Walnuts Grown in California; Secretary's Decision and Referendum Order on Proposed Amendments to Marketing Order No. 984, 14083-14090 [2023-04428]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 88, Number 44 (Tuesday, March 7, 2023)]
[Proposed Rules]
[Pages 14083-14090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04428]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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

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Federal Register / Vol. 88 , No. 44 / Tuesday, March 7, 2023 / 
Proposed Rules

[[Page 14083]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 984

[Docket No. 22-J-0011; AMS-SC-22-0010; SC22-981-1]


Walnuts Grown in California; Secretary's Decision and Referendum 
Order on Proposed Amendments to Marketing Order No. 984

AGENCY: Agricultural Marketing Service, Department of Agriculture 
(USDA).

ACTION: Proposed rule and referendum order.

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SUMMARY: This decision proposes amendments to Marketing Order No. 984 
(Order), which regulates the handling of walnuts grown in California, 
and provides growers with the opportunity to vote in a referendum to 
determine if they favor the changes. The California Walnut Board 
(Board), which locally administers the Order, recommended proposed 
amendments that would eliminate mandatory inspection and certification 
of inshell and shelled walnuts, and of shelled walnuts for processing; 
create a new mechanism for determining and collecting handler 
assessments; add authority to charge interest for late payments; 
establish an assessment rate of $0.0125 per inshell pound of walnuts; 
expand the definition of ``to handle'' to include ``receive''; and 
remove volume control authority. In addition, the Agricultural 
Marketing Service (AMS) proposed to make any such changes to the Order 
as may be necessary to conform to any amendment that may result from 
the hearing.

DATES: The referendum will be conducted from April 3 through April 21, 
2023. The representative period for the purpose of the referendum is 
September 1, 2021, through August 31, 2022.

ADDRESSES: Market Development Division, Specialty Crops Program, AMS, 
USDA, 1400 Independence Avenue SW, Stop 0237, Washington, DC 20250-
0237.

FOR FURTHER INFORMATION CONTACT: Geronimo Quinones, Market Development 
Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue 
SW, Stop 0237, Washington, DC 20250-0237; Telephone: (202) 308-2339 or 
Matthew Pavone, Market Development Division, Specialty Crops Program, 
AMS, USDA, 1400 Independence Avenue SW, Stop 0237, Washington, DC 
20250-0237; Telephone: (202) 720-2491, or Email: 
[email protected] or [email protected].
    Small businesses may request information on this proceeding by 
contacting Richard E. Lower, Market Development Division, Specialty 
Crops Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, 
Washington, DC 20250-0237; Telephone: (202) 720-2491, or Email: 
[email protected].

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding: Notice 
of Hearing published in the April 1, 2022, issue of the Federal 
Register (87 FR 19020) and a Recommended Decision published in the 
October 25, 2022, issue of the Federal Register (87 FR 64385).
    This action is governed by the provisions of sections 556 and 557 
of title 5 of the United States Code and, therefore, is excluded from 
the requirements of Executive Orders 12866, 13563, and 13175.
    Notice of this rulemaking action was provided to tribal governments 
through the Department of Agriculture's (USDA) Office of Tribal 
Relations.

Preliminary Statement

    This decision is issued pursuant to the provisions of the 
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-
674), hereinafter referred to as the ``Act,'' and the applicable rules 
of practice and procedure governing the formulation and amendment of 
marketing agreements and orders (7 CFR part 900).
    The proposed amendments in this decision are based on the record of 
a public hearing held via videoconference technology on April 19 and 
20, 2022. Notice of this hearing was published in the Federal Register 
on April 1, 2022 (87 FR 19020). The Notice of Hearing contained five 
proposals submitted by the Board and one submitted by USDA.
    The amendments proposed by the Board would amend quality control 
provisions to remove inspection and certification requirements, create 
a new mechanism for determining and collecting handler assessments, add 
authority to charge interest for late payments, establish an assessment 
rate of $0.0125 per inshell pound of walnuts; expand the definition of 
``to handle'' to include ``receive'', and remove volume control 
authority.
    The California walnut industry entered into a marketing order in 
1948 to establish minimum quality requirements as a way to ensure 
industrial buyers and consumers have access to a reliable and 
consistent supply of wholesome walnuts. The Dried Fruit Association was 
the agency named in the marketing order as the agency responsible for 
performing grading services. Over time, buyer specifications and end-
user requirements exceeded U.S. grade standards, making federally 
mandated inspection services duplicative. The California walnut 
industry seeks to streamline its handling operations by eliminating 
outgoing inspections and focusing on increasing consumption through 
promotion and market-building.
    USDA proposed to make any such changes as may be necessary to the 
Order to conform to any amendment that may be adopted, or to correct 
minor inconsistencies and typographical errors. Accordingly, USDA 
recommended the following changes in the Recommended Decision: adding 
language regarding exemptions to Sec.  984.67; removing the references 
to ``merchantable'' walnuts in Sec. Sec.  984.22,984.72, and 984.472(a) 
and (c); revising the heading in Sec.  984.21; revising Sec. Sec.  
984.69(e) and 984.89(b)(4) to replace the term ``fiscal period'' with 
``marketing year''; and revising the assessment rate provided in Sec.  
984.347.
    Currently, Sec.  984.67(b)(1) of the Code of Federal Regulations is 
missing language pertaining to two exemptions from assessments and 
quality regulations--specifically for green walnuts and walnuts 
directed to noncompetitive outlets. USDA determined that the language 
missing was inadvertently omitted in a prior rulemaking conducted in 
May 2020 and recommended that the missing language be added back to 
Sec.  984.67. This recommendation was discussed at the

[[Page 14084]]

hearing and all witnesses testified in support of adding the language 
back to Sec.  984.67.
    In Sec.  984.11, ``merchantable walnuts'' are defined as ``walnuts 
meeting the minimum grade and size regulations effective pursuant to 
Sec.  984.50.'' USDA has determined that if the proposed amendment to 
remove inspection and certification requirements is implemented, there 
would be no grade and size regulations in effect to distinguish 
``merchantable'' walnuts from other walnuts. Witnesses at the hearing 
testified that this was their understanding of the effect of the 
proposed amendment and testified in favor of removing numerous 
references to the term ``merchantable'' in various sections, including 
Sec.  984.48. Similarly, witnesses also supported amendment of Sec.  
984.472(b) to ensure that reporting requirements for shipped walnuts 
would continue. Accordingly, USDA proposed that references to 
``merchantable'' be removed from other reporting requirements to ensure 
that appropriate reporting requirements continue to be in place.
    Section 984.50 would continue to provide authority for grade, 
quality, and size regulations if such regulations are warranted in the 
future. If specific grade, quality, and size regulations are 
promulgated and implemented in the future, the term ``merchantable 
walnuts,'' defined as ``walnuts meeting the minimum grade and size 
regulations effective pursuant to Sec.  984.50,'' would once again have 
meaning and effect. Accordingly, the definition for ``merchantable 
walnuts'' and other sections that reference the word ``merchantable'' 
in the Order would not be affected by the proposed amendments. 
Specifically, Sec. Sec.  984.11, 984.12, and 984.64 would continue to 
reference ``merchantable walnuts.''
    In addition, as noted in both the Notice of Hearing and the 
Recommended Decision, USDA recommended a clarifying change to the 
heading of Sec.  984.21. USDA has determined that the heading, 
currently ``Eligibility,'' does not reflect the purposes of the 
provision, which defines handler inventory. Accordingly, USDA proposed 
to rename the section ``Handler inventory.''
    USDA also proposed to revise Sec. Sec.  989.69(e) and 984.89(b)(4) 
to replace the term ``fiscal period'' with ``marketing year.'' The term 
``fiscal period'' is not defined in the Order, whereas ``marketing 
year'' is defined and already used throughout the Order. USDA 
recommended this change to add clarity to the Order.
    To conform with changes to the assessment mechanism, which would 
assess handlers on walnut receipts instead of inspected and certified 
volumes, the industry recommended revising the handler assessment rate 
in the regulations to reflect dollars per inshell pound of walnuts.
    Additionally, as discussed in the Recommended Decision, there was 
an error in the proposed revision to Sec.  984.347 in the Notice of 
Hearing, in which the proposed assessment rate was listed as $.125 per 
inshell pound. Witnesses at the hearing testified that the assessment 
rate should be $.0125 per inshell pound, and the Recommended Decision 
and this decision reflect the correct rate.
    Upon the basis of evidence introduced at the hearing and the record 
thereof, the Administrator of AMS on November 4, 2022, filed with the 
Hearing Clerk, USDA, a Recommended Decision and Opportunity to File 
Written Exceptions thereto by November 25, 2022. No exceptions were 
filed.
    USDA has subsequently identified an additional conforming change to 
the proposed regulatory language published in the Recommended Decision. 
In 7 CFR 984.69(d), the text currently refers to permitting advanced 
assessments when assessments based on the ``current season's 
certifications'' are not yet available. Because Sec.  984.51 would be 
removed and assessments would no longer be based on certifications, the 
language in proposed Sec.  984.69(e) has been modified to refer to 
``assessments for the current marketing year.'' The regulatory text 
included in this Secretary's Decision reflects this change.

Regulatory Flexibility Analysis

    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (RFA), AMS has considered the economic impact of this 
action on small entities. Accordingly, AMS has prepared this regulatory 
flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions so that small businesses will not be 
unduly or disproportionately burdened. Marketing orders and amendments 
thereto are unique in that they are normally brought about through 
group action of essentially small entities for their own benefit.
    During the hearing held April 19 and 20, 2022, interested parties 
were invited to present evidence on the probable regulatory impact on 
small businesses of the proposed amendments to the Order. The evidence 
presented at the hearing shows that the proposed amendments would not 
have a significant negative economic impact on a substantial number of 
small agricultural producers or handlers.
    A small handler, as defined by the Small Business Administration 
(SBA) (13 CFR 121.201), is one that grosses less than $30 million 
annually. A small walnut producer is one that grosses less than $3.25 
million annually.
    Effective May 2, 2022, SBA issued a final rule updating small 
business size standards for agriculture (86 FR 18607). The tree nut 
farming (NAICS 111335) size standard changed from $1 million to $3.25 
million. The witnesses who identified themselves as small producers did 
so using the SBA size standard in effect at the time of the hearing 
($1.0 million of gross annual receipts); they are also small under the 
new standard of $3.25 million of gross annual receipts.
    A total of nine witnesses testified at the hearing. Of the nine 
witnesses, seven appeared and offered testimony as growers or handlers. 
Five of these seven witnesses were growers, and four of the five grower 
witnesses were also handlers. Two of five grower witnesses testified 
that they were small walnut growers according to the former SBA 
definition of $1.0 million, and three were large.
    Of the six handler witnesses, two were small and four were large. 
Of the four grower witnesses who were also handlers, one was a small 
handler, and three were large. There were two additional handler 
witnesses, one small and one large.
    Of the remaining two witnesses, one testified from the perspective 
of academia and the other witness testified as a representative of the 
California Walnut Board.
    All witnesses expressed their support for the proposed amendments 
and stated that they expect to see significant benefits (cost savings) 
from the amendments.

Walnut Industry Background and Overview

    According to the hearing record, there are approximately 4,500 
producers and 85 handlers in the production area. Record evidence 
includes reference to a study showing that the walnut industry 
contributes 85,000 jobs to the economy, directly and indirectly.
    Record evidence showed that approximately 82 percent of 
California's walnut handlers (70 out of 85) shipped merchantable 
walnuts valued under $30 million during the 2018-2019 marketing year 
and would therefore be considered small handlers according to the SBA 
definition.

[[Page 14085]]

    Data in the hearing record from the 2017 Agricultural Census, 
published by USDA'S National Agricultural Statistics Service (NASS), 
showed that 86 percent of the California farms growing walnuts had 
walnut sales of less than $1 million. In the 2017 Agricultural Census, 
the largest sales value size category for walnuts was $1.0 million.
    To estimate the percentage of small walnut farms, using NASS data 
from the hearing record, the first step was computing a 3-year average 
crop value, which was roughly $1.077 billion for the period 2018-19 to 
2020-21. The average walnut-bearing acreage over that same 3-year 
period was 372,500 acres. Dividing crop value by bearing acreage shows 
a per-acre revenue estimate of $2,892. Using these numbers, it would 
take approximately 1,124 acres ($3,250,000 divided by $2,892) to yield 
roughly $3,250,000 in annual walnut sales. The 2017 Agricultural Census 
data show that 94 percent of walnut farms in 2017 were below 1,000 
acres. Therefore, 94 percent or more of California walnut farms would 
be considered small businesses according to the current SBA definition 
of $3.25 million in gross annual receipts.
    Hearing evidence showed that the period from walnut tree planting 
to production ranges from 5 to 7 years, and that production levels each 
year are somewhat affected by the alternate bearing tendency. The 
pricing downturn that began in 2015 somewhat diminished the rate of new 
plantings, but about 36,000 previously planted acres are expected to 
come into production in the next 3 years (2023 to 2026). These are 
high-yield varieties, and therefore the new acres are expected to be 
more productive than the walnut acreage being removed.
    According to the record, generally all domestic production of 
walnuts is grown in California's Central Valley region, which includes 
the Sacramento Valley in the north and the San Joaquin Valley in the 
south. The San Joaquin Valley is one of only five major Mediterranean-
type climates in the world that are ideal for growing nuts. Over the 
past 10 years, walnut acreage has migrated north for better water 
availability. Production in the northern part of the Central Valley is 
expected to grow significantly, and the proportion of total production 
in the south is expected to decline.
    Walnut trees bloom in the spring, and the harvest for early 
varieties starts in September. Harvesting for later varieties starts in 
October and sometimes continues into November. As soon as the nuts are 
harvested, they must be hulled (removal of the green husk) and dried. 
Freshly harvested nuts have too high a moisture content for long-term 
storage, and they need to be hulled and dried quickly to preserve 
quality and to minimize mold and rancidity. Growers still own the nut 
at this point, according to hearing evidence.
    The processor (handler) then buys the nuts based on the cleaned, 
hulled, and dried weight. The handlers process and store them before 
and after the value-added steps and before shipping them into 
distribution channels.
    Once received by the handler, the walnuts go into refrigerated or 
bulk storage, depending on the type of product that the handler intends 
to produce. Smaller lots, such as for minor varieties, are put into bin 
storage. Once the walnuts are warehoused and fumigated to eliminate 
insects, a sample is taken to determine the value of the product to the 
producer. The walnuts are tested for kernel content, edible kernel 
content, defect levels, and color. The lighter the color, the greater 
the value. The three predominant colors are light, light amber, and 
amber.
    The shelling process removes most of the shell, typically leaving 
about 98 percent kernel and 2 percent shell. The resulting lot has nuts 
with a mixture of colors and approximately six different sizes, ranging 
from eight-of-an-inch square up to a half kernel.
    Walnuts generally have a 12-month shelf life, which can be 
moderately increased through improved storage conditions and may be 
reduced if storage conditions are not ideal. Cold storage has 
facilitated year-round sales and marketing. Witnesses stated that 
advancements in processing and packaging technologies continue to 
improve product quality, consistency, and shelf life.
    Some packaging methods, including vacuum packing, will increase 
shelf life and help maintain quality. Walnuts can also be pasteurized 
to reduce pathogens. Modified atmosphere storage requires substantial 
capital, including automation of storage chamber loading and unloading 
because the low oxygen environment is dangerous for forklift drivers.
    On the handler processing lines, key pieces of equipment are laser 
sorters and optical camera sorters, which can sort by color and shape. 
Broad spectrum analyses (using infrared and ultraviolet light) are 
increasingly effective at identifying defects. Mechanical air injection 
systems use jets of air to remove individual nuts identified as 
defective.
    A key factor in quality improvement are new varieties, including 
Chandler, Howard, Pillory, Ivanhoe, and Sawano.\1\ With these 
varieties, shell removal is much easier, leaving far fewer fragments 
and pieces. Recent technology improvements have also greatly reduced 
the incidence of foreign material and shell pieces to a level that is 
far below what is allowed under USDA standards, which were established 
decades earlier.
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    \1\ The Chandler variety comprises 58 percent of total walnut 
production. Three varieties (Chandler, Howard, and Tulare) make up 
85 percent of total walnut volume.
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    With the new varieties, the kernel color is much lighter, and the 
nuts are larger. In addition, advances in processing equipment produce 
a much higher percentage of ``pristine halves.'' Witnesses testified 
that these three key characteristics yield more money to industry 
stakeholders but are not accounted for in USDA standards.
    According to hearing evidence, prior to the moratorium on the 
enforcement of mandatory inspection requirements that began on 
September 1, 2021, inspections for large volume handlers were typically 
performed by inspectors employed by the Dried Fruit Association (DFA), 
which is the Board's inspection agency of record, working from a space 
close to their own quality assurance (QA) staff. DFA conducted quality 
tests from in-line samples with processes that largely paralleled those 
of the handler QA staff, but DFA applied the less stringent USDA 
standards. For smaller volume handlers, DFA staff tested nuts based on 
samples from packaged products on the packing floor (floor inspection). 
For the mandatory outbound inspection, no product could leave the 
processing facility without USDA certification issued by DFA.
    Before USDA implemented the inspection moratorium, operational 
inefficiencies for handlers included sometimes having to wait for 
qualified DFA inspection staff to show up to certify lots in a timely 
manner, adding to an already challenging shipping environment. Hearing 
evidence suggests that the elimination of mandatory inspections and 
being able to self-certify according to customer specifications that 
are more stringent than USDA standards would be a significant benefit 
of the proposed changes to handlers of all sizes. Some handlers may 
continue to use DFA inspection services for quality control; however, 
hearing evidence shows the industry is undergoing a transition away 
from the traditional practice of third-party inspections for greater 
cost savings.
    According to the record, the elimination of mandatory inspection 
and certification prevents the Board

[[Page 14086]]

from collecting assessments under the current regulations. The proposed 
new assessment mechanism would be based on walnuts received instead of 
walnuts certified, and would allow the Board to resume collecting 
assessments. Witnesses reported that the proposed amendment to collect 
handler assessments in three installments (to be paid in February, May, 
and August) rather than in monthly installments as currently provided 
under the order, would further improve operational efficiency and 
reduce paperwork burden for handlers.
    In summary, hearing evidence points to major technological 
improvements in sorting, processing, and storage--and to the adoption 
of new varieties--as key evidence of how current industry practices 
result in walnut quality that exceeds USDA standards, making mandatory 
outgoing inspection unnecessary.

Estimated Economic Impact of Eliminating Mandatory Inspection

    A key economic impact of the marketing order amendment is the cost 
reduction to industry stakeholders associated with eliminating 
mandatory inspection. Hearing evidence showed that an estimate of the 
mandatory inspection cost, pre-moratorium, is approximately $6 million 
per year.
    Table 2 illustrates the inspection cost estimate. Multiplying the 
total quantity of California walnuts marketed in 2020 (783,500 tons) 
times the average inspection cost of $7.7024 per ton yields the total 
annual mandatory inspection cost estimate of $6,034,830 shown in Table 
2. These numbers represent the costs incurred by handlers for the 
inspection services supplied by DFA.
    The proportion of the crop marketed as inshell and shelled are 42 
and 58 percent, respectively. These proportions are used to show how 
the $6.035 million inspection cost is allocated to the inshell and 
shelled portions of the total U.S. walnut market.

                                             Table 2--Estimated Annual Cost Mandatory Walnut Inspection \1\
 
 
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                                                        Inshell         Shelled           Total                    Computational detail
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Share of sales (%).............................             42%             58%            100%               A
Volume (tons)..................................         329,070         454,430         783,500               B  A * total volume
Inspection Cost ($ per ton) \2\................           $6.09           $8.87         $7.7024               C
                                                --------------------------------------------------------------------------------------------------------
    Total inspection cost \2\..................      $2,004,036      $4,030,794      $6,034,830               D  B * C
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\1\ This table is based on Exhibit 16A of the walnut marketing order amendment hearing, which used data supplied by California Walnut Board.
\2\ Total inspection cost of $6,034,830 in this table is the sum of the inshell and shelled cost and represents a slight upward adjustment from the
  total cost figure of $6,032,950 in hearing Exhibit 16A. This revised total cost figure was used to compute a revised inspection cost per ton of
  $7.7024, representing an average industry cost, combining inshell and shelled. This is slightly higher than the $7.70 cost figure presented in Exhibit
  16A.

    Hearing evidence also pointed to other benefits, such as lower 
indirect costs to handlers. Witnesses stated that handlers would 
benefit from reduced operational process redundancies, resulting in 
lower associated costs and administrative burdens. An additional 
efficiency for handlers is that the proposed new marketing order 
assessment mechanism utilizes the same process already in use by 
handlers for their payment to the California Walnut Commission.
    In addition, producers may also benefit from higher grower returns 
through cost savings passed on from increased handler efficiencies.
    The record shows that there would be no negative quality 
implications from implementing the proposed amendments, and consumers 
already benefit from California walnut quality that surpasses USDA 
grade standards. Consumers may also benefit from lower prices resulting 
from reduced handler costs. If the proposed amendments and accompanying 
conforming changes were implemented, both benefits and costs savings 
could be anticipated. For the reasons described above, it is determined 
that the benefits of eliminating mandatory inspection and certification 
of inshelled and shelled walnuts, and of shelled walnuts for 
processing; creating a new mechanism for determining and collecting 
handler assessments; adding authority to charge interest for late 
payments; establishing an assessment rate of $0.0125 per inshell pound 
of walnuts; expanding the definition of ``to handle'' to include 
``receive'', and removing volume control authority would modernize and 
align the Order with current market-driven practices that would result 
in a more efficient industry.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap or conflict with this proposed rule. These amendments are 
intended to improve the operation and administration of the Order and 
to assist in the marketing of California walnuts.
    Board meetings regarding these proposals, as well as the hearing 
date and location, were widely publicized throughout the California 
walnut industry, and all interested persons were invited to attend the 
meetings and the hearing to participate in Board deliberations on all 
issues. All Board meetings and the hearing were public forums, and all 
entities, both large and small, were able to express views on these 
issues. Interested persons are invited to submit information on the 
regulatory impacts of this action on small businesses.
    AMS is committed to complying with the E-Government Act, to promote 
the use of the internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

Paperwork Reduction Act

    Current information collection requirements that are part of the 
Federal marketing order for California walnuts (7 CFR part 984) are 
approved under OMB No. 0581-0178 Vegetables and Specialty Crops. No 
changes in these requirements are anticipated because of this 
proceeding. Should any such changes become necessary, they would be 
submitted to OMB for approval.
    As with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies.

Civil Justice Reform

    The amendments to the Order proposed herein have been reviewed 
under Executive Order 12988, Civil Justice Reform. They are not 
intended to have retroactive effect. If adopted, the proposed 
amendments would not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
proposal.

[[Page 14087]]

    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under Sec.  608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. A 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing, USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed no later than 20 days after the date of 
entry of the ruling.

Findings and Conclusions

    The findings and conclusions, rulings, and general findings and 
determinations included in the Recommended Decision set forth in the 
October 25, 2022, issue of the Federal Register (87 FR 64385), and as 
revised in this Secretary's Decision, are hereby approved and adopted.

Marketing Order

    Annexed hereto and made a part hereof is the document entitled 
``Order Amending the Order Regulating the Handling of Walnuts Grown in 
California.'' This document has been decided upon as the detailed and 
appropriate means of effectuating the foregoing findings and 
conclusions.
    It is hereby ordered that this entire decision be published in the 
Federal Register.

Referendum Order

    It is hereby directed that a referendum be conducted in accordance 
with the procedure for the conduct of referenda (7 CFR 900.400 through 
900.407) to determine whether the annexed order amending the order 
regulating the handling of walnuts grown in California is approved or 
favored by growers, as defined under the terms of the order, who during 
the representative period were engaged in the production of walnuts in 
the production area. The referendum dates are April 3 through April 21, 
2023. The representative period for the conduct of such referendum is 
hereby determined to be September 1, 2021, through August 31, 2022.
    The agents of the Secretary to conduct such referendum are hereby 
designated to be Joshua R. Wilde, Marketing Specialist, and Gary Olson, 
Regional Director, Western Region Branch, Market Development Division, 
Specialty Crops Program, AMS, USDA; Telephone: (503) 326-2724 or Email: 
[email protected] or [email protected], respectively.

Order Amending the Order Regulating the Handling of Walnuts Grown in 
California \2\
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    \2\ This order shall not become effective unless and until the 
requirements of Sec.  900.14 of the rules of practice and procedure 
governing proceedings to formulate marketing agreements and 
marketing orders have been met.
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Findings and Determinations

    The findings and determinations hereinafter set forth are 
supplementary to the findings and determinations that were previously 
made in connection with the issuance of the marketing order; and all 
said previous findings and determinations are hereby ratified and 
affirmed, except insofar as such findings and determinations may be in 
conflict with the findings and determinations set forth herein.
(a) Findings and Determinations Upon the Basis of the Hearing Record
    Pursuant to the provisions of the Agricultural Marketing Agreement 
Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of 
practice and procedure effective thereunder (7 CFR part 900), a public 
hearing was held upon proposed further amendment of Marketing Order No. 
984, regulating the handling of walnuts grown in California.
    Upon the basis of the record, it is found that:
    (1) The marketing order, as amended, and as hereby proposed to be 
further amended, and all of the terms and conditions thereof, would 
tend to effectuate the declared policy of the Act;
    (2) The marketing order, as amended, and as hereby proposed to be 
further amended, regulates the handling of walnuts grown in the 
production area in the same manner as, and is applicable only to, 
persons in the respective classes of commercial and industrial activity 
specified in the marketing order upon which a hearing has been held;
    (3) The marketing order, as amended, and as hereby proposed to be 
further amended, is limited in its application to the smallest regional 
production area that is practicable, consistent with carrying out the 
declared policy of the Act, and the issuance of several orders 
applicable to subdivisions of the production area would not effectively 
carry out the declared policy of the Act;
    (4) The marketing order, as amended, and as hereby proposed to be 
further amended, prescribes, insofar as practicable, such different 
terms applicable to different parts of the production area as are 
necessary to give due recognition to the differences in the production 
and marketing of walnuts grown in California; and
    (5) All handling of walnuts grown in the production area as defined 
in the marketing order is in the current of interstate or foreign 
commerce or directly burdens, obstructs, or affects such commerce.

Order Relative to Handling

    It is therefore ordered, that on and after the effective date 
hereof, all handling of walnuts grown in California shall be in 
conformity to, and in compliance with, the terms and conditions of the 
said order as hereby proposed to be amended as follows:
    The provisions of the proposed marketing order amending the order 
contained in the Recommended Decision published in the October 25, 
2022, issue of the Federal Register (87 FR 64385), and as revised in 
this Secretary's Decision, will be and are the terms and provisions of 
this order amending the order and are set forth in full herein.

List of Subjects in 7 CFR Part 984

    Marketing agreements, Nuts, Reporting and recordkeeping 
requirements.

Recommended Further Amendment of the Marketing Order

    For the reasons set out in the preamble, 7 CFR part 984 is proposed 
to be amended as follows:

PART 984--WALNUTS GROWN IN CALIFORNIA

0
1. The authority citation for 7 CFR part 984 continues to read as 
follows:

    Authority: 7 U.S.C. 601-674.
0
2. Revise 984.12 to read as follows:


Sec.  984.12  Substandard walnuts.

    Substandard walnuts means all walnuts (whether inshell or shelled) 
that do not meet the minimum standard prescribed for merchantable 
walnuts whenever regulations are in effect pursuant to Sec.  984.50.
0
3. Revise Sec.  984.13 to read as follows:


Sec.  984.13  To handle.

    To handle means to receive, pack, sell, consign, transport, or ship 
(except as a common or contract carrier of walnuts owned by another 
person), or in any other way to put walnuts, inshell or shelled, into 
the current of commerce either within the area of production or

[[Page 14088]]

from such area to any point outside thereof, or for a manufacturer or 
retailer within the area of production to purchase directly from a 
grower. However, sales and deliveries by a grower to handlers, hullers, 
or other processors within the area of production shall not, in itself, 
be considered as handling by a grower. The term ``to handle'' shall not 
include sales and deliveries within the area of production between 
handlers.
0
4. Amend Sec.  984.21 by revising the section heading to read as 
follows:


Sec.  984.21  Handler inventory.

* * * * *
0
5. Amend Sec.  984.22 by removing the word ``merchantable'' in 
paragraphs (a) and (b).


Sec. Sec.  984.23 and 984.26  [Removed and Reserved]

0
6. In Sec. Sec.  984.23 and 984.26, lift the stays of May 7, 2020, and 
remove and reserve the sections.
0
7. Revise Sec.  984.32 to read as follows:


Sec.  984.32  To certify.

    To certify means the issuance of a certification of inspection of 
walnuts in accordance with regulations issued pursuant to Sec.  984.50.


Sec.  984.33  [Removed and Reserved]

0
8. In Sec.  984.33, lift the stay of May 7, 2020, and remove and 
reserve the section.
0
9. Amend Sec.  984.37 by revising paragraphs (b) and (c)(4) to read as 
follows:


Sec.  984.37  Nominations.

* * * * *
    (b) Nominations for handler members shall be submitted on ballots 
mailed by the Board to all handlers in their respective Districts. All 
handlers' votes shall be weighted by the weight of inshell walnuts 
handled by each handler during the preceding marketing year. Each 
handler in the production area may vote for handler member nominees and 
their alternates. However, no handler with less than 35% of the crop 
shall have more than one member and one alternate member. The person 
receiving the highest number of votes for each handler member position 
shall be the nominee for that position.
    (c) * * *
    (4) Nominations for handler members representing handlers that do 
not handle 35% or more of the crop shall be submitted on ballots mailed 
by the Board to those handlers. The votes of these handlers shall be 
weighted by the weight of inshell walnuts handled by each handler 
during the preceding marketing year. Each handler in the production 
area may vote for handler member nominees and their alternates of this 
paragraph (c)(4). However, no handler shall have more than one person 
on the Board either as member or alternate member. The person receiving 
the highest number of votes for a handler member position of this 
paragraph (c)(4) shall be the nominee for that position.
* * * * *
0
10. In Sec.  984.48:
0
a. Revise the introductory text of paragraph (a);
0
b. Remove the words ``merchantable and substandard'' in paragraph 
(a)(3);
0
c. Lift the stays of May 7, 2020, on paragraphs (a)(6) and (7) and 
remove both paragraphs; and
0
d. Redesignate paragraphs (a)(8) and (9) as paragraphs (a)(6) and (7), 
respectively.
    The revision reads as follows:


Sec.  984.48  Marketing estimates and recommendations.

    (a) Each marketing year the Board shall hold a meeting, prior to 
October 20, for the purpose of recommending to the Secretary a 
marketing policy for such year. Each year such recommendation shall be 
adopted by the affirmative vote of at least 60% of the Board and shall 
include the following:
* * * * *


Sec.  984.49  [Removed and Reserved]

0
11. In Sec.  984.49, lift the stays of August 7, 1995, and May 7, 2020, 
and remove and reserve the section.
0
12. In Sec.  984.50, lift the stay of May 7, 2020, on paragraph (e) and 
revise the section to read as follows:


Sec.  984.50  Grade, quality, and size regulations.

    (a) The Board may recommend, subject to the approval of the 
Secretary, regulations that:
    (1) Establish handling requirements for particular grades, sizes, 
or qualities, or any combination thereof, of any or all varieties or 
classifications of walnuts during any period;
    (2) Establish different handling requirements and tolerance limits 
for particular grades, sizes, or qualities, or any combination thereof, 
for different market destinations;
    (3) Establish different handling requirements for the processing of 
shelled walnuts and the handling thereof; and
    (4) Establish inspection and certification requirements for the 
purposes of this paragraph (a) and paragraph (b) of this section.
    (b) During any period, regulations issued under this section are in 
effect, no handler shall handle or process walnuts into manufactured 
items or products unless they meet the applicable requirements under 
this section as evidenced by certification acceptable to the Board.
    (c) Regulations issued under this section may be amended, modified, 
suspended, or terminated whenever it is determined:
    (1) That such action is warranted upon recommendation of the Board 
and approval by the Secretary, or other available information; or
    (2) That regulations issued under this section no longer tend to 
effectuate the declared policy of the Act.


Sec. Sec.  984.51 and 984.52  [Removed and Reserved]

0
13. Remove and reserve Sec. Sec.  984.51 and 984.52


Sec. Sec.  984.54 and 984.56  [Removed and Reserved]

0
14. In Sec. Sec.  984.54 and 984.56, lift the stay of May 7, 2020, and 
remove and reserve the sections.
0
15. Revise Sec.  984.64 to read as follows:


Sec.  984.64  Disposition of substandard walnuts.

    During any period when regulations are in effect pursuant to Sec.  
984.50, substandard walnuts may be disposed of only for manufacture 
into oil livestock feed, or such other uses as the Board determines to 
be noncompetitive with existing domestic and export markets for 
merchantable walnuts and with proper safeguards to prevent such walnuts 
from thereafter entering channels of trade in such markets. Each 
handler shall submit, in such form and at such intervals as the Board 
may determine, reports of his production and holdings of substandard 
walnuts and the disposition of all substandard walnuts to any other 
person, showing the quantity, lot, date, name and address of the person 
to whom delivered, the approved use and such other information 
pertaining thereto as the Board may specify.


Sec.  984.66  [Removed and Reserved]

0
16. In Sec.  984.66, lift the stay of May 7, 2020, and remove and 
reserve the section.
0
17. In Sec.  984.67:
0
a. Lift the stay of May 7, 2020, on paragraph (a) and remove the 
paragraph;
0
b. Redesignate paragraphs (b) and (c) as paragraphs (a) and (b), 
respectively; and
0
c. Revise newly designated paragraph (a).
    The revision reads as follows:

[[Page 14089]]

Sec.  984.67  Exemptions.

    (a) Exemptions from assessments and quality regulations.
    (1) Sales by growers direct to consumers. Any walnut grower may 
handle walnuts of his production free of the regulatory and assessment 
provisions of this part if he sells such walnuts in the area of 
production directly to consumers under the following types of 
exemptions:
    (i) At roadside stands and farmers' markets;
    (ii) In quantities not exceeding an aggregate of 500 pounds of 
inshell walnuts of 200 pounds of shelled walnuts during any marketing 
year (at locations other than those specified in paragraph (a)(1)(i) of 
this section); and
    (iii) If shipped by parcel post or express in quantities not 
exceeding 10 pounds of inshell walnuts or 4 pounds of shelled walnuts 
to any one consumer in any one calendar day.
    (2) Green walnuts. Walnuts which are green and which are so 
immature that they cannot be used for drying and sale as dried walnuts 
may be handled without regard to the provisions of this part.
    (3) Noncompetitive outlets. Any person may handle walnuts, free of 
the provisions of this part, for use by charitable institutions, relief 
agencies, governmental agencies for school lunch programs, and 
diversion to animal feed or oil manufacture pursuant to an authorized 
governmental diversion program.
* * * * *
0
18. In Sec.  984.69, lift the stay of May 7, 2020, on paragraph (b) and 
revise the section to read as follows:


Sec.  984.69  Assessments.

    (a) Requirement for payment. Each handler shall pay the Board, on 
demand, his or her pro rata share of the expenses authorized by the 
Secretary for each marketing year. Each handler's pro rata share shall 
be the rate of assessment per inshell pound of walnuts fixed by the 
Secretary times the pounds of walnuts received by him or her for his or 
her own account (except as to receipt from other handlers on which 
assessments have been paid). At any time during or after the marketing 
year the Secretary may increase the assessment rate as necessary to 
cover authorized expenses and each handler's pro rata share shall be 
adjusted accordingly.
    (b) Assessment rate. The assessment rate set out may be modified by 
the Secretary, based upon a recommendation of the Board or other 
available data.
    (c) Late payment. If a handler does not pay assessments within the 
time prescribed by the Board, the assessment may be increased by a late 
payment charge and/or an interest rate charge at amounts prescribed by 
the Board with approval of the Secretary.
    (d) Accounting. If at the end of a marketing year the assessments 
collected are in excess of expenses incurred, such excess shall be 
accounted for in accordance with one of the following:
    (1) If such excess is not retained in a reserve, as provided in 
paragraph (d)(2) or (3) of this section, it shall be refunded to 
handlers from whom collected, and each handler's share of such excess 
funds shall be the amount of assessments he or she has paid in excess 
of his or her pro rata share of the actual expenses of the Board.
    (2) Excess funds may be used temporarily by the Board to defray 
expenses of the subsequent marketing year provided each handler's share 
of such excess shall be made available to him or her by the Board 
within five months after the end of the year.
    (3) The Board may carry over such excess into subsequent marketing 
years as a reserve: Provided, that funds already in reserve do not 
exceed approximately two years' budgeted expenses. In the event that 
funds exceed two marketing years' budgeted expenses, future assessments 
will be reduced to bring the reserves to an amount that is less than or 
equal to two marketing years' budgeted expenses. Such reserve funds may 
be used:
    (i) To defray expenses, during any marketing year, prior to the 
time assessment income is sufficient to cover such expenses;
    (ii) To cover deficits incurred during any year when assessment 
income is less than expenses;
    (iii) To defray expenses incurred during any period when any or all 
provisions of this part are suspended; and
    (iv) To meet any other such costs recommended by the Board and 
approved by the Secretary.
    (e) Advanced assessments and commercial loans. To provide funds for 
the administration of the provisions of this part during the part of a 
marketing year when neither sufficient operating reserve funds nor 
sufficient revenue from assessments for the current marketing year are 
available, the Board may accept payment of assessments in advance or 
may borrow money from a commercial lending institution for such 
purposes.
    (f) Termination. Any money collected from assessments hereunder and 
remaining unexpended in the possession of the Board upon termination of 
this part shall be distributed in such manner as the Secretary may 
direct.
0
19. Revise Sec.  984.72 to read as follows:


Sec.  984.72  Reports of walnuts handled.

    Each handler who handles walnuts, inshell or shelled, at any time 
during a marketing year shall submit to the Board in such form and at 
such intervals as the Board may prescribe, reports showing the quantity 
so handled and such other information pertinent thereto as the Board 
may specify.
0
20. Revise Sec.  984.77 to read as follows:


Sec.  984.77  Verification of reports.

    For the purpose of verifying and checking reports filed by handlers 
or the operations of handlers, the Secretary and the Board through its 
duly authorized representatives shall have access to any premises where 
walnuts and walnut records are held. Such access shall be available at 
any time during reasonable business hours. Authorized representatives 
shall be permitted to inspect any walnuts held and any and all records 
of the handler with respect to matters within the purview of this part. 
Each handler shall maintain complete records on the receiving, holding, 
and disposition of both inshell and shelled walnuts. Each handler shall 
furnish all labor necessary to facilitate such inspections at no 
expense to the Board or the Secretary. Each handler shall store all 
walnuts held by him or her in such manner as to facilitate inspection 
and shall maintain adequate storage records, which will permit accurate 
identification of respective lots and of all such walnuts held or 
disposed of theretofore. The Board, with the approval of the Secretary, 
may establish any methods and procedures needed to verify reports.


Sec.  984.89  [Amended]

0
21. In Sec.  984.89 (b)(4), remove the term ``fiscal period'' and add 
in its place the term ``marketing year''.
0
22. Revise Sec.  984.347 to read as follows:


Sec.  984.347  Assessment rate.

    On and after September 1, 2023, an assessment rate shall be fixed 
at $0.0125 per inshell pound of California walnuts.


Sec.  984.450  [Removed and Reserved]

0
23. In Sec.  984.450, lift the stays of May 7, 2020, on paragraphs (a) 
and (b) and remove and reserve the section.

[[Page 14090]]

Sec.  984.451  [Removed and Reserved]

0
24. In Sec.  984.451, lift the stay of May 7, 2020, on paragraph (c) 
and remove and reserve the section.


Sec.  984.452  [Removed and Reserved]

0
25. Remove and reserve Sec.  984.452.


Sec.  984.456  [Removed and Reserved]

0
26. In Sec.  984.456, lift the stay of May 7, 2020, and remove and 
reserve the section.


Sec.  984.459  [Amended]

0
27. In Sec.  984.459, remove and reserve paragraph (a)(3).


Sec.  984.464  [Removed and Reserved]

0
28. In Sec.  984.464, lift the stay of May 7, 2020, on paragraph (a) 
and remove and reserve the section.
0
29. Revise Sec.  984.472 to read as follows:


Sec.  984.472  Reports of walnuts, received, shipped, and committed.

    (a) Reports of walnuts shipped during a month shall be submitted to 
the Board on California Walnut Board (CWB) Form No. 6 not later than 
the 5th day of the following month. Such reports shall include all 
shipments during the preceding month and shall show for inshell and 
shelled walnuts: the quantity shipped; whether they were shipped into 
domestic or export channels; and for exports, the quantity by country 
of destination. If a handler makes no shipments during any month, he/
she shall submit a report marked ``None.'' If a handler has completed 
his/her shipments for the season, he/she shall mark the report 
``Completed,'' and he/she shall not be required to submit any 
additional CWB Form No. 6 reports during the remainder of that 
marketing year.
    (b) Reports of walnuts purchased directly from growers by handlers 
who are manufacturers or retailers shall be submitted to the Board on 
CWB Form No. 6, not later than the 5th day of the month following the 
month in which the walnuts were purchased. Such reports shall show the 
quantity of walnuts purchased.
    (c) Reports of walnuts on which handlers have made purchase 
commitments with buyers during the month, but which have not yet been 
shipped, shall be submitted to the Board on CWB Form No. 6, not later 
than the 5th day of the month following the month in which the walnuts 
were committed. Such reports shall show the quantity of walnuts 
committed in either inshell or shelled pounds. If the handler made no 
commitments during any month, he/she shall mark ``None'' in the 
``Purchase Commitments'' section of CWB Form No. 6.
0
30. Revise Sec.  984.476 to read as follows:


Sec.  984.476  Report of walnut receipts produced outside California or 
the United States.

    Each handler who receives walnuts from outside California or the 
United States shall file with the Board, on CWB Form No. 7, a report of 
the receipt of such walnuts. The report shall be filed as follows: On 
or before December 5 for such walnuts received during the period 
September 1 to November 30; on or before March 5 for such walnuts 
received during the period December 1 to February 28 (February 29 in a 
leap year); on or before June 5 for such walnuts received during the 
period March 1 to May 31; and on or before September 5 for such walnuts 
received during the period June 1 to August 31. The report shall 
include the quantity of such walnuts received, the country of origin 
for such walnuts, and whether such walnuts are inshell or shelled.

Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2023-04428 Filed 3-6-23; 8:45 am]
BILLING CODE P