983.70 of the pistachio order exempts handlers who handle 
1,000 pounds or less of dried weight pistachios (dried to 5 percent 
moisture) during any production year within the production area from 
all aflatoxin and minimum quality and size 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 sold. When the 
nuts are removed from storage, handlers have the option of sampling and 
testing the nuts for aflatoxin prior to further processing (i.e., 
sorting, sizing, grading, and pin-picking (segregating the split- 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.
    After certification for aflatoxin, quality, and size or pulling and 
retaining required samples for smaller handlers, 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 stored 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, lightly-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 
then be considered to have been ``materially changed.''
    Pistachio handlers who handle more than 1,000 pounds and 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

[[Page 61222]]

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 for each lot of pistachios.
    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 or 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.

Final 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 final 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 
pistachio 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 modifies sampling procedures for dark-stained pistachios 
which are intended to be dyed or color-coated. It also establishes 
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 for reworked 
pistachios. These benefits are expected to offset the 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 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 subsamples--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, 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 staining 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, or later, handlers will

[[Page 61223]]

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 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 size testing to the lot, dye or 
color-coat the lot, and draw or have drawn a second representative dyes 
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 unanimous.
    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 
permit 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 and offset the 
slight increase in inspection costs.

Reinspection

    Sections 983.38 and 983.39 of the order specify maximum aflatoxin 
requirements, and minimum quality and 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, uniquely identified, and traceable from 
testing through shipment by the handler.
    Section 983.41 of the pistachio order provides handlers who handle 
more than a 1,000 pounds and less than a 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.
    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 983.70 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 sold. 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 and quality 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.
    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''.

[[Page 61224]]

    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 and size 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 quality 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.
    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 1-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 
requiring such handlers to pull or have pulled representative samples 
of the materially changed lots to assure both the aflatoxin and 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.
    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 more than 1,000 pounds and 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 the 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.

[[Page 61225]]

    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 of $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 should also contribute to 
improved grower returns.
    The committee does not foresee any industry problems that may 
result from implementation of this final rule.
    This action will 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 publc sector agencies.
    As noted in the initial regulatory flexibility analysis, USDA has 
not identified any relevant Federal rules that duplicate, overlap, or 
conflict with this final rule. Further, the public comments received 
concerning the proposed rule did not address the initial regulatory 
flexibility analysis.
    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, 2004; December 15, 2004; and April 12, 2005; meetings, were public 
meetings and all entities, both large and small, were encouraged to 
express their views on these issues.
    A proposed rule concerning this action was published in the Federal 
Register on August 25, 2005 (70 FR 49885). Copies of the rule were 
provided to all the committee members and pistachio handlers. Finally, 
the rule was made available through the Internet by USDA and the Office 
of the Federal Register. A seven-day comment period ending September 1, 
2005, was provided to allow interested persons to respond to the 
proposal.
    One comment was received during the comment period in response to 
the proposal. The commenter, representing the Administrative Committee 
for Pistachios, was concerned that the committee's recommendation on 
reinspection had been misinterpreted in the proposed rule. The 
commenter expressed concerns that the rule requires reinspection of 
lots of pistachios for handlers who handle more than a 1,000 pounds and 
less than a million pounds of pistachios after ``further processing'' 
pistachios, and that the costs of this would burden smaller handlers. 
The commenter went on to recommend a change to Sec.  983.143(b)(1) 
which would include an exemption from reinspection requirements if a 
handler was exempt from minimum quality testing under Sec.  981.41(b).
    We disagree. In promulgating Sec.  983.41 of the order concerning 
the testing of minimal quantities, the procedures for aflatoxin testing 
were separated from those concerning minimum quality. The consideration 
given in Sec.  983.41(b) applies solely to testing for minimum quality 
and size requirements, rather than for aflatoxin. As required under 
Sec.  983.41, handlers handling less than a million pounds of 
pistachios are afforded the option of utilizing two methods of 
aflatoxin testing. Thus, the impact of this change should be minimal 
especially given the potentially small number of handlers and 
pistachios that could be affected. The committee estimates that 14 
handlers could be affected and they handle less than 1 percent of the 
inshell pistachios produced in California. The quantities handled of 
all 14 (except one) fall well short of one million pounds.
    This rule requires reinspection only if the lot is ``materially 
changed'' (pin-picked, hand-sorted, color-sorted, and/or resized) after 
sampling and inspection. If other further processing (sizing, sorting, 
roasting, salting, etc.) occurs, reinspection is not required.
    Accordingly, no changes will be made to the rule, as proposed, 
based on the comment received.
    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.
    After consideration of all relevant matters presented, including 
the information and recommendations submitted by the committee and 
other available information, it is hereby found that this rule, as 
hereinafter set forth, will tend to effectuate the declared policy of 
the Act.
    It is further found that good cause exists for not postponing the 
effective date of this rule until 30 days after the publication in the 
Federal Register (5 U.S.C. 553) because the 2005 harvest has begun and 
this rule should be in place as soon as possible so that it can be 
applied to the pistachios handled in this production year. Further, 
handlers are aware of this rule, which was discussed in a public 
meeting. Also, a seven-day comment period was provided for in the 
proposed rule, and the comment received has been considered.

List of Subjects in 7 CFR Part 983

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

0
For the reasons set forth in the preamble, 7 CFR part 983 is amended as 
follows:

PART 983--PISTACHIOS GROWN IN CALIFORNIA

0
1. The authority citation for 7 CFR part 983 continues to read as 
follows:


[[Page 61226]]


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

0
2. In part 983, Subpart--Rules and Regulations is amended by adding new 
Sec.  983.138 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 
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.

0
3. In part 983, Subpart--Rules and Regulations is amended by adding 
Sec.  983.143 to read as follows:


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: October 18, 2005.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. 05-21167 Filed 10-20-05; 8:45 am]
BILLING CODE 3410-02-P


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