[Federal Register: August 4, 2003 (Volume 68, Number 149)]
[Proposed Rule]
[Page 45989-46033]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04au03-15]
[[Page 45989]]
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Part III
Department of Agriculture
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Agricultural Marketing Service
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7 CFR Part 983
Pistachios Grown in California; Recommended Decision and Opportunity To
File Written Exceptions to Proposed Marketing Agreement and Order No.
983; Proposed Rule
[[Page 45990]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 983
[Docket No. AO-F&V-983-2; FV02-983-01]
Pistachios Grown in California; Recommended Decision and
Opportunity To File Written Exceptions to Proposed Marketing Agreement
and Order No. 983
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule and opportunity to file exceptions.
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SUMMARY: This recommended decision proposes the issuance of a marketing
agreement and order (order) for pistachios grown in California. The
proposed order would set standards for the quality of pistachios
produced and handled in California by establishing a maximum aflatoxin
tolerance level, maximum limits for defects, a minimum size
requirement, and mandatory inspection and certification. An eleven-
member committee, consisting of eight producers, two handlers, and one
public member, would locally administer the program. The program would
be financed by assessments on handlers of pistachios grown in the
production area. The objective of the program would be to enhance
grower returns through the delivery of higher-quality pistachios to
consumers. This rule also announces the Agricultural Marketing
Service's intention to request approval by the Office of Management and
Budget of new information collection requirements to implement this
program.
DATES: Written exceptions must be filed by September 3, 2003. Pursuant
to the Paperwork Reduction Act, comments on the information collection
burden must be received by October 3, 2003.
ADDRESS: Four copies of all written exceptions should be filed with the
Hearing Clerk, U.S. Department of Agriculture, room 1081-S, Washington,
DC 20250-9200, Facsimile number (202) 720-9776. All comments should
reference the docket number and the date and page number of this issue
of the Federal Register. Comments will be made available for public
inspection in the Office of the Hearing Clerk during regular business
hours, or can be viewed at: http://www.ams.usda.gov/fv/moab.html.
FOR FURTHER INFORMATION CONTACT: Melissa Schmaedick, Marketing Order
Administration Branch, Fruit and Vegetable Programs, Agricultural
Marketing Service, USDA, Post Office Box 1035, Moab, UT 84532,
telephone: (435) 259-7988, fax: (435) 259-4945; or Anne M. Dec,
Marketing Order Administration Branch, Fruit and Vegetable Programs,
AMS, USDA, 1400 Independence Avenue SW., Stop 0237, Washington, DC
20250-0237; telephone: (202) 720-2491, fax: (202) 720-8938. Small
businesses may request information on this proceeding by contacting Jay
Guerber, Marketing Order Administration Branch, Fruit and Vegetable
Programs, AMS, USDA, 1400 Independence Avenue SW., Stop 0237,
Washington, DC 20250-0237; telephone: (202) 720-2491, fax: (202) 720-
8938.
SUPPLEMENTARY INFORMATION: Prior documents in this proceeding: Notice
of Hearing issued on June 19, 2002, and published in the June 26, 2002,
issue of the Federal Register (67 FR 43045).
This action is governed by the provisions of sections 556 and 557
of title 5 of the United States Code and is therefore 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 marketing agreement
and order regulating the handling of pistachios grown in California,
and the opportunity to file written exceptions thereto. Copies of this
decision can be obtained from Melissa Schmaedick, whose address is
listed above.
This recommended decision 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 marketing agreement and order are based on the record
of a public hearing held July 23-25, 2002, in Fresno, California. The
hearing was held to receive evidence on the proposed marketing order
from producers, handlers, and other interested parties located
throughout the proposed production area. Notice of this hearing was
published in the Federal Register on June 26, 2002.
This proposal is the result of nearly three years of efforts
undertaken by the Proponents Committee (proponents), a group
representing the majority of producers and handlers of pistachios in
California. The Proponents Committee was established in 2000 as a
result of renewed industry interest in a Federal marketing order.
An earlier attempt to establish a Federal marketing order in 1996
on behalf of the pistachio industry by the California Pistachio
Commission (CPC or Commission) and the Western Pistachio Association
(Association) was terminated in 2000 due to a lack of industry support
for certain proposed provisions. The current proposal is different from
that which was previously proposed since many controversial issues have
either been removed or resolved through more exacting specifications in
the proposed order. The Proponents Committee is independent of the
Commission and the Association.
Witnesses at the hearing explained that the provisions of this
proposal aim to provide the California pistachio industry with a tool
to regulate the quality of pistachios handled in California. This would
include preventing pistachios containing aflatoxin above the proposed
permitted maximum tolerance level of 15 parts per billion (ppb) from
entering the market place. The proposed order would also preclude
defective and small pistachios from being sold. Under the proposed
order, testing and certification of pistachios for quality (including
aflatoxin) would be mandatory. A mandatory regulatory program would
provide the industry with an effective means of ensuring product
quality, thereby enhancing customer satisfaction.
At the conclusion of the hearing, the Administrative Law Judge
fixed September 23, 2002, as the final date for interested persons to
file proposed findings and conclusions or written arguments and briefs
based on the evidence received at the hearing. One brief was filed on
behalf of the Proponents Committee in support of the proposed program
and its provisions. The brief also recommended certain changes in the
regulatory text of the proposed order as a result of the public hearing
held in Fresno, California from July 25 through July 27, 2002. These
changes are discussed as appropriate later in this document.
Material Issues
The material issues presented on the record of hearing are as
follows:
1. Whether the handling of pistachios produced in the production
area is in the current of interstate or foreign commerce or directly
burdens, obstructs, or affects such commerce;
2. Whether the economic and marketing conditions are such that they
justify a need for a Federal marketing agreement and order which would
tend
[[Page 45991]]
to effectuate the declared policy of the Act;
3. What the definition of the production area and the commodity to
be covered by the order should be;
4. What the identity of the persons and the marketing transactions
to be regulated should be;
5. What the specific terms and provisions of the order should be,
including:
(a) The definitions of terms used therein which are necessary and
incidental to attain the declared objectives and policy of the Act and
order;
(b) The establishment, composition, maintenance, procedures, powers
and duties of an administrative committee for pistachios that would be
the local administrative agency for assisting USDA in the
administration of the order;
(c) The authority to incur expenses and the procedure to levy
assessments on handlers to obtain revenue for paying such expenses;
(d) The establishment of mandatory inspection and certification for
aflatoxin, quality and size requirements for California pistachios;
(e) The establishment of requirements for handler reporting and
recordkeeping;
(f) The requirement for compliance with all provisions of the order
and with any regulations issued under it;
(g) The requirement for periodic continuance referenda;
(h) An exemption for handlers of non-commercial quantities of
pistachios;
(i) Coordination of administration with the California Pistachio
Commission program;
(j) Additional terms and conditions as set forth in Sec. 983.59
through Sec. 983.69 of the Notice of Hearing published in the Federal
Register of June 26, 2002, which are common to all marketing agreements
and orders, and other terms and conditions published at Sec. 983.90
through Sec. 983.92 that are common to marketing agreements only; and
6. Whether the proposed marketing order and its provisions, if
approved in grower referendum, should be implemented in two phases.
Findings and Conclusions
The following findings and conclusions on the material issues are
based on the record of the hearing.
Material Issue Number 1--Whether the Handling of California Pistachios
is in the Current of Interstate or Foreign Commerce
The record indicates that the handling of pistachios grown in
California is in the current of interstate or foreign commerce or
directly burdens, obstructs or affects such commerce.
Witnesses testifying at the hearing stated that over 97 percent of
the pistachios produced in the United States are grown in California
orchards. There are minor amounts of commercial plantings in eastern
Arizona and New Mexico. However, it is estimated that these States
account for only 2 and less than 1 percent of national production,
respectively.
The record shows that domestic consumption of California pistachios
is well established, with the U.S. market representing an estimated 70
percent of total production distributed in 1999-2000. Pistachios grown
in the proposed production area are shipped throughout the United
States, and the California industry, through the Commission, conducts a
national promotion program for its product.
The record also shows that export markets are increasingly
important to California producers and handlers. About 30 percent of the
crop is sold in foreign markets in more than 40 countries. According to
the 2000-2001 CPC Annual Report, Germany, Japan, Canada and Hong Kong
are California's largest pistachio export destinations. Exports to
Germany alone accounted for 20 percent of total inshell pistachio
exports in 1999-2000.
Evidence presented at the hearing confirmed that any handling of
California pistachios in market channels, including intrastate
shipments, exerts an influence on all other handling of such
pistachios. Thus, it is concluded that the handling of pistachios grown
in the proposed production area is in the current of interstate and
foreign commerce and directly affects such commerce.
Material Issue Number 2--The Need for a Pistachio Marketing Order
The record evidence demonstrates that there is a need for a
marketing order for California pistachios.
Farming pistachios is a costly investment with a significant delay
in benefits and an unreliable crop yield. Increasing yields have led to
an increasing overall value of California pistachio production.
However, to remain economically viable, producers must maintain a level
of return per pound harvested that covers their cost of production.
Witnesses of the proposed order assert that maintaining a high level of
quality product in the market will lead to increasing consumer demand
and stability in producer returns.
Poor quality pistachios impact demand, and the potential growth of
demand, for pistachios. Characteristics routinely deemed as ``poor
quality'' by customers of the California pistachio industry include
small size, and excessive internal and external blemishes. Market
studies and references to customer comment databases presented by
witnesses at the hearing demonstrate that the presence of poor quality
pistachios in the marketplace significantly impacts demand in a
negative way.
According to record evidence, minimizing the level of aflatoxin in
California pistachios is another significant quality factor, since
aflatoxin is a known carcinogenic. Consumer concerns over aflatoxin can
impact their perception of the quality of pistachios, and therefore
negatively impact demand. Moreover, any market disturbances related to
aflatoxin in pistachios, regardless of the origin of those pistachios,
could have a detrimental effect on the California pistachio industry. A
regulatory program limiting the amount of aflatoxin tolerated in
pistachios would be useful to bolster consumer confidence in the
quality of California pistachios.
Pistachio acreage has consistently increased in California, from
just over 20,000 bearing acres in 1979 to 78,000 bearing acres in 2001.
The number of non-bearing acres (i.e., acres less than 7 years old, not
yet in full production) has also shown consistent growth, increasing
from 17,062 acres in 1997 to 23,500 acres in 2001. Yield per acre has
also been steadily rising. Over the 1976-1980 period, average yield per
bearing acre measured 1,097 pounds; by 1996-2000, this average
increased to 2,418 pounds.
Higher yields and increasing acreage have resulted in increasing
production. According to information submitted by the California
Pistachio Commission, production in 2000 totaled 242 million pounds, a
64 percent increase over 1995 production, which totaled 148 million
pounds. Moreover, witnesses at the hearing indicated that maturing
acreage, absent any additional new plantings, will likely result in a
60 percent increase in California pistachio production over the coming
years.
Several witnesses at the hearing testified that, in light of
increasing production, future stability of market returns is reliant on
continually increasing consumer demand for pistachios. These witnesses
stated that strong consumer demand, which is ultimately related to
consumer perceptions of product quality, is
[[Page 45992]]
essential to the continued economic well-being of the California
pistachio industry. Moreover, witnesses discussed the importance of
implementing a marketing order program that would provide a regulatory
structure to monitor and ensure that minimum quality standards are not
compromised as production of California pistachios increases. One of
the most important quality characteristics cited by witnesses is the
regulation of aflatoxins as these carcinogenic molds can be found in
improperly handled pistachios.
The proposed order would set quality standards for pistachios
produced and handled in California by establishing a maximum aflatoxin
tolerance level, maximum limits for defects, a minimum size
requirement, and mandatory inspection and certification. Witnesses of
the proposed marketing order argued that this regulatory program would
bolster consumer demand for pistachios.
The relationship among product quality, consumer demand, and
producer returns in the pistachio industry was demonstrated at the
hearing. Pistachio production is not only costly in terms of initial
investment and cultural costs, but it is highly unpredictable in terms
of returns. Between the initial processes of cleaning, hulling, sorting
and drying, a significant portion of the initial volume harvested is
reduced. This volume is further reduced as the handling process reaches
its final stages of further sorting for quality and final preparation
for market. As such, witnesses explained that ultimate pistachio sales
are based on approximately 30 percent of the volume initially harvested
from the field. Because of this, witnesses stated that the process of
extracting the highest quality portion of the harvest, and ensuring
consumer satisfaction with that product, is crucial to determining the
value of the crop.
Pistachio production is similar to other nut crops in that yield
and total production are impacted by the alternate bearing nature of
pistachio trees (meaning cyclical high and low production years). In
addition, producer returns and total crop value are dependent on the
overall quality of the crop. One example is the percentage of harvest
that is either ``open shell'' or ``closed shell.'' Each harvest yields
a certain percentage of nuts that have not naturally opened prior to
harvest. These nuts are classified as ``closed shell,'' ``shelling
stock'' or ``non-splits,'' and have a lower market value than those
nuts that are naturally split, or ``open shell.'' As the percentage of
open-shells varies, the total value of production can change
significantly from one year to the next.
Total value and value per acre are generally higher in high
yielding years. An economic analysis of the California pistachio
industry presented at the hearing by Dr. Dan Sumner of the University
of California, Davis, indicates that trends for total crop value and
value per bearing acre have been increasing over the past 20 years. In
1980, the total value of the pistachio crop in California was $55.8
million. By 2000, total crop value had increased more than four-fold,
reaching $236.72 million. These gains are attributed to increases in
both total pistachio producing acreage and yield per acre. Average
value per bearing acre increased from $1,642 per acre in 1980-1984 to
$2,658 per acre in 1996-2000.
Conversely, grower return per pound is generally higher in low
yielding years. According to CPC historical price data, price per pound
has gradually decreased over the past 20 years, ranging from a high of
$2.05 per pound in 1980 to a low of $0.98 per pound in 2000. Thus, in
terms of current producer ability to reconcile production costs with
receipts, yield per acre must be sufficiently high to compensate for
low returns in price per pound. According to the record, the proposed
order would assist in stabilizing, if not increasing, producer returns
for pistachios. The quality requirements proposed herein would not only
assist in fortifying consumer demand by ensuring consumer satisfaction
with product quality, but mandatory quality standards would also boost
domestic prices by culling poor product, which tends to have price-
depressing effects, from the market.
The record evidence is that total costs of production can be
divided into three categories: the costs of orchard establishment,
cultural costs and administrative costs. Establishment costs, or the
overall cost to develop an acre of pistachios until revenues exceed
growing expenses, are estimated at between $10,000 and $15,000, with an
average tree maturation period of 7 years. In order to recover these
investment costs, the hearing record indicates that producers generally
target an 11 per cent return on investment, estimated at between $1,100
and $1,650 per acre. Annual per acre cultural costs average between
$1,100 and $1,600, once the trees are productive. Administrative costs
include the cost of farm management and crop financing, and range from
$150 to $200 per acre.
Given the cost estimates above, a producer would need to harvest an
average of 2,000 pounds per acre to cover total production costs. This
calculation assumes an average field price of $1.25 per pound, which is
based on 24 years of CPC crop value statistics. For example, minimum
estimated cultural costs plus administrative costs and an 11 percent
return on investment results in a minimum total production cost of
$2,350 per acre per year. Total production costs less the targeted 11
percent return on investment equals $1,250 per acre, or an average
harvest of 1,000 pounds per acre to cover production costs without a
return on investment.
While the CPC 2002 Annual Report indicates a State average of
$2,619 per acre in gross receipts over the last four years, 1998-2001
CPC yield per acre information reveals that only 6 out of 26 California
counties with pistachio production yield on average more than 2,000
pounds per acre. These counties include Colusa, Sutter, Madera, Fresno,
Kings and Kern, and together represent over 88 percent of total
California pistachio production between the years 1998 to 2001. Glenn,
Butte, Placer, Yolo, Contra Costa, San Joaquin, Calaveras, Stanislaus,
Merced, Tulare and Santa Barbara counties yield on average between
1,000 to 2,000 pounds per acre and represent roughly 12 percent of
total State production. Shasta, Tehama, Yuba, Solano, Sacramento, San
Luis Obispo, Los Angeles, San Bernardino and Riverside counties yield
on average less than 1,000 pounds per acre and represent less than one
percent of California pistachio production.
Given the assumptions made above, approximately 88 percent of the
industry is covering total costs of production. Conversely, roughly 12
percent of the industry is currently covering cultural costs but not
generating a return on their investment.
In 1996, high levels of aflatoxin were detected in foreign
pistachios imported into the European Union (EU). Publicity about the
presence of aflatoxin at high levels first led to a total ban on
imports and has since reduced the number of pistachios imported from
all sources into the EU by 45 percent. In Germany the drop was 60
percent, and by 2000 imports were still only 53 percent of 1997 levels.
Witnesses testifying at the hearing used this case of pistachios
contaminated with aflatoxin, and the subsequent damage to consumer
confidence and demand for pistachios in the EU, to demonstrate the
industry's need to safeguard against similar findings in California
pistachios. According to those who testified, mandatory inspection and
certification
[[Page 45993]]
against high levels of aflatoxin would be the most effective means of
preventing such an event with pistachios handled in California.
Similarly, witnesses stressed the need to have a mandatory
regulatory system in place in the event that aflatoxin were found in
non-California pistachios, but were to universally impact the demand of
all pistachios, regardless of origin. If such an event were to occur,
witnesses of the order stressed the usefulness of having a federally
regulated program for aflatoxin in order to maintain consumer
confidence with regard to California pistachios.
Evidence presented at the hearing supports a Federal marketing
order for pistachios grown in California. In view of the foregoing, and
based on the record of the proceeding, it is concluded that current
economic and marketing conditions justify a need for a marketing order
for California pistachios. The order would meet many needs of the
industry and would tend to effectuate the declared policy of the Act.
Material Issue Number 3--Definition of Pistachio and Production Area
Definitions of the terms ``pistachio'' and ``production area''
should be included in the order to delineate the commodity and the area
that would be regulated under the provisions of the proposed program.
``Pistachio'' should be defined to mean the nut or nuts of the
pistachio tree, genus Pistacia Vera. The term ``pistachio'' would cover
all fruits of the Pistcaia Vera grown in the production area, whether
inshell or shelled. Pistachios grown outside the production area would
not be covered by the proposed order.
Record evidence explains that the pistachio nut is the seed of a
semidry drupaceous fruit, or stone fruit, much like peaches and mangos.
However, while peach flesh is eaten and the seed discarded, the
opposite is true of the pistachio; the flesh or ``hull'' is discarded
and the seed, once it has been freed from protection of the thin, bony
shell, is eaten.
Pistachio development starts with a seedling being grown in a pot
in a nursery for nearly two years. The seedlings are then transplanted
into the field at a rate of 130 to 160 seedlings per acre, usually in
January or February when the seedlings are dormant. Toward the end of
the first growing season these seedlings are then grafted or budded in
the field to Pistacia Vera, both male and female. The pistachio tree is
dioecious, meaning there are both ``male'' and ``female'' trees, and is
pollinated by the wind. The typical California pistachio orchard
requires one male tree for every 8-24 females.
Pistachio trees typically require six years of maturation after
budding to produce a commercial crop. During the maturation period,
young trees require considerable care, including yearly pruning,
irrigation, fertilizer application and pest control, thus contributing
to the considerable investment costs of establishing a pistachio
orchard. Harvest of a tree's first commercial-sized crop typically
occurs in the tree's seventh year. The crop and tree continue to grow
in size for another seven to eight years until the tree is considered
fully mature and has reached a height of approximately 25 to 30 feet.
Pistachio trees require a significant dormant period, currently
estimated to be 800 hours below 45[deg]F, followed by long, hot, dry
summers. The trees are pruned during dormancy, and once they bloom, in
late March or early April, they need to be irrigated, fertilized and
treated for various pests during the rest of the year. The major input
is usually water, as each acre requires approximately 36'' of water to
be applied during the growing season if the trees are to produce a full
crop.
Currently there is no consensus as to the useful commercial life of
a tree. Pistachio trees in the Middle East have lived for thousands of
years. Trees appear to be long lived in California, although producers
must replace 2 to 3 percent of their trees that die from disease or
other causes every year. The overall cost to develop an acre of
pistachios until revenues exceed growing expenses is between $10,000
and $15,000 per acre, and does not differ significantly due to the size
of the planting.
The term ``production area'' should be defined to mean the State of
California. The record shows that the production area defined in the
proposed order is the major pistachio producing area in the United
States.
Witnesses testifying at the hearing stated that over 97 percent of
the pistachios produced in the United States are grown in California
orchards. Production is concentrated in six counties in the San Joaquin
Valley, in the central part of the State. However, commercial
production is reported in an additional 20 counties throughout
California. While there are some counties in the State in which no
pistachios are currently produced, witnesses testified that the
production area should be defined to allow for coverage of any new
pistachio development outside current plantings within California.
Witnesses also proposed coverage of the entire State because the
industry (through the California Pistachio Commission) finances
national and international promotion programs to expand demand for
California pistachios. Thus, buyers of California pistachios consider
the entire State to be the pistachio producing area.
While the proposed Federal order and the State commission would
operate independently of each other, witnesses testified that the
quality assurance standards implemented under the proposed order would
complement the promotion activities undertaken by the Commission. Thus,
they believed that having the two programs would benefit the California
pistachio industry.
Record evidence indicates that there are minor amounts of
commercial plantings in eastern Arizona and New Mexico. However, it is
estimated that these states produce only 2 and less than one percent of
national production, respectively.
Witnesses explained that Arizona and New Mexico had been considered
as part of the production area during the initial stages of drafting
the proposed order. According to record testimony, although there is
some interest in the proposed marketing order among Arizona and New
Mexico pistachio producers, support in those States is not strong
enough to warrant including them in the proposed production area.
Record evidence also indicates that pistachios produced in Arizona
and New Mexico are mainly consumed within the respective State
boundaries and have a relatively limited presence in national and
international markets. Moreover, acreage in both States is neither
increasing, nor is it expected to increase in the future, as climate
factors limit the growth potential of existing pistachio orchards.
Pistachio production from these States is not considered to represent a
significant portion of total domestic production. It is also unlikely
that Arizona and New Mexico pistachios will hold a significant presence
in domestic and international markets in the future.
Lastly, information presented at the hearing indicates that
California nurserymen have sold a limited amount of pistachio trees
into other western states, such as Nevada, Utah and Texas, but there is
no known significant commercial production in these States. Production
from these States is not believed to enter into the current of
interstate commerce.
The Act requires that marketing orders be limited in their
application to the smallest regional production area found practicable.
For the reasons given
[[Page 45994]]
above, it is concluded that covering pistachios grown in California
(and not those grown in other States) under the proposed order is
consistent with carrying out the declared policy of the Act and,
therefore, the production area should be defined as hereinafter set
forth.
Material Issue Number 4--Definition of Handler and Handle
The term ``handler'' should be defined to identify the persons who
would be subject to regulation under the order. Such term should apply
to any person who handles pistachios within the production area, or
places pistachios in the current of commerce within the production
area, or in the current of commerce between the production area and any
point outside thereof. A handler could be an individual, a joint
venture, partnership, corporation, or other business entity.
The definition of ``handler'' identifies persons who would be
responsible for meeting the requirements of the order, including paying
assessments, complying with testing and certification provisions of the
order, and submitting reports and other information required for the
administration of the proposed program. The term is also used to
identify those persons who are eligible to vote for, and serve as,
handler members and alternate members on the committee.
The term ``handle'' should be defined in the order to establish the
specific functions that would place pistachios in the current of
commerce within the production area, or between the production area and
any point outside thereof, and to provide a basis for determining which
functions are subject to regulation under the authority of the proposed
marketing order.
``Handle'' should be defined to mean engaging in: (a) Receiving
pistachios, (b) hulling and drying pistachios, (c) further preparing
pistachios by sorting, sizing, shelling, roasting, cleaning, salting,
and/or packaging for marketing in or transporting to any and all
markets in interstate or foreign commerce, and (d) placing pistachios
into the current of commerce between the production area and any point
outside that area.
The record evidence is that the handling of pistachios is a multi-
step process. Witnesses described the harvest and initial processing
(hulling and drying) of pistachios as an intense period of activity,
typically beginning in early September, when the pistachio nuts are
mature, and lasting for a period of 20 to 30 days.
The trees are deemed ready for harvest when the ``hull'' slips on
the shell when pressure is applied. By this time, approximately 75
percent of the nuts have naturally ``split,'' meaning that the shell
has naturally opened to give its characteristic ``open mouth''
appearance. This splitting of the shell typically will not be apparent,
as the hull or outer layer remains intact, protecting the kernel from
fungal infection and insect infestation. The hulls of some pistachios,
however, may split, thereby revealing the tender pistachio nut inside.
These pistachios, referred to as ``early splits,'' are more prone to
mold or insect infestation.
The balance of the pistachio harvest has not naturally opened.
These are referred to as ``closed shell'' or ``non-split'' pistachios.
According to record testimony, pistachios must be rapidly harvested
when mature in order to prevent insect infestation and staining of the
shell, and to avoid difficulty of handling an overripe product. During
the harvest process, each tree is mechanically shaken to cause the
pistachio nuts to fall into a catching frame. This method of harvesting
allows the California pistachio industry to harvest pistachios without
the nuts having to touch the ground, thereby avoiding possible
contamination from soil-borne molds or insects. The nuts are then
dumped from the catching frames into bins or trucks and readied for
transport to the handler.
The nuts, which contain a significant amount of moisture when
harvested, must arrive at the handling facility as soon as possible
after harvest. If the nuts are not hulled within 24 hours of their
removal from the tree, staining of the outer shell occurs, and this is
considered detrimental in the marketplace. Due to the short harvest
period and the significant investment in equipment at the handling
facility, witnesses explained that pistachio harvest will typically
take place 24 hours a day 7 days a week until harvest is complete.
At the handling facility, the nuts are weighed and emptied from the
trailers. As the emptying of bins or trucks takes place, usually
through bottom dump trailers into a pit, the nuts are sampled. This
sampling of wet product is used to determine the quality and payable
weight of the nuts being delivered.
Once the nuts have been sampled and the trash (i.e., leaves, twigs,
etc.) has been removed, the hull or the outer layer covering the shell
is removed by equipment that resembles large potato peelers. Once
hulled, the pistachios are then moved through various dewatering
devices prior to entering a dryer. Some handlers do some initial
quality sorting between hulling and drying, but this is not universal.
The nuts are then dried in high-powered dryers to about 14 percent
moisture. After drying, they are placed in storage in containers that
vary from 500-pound bins to 1,000,000-pound silos. During the initial
phase of storage, the nuts continue to be dried by air circulation, to
get them down to a safe, long-term storage moisture content of around 6
percent. At this stage, the nuts are stable and can remain in storage
for up to two years.
The sample taken at delivery is processed like the rest of the
nuts, i.e., the trash is removed and the nuts in the sample are hulled
and then dried before sorting. An assessment of the quality of the
sample is then made. The assessment may include such things as a
determination of the percentage of naturally split nuts, the color of
the shells, and the amount of insect infestation (if any). This
delivery sample may be used to determine payment to the producer, and
to give the handler some idea of the characteristics of the crop he or
she has to process.
The record shows that producers often commit their nuts to more
than one handler. The normal practice in the industry is to have
contracts between producers and handlers, many of them multi-year and
often with premiums for quality. Many of the contracts also have
minimum prices. Apart from this minimum price, the producer often does
not know what final price he/she will receive for the pistachios. The
handler makes interim payments throughout the year culminating in a
final payment, usually in August following the previous September's
harvest. The amount paid by the handler will depend in large part on
the price that he or she obtained for the processed crop, and the costs
of handling the pistachios.
When the nuts are removed from storage, the nuts are sorted, sized,
graded and mechanically separated into open and closed shell product.
These activities can take place in different sequences and the process
varies among handling facilities. As part of this process, a
considerable amount of trash, bad nuts, loose shells, etc., are removed
from the product stream. At this stage, the nuts may be ready for
market. However, some California pistachios are then roasted and salted
by the handler prior to being placed in consumer or industrial size
packages to be marketed.
Once the nuts have been roasted and salted, their shelf life is
reduced as they can become rancid or stale, and they need to be stored
at temperatures approximating 35 degrees Fahrenheit in order to remain
completely stable. If they are not placed in cold storage, they
[[Page 45995]]
have a shelf life of approximately nine months.
The record shows that all of these activities, from initial receipt
of the pistachios at the handling facility, to final packaging of the
product, should be included in the definition of ``handle.'' These
activities were identified as those necessary to prepare pistachios for
entering the stream of commerce and, as such, should be included in the
definition of the process which makes a person a ``handler,'' and,
thus, subject to regulation under the proposed order.
In addition, the hearing record indicates that placing California
pistachios into the current of commerce from within the production area
to points outside thereof for the purpose of hulling and drying, or
further processing would also constitute handling. In such cases, the
individual responsible for placing California pistachios into the
current of commerce would be considered a handler and would be subject
to the provisions of the proposed order.
USDA recommends adding a paragraph (d) to Sec. 983.14 of the
proposed order as it appeared in the Notice of Hearing. To clarify the
definition of ``handle,'' the following language is proposed to be
added: ``Placing California pistachios into the current of commerce
from within the production area to points outside thereof.''
According to the record, the acts of transporting pistachios from a
producer's orchard to a processing plant within the production area and
of transporting pistachios between handlers within the production area
should be excluded from the definition of ``handle.''
The transportation of pistachios from the orchard to the handling
facility is typically either performed by the producer him or her self,
or contracted out to third parties. Given that neither the producer nor
the contract hauler would be engaged in the process of preparing
pistachios for market in this capacity, their activities should be
excluded from those considered as part of ``handling.''
Similarly, witnesses stated that pistachios are customarily traded
among handlers, and that this activity should not be considered part of
the definition of ``handling.'' Trade among handlers predominantly
occurs as a means for individual handlers to buy or sell surplus
pistachios and to meet the demands of their respective customers.
Witnesses also explained that some handlers are better equipped to
handle pistachios that present processing problems. For example,
pistachios requiring re-working to meet industry quality standards may
be transferred from one handler to another for more efficient
processing.
The record evidence is that most producers do not handle their own
pistachios. However, a producer would become a handler if the producer
performs any handling functions. For example, a producer that hulls and
dries pistachios before shipment for further preparation for marketing
would be considered a handler. Once a producer becomes a handler, he or
she would be subject to the proposed order provisions.
Material Issue Number 5(a)--Other Definitions
(a) Certain terms should be defined for the purpose of specifically
designating their applicability and limitations whenever they are used
in the order.
``Accredited laboratory'' should be defined to mean a USDA
laboratory or any other laboratory that has been approved or accredited
by the U.S. Department of Agriculture for testing aflatoxin in
pistachios. Witnesses testified that the aflatoxin testing and
certification provisions of the proposed order are key components of
the quality control program deemed necessary by the California
pistachio industry. In order for the testing and certification process
to be credible, the order should provide that the laboratories
performing these functions must be accredited or approved by USDA.
``Act'' should be defined as the Agricultural Marketing Agreement
Act of 1937, as amended (7 U.S.C. 601-674). This is the statute under
which the proposed regulatory program would be operative, and this
definition avoids the need to refer to the citation throughout the
order.
According to record evidence, ``affiliation'' should be defined, as
it is important within the context of proposed eligibility requirements
for committee members and their alternates. Witnesses testified that
``affiliation'' should be defined to mean a person who is: (1) A
producer or handler that directly or indirectly, through one or more
intermediaries, owns or controls, or is controlled by or is under
common control with the producer or handler specified; or, (2) a
producer or handler who directly or indirectly through one or more
intermediaries, is connected in a proprietary capacity or shares the
ownership or control of the specified producer or handler with one or
more other producers or handlers.
According to the hearing record, the term ``control'' should be
further defined to mean ``the possession, direct or indirect, of the
power to direct or cause the direction of the management of policies of
a handler or a producer whether through voting securities, membership
in a cooperative, by contract or otherwise.''
Witnesses explained that this definition of ``affiliation'' is
proposed to ensure that persons who are in business together as
handlers or producers are limited in their representation on the
administrative committee. Further discussion of affiliation and its
intended use under the provisions of the proposed order appears under
material issue 5(b), the establishment of an agency to locally
administer the order.
``Aflatoxin'' should be defined as one of the several carcinogenic
mycotoxins produced by naturally occurring molds. Aflatoxin can be
found, and can spread, in improperly processed and stored nuts, dried
fruits and grains. According to information presented at the hearing,
this group of fungal toxins is produced by the molds Aspergillus flavus
and Aspergillus parasiticus. Aflatoxin is a known carcinogen and
potential contaminant for pistachios.
Proposed Sec. 983.38 sets forth a maximum aflatoxin level of 15
parts per billion (ppb) for California pistachios. This threshold was
substantiated by testimony from experts in the field of aflatoxin and
food contaminants, and is further discussed under material issue 5(d).
``Aflatoxin inspection certificate'' should be defined to mean a
certificate issued by a laboratory that is accredited or approved by
USDA to indicate that a lot of pistachios was tested for and met the
aflatoxin quality requirements proposed in this order. In particular,
an ``aflatoxin inspection certificate'' would indicate that the
pistachios have been tested for aflatoxin and the aflatoxin in the
nuts, if any, did not exceed a level of 15 ppb. Under the provisions of
this proposed order, no handler could ship pistachios for domestic
human consumption that exceed an aflatoxin level of 15 ppb. Witnesses
explained that any handler placing California pistachios into the
stream of domestic commerce for the purpose of human consumption would
be required to obtain an aflatoxin inspection certificate for each lot
of pistachios handled. Aflatoxin certificates would also be important
for committee record-keeping and auditing responsibilities with regard
to local administration of the order.
``Assessed weight'' should be defined to mean the weight of all
pistachios,
[[Page 45996]]
clear of debris, hulled and measured at 5 percent moisture, that are
received for processing by a handler within each production year.
Calculation of the assessed weight would be based on the weight of the
pistachios received from the field. As the handler receives pistachios,
a delivery sample would be taken, and the nuts in that sample cleaned,
hulled and dried to 5 percent moisture content. The actual weight of
the pistachios received would then be adjusted to reflect the
characteristics of the delivery sample and its final weight when dried
to 5 percent moisture content. According to the record, the 5 percent
moisture content is an industry standard used by all handlers.
In calculating the ``assessed weight'' for loose kernels, witnesses
explained that the calculation method proposed in the order reflects
current industry practices. To determine the weight of the kernels
without shells, the weight of the kernel would be multiplied by two as
it is generally accepted that the shell accounts for approximately half
of the weight of a whole pistachio nut.
Witnesses also explained that assessments placed on pistachio
handlers would be based on the volume of pistachios received by each
handler for processing during a production year. Hence, the term
``assessed weight'' is essential to the committee's assessment
collection. This term is further discussed in connection with proposed
Sec. 983.53, ``Assessments.''
The definition contained in the Notice of Hearing defined assessed
weight as ``* * * edible inshell pistachios received for processing by
a handler * * * .'' USDA recommends deleting the word ``edible'' from
the definition. This would correct a conflict between the Notice of
Hearing definition of ``assessed weight'' and the proposed definition
of ``edible pistachios,'' Sec. 983.13. The definition proposed under
Sec. 983.13, discussed later in this document, states that edible
pistachios are pistachios that do not exceed aflatoxin and other
quality provisions of the order described under Sec. Sec. 983.38 and
983.39. Pistachios received from the field for processing by the
handler have yet to be tested and certified as having met the proposed
provisions of Sec. Sec. 983.38 and 983.39. Therefore, USDA recommends
the modified definition described above.
According to the hearing record, the definition of assessed weight
could be modified based on a recommendation of the committee and
approval by the Department through the public rulemaking process.
Witnesses supported this authority so the industry would be able to
take advantage of any better standard developed to determine the
assessable weight of pistachios received by handlers.
``Certified pistachios'' should be defined to mean those pistachios
for which aflatoxin inspection certificates and minimum quality
certificates have been issued. Under the provisions of the proposed
order, California pistachios shipped for domestic human consumption
would be required to be certified. The definition of ``certified
pistachios'' is further discussed under material issue 5(d) related to
proposed quality (including aflatoxin) requirements.
``Committee'' should be defined to mean the administrative
committee, which would be established pursuant to the proposed
provisions of Sec. 983.32. The Act authorizes USDA to appoint an
agency or agencies to assist in the administration of a marketing order
program. This definition would identify the agency to locally
administer the proposed pistachio order. The committee would be
comprised of eight pistachio producers, two handlers, and one public
member. The establishment of a committee would be important to ensure
representation of the industry and consumers to USDA.
``Confidential data or information'' should be defined to mean
reports and records furnished or submitted by handlers to the committee
which include data or information constituting trade secrets or
disclosing the trade position, financial condition, or business
operations of a particular handler or its customers. This term is
relevant to proposed Sec. 983.48 pertaining to disclosure of handler
information. The confidentiality requirements in that provision of the
order, discussed under material issue 5(e) are consistent with those
contained in the Act.
``Department'' or ``USDA'' should be defined to mean the United
States Department of Agriculture, which is the governmental body
responsible for oversight of Federal marketing orders and agreements.
This definition allows the usage of the USDA acronym, or reference to
the USDA as the Department throughout the language of the proposed
order.
``District'' should be defined to mean each geographic subdivision
of the proposed production area described in the marketing order. The
district delineations defined would be important for the purposes of
committee nominations and producer representation of the regional areas
of the production area.
The record supports dividing the production area into three
districts. District 1 would consist of 11 counties in Southern
California (Tulare, Kern, San Bernardino, San Luis Obispo, Santa
Barbara, Ventura, Los Angeles, Orange, Riverside, San Diego, and
Imperial Counties). District 2 would be comprised of four counties in
Central California where pistachio production is most highly
concentrated (Kings, Fresno, Madera, and Merced Counties). District 3
would consist of the remaining 43 California counties, primarily in the
Northern portion of the State. The record shows that dividing the
production area into these three districts would provide for adequate
producer representation on the committee.
Allocation of producer membership among the districts would be
based, in large part, on the relative levels of acreage and production
among the districts, as well as the number of producers in each of the
districts. Allocation of producer membership among the districts is
discussed further under material issue 5(b).
Testimony indicated that authority should be provided to allow the
committee to recommend to USDA the re-establishment of district
boundaries and reapportionment of producer membership among the
districts. This would allow changes in producer representation on the
committee to reflect any future shifts in pistachio acreage and
production within the production area.
Witnesses also stated that district changes under the California
Pistachio Commission should be a criterion used in adjusting the
district boundaries under the proposed order. It may be reasonable to
assume that changes in the distribution of pistachio producers, acreage
and production would justify district reestablishment under both the
State and Federal programs. However, any recommended change in the
district boundaries under the order would be evaluated on its own
merits.
The definition of ``district'' contains authority to reestablish
district boundaries. Redistricting would require a recommendation of
the committee and approval by USDA through the rulemaking process.
Authority for reallocation of producer membership among the districts
is contained in proposed Sec. 983.32 and is discussed later in this
document.
``Domestic shipments'' should be defined to mean shipments to the
50 United States and to the territories of the United States. This term
is important as the proposed quality requirements (including those
pertaining to aflatoxin and size) would only apply to domestic
shipments. The proposed quality requirements would
[[Page 45997]]
not apply to exports. The regulatory text of proposed Sec. 983.12 is
recommended to be modified from what appeared in the Notice of Hearing
to include shipments to the District of Columbia as domestic shipments.
Omission of Washington, DC as a domestic market was an oversight on the
part of the proponent group, and its inclusion in the order is
consistent with the record evidence.
``Edible pistachios'' should be defined to mean pistachios that
meet the quality requirements (including those pertaining to aflatoxin
and size) set forth under the proposed provisions of Sec. 983.38,
``Aflatoxin levels,'' and Sec. 983.39, ``Minimum quality and size
levels.'' In particular, edible pistachios are pistachios that have
been certified that they do not exceed the maximum level for aflatoxin
and that they meet the minimum requirements for shell and kernel
quality (including those relating to size).
``Inshell pistachios'' should be defined to mean pistachios that
have a shell that has not been removed. This is to distinguish an
inshell pistachio from a pistachio kernel or shelled pistachio. This
term is further discussed in the context of proposed order provisions
relating to quality standards under material issue 5(d).
``Inspector'' should be defined to mean any inspector authorized or
approved by the USDA to inspect pistachios. This term is used in
connection with the quality requirements proposed to be included in the
order. An inspector, for example, would pull samples for aflatoxin
testing by accredited laboratories. Inspectors would also be
responsible for inspecting and certifying that pistachios meet the
other quality requirements of the order.
The record shows that the Federal or Federal-State Inspection
Service would be designated as the agency responsible for conducting
these activities. To provide maximum flexibility, however, the order
should provide that any inspector so authorized or approved by the
Department may perform these functions.
``Lot'' should be defined to mean any quantity of pistachios that
is submitted for testing for certification under the minimum quality
requirements (including aflatoxin and size) of this proposed order.
Specifically, a ``lot'' would be an identifiable quantity of pistachios
handled by a handler at one time. A lot could have common
characteristics, such as origin, type of packing, packer, consignor, or
markings.
The record shows that the definition of lot is important in the
context of traceability, as each lot tested would be issued a unique
identification number. Traceability would allow handlers to respond to
any sub-quality or aflatoxin issues that would necessitate preventing
pistachios from entering the stream of commerce. The definition of
``lot'' is further discussed under material issue 5(d) in connection
with the testing and certification provisions contained in proposed
Sec. Sec. 983.38 and 983.39.
``Minimum quality requirements'' should be defined to mean those
requirements specified under the proposed provisions of Sec. 983.39,
which prescribe the permissible maximum defects and minimum size for
inshell pistachios and pistachio kernels handled and shipped from and
within the proposed production area. Regulation of quality is central
to the proposed marketing order. This term is further discussed under
material issue 5(d).
In conjunction with the definition of minimum quality requirements
given above, ``minimum quality certificate'' should be defined to mean
a certificate issued by an inspector that would indicate that a lot of
pistachios was tested for the quality requirements proposed in this
order and whether it met those requirements. Under the provisions of
this program, no handler could ship pistachios for domestic human
consumption that exceeded the percentage of defects or small-sized nuts
allowed under Sec. 983.39. Witnesses explained that any handler
placing California pistachios into the stream of domestic commerce for
the purpose of human consumption would be required to obtain a minimum
quality certificate to this effect. Therefore, minimum quality
certificates are also important to the committee record-keeping and
auditing responsibilities.
``Part'' should be defined to mean the order regulating the
handling of pistachios grown in the State of California, and all rules
and regulations issued under the order. The order itself would be
defined as a subpart of the part, as would individual rules and
regulations.
According to record evidence ``person'' should be defined to mean
an individual, partnership, limited liability corporation, corporation,
trust, association, or any other business unit. This definition is
consistent with the definition contained in the Act.
``Processing'' should be defined to mean hulling and drying of
pistachios grown in the production area in preparation for market. This
term covers the first steps of the handling process that occurs after
the pistachios are harvested.
Witnesses describing the assessment collection aspects of the
proposed order explained that handler assessments would be based on the
volume of pistachios initially received from the field. Record evidence
suggests that it is important to differentiate between processing
activities and further preparing pistachios for market, as different
handlers may perform these different functions. That is, one handler
may perform the initial handling function of processing (hulling and
drying), while another handler performs the remaining steps in the
handling process.
Witnesses stated that only those handlers conducting the initial
processing activities would be responsible for paying assessments to
the committee. This would preclude the same pistachios from being
assessed more than once. This term is included in the discussion of
proposed Sec. 983.53, ``Assessments'' which appears under material
issue 5(c).
``Producer'' should be defined to identify those persons who are
eligible to vote for, and serve as, producer members and alternate
members of the committee, and those who are eligible to vote in any
referendum. The term should mean any person engaged within the
production area in a proprietary capacity in the production or growing
of pistachios for sale.
Each business unit (such as a corporation or partnership) should be
considered a single grower and should have a single vote in nomination
proceedings and referenda. The term ``producer'' should include any
person who owns or shares in the ownership of pistachios. For example,
a person who rents land and produces pistachios resulting in that
person's ownership of all or part of the pistachios produced on that
land would be considered a producer.
Also, any person who owns land, which that person does not farm,
but as rental for such land obtains ownership of a portion of the
pistachios produced thereon, should be regarded as a producer for that
portion of the pistachios received as rent. The tenant on such land
should be regarded as a producer for the remaining portion produced on
such land.
A joint venture is one whereby several persons contribute resources
to a single endeavor to produce and market a pistachio crop. In such
venture, one party may be the farmer who contributes one or more
factors such as labor, time, production facilities or cultural skills,
and the other party may be a handler who contributes money and
cultural, harvesting, and marketing supervision. Normally, a husband
and wife operation would be considered a partnership. Any
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individual, partnership, family enterprise, organization, estate, or
other business unit currently engaged in the production of pistachios
for market would be considered a producer under the order, and would be
entitled to vote in referenda and committee nominations. Each party
would have to have title to at least part of the crop produced,
electing its disposition, and receiving the proceeds there from. This
control would come from owning and farming land producing pistachios,
payment for farming services performed, or a landlord's share of the
crop for the use of the producing land. A landlord who only receives
cash for the land would not be eligible to vote. A business unit would
be able to cast only one vote regardless of the number and location of
its orchards, but each legal entity would be entitled to vote.
``Production year'' should be defined to mean the period beginning
on September 1st and ending on August 31st of each year, or such other
period as may be recommended by the committee and approved by the
Department. This period starts with the typical beginning of the
harvest season for pistachios and would prescribe a period of conduct
for the committee's administrative activities, such as preparing an
annual budget of expenses and accounting for receipts and expenditures
of funds. Thus, the term ``production year'' would be synonymous with
the term ``fiscal period.''
Witnesses at the hearing also supported the September 1 through
August 31 period because it coincides with the California Pistachio
Commission's accounting year. Having the same fiscal periods could
facilitate the joint management of the two programs, which could yield
administrative efficiencies to the industry's benefit.
As discussed under material issue 5(c), assessments would be based
on the volume of pistachios received by a handler in each production
year. Witnesses at the hearing stated that, although rare, there are
some instances when pistachio harvest begins earlier than September 1.
Record evidence suggests that this has happened in 2 out of the past 10
production years. In an effort to reconcile potential accounting
differences within the context of the proposed Federal program,
witnesses suggested that any pistachios harvested as much as four weeks
earlier than the beginning of September be attributed to the new year's
production total. Thus, this definition would also state that
pistachios harvested and received in August of any year would be
counted as part of the subsequent production year for assessment and
other marketing order purposes. The inclusion of pistachios harvested
and received within four weeks prior to September 1 represents a
modification of the order language contained in the Notice of Hearing.
``Proprietary Capacity'' should be defined to mean the capacity or
interest of a producer or handler that, either directly or through an
intermediary, is a property owner together with the rights of an owner
including the right to vote the interest in that capacity as an
individual, shareholder, member of a cooperative, partner, trustee, or
in any other capacity with respect to any other business unit.
Witnesses explained that this term is important to the proposed
order and its provisions in that this language would make persons who
are sharing ownership of a common business entity ``affiliated'' (see
previous definition) for purposes of eligibility to serve on the
committee. The term ``proprietary capacity'' is intended to imply
ownership of a business as compared to an employee status only.
``Secretary'' means the Secretary of Agriculture of the United
States or any officer or employee of the United States Department of
Agriculture who is, or who may hereafter be, authorized to act in the
Secretary's stead. The term includes any other officer or employee of
the United States Department of Agriculture who has been delegated or
who may be delegated the authority to act on behalf of the Secretary.
``Shelled pistachio'' should be defined to mean a pistachio kernel
or part thereof and is distinct from an ``inshell pistachio.'' This
term is relevant to the discussion of quality requirements set forth in
proposed Sec. Sec. 983.38 and 983.39, ``Aflatoxin levels'' and
``Minimum quality levels,'' and proposed Sec. Sec. 983.40 and 983.43,
``Failed lots/rework procedures'' and ``Reinspection.''
``Substandard pistachios'' should be defined to mean shelled or
inshell pistachios that do not meet the proposed quality requirements
(including those related to size and aflatoxin) of the proposed order.
According to the record, substandard pistachios should not be marketed
for domestic human consumption. The proposed order contains specific
provisions regarding the disposition of substandard pistachios. These
provisions appear in proposed Sec. Sec. 983.40 and 983.43, ``Failed
lots/rework procedures'' and ``Reinspection,'' and are discussed under
material issue 5(d).
Material Issue Number 5(b)--Administrative Committee
Pursuant to the Act, it is necessary to establish an agency to
administer the order locally and to provide for effective and efficient
operation of the order. The establishment and membership of an
administrative committee is addressed in Sec. Sec. 983.32 and 983.33
of the proposed order.
The hearing record shows that the committee should consist of 11
members. Eight members should be producers, two members should be
handlers, and one member should be selected from the general public.
Each member should have an alternate member who, possessing the same
qualifications as the member, could serve in that member's place and
stead in the event that the committee member could not fulfill his or
her duties.
Allocation of Producer Membership
For the purpose of producer representation, the proposed order
provides that the production area be divided into three districts.
District 1 would consist of Tulare, Kern, San Bernardino, San Luis
Obispo, Santa Barbara, Ventura, Los Angeles, Orange, Riverside, San
Diego and Imperial Counties. District 2 would consist of Kings, Fresno,
Madera, and Merced Counties. District 3 would consist of all other
Counties in California not included in Districts 1 and 2.
As mentioned previously, the record indicates that producer
representation from each district should be based, in large part, on
the relative number of producers, bearing acreage, and volume of
production in each district. According to record evidence, District 1
had 227 producers, 38,396 acres, and production totaling 95,889,846
pounds in 2001. This represents 35 percent of the total number of
California pistachio producers (647), 49 percent of the State's bearing
acreage (78,000) and 60 percent of total production in 2001
(160,295,282 pounds). District 2 had 358 producers (55 percent) and
36,330 acres (47 percent), and produced a total of 57,453,864 pounds
(36 percent) in 2001. District 3 had 62 producers (10 percent), 3,274
acres (4 percent) and 6,951,572 pounds of production (4 percent).
Given the relative volumes and to ensure that each district's
producers are represented on the committee, witnesses testified that of
the eight producer members, four should be from District 1, three
should represent District 2, and one should be a pistachio grower in
District 3.
As discussed under material issue 5(a), Sec. 983.11 of the
proposed order
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(which defines the three districts) should contain authority for the
reestablishment of those districts. This would enable producer
representation on the committee to reflect any future shifts in
pistachio production among the districts.
The record also supports authority for reapportionment of producer
membership among the districts. This authority would complement the
authority to reestablish districts, and would serve to allow for
changes in representation in producer membership on the committee.
Producer membership could be reapportioned whether or not the districts
were reestablished. The record supports allowing producer membership to
be reapportioned among the districts upon a two-thirds recommendation
of the committee and approval of the Department (through the rulemaking
process).
While the record supports the ability to reapportion producer
membership, the proposed order as it appeared in the Notice of Hearing
did not contain such a provision. USDA recommends adding language to
Sec. 983.32(b) of the proposed order to provide authority to
reapportion producer membership among the districts.
Allocation of Handler Membership
While the record shows that producer representation on the
committee should be allocated among geographic districts, such
allocation is not needed for the two handler members on the committee.
The two handler members would represent the production area-at-large.
For one of the handler members, each pistachio handler would be
entitled to cast one vote in the nomination process. For the second
handler member, each pistachio handler would be entitled to cast one
vote for each ton of assessed weight of pistachios processed by that
handler during the two production years preceding the year in which
nominations are made.
The record shows that there are 19 pistachio handlers in
California, and that 1 of these handlers accounts for more than half of
the volume of pistachios processed in California each year. Under the
proposed provisions of the order, one of the handler members would
likely represent the largest handler in the industry, since voting in
the nomination process for that member would be weighted by volume. All
remaining handlers would then nominate the other handler member, since
any one handling entity would not be eligible to fill both handler
member positions. (This limitation is discussed below.) Witnesses
supported this method of allocating handler membership as adequate to
ensure appropriate representation of the interests of California
pistachio handlers in committee deliberations.
In weighting the nomination votes for one of the handler members,
the record shows that each handler would be entitled to cast one vote
for each ton (or portion thereof) of assessed weight of pistachios
processed by that handler during the two production years preceding the
production year in which nominations are made. Calculating the assessed
weight based on two years of production is intended to take into
account the alternate bearing nature of pistachio trees. Furthermore,
the assessed weight of pistachios would be credited to the handler
responsible under the order for the payment of the assessments. This
provision would address the fact that pistachios are often traded or
sold by one handler to another after they are harvested. Attributing
the volume of pistachios to the first handler of those pistachios would
preclude double counting of nuts that are transferred from one handler
to another. It would also provide the most accurate measure of the
relative volumes of pistachios handled by each handler.
Witnesses at the hearing testified that all handlers currently
process (hull and dry) pistachios. Thus, all handlers would be able to
participate in the nomination of both handler members on the committee.
The record supports authority in the proposed order to revise
handler representation on the committee to ensure that industry
representation remains appropriate. This provision would allow for
flexibility in the order to accommodate for future changes in industry
structure. For example, if a significant number of handlers in the
industry ceased to process pistachios, it could be appropriate to
weight their votes in the nomination process on some other basis than
the assessed weight of pistachios. Any change in handler representation
would require a recommendation by the committee and approval by USDA
through the rulemaking process.
Committee Member Affiliations
The order should provide that not more than two members of the
committee, and not more than two alternate members, could be employed
by or affiliated with the same handler and/or producer. Additionally,
only one producer member and alternate in any one district and only one
handler member and alternate could be affiliated.
The record evidence is that the membership of the committee should
be representative of the industry as a whole. No one group of people
who share common business interests should be able to gain control of
committee decision making. To accomplish this goal, the order should
limit the number of positions the members of any one affiliated group
could hold.
As previously mentioned, one handler in the industry accounts for
more than half of the California pistachios handled annually. The
record shows that the two-member limitation is in large part intended
to prevent any entity, and its many affiliates, from dominating
committee actions. The limitation is designed to assure fair
representation on the committee, given the current nature and structure
of the California pistachio industry.
As discussed under Material Issue 5(a), the term ``affiliation''
should be defined broadly so that it encompasses the many different
relationships through which people have common business interests.
Witnesses at the hearing gave several examples to illustrate their
view of how this limitation on committee membership should work. In the
case of a corporate handler, all of its shareholders should be
considered an affiliated group because they would be connected in a
proprietary capacity and share in the ownership and control of the
corporate handler. In this scenario, the shareholders and employees of
the corporation would be limited to one handler member on the
committee; they could not hold both handler member positions. If the
corporation was also a pistachio producer, a producer member could also
represent the affiliated group. In no case could more than two
committee members represent that affiliated group.
Another example offered by witnesses described one corporation
owned by one set of shareholders and a second corporation with a
separate set of shareholders that jointly own a handling entity. In
this case, the employees of the handling entity and both of the
corporations, and both sets of shareholders, would be considered as one
affiliated group. As such, this combination of two corporations and one
handler would be limited to a maximum of two committee positions.
A third scenario described by witnesses entailed a corporation,
owned by its shareholders, and a producer cooperative that jointly own
a handling entity. The cooperative was comprised of producer members
who grow pistachios and share in the proceeds of the sale of all of the
pistachios of the
[[Page 46000]]
members pooled together. In this case, the corporation (owned by its
shareholders) and the cooperative (owned by its members) would be
affiliated through their common control of the handler. Therefore, this
combination of corporate employees and shareholders, cooperative
employees and members, and handler employees, would constitute a single
affiliated group. The entire group would be entitled to no more than
two representatives on the committee.
Witnesses also testified about a producer who sells pistachios to a
handler for cash or a fixed price plus bonuses but has no ownership or
proprietary interest in that handler. In such a case, the producer
would not be affiliated with that handler for purposes of committee
membership.
In a final illustration, if a producer is a shareholder or a member
of, or directly or indirectly owns a handler, that producer would be
considered a part of the handler's affiliated group. This would be true
even if that producer sells part of his or her crop to another handler
that is not part of the affiliated group.
Cooperative Affiliation
As discussed above, members of a producer cooperative would
constitute an affiliated group for purposes of committee membership.
The record shows that the order should contain a provision to clarify
when a person ceases to be affiliated with a cooperative for those
purposes.
As explained for the record, cooperatives usually retain from their
profits, which would otherwise be paid pro rata to its members, such
amount as is needed for its capital needs and reserves. These
``retains'' are allocated and then paid pro rata to each member
whenever the capital needs change or are replaced by new retains in
subsequent years. This is known as ``revolving capital.''
Paragraph (f) of proposed Sec. 983.33 should provide that a
producer who has not marketed pistachios through a cooperative during
the current and one preceding production year would no longer be
considered ``affiliated'' with that cooperative. This would be true
even if the cooperative continued to hold that producer's retains. If
the cooperative holds none of the producer's retains, that producer
would become unaffiliated with that cooperative at the time his or her
membership is terminated.
The record supports an additional clarification concerning producer
cooperatives. There may be an occasion where a producer cooperative
has, as a member, another producer cooperative that handles pistachios.
While the members of both cooperatives would be considered affiliated,
the producer cooperatives would still qualify as producers for purposes
of voting for producer members on the committee.
Qualifications of the Public Member
At the hearing, witnesses supported having a public member on the
committee. The appointment of a public member would offer many
advantages. One such advantage would be that the committee would have
an impartial individual, having no economic interest in the pistachio
industry, with whom to discuss industry problems and concerns. Such a
person could offer a unique perspective in committee deliberations.
As such, witnesses recommended that the public member and alternate
public member should not be permitted to have a financial interest in
the production, processing, financing, buying, packing, or marketing of
pistachios, except as a consumer. This member and his or her alternate
would also be precluded from being a director, officer, employee or
affiliate of any firm or business entity engaged in the pistachio
industry. The public member should be willing to devote sufficient time
to regularly attend committee meetings and become familiar with the
background and economics of the industry, as well as the provisions of
the proposed order. Testimony indicated that the committee could be
able to establish (with the approval of USDA) further qualifications
the public member and alternate member should possess, if deemed
necessary.
Nominations
For the proposed committee to function, a mechanism is required by
which members and alternate members would be nominated by their peers,
and selected and appointed by the Department. Nomination procedures are
set forth in the proposed provisions of Sec. Sec. 983.32 and 983.33.
The order should provide that USDA would conduct nominations for
initial producer and handler members of the committee. Such nominations
could be made either at industry meetings, or by mail. The provisions
also state that the first nominees must meet the same qualifications as
required for their successors. While the Department would have
discretion in determining a reasonable process to conduct initial
committee nominations, the committee should be established as provided
in Sec. 983.22 of the proposed order.
A revision in paragraph (a) of Sec. 983.33 is recommended. This
revision would clarify that USDA would conduct the initial nominations
of producer and handler members and alternates only. The initial public
member and alternate would be nominated by the industry members of the
committee, as described later in this document.
Successor Producer and Handler Members
The record evidence is that the committee staff should conduct
subsequent nominations for producer and handler members of the
committee. To facilitate maximum participation in the process,
nominations would be conducted by mail ballot.
The record evidence shows that producer and handler member
nominations would entail several steps. First, individuals seeking
nomination would be required to establish their qualifications to serve
as a California pistachio producer or handler, and to identify the
district (for producer seats) they are seeking to represent. Candidates
would also be required to identify whether they intend to seek
nomination as a producer or handler member. Considering that many
pistachio handlers are also producers, witnesses recommended that
individuals be limited to seeking nomination as one or the other. In
other words, the same individual would not be allowed to simultaneously
seek a producer and a handler seat; his or her name could only appear
on the producer or the handler ballot, not both.
The record shows that individuals seeking to fill member seats
would need to submit notice of their intent to run as a nominee to the
committee in advance of nominations. This would allow the committee
staff adequate time to determine a candidate's eligibility in advance
of issuing nomination ballots, and would allow for any questions or
informational needs to be addressed in advance of voting for nominees.
Once qualified candidates are identified, ballots containing the
names of those individuals and additional space for write-in candidates
would be prepared. The ballots, together with voting instructions,
would be mailed to all producers and handlers who are on record with
the committee. The committee staff would tally the votes and submit its
nomination report to USDA for selection.
The hearing record supports the same general approach for
nominations of both producer and handler members. However, the language
contained in the Notice of Hearing did not include provisions specific
to successor handler
[[Page 46001]]
nominations. USDA is suggesting that proposed Sec. 983.33(b) be
modified accordingly.
The record shows that the committee should have authority (with
USDA approval) to establish additional rules and regulations governing
the nomination process, if deemed necessary. This authority would apply
to both producer and handler member nominations.
Producer Members
Witnesses explained that individuals seeking candidacy for
nomination to a producer seat would be required to designate the
district in which they seek election and substantiate their
qualification as a producer, or designated representative of a
producer, in that district. However, testimony also clarified that the
order would not require that the candidate be a resident of that
district. Witnesses explained that it would not be reasonable to impose
such a requirement since not all producers live in the same district in
which they produce pistachios. Such a residency requirement would,
therefore, preclude a number of pistachio producers from being able to
serve on the committee.
Record evidence states that only producers would be qualified to
serve as producer members and to participate in the nomination of
producer members and their alternates. Producers can be corporations,
partnerships, limited liability companies, trusts or other legal
entities, as well as a sole proprietorship owned by an individual. The
owners of the pistachio groves could designate an officer or employee
to seek membership and to cast the votes on their behalf. As proposed,
officers and employees would not include professional farm managers who
perform farm management services for a number of different producers
without being an employee or an officer of the producer. The intent is
to limit those eligible to serve as producer members to persons who are
involved, either as a producer with a proprietary interest in the
pistachio industry or an employee working in the industry for a
producer.
Each producer would be entitled to cast one vote, either in person
or through an authorized officer or employee, for each producer member
position to be filled in his or her district. Witnesses suggested that
rules and regulations could be recommended by the committee and
approved by the Department that would require such authorization to be
in writing and to be addressed to the committee. A producer would only
be able to cast his or her vote in the district in which that producer
produces pistachios. If the producer were engaged in producing
pistachios in more than one district, then the producer would need to
select a district in which to participate as a nominee and/or as a
voter. A producer would not be allowed to vote for candidates in more
than one district.
Producers receiving the highest number of votes in each district
would be designated nominees for their respective districts. Alternates
for each nominee would be the candidates receiving the second highest
number of votes in the same district. In the case of a tie, witnesses
recommended that final nominees and their alternates be selected by a
drawing.
Handler Members
Handler nominees would be selected for the production area as a
whole, and final candidates would be determined based on those two
individuals receiving (1) The most votes representing handlers by
number, and (2) the most votes representing handlers by volume.
Alternates would be designated as those individuals receiving the
second highest vote in each respective category. Handler voting
procedures are further described below.
Record evidence specifies that only handlers could participate in
the nomination of the handler members and their alternates. Handlers
would include the duly authorized officers or employees of handlers.
Since many of the handlers are incorporated, a corporation or other
business entity would be required to designate its representative.
Individuals could also designate an employee to act on behalf of the
proprietorship through a written designation signed by the owner.
As indicated above, handler representation would be divided into
two categories, with one member nominated by a number vote and the
other member nominated by a volume vote. The former would be nominated
by receiving the highest number of votes placed by voting handlers,
with each handler having one vote. That member's alternate would be the
candidate receiving the second highest number of votes.
The provisions of the proposed order provide that if a person were
both a producer and a handler of pistachios, that person would be able
to participate in both the producer and handler nominations. While a
single individual may not hold more than one seat on the committee, a
producer who is also a handler could designate an officer or employee
as a handler nominee, and another representative as a producer nominee.
The affiliation provisions described above would apply.
Members of the committee, at the time of their selection and during
their term of office, must be pistachio producers or handlers, or
officers or employees of a producer or handler. If that relationship
should terminate during their term as a committee member or alternate,
that person would become disqualified to serve further, and the
position would be deemed vacant.
Public Member
The provisions proposed under Sec. 983.32(c) would govern
nomination and selection of the public member and alternate member.
According to the record, the public member, who would be neither a
pistachio producer nor a handler, would have all the rights and
responsibilities of any other member of the committee. The record
evidence is that the producer and handler members of the committee
should nominate the public member. Witnesses explained that industry
committee members would be in the best position to identify individuals
who are qualified and willing to serve. Once the committee identified
possible public member and alternate public member candidates, the
committee would make a recommendation to USDA for final approval and
selection by the Department.
Alternate Members
The order should provide for the nomination and selection of an
alternate member for each committee member. Alternates would be subject
to the same eligibility requirements as committee members. They would
act in the place and stead of the committee members they are alternates
for when the committee members cannot fulfill their committee
obligations. Alternates would provide continuity and stability to
committee operations by ensuring full representation of the industry,
including their particular district and group (producers or handlers).
Alternate members would be nominated in the same manner as
committee members, except that the recommended alternate(s) would be
the individual(s) receiving the next highest votes to the nominee(s)
receiving the highest number of votes. If a person were selected as an
alternate from the same district as a member and both are employed by
or connected in a proprietary capacity with the same business entity,
the alternate would serve as the alternate to that member.
When serving in the place and stead of their committee members,
alternate members would be able to exercise all
[[Page 46002]]
of the rights, duties and powers of those members as though they were
serving as full members of the committee. Alternate members would only
be allowed to vote in the absence of those members for whom they are
alternates, or when they succeed to those members' positions.
Record evidence also shows that an alternate member should succeed
his or her member in the event of that member's death, removal,
resignation or disqualification. The alternate would then serve until a
successor was selected and qualified.
Selection by USDA
Record evidence states that once the nomination process for
producer and handler members is completed, and the industry has voted
on committee member and alternate candidates, nomination reports or
committee minutes would be prepared by the committee staff and sent to
the USDA. This should be done at least 60 days prior to the beginning
of each two-year term of office (or by May 1). The Department, after
determining that the conditions and qualifications of each nominee have
been met, would then select the 10 producer and handler members of the
committee and an alternate for each of those members based upon the
nominations.
As previously mentioned, the newly appointed industry members of
the committee would nominate the public member and alternate member.
USDA would also be responsible for selecting the public member and
alternate.
Nominees would be required to indicate in advance of their
selection that they are willing to accept the position for which they
were nominated. Agreeing in advance to serve as a committee member or
alternate would avoid possible delays in the appointment of the
committee.
In the event that nominations are not made within the time and
manner specified in the order, the USDA could appoint members and
alternates without regard to nominations. Those appointments would be
made on the basis of representation provided in proposed Sec. Sec.
983.32 and 983.33.
Term of Office
Record evidence suggests that the term of office should begin on
July 1 and last for 2 years. The month of July represents a natural
break in the California pistachio production cycle, with each new
harvest beginning typically in September, or at the earliest in August.
Moreover, witnesses indicated that this time frame would allow adequate
time for committee members and staff to prepare an annual budget,
develop a marketing policy for the upcoming production year, and make
any recommendations to the Department for any needed regulatory changes
prior to harvest activities.
In addition, witnesses at the hearing indicated that terms should
be staggered so that approximately half of the committee members'
positions would be filled each year. This provision would ensure that
continuity in experience among committee members was maintained, yet
provide for new members with new ideas and fresh perspectives to
participate in the administration of the order. To initiate this
process, witnesses recommended that the first committee members
nominated would be divided into two groups by a drawing to determine
whether they would be seated for initial terms of one year or two
years. Four producer members, one handler member and their alternates
would serve an initial term of about one year. Remaining industry
members and the public member (and their alternates) would serve an
initial term of about 2 years.
The regulatory text contained in the Notice of Hearing failed to
specify that the term of office should apply to all committee members
and their alternates. Paragraph (k) of proposed Sec. 983.33 has been
revised to correct this.
Term Limits
Record evidence supports term limits to spread the involvement of
the pistachio producers and handlers, and increase industry
participation in administering the marketing order. Term limits should
apply to all committee members and alternates, including those
representing the public. The maximum number of terms that an individual
would be allowed to serve for would be four consecutive two-year terms
of office, or a maximum of eight consecutive years on the committee.
The tenure requirements would apply to both committee members and
alternate members. Once a person has served as a member and/or
alternate for 8 years, that person would not be eligible for
renomination. He or she would be eligible to serve again after 12
consecutive months out of office.
Vacancies
Any vacancy on the committee would be filled by a majority vote of
the committee members remaining for the remaining unexpired term of the
vacant position. This authority appears in paragraph (j) of proposed
Sec. 983.33. The replacement must fulfill all of the qualifications
set forth as required for any other nominee for the position, and that
person's qualifications would have to be certified to USDA. The
Department could then appoint the nominee to serve the balance of the
term.
This procedure would eliminate the need to conduct a special
nomination to fill a vacancy for the balance of a term, which would be
less than two years in any case. It would also serve to address
situations in which a member's position is vacant and the alternate
declines the position or is not available to fill the vacancy, as
provided in proposed Sec. 983.33(g). The authority could also be used
to fill a vacancy for an alternate member.
Proposed Quorum and Voting Provisions
The record evidence is that once the committee is appointed, a
quorum of the committee would consist of seven committee members. This
would include handlers, producers and the public member. Except as
discussed below, any action of the committee would require the
concurring vote of a majority of the committee members present. An
alternate could serve as a member for purposes of constituting a quorum
and voting if the member is absent.
Record evidence indicated, however, that certain issues are of
sufficient significance to the industry that action should require a
greater degree of consensus than a simple majority vote would
demonstrate. Witnesses testified that there are four areas that should
require at least seven concurring votes, prior to any recommendation
being made to the USDA. The first involves any modifications of the
minimum quality levels set forth in proposed Sec. 983.39. The second
entails any change in the aflatoxin levels prescribed in Sec. 983.38
of the proposed order. Adjustments in the sampling and inspection
requirements included in the order with respect to minimum quality
(including aflatoxin) requirements is another area that should require
seven concurring votes. And, finally, the record indicates that
recommendations related to changes in committee representation
(including qualifications and affiliation issues) should require a
higher level of committee member agreement.
As such, this proposal provides that any recommended change or
modification to the issues outlined above would require at least seven
concurring votes. Any other actions by the committee could be
determined by a simple majority of those voting.
The record shows that at committee meetings, members could cast
their vote
[[Page 46003]]
by voice or in writing. Participation by telephone would be permitted
as long as the equipment used would allow all meeting participants to
hear and communicate with each other. Telephone or similar
communication equipment could include conference call equipment and/or
audio-visual equipment that would allow all members to participate in a
meeting simultaneously.
If for some reason an action must be taken without a meeting,
record evidence indicates that such action would require a unanimous
vote of the committee, and the votes would have to be in writing.
Witnesses testifying at the hearing stated that the types of committee
actions contemplated without a meeting would be limited to issues of
routine business or those of relatively minor importance, such as
approval of meeting minutes. Such matters would not merit the time and
expense of holding an assembled meeting. This proposed provision is
common to several existing marketing orders and would enhance the
committee's decision-making abilities on simple administrative matters.
Compensation
While testimony supported reimbursement of necessary expenses
incurred by committee members attending meetings, witnesses testified
that no compensation should be made to pistachio producers and handlers
for their service on the committee. To the extent the committee
requested the attendance of alternate members, those alternates would
also be entitled to reimbursement of their expenses.
Record evidence did support compensation, in addition to the
necessary expenses, of the public member. In order to get the level of
experience and background required to serve as a qualified, effective
public member, witnesses stated that it might be necessary to
compensate that person for his or her time. Compensation would need to
be set at a reasonable level, and should be consistent with that
person's experience and background.
Committee Powers and Duties
The committee, under proposed Sec. 983.35, should be given those
specific powers that are set forth in section 608c(7)(C) of the Act.
Such powers are necessary for an administrative agency, such as the
proposed committee, to carry out its proper functions. According to
record evidence, the committee would have four general powers under the
proposed provisions of this order:
(1) To administer the provisions of the order;
(2) To adopt by-laws, rules, and regulations for the implementation
of the order with the approval of the Department;
(3) To receive, investigate, and report to the Department
complaints regarding violations of the order; and
(4) To recommend marketing order amendments to the Department.
These powers are necessary to carry out the committee's functions
under both the proposed order and the Act. Witnesses indicated that
these powers would enable the committee to make recommendations to the
Department that reflect the conditions in the industry from their
knowledge and experience.
The specific duties of the committee as set forth in Sec. 983.36
of the proposed order are necessary for the discharge of its
responsibilities. These duties are similar to those typically specified
for administrative agencies under other marketing order programs. They
pertain to specific activities authorized under the order, such as
investigating and compiling information regarding California pistachio
marketing conditions, and to the general administration of the program
including hiring employees, appointing officers, and keeping records of
all committee transactions. The proposed order delineates the
committee's duties as follows:
(1) The committee should adopt bylaws and rules for the conduct of
its meetings and for such other purposes as it deems necessary. The
committee should also select such officers from among its membership,
including a chairperson and vice-chairperson, as may be necessary, and
define the duties of such officers.
(2) The committee should employ such persons as it deems necessary
to effectively and efficiently operate the program. The committee could
enter into contracts or agreements with such persons, determine their
duties, and establish appropriate levels of compensation. Such
contracts or agreements would pertain to the provision of services
required by the order and for the payment of the cost of such services
with funds collected under the order.
(3) The committee should select such subcommittees as may be
necessary.
(4) The committee should submit to the USDA a budget for each
fiscal period, prior to the beginning of such period. The budget
submission should include a report explaining the budget items and the
committee's recommendation as to the rate of assessments for the fiscal
period.
(5) The committee should be required to keep minutes, books, and
records that reflect all of the acts and transactions of the committee.
Such records would be subject to examination by the Department.
(6) The committee should prepare periodic statements of the
financial operations of the committee and make copies of each statement
available to producers and handlers for examination at the office of
the committee.
(7) The committee should be required to have its financial
statements audited by a certified public accountant at least once each
fiscal year and at such times as the USDA may request. Such audits
should include an examination of the receipt of assessments and the
disbursement of all funds. The committee should provide USDA with a
copy of all audit reports and should make copies of such audits, after
the removal of any confidential individual or handler information that
may be contained in them, available for examination at the committee's
office.
(8) The committee should act as an intermediary between USDA and
any pistachio producer or handler with respect to the operations of the
order.
(9) The committee should investigate and assemble data on the
growing, handling, shipping and marketing conditions with respect to
pistachios.
(10) The committee should be required to apprise the Department of
all committee meetings in a timely manner.
(11) The committee should be required to submit to USDA such
available information as the Department may request.
(12) The committee should have the duty to investigate compliance
with the provisions of the order.
(13) The committee should provide, through communication to
producers and handlers, information regarding the activities of the
committee. The committee should also respond to industry inquiries
about committee activities.
(14) The committee should oversee the collection of assessments
levied under the order.
(15) Finally, the committee should have the authority to borrow
such funds as may be necessary to fulfill its responsibilities and
obligations. Any loan would be subject to USDA approval and could not
exceed the expected expenses of one fiscal year.
Witnesses explained that the above-outlined duties are important to
the efficient and functional operation of the committee.
[[Page 46004]]
Material Issue Number 5(c)--Expenses and Assessments
The committee should be required to prepare a budget showing
estimates of income and expenditures necessary for the administration
of the marketing order during each fiscal year. The budget, including
an analysis of its component parts, should be submitted to USDA
sufficiently in advance of each fiscal period to provide for USDA's
review and approval. The budget should also include a recommendation to
USDA of a rate of assessment designed to secure income required for
such fiscal year.
The committee should be authorized under Sec. 983.52 of the
proposed order to incur such expenses as the Department finds are
reasonable and likely to be incurred during each fiscal, or production,
year. Such a provision is necessary to assure the maintenance and
functioning of the committee, and to enable the committee to perform
its duties in accordance with the provisions of the order.
The record states that funds to cover the committee's expenses
would be obtained through the collection of assessments from handlers
who process pistachios in the proposed production area. These
assessments are intended to reflect each handler's proportional share
of the committee's expenses. As such, assessments would be based on the
total amount of pistachios processed by each handler relative to the
total amount of pistachios processed by the industry as a whole during
a given production year.
Witnesses explained that since pistachios are often transferred
between handlers for further preparation or packaging for market, it
would be appropriate to apply assessment calculations to the handler
who first handles a particular lot of pistachios. By assessing the
handler who initially receives a lot of pistachios, the industry
intends to prevent having assessments paid more than once for the same
pistachios. The previous discussion of the definition of ``assessed
weight'' further clarifies this calculation.
Testimony in support of proposed Sec. 983.52 covering committee
expenses indicates that prior to the beginning of each production year,
and as may be necessary thereafter, the committee should prepare an
estimated budget of expenses necessary for its effective administration
of the order. Based upon this estimate, the committee would calculate
and recommend to the Department a rate of assessment that would provide
adequate funds to cover the cost of projected expenditures. Preparing a
budget for the committee prior to the beginning of each fiscal period
is reasonable. A budget is necessary to provide the committee and the
Department with a basis for determining the assessment necessary to
cover the cost of operation.
The committee would present its annual budget to USDA for review
and approval. Accompanying the budget would be a report showing the
basis for its calculations, an explanation of each line item, and any
proposed year-over-year increases or decreases. Assessments would be
levied at the rates established by USDA. Establishment of such
assessment rates would be accomplished through the informal rulemaking
process. Such rates would be established on the basis of the
committee's recommendations or other available information.
Witnesses stated that any assessment rate recommended to the
Department should be limited to a maximum rate of one half of 1 percent
of the industry's previous production year's average producer price.
The average producer price would be calculated by the committee and
would be based on the previous year's average grower receipt per pound
of pistachios.
The record shows that recent producer prices for pistachios were
around $1.10 per pound. If the average producer price calculated by the
committee for the previous year was $1.10 per pound, the maximum
assessment rate for the current year's crop would be $0.0055, or
approximately one half a cent per pound. Applying this rate to 2001
production of about 160 million pounds would yield a maximum assessment
income of $880,000. Witnesses testified that this should be sufficient
to operate the proposed program.
The intent of the maximum limit on the assessment rate is to assure
pistachio producers and handlers that program expenses would be kept
within specified limits, and that no projects requiring extraordinary
expenditures would be undertaken. The proposed limit appears reasonable
for the administration of a program of this nature.
Witnesses reasoned that there could be times during a fiscal period
when it would become necessary to revise the budget and/or increase the
assessment. Such instances could include situations where actual
harvest is lower than anticipated or the committee incurs unforeseen
expenses. In this regard, witnesses stated that the assessment rate
should not be increased without the committee first making a
recommendation and securing approval of the Department to do so. Such
recommendation would also need to be made prior the issuance of that
production year's final handler assessment bill. Any assessment
increase would be applicable to all pistachios received and processed
by handlers within the proposed production area for that production
year.
During the hearing, questions were raised regarding proposed order
language contained in the Notice of Hearing. Language in the Notice
provided that any change to the assessment rate would be required to be
recommended and approved before October 1 of any production year and
before the date established for payment of the assessment. Discussion
at the hearing resulted in witnesses acknowledging that situations
could arise where these deadlines would be too restrictive, and would
prevent the committee from being able to address unforeseen shortfalls
in assessment income.
Accordingly, witnesses recommended that the committee, as
necessary, be permitted to adjust the rate of assessment (with USDA's
approval) at any time before the final billing is made for the
assessment. Section 983.53(b) should therefore be modified by removing
the October 1 deadline and clarifying language that would allow the
committee to recommend changes to the assessment rate before the
issuance of the last handler assessment billing statement.
Record evidence in support of proposed Sec. 983.55 indicates that
if assessments are not paid within the time prescribed by the
committee, the handler would be required to pay to the committee a late
payment charge of 10 percent of the amount of the assessment determined
to be past due and, in addition, interest on the unpaid balance at the
rate of 1\1/2\ percent per month. Late payment charges and interest on
unpaid balances are reasonable in encouraging timely payment of
assessments and compensating the committee for expenses incurred in
collecting unpaid assessments.
While supporters of this proposal indicated that any assessments
imposed under the program would be quite modest, timely collection of
those assessments would be important in order to efficiently and
effectively administer the provisions of this proposed program.
Moreover, they indicated that if one handler were to become delinquent
in paying his or her assessments, this could serve as an incentive for
others to also become delinquent. Witnesses felt that the proposed late
payment and interest
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charges would help to ensure stability in the flow of committee funds
collected through assessments.
The record evidence is that the committee should have the authority
to recommend other rates for late payment and interest charges, as may
be appropriate. Section 983.55 is being modified to clarify this point.
Any change in these rates would require approval of the Department
through the informal rulemaking process.
The Department is recommending several additional modifications in
proposed Sec. 983.55. The language contained in the hearing notice
provided that in addition to delinquent assessments, late charges and
interest would be imposed on handlers who fail to file required reports
under the order. Since (in the case of unfiled reports) there would be
no monetary value upon which to impose these charges, this provision is
found unworkable and is therefore deleted.
Witnesses also supported a provision that if a handler is
delinquent in paying his or her assessments for more than 60 days, the
committee could request that the USDA stop providing aflatoxin and
grade and size inspections to the delinquent handler. Witnesses also
suggested that the committee could require any handler who fails to pay
an assessment or related charge to furnish and maintain a surety bond
in a form and amount, and for a period of time, specified by the
committee. These provisions are not typical in relation to delinquent
assessments under a marketing order program. Thus, these provisions are
being deleted from Sec. 983.55 of the proposed order. The Department
would work with the committee staff in determining an appropriate
course of action relating to violations of the proposed order,
including nonpayment of assessments.
Under the proposed order, the committee would be allowed to accept
voluntary contributions. Contributions could only be used to pay for
authorized committee expenses. The committee may accept contributions,
for example, to fund the operations of the order during the first part
of a production year, before sufficient income is available from
assessments on the current year's pistachios.
A section on accounting is necessary to assure handlers and the
industry that funds would only be used for the purposes intended, that
there would be a proper disposition of excess funds, and that a
detailed accounting would be made of such disposition. Under the order,
the committee would only be authorized to incur such expenses as USDA
finds are reasonable and likely to be incurred by it during each
production year for its maintenance and functioning, and for such other
purposes as the Department may determine to be appropriate.
Paragraph (a) of proposed Sec. 983.56 provides for situations
where, at the end of the fiscal period, the assessments collected may
be in excess of expenses incurred. According to record evidence, the
provisions under this section would allow the committee, with the
approval of the Department, to establish an operating monetary reserve.
This would allow the committee to carry over to subsequent production
years any excess funds in a reserve, provided that funds already in the
reserve do not exceed approximately two years' expenses. If reserve
funds do exceed that amount, the assessment rate should be reduced to
bring the reserves to a more reasonable level. These reserve funds
could be used to defray expenses during any production year before
assessment income is sufficient to cover such expenses; to cover
deficits incurred during any fiscal period when assessment income is
less than expenses; to defray expenses incurred during any period when
any or all provisions of the order were suspended or inoperative; and,
to cover necessary expenses of liquidation in the event of termination
of the program.
If any excess funds were not retained in a reserve, each handler
who paid assessments would be entitled to a proportionate refund of the
excess assessments collected. If excess assessments remained at the end
of a given production year, the committee could apply each handler's
excess as a credit for handlers towards the next production year's
operating costs, or the committee could refund such funds to the
handlers.
Testimony states that all funds received by the committee pursuant
to the provisions of the proposed order would be used solely for the
purposes specified in the order. Moreover, Sec. 983.56 would authorize
the Department at any time to require the committee and its members to
account for all receipts, disbursements, funds, property or records for
which they are responsible. This authority is necessary to ensure that
proper accounting procedures are followed at all times.
Whenever any person ceases to be a member of the committee, that
individual should be required to account for all receipts and
disbursements for which he or she was responsible. That person should
also be required to deliver all property and funds in such person's
possession to the committee. Finally, that person would execute such
assignments and other instruments as might be necessary or appropriate
to vest in the committee full title of all committee property and
funds.
In the event the proposed order were to be terminated or become
inoperative, the committee, with the approval of USDA, would appoint
one or more trustees for holding records, funds or other property of
the committee. Any funds not required to defray the necessary expenses
of liquidation would be returned, to the extent practicable, pro rata
to the handlers from whom such funds were collected. Distribution of
those funds would be carried out in a way that the Department deems
appropriate.
Material Issue Number 5(d)--Quality and Inspection Requirements
According to record evidence, provisions regarding maximum
aflatoxin levels, minimum quality levels (including size requirements),
and testing and certification procedures should be included in the
proposed order. These provisions are captured under the proposed
Sec. Sec. 983.38 through 983.46.
Presently, certain pistachio quality controls are in place under
the California Pistachio Marketing Agreement (agreement). The agreement
is effective under the California Marketing Act (Chapter 1, Part 2,
Division 21 of the Food and Agricultural Code of the State of
California). The regulations in effect under the agreement prohibit the
blending of naturally and artificially opened pistachios; ban the
practice of bleaching pistachios; and require mandatory aflatoxin
testing for shipments to specified export markets. These regulations
are voluntary in that they apply only to handlers who choose to sign
the agreement. The record evidence is that signatories to the agreement
current account for 82 percent of the pistachios produced in
California.
The proposed Federal order would establish mandatory testing and
certification requirements for California pistachios distributed for
domestic human consumption. The order would include requirements that
set maximum tolerance levels for aflatoxin and defects, and a minimum
allowable size. The requirements under the proposed order would not
duplicate or contradict the regulations under the State agreement.
According to the record, in preparation for this proposal, the
California pistachio industry initiated a study group on pistachio
quality assurance issues in May 2000. The
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purpose of this study group was to identify areas of quality regulation
that would elicit consensus and support among industry producers and
handlers. Record evidence also states that the proposed regulatory
provisions are based on current industry practices and are
substantiated by a wide body of scientific research and data.
Record testimony ties the industry's concern over the regulation of
aflatoxin in pistachios to the protection of consumer interests by
preventing the sale of contaminated nuts. Witnesses repeatedly cited
evidence demonstrating consumers' reluctance to buying defective or
damaged pistachios contaminated with mold. Consumer concerns about the
presence or threat of aflatoxin in pistachios makes the regulation of
aflatoxin bearing molds important.
Moreover, witnesses testified that if there were an outbreak of
aflatoxin contamination in pistachios, widespread consumer reluctance
to buy pistachios could result, even if the contamination was limited
and quickly remedied. Witnesses feared that a single occurrence of
aflatoxin contamination in pistachios could devastate the California
pistachio industry and create effects that could take years and
substantial financial resources to overcome.
Record evidence demonstrates the importance of regulating quality
(including size) in tandem with aflatoxin, as research suggests a
strong correlation between some sub-quality characteristics (for
example, ``early-split'' pistachio nuts) and the propensity for
aflatoxin contamination.
Evidence presented at the hearing suggests that aflatoxin
contamination first occurs in the field and can continue to occur until
pistachios are dried to a level where mold cannot grow. Industry
research shows that most of the aflatoxin occurs in early split nuts or
pistachios where the hull is damaged prior to harvest. A high
percentage of small pistachios have a tendency to split early compared
to larger pistachios. Accordingly, witnesses explained that there is a
strong correlation between smaller, lighter pistachios with staining on
the shell and the presence of aflatoxin.
Record evidence presented on the basis of research conducted by
Mark A. Doster and Themis J. Michailides (``Characteristics of
Pistachio Nuts with Aspergillus Molds,'' 1991) delineates a positive
correlation between early split pistachios and aflatoxin. A witness
citing this study quoted, ``Early splits (ES) are pistachio nuts that
have both hull and shell split and frequently have moldy and/or insect-
infested kernels. The hulls of ES nuts split over a several week period
prior to harvest. Those ES that split earlier than two weeks before
harvest had four times greater Aspergillus mold contamination compared
with ES that split within two weeks of harvest. Both older ES and ES
with moldy kernels had very different physical characteristics compared
to normal nuts: fruits and kernels weighed less, hulls were more
shriveled, and shells were smaller and stained * * *. In a typical
orchard approximately 1 to 4% of the nuts are ES at harvest time. Molds
in the genus Aspergillus are frequently found in ES nuts.''
According to other studies cited at the hearing, 90 percent of
aflatoxin is contained in 4.6 percent of low-quality pistachios.
Witnesses citing these studies further stated that removal of low-
quality product, defined as smaller, lighter, stained-shell nuts
typically found in ``early splits'', would reduce the average presence
of aflatoxin in pistachios from 1.2 to 0.12 nano-grams/gram (ng/g) for
all product sold for human consumption.
Furthermore, drawing from a study on the distribution of aflatoxin
in processed and unprocessed pistachios, witnesses cited the study's
conclusion that, ``all aflatoxin found here arises in the orchard; none
is produced under normal processing conditions.''
Record evidence demonstrated that aflatoxin occurs rarely in a very
small number of nuts, it originates in the field, and it is
predominantly found in early split or damaged pistachios which have
very different physical characteristics than higher quality pistachios.
Due to the exceptional physical characteristics of the infected
nuts, witnesses explained that these nuts should be removed as part of
the industry's handling procedures. As such, witnesses advocated the
implementation of mandatory regulations that would not only set a
maximum level of aflatoxin, but also, through quality and size
specifications, encourage the removal of those nuts that both have the
least consumer acceptance and are most likely to harbor aflatoxin.
Marketing Policy
Proposed Sec. 983.37 would require that the committee prepare and
submit to USDA prior to August 1st of each year an annual marketing
policy. The marketing policy would serve as the basis for any committee
recommendations for revisions in quality regulations for the upcoming
crop year. Record evidence explained that in developing its marketing
policy, the committee should consider production, harvesting,
processing and storage conditions, as well as current and prospective
prices.
Proposed Aflatoxin Provisions
According to testimony presented by Dr. Al Eaton, Director of the
Center for Ecogenetics and Environmental Health, and the Department of
Environmental Health, School of Public Health and Community Medicine,
both of the University of Washington, aflatoxin is a known contaminant
in pistachios. Dr. Eaton's testimony outlined the scientific arguments
behind regulating aflatoxin as a known human carcinogen. Other
witnesses argued that regulation of aflatoxin is an important factor
contributing to the quality of pistachios. Witnesses testified that
regulation of aflatoxin is crucial to positive acceptance of pistachios
among consumers and growth of consumer demand.
As stated by Dr. Eaton, the U.S. and international scientific
communities have reviewed the significance of aflatoxin in human food
and animal feed extensively. Dr. Eaton referred to studies by Eaton and
Groopman, 1994, as well as the Food and Agriculture Organization and
World Health Organization's Joint Expert Committee on Food Additives
(JECFA), 1998. Dr. Eaton stated that limiting aflatoxin in affected
commodities is important in regard to these concerns.
Proposed Sec. 983.38(a) would provide for a maximum aflatoxin
level for pistachios shipped for domestic human consumption. The level
supported by record evidence is 15 parts per billion (ppb). Under this
provision, no pistachios with an aflatoxin level greater than 15 ppb
could be shipped for domestic human consumption. Witnesses testifying
at the hearing stated that the 15 ppb threshold is an appropriate level
to ensure the quality of pistachios. Witnesses also explained that 15
ppb is the maximum level of aflatoxin allowed in peanuts, another
commodity known to be affected by aflatoxin-bearing molds (7 CFR part
996).
The United States Food and Drug Administration (FDA) currently
employs an aflatoxin tolerance level in pistachios of 20 ppb. Thus,
this proposal would be more restrictive than what is currently accepted
by the FDA. Witnesses explained that the 15 ppb was selected as the
proposed maximum threshold to ensure that sampling procedures would
result in aflatoxin tolerances below the current FDA level.
Proposed Sec. 983.38(a) also provides that an aflatoxin inspection
certificate
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must cover all shipments for domestic human consumption. Further, any
pistachios that fail to meet the aflatoxin requirement must be disposed
of in certain ways. The inspection and substandard pistachio
disposition procedures are discussed in detail later in this document.
At the hearing, witnesses recommended eliminating the decimal point
and the zero from all references to ``15.0'' ppb. The maximum aflatoxin
threshold should read ``15'' ppb. Witnesses explained that current
testing techniques available to the industry are only accurate to one
part per billion. As such, requiring testing beyond the one part per
billion would not be compatible with current industry testing
abilities. Similarly, references to ``5.0'' ppb and ``10.0'' ppb should
be c