82 FR 26859 - Hazelnuts Grown in Oregon and Washington; Recommended Decision and Opportunity To File Written Exceptions to Proposed Amendment of Marketing Order No. 982

DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service

Federal Register Volume 82, Issue 111 (June 12, 2017)

This recommended decision proposes amendments to Marketing Order No. 982 (order), which regulates the handling of hazelnuts grown in Oregon and Washington. The proposed amendments are based on the record of a public hearing held on October 18, 2016, in Wilsonville, Oregon. Two amendments are proposed by the Hazelnut Marketing Board (Board), which is responsible for local administration of the order. The proposed amendments would add both the authority to regulate quality for the purpose of pathogen reduction and the authority to establish different regulations for different markets. In addition, the Agricultural Marketing Service (AMS) proposed to make any such changes as may be necessary to the order to conform to any amendment that may result from the public hearing. The proposals are intended to aid in pathogen reduction and meet the needs of different market destinations.

[Federal Register Volume 82, Number 111 (Monday, June 12, 2017)]
[Proposed Rules]
[Pages 26859-26864]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-11946]


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

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

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


Federal Register / Vol. 82, No. 111 / Monday, June 12, 2017 / 
Proposed Rules

[[Page 26859]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 982

[Doc. No. AO-SC-16-0136; AMS-SC-16-0074; SC16-982-1]


Hazelnuts Grown in Oregon and Washington; Recommended Decision 
and Opportunity To File Written Exceptions to Proposed Amendment of 
Marketing Order No. 982

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule and opportunity to file exceptions.

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

SUMMARY: This recommended decision proposes amendments to Marketing 
Order No. 982 (order), which regulates the handling of hazelnuts grown 
in Oregon and Washington. The proposed amendments are based on the 
record of a public hearing held on October 18, 2016, in Wilsonville, 
Oregon. Two amendments are proposed by the Hazelnut Marketing Board 
(Board), which is responsible for local administration of the order. 
The proposed amendments would add both the authority to regulate 
quality for the purpose of pathogen reduction and the authority to 
establish different regulations for different markets. In addition, the 
Agricultural Marketing Service (AMS) proposed to make any such changes 
as may be necessary to the order to conform to any amendment that may 
result from the public hearing. The proposals are intended to aid in 
pathogen reduction and meet the needs of different market destinations.

DATES: Written exceptions must be filed by July 12, 2017.

ADDRESSES: Written exceptions should be filed with the Hearing Clerk, 
U.S. Department of Agriculture, Room 1031-S, Washington, DC 20250-9200; 
Fax: (202) 720-9776 or via the Internet at http://www.regulations.gov. 
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.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Melissa Schmaedick, Marketing Order 
and Agreement Division, Specialty Crops Program, AMS, USDA, Post Office 
Box 952, Moab, UT 84532; Telephone: (202) 557-4783, Fax: (435) 259-
1502, or Julie Santoboni, Marketing Order and Agreement Division, 
Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., Stop 
0237, Washington, DC 20250-0237; Telephone: (202) 720-2491, Fax: (202) 
720-8938, or Email: [email protected] or 
[email protected].
    Small businesses may request information on this proceeding by 
contacting Richard Lower, Marketing Order and Agreement Division, 
Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., Stop 
0237, Washington, DC 20250-0237; Telephone: (202) 720-2491, Fax: (202) 
720-8938, or Email: [email protected].

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding: Notice 
of Hearing issued on September 27, 2016, and published in the September 
30, 2016, issue of the Federal Register (81 FR 67217).
    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. 
Additionally, because this rule does not meet the definition of a 
significant regulatory action it does not trigger the requirements 
contained in Executive Order 13771. See the Office of Management and 
Budget's (OMB) Memorandum titled ``Interim Guidance Implementing 
Section 2 of the Executive Order of January 30, 2017, titled `Reducing 
Regulation and Controlling Regulatory Costs'[thinsp]'' (February 2, 
2017).
    Notice of this rulemaking action was provided to tribal governments 
through the Department of Agriculture's (USDA) Office of Tribal 
Relations.

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
recommended decision with respect to the proposed amendments to 
Marketing Order 982 regulating the handling of hazelnuts grown in 
Oregon and Washington 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. 
601-674), 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 are based on the record of a public hearing 
held on October 18, 2016, in Wilsonville, Oregon. Notice of this 
hearing was published in the Federal Register on September 30, 2016 (81 
FR 67217). The notice of hearing contained two proposals submitted by 
the Board and one submitted by USDA.
    The proposed amendments were recommended by the Board on May 27, 
2015, and were submitted to USDA on May 16, 2016. After reviewing the 
proposals and other information submitted by the Board, USDA made a 
determination to schedule this matter for hearing. The Board's proposed 
amendments to the order would: (1) Add authority to regulate quality 
for the purpose of pathogen reduction; and (2) add authority to 
establish different outgoing quality regulations for different markets.
    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.
    Ten witnesses testified at the hearing. The witnesses represented 
hazelnut producers and handlers in the production area, as well as the 
Board, and one witness was from the USDA. The industry witnesses all 
supported the proposed amendments, while the USDA witness remained 
neutral. One dissenting opinion was received by AMS after the notice of 
hearing was published in the Federal Register. In accordance with 
section 900.16 of the Rules of Practice governing this proceeding (7 
CFR 900.16), the ex parte communication, which opposed both

[[Page 26860]]

proposals, was entered into the record, and is available on the USDA 
Web site.
    The industry witnesses favored the two proposals. The first 
proposal would add authority to the order to regulate quality for the 
purpose of pathogen reduction. The second proposal would allow for the 
establishment of different outgoing quality regulations for different 
markets.
    The authority to regulate quality does not currently exist in the 
order. Witnesses at the hearing explained that, if added to the order, 
the authority to regulate quality would be specifically for the purpose 
of reducing pathogen contamination in hazelnuts. According to witness 
testimony, Salmonella, E. coli, and Listeria, are all present in the 
soil and are chief among the pathogens that the industry would like to 
reduce. The proposed authority could also assist the industry in 
complying with the Food and Drug Administration's (FDA) food safety 
guidelines under the Food Safety Modernization Act of 2011 (FSMA).
    The proposal to add authority to establish different outgoing 
quality regulations for different markets was supported by witnesses 
who spoke of the need to meet hazelnut purchasers' differing pathogen 
reduction treatment requirements. In addition, witnesses pointed out 
the potential cost savings for handlers by allowing different outgoing 
quality standards for different markets.
    At the conclusion of the hearing, the Administrative Law Judge 
established a deadline of December 2, 2016, for the submission of 
corrections to the transcript, and January 1, 2017, as a deadline for 
interested persons to file proposed findings and conclusions or written 
arguments and briefs based on the evidence received at the hearing. No 
written arguments or briefs were filed.

Material Issues

    The material issues presented on the record of hearing are as 
follows:

    1. Whether to amend Sec. Sec.  982.12, 982.40, 982.45, and 
982.46 to add authority to regulate quality for the purpose of 
pathogen reduction. Corresponding changes would also revise the 
subheading ``Grade and Size Regulation'' prior to Sec.  982.45, and 
the section heading for Sec.  982.45, ``Establishment of grade and 
size regulations,'' to include quality.
    2. Whether to amend Sec.  982.45 to add authority to establish 
different outgoing regulations for different markets.
    3. Whether any conforming changes need to be made as a result of 
the above proposed amendments. Conforming changes may also include 
non-substantive, typographical errors.

Findings and Conclusions

    The following findings and conclusions on the material issues are 
based on evidence presented at the hearing and the record thereof.

Material Issue Number 1--Authority To Regulate Quality

    Sections 982.12, 982.40, and 982.45 (``Merchantable hazelnuts,'' 
``Marketing policy and volume regulation,'' and ``Establishment of 
grade and size regulations,'' respectively) should be amended to 
authorize quality regulation for the purpose of pathogen reduction by 
inserting the words ``and quality'' after ``grade, size,'' in each 
section, respectively. Section 982.45 should also be amended by adding 
a new paragraph (c), ``Quality regulations.'' Additionally, the heading 
prior to Sec.  982.45 should be revised to read ``Grade, Size, and 
Quality Regulation.'' Lastly, Sec.  982.46, ``Inspection and 
certification,'' should be amended by adding paragraph (d). These 
proposed amendments to the Order would authorize the Board to regulate 
the quality of hazelnuts.
    Currently, Sec.  982.45 of the order states that the Board has 
authority to regulate grade and size; there is no mention of quality. 
Witnesses explained that the authority to regulate quality would allow 
them to regulate product attributes that fall outside the traditional 
scope of ``grade'' and ``size.''
    According to the record, current hazelnut grade and size standards 
correspond with USDA standards developed in 1975 for inshell hazelnuts 
and in 1980 for hazelnut kernels. The attributes currently regulated 
under grade and condition standards include, but are not limited to, 
characteristics of damaged hazelnuts, such as: Stains, adhering husk, 
mold, decay, rancidity, and insect injury. According to the record, if 
the order were amended to regulate quality, ``quality'' as used in the 
order and regulations would mean the reduction of pathogens. Witnesses 
explained that product contaminated by pathogens reduces that product's 
inherent quality and usability in the market. Therefore, the authority 
to test for and require action to reduce pathogens in hazelnuts would 
result in a higher quality product.
    Witnesses also testified about the importance of quality checks on 
product during the handling process to ensure that the potential for 
pathogen contamination is minimized. This could be achieved by 
implementing kill-steps throughout the handling of hazelnuts and 
testing for pathogens in the end product. A kill-step is a measure 
taken, such as heat treatment, to mitigate contamination or the 
transfer of pathogens during product handling.
    The Food Safety Steering Committee (FSSC), a committee of the 
Board, is conducting research to identify best methods for achieving a 
5-log reduction in the presence of pathogens through various kill-
steps. A log reduction is a mathematical term used to show the number 
of pathogens eliminated. A 5-log reduction means lowering the number of 
pathogens by 100,000-fold. For example, if there were 1,000,000 
organisms present, the kill-step would need to reduce the number of 
organisms to 10 to achieve a 5-log reduction in pathogens. Current 
industry methods, or ``kill-steps,'' used to achieve a 5-log pathogen 
reduction include: Treatment with propylene oxide (PPO), steam 
pasteurization, roasting, and other heat treatments.
    Witnesses discussed the need to regulate the levels of Salmonella, 
E. coli, and Listeria, which are naturally occurring bacteria. 
Currently, only steam pasteurization is approved by the FDA as a kill-
step for hazelnuts. While a 5-log reduction is neither required under 
the marketing order, nor by existing FSMA guidelines, it is currently 
used by the FDA for other crops and therefore is used by FSSC as an 
acceptable minimum.
    According to witnesses, authority to propose mandatory quality 
regulation that could reduce the potential for a widespread illness 
that could negatively affect the industry as a whole is necessary. 
Witnesses testified about an outbreak of Salmonella in 2009, which 
resulted in a recall of hazelnuts. The recall was due to detection of 
Salmonella at a plant that processed different varieties of nuts that 
were comingled with hazelnuts. This outbreak spurred research on 
contamination, the formation of the FSSC, and resulted in the 
industry's determination that regulation of quality for pathogen 
reduction is necessary in order to safeguard the industry from future 
pathogen-related food scares.
    The proposed authority could also enable the Board to establish 
mandatory quality inspections, thereby ensuring that all handlers are 
fully participating in proper pathogen reduction measures. Such 
regulation would build consumer confidence and lower the likelihood of 
the need for another product recall.
    Witnesses stated that the anticipated immediate cost impact on the 
industry as a result of this proposal would be minimal. If approved in 
a referendum by producers, the addition of ``quality'' to the list of 
attributes that can be regulated under the order would not result in 
new, immediate regulation.

[[Page 26861]]

Any new regulation would need to be developed and vetted as a proposal, 
approved and recommended by the Board, published by USDA as a proposed 
rule, commented on by the public, and receive USDA approval prior to 
being implemented.
    If quality regulation were recommended by the Board and approved by 
USDA, such regulation would address the industry's desire to reduce the 
potential for pathogen contaminations. For example, if hazelnuts were 
to be tested for Salmonella under the authority to regulate quality, it 
would benefit the industry by ensuring that high levels of this 
bacteria do not enter the market. The ability to regulate quality would 
assure customers of the industry's oversight of product quality. As 
such, witnesses explained that any potential costs of future regulation 
would be outweighed by the benefits of pathogen reduction in the 
market.
    According to witnesses, hazelnuts are currently inspected for grade 
and size. The addition of another inspection parameter would not result 
in significant, increased costs. Additionally, according to the record, 
the majority of handlers are already voluntarily implementing a kill-
step or are shipping to a customer who will perform their own kill-
step, thereby eliminating the need for handlers to perform one 
themselves.
    Should the authority to regulate quality be implemented, witnesses 
discussed the supporting rules and regulations that would need to be 
developed. Witnesses indicated that handlers would likely be required 
to submit treatment plans each year, identifying treatment processes, 
facilities, and documentation procedures. Future regulations would also 
include compliance and verification provisions, including handler 
verification plans and record retention requirements to substantiate 
compliance with the regulations. The Board would be charged with 
ensuring compliance with any new regulations.
    If this proposal were implemented, the Board could establish 
quality standards for all Oregon and Washington hazelnut handlers, 
thereby ensuring uniform quality of product and eliminating the free-
rider problem. A free-rider is someone who benefits from goods or 
services, but does not pay for them. In the case of hazelnuts, most 
handlers treat hazelnuts for pathogen reduction, incurring associated 
costs and building the reputation of a safe product. Handlers who do 
not treat hazelnuts for pathogen reduction not only benefit from the 
reputation built by of others, at no cost, but by not treating their 
hazelnuts they also put the entire industry at risk of a product 
recall.
    Overall, witnesses anticipated that quality regulations could 
result in increased returns for both producers and handlers as, in some 
markets, a higher price would be paid for quality-certified product. 
Therefore, the potential benefit of higher prices, in addition to 
reduced contamination, would outweigh the costs, as described above.
    Finally, USDA is recommending one clarifying change to the language 
in the proposed new paragraph 982.45(c), which would add authority to 
regulate quality. USDA has determined that the language as presented in 
the Notice of Hearing was redundant and, therefore, confusing. USDA has 
revised the proposed language in the new paragraph Sec.  982.45(c) so 
that its intent is more clearly stated. This new language is included 
in the proposed regulatory text of this recommended decision.
    No testimony opposing this proposed amendment was given at the 
hearing.
    For the reasons stated above, it is recommended that Sec. Sec.  
982.12 and 982.40 should be amended, Sec.  982.45 should be amended by 
adding a new paragraph (c), the heading prior to Sec.  982.45 should be 
revised to include ``quality,'' and a new paragraph (d) should be added 
to Sec.  982.46, to add quality regulation authority under the order.

Material Issue Number 2--Different Market Regulations

    Section 982.45, ``Establishment of grade and size,'' should be 
further amended to provide authority to establish different regulations 
for different markets by adding a new paragraph (d), ``Different 
regulations for different markets.'' This would add authority to 
establish different outgoing quality regulations for different markets.
    The order does not currently allow for different standards to be 
applied to hazelnuts shipped to different foreign markets. This 
proposed authority would allow the Board to develop quality regulations 
that are best suited for particular market destinations. For example, 
it would be redundant to treat exports to the People's Republic of 
China (China), the largest export market for hazelnuts, with a kill-
step, because they are roasted and brined in China prior to sale. 
Witnesses explained that if hazelnuts sold to China were subject to a 
kill-step prior to exportation, the additional roasting and brining 
treatment in China would result in a brittle, over-processed product 
which would no longer be desirable to consumers.
    Witnesses clarified that this proposal would not result in new, 
immediate regulations; it would only result in the authority to 
establish different quality regulations for different market 
destinations under the order. If this proposal were implemented, the 
Board could make recommendations for different regulations for 
different market destinations to USDA. Any new regulation would need to 
be developed and vetted as a proposal, approved and recommended by the 
Board, published by USDA as a proposed rule, opened for public comment, 
and receive USDA approval prior to being implemented.
    Witnesses stated that if any market-specific regulations were to be 
implemented as a result of this authority, the anticipated impact on 
producers and handlers would be negligible. Different regulations for 
different market destinations would not hinder the export of hazelnuts. 
Witnesses explained that many hazelnut handlers shipping to export 
markets already voluntarily meet the unique product specifications of 
those export markets to meet consumer tastes and demands.
    No testimony opposing this proposed amendment was given at the 
hearing.
    For the reasons stated above, it is recommended that Sec.  982.45, 
``Establishment of grade and size regulations,'' should be further 
amended by adding a new paragraph (d) to provide authority to establish 
different quality regulations for different market destinations.

Small Business Considerations

    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 initial 
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.

Hazelnut Industry Background and Overview

    According to the hearing transcript, there are currently over 800 
hazelnut growers in the production area. According to National 
Agricultural Statistics Service (NASS) data presented at the hearing, 
2015 grower receipts averaged $2,800 per ton. With a total 2015 
production of 31,000 tons, the

[[Page 26862]]

farm gate value for hazelnuts in that year totaled $86.8 million 
($2,800 per ton multiplied by 31,000 tons). Taking the total value of 
production for hazelnuts and dividing it by the total number of 
hazelnut growers provides a return per grower of $108,500. A small 
grower as defined by the Small Business Administration (SBA) (13 CFR 
121.201) is one that grosses less than $750,000 annually. Therefore, a 
majority of hazelnut growers are considered small entities under the 
SBA standards. Record evidence indicates that approximately 98 percent 
of hazelnut growers are small businesses.
    According to the industry, there are 17 hazelnut handlers, four of 
which handle 80 percent of the crop. While market prices for hazelnuts 
were not included among the data presented at the hearing, an 
estimation of handler receipts can be calculated using the 2015 grower 
receipt value of $86.8 million. Multiplying $86.8 million by 80 percent 
($86.8 million x 80 percent = $69.4 million) and dividing by four 
indicates that the largest hazelnut handlers received an estimated 
$17.3 million each. Dividing the remaining 20 percent of $86.8 million, 
or $17.4 million, by the remaining 13 handlers, indicates average 
receipts of $1.3 million each. A small agricultural service firm is 
defined by the SBA as one that grosses less than $7,500,000. Based on 
the above calculations, a majority of hazelnut handlers are considered 
small entities under SBA's standards.
    The production area regulated under the order covers Oregon and 
Washington. According to the record, Eastern Filbert Blight has heavily 
impacted hazelnut production in Washington. One witness stated that 
there currently is no commercial production in that state. As a result, 
production data entered into the record pertains almost exclusively to 
Oregon.
    NASS data indicates bearing acres of hazelnuts reached a fifteen-
year high during the 2013-2014 crop year at 30,000 acres. Acreage has 
remained steady, at 30,000 bearing acres for the 2015-2016 crop year. 
By dividing 30,000 acres by 800 growers, NASS data indicate there are 
approximately 37.5 acres per grower. Industry testimony estimates that 
due to new plantings, there are potentially 60,000 bearing acres of 
hazelnuts, or an estimated 75 bearing acres per hazelnut grower.
    During the hearing held October 18, 2016, interested parties were 
invited to present evidence on the probable regulatory impact of the 
proposed amendments to the order on small businesses. The evidence 
presented at the hearing shows that none of the proposed amendments 
would have a significant economic impact on a substantial number of 
small agricultural producers or firms.

Material Issue Number 1--Adding Authority To Regulate Quality

    The proposal described in Material Issue 1 would amend Sec.  982.45 
to authorize the Board to establish minimum quality requirements and 
Sec.  982.46 to allow for certification and inspection to enforce 
quality regulations.
    Presently, the Board is charged with assuring hazelnuts meet grade 
and size standards. The Board also has the authority to employ volume 
control. If finalized, this proposal would authorize the Board to 
propose quality regulations that require a treatment to reduce pathogen 
load prior to shipping hazelnuts. Witnesses supported this proposal and 
stated that treatment regulation would not significantly impact the 
majority of handlers since most handlers already treat product prior to 
shipment. Witness testimony indicated that the proposed amendment would 
lower the likelihood of a product recall incident and the associated 
negative economic impacts. Witnesses noted that the proposed amendment 
would give the Board flexibility to ensure consumer confidence in the 
quality of hazelnuts.
    It is determined that the additional costs incurred to regulate 
quality would be greatly outweighed by the increased flexibility for 
the industry to respond to changing quality regulation and food safety. 
There is expected to be no financial impact on growers. Mandatory 
treatment requirements should not cause dramatic increases in handler 
operating costs, as most already voluntarily treat hazelnuts. Handlers 
bear the direct cost associated with installing and operating treatment 
equipment or contract out the treatment of product to a third party.
    According to the industry, most domestic hazelnut product is 
shipped to California for PPO treatment. The cost to ship and treat 
product is estimated to be 10 cents per pound or less. Using 2014-2015 
shipment data, at 10 cents per pound, the cost to ship and treat the 
6.5 million pounds of Oregon hazelnuts shipped to the domestic market 
is not expected to exceed $650,000. Shipments to foreign markets 
typically do not require treatment and therefore have no associated 
treatment costs. Large handlers who wish to install treatment equipment 
may face costs ranging from $100,000 to $5,000,000 depending on the 
treatment system.
    One witness noted that mandatory treatment would benefit the 
industry by addressing the free-rider situation in which handlers who 
do not treat the product benefit from consumer confidence while 
incurring additional risks. Handlers that do treat product absorb all 
costs of treatment while building the reputation of the industry.
    The record shows that the proposal to add authority to establish 
different outgoing quality requirements for different markets would, in 
itself, have no economic impact on producers or handlers of any size. 
Regulations implemented under that authority could impose additional 
costs on handlers required to comply with them. However, witnesses 
testified that establishing mandatory regulations for different markets 
could increase the industry's credibility and reduce the risk that 
shipments of substandard product could jeopardize the entire industry's 
reputation. Record evidence shows that any additional costs are likely 
to be offset by the benefits of complying with those requirements.
    For the reasons described above, it is determined that the costs 
attributed to the above-proposed changes are minimal; therefore, the 
proposal would not have a significant economic impact on a substantial 
number of small entities.

Material Issue Number 2--Adding Authority for Different Market 
Regulations

    The proposal described in Material Issue 2 would allow for the 
establishment of different outgoing quality regulations for different 
markets.
    Witnesses testified that allowing different regulations for 
different markets would likely lower the costs to handlers and prevent 
multiple treatments of hazelnuts while preserving hazelnut quality.
    Certain buyers of hazelnuts do not require prior treatment and 
perform their own kill-step processes such as roasting, baking or 
pasteurization. A witness stated that two of the largest buyers of 
hazelnuts, Diamond of California and Kraft Foods, Inc. choose to treat 
product after arrival.
    Shipments to foreign markets often do not require treatment and are 
treated after exportation. Testimony indicated that during the 2014-
2015 season, of the 9.5 million pounds of kernel hazelnuts shipped to 
Canada, almost all were further treated by the customers. In 
conjunction with the proposed quality authority discussed in Material 
Issue 1, specific regulation could be developed to exempt exported 
product, subject to further pathogen-reduction treatment in

[[Page 26863]]

the country of purchase, from mandatory treatment. In Canada, the 
purchaser, not the handler, is responsible for providing pathogen 
reduction treatment. Requiring handlers to treat hazelnuts before 
export would be duplicative in cost and treatment. At 10 cents per 
pound, it is estimated that on sales to Canada alone, handler savings 
could reach as much as $950,000 (9.5 million pounds of shipments 
multiplied by 10 cents per pound), if exempted from the mandatory 
treatment requirement. Hazelnuts shipped to China are typically 
processed after arrival and also do not necessitate treatment by 
handlers in the United States.
    China is a major export market for inshell hazelnuts. According to 
the hearing transcript, from 2011-2015, 54 percent of inshell hazelnuts 
were exported. The total value of inshell exports was approximately 
$41,340,780, if 54 percent is multiplied by the $76,557,000 total 
hazelnut exports. In 2015-2016 China received 90 percent of U.S. 
inshell hazelnut exports. The 2015-2016 value of U.S. hazelnut exports 
to China is estimated to be approximately $37,206,702, or 90 percent of 
the value of all U.S. inshell exports. Oregon hazelnuts compete 
primarily with Turkish (kernel) and Chilean (inshell) hazelnuts. 
Testimony indicates that multiple treatments of hazelnuts would likely 
affect the quality of hazelnuts. Allowing for different regulations for 
different markets would help Oregon and Washington hazelnuts compete in 
foreign markets and maintain U.S. market share. It is estimated that 80 
to 90 percent of product is already being treated, and thus, the cost 
has already been incorporated into the price purchasers pay.
    One witness noted that shipments to the European Union may require 
different regulations since this market prefers certain treatment 
processes.
    The record shows that the proposal to add authority to establish 
different outgoing quality requirements for different markets would, in 
itself, have no economic impact on producers or handlers of any size. 
Regulations implemented under that authority could potentially impose 
additional costs on handlers required to comply with them.
    For the reasons described above, it is determined that the benefits 
of adding authority for different market regulations to the order would 
outweigh the potential costs of future implementation.
    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 hazelnuts.
    Board meetings regarding these proposals, as well as the hearing 
date and location, were widely publicized throughout the Oregon and 
Washington hazelnut 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. Finally, 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 for Part 982 are 
approved by OMB, under OMB Number 0581-0189--``Generic OMB Fruit 
Crops.'' No changes in these requirements are anticipated as a result 
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.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. A 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing, USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed no later than 20 days after the date of 
entry of the ruling.

Rulings on Briefs of Interested Persons

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

General Findings

    The findings hereinafter set forth are supplementary to the 
findings and determinations which were previously made in connection 
with the issuance of the marketing agreement and 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.
    (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 hazelnuts grown in the 
production area (Oregon and Washington) 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 which 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 hazelnuts grown in the production area; and

[[Page 26864]]

    (5) All handling of hazelnuts 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.
    A 30-day comment period is provided to allow interested persons to 
respond to this proposal. Thirty days is deemed appropriate because 
these proposed changes have already been widely publicized, and the 
Board and industry would like to avail themselves of the opportunity to 
exercise the new authority. All written exceptions received within the 
comment period will be considered, and a producer referendum will be 
conducted before any of these proposals are implemented.

List of Subjects in 7 CFR Part 982

    Hazelnuts, 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 982 is proposed 
to be amended as follows:

PART 982--HAZELNUTS GROWN IN OREGON AND WASHINGTON

0
1. The authority citation for 7 CFR part 982 continues to read as 
follows:

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

0
2. Revise Sec.  982.12 to read as follows:


Sec.  982.12  Merchantable hazelnuts.

    Merchantable hazelnuts means inshell hazelnuts that meet the grade, 
size, and quality regulations in effect pursuant to Sec.  982.45 and 
are likely to be available for handling as inshell hazelnuts.
0
3. Amend Sec.  982.40 by revising paragraph (d) to read as follows:


Sec.  982.40  Marketing policy and volume regulation.

* * * * *
    (d) Grade, size, and quality regulations. Prior to September 20, 
the Board may consider grade, size, and quality regulations in effect 
and may recommend modifications thereof to the Secretary.
* * * * *
0
4. Revise the undesignated center heading prior to Sec.  982.45 to read 
as follows:

Grade, Size, and Quality Regulation

0
5. In Sec.  982.45:
0
a. Revise the section heading; and
0
b. Add new paragraphs (c) and (d).
    The revisions should read as follows:


Sec.  982.45  Establishment of grade, size, and quality regulations.

* * * * *
    (c) Quality regulations. For any marketing year, the Board may 
establish, with the approval of the Secretary, such minimum quality and 
inspection requirements applicable to hazelnuts to facilitate the 
reduction of pathogens as will contribute to orderly marketing or will 
be in the public interest. In such marketing year, no handler shall 
handle hazelnuts unless they meet applicable minimum quality and 
inspection requirements as evidenced by certification acceptable to the 
Board.
    (d) Different regulations for different markets. The Board may, 
with the approval of the Secretary, recommend different outgoing 
quality requirements for different markets. The Board, with the 
approval of the Secretary, may establish rules and regulations 
necessary and incidental to the administration of this provision.
0
6. Amend Sec.  982.46 by adding paragraph (d) to read as follows:


Sec.  982.46  Inspection and certification.

* * * * *
    (d) Whenever quality regulations are in effect pursuant to Sec.  
982.45, each handler shall certify that all product to be handled or 
credited in satisfaction of a restricted obligation meets the quality 
regulations as prescribed.

    Dated: June 5, 2017.
Bruce Summers,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 2017-11946 Filed 6-9-17; 8:45 am]
BILLING CODE 3410-02-P