[Federal Register Volume 60, Number 66 (Thursday, April 6, 1995)]
[Proposed Rules]
[Pages 17466-17487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8205]



========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 60, No. 66 / Thursday, April 6, 1995 / 
Proposed Rules
[[Page 17466]]

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 981

[Docket Nos. AO-214-A7; FV93-981-1]


Almonds Grown in California; Recommended Decision and Opportunity 
To File Written Exceptions to Proposed Further Amendment of Marketing 
Agreement and Order No. 981

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule and opportunity to file exceptions.

-----------------------------------------------------------------------

SUMMARY: This recommended decision invites written exceptions on 
proposed amendments to the marketing agreement and order for almonds 
grown in the State of California. The proposed amendments would: Amend 
five existing definitions in the order; revise board representation, 
nomination procedures, terms of office, quorum and qualification 
procedures, voting and tenure requirements; modify creditable 
advertising provisions; revise volume control procedures; require 
handlers to maintain records in the State of California; authorize 
interest or late payment charges on assessments paid late; provide for 
periodic continuance referenda; authorize exemptions for organic 
almonds from certain program requirements; and make necessary 
conforming changes. These proposed amendments are designed to improve 
the administration, operation and functioning of the California almond 
marketing order program.

DATES: Written exceptions must be filed by May 8, 1995.

ADDRESSES: Written exceptions should be filed with the Hearing Clerk, 
U.S. Department of Agriculture, room 1079-S, Washington, DC 20250-9200, 
Facsimile number (202) 720-9776. Four copies of all written exceptions 
should be submitted and they should reference the docket numbers and 
the date and page number of this issue of the Federal Register. 
Exceptions will be made available for public inspection in the Office 
of the Hearing Clerk during regular business hours.

FOR FURTHER INFORMATION CONTACT: Kathleen M. Finn, Marketing 
Specialist, Marketing Order Administration Branch, Fruit and Vegetable 
Division, AMS, USDA, room 2523-S, Washington, D.C. 20250-0200; 
telephone: (202) 720-1509, or FAX (202) 720-5698; or Martin Engeler, 
Assistant Officer-In -Charge, California Marketing Field Office, 
Marketing Order Administration Branch, Fruit and Vegetable Division, 
AMS, USDA, 2202 Monterey Street, suite 102-B, Fresno, California 93721; 
(209) 487-5901 or FAX (209) 487-5906.

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding: Notice 
of Hearing issued on August 3, 1993, and published in the August 17, 
1993, issue of the Federal Register (58 FR 43565).
    This administrative action is governed by the provisions of 
sections 556 and 557 of Title 5 of the United States Code and, 
therefore, is excluded from the requirements of Executive Order 12866.

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
recommended decision with respect to the proposed further amendment of 
Marketing Agreement and Order No. 981, regulating the handling of 
almonds grown in California, and the opportunity to file written 
exceptions thereto. Copies of this decision can be obtained from 
Kathleen M. Finn or Martin Engeler whose addresses are listed above.
    This action is issued pursuant to the provisions of the 
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601 
et seq.), hereinafter referred to as the ``Act,'' and the applicable 
rules of practice and procedure governing the formulation of marketing 
agreements and orders (7 CFR part 900).
    The proposed amendment of Marketing Agreement and Order No. 981 is 
based on the record of a public hearing held in Modesto, California, on 
November 3, 4 and 5, 1993. Notice of this hearing was published in the 
Federal Register on August 17, 1993. The notice of hearing contained 
several proposals submitted by the Almond Board of California (Board), 
which locally administers the order, and other interested parties.
    The Board's proposed amendments would: (1) Increase its membership 
by two positions and change Board nomination, selection, and operation 
procedures; (2) change the term of office of its members from one to 
three years, and limit the tenure of Board members; (3) change the 
definitions of ``cooperative handler,'' ``to handle,'' ``settlement 
weight,'' ``crop year'' and ``trade demand''; (4) require handlers of 
California almonds to maintain program records in the State of 
California; (5) change its advertising assessment credit program to 
allow credit for certain advertising costs incurred by handlers not 
previously authorized; (6) require handlers to pay interest and/or late 
payment charges for past due assessments; (7) provide for continuance 
referenda every five years; (8) require handlers to submit grower 
lists; and (9) allow multi-year contracting.
    Five persons submitted additional proposals related to continuance 
referenda, Board composition and nomination procedures, organic 
almonds, regulatory provisions, advertising and promotion, assessments, 
compliance audits, the definition of grower, and research and reserve 
operations.
    At the hearing, Mr. Brian C. Leighton, on behalf of Cal-Almond, 
Inc., withdrew five of his proposals that were listed as proposal 
numbers 27, 30, 32, 33, and 38 in the Notice of Hearing. In addition, 
there was no evidence provided with respect to proposal numbers 42, 43, 
and 45 as listed in the Notice of Hearing. Therefore, these proposals 
are not included in this Recommended Decision.
    The Notice of Hearing also included proposals by the Fruit and 
Vegetable Division, Agricultural Marketing Service (AMS), U.S. 
Department of Agriculture, to make such changes as are necessary to the 
order, if any or all of the above amendments are adopted, so that all 
of its provisions conform with the proposed amendment. The Department 
also proposed that continuance referenda be conducted on a periodic 
basis consistent with the Department's policy guidelines.
    At the conclusion of the hearing the Administrative Law Judge fixed 
February 28, 1994, as the final date for interested persons to file 
proposed [[Page 17467]] findings and conclusions or written arguments 
and briefs based on the evidence received at the hearing. The following 
persons submitted documents: Mr. Robert J. Crockett, Attorney for the 
Board; Ms. Suzanne Vaupel, Attorney representing several organic almond 
growers; and Mr. Steven W. Easter, Vice President of Blue Diamond 
Growers.

Small Business Considerations

    In accordance with the provisions of the Regulatory Flexibility Act 
(RFA), the Administrator of the AMS has determined that this action 
would not have a significant economic impact on a substantial number of 
small entities. Small agricultural producers have been defined by the 
Small Business Administration (SBA) (13 CFR 121.601) as those having 
annual receipts of less than $500,000. Small agricultural service 
firms, which include handlers regulated under the order, are defined as 
those with annual receipts of less than $5,000,000.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions so that small businesses will not be 
unduly or disproportionately burdened. Interested persons were invited 
to present evidence at the hearing on the probable regulatory and 
informational impact of the proposed amendments on small businesses. 
The record indicates that handlers would not be unduly burdened by any 
additional regulatory requirements, including those pertaining to 
reporting and recordkeeping, that might result from this proceeding.
    During the 1993-94 crop year, approximately 115 handlers were 
regulated under Marketing Order No. 981. In addition, there were about 
7,000 producers of almonds in the production area. The Act requires the 
application of uniform rules on regulated handlers. Marketing orders 
and amendments thereto are unique in that they are normally brought 
about through group action of essentially small entities for their own 
benefit. Thus, both the RFA and the Act are compatible with respect to 
small entities.
    The proposed amendments to the marketing agreement and order 
include changes to five definitions in the marketing order. These 
definitions are cooperative handler, to handle, settlement weight, crop 
year, and trade demand. The changes that are proposed to the 
definitions are intended to make them consistent with current industry 
practices. The proposed changes to the definitions are designed to 
enhance the administration and functioning of the marketing order to 
the benefit of the industry.
    The proposed amendment to revise Board representation would 
increase the Board's size by allowing two additional grower members to 
serve on the Board. This would increase grower representation on the 
Board from five to seven and allow more grower input into Board 
decisions. The quorum size would also be increased to correspond with 
the increase in Board size. The change to the nomination procedures 
would require Board nominees to be nominated by January 20 rather than 
April 20 as currently provided. This would ensure that the new Board is 
seated prior to meetings where important decisions are made for the 
following crop year. These proposed amendments are designed to improve 
grower representation on the Board and allow the Board to function more 
efficiently.
    The proposed amendment to change the Board members' term of office 
from one-year to three-year staggered terms would allow more continuity 
on the Board. This would allow the Board to focus more on long-term 
strategic goals and develop long-term approaches to problems in the 
industry.
    The proposed amendment to require those persons nominated to the 
Board to qualify prior to their selection to the Board is an 
administrative change. This change would allow the selection process to 
take place in a more timely manner. The proposed amendment to add 
tenure requirements for Board members would allow more persons the 
opportunity to serve as members on the Board. It would provide 
opportunity for new ideas and approaches to issues that the Board 
addresses each year.
    The proposed amendment to the creditable advertising provisions 
would provide for expansion of the promotional activities for which 
handlers may receive credit-back from their assessments. This would 
allow the Board to increase program flexibility for participating 
handlers.
    The proposed amendment to allow the settlement weight for unshelled 
almonds to be determined on the basis of representative samples would 
be more consistent with current industry practices. There would be no 
increase in burden on handlers expected from this proposed amendment.
    The proposed amendment to require handlers to maintain records in 
the State of California would improve the Board's administration of the 
program. It would also allow the Board to have the records available to 
them for compliance purposes. It is not expected that any additional 
costs would be incurred by handlers to comply with this amendment.
    The proposed amendment to add interest or late payment charges on 
assessments paid late would encourage handlers to pay their assessments 
on time. Assessments not paid promptly add an undue burden on the Board 
because the Board has ongoing projects and programs funded by 
assessments that are functioning throughout the year. The addition of 
such a penalty is consistent with standard business practices.
    The proposed amendment to provide for periodic continuance 
referenda would allow growers the opportunity to vote on whether to 
continue the operation of the almond marketing order.
    The proposed amendment to allow handlers to sell their reserve 
almonds and the accompanying reserve obligation to other handlers would 
help facilitate the operation of the reserve program by providing 
handlers more flexibility.
    The proposed amendment to exempt organic almonds from certain 
program requirements would provide the organic segment of the industry 
more flexibility in marketing and selling their product. The proposed 
amendment would authorize organic almond handlers to be exempt from 
reserve requirements and advertising assessments. Organic growers and 
handlers demonstrated at the hearing that certain current marketing 
order provisions do not take into account marketing differences between 
certified organic almonds and conventional almonds.
    All of these changes are designed to enhance the administration and 
functioning of the marketing agreement and order to the benefit of the 
industry. Accordingly, the Administrator of AMS has determined that the 
proposed revisions of the order would not have a significant economic 
impact on handlers and growers.
    The amendments proposed herein have been reviewed under Executive 
Order 12778, Civil Justice Reform. They are not intended to have 
retroactive effect. If adopted, the proposed amendments would not 
preempt any State or local laws, regulations, or policies, unless they 
present an irreconcilable conflict with the amendments.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with the Secretary a 
petition stating that the order, any provision of the order, or any 
obligation imposed in connection [[Page 17468]] with the order is not 
in accordance with law and requesting a modification of the order or to 
be exempted therefrom. A handler is afforded the opportunity for a 
hearing on the petition. After the hearing the Secretary would rule on 
the petition. The Act provides that the district court of the United 
States in any district in which the handler is an inhabitant, or has 
his or her principal place of business, has jurisdiction in equity to 
review the Secretary's ruling on the petition, provided a bill in 
equity is filed not later than 20 days after date of the entry of the 
ruling.
    In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 
35), the reporting and recordkeeping provisions that are included in 
the proposed amendments would be submitted to the Office of Management 
and Budget (OMB). The provisions would not be effective until receiving 
OMB approval.

Material Issues

    The material issues of record addressed in this decision are as 
follows:
    (1) Whether to revise the existing definition for ``cooperative 
handler'';
    (2) Whether to revise the existing definition for ``to handle'';
    (3) Whether to revise the existing definition for ``settlement 
weight'';
    (4) Whether to revise the existing definition for ``crop year'' and 
to change the date that handler carryover and reserve inventory is 
reported to the Secretary to be used in fixing the salable and reserve 
percentages;
    (5) Whether to revise the existing definition for ``trade demand'';
    (6) Whether to increase membership representation on the Board, 
revise quorum requirements, allow voting by facsimile machines, only 
require the participation of 10 members when voting by facsimile 
machines, telegram or mail, increase the number of votes needed for 
Board actions, and increase the number of affirmative votes needed to 
make recommendations on reserve policies;
    (7) Whether to change the date for submitting nominees for Board 
membership to the Secretary;
    (8) Whether to revise the terms of office and add tenure 
requirements for members and alternates;
    (9) Whether to require a written acceptance with the background 
statement from nominees;
    (10) Whether to expand activities for which handlers may receive 
credit under the credit-back advertising and promotion provisions;
    (11) Whether to revise the provisions regarding the determination 
and redetermination of kernelweight for unshelled almonds and whether 
to eliminate the shelling ratios for unshelled almonds;
    (12) Whether to change the deadline date for disposition of reserve 
almonds;
    (13) Whether to delete the authority for the creditable advertising 
provisions and to modify the generic advertising and promotion program;
    (14) Whether to authorize the Board, with the approval of the 
Secretary, to reapportion grower and/or handler member representation 
on the Board based on the proportionate amounts of almonds handled by 
different segments of the industry;
    (15) Whether additional eligibility requirements should be added 
for grower members on the Board;
    (16) Whether to require handlers to maintain records in the State 
of California;
    (17) Whether to provide handlers advance notice before an audit or 
inspection is performed;
    (18) Whether to require handlers to submit to the Board a complete 
list of growers who have delivered almonds to that handler during that 
crop year;
    (19) Whether to authorize the imposition of interest and/or late 
payment charges for assessments that are paid late;
    (20) Whether to authorize payment of interest in the event a suit 
or administrative petition on payment of assessments is successful;
    (21) Whether to amend the definition of almonds to exempt certified 
organic almonds entirely from the marketing order;
    (22) Whether to exempt certified organic almonds from advertising 
and promotion assessments;
    (23) Whether to require that a minimum of 25 percent of funds 
collected for production research projects be spent on research and 
development of production methods which reduce or eliminate the use of 
synthetic chemicals in the production and handling of almonds;
    (24) Whether to require that almonds grown and sold as ``certified 
organic almonds'' be exempt from the reserve provisions;
    (25) Whether to authorize the Board to enter into contracts for 
periods up to five years for services, goods or other reasonable 
expenses;
    (26) Whether to require that continuance referenda be conducted on 
a periodic basis;
    (27) Whether to modify the reserve provisions of the order by 
eliminating the authority requiring reserve almonds to be sold in 
secondary or market development outlets and by authorizing handlers to 
sell reserve almonds and the reserve obligation to other handlers;
    (28) Whether to require that the first 250,000 pounds of almonds 
handled by a handler be exempt from reserve provisions; and
    (29) Whether to require incoming inspections be conducted no later 
than the last day of February during the then current crop year.

Findings and Conclusions

    The findings and conclusions on the material issues, all of which 
are based on evidence presented at the hearing and the record thereof, 
are:

Material Issue Number 1

    The term ``cooperative handler'' should be amended by referencing 
the California Food and Agricultural Code (California Code) in section 
981.14 so that cooperative handler would be more clearly defined in the 
marketing order.
    Currently, section 981.14 defines cooperative handler as any 
handler which is a cooperative marketing association of growers 
regardless of where or under what laws it may be organized. This 
definition is used for Board membership purposes only. Proponents 
testified that this definition needs to be amended to eliminate any 
misinterpretations or misunderstandings by the industry. Therefore, the 
proponents stated that the definition should reference the California 
Code which specifically defines a cooperative. Record evidence 
supported that the term ``cooperative handler'' should be defined in 
Sec. 981.14 to mean any handler as defined in section 981.13 (Handler), 
and which qualifies for treatment as a non-profit cooperative 
association as defined in section 54001, et seq. of the California 
Code. Under this new definition, organizations would be unable to 
identify themselves as cooperatives under the almond marketing order 
unless they meet the specific criteria contained in the California 
Code.
    At the hearing, there was concern about future modifications to the 
California Code which may be unacceptable to the almond industry. 
Record testimony indicated that it was more important to develop a 
concise definition that would help to alleviate current problems the 
industry is experiencing with misunderstandings under the current 
cooperative definition than to be concerned that the State may develop 
an unsatisfactory definition of cooperative at some future date. If the 
definition of cooperative was amended by the State and the amendment 
rendered the definition unsatisfactory to the Board, it would become 
necessary to [[Page 17469]] amend the marketing order definition again. 
In the event the State definition changed but remained satisfactory for 
marketing order purposes, a change in the State's legal citation would 
still require a change in the order. Therefore, a provision is 
recommended to be added to the amendatory language to allow the Board, 
with the approval of the Secretary, to modify the definition through 
informal rulemaking if the cooperative handler definition is changed by 
California. This would allow the Board to change the definition without 
going through the formal rulemaking process. This proposed amendment is 
therefore recommended with the above modifications.

Material Issue Number 2

    The term ``to handle'' in Sec. 981.16 should be amended to mean to 
commercially use almonds of own production or to sell, consign, 
transport or ship or in any other way to put almonds grown in the area 
of production into any channel of trade for human consumption 
worldwide.
    Currently, Sec. 981.16 defines ``to handle'' to mean ``to use 
almonds commercially of own production or to sell, consign, transport, 
ship (except as a common carrier of almonds owned by another person) or 
in any other way to put into channels of trade, either within the area 
of production or from such area to points outside thereof, or to 
receive as the first receiver thereof at any point of entry in the 
United States and Puerto Rico, almonds which have been exported 
therefrom and are submitted for reentry or are reentered free of duty * 
* *''.
    At the hearing, proponents testified that the current definition 
should be amended to conform to the present state of the industry and 
to ensure that some entities not normally considered handlers who may 
sell almonds to channels of human consumption are subject to 
regulation.
    This proposed amendment intends to clarify the current definition 
to insure that entities whose primary function is to remove hulls and 
shells from almonds (hullers and shellers) who retain some of the 
growers' almonds and sell them into human consumption channels are 
subject to marketing order regulations for those almonds sold to human 
consumption channels. These hullers and shellers are currently 
performing a handling function by taking title to the almonds and are 
covered under the current definition. However, the proponents believed 
that further clarification to the definition is needed in order to 
insure that hullers and shellers that perform handling functions are 
regulated. Proponents testified that modifying the definition would 
ensure that high quality almonds are shipped into human consumption 
outlets. Proponents testified that because the new definition would be 
clear, certain hullers and shellers would be aware that they are 
subject to regulation under the marketing order. Because of this, the 
number of almond handlers regulated under the marketing order may be 
increased by this amendment, but the increase is not expected to be 
significant. This proposal is not intended to bring all hullers-
shellers under the authority of the marketing order, but only those 
that perform handling functions by placing almonds into human 
consumption outlets.
    The proponents also intended that growers not be considered 
handlers unless they prepare the almonds into a form ready for human 
consumption. In cases where growers deliver field run almonds to 
another entity, the Board wants to clarify that the entities that 
receive such almonds from growers and sell those almonds into human 
consumption channels are considered handlers under the marketing order. 
This proposed amendment is recommended.

Material Issue Number 3

    The definition of the term ``settlement weight'' should be amended 
in Sec. 981.18 to allow adjustments in settlement weight for inedible 
kernels.
    The current section defines settlement weight as the actual gross 
weight of any lot of almonds received for the handler's own account, 
less adjustments for weight of containers, for excess moisture, and for 
trash or other foreign material of any kind. There is no adjustment 
specified for inedible kernels.
    Handlers report to the Board the almonds they receive from growers 
in terms of settlement weight. If settlement is made on shelled 
almonds, the settlement weight equals the kernelweight. If settlement 
is made on unshelled almonds, the settlement weight is converted to a 
kernelweight basis in accordance with Sec. 981.60 of the order. Volume 
regulations and other order obligations are imposed on handlers on the 
basis of kernelweight. Thus, the settlement weight of almonds received 
impacts a handler's reserve obligations. Such obligations do not accrue 
on those items deducted from the actual gross weight of the almonds 
received (e.g., trash and other foreign material).
    Evidence at the hearing indicated that almond production has 
dramatically increased since the inception of the marketing order. 
Therefore, the number of inedible kernels has also increased and the 
disposition of inedible kernels has become a major issue for the 
industry. Inedible kernel percentages are not currently deducted from 
the gross weight in determining settlement weight. This amendment is 
intended to allow handlers to deduct inedible kernels in settlement 
weight calculations and thereby, more accurately reflect the marketable 
quantity of almonds purchased by handlers.
    This proposed amendment is recommended.

Material Issue Number 4

    In Sec. 981.19, the term ``crop year'' should be amended from 
``July 1 through June 30'' to ``August 1 through July 31'' in order to 
more accurately reflect industry harvesting and marketing activities. 
This change should also be made for handler recordkeeping purposes.
    If this proposal becomes effective, the proponents suggest having 
one 13-month fiscal year in the first year after implementation of the 
amendment to provide for a smooth transition of the modification. 
Almonds are normally harvested and received by handlers between August 
and November. Record evidence indicated that there was concern that, in 
the past, almonds were occasionally harvested as early as July. The 
Board representatives were questioned as to what effects early crop 
almonds would have on the change in fiscal year. For example, if a 
reserve was anticipated for the following crop year, a handler may wish 
to have July almonds apply to the previous crop year to avoid 
subjecting those almonds to reserve requirements. The same situation 
could apply if the assessment rate was raised. A handler could have 
July almonds apply to the previous crop year to avoid paying a higher 
assessment.
    A statistical table submitted by the Department showed that for the 
past 12 years, no almond receipts were listed in July, even in a year 
where almonds were harvested in July. A Board representative stated 
that, in those situations, the almonds were held in a handler's plant 
and not inspected until August, so therefore they were not reported as 
received until August. This representative stated that, in the rare 
instance that almonds would be harvested in July, the almonds should be 
considered new crop almonds and held until August. However, it also was 
stated that under the proposed order amendment, July almonds would be 
[[Page 17470]] considered as applying to the current crop year and 
handlers could use that to their advantage by processing almonds in 
July and not subjecting them to a reserve if a reserve was recommended 
for the next crop year. It was stated that there was nothing in the 
proposal to prevent that situation from occurring. One independent 
handler's representative stated that his client would be the first to 
report almonds in July if it meant being able to avoid a reserve. 
Record evidence indicated that the amendatory language proposed by the 
Board should be modified to correct the potential for problems relating 
to this situation. Although the record indicated no almonds have been 
reported in July for several years, the amendatory language has been 
modified to correct this potential problem by adding a sentence to the 
definition which states that any new crop year almonds harvested prior 
to August 1 would be applied to the next crop year for purposes of 
assessments, quality control provisions and volume regulations. This 
proposed amendment is recommended.
    Conforming changes are also necessary to the regulations to conform 
with the change in crop year. There were three proposals relating to 
conforming changes in reference to the crop year. One was withdrawn 
(Proposal No. 22) because it proposed changing Sec. 981.441. Since the 
publication of these proposals in the Federal Register, this section 
has been completely modified and no longer references any dates 
relating to the crop year. It was proposed to amend Sec. 981.467 by 
making a date change to conform with the change in the crop year 
(Proposal No. 23). It was proposed to amend Sec. 981.472 by modifying 
the reporting periods for reports of almonds received to be consistent 
with the new crop year calendar (Proposal No. 24). This proposal was 
modified at the hearing to correct an error which appeared when 
published. Specifically, at the hearing, the proposal was clarified to 
amend paragraph (a) of Sec. 981.472 by removing the dates ``July 1 to 
August 31'' and adding in their place ``August 1 to August 31'' and 
removing the dates ``April 1 to June 30'' and adding in their place the 
dates ``April 1 to July 31''.
    A conforming change is also necessary to section 981.73 of the 
marketing order regarding the filing of periodic reports. Testimony 
confirmed the intent would be to change the July 15 reporting date to 
August 15 and the June 30th reporting date to July 31. In addition, 
Sec. 981.49(b) should be amended by changing the date through which 
estimates of handler carryover and reserve inventory must be calculated 
from July 1 to July 31. The above modifications have been made by the 
Department.

Material Issue Number 5

    The definition of ``trade demand'' should be amended in Sec. 981.21 
to remove the option of not including exports as part of the trade 
demand.
    Currently, the term ``trade demand'' means the quantity of almonds 
which commercial distributors and users such as the wholesale, chain 
store, confectionery, bakery, ice cream, and nut salting trades will 
acquire from all handlers during a crop year for distribution in the 
United States, Puerto Rico, and the Canal Zone, provided that in 
recommending the salable and reserve percentages for any crop year, the 
Board may include, with the approval of the Secretary, export outlets 
for almonds. Testimony indicated that, because of the growth of export 
markets, they should be recognized as an integral part of the trade 
demand for California almonds and that this proposal would more 
accurately reflect the true worldwide nature of today's almond 
industry. Statistics presented at the hearing confirmed the growth of 
the export market. Record evidence also indicated that conforming 
changes would be necessary to Secs. 981.47 and 981.66 to correspond 
with this proposal by deleting phrases relating to trade demand 
including either domestic or domestic plus export. Paragraph (f) of 
Sec. 981.49 should be deleted as it relates to the percentage of 
reserve almonds that may be exported. By making export almonds part of 
trade demand, the Board's ability to establish an export percentage is 
not necessary. This proposed amendment is recommended.

Material Issue Number 6

    Sections 981.30 and 981.31 should be amended to increase Board 
representation from 10 to 12 members to strengthen the influence of 
growers on the Board. Section 981.30 establishes the number of 
representatives on the Board and Sec. 981.31 sets forth the 
representation of the members.
    Current Board representation consists of two members representing 
cooperative handlers, two members representing handlers other than 
cooperative handlers (independent handlers), two members representing 
growers who market their almonds through cooperative handlers, two 
members representing growers who market their almonds through 
independent handlers, one member representing handlers (cooperative or 
independent handlers) who through March 31 of the then current crop 
year handled more than 50 percent of the crop, and one member 
representing growers whose almonds were handled through the handler 
group that handled more than 50 percent of the crop.
    Record evidence indicated that adding one additional grower 
representing cooperative handlers and one additional grower 
representing independent handlers would increase grower representation 
on the Board. This would allow additional grower input in Board 
decisions.
    The date for computing the percentage of the crop handled by the 
entities who handled more than 50 percent of the crop is also being 
amended from March 31 to December 31 of the then current crop year to 
allow more adequate time for the election process. The election process 
for independent member and alternate member positions on the Board 
requires that candidates submit their names for inclusion on a ballot 
to be mailed prior to a specified date (currently April 20). Handlers 
then vote for handler members and alternates. Each handler vote is 
weighted by the quantity of almonds handled in a prior period. Growers 
vote for grower members, with each vote equal in weight.
    Record testimony and statistical evidence indicated that at least 
95 percent of the crop is harvested by December 31 and modifying the 
date in this section would have little or no impact on the percentages 
computed in determining which group handled more than 50 percent of the 
crop for that year.
    Section 981.40 should be amended by revising paragraphs (b) and (c) 
and amending paragraph (e) by removing the word ``seven'' and adding in 
its place the word ``eight.'' This proposal would change the quorum 
size and the number of votes required to recommend certain activities. 
Specifically, the proposal intends that all Board decisions shall be as 
follows: If eight or nine members are present, six affirmative votes 
will be needed to pass an action; if 10 members are present, seven 
affirmative votes will be needed to pass an action; if 11 or 12 members 
are present, eight affirmative votes will be needed to pass an action.
    Currently, Sec. 981.40 provides for a quorum size of six members 
and a majority vote of the members present to pass Board 
recommendations. In addition, Sec. 981.40(e) provides that seven 
affirmative votes are required for Board recommendations with respect 
to projects pursuant to Sec. 981.41 involving production research, 
marketing research and development projects, and marketing promotion 
including paid [[Page 17471]] advertising and crediting the pro rata 
expense assessment obligation of handlers with such portion of their 
direct expenditures for marketing promotion including paid advertising.
    Witnesses testified at the hearing that the change in the quorum 
size and number of votes needed to pass Board recommendations including 
those under Sec. 981.41 would be needed if the Board is increased from 
10 to 12 members. With the increase in membership from 10 to 12 
members, the Board believes that more stringent quorum size 
requirements would ensure that the almond industry is well represented 
at Board meetings.
    An opponent testified that the two-thirds majority component is 
undemocratic because it allows the minority to effectively have veto 
power over a majority of elected representatives. Another opponent 
testified that because the cooperative segment will always have a 
minimum of five votes, it has the ability to block Board actions. This 
witness stated that although the independent segment has the same 
ability, history has shown that it is rare for the independent segment 
to vote in unison. This witness testified that since 1950, the 
cooperative segment voted together on every occasion, except two.
    The proponent testified that a two-thirds requirement would help 
increase industry cohesion and harmony on important issues that come 
before the Board. The proponent also believes that the almond industry 
would become stronger as a result of this change as all industry 
factions would work together to find common ground. Witnesses testified 
that industry unity is a major factor when the Secretary reviews 
recommendations submitted to the Department for action or approval.
    Although the independent and cooperative segments have the ability 
to block Board actions by voting in unison, neither could alone carry 
enough votes to pass a recommended action under this proposal's voting 
requirements. With the two-thirds majority, voting in unison by one 
segment of the industry could keep an action from passing. However, 
under a simple majority, one segment of the industry would be in a 
position to actually pass a Board action with its seven votes. This 
could allow Board actions and recommendations to be approved with only 
the support of one industry segment.
    Record evidence supports the quorum size being increased to a two-
thirds majority. Although there was testimony in opposition to 
increasing the number of votes required to pass Board recommendations 
from a simple majority to an approximate two-thirds majority, the 
testimony in favor of this proposal by the Board, the Processors and 
Hullers Association and the Almond Growers Council strongly supports 
this proposal. As stated previously, this proposed amendment will allow 
for more diverse support for Board activities and is, therefore, 
recommended as proposed.
    Record evidence indicated that the two-thirds voting requirement 
has been used by the Board's public relations and advertising committee 
and has been successful. The general belief of the committee members is 
that the requirement has been very beneficial in helping them reach 
consensus on major issues.
    Section 981.49 should also be amended to increase the required 
number of votes when recommending saleable and reserve percentages to 
the Secretary.
    Record evidence indicates that the number of affirmative votes 
required to recommend saleable and reserve percentages should be 
increased from six to eight. This change would require more stringent 
voting requirements for reserve recommendations than those for other 
Board actions in some cases. Such requirements would ensure that broad 
industry support exists for such recommendations. This proposal was 
unanimously supported by the Board and was supported by the Almond 
Growers Council. No opposition testimony was presented at the hearing.
    Additionally, this proposal addresses the issue of voting by 
methods other than at assembled meetings. Currently, Sec. 981.40 states 
that votes conducted by mail or telegram must be unanimous to pass an 
action. Thus, even one negative vote would cause an action to fail. The 
proposal would add facsimile machines as a method of voting, and would 
require 10 affirmative votes out of a possible 12 votes on an issue 
when voting by facsimile machine, telegram or mail for an issue to 
pass. Record evidence indicated that, in the past, important Board 
business was sometimes delayed by a member failing to respond by 
telegram or mail for an issue to pass. The recommended change would 
alleviate this problem and would increase the Board's options in voting 
outside of assembled meetings.
    These proposed amendments are recommended.

Material Issue Number 7

    Section 981.32 should be amended to change the nomination deadline 
for Board nominees from April 20 to January 20 and to change the 
deadline for presenting the nominees for selection with the Secretary 
from May 20 to February 20. Section 981.33 should also be amended to 
change the beginning of the term of office from June 20 to March 1. 
These proposals are intended to ensure that the new Board members and 
alternates are seated prior to meetings where important decisions are 
made for the following crop year. These issues could relate to setting 
assessment rates, adopting budgets, approving production research or 
advertising programs or setting a reserve. Testimony showed that this 
proposal would allow new Board members and alternates to be seated by 
March 1, which would help alleviate this problem as most of these 
decisions are made after March 1 but before June 20.
    The above proposed amendments are recommended.

Material Issue Number 8

    Section 981.33 should be amended to change the Board members' terms 
of office from one year to three year staggered terms to provide 
continuity of operation. This section should also be amended to limit 
these terms to six consecutive years. Currently, Board members serve 
for a term of one year with no limitations on the number of terms 
members can serve. The intent of one-year terms was to have a Board 
that reflected the current interests and wishes of the almond industry.
    Because of the many complex issues facing the almond industry 
today, testimony indicated that more emphasis should be placed on long-
term strategic goals. Three year terms for some Board members would 
allow the Board the opportunity to work together on industry issues and 
develop long-term approaches. This would also provide continuity on the 
Board from one year to the next year. The two new grower positions 
proposed to be established under this formal rulemaking process under 
Sec. 981.31(c) would remain at one-year terms. The record evidence 
indicated that these two positions are swing positions, which means 
that they would be subject to change each year depending on whether the 
independent handlers or the cooperative handled the majority of the 
tonnage.
    With this proposal, it is intended that each year the terms of 
office of three of the members would expire, except every third year 
when the term of office for four of those members would expire. To 
accomplish this, initially, three members would serve for a term of one 
year, three members would serve for a term of two years and four 
members would serve for a term of three years. At the time of 
nomination the Board shall [[Page 17472]] make this designation by lot. 
To the extent practicable, the designations should be equitable between 
grower and handler positions and between cooperative and independent 
positions. The two new grower positions would always be for a period of 
one year. Nominees for each respective member and alternate position 
would be chosen by ballot delivered to the Board.
    The modification to section 981.32 also stated that ``each year the 
terms of office of one third of the Board shall expire, except in 1994, 
when all terms of office shall expire, except where otherwise 
provided.'' Record testimony revealed that it was not mathematically 
feasible for one-third of the Board terms to expire since 10 members 
serve 3 year terms and 2 members serve 1 year terms. A brief filed by 
Mr. Robert J. Crockett, Attorney for the Board, provided a modification 
to the amendatory language correcting the mathematical error as stated 
above as well as the reference to 1994.
    Proponents also testified that section 981.33 should be amended to 
require a term limitation of nine years for Board members. Record 
evidence indicated that alternate members' terms of office would not be 
subject to the nine year term limitation.
    It is the Department's view that a limit on tenure for Board 
members would improve representation on the Board by allowing for 
different and more contemporary ideas, and that such a limit would be 
beneficial to the Board's operations. The Department's policy is that a 
Board member's consecutive service be limited to a total of six years.
    At the hearing, proponents for the nine year tenure limitation 
testified that nine years was the Board's proposal, however, the 
testimony indicated that the proponents would not be opposed to a six 
year tenure requirement. Further, proponents testified that the Board 
would not be opposed to the Secretary extending the term of office 
limitation for a member if another qualified candidate was unable to be 
found willing to serve.
    Thus, in conformance with the above policy, the Board's proposal 
for a tenure limitation of nine years for Board members should be 
modified to six years. Therefore, it is proposed that the order be 
amended to limit the tenure of members to six years. Tenure would not 
apply to alternates. The proposal intended that a person who has served 
less than the term amount may not be nominated to a new term if the 
total consecutive years on the Board at the end of that new term would 
exceed the tenure. For example, a member could serve for a two-year 
term and may then be elected to serve in a position that has a three-
year term. That member could not then be nominated to another three-
year term because the length of service (eight years) would exceed the 
term limitation of six years.
    Any member would become ineligible to serve on the Board after 
having served six consecutive years. Such individuals could again 
become eligible to serve on the Board by not serving on the Board for 
one full year as a member. Since there is no term limitation on 
alternate members, a member having served for six consecutive years 
could serve as a alternate member for a year and be eligible to serve 
again as a member. This limitation on tenure shall not include service 
on the Board prior to implementation of this amendment.
    These proposed amendments are recommended.

Material Issue Number 9

    Section 981.34 should be amended to require those persons nominated 
as Board members or alternate members to qualify prior to their 
selection by the Secretary by stating that they agree to serve in the 
capacity for which they were nominated.
    Currently, any person selected to be a member or alternate member 
on the Board is required to qualify by filing a written acceptance with 
the Secretary after such selection is made.
    At the hearing, proponents testified that the proposal is designed 
to remove the possibility that a person who is unwilling to serve is 
appointed by the Secretary to the Board. This would be accomplished 
simply by requiring that the prospective candidate provide background 
information and at the same time advise the Secretary that he or she 
agrees to serve in the position for which nominated. All this 
information would be provided to the Department prior to the selection 
process. This proposal would allow candidates to be selected to the 
Board in a more timely manner.
    Section 981.34 should also be amended to clarify who is eligible to 
serve in Board positions. Proponents testified that the eligibility 
requirements for member and alternate members on the Board should be 
clarified to more specifically state that grower members and alternates 
must be growers or employees of growers and handler members and 
alternates must be handlers or employees of handlers. Section 981.34 
currently states only provisions relative to these persons ceasing to 
be growers, handlers or employees of growers and handlers.
    There was further discussion at the hearing that the intent of the 
proposal would be to change the word ``may'' to ``shall''. This would 
require that only such persons can serve in the grower and handler 
positions. This change has been made to amendatory language.
    These proposed amendments are recommended.

Material Issue Number 10

    Section 981.41(c) should be amended by revising the last sentence 
to allow the Board to expand the range of paid advertising activities 
for which handlers may receive credit-back from their advertising 
assessments. Section 981.41(c) should be amended by removing all text 
following the words ``15 percent'' in the last sentence and removing 
the colon after ``15 percent'' and adding in its place a period.
    Currently, this provision lists activities that are not eligible 
for credit against a handler's assessment obligation. These activities 
include advertising production costs, preparation expenses, travel 
allowances, other expenses not directly connected with paid space or 
time, costs relating to pretesting of advertising, test marketing, 
directory advertising, point of sales materials, premiums and trade 
promotion allowances.
    Hearing testimony indicated that by expanding the range of 
activities for which handlers may receive credit back from their 
assessments, the effectiveness of the industry's market development 
efforts will be improved. The proposal complements actions taken by the 
Board through informal rulemaking to replace a creditable advertising 
program with an expanded credit-back program. The proposal is intended 
to allow for a wider range of activities available for credit, thereby, 
providing handlers, especially those with no brand name, with 
additional opportunities.
    Testimony against the proposal indicated that the new Credit-Back 
program compels handlers to advertise their products and directs 
handlers where and when to advertise almonds.
    The marketing order does not compel handlers to advertise. The 
Credit-Back program is a voluntary program that allows handlers to 
receive credit-back from their advertising assessment if they engage in 
certain types of promotional activities. The proposed amendment would 
provide authority to expand upon an existing program by allowing the 
Board additional flexibility in recommending modifications to the 
regulations. Therefore, the proposed amendment is recommended.

Material Issue Number 11

    Sections 981.60(b) and 981.61 should be amended and Sec. 981.62 
removed to allow the settlement weight for [[Page 17473]] unshelled 
almonds to be determined on the basis of representative samples of 
unshelled almonds reduced to shelled weight.
    Currently, Sec. 981.60(b) provides that unshelled almonds for which 
settlement is made on the basis of shelled weight shall be included in 
the total kernelweight for any handler at the settlement weight of such 
unshelled almonds multiplied by the shelling ratios in Sec. 981.62. 
Settlement weight is the weight of almonds that handlers pay growers 
for upon delivery. Record evidence indicated that using a 
representative sample for determining kernelweight is a common industry 
practice. This practice would provide handlers with more accurate 
kernelweight figures. Current procedure under this section requires 
that shelling ratios be applied to the weight of unshelled almonds to 
arrive at a kernelweight. Shelling ratios are established by variety.
    Proponents testified that representative samples would be taken by 
handlers on almonds received at the handler's premise under the 
supervision of the Department's inspection service or by the inspectors 
themselves. A sampling plan would be developed by the Board each year 
and would prescribe the size of the sample to be taken dependent on the 
actual weight of the load. For example, the plan would consist of 
sampling procedures for each handler to use that would coincide with 
the quality of the almond crop for that particular year. Evidence 
supported an appeal process if any handler disagreed with the actual 
representative sample taken. The appeal process would begin with the 
complaint being brought before the quality control committee (a 
subcommittee of the Board). If a handler did not receive satisfaction 
through the quality control committee, the handler could then take the 
complaint to the full Board.
    Evidence also supported amending Sec. 981.61 of the marketing 
order. Currently, Sec. 981.61 provides that, three times during the 
crop year, the Board redetermine the kernelweight of almonds received 
for the purposes of computing each handler's reserve obligation. 
Section 981.61 further provides that the weights used in such 
computations for redetermining the kernelweight for unshelled almonds 
be computed by application of shelling ratios authorized pursuant to 
Sec. 981.62.
    Proponents testified that this is a companion proposal to the issue 
of determining settlement weight for unshelled almonds. Therefore, 
Sec. 981.61 should be amended to allow the Board to redetermine the 
kernelweight of unshelled almonds by using a representative sample 
reduced to shelled weight. Record evidence indicated that this 
amendment would provide that the best and most common practices are 
being used for redetermining kernelweight.
    Finally, the record evidence supported removing Sec. 981.62 from 
the marketing order. Currently, Sec. 981.62 contains a table of 
shelling ratios for each variety of almonds. These varietal shelling 
ratios are used for computing kernelweight for unshelled almonds. 
Record evidence indicated that these shelling ratios are no longer 
necessary to compute the kernelweight for unshelled almonds since the 
proponents have recommended using representative samples to compute 
such weight. Also, the shelling ratios are outdated because new 
varieties of almonds have been developed since the marketing order's 
promulgation.
    Proponents testified that the amendments to Secs. 981.60, 981.61 
and 981.62 are intended to reflect the industry's current practices and 
provide a more accurate kernelweight figure.
    These proposed amendments are recommended.

Material Issue Number 12

    Sections 981.66(e) and 981.67 should be amended by changing the 
disposition date for reserve almonds from September 1 to December 31. 
Currently, these sections require reserve almonds to be disposed of by 
handlers by September 1 of the following crop year. If any reserve is 
remaining after that date, the Board is required to dispose of the 
reserve through the most readily available reserve outlets. The order 
also provides that the September 1 date may be extended by the Board to 
a later date, if necessary.
    Record evidence indicated that a December 31 date is a much more 
practicable deadline date than the current date. When the order was 
first promulgated, the almond industry was much smaller and the 
majority of the crop was sold in the fall. At that time, there was 
little need for storage and storage techniques did not allow the 
product to be stored for a long period of time.
    Proponents testified that the almond crop today is much larger and 
storage capabilities allow handlers to store almonds for a year or 
more. The last two times that an almond reserve was in effect, the 
Board recommended that the September 1 disposition date be extended to 
December 31. The record evidence showed that a December 31 disposition 
date is a more realistic deadline for the industry based on current 
industry practices. This proposal would also provide that the December 
31 disposition date may be extended by the Board to a later date, if 
necessary, with the Department's approval.
    The proposed amendment is recommended.

Material Issue Number 13

    Sections 981.40 and 981.41 should not be amended to delete the 
authority for the Credit-Back advertising program under the almond 
marketing order and to modify the generic program. In addition, 
Sec. 981.81 should not be amended to conform with the proposal to amend 
Secs. 981.40 and 981.41. A proponent of this proposed amendment 
testified that the program is unconstitutional and a waste of the 
growers' money. The program also requires several office hours and many 
hours to complete forms to participate in the program. Further, the 
proponent testified that by the time handlers get done wasting their 
money on the current regulations, they have no funds left to advertise 
almonds in the way they would prefer.
    The proponent testified that other areas of the Credit-Back program 
are burdensome and wasteful to the handlers. One area is that handlers 
only receive credit-back for that portion of the product weight 
represented by almonds or the handler's actual payment, whichever is 
less. The proponent testified that this area of the Credit-Back program 
is unfair because handlers should be paid back for all their 
advertising since they moved a lot of almonds into the marketplace. 
Further, the almond is used as an ingredient product and many handlers 
sell almonds into that market. The proponent testified that the Board 
should not care where the almonds are sold (e.g., cereals, candy, ice 
cream, etc.). The Board should only be concerned about moving 
California almonds into the marketplace.
    Another area of concern expressed by the proponent was that the 
government can dictate to handlers where to advertise and where not to 
advertise, where they can get credit and where they cannot get credit.
    The proponent testified that it is not opposed to the generic 
advertising program. However, the witness proposed that the Board 
should not be allowed to engage in promotion directed solely at snack 
almonds nor should the primary purpose of any Board advertising or 
promotion be directed for the consumption or sale of snack almonds. The 
proponent testified that 95 to 98 percent of the entire almond 
[[Page 17474]] production is for ingredient uses and not for snack 
almonds. Therefore, the witness testified that Board funds for the 
generic program should be spent on ingredient use.
    Testimony from the opponents at the hearing indicated that actions 
have been taken and additional recommendations are being made to 
improve and expand the promotional activities for which handlers may 
receive credit-back from their assessments. The Credit-Back program is 
an example of an action which made the program more flexible. Another 
example is the proposal in this proceeding to further expand the range 
of activities for which handlers could get credit-back by amending 
Section 981.41(c), thus increasing program flexibility for those 
participating.
    The opponents further testified that wide-spread industry support 
exists for the creditable advertising provisions and the authority 
should remain in the order. Opponents stated that this proposal 
eliminates handler choice and severely handicaps the industry in 
developing creative advertising and promotional activities. Regarding 
the portion of the proposal to prohibit promotion of snack almonds, 
opponents testified that problems would exist with attempting to define 
a specific type of almond as ``snack.'' Opponents stated this part of 
the proposal is arbitrary and capricious because the size of the 
package, method of sale, product form or shape or other criteria do not 
define almonds as snack. The witness testified that snacking is a form 
of consumption rather than a form of product. Opponents believe that 
all forms of almond sales can and do benefit the industry.
    On August 17, 1993, the Department issued an interim final rule (58 
FR 43500) which implemented a new Credit-Back advertising and promotion 
program. The new Credit-Back program substantially revised the 
creditable advertising program whereby handlers may receive credit 
against their assessment obligation for their individual promotional 
activities, in lieu of contributing entirely to a generic promotion 
program administered by the Board.
    Although the new Credit-Back program allows credit for the 
percentage of almonds in other products, the program is designed to 
promote the sale of almonds and almonds in products, not the products 
that contain almonds. The Credit-Back program was recommended to the 
Department by the Board which is comprised of independent and 
cooperative members which represent the almond industry. The Credit-
Back program is a voluntary program that allows handlers to receive 
credit-back from their advertising assessment if they engage in any of 
a broad range of promotional activities.
    Research studies show that promotional programs conducted under the 
almond marketing order have been effective and are a good investment of 
industry funds. The Credit-Back program combined with the Board's 
generic program is a proven method of promoting almonds. The combined 
generic and Credit-Back program administered by the Board recognizes 
the positive aspects of both forms of promotion and has been proven to 
be successful and responsive to changing needs and desires of the 
industry over time.
    We agree with the view that the marketing order promotion and 
advertising provisions should remain as flexible as possible and 
provide choices for the Board in determining how best to promote 
almonds. Removing authority for a Credit-Back program would reduce the 
options available to the industry for promoting its product. 
Maintaining that authority does not mandate use of such a program, it 
merely preserves an available tool.
    It is determined that this variety of options can only benefit the 
industry. It is also determined that restricting the generic program by 
not allowing promotions for snack almonds also would unnecessarily 
limit choices for the Board and would not serve any useful purpose.
    Accordingly, the record evidence does not support the amendment to 
eliminate the creditable advertising provisions or to modify the 
provisions as recommended in this proposal. Therefore, this proposed 
amendment is not recommended.

Material Issue Number 14

    Section 981.32 should be amended to authorize the Board, with the 
approval of the Secretary, to reapportion grower and/or handler member 
representation on the Board based on the proportionate amounts of 
almonds handled by different segments of the industry.
    A proposal was submitted and testimony received at the hearing 
which would require that cooperative representation on the Board not 
exceed the percentage of the industry tonnage handled by the 
cooperative in the immediately preceding crop year. However, no 
specific amendatory language was provided by the proponent.
    At the hearing, the proponent testified that the industry's major 
cooperative marketing association, Blue Diamond Growers, Inc. (Blue 
Diamond), should not be guaranteed five of the 12 seats on the Board. 
The proponent testified that it is no longer democratic to provide Blue 
Diamond with five seats on the Board since the industry percentage of 
almonds handled by Blue Diamond has decreased. The proponent provided 
the following example of how the proposal would work: If Blue Diamond 
handled from 45 to 55 percent of the industry tonnage, Blue Diamond 
would have five seats; 35 to 44.9 percent, Blue Diamond would have four 
seats; 25 to 34.9 percent, Blue Diamond would have two to three seats. 
The proponent stated that this would prevent a single entity, such as 
Blue Diamond, from bloc voting on Board proposals. The proponent 
further stated that, currently, Blue Diamond has an unfair advantage by 
being allowed to always have five seats on the Board.
    Opponents to this proposal testified that the Board's proposal to 
increase the number of members from 10 to 12 would provide additional 
grower representation on the Board. The proposal to increase the number 
of Board members represents the overwhelming sentiment of the industry. 
Opponents also testified that, in the past, the cooperative was able to 
have a majority of the Board's membership because of the amount of 
tonnage it handled. However, that is not the situation that exists 
today, as independent growers and handlers currently hold a majority of 
the Board's member positions.
    Another opponent testified that, even with the decline in the 
percent of total crop handled by Blue Diamond, their membership exceeds 
50 percent of the total number of California almond growers. Further, 
other opponents testified that the proposal is directed at only one 
organization, and fails to take into account that, even at 30 percent 
of the crop handled, the cooperative would still represent over 50 
percent of the total number of almond growers in the State of 
California.
    The proponent testified that, without obtaining a list of the 
cooperative's growers, it is not possible to determine if, in fact, the 
cooperative does represent over 50 percent of the total number of 
growers in the State of California. The proponent further testified 
that Board representation should be based on tonnage in all 
circumstances.
    An opponent testified that if, in ten years, the cooperative 
represented ten percent of the industry, the cooperative should not 
have five seats on the Board. Another opponent testified that he would 
prefer the whole industry to operate on a tonnage basis.
    Record evidence indicates that currently, there is strong industry 
[[Page 17475]] support to maintain Board membership representation with 
the cooperative and independent segments being authorized to hold the 
specified numbers of seats proposed in Material Issue Number 6. 
However, in the event the industry structure changes in future years, 
there may be a need to further modify the structure of member 
representation.
    Record evidence does not support amending the marketing order as 
the proponent recommended. The evidence does support, however, 
authorizing the Board, with the approval of the Secretary, to modify 
the membership representation requirements in the future if the 
industry structure changes.
    This would allow the Board, with the approval of the Secretary, to 
recommend modifications to the representation requirements, if 
necessary, through informal rulemaking procedures. This would provide 
additional flexibility in the program by providing and ensuring that 
the Board continues to fairly represent all segments of the industry.
    Therefore, this proposal is recommended, in part, by authorizing 
the Board, subject to the approval of the Secretary, to reapportion the 
grower and/or handler member representation among the 12 member 
positions, of any group listed in the proposed Sec. 981.31 (a) through 
(c) to be nominated as a Board representative. This proposal does not 
intend that the Board may increase or decrease the number of members on 
the Board. The Board may reapportion the positions within the 12 member 
Board. A new paragraph (d) has been added to Sec. 981.31 to set forth 
this recommendation.

Material Issue Number 15

    The proposed amendment to section 981.12 would have revised the 
definition of grower. At the hearing, the proponents for this amendment 
revised the amendatory language that was published in the Notice of 
Hearing as follows: For the purpose of holding a grower seat on the 
Board, a grower would be required to have over 50 percent of his or her 
involvement and income in the almond industry derived from growing 
almonds. A grower wishing to run for a seat would certify to this 
criterion on the nominating petition.
    Proponents testified that, in the past, some grower seats have been 
occupied by persons who were basically handlers. It was perceived by 
growers that they consistently represented a handler point of view at 
the expense of the grower. The proposal is intended to ensure that the 
grower seats on the Board are represented by growers and the growers' 
interests are reflected and represented. The proposal would only apply 
to independent growers who are nominated to become members or alternate 
members on the Board because its purpose relates to nominations for 
Board positions.
    At the hearing, proponents testified that the grower would sign a 
certification that over 50 percent of his or her involvement and income 
in the almond industry was derived from growing almonds and would make 
that known to all growers when running for a Board position. If an 
opponent had signed the certification and it was well known that the 
opponent was basically a handler, the grower could raise that issue 
during the campaign. Proponents also testified that the grower would be 
making the determination as to the 50 percent involvement and income, 
and there would be no penalty for falsifying the certification. In 
addition, if a grower refused to sign the certification, the grower 
would be ineligible to serve on the Board.
    Record evidence indicated that although certifications by growers 
could be signed during the nomination process, there is no procedure to 
verify such certifications, nor is there a penalty for a false 
certification. Therefore, the intent of this proposal would not be 
served.
    The proposal has been modified by revising Sec. 981.32, rather than 
Sec. 981.12 as proposed by the proponents. Record evidence supported 
that the intent of the proposal is to only modify the definition of 
grower with respect to nominations of growers to the Board. It would 
not be appropriate to modify the grower definition under Sec. 981.12 
since this definition applies to the use of grower throughout the 
marketing order.
    It is therefore proposed that a new paragraph be added under 
Sec. 981.34 to further define grower for nomination purposes. The 
record evidence supports a grower definition that would allow growers 
to be nominated to the Board that would truly represent grower 
interests. However, the proponent's amendment would not be enforceable 
as proposed and would not accomplish the intent of the amendment. 
Therefore, the Department proposes that the Board be provided the 
authority, with the approval of the Secretary, to make recommendations 
to establish additional eligibility requirements for growers, for 
nomination purposes, through informal rulemaking. This would allow the 
Board to further explore avenues to accomplish the intent of the 
proposed amendment. The amendatory language therefore has been modified 
to add such authority.

Material Issue Number 16

    Section 981.70 should be amended to require handlers to maintain 
records in California to provide Board auditors with reasonable access 
and improve program management. Currently, Sec. 981.70 only requires 
that the handler's premises be accessible to Board auditors for records 
to be examined and audited.
    At the hearing, proponents testified that Board auditors should not 
have to travel out of state to examine handler records. It is an 
economic burden on the Board, and therefore the almond industry, to pay 
travel expenses for Board auditors to travel out of state. In addition, 
it is necessary to have immediate access to handlers' records if 
compliance issues arise.
    An opponent testified that handlers could be burdened by being 
required to maintain all records in California. He stated that some 
needed records could be the buyers' or the shipping company records. In 
addition, the witness testified that the terms ``as well as other 
pertinent information regarding his or her operations'' could lead to 
abuse if the person determining what is ``pertinent'' selects some 
unreasonable records such as tax returns to be maintained in 
California.
    The purpose of this proposal is to keep handlers from maintaining 
all their records in a different state making it difficult for the 
Board to effectively audit handler's records. It is not intended that 
handlers maintain records in the state that would not normally be 
maintained, such as buyers' or shipping company records. This proposal 
does not intend to add any undue hardship on handlers and the proposal, 
as written, does not make unnecessary or unreasonable requirements on 
handlers. The language which would require different types of records 
than those specified, if necessary (``other pertinent information''), 
is necessary to account for the many different recordkeeping systems 
maintained by handlers.
    Maintenance of records within the State of California would assure 
that the benefits from marketing order compliance activities exceed 
related costs. It is not expected that any additional costs would be 
incurred by handlers to comply with this amendment. Therefore, this 
amendment is recommended as proposed.

Material Issue Number 17

    The proposed amendment to section 981.70 would have required that 
the Board provide handlers with 24 hours advance notice before they 
conduct audits of records and inspections of reserve almonds. In 
addition, handlers [[Page 17476]] would not have been required to 
provide any labor or equipment to the Board to facilitate inspections.
    Currently, Sec. 981.70 provides that each handler's premises shall 
be accessible to authorized representatives of the Board and the 
Secretary for examination and audit of handler records and for 
inspection and observation of reserve almonds. The Board shall make 
such checks of almonds or audits of each handler's records as it deems 
appropriate or as requested by the Secretary to insure that accurate 
information as required in this part is being furnished by the 
handlers.
    A proponent testified that handlers may be busy with almond buyers 
and may not have time to show all the records that Board auditors need 
to examine during an audit visit. The proponent testified that handlers 
should be made aware of the audit visit in order to make preparations 
to have the records made available for the audit. Further, the 
proponent stated that handlers should be treated like businesses and 
not as if they are under constant suspicion of violating the marketing 
order. In addition, the proponent testified that if a handler does not 
desire to assist and aid the Board in conducting the audit, the handler 
should not be required to furnish labor and equipment to do it. The 
handler should not be required to bear the expense or the liability of 
conducting handler audits.
    The record evidence indicated that the almond industry is subject 
to Federal regulations under a marketing order. Regulated industries 
that choose to participate in a Federal program are subject to 
inspection of records. The marketing order currently contains authority 
to allow the Board to conduct checks of almonds or audits of each 
handler's records. Testimony indicated that the Board has the authority 
to make these visits without prior notice. The record evidence supports 
this provision remaining in order to properly carry out the regulatory 
aspects of the order.
    At the hearing, additional testimony in opposition to the proposal 
indicated that Board staff usually schedules appointments with handlers 
ahead of time to maintain a positive and courteous relationship between 
the Board and the handlers. However, the reality remains that all 
handlers do not comply with the provisions of the marketing order. 
Opponents testified that removal of the authority to make unannounced 
visits to audit handlers would remove an important compliance tool from 
the Board and the Secretary. A handler with something to hide would 
have plenty of time to conceal vital documents from scrutiny by 
authorized Board personnel.
    Opponents further testified that most handlers prefer to conduct 
any movement of product by using their own personnel and equipment at 
their premises. Handler personnel would also be familiar with the 
location of reserve almonds that would need to be examined.
    Accordingly, the record evidence does not support the amendment to 
require the Board to provide handlers with 24 hours advance notice 
before it conducts audits and inspections or for handlers to not be 
required to furnish any labor or equipment to the Board to facilitate 
inspections. Therefore, this proposed amendment is not recommended.

Material Issue Number 18

    The proposed amendments regarding Secs. 981.76 and 981.90 would 
each require handlers to submit to the Board a list of growers who have 
delivered almonds to such handler during the crop year. Because these 
proposals would provide for essentially the same recommendation, they 
will be discussed as one material issue.
    The proposed Sec. 981.76 would require each handler to submit to 
the Board, no later than December 31 of each year, a complete list of 
growers who have delivered almonds to such handler during the crop 
year. The proposed amendment to Sec. 981.90 would require each handler 
to submit to the Board, no later than January 31 of each year, a list 
of names and addresses of all growers from whom such handler received 
almond production for the then current crop year.
    Currently, the marketing order does not require such information to 
be submitted to the Board under any section. Such information is 
submitted to the Board by most handlers on a voluntary basis for 
nomination purposes.
    Proponents testified that the proposals are intended to help the 
Board be more efficient in conducting elections for Board members and 
alternate members. Since the list is currently submitted to the Board 
on a voluntary basis, the Board is not assured that it has a complete 
and accurate list of growers to use in conducting the election of Board 
members. In order for the Board to operate efficiently, it is necessary 
for the Board to reach as many growers as possible. Mandatory 
submission of grower lists would help accomplish this goal. The 
proponents testified that the amendment would help provide the widest 
possible participation by growers in the election process.
    The proponents stated that this requirement would respect the 
private business relationship between a grower and handler. The 
proprietary nature of the relationship would be respected by the Board 
and that information would not be divulged by the Board.
    A proponent testified that the list would be used for annual 
elections of Board members and for periodic continuance referenda. The 
list would not reveal a grower's handler affiliation. This proposal 
would further provide that the Board could charge handlers and growers 
who request the list for photocopying and mailing.
    A witness testified that the cooperative grower list is needed when 
periodic continuance referenda are conducted because other interested 
parties to a referendum have a right to know who those growers are so 
they are in a position to provide them information which may influence 
their vote. This witness further testified that the Board should know 
who these 4,000 growers are so they are aware if any of these growers 
become handlers.
    The opponents to the amendment testified that it is a well-
established fact that lists of members of agricultural cooperatives are 
considered proprietary information. The witness testified that there 
are no other programs in which cooperatives are required to release 
such a list and the Department has long recognized that cooperatives 
are not required to reveal the names of their members. Many farmers who 
belong to agricultural cooperatives do not want their names and 
addresses used for purposes other than those needed by the cooperative 
to properly perform its business functions. The opponents further 
testified that the only reason for a requirement for handlers to submit 
grower lists is for the use in the election of Board members 
representing those marketing through independent handlers.
    Opponents testified that Board elections have been conducted with 
wide publicity and all growers have an opportunity to participate. The 
cooperative informs all its members when elections do take place even 
though Board members are nominated by the cooperative's board of 
directors.
    An opponent testified that the release of such information would be 
controlled directly by the Department, which in turn is controlled by 
the Administrative Procedure Act, the Freedom of Information Act, and 
the Privacy Act, as well as court interpretations. By including the 
proposed language in the marketing order, the Board could face a 
situation in which the marketing order mandates release of information 
while [[Page 17477]] the Department and the courts or both may require 
that the information not be released. Therefore, the question of 
release of information should be left to the Department.
    A brief filed by Mr. Steven W. Easter of Blue Diamond Growers 
stated that the two similar proposals discussed at the hearing were 
worded slightly differently but they essentially provide for the same 
thing. Both proposals are directed at requiring Blue Diamond Growers to 
turn over its cooperative membership list to the Board. Both proposals 
represent an effort by independent handlers and growers to obtain the 
membership list of their principal competitor, Blue Diamond Growers.
    Mr. Easter stated that there is no other proposed amendment nor any 
current provision that requires a cooperative, including Blue Diamond, 
to furnish its membership list to the Board. It is well established 
that growers may contact the Board directly to be placed on the Board's 
mailing list. Mr. Easter also stated that Blue Diamond provides notice 
of all elections to its members directly. This satisfies Blue Diamond's 
contractual obligations with its members and the Board's desire to have 
all members of the industry notified of elections. The witness stated 
that this system has worked for 43 years.
    Mr. Easter further provided in his brief that Blue Diamond's 
membership list contains the names and addresses of all of its grower/
supplier members and is, in that sense, its customer list. Under 
California law, customer lists have been protected as trade secrets 
under the Trade Secrets Act so long as they meet the definition set out 
in California Corporations Code. In conclusion, Mr. Easter stated that 
elections to the Board and referenda on proposed amendments and 
continuation have taken place since 1950 successfully. The guidance 
provided by the Board has enabled the industry to move forward in a 
beneficial manner. Mr. Easter requested that the proposal be rejected.
    The record evidence indicates that it would benefit the Board to 
have a list of independent growers' names and addresses. Board 
elections would be conducted in a more efficient manner and there would 
be greater assurance that all growers are informed regarding activities 
centered on Board elections. The record evidence supported that it is 
not necessary for the Board to obtain the names and addresses of 
cooperative growers for nomination purposes since those Board members 
are selected by the cooperative's board of directors. Although grower 
lists not revealing handler affiliation can be obtained by requesting 
the list from the Department under the Freedom of Information Act, the 
Board is responsible for confidentiality of handler information and 
does not release a complete growers' list.
    When continuance referenda are conducted, a method to ensure that 
ballots are provided to all cooperative growers would have to be 
derived. For example, one method would be for the Department to provide 
the ballots to the cooperative and obtain a sworn statement from a 
representative of the cooperative attesting that all growers were sent 
ballots. It would be in the best interest of the cooperative to ensure 
that all of its growers vote in referenda and USDA will ensure that a 
satisfactory method has been established when continuance referenda are 
conducted.
    In the event a cooperative chooses to bloc vote for all its members 
in a referendum, the Department would require the cooperative to submit 
a grower list to verify that none of those members also voted 
individually. However, this is not sufficient reason to require the 
cooperative to submit a grower list to the Board on an annual basis 
since the Board does not need that list to conduct its operations.
    Regarding the testimony that the Board needs to know the 
cooperative growers in case any of them become handlers, this does not 
appear to be sufficient reason to require this list from the 
cooperative. The Board has an established compliance program to address 
compliance issues and needs. Also, if a grower list is desired, such a 
list can be obtained from other sources. Testimony indicated there are 
alternative sources for that information.
    For the above stated reasons, the proposed amendment is modified to 
allow the Board to request from independent handlers their growers' 
names and addresses for purposes of elections. The lists would be 
submitted no later than December 31 of each year to facilitate Board 
administration. The proposed amendment, as modified, is therefore 
recommended.

Material Issue Number 19

    Section 981.81 should be amended to add authority to require 
handlers to pay interest and/or late payment charges in order to 
discourage late payment of assessments.
    Currently, Sec. 981.81 requires handlers to pay to the Board on 
demand assessments on almonds received by the handler for the handler's 
own account. There is no provision for a late payment or interest 
charge.
    The proponents testified at the hearing that the Board's 
experiences with collection of assessments for administration, research 
and generic promotion have been frustrating. At the present time, about 
90 percent or more of the handlers promptly pay the assessments when 
due, others are at times slow to pay. As of June 30, 1993, the Board 
was owed past due assessments totaling several million dollars. If 
these amounts had been paid promptly, the funds received could have 
been utilized for Board programs. The proponents do not believe that it 
is equitable for late paying handlers to benefit from the wide variety 
of Board programs financed by handlers who pay on time. Significant 
industry support is necessary in order for the marketing order to be 
successful.
    An opponent to the proposal testified that handlers who challenge 
the assessment rate would be penalized if they pay the assessment in 
order to avoid the late charges because they would not recoup the 
assessments paid if they prevail in their challenge. This position is 
discussed in detail in Material Issue Number 20 which deals with 
another proposal to authorize payment of interest in the event a suit 
or administrative petition regarding payment of assessments is 
successful.
    This witness further testified that if this proposal is authorized 
and regulations are implemented, it would be better to require that the 
payment be postmarked within 30 days from the invoice date rather than 
received in the Board office within 30 days.
    The proponents testified that the Board envisioned implementing the 
specifics of the late payment and/or interest charges through informal 
rulemaking with the Secretary's approval. This would allow the Board to 
remain flexible with the establishment of the interest and/or late 
payment charge. The Board proposed language for the regulations in this 
proceeding. However, USDA has determined that this would be better 
accomplished by the Board recommending to the Secretary an informal 
rulemaking action at a later date if this provision is implemented.
    The suggestion that payments be postmarked within 30 days of 
invoice to be considered timely does have merit. When assessing 
interest charges for late payment, it would appear reasonable that 
handlers be allowed 30 days from invoice to mail these charges to the 
Board. The Board should consider this suggestion when making a 
recommendation to the Secretary to implement the regulations regarding 
late payment and/or interest charges.
    The record evidence supports this proposed amendment and therefore, 
it is recommended. [[Page 17478]] 

Material Issue Number 20

    This proposed amendment to the order would have required refunds 
plus payment of interest to a handler in the event a suit or 
administrative petition filed by such handler challenging the payment 
of assessments is successful. No specific amendatory language was 
provided.
    The proponent testified that there have been several challenges to 
the almond, orange and tree fruit marketing orders. In these cases, the 
proponent stated that the Judicial Officer of USDA did not authorize 
the prevailing handler to recoup the assessments paid. The proponent 
also testified that the Agricultural Marketing Agreement Act permits 
handlers to challenge provisions of federal marketing orders, including 
the establishment of assessment rates. The Board's proposal to add an 
interest and/or late payment charge would penalize handlers that 
challenge the assessment rate since they would have to pay the 
assessment to avoid the late charges but would not receive the 
assessment back if they prevail. In addition, the Department argued in 
court that the Board would have to vote for a prevailing handler to 
have assessments returned and the funds would have to be approved in 
the Board's budget.
    The proponent further testified that it is better to address the 
issue at this time by putting the provision in the marketing order than 
to wait for the Department to tell the Board they have to pay the 
handler back their assessments plus interest. It was discussed at the 
hearing where the money should come from to pay back the handler, and 
the proponent testified that such money should come from the 
Department. If not from the Department, the money should come from the 
industry. The witness testified that the Department continues to 
approve every proposed rule for assessments over the proponent's 
objections, therefore, they should pay the money back to the prevailing 
handler.
    Opponents to the proposal testified that they are opposed for three 
reasons. First, there was no language specified to analyze the 
proposal, therefore, their understanding of the subject was vague and 
undefined. Second, the proposal refers to the legal rate of interest 
which is not compatible with the Board's proposal. Third, the term 
``successful'' is not defined to differentiate between an 
administrative ruling before a law judge or the final review by the 
Judicial Officer. The opponents further testified that such rulings may 
be reviewed by the District Court, therefore, this proposal must be 
opposed because it does not clearly state at what point a handler could 
claim a refund of assessment and the accompanying interest. Also, 
depending on the timing of such refund, the Board may not have funds 
available to make the refund.
    The proponent responded to the opposition by stating that he has no 
qualms with stating that the interest rate be the same as what the 
Board established. Also, that within 30 days of a final non-appealable 
decision being made, the Board should make the refund. Finally, if the 
Board does not pay back the prevailing handler in 30 days, the Board 
would be required to pay a five percent penalty.
    The record evidence does not support this proposed amendment. 
Section 610b(2)(ii) of the Act provides that handlers regulated by 
marketing orders pay their pro rata share of such expenses as the 
Secretary may find are reasonable and likely to be incurred during a 
specified period for the maintenance and functioning of the marketing 
order. Section 608c(15)(A) of the Act provides a method for challenging 
marketing order provisions, including the requirement to pay 
assessments, through administrative petitions. In addition, several of 
the issues which this proposal raises are currently being appealed to 
the Ninth Circuit.
    Therefore, this proposed amendment is not recommended.

Material Issue Number 21

    The proposed amendment to section 981.4 would have amended the 
definition of ``almonds'' to exempt certified organic almonds from the 
entire marketing order.
    Currently, the marketing order does not differentiate between 
almonds that are organically grown and those that are not.
    The proponents for this amendment testified that the markets for 
organic almonds are totally separate from those for conventionally 
grown almonds. The organic tonnage of almonds in the industry is very 
small. The proponent testified that he empathizes with the organic 
growers since they do not want their money spent on Board programs that 
do not benefit organic almond growers and handlers. The proponent 
stated that the California Department of Food and Agriculture has 
strict requirements for certified organic commodities and penalties if 
growers violate them.
    Opponents testified that it would be difficult to determine if an 
almond has truly been organically grown. While it is true there are 
voluminous regulations on organic products, once the almonds reach the 
market place, it is impossible to discern organically-grown almonds 
from those that are not organically grown. In addition, the opponent 
testified that organic growers currently benefit from the various 
programs conducted by the Board. The Board is pursuing a very active 
program of promoting almonds. Organic growers benefit from the 
perceived value of almonds that result from such aggressive promotion 
programs. There are also many production research programs sponsored by 
the Board that benefit organic growers as well as other almond growers. 
They include crop irrigation management, bud failure, nematode 
infestation, integrated pest management and problems from Africanized 
honey bees. The opponent further testified that all segments of the 
industry are interested in finding the most cost-effective, reliable 
method of increasing production and delivering a high-value, safe 
product to the consumer. In addition, the opponent stated that the 
Board is committed to working with organic growers to ensure that their 
interests are considered in making Board recommendations.
    Several organic growers and handlers submitted proposals for 
differential treatment under the almond marketing order, but did not 
propose the organic community be entirely exempt.
    Accordingly, the record evidence does not support the amendment to 
exempt organic almonds entirely from the marketing order. Record 
evidence shows that organic growers do reap some benefits from the 
order and its programs, which include certain research activities and 
the new Credit-Back advertising program. Therefore, this proposed 
amendment is not recommended.

Material Issue Number 22

    The proposed amendment to Sec. 981.41 would require that handlers 
not be assessed for marketing promotion, including advertising for the 
number of pounds of certified organic almonds handled. Currently, there 
is no provision in the marketing order to exclude organic almonds from 
the marketing promotion program.
    The proponents for this amendment testified that the proposal is 
intended to provide an exemption for certified organic almonds from the 
advertising assessments since advertising for conventional almonds is 
not relevant to the market for certified organic almonds. The market 
for organic almonds is not yet well developed and does not benefit from 
generic advertising of almonds. The market is a [[Page 17479]] niche 
market, made up of consumers who are seeking a guaranteed organic 
product. Any effective advertising must be geared to that market. The 
proponents testified that there are strict penalties for violating the 
certified organic regulations. Under Federal law, it is a violation to 
sell anything as organic that is not certified organic, and there is a 
fine of up to $10,000. In addition, any person found to have violated 
the law can be prohibited from organic certification for five years.
    The proponents stated that buyers of certified organic almonds 
include natural food stores, consumers through mail order, roadside 
stands, certified farmers markets and specialty health food 
distributors. The end user is a consumer looking for an organic product 
first. If the consumer cannot find organic almonds, the consumer is 
more likely to substitute a different organic product rather than 
conventional almonds. Under the current assessment program, even if the 
certified organic handlers fully participate in the credit-back 
program, 50 percent of their assessment would still support generic 
advertising which is not relevant to their market. This proposal would 
have a positive benefit on growers and handlers of certified organic 
almonds, most of whom are small businesses.
    Another proponent testified that certified organic almond handlers 
need relief from the burdens and restrictions imposed by the Board. 
Certified organic almonds have very little in common with commercial 
almonds. Promotion and advertising requires a different direction and a 
totally different target market which is not acknowledged by the Board.
    Testimony in opposition to the amendment indicated that organic 
almonds should continue to fall under the marketing order and be 
assessed for marketing promotion. The opponent testified that all 
almonds benefit from generic advertising and promotion campaigns 
conducted by the Board. This includes growers that grow the Mission 
variety of almonds that appeals to the candy manufacturers. However, 
the opponent testified that Mission variety growers are not asking to 
be exempt from the order. The witness further stated that pooling 
industry resources can stimulate industry growth for the benefit of 
everyone. The opponent stated that the Board has made an effort to 
reach out to the organic growers and establish dialogue on key issues. 
The witness testified that there is a lot of common ground and that the 
industry can continue to build on that common purpose and interest by 
working together rather than working apart.
    The record evidence supports that the organic market is a separate 
and distinct market. Although testimony indicated that generic 
advertising for conventional almonds could have a limited effect on 
organic consumers, the organic industry may not benefit directly from 
the Board's generic advertising program. However, the evidence did show 
that organic handlers could derive some benefit from the Board's new 
Credit-Back advertising program. The Board has stated that it wants to 
work with the organic segment of the industry and recognize them as an 
important part of the industry. Therefore, the Department is modifying 
the amendment to provide that the Board may, with approval of the 
Secretary, exempt certified organic almond handlers from the 
advertising assessment through further informal rulemaking. This would 
provide the Board and the organic segment of the industry with the 
flexibility of exempting handlers of certified organic almonds from the 
advertising assessment. It would also provide for development of a 
framework to implement and verify compliance with such an exemption. 
Therefore, the proposed amendment is recommended as modified.

Material Issue Number 23

    The proposed amendment to Sec. 981.41 would require that a minimum 
of 25 percent of funds collected for projects involving production 
research shall be spent on research and development of production 
methods which reduce or eliminate the use of synthetic chemicals in the 
production and handling of almonds. Under the current marketing order, 
there is no requirement that a minimum amount be spent in any certain 
area.
    The proponents testified that this amendment is intended to benefit 
all almond growers by finding ways to reduce and eliminate the use of 
synthetic chemicals. This effort is especially important in light of 
the restrictions on continuing availability and use of certain 
agricultural chemicals. Record evidence indicated that this research 
activity would be coordinated by the production research committee of 
the Board. The proponent recommended the appointment of one or more 
growers of certified organic almonds to the production research 
committee. The committee would issue a request for proposals that 
contribute to finding new production techniques which reduce or 
eliminate the use of synthetic chemicals. The committee would then 
allocate a minimum of 25 percent of funds, earmarked for research, for 
such proposals.

    The proponents further testified that the amendment would require a 
positive effort to seek out and fund proposals that investigate ways to 
reduce chemical use. Such a pro-active policy by the Board would send a 
signal to the research community to generate these proposals. It would 
also send a message to the public that the Board is taking steps to 
improve the environment through reducing the use of synthetic 
chemicals. This effort is important to the future of the industry for 
two reasons: (1) Various agricultural chemicals commonly used by almond 
growers are being phased out and will be taken off the market by 
government regulations; (2) very little research is currently being 
conducted on non-synthetic alternatives for almond growers and 
handlers. The proponent testified that she is aware of only one Board 
research project in this area.

    The proponent testified that this proposal would help all almond 
growers and handlers face the challenges of decreasing availability of 
agricultural chemicals and increasing pressure from environmental 
groups. Developing such alternatives would protect growers and handlers 
from potential large crop losses and would satisfy consumer demand for 
reduced chemical usage. The proposal would also have a positive effect 
on small businesses since most growers and handlers of organic almonds 
are small businesses.

    At the hearing, opponents did not believe that one tenth of one 
percent of the industry should be in a position to dictate to the other 
99.9 percent of the industry how to spend its funds, especially 
considering that this small segment is attempting to be exempt from 
certain major areas of the order. The proponent testified that the 
organic community believes that this proposal would be beneficial to 
the whole almond industry. Every grower is under pressure to reduce 
chemical use. The proposal would give the industry the tools to meet 
production needs and to reduce pest and diseases without using 
chemicals. It was further discussed that organic almond growers have 
not brought forth any research projects to the production research 
committee. Also, the proponent was not aware of any such research 
projects being turned down by that committee.

    It was also discussed that the marketing order currently contains 
authority to accomplish the proponents' goal. If the proponents 
attended the production research meetings and provided information on 
the needed [[Page 17480]] research in those areas, they could possibly 
convince the Board to fund projects in the proposed area. In addition, 
testimony was offered that the Board may not be able to find within the 
research community projects to reach the 25 percent minimum that is 
proposed. The proponents testified that if a bona fide effort was made 
by the Board to obtain such projects, funding a lesser percentage would 
not be a problem. A bona fide effort by the Board would include: (1) 
Prepare a request for proposals that specified the type of research 
that is desired by the Board; (2) clarify the amount of money that is 
being set aside for that type of proposal; and (3) distribute widely to 
the universities, the extension service and to other known researchers, 
notice of the opportunities to conduct this type of research.
    Another proponent of the amendment testified that some of the areas 
that need immediate attention are the study of soil biology, fungus 
control, climatic and economic thresholds, understanding the value of 
beneficial organisms, developing environmentally sound methods of 
production, wildlife habitat enhancement, etc. The proponent further 
testified that if the Board is spending its money, it should be on 
projects that directly benefit the organic farmer as well as the 
community at large.
    The opponents testified that the Board has a very strong commitment 
to production research. Currently, the Board has budgeted $500,000 for 
various research projects. The benefits of these studies are shared 
throughout the industry. The Board invites members of the organic 
almond community to participate at the production research committee 
meetings and take part in the process which determines which studies 
will be funded. The witness testified that the process of open 
committee meetings in which there can be active dialogue best lends 
itself to achieve the goal of this proposal. The witness testified that 
a bad precedent would be established by having a marketing order 
amendment to guarantee funding for one particular research project, no 
matter how well intentioned. Such action would leave the door wide open 
for a long line of groups demanding the order be amended to accommodate 
their needs. The witness testified that the framework exists which can 
be used by the organic community to make its case for funding projects 
as proposed.
    The opponent also testified at the hearing that the Board is 
currently funding such type of projects. For example, one project is to 
find ways to reduce the use of chemicals in controlling the navel 
orangeworm, which is one of the worst pests in the almond industry. 
Through the project, the Board has been instrumental in reducing such 
chemical usage, but their use has not been eliminated yet.
    The record evidence does not support this proposed amendment. The 
authority is currently in the order for such projects as proposed to be 
conducted. In addition, the Board is currently funding projects which 
are intended to reduce the use of synthetic chemicals. Record evidence 
indicates that the Board wants to work with the organic almond 
community to recognize them as an important faction in the industry. If 
the organic almond community works with the Board and takes an active 
part in the process of determining the expenditure of production 
research funds, they will make their voice heard and assist the Board 
in making expenditure decisions that will help to benefit the whole 
almond industry.
    The record evidence also supported that there may not be enough 
sources of research to obtain the proposed 25 percent of the production 
research funds and this proposal would be too restrictive for the 
Board. Therefore, for the above reasons, the proposed amendment is not 
recommended.

Material Issue Number 24

    Sections 981.47 and 981.50 should be amended to require that the 
Secretary shall exempt from any reserve, that part of the crop which is 
sold as ``certified organic almonds'' under standards established by 
the Organic Foods Act of 1990 and the California Organic Foods Act of 
1990. The Board may propose regulations to assure procedures to 
implement this section.
    Currently, there is no requirement in the marketing order to exempt 
certified organic almonds from the reserve provisions.
    The proponents testified that they are proposing the exemption 
because certified organic almonds are a distinct and different product 
from conventional almonds. There are many laws and requirements for a 
farmer to become certified as organic. First, the California Organic 
Foods Act of 1990 requires that any foods sold as organic are grown 
without the use of prohibited materials. Prohibited materials are all 
synthetic products. No prohibited materials can be used in the soil for 
at least one year prior to the season in which the crop is grown. 
Handlers are also restricted from using any prohibited materials. 
California law requires extensive recordkeeping by organic growers and 
handlers. California law also requires that each grower and handler of 
foods sold as organic must be registered annually with the State. The 
State intends to strictly enforce provisions of the organic program. 
Two growers have been recently fined $7,000 or more for violations. The 
certification process is quite lengthy and costly.
    The proponent testified at the hearing that certified almonds are a 
distinct product from conventional almonds. They are sold into a 
different market than conventional almonds. The price for certified 
organic almonds is significantly higher, approximately 30 to 44 percent 
higher than for conventional almonds. Certified organic almonds only 
comprise about one-tenth of one percent of the total almond industry. A 
1992 report by the University of California Cooperative Extension 
Service states that, ``At present, no bulk commodity market exists for 
organically grown almonds. Because of this, market fluctuations and 
pricing of conventionally-grown almonds do not directly affect the 
market for organically-grown almonds''. Certified almonds are sold in a 
niche market to consumers whose first concern is purchasing an organic 
product. If organic almonds are not available, the consumer will be 
more likely to substitute another organic product instead of 
conventional almonds. Many wholesalers and retailers of organic almonds 
do not purchase conventional almonds.
    At the hearing, the proponent testified that a reserve requirement 
for certified organic almonds disrupts the market and is contrary to 
the intent of the provision. The market for certified organic almonds 
is chronically under-supplied. Therefore, a reserve which removes 
product from the market disrupts the flow of supply to the market.
    The proponent testified that organic almonds are more difficult to 
store since most fumigation practices are prohibited. Although methods 
have been developed to store organic almonds, the normal marketing 
season of organic almonds is not as long as that for conventional 
almonds. Many organic growers therefore, use cold storage which can be 
quite expensive. When a reserve is implemented, handlers keep a 
percentage of certified organic almonds off the market and are unable 
to meet market demand. In addition, handlers have been unable to fill 
buyer orders even though they have certified organic almonds in 
reserve.
    The proponent further testified that the proposal would have a 
positive impact on small businesses since most [[Page 17481]] organic 
almond growers and handlers are small businesses.
    At the hearing, it was discussed that there is an extensive audit 
trail from the organic grower to the handler so there would be no 
confusion as to which almonds would be organic or conventional. 
Testimony was also offered that if a conventional lot and certified 
organic lot were commingled, the almonds could no longer be sold as 
certified organic almonds. Also, containers that include certified 
organic almonds have to be extensively identified.
    Opponents at the hearing testified that certified organic growers 
do benefit from many programs under the almond marketing order. The 
reserve program is one such program that needs participation by all 
members of the almond industry. By excluding organic almonds from the 
reserve, a two-tiered system would be implemented creating dissension 
within the industry and in the long run would act against the organic 
growers' best interests by alienating them from the industry. The Board 
is supportive of attempts to include the interests of organic growers 
on all policy matters discussed by the Board. In the testimony by the 
proponents, they indicated that many of the regulations governing 
organic farming are just now being developed. The Board addressed this 
issue when the 1990 reserve was established. At that time, organic 
growers requested that the Board exclude or declare organic production 
a reserve outlet. That request was denied by the Board. It was thought 
at that time that the organic program was not fully developed and there 
could be a lack of a reliable system of certification and tracking. The 
opponent testified that there is now a complete system in place and 
given the information the Board now knows the Board could make a 
decision to use organic almonds as an outlet for reserve almonds. The 
witness testified that the marketing order currently contains language 
to accomplish what the organic community wants without this amendment. 
The organic almond production could be evaluated on a yearly basis to 
determine if certified organic almonds should be part of the reserve.
    The record evidence supports the merits of this amendment. The 
proponents have presented a compelling case that certified organic 
almonds are unique and are sold into different markets. During a 
reserve year, handlers of organic almonds are unable to supply all of 
their buyers with certified organic almonds. The certified almond 
growers and handlers must follow strict regulations to ensure that they 
are selling certified organic almonds in the marketplace. Certified 
organic almonds can be traced by a paper trail to the retail level. If 
commingling occurs with non-organic almonds, they are no longer 
considered certified organic. There are State and Federal laws 
regulating the practices of certification of organic products. Storing 
organic almonds is problematic because most fumigation practices are 
prohibited. Certified organic almonds currently comprise only one-tenth 
of one percent of the almond industry.
    Certified organic almonds can currently be exempted from reserve 
provisions by designating them as an authorized reserve outlet under an 
agency agreement recommended by the Board and approved by the 
Secretary. This can be done on a yearly basis when a reserve is 
recommended. However, record testimony has shown that the imposition of 
a reserve on certified organic handlers in any year could be 
unnecessarily detrimental to this segment of the industry with no 
proven benefit to the industry as a whole. Therefore, the proposed 
amendment is recommended.

Material Issue Number 25

    The proposed amendment to section 981.80 would have allowed the 
Board to contract for periods of five years for services, goods or 
other reasonable expenses.
    Currently, section 981.80 specifies that the Board is authorized to 
incur expenses during each crop year. The recommendation of the Board 
for their expenses each year must be submitted to the Secretary on or 
before August 1 of the crop year. Expenditures are then incurred on a 
yearly basis.
    Proponents testified at the hearing that the Board has been 
handicapped in the areas of research and marketing by the inability to 
enter into multi-year contracts. The Board is required to do business 
on a year-to-year basis. Some contracting parties become disillusioned 
because a concept may take several years to develop and implement and 
they are restricted to contracting for only a year at a time. The 
contracting parties may find that it is not economically feasible to 
enter into a contract without a commitment of more than one year. This 
often results in lost opportunities for the Board in being forced to 
negotiate for a one year contract that may be more expensive and less 
desirable than a contract covering more than one year.
    At the hearing, the proponents stated that the California 
Agricultural Statistics Service (CASS) was asked to deliver a proposal 
for an acreage survey. The cost of the survey was considered to be too 
high for a single year's budget. The CASS then suggested a two year 
proposal in which they would survey one half the crop one year and the 
other half the next year. Record evidence indicated that the Board 
contracted to survey one-half this year, but will be prohibited from 
committing to the project's completion. A new Board next year may 
change its mind which could lead to development of a survey for one 
half of the crop. This would not be a desirable use of Board's funds.
    The proponents further testified that the adoption of this 
amendment would have a positive economic impact. The Board does not 
anticipate that all or most future business activities would take the 
form of a multi-year contract. However, where needed and cost 
effective, the proponents testified that the ability to enter into such 
agreements should be available.
    At the hearing, further discussions focused on the proposal to have 
three-year terms of office for Board members and how this would affect 
five-year contracts that could be in effect. Proponents testified that 
this particular situation occurs everyday in businesses and 
corporations where the directors that are there could very well be 
turned over and not be there when the contract comes to a conclusion. 
The proponents further testified that they envision that such multi-
year contracts could be used for a building lease or the development of 
a new almond product.
    The record evidence shows that marketing order committees have 
already been given permission, on a case-by-case basis, to enter into 
multi-year contracts, although such contracts are contingent on the 
marketing order remaining in effect. Also, some of the Board's research 
and promotion projects are currently four or five year projects. 
Proponents, however, testified that these projects have been funded 
only on a yearly basis. The record evidence showed that funding a 
project on a year-by-year basis would allow the Board to evaluate the 
progress of the project and decide if it should be continued. The 
marketing order is designed to operate on an annual basis and to be 
evaluated by the Secretary on an annual basis. The record evidence also 
showed that the Department has given permission to marketing order 
boards and committees, on a case-by-case basis, to enter into multi-
year contracts.
    The Act provides that marketing order committees establish budgets 
and assessment rates on a periodic basis. The marketing order requires 
that the [[Page 17482]] expenses and assessment rate be established for 
each crop year. This allows for evaluation by the Board and the 
Secretary of Board activities on an annual basis. The Secretary is 
responsible for oversight of Board activities and believes that this 
proposal could limit the annual reviews as well as restrict the 
activities of future Boards. It is acknowledged, however, that multi-
year contracts, in some instances, could benefit the Board by allowing 
for long-range, cost-effective planning. It is preferred that these 
situations be handled on a case-by-case basis.
    Accordingly, the record evidence does not support the amendment for 
the Board to be allowed to enter into multi-year contracts. Therefore, 
this proposed amendment is not recommended.

Material Issue Number 26

    Two proposed amendments to section 981.90 would require that 
continuance referenda be conducted. One proposal would have required 
that continuance referenda be conducted every five years beginning July 
31, 1999, to determine grower support for continuation of the marketing 
order for almonds. Another proposal would have required that 
continuance referenda be conducted every four years with the first to 
be held in 1996.
    Currently, there is no provision in the marketing order that 
provides for periodic continuance referenda.
    The proponents for five-year referenda testified that the growers 
should have the ability to vote for continuance or termination of the 
marketing order. These referenda would allow growers to have a voice as 
to the value of the almond marketing order. The proponents testified 
that they realize that circumstances change over time, and therefore 
believe that a time period of five years would allow for a timely 
debate as to the merits of continuing or terminating the marketing 
order.
    The proponents' proposal for five-year referenda also contained 
language regarding termination of the marketing order that is already 
contained in the order. The proponents testified that they would agree 
to the criteria which the Secretary may use in determining whether the 
marketing order should continue.
    The order currently provides that the Secretary shall terminate the 
order if a majority of all growers favor termination and such majority 
produced more than 50 percent of the almonds for market within the 
State of California. Since less than 50 percent of all growers usually 
participate in a referendum, it is difficult to determine grower 
support for termination of an order.
    Another way of assessing whether growers favor the continuation of 
an order would be to hold a continuance referendum using the same 
criteria as set forth in section 8c(8) of the Act with respect to 
producer approval of the issuance of a marketing agreement and order. 
This section of the Act requires approval by two-thirds of the 
producers voting in the referendum or by producers who have produced 
two-thirds of the volume of the production voted during a 
representative period. This is a reasonable and appropriate basis for 
determining whether almond growers favor continuation of the order.
    In the event that the requisite majority of growers, by number or 
volume of production represented in the referendum, do not approve 
continuation of the order, the Secretary may consider termination of 
the order but would not be required to terminate. In evaluating the 
merits of termination, the Secretary would not only consider the 
results of the continuance referendum, but also would consider all 
other relevant information concerning the operation of the order and 
the relative benefits and disadvantages to producers, handlers, and 
consumers in order to determine whether continued operation of the 
order would tend to effectuate the declared policy of the Act. In this 
regard, the Secretary may solicit input from the public through 
meetings, press releases, or any other means. The proponents testified 
at the hearing that in evaluating the merits of continuing the order, 
they would like to see the Secretary not only consider the results of 
the continuance referendum but also consider information relative to 
the operation of the marketing order.
    Proponents of the proposal for four-year continuance referenda 
testified that a vote for continuance should be held in 1996. They 
testified that two years of operating under the new amendments should 
be adequate time for the growers to make a well-informed decision as to 
whether the program is effective.
    Proponents in favor of the four-year referenda proposal testified 
that because of the lack of referenda in the past (the only continuance 
referendum on the almond marketing order was conducted in 1989), it is 
appropriate to have a continuance referendum every four years.
    Based on evidence and testimony submitted at the hearing relative 
to periodic referenda, the order should be amended to require that such 
referenda be conducted.
    It is USDA's preference to provide for periodic referenda at least 
every six years to allow growers an opportunity to indicate their 
support for or rejection of the order. The record evidence demonstrates 
that the proposal for referenda every five years is reasonable and has 
widespread industry support. A referendum every five years would allow 
growers an opportunity to vote in favor or in opposition to the order 
as changes occur in the industry yet would not be wasteful of the 
Board's resources. For the above reasons, the order should be amended 
to provide for periodic referenda every five years beginning two years 
from the year these amendments are finalized. Conducting a continuance 
referendum two years after the implementation of the proposed 
amendments would allow the industry sufficient time to evaluate the new 
amendments and determine if the marketing order should continue in 
effect. Therefore, the proposed amendment, as modified, is recommended.

Material Issue Number 27

    Sections 981.51, 981.54, 981.55, and 981.66, which relate to 
certain reserve provisions, should not be deleted from the marketing 
order. In addition, Secs. 981.52 and 981.67, also relating to the 
reserve, should not be amended as proposed. Section 981.55 should be 
amended to clarify that handlers may be authorized to transfer reserve 
almonds to another handler.
    Extensive record testimony indicated this proposal had three basic 
purposes. One purpose was to eliminate authority in the marketing order 
that requires reserve almonds to be sold in secondary or market 
development outlets. Another purpose was to allow handlers to sell 
their reserve almonds and the accompanying reserve obligation to 
another handler. The remainder of the proposal was to make conforming 
changes in the order language to coincide with the two aforementioned 
purposes.
    The proponent of this proposal testified that reserve almonds 
should not be required to be sold to secondary outlets (where the 
return is significantly lower). The proponent believed that this was 
not economically sound, and explained that, if reserves are 
established, the reserve almonds should ultimately be sold in normal 
competitive outlets at some point in the future. The proponent 
testified that reserve almonds could be carried forward for several 
years to augment short supplies in the event of a crop failure.
    Opponent's testimony indicated that the option of having reserves 
in effect for consecutive years already exists in [[Page 17483]] the 
marketing order. The proposal would maintain that option, but would 
eliminate the order's flexibility to require disposition in non-
competitive outlets. The proponent failed to offer any economic 
analysis in support of carrying reserve product forward indefinitely, 
as opposed to diverting the product.
    The proponent also testified that the reserve program had been 
manipulated in the past by the Board in that Board members were aware 
of Board decisions well in advance of the rest of the industry, thus, 
placing them at an advantage over the remainder of the industry.
    No evidence was presented at the hearing indicating that Board 
members are aware of final Board recommendations prior to the voting 
process. To the contrary, it was testified that many Board members act 
independently. Further, Board members are elected through a democratic 
process and, therefore, risk not being renominated if they do not 
fairly represent their constituency.
    The proponent testified that handlers should be able to sell their 
reserve almonds and accompanying reserve obligation to other handlers. 
A large number of handlers in the industry handle a relatively small 
proportion of the crop and operate for only a few months each year. 
Other larger handlers operate on a year-round basis. The proponent 
testified that the smaller handlers, who would normally cease their 
handling operation, are forced to maintain, at an additional cost to 
them, the required inventory in good condition in storage. If these 
small handlers do not want to incur the additional costs, the proponent 
stated the only other option available is disposition to approved 
reserve outlets at significantly lower prices. The proponent stated 
that handlers that dispose of their reserve almonds in secondary 
outlets could be financially disadvantaged in the event the reserve is 
released to the saleable category after their disposition.
    Opponents stated that the proposal contained several provisions and 
eliminations of provisions that appeared to be in conflict with one 
another. Therefore, it was not clearly understood what exactly the 
proposal in its entirety was attempting to accomplish. Additional 
rationale against the proposal was a general difference in philosophy 
regarding eliminating tools of the marketing order currently available 
to the industry.
    As previously stated, the proposal contained three basic purposes. 
The first purpose involved eliminating the authority to require reserve 
almonds to be sold in secondary outlets. We agree with the position 
that there is authority in the marketing order to release all of the 
reserve, making it unnecessary to sell reserve almonds in non-
competitive outlets, if recommended by the Board. Removing the Board's 
authority to recommend to the Secretary that reserve almonds be sold in 
these outlets would remove an option available to the Board that may be 
considered necessary and in the best interest of the industry under 
certain circumstances. It is determined that the Board should retain 
flexibility in this regard and that this portion of the proposal would 
place an unnecessary restriction on the Board in making recommendations 
to the Secretary regarding the reserve. For this reason, this part of 
the proposal is not recommended.
    Record evidence supports the merits of the second portion of this 
proposal dealing with selling reserve almonds and transferring reserve 
obligations to another handler. The overall intent of the reserve 
program could still be met as long as the same total quantity of 
product was held off the market. Providing handlers the additional 
authority to transfer any or all of their reserve obligations to other 
handlers in the industry could help facilitate the operation of the 
reserve program by providing more flexibility. In order to ensure such 
a provision is administered properly, it would be necessary for the 
Board, with the approval of the Secretary, to implement regulations to 
effectuate such a provision.
    The third purpose of the proposal involved eliminating certain 
sections of the order to correspond with the other purposes of this 
proposal. However, it is not necessary to delete these sections of the 
marketing order as proposed to accomplish that portion of the proposal 
that is being accepted and recommended herein.
    For the aforementioned reasons, this proposed amendment is 
recommended, in part, by modifying Sec. 981.55 to provide the authority 
for the Board, with the approval of the Secretary, to allow handlers to 
transfer their reserve obligation to other handlers.

Material Issue Number 28

    The proposed amendment to Sec. 981.50 would have required that, 
when a reserve is established, the first 250,000 pounds of almonds 
handled by a handler would be exempt from the reserve percentage. In 
addition, the exemption would not apply to a handler who has not been a 
handler and paid assessments for each of the two previous crop years 
and/or to one who has been associated or under contract with or is a 
director, controller, shareholder, owner, or partner in any other 
handler facility taking advantage of the exemption.
    Currently, Sec. 981.50 provides that each handler shall withhold 
from handling a quantity of almonds equal to the reserve percentage of 
the kernelweight of all almonds such handler receives for his/her own 
account during the crop year. There is no quantity reserve exemption in 
the marketing order at this time.
    The proponent testified that the purpose of this amendment is to 
benefit small handlers. A small handler's cost per pound to operate is 
much greater than that of a larger handler. The small handler, defined 
as one who handles less than 250,000 pounds annually, would probably 
close such facility after the handling season, but must remain open to 
maintain the reserve almonds. Record evidence indicated that small 
handlers that handle less than 250,000 pounds would be treated 
differently since there would be a differential impact of reserve 
requirements on such handlers.
    The proponent testified that the conditions for the exemption are 
there to prevent people from becoming handlers during the year of 
regulation to take advantage of the 250,000 pound reserve exemption. 
The condition for the exemption would prevent people from anticipating 
that a reserve is going to be established.
    At the hearing, it was discussed that possibly a creative attorney 
could breakdown a single business into separate entities so that each 
one would handle less than 250,000 pounds to take advantage of the 
exemption. However, the proponent testified that he did not see that as 
a problem under this proposal because of the criteria for eligibility 
written into the proposal.
    Opponents testified that the proposal would create two classes of 
handlers, those who have to participate in the reserve and those who do 
not. The proposal is also based on an arbitrary level of 250,000 
pounds. Record evidence stated that the strength of the marketing order 
is that all members of the industry participate in the order and the 
rules and regulations apply to everyone across the board. The exemption 
would only serve to cut the industry into very small segments that 
would dilute the strength of the order. This proposal would create an 
opportunity for those inclined to take advantage of any loopholes and 
benefit from them. Opponents further testified that by eliminating a 
proportion of handlers from the reserve, the burden 
[[Page 17484]] would fall on fewer handlers causing them financial 
hardship.
    The record evidence indicated that the Act provides that reserve 
provisions should be applied uniformly throughout the entire industry. 
While all handlers would have the same exemption under this proposal, 
those handlers that handled over 250,000 pounds would be regulated and 
those who handled less than that amount would not be regulated. The 
Department disagrees with the proponent's assertion that administering 
this proposal would not be problematic. It would be difficult to 
implement this proposal and develop equitable regulations covering all 
situations that could occur. The record evidence also indicated that 
this proposal could potentially have an effect on the market if there 
were many handlers that handled less than 250,000 pounds of almonds. 
This in turn would place more of a burden on those regulated handlers 
that handled more than 250,000 pounds of almonds.
    Accordingly, the record evidence does not support the proposal to 
require that when a reserve is established, the first 250,000 pounds 
handled by a handler would be exempt from the reserve percentage. 
Therefore, this proposed amendment is not recommended.

Material Issue Number 29

    The proposed amendment to Sec. 981.71 would have required incoming 
inspections to be conducted no later than the last day of February 
during the then current crop year.
    Section 981.71, which provides for furnishing statistical 
information to the Board for purposes of establishing the reserve 
obligation, was suspended indefinitely in 1975. Section 981.42 provides 
that handlers shall obtain incoming inspection through the Federal-
State inspection service to determine the amount of inedible kernels in 
each variety and report the determination to the Board.
    A proponent at the hearing testified that the incoming inspection 
is needed in order to determine the size of the industry's total crop. 
The industry needs to know no later than the end of February of each 
year, the quantity of almonds received by handlers for election 
purposes, Board statistical use, reserve calculations, and assessment 
calculations. The proponent testified that the longer inspection is 
delayed, the longer payment of assessments is also delayed. If the 
Board is going to receive the assessment money, they would prefer to 
receive it earlier. If a handler receives almonds after the February 
date, the handler should assume a penalty or completely reject the 
almonds for delivery.
    Statistics presented at the hearing indicate, however, that since 
1980 almonds received by handlers through the month of February in any 
given year have exceeded 97 percent of the total almonds received for 
the entire crop year. In most years, the receipts through February 
exceeded 99 percent of the total. Based on this information, there 
would be no appreciable difference in the estimated crop size at that 
point of the season if all almonds were required to be inspected by 
February 28 of each year. In addition, there would be no appreciable 
difference in handlers' share of the crop handled for election 
purposes.
    Handlers are currently required to report to the Board all almonds 
received for their account during several prescribed periods. This 
information is combined with other information reported to the Board to 
determine handlers' assessment and reserve obligations. Inspection 
certificates are used to verify information reported to the Board and 
for determining inedible obligations. They are not necessary for the 
Board to make assessment billings and determine reserve obligations.
    If implemented, this proposal may subject handlers to civil or 
criminal penalties for having product inspected after February 28. It 
would also have the effect of dictating to growers when they have to 
sell and deliver their product to a handler. It is conceivable that for 
financial reasons, a grower may choose to store his or her product 
until late in the season before selling it to a handler. This proposed 
amendment would, in effect, prohibit such a practice.
    While the proposed amendment could, in some instances, serve to 
facilitate the operations of the Board, the positive aspects of such a 
proposal are outweighed by the negative. Regulating the industry in 
this regard would place an undue burden on both growers and handlers 
which is not necessary for the functioning and administration of the 
program.
    For the reasons stated above, this proposed amendment is not 
recommended.

Rulings on Briefs of Interested Persons

    Briefs, proposed findings and conclusions, and the evidence in the 
record were considered in making the findings and conclusions set forth 
in this recommended decision. To the extent that the suggested findings 
and conclusions filed by interested persons are inconsistent with the 
findings and conclusions of this recommended decision, the requests to 
make such findings or to reach such conclusions are denied.

General Findings

    (1) The findings hereinafter set forth are supplementary to the 
previous findings and determinations which were made in connection with 
the issuance of the marketing agreement and order and each previously 
issued amendment thereto. Except insofar as such findings and 
determinations may be in conflict with the findings and determinations 
set forth herein, all of the said prior findings and determinations are 
hereby ratified and affirmed;
    (2) The marketing agreement and order, as amended, and as hereby 
proposed to be further amended, and all of the terms and conditions 
thereof, would tend to effectuate the declared policy of the Act;
    (3) The marketing agreement and order, as amended, and as hereby 
proposed to be further amended, regulate the handling of almonds grown 
in California in the same manner as, and are applicable only to, 
persons in the respective classes of commercial and industrial activity 
specified in the marketing agreement and order upon which a hearing has 
been held;
    (4) The marketing agreement and order, as amended, and as hereby 
proposed to be further amended, are limited in their application to the 
smallest regional production area which is practicable, consistent with 
carrying out the declared policy of the Act, and the issuance of 
several orders applicable to subdivision of the production area would 
not effectively carry out the declared policy of the Act; and
    (5) All handling of almonds grown in California as defined in the 
marketing agreement and order, as amended, and as hereby proposed to be 
further amended, is in the current of interstate or foreign commerce or 
directly burdens, obstructs, or affects such commerce.

List of Subjects in 7 CFR Part 981

    Almonds, Marketing agreements, Nuts, Reporting and recordkeeping 
requirements.

Recommended Further Amendment of the Marketing Agreement and Order

    For the reasons set out in the preamble, 7 CFR part 981 is proposed 
to be amended as follows:

PART 981--ALMONDS GROWN IN CALIFORNIA

    1. The authority citation for 7 CFR part 981 continues to read as 
follows:

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

    [[Page 17485]] 2. Section 981.14 is revised to read as follows:


Sec. 981.14  Cooperative handler.

    Cooperative handler means any handler as defined in Sec. 981.13 of 
this subpart which qualifies for treatment as a nonprofit cooperative 
association as defined in Section 54001, et seq. of the California Food 
and Agricultural Code. The Board, with the approval of the Secretary, 
may modify this definition, if necessary.
    3. Section 981.16 is revised to read as follows:


Sec. 981.16  To handle.

    To handle means to use almonds commercially of own production or to 
sell, consign, transport, ship (except as a common carrier of almonds 
owned by another) or in any other way to put almonds grown in the area 
of production into any channel of trade for human consumption 
worldwide, either within the area of production or by transfer from the 
area of production to points outside or by receipt as first receiver at 
any point of entry in the United States or Puerto Rico of almonds grown 
in the area of production, exported therefrom and submitted for reentry 
or which are reentered free of duty. However, sales or deliveries by a 
grower to handlers, hullers or other processors within the area of 
production shall not, in itself, be considered as handling by a grower.
    4. Section 981.18 is amended by removing the word ``and'' at the 
end of paragraph (b); removing the period and adding ``, and'' at the 
end of paragraph (c); and adding a new paragraph (d) to read as 
follows:


Sec. 981.18  Settlement weight.

* * * * *
    (d) For inedible kernels as defined in Sec. 981.8.
    5. Section 981.19 is revised to read as follows:


Sec. 981.19  Crop year.

    Crop year means the twelve month period from August 1 to the 
following July 31, inclusive. Any new crop almonds harvested or 
received prior to August 1 will be applied to the next crop year for 
marketing order purposes. The first crop year after the implementation 
of this amendment shall be a 13-month period.
    6. Section 981.21 is revised to read as follows:


Sec. 981.21  Trade demand.

    Trade demand means the quantity of almonds (kernelweight basis) 
which commercial distributors and users such as the wholesale, chain 
store, confectionery, bakery, ice cream, and nut salting trades will 
acquire from all handlers during a crop year for distribution 
worldwide.
    7. Sections 981.30 and 981.31 are revised to read as follows:


Sec. 981.30  Establishment.

    The Almond Board shall consist of twelve members, each with an 
alternate member.


Sec. 981.31  Membership representation.

    Membership of the Board will be determined in the following manner:
    (a) Three members and an alternate for each member shall be 
selected from nominees submitted by each of the following groups 
designated in paragraphs (a)(1) and (2) of this section, or from among 
other qualified persons belonging to such groups:
    (1) Those growers who market their almonds through cooperative 
handlers; and
    (2) Those growers who market their almonds through other than 
cooperative handlers.
    (b) Two members and an alternate for each member shall be selected 
from nominees submitted by each of the following groups designated in 
paragraphs (b)(1) and (2) of this section, or from among other 
qualified persons belonging to such groups:
    (1) Cooperative handlers; and
    (2) All handlers, other than cooperative handlers.
    (c) One member and an alternate shall be selected from nominees 
submitted by each of the following groups designated in paragraphs 
(c)(1) and (2) of this section, or from among other qualified persons 
belonging to such groups:
    (1) The group of cooperative handlers or the group of handlers 
other than cooperative handlers, whichever received for their account 
more than 50 percent of the almonds delivered by all growers as 
determined by December 31 of the then current crop year; and
    (2) Those growers whose almonds were marketed through the handler 
group identified in paragraph (c)(1) of this section.
    (d) The Secretary, upon recommendation of the Board, or other 
information, may reapportion within the 12-member Board, the number of 
grower members or handler members, or both, of any group listed in 
Sec. 981.31 (a) through (c), to be nominated pursuant to Sec. 981.32. 
Any such change shall be based, insofar as practicable, upon the 
proportionate amounts of almonds handled within any group.
    8. Section 981.32 is amended by revising paragraph (a) and amending 
paragraph (b)(2) by removing the date ``March 31'' and adding in its 
place the date ``December 31'' to read as follows:


Sec. 981.32  Nominations.

    (a) Method. (1) Each year the terms of office of three of the 
members elected pursuant to Section 981.31(a) and (b) shall expire, 
except every third year when the term of office for four of those 
members shall expire. Nominees for each respective member and alternate 
member shall be chosen by ballot delivered to the Board. Nominees 
chosen by the Board in this manner shall be submitted by the Board to 
the Secretary on or before February 20 of each year together with such 
information as the Secretary may require. If a nomination for any Board 
member or alternate is not received by the Secretary on or before 
February 20, the Secretary may select such member or alternate from 
persons belonging to the group to be represented without nomination. 
The Board shall mail to all handlers and growers, other than the 
cooperative(s) of record, the required ballots with all necessary 
voting information including the names of incumbents willing to accept 
renomination, and, to such growers, the name of any person proposed for 
nomination in a petition signed by at least 15 such growers and filed 
with the Board on or before January 20. Distribution of ballots shall 
be announced by press release, furnishing pertinent information on 
balloting, issued by the Board through newspapers and other 
publications having general circulation in the almond producing areas.
    (2) Nominees for the positions described in Sec. 981.31(c) shall be 
handled in the same manner as described in paragraph (a)(1) of this 
section except that those terms of office shall expire annually.
* * * * *
    9. Section 981.33 is revised to read as follows:


Sec. 981.33  Selection and term of office.

    (a) Members and their respective alternates for positions open on 
the Board shall be selected by the Secretary from persons nominated 
pursuant to Sec. 981.32, or, at the discretion of the Secretary, from 
other qualified persons, for a term of office beginning March 1. 
Members and alternates shall continue to serve until their respective 
successors are selected and qualified.
    (b) The term of office of members of the Board shall be for a 
period of three years beginning on March 1 of the years selected except 
where otherwise provided. However, for the initial ten members of the 
Board selected pursuant [[Page 17486]] to this section and to 
paragraphs (a) and (b) of Sec. 981.31, three members shall serve for a 
term of one year; three members shall serve for a term of two years; 
and four members shall serve for a term of three years. For the initial 
terms of office, at the time of nomination under Sec. 981.32, the Board 
shall make this designation by lot. The term of office for the two 
members selected under paragraph (c) of Sec. 981.31 shall always be for 
a period of one year.
    (c) Board members may serve for a total of six consecutive years. 
Members who have served for six consecutive years must leave the Board 
for at least one year before becoming eligible to serve again. A person 
who has served less than six consecutive years on the Board may not be 
nominated to a new three year term if his or her total consecutive 
years on the Board at the end of that new term would exceed six years. 
This limitation on tenure shall not include service on the Board prior 
to implementation of this amendment and shall not apply to alternate 
members.
    10. Section 981.34 is revised to read as follows:


Sec. 981.34  Qualification and acceptance.

    (a) Any person to be selected as a member or alternate of the Board 
shall, prior to such selection, qualify by providing such background 
information as necessary and by advising the Secretary that he/she 
agrees to serve in the position for which nominated. Grower members and 
alternates shall be growers or employees of growers, and handler 
members and alternates shall be handlers or employees of handlers. In 
the event any member or alternate ceases to be qualified for the 
position for which selected, that position shall be deemed vacant.
    (b) The Board, with approval of the Secretary, may establish 
additional eligibility requirements for grower members on the Board.
    11. Section 981.40 is amended by revising paragraphs (b) and (c) 
and amending paragraph (e) by removing the word ``seven'' and adding in 
its place the word ``eight'' to read as follows:


Sec. 981.40  Procedure.

* * * * *
    (b) Quorum. The presence of eight members shall be required to 
constitute a quorum. All decisions of the Board shall be as follows 
except where otherwise specifically provided: 8 or 9 members present, 6 
votes; 10 members present, 7 votes; 11 or 12 members present, 8 votes.
    (c) Voting by mail, telegram or fax. The Board may vote by mail, 
telegram or fax upon written notice to all members, or alternates 
acting in their place, including in the notice a statement of a 
reasonable time, not to exceed 10 days, in which a vote by mail, 
telegram or fax must be received by the Board for counting. Voting by 
mail, telegram or fax shall not be permitted at any assembled meeting 
of the Board. When a proposition is submitted for vote by mail, 
telegram or fax, at least ten members of the Board must vote in favor 
of its passage or the proposition shall be defeated.
* * * * *
    12. In Sec. 981.41, paragraph (c) is amended by removing the colon 
and all text following the words ``15 percent'' in the last sentence 
and adding in its place a period and by amending paragraph (a) by 
adding a sentence at the end of the paragraph to read as follows:


Sec. 981.41  Research and development.

    (a) * * * Notwithstanding the foregoing, certified organic almonds 
may be exempt from assessments for marketing promotion, including paid 
advertising, upon recommendation of the Board and approval of the 
Secretary.
* * * * *
    13. Section 981.47 is amended by designating the existing paragraph 
as (a), removing the words ``either domestic or'' in the third sentence 
of paragraph (a), and adding a new paragraph (b) to read as follows: 
Sec. 981.47 Method of establishing salable and reserve percentages.
* * * * *
    (b) Notwithstanding the provisions of paragraph (a) of this 
section, the Secretary shall exempt from any reserve that is 
established that part of the crop which is sold as ``certified 
organic'' under standards established by the Organic Foods Production 
Act of 1990, (7 U.S.C. 2101 et seq.) and the California Organic Foods 
Act of 1990, as amended. The Board may propose regulations to assure 
procedures to implement this section.
    14. In Sec. 981.49, the introductory paragraph is amended by 
removing the word ``six'' and adding in its place the word ``eight'', 
by removing ``; and'' in paragraph (e) and adding a period in its 
place, by adding ``and'' at the end of paragraph (d); by removing 
paragraph (f) and by revising paragraph (b) to read as follows:


Sec. 981.49  Board estimates and recommendations.

* * * * *
    (b) The estimated handler carryover and the estimated reserve 
inventory as of July 31;
* * * * *


Sec. 981.50  [Amended]

    15. Amend Sec. 981.50 by adding after the words ``into oil'', the 
words ``or sold as certified organic.''
    16. Amend Sec. 981.55 by designating the existing paragraph as (a) 
and adding a new paragraph (b) to read as follows:


Sec. 981.55  Interhandler transfers.

* * * * *
    (b) When saleable and reserve percentages are in effect, any 
handler may transfer reserve withholding obligation to other handlers. 
Terms and conditions implementing this provision must be recommended by 
the Board and approved by the Secretary.
    17. Section 981.60 is amended by revising paragraph (b) to read as 
follows:


Sec. 981.60  Determination of kernel weight.

* * * * *
    (b) Almonds for which settlement is made on unshelled weight. The 
settlement weight for unshelled almonds shall be determined on the 
basis of representative samples of unshelled almonds reduced to shelled 
weight.
    18. Section 981.61 is amended by revising the last sentence to read 
as follows:


Sec. 981.61  Redetermination of kernel weight.

    * * * Weights used in such computations for various classifications 
of almonds shall be:
    (a) For unshelled almonds, the kernelweight based on representative 
samples reduced to shelled weight;
    (b) For shelled almonds, the net weight; and
    (c) For shelled almonds used in production of almond products, the 
net weight of such almonds.


Sec. 981.62  [Removed]

    19. Section 981.62 is removed.


Sec. 981.66  [Amended]

    20. Section 981.66 is amended by removing paragraphs (b) and (d), 
redesignating paragraph (c) as paragraph (b), redesignating paragraph 
(e) as paragraph (c), redesignating paragraphs (f) and (g) as 
paragraphs (d) and (e), and by amending newly designated paragraph (c) 
by removing all references to the date ``September 1'' and adding in 
each place ``December 31''.


Sec. 981.67  [Amended]

    21. Section 981.67 is amended by removing all references to the 
date ``September 1'' and adding in each place ``December 31''.
    22. Section 981.70 is amended by revising the first sentence to 
read as follows: [[Page 17487]] 


Sec. 981.70  Records and verification.

    Each handler shall keep records which will clearly show the details 
of his or her receipts of almonds, withholdings, sales, shipments, 
inventories, reserve disposition, advertising and promotion activities, 
as well as other pertinent information regarding his or her operation 
pursuant to the provisions of this part: Provided, that, such records 
shall be kept in the State of California. * * *
    23. A new Sec. 981.76 is added before the undesignated center 
heading ``Expenses and Assessments'' to read as follows:


Sec. 981.76  Handler List of Growers.

    No later than December 31 of each crop year, each handler other 
than a cooperative handler (hereinafter, referred to as independent 
handler) governed by this subpart shall, upon request, submit to the 
Board a complete list of growers who have delivered almonds to such 
independent handler during that crop year.
    24. Section 981.81 is amended by adding a new paragraph (e) to read 
as follows:


Sec. 981.81  Assessment.

* * * * *
    (e) Any assessment not paid by a handler within a period of time 
prescribed by the Board may be subject to an interest or late payment 
charge or both. The period of time, rate of interest and late payment 
charge shall be as recommended by the Board and approved by the 
Secretary. Subsequent to such approval, all assessments not paid within 
the prescribed period of time shall be subject to an interest or late 
payment charge or both.
    25. Section 981.90 is amended redesignating paragraph (b)(2) and 
(b)(3) as paragraphs (b)(3) and (b)(4) and by amending newly designated 
paragraph (b)(3) by removing the date ``June 1'' and adding in its 
place ``July 1'' and adding a new (b)(2), to read as follows:


Sec. 981.90  Effective time, suspension, or termination.

* * * * *
    (b) * * *
    (2) The Secretary shall conduct a referendum as soon as practical 
after the end of the fiscal year ending two years after implementation 
of this amendment, and at such time every fifth year thereafter, to 
ascertain whether continuation of the order is favored by growers who 
have been engaged in the production of almonds for market within the 
State of California during the current crop year.
* * * * *


Sec. 981.467  [Amended]

    26. In Sec. 981.467, paragraph (a) is amended by removing the date 
``July 1'' and adding in its place ``August 1'' and by removing the 
words ``export or'' and ``or both,'' from the second sentence in 
paragraph (a).


Sec. 981.462  [Amended]

    27. In Sec. 981.472, paragraph (a) is amended by removing the dates 
``July 1 to August 31'' and adding in its place ``August 1 to August 
31.''

    Dated: March 22, 1995.
Lon Hatamiya,
Administrator.
[FR Doc. 95-8205 Filed 4-5-95; 8:45 am]
BILLING CODE 3410-02-P