JULY-AUGUST 1996



Historic Food Safety Legislation Approved

At least three words come to mind with the recent passage of sweeping food safety reform legislation -- historic, landmark and surprising. While the 104th session of Congress was supposedly winding down, it approved long-anticipated and long-overdue food safety provisions that were desperately needed, but always seemingly too contentious.

The food processing industry, agricultural organizations, agri-businesses and farmers of crops predominantly produced in California and Florida scored major victories with approval of the “Food Quality and Protection Act of 1996” (known in this Congress as H.R. 1627). The main features of the legislation are outlined below.

Safety Standard of Raw & Processed Foods

Prior law contained two different standards for pesticide residues in food, depending on whether the food was a raw product or a processed food. Before enactment of this new legislation, the Delaney Clause barred the establishment of tolerances for pesticide residues in processed food if the pesticide was at all carcinogenic. The Delaney Clause set a zero-risk standard for pesticides that induce cancer in test animals, even if the risk to humans was inconsequential. Thus, the Delaney Clause banned even the most minute traces of carcinogens in processed foods.

Under the new health-based standard for pesticides, the Environmental Protection Agency (EPA) Administrator “may establish or leave in effect an exemption from the requirement for a tolerance for a pesticide chemical residue in or on food” if the Administrator determines that the tolerance is “safe.”

The term “safe” means that there is “reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This “safe” standard applies to both raw and processed food. Of course, the EPA Administrator must modify or revoke an exemption if the Administrator determines it is not safe.

Effect of Reform on the Delaney Clause

H.R. 1627 represents the first inroad to reform of the zero-risk, carcinogen provisions of the 1958 Delaney Clause. Pesticides are now subject to a “safe” standard that is nothing more than the “negligible risk” standard that has been discussed for over a decade. Delaney Clause provisions would continue to apply to food additives, color additives and animal drugs, unless modified by other pending bills before Congress.

Because the Delaney Clause’s guarantee to reduce carcinogens in processed foods to virtually zero was unattainable, and thus never really met by industry or federal regulators, the law was never fully effective. The new standard ends artificial restrictions that were based on antiquated science, and makes it easier to expand product use into new areas.

Under the new law, consumers will no longer have the illusory guarantee that their food is carcinogen free, but they will have the government’s assurance that raw and processed foods will pose minimal cancer risk; generally defined as no more than one incidence of cancer per million people exposed.

However, consumers will gain added protection against non-cancer risks from pesticides in raw and processed fruits and vegetables, including the risk of birth defects, neurological damage, and disruption of endocrine systems.

The demise of the Delaney Clause may rejuvenate the development of new products for the long-stagnant pesticide market because such products will no longer be held to a zero-risk standard. Moreover, existing pesticides may also end up being used on more crops.

Consideration of Benefits

The new law provides for the consideration of the benefits of a pesticide when setting tolerances — such as if the risk to public health from not using the pesticide is greater than the risk of using it, or if the pesticide is necessary to avoid a significant disruption in domestic food production.

Quantitative limits are set on how much additional risk is acceptable as a trade-off for benefits. For a given year, the risk may not be more than 10 times the level EPA establishes as the safety standard, and the lifetime risk cannot be greater than twice that level. EPA must review these tolerances after five years and, if necessary, revoke or modify the tolerances if these conditions are not met.

Tolerance Setting in a “Threshold” Framework

The law makes a new distinction between “threshold” and “non-threshold” effects of a pesticide chemical residue. Threshold effects are those for which EPA can identify a level of no harm to human health. Tolerance for these residues would be set at a lower level to provide for a generally accepted margin of safety.

Non-threshold effects are those for which EPA is unable to identify a level of exposure to the residue that “will not cause or contribute to any known or anticipated harm to human health.” Tolerances for these residues would be set at a limited exposure level to ensure that the aggregate exposure does not exceed 10 times the yearly risk, and the risk over a lifetime is not greater than twice the lifetime risk that would be set under the safety standard.

Petition for Pesticide Tolerance or Exemption

Prior law only permitted applicants for a pesticide registration to file a petition for the issuance of a tolerance or an exemption. However, the new provisions authorize any person to file a tolerance petition rather than only an applicant for a pesticide registration. Petitioners: Thus, any person may file a petition with the EPA Administrator proposing the issuance of a regulation “establishing, modifying, or revoking a tolerance for a pesticide chemical residue in or on a food.” This means that individual food processors and agricultural associations now have a mechanism to petition EPA for use of particular pesticides that are necessary for food and agricultural production.

Petition Contents: The petition must be supported by data and information specified by EPA regulations, including “the name, chemical identity, and composition of the pesticide chemical residue,” together with “data showing the recommended amount, frequency, method, and time of application.” In addition, the petition must contain full reports of tests and investigations made with respect to the safety of the pesticide, and a proposed tolerance for the pesticide if a tolerance is proposed.

EPA Notice of Petition Filing: The EPA must publish a notice of the petition filing within 30 days. This notice must include a discussion of the analytical methods to determine the pesticide residue levels. Within 90 days after a certification of usefulness of the pesticide by the Secretary of Agriculture, the EPA Administrator must act either establish a tolerance or exempt the pesticide from a tolerance, unless the petitioner requests or the EPA Administrator decides to refer the petition to an advisory committee.

Scope of EPA’s Actions: After giving due consideration to such a petition, the EPA Administrator has three options: 1) issue a final regulation establishing, modifying, or revoking a tolerance, 2) issue a proposed rule and thereafter issue a final rule, and 3) issue an order denying the petition.

Tolerances for Lower-Risk Pesticides

The legislation instructs EPA to expedite the approval of new chemicals if they appear less risky or more environmentally friendly than pesticides already on the market. Expedited registration of reduced-risk pesticides will help ensure that safer products reach the market sooner.

One year is the time frame to establish tolerances for new lower risk pesticides. The EPA Administrator would have 30 days after receipt of an application for expedited review to notify the applicant whether the application is complete. Thereafter, the EPA Administrator must utilize public comment to develop procedures and guidelines to expedite the review of an application for registration of a pesticide.

The tolerance for the competing pesticide would continue if it protects consumers from greater adverse health risks, or is necessary to avoid a significant disruption of an adequate, wholesome and economical food supply. Otherwise, EPA must modify or revoke the tolerance.

Action on EPA Administrator’s Own Initiative

Prior law authorized the EPA Administrator to propose a tolerance or an exemption at any time. Thirty days after the proposal was published, the Administrator could publish the final regulation, which became effective upon publication, unless a registrant or applicant for a registration of the pesticide requested a referral of the proposal to an advisory committee.

The new law authorizes rule-making by the EPA Administrator to establish a tolerance or an exemption, and to modify or to revoke a tolerance or exemption. In addition, the new provisions require EPA to issue a notice of proposed rule-making, and to provide a 60-day public comment period before issuing the final regulation, unless there is good cause and it is in the public interest to shorten this requirement.

Judicial Review

The legislation retains most of the provisions on judicial review from the previous law. New provisions allow any person adversely affected by certain regulations and orders to petition to have the regulation or order set aside and to obtain judicial review in the U.S. Court of Appeals.

National Uniformity for Residue Tolerances

State and local regulation of food with pesticide residues is pre-empted, except where EPA finds that they are “justified by compelling local conditions.” For example, an exception to national uniformity may be made if a state successfully petitions EPA to allow the state to set its own tolerance in response to the unique needs of its population or a significant public-health risk in the state. Under previous law, states and local governments could set a more stringent tolerances for pesticide residues in foods than those established by EPA.

Consumer Right-To-Know

Within two years of enactment of the legislation, and annually thereafter, EPA (in consultation with USDA and FDA) must publish and distribute to large retail grocers “for public display,” a discussion of the risks and benefits posed by chemicals in pesticides, and recommendations to consumers for reducing dietary exposure to pesticides. Such information must be conveyed “in a format understandable to a lay person.”

It is unclear whether this information will be displayed in a brochure, and whether EPA will have the authority to compel grocers to display the EPA data if stores fail to cooperate. EPA Administrator Carol Browner already has stated that if a grocery chain has “a history of just blatant disregard” of the right-to-know requirement, the EPA might take action against it.

Estrogenic Substances Screening Program

EPA is directed to develop a screening program within two years to gather information to evaluate whether certain substances may have effects in humans that are similar to effects produced by naturally-occurring estrogen or other endocrine effects. It must implement the program within three years. However, EPA can issue orders exempting substances from testing requirements if they are not expected to produce an estrogenic effect in humans.

Margin of Safety for Infants & Children

The new law is designed to make both raw and processed foods safer for infants and children by providing a new safety margin for infants’ and children’s exposure to pesticides. The legislation also incorporates recommendations by the National Academy of Sciences for additional testing where pesticide residue exposure could occur in children’s diets. In fact, the Secretary of Health and Human Services and the Secretary of Agriculture (in consultation with the EPA Administrator) are required to conduct surveys to document dietary exposure to pesticides among infants and children.

When setting tolerances, EPA must assess the risk based on the consumption patterns among infants and children, and the special susceptibility of infants and children to pesticide residues. Then the EPA must publish a specific determination regarding the safety of the pesticide for infants and children.

For pesticides with threshold effects, an additional tenfold margin of safety shall be applied for infants and children, except EPA may use a different margin of safety on the basis of reliable data. In other words, EPA would require an additional tenfold margin of safety if the agency does not have complete and reliable data to assess prenatal or postnatal toxicity relating to infants and children, or if the data indicate pre- or postnatal effects of concern. When the data are incomplete, EPA has stated it will use an additional uncertainty factor between three and 10 based on how much information is incomplete. If the reproductive and development data have been found acceptable by EPA, and the data do not indicate potential prenatal or postnatal effects of concern, the additional tenfold margin of safety would not be applied.

Review of Existing Tolerances

EPA is directed to review tolerances and exemptions for pesticide residues in effect before enactment of H.R. 1627. The EPA Administrator is ordered to give priority to the review of tolerances or exemptions that appear to pose the greatest risk to public health. EPA must review 33% of the existing tolerances within three years, 66% within six years, and all tolerances within 10 years.

Minor Uses of Pesticides

The new legislation streamlines health and safety testing for pesticides widely used on crops defined as “minor use” crops. It also subsidizes the reregistration of these pesticides and allows EPA to delay and waive health and safety data requirements. Reforms will help keep minor use pesticides on the market by providing incentives to reregister these chemicals.

Definition of “Minor Use:” “Minor use” is defined as the use of a pesticide on an animal or commercial crop for which the total U.S. acreage is less than 300,000 acres, or the EPA Administrator determines that “the use does not provide sufficient economic incentive to support the initial registration or continuing registration of a pesticide for such use.”

Exclusive Use of Minor Use Pesticides: The former 10-year exclusive use protection for registrants of a new chemical could be extended one year for each three minor uses which a manufacturer registers by year seven, up to a maximum of three additional years for nine or more minor uses registered by EPA.

Time Extensions for Development of Data: Upon the request of a registrant, the deadline for the development of residue chemistry data for minor use could be extended under certain circumstances. For example, the EPA must grant an extension of time if the data to support other uses of the pesticide on a food are being provided.

Minor Use Waiver: Minor use data requirements may be waived if the EPA Administrator determines that the absence of such data will not prevent EPA from determining “the incremental risk presented by the minor use of the pesticide” and “that such risk, if any, would not be an unreasonable adverse effect on the environment.”

Expediting Minor Use Registration: EPA is to review and act on minor use registration applications within one year if: the active ingredient is to be registered solely for minor uses; if there are three or more uses proposed for every non-minor use; if the minor use would serve as a replacement for any use that has been canceled within five years of the application; or if the approval of the minor use would avoid the reissuance of an emergency exemption.

Registration for Unsupported Minor Uses: If a minor use waiver of data requirements is submitted to EPA and subsequently denied, the registrant would be given the full time period for supplying the data to EPA.

Utilization of Data for Voluntarily Canceled Pesticide: As a transition measure, the effective date of the voluntary cancellation of minor uses by a registrant could coincide with the due date of the final study required in the reregistration process for those uses being supported by the registrant. EPA can consider data from a pesticide which has been voluntarily canceled in support of another minor use registration that is identical or substantially similar and for a similar use.

New EPA Minor Use Program: A minor use program is established within EPA’s Office of Pesticide Programs. This office is charged with coordinating the development of minor use programs and polices, as well as consulting with growers regarding minor use issues, and registrations and amendments submitted to EPA.

New USDA Minor Use Program: A minor use program also is established within USDA to assure the coordination of the responsibilities related to minor uses of pesticides. These responsibilities include supporting integrated pest management research, consulting with growers to develop data for minor uses, and providing assistance for minor use registrations, tolerances and reregistrations with EPA.

The Secretary of Agriculture must establish a program to make grants for the development of data to support minor use pesticide registrations and reregistrations. The amount of any such grant is limited to 50% of the cost of the project.

Any person who wants to develop data to support a minor use may apply for a USDA grant, with priority given to an applicant who does not directly receive funds from the sale of pesticides registered for minor uses. This means an agricultural trade association could apply for a grant to make wider use of a pesticide for its particular commodity. However, any data developed under such a grant will be jointly owned by USDA and the person who received the grant.

Creation of Minor Use Pesticide Data Revolving Fund: A “Minor Use Pesticide Data Revolving Fund” is established in the U.S. Treasury to provide matching funds for the development of scientific data to support minor uses. The funding will come from fees collected by the Secretary of Agriculture in conjunction with grants for the development of data, and through Congressional appropriations of up to $10 million per year.

Antimicrobial Registration Reform

The legislation provides expedited registration procedures for antimicrobial pesticides. EPA is directed to identify and evaluate reforms to the registration process for such pesticides in order to reduce review periods to the maximum extent practicable. Maximum time periods for review are specified.

Reregistration Fees

EPA’s authorization to collect $14 million annually in reregistration and maintenance fees is extended until Sep. 30, 2001. However, the new law also authorizes collection of up to $2 million in additional fees in the years 1998, 1999, and 2000.

Suspension

The new law allows EPA to issue a suspension order in an emergency before issuing a notice of intent to cancel the registration of a pesticide, as long as the notice is issued 90 days after the suspension.

Alternative Enforcement

Civil penalties are authorized as an alternative enforcement tool for FDA. Penalties are limited to $50,000 per individual, $250,000 per company, and a maximum of $500,000 for all violations in a single proceeding. If civil money penalties are assessed, no other enforcement action, including criminal penalties, seizure or injunction, could be imposed.

Scientific Review Board

The new law creates a “Science Review Board” to assist with pesticide reviews. This board will consist of 60 scientists who are to be available to the Scientific Advisory Panel to help in reviews conducted by the panel.

Consistency with International Standards

EPA is encouraged to set tolerances that are consistent with the maximum residue levels set by the Codex Alimentarius Commission (Codex), the international entity charged with harmonizing countries’ maximum residue levels. If a Codex maximum residue level has been established for the pesticide and the EPA Administrator does not propose to adopt that level, the Administrator must publish for public comment a notice explaining the reasons for departing from the Codex level.

Richard Pasco is an attorney in the firm specializing in legislative, environmental, agricultural, food safety, food labeling, and trade issues.


Ag Program Funding Bill Becomes Law

As the 104th Congress recessed for the party conventions, leaving only the month of September remaining before adjournment for this Fall's elections, the importance of completing the annual appropriations for government programs became paramount. Vowing to avoid the government shutdowns of last year, Congress has moved swiftly on funding legislation.

Nonetheless, some agencies may wind up being funded through one large Continuing Resolution if their individual funding bills are not completed by adjournment. Depending on what else is buried in that legislation, agency funding could be in jeopardy should President Clinton feel forced to veto any of the spending bills after Congress adjourns.

However, as in 1995, the House and Senate Agriculture Appropriations Subcommittees, under the leadership of Reps. Joe Skeen (R-NM) and Richard Durbin (D-IL) and Sens. Thad Cochran (R-MS) and Dale Bumpers (D-AR) and their staffs, finished work early and sent to the President a final FY'97 funding bill for USDA and its myriad of programs. President Clinton signed the bill into law Aug. 6, 1996 (P.L. 104-180, 110 Stat. 1569). Thus, farmers, food stamp recipients, foreign aid beneficiaries, researchers, USDA and FDA employees and others can be assured that the checks will be in the mail following Sept. 30, the end of the current fiscal year.

Senate Action

The Senate acted on its version of the FY’97 agriculture funding bill, H.R. 3603, between July 22-24. The Senate bill was similar to the House bill, except it added $1.225 billion in additional spending ($909 million mandatory, $316 million discretionary). This amount was still more than $9 billion below the amount appropriated for FY’96 and $4 billion below the Administration’s budget request.

Additional funding above the House levels provided by the Senate Appropriations Committee could largely be found in the following program accounts:

$20.5 mil. Repairs and modernization of USDA’s South Building
$18.5 mil. Agricultural Research Service (ARS)
$53.1 mil. Cooperative State Research, Education and Extension Service (CSREES)
$10.2 mil. Agricultural Marketing Service (AMS)
$50.0 mil. Additional Emergency Loan authorizations ($12.7 mil. in subsidies)
$15.4 mil. Boll weevil eradication loans ($2 million in subsidies)
$19.6 mil. Conservation operations, Natural Resources Conservation Service (NRCS)
$63.2 mil. Rural Housing Assistance Program
$12.4 mil. Rural Housing Service admin. expenses
$161.0 mil. Rural Utilities Assistance Program
$906.0 mil. Food Stamp Program Reserve ($900 million) and expenses
$10.0 mil. Foreign Agricultural Service (FAS)
$10.5 mil. P.L. 480 Title III grants


All of these additions add up to more than $1.2 billion, but other accounts were reduced from the House-provided levels. The largest Senate proposed reductions included $16.3 million from the Food Safety and Inspection Service and $64.8 million from a commodity distribution program known as the Needy Family Program. Of more importance to many in the agriculture community, the Senate committee made the following changes in the House-passed bill’s general provisions:



Other changes made on the Senate Floor included:



The Conference Agreement

The conferees acted quickly following Senate passage of H.R. 3603 to reconcile the 147 individual differences between the House and Senate bills. The final conference agreement, contained in House Report 104-726, was adopted by both bodies on Aug. 1 and cleared for the White House.

Final agreement provided a total of $52.84 billion for USDA, FDA, and related agencies and programs for FY’97 — $39.9 billion mandatory; $12.96 billion discretionary.

These final figures represent a $350 million cut in discretionary spending from the FY’96 level, and $1.1 billion less than the Administration requested. Mandatory spending is down $9.9 billion from FY’96.

Specific Funding Decisions

With respect to the added funds provided by the Senate, the final conference agreement:



General Provisions of Conference Agreement

The original language by Rep. Kaptur regarding the agricultural use of production flexibility contract acres was restored, but the following language was added:

It is not intended for this provision to be interpreted in a way which would require additional regulations to USDA regulations amending 7 CFR part 2 et al., as published on July 18, 1996. It also is not intended for this provision to require amendments to the procedures for implementing the Agricultural Market Transition Program contained in FSA Handbook 1-PF, as published on May 21, 1996. Further this provision is not to be interpreted in a way which results in additional reporting or certification procedures for owners, producers, or the Secretary.

In other words, nothing has changed from the original intent and interpretation of the planting requirements under the new farm law. The conference agreement also includes a restriction on the delegation of agency personnel to other agencies or offices for more than 30 days, unless the agency or office receiving the extra help reimburses the source agency. This will preclude any Under Secretary from increasing their staff for extended periods of time without paying for it out of their own budgets.

The House’s funding restrictions ($2 million each) on the new Farmland Protection and Conservation Farm Option Programs were restored, while the House’s outright prohibition on the implementation of the new Wildlife Habitat Incentives Program was removed.

The Senate's proposed poultry labeling moratorium and new regulation were agreed to by the conferees. However, its limit on the transfer of funds among the Rural Housing Assistance, Rural Business-Cooperative Assistance, and Rural Utilities Assistance Programs was rejected. The final agreement also did not include any cap on sugar prices as proposed by the House, but the Conferees did direct the Secretary to report to the Appropriations Committees:

“biannually during fiscal year 1997 as to whether the prices of raw cane and beet sugar are sufficient to prevent forfeitures, and that the stock/use ratio is sufficient to ensure stable and adequate supplies to consumers and refiners with consideration of its impact on growers, producers, processors, and users.”

Fate of Senate-passed Floor Amendments

The authorization of early retirement buy-outs proposed by Sen. Bob Kerrey (D-NE) was approved in Conference, as were the two month extension of the moratorium on bypass flow Forest Service decisions, and FDA’s cooperative development of prescription drug medication guides. As noted above, agreement was reached on reforms and funding of the Section 515 Rural Housing Program. All other Senate floor amendments noted above were deleted in Conference.

While not providing additional barley payments as proposed in the Senate, the Conferees did “encourage the House and Senate authorizing committees to revisit the barley payment discrepancy and instruct the Secretary to use means within the USDA to address the current inequity.”

Fund for Rural America

Conferees preserved report language from both the House and Senate regarding the use of Fund for Rural America monies to preserve the authorized loan levels provided in a number of farm credit and rural development programs. The Administration’s budget requested loan subsidies based only on expected interest rates of 5.6%. Since the government's cost of money already has risen above 5.6%, the subsidies requested by the Administration and provided in the bill would be insufficient, without supplementation, to provide the full amount of loans authorized.

In addition, the final bill suspends a provision of the Federal Agriculture Improvement and Reform (FAIR) Act of 1996 (P.L. 104-127) that would have prevented the use of mandatory Fund for Rural America monies if the appropriated amount to several programs was less than 90% of the FY’96 level, plus inflation. Due to fluctuating interest rates and general budget pressure, several of the programs did not receive appropriations equal to 90% of the FY’96 level and thus, without suspending the FAIR Act provision, many Fund for Rural America monies ($100 million provided for FY’97) would not have been available.

Ag Spending Outlook

USDA budget officers already are preparing the budget for FY'98 which does not begin until Oct. 1, 1997. The Conference Report on the Concurrent Resolution on the Budget for FY'97 (H.Con.Res. 178, H. Rept. 104-612) adopted by both the House and Senate in late June provides a five-year budget plan, outlining both mandatory and discretionary spending levels through 2002. It is believed that the Administration’s budget projections do not vary significantly from those contained in the final budget resolution. Thus, one might expect its forthcoming budget to reflect similar numbers.

Funds for agriculture programs come from a number of budget functions (perhaps as many as eight of the 20 specified functions). However, if one just reviews “Function 350: Agriculture,” the agreed upon budget plan would reduce discretionary spending by $696 million in budget authority and $629 million in budget outlays in FY’98 compared with FY’97. Function 350 accounts for only about 30% of the $12.96 billion in discretionary spending contained in the Agriculture Appropriations Bill this past year. Yet, the cuts proposed in that function alone are higher than the total final cut of $350 million contained in the new Public Law 104-180.

While another five-year budget resolution will be enacted by the new 105th Congress next year that may change the reductions contemplated in H.Con.Res. 178, the message is clear: agriculture programs will face more reductions in the years to come, and each time the choices will get tougher.

John E. Sheeley is an associate at McLeod, Watkinson & Miller and has an extensive background in agriculture, trade, alternative fuels, farm credit, tax, environmental and transportation issues.


Congress Creates Broad Authority For New Commodity Promotion Programs

It has been traditional in the last several farm bills, beginning in 1983, to include titles which authorize the establishment of new research and promotion programs for agricultural commodities. The National Dairy Board was authorized by the Dairy and Tobacco Adjustment Act of 1983; the 1985 farm bill authorized the beef, pork and watermelon promotion programs; and the 1990 farm bill authorized promotion programs for seven commodities: pecans, mushrooms, potatoes, limes, soybeans, honey and milk (a processor-funded fluid milk promotion program). More recently, the Federal Agriculture Improvement and Reform Act of 1996 (FAIR Act) authorized three new promotion programs: canola and rapeseed, kiwifruit and popcorn.

Both the canola and rapeseed program and the kiwifruit program use the traditional assessment approach. The assessment is paid by the producer or farmer, collected by the handler, and then remitted to the Board. The handler or processor fulfills the role of assessing (or checking off) the funds from the producer’s initial sale of the commodity and remitting these assessments to a producer board; hence, the name “checkoff program.”

Breaking The Mold

In the case of the popcorn program, the processors both pay the assessment and run the program. This program follows two others which break the traditional mold — the fluid milk promotion program and the PromoFlor (cut flowers) program. In the fluid milk program, the milk processors both pay the assessment and run the program, and in the PromoFlor program, assessments are paid by wholesalers and importers, and the program is run by the governing board, whose membership majority is composed of wholesalers and importers.

Generic Commodity Promotion Program Authorizations Act

Along with the increasing popularity of promotion programs, a strong sentiment has evolved that individual producer groups should not have to lobby Congress to secure the passage of a separate statute when their industry desires to develop such a program. Therefore, as a part of the FAIR Act, Congress enacted a subtitle — the Commodity Promotion, Research and Information Act of 1996. This Act makes broad findings about the importance of agricultural commodities to the economy, and the desirability of generic promotion, research and information activities for agricultural commodities.

The Act authorizes an association of producers of the agricultural commodity, or any other person who might be affected by the order, to submit a proposed order to the Secretary and use the administrative process to obtain the issuance of a new promotion program. The FAIR Act gives complete discretion to the Secretary whether or not to publish in the Federal Register a proposed order to implement a new commodity promotion program. However, if the Secretary of Agriculture chooses to issue a final order, it must be done not later than 270 days after the proposed order is published in the Federal Register.

A Very General Statute

The Act is very general with regard to what terms the industry might develop an order. It follows the major provisions of existing research and promotion statutes. For persons covered by the order, the Act provides for an initial referendum which is optional. Thus, a commodity group has the option to choose whether or not to hold a referendum of the affected producers prior to the implementation of an order. The only referendum that would be required under the Act is one that would determine whether the group favored the continuation, suspension or termination of the order. In that case, the Secretary would be required to conduct a referendum among persons who pay the assessments, within three years after the assessments begin under the order, and then hold another one within seven years.

The Assessment Mechanism

Except in the case of a few programs which were clearly designed to have the assessment paid by the processor or handler (the fluid milk promotion program, the PromoFlor program, and the newly-authorized popcorn program), all checkoff programs are designed so that the first handler checks off an assessment from the farmer and remits it to a board composed primarily of producers. This board administers the program under the direction of USDA. However, this Act sets forth that assessments shall be: “(1) paid by first handlers with respect to the agricultural commodity produced and marketed in the United States,” and “(2) paid by importers with respect to the agricultural commodity imported into the United States, if the agricultural commodity is covered by the order pursuant to section 516(f).”

The Need for a Technical Amendment

With respect to assessments, the statute appears to have a technical error that will have to be remedied in subsequent legislation. Other provisions of this Act indicate that what is contemplated here is a generic Act that would provide for both the traditional kind of checkoff program in which the farmer pays and the first handler collects, and for the more recent type in which the handler pays and controls the program. However, the assessment language of this Act seems to cover only the handler-paid type of program, which was not its intent. Therefore, Congress will probably wish to amend the assessment provision in subsequent legislation to make it clear that assessments can be paid by producers and collected by first handlers. At the same time, Congress probably will not wish to remove the authority for handlers and processors of a commodity to pay for and operate their own program.

Traditionally, those who pay the assessments vote in the referendums and hold the majority of the board seats for the governing board. Therefore, it would be inappropriate and inequitable to operate a program under a statute that requires the assessments to be paid by the handlers, unless those handlers also vote in the referendum and sit on the governing board. However, in the interim period before the statute is amended, it would be appropriate to establish a checkoff program in which handlers would pay the assessment, vote in the referendum, and sit on the governing board, as is the case for cut flowers, fluid milk and popcorn.

USDA Holds The Key

The FAIR Act does not address the procedures or criteria that the Secretary would require in order to issue a promotion program under the new Act. Presumably, because the Secretary would be required to either issue or deny a final order within 270 days after publishing a proposed order, the Secretary would not feel it necessary to have such extensive administrative procedures as those which apply to the development of marketing orders under the Agricultural Marketing Agreement Act of 1937. However, the Secretary has no time limit in which to decide whether to publish a proposed order submitted by an industry nor any statutory criteria that, if met, compel the Secretary to issue a final order.

With the enactment of this statute, it is up to USDA to decide whether or not to conduct the necessary procedures in an efficient and cooperative fashion when developing new commodity promotion programs. If USDA chooses not to, some commodity groups may wish to resort to the old method of requesting that Congress approve a new promotion order.

Not As Simple As It May Seem

While this Act is designed to relieve commodity groups from having to lobby Congress to enact new legislation for individual commodity checkoff programs, it should not be assumed that the process will be a great deal simpler now that legislation will no longer be necessary. The experience of those (including members of this firm) who have gone through the regulatory process of developing a marketing order under the Agricultural Marketing Agreement Act of 1937, indicates that the administrative process can be very long and complicated. In fact, the process can take longer than the process of developing new legislation and developing an order under the new law. This is because USDA usually has extensive comment periods, field hearings and delays before approving a marketing order.

Commodity Groups Should Do Their Homework

In any event, commodity groups wishing to develop such a program should carefully consider the decisions they must make before approaching USDA. Most importantly, the industry group should try to achieve consensus on a program. USDA is loathe to get involved in any such program where the industry is badly divided. In addition, during the pre-order process, it would be helpful for the commodity industry to ask itself the following questions:

  1. What does the industry want to accomplish with a national promotion program?
  2. How much money does the industry need to raise in order to achieve its objectives?
  3. What will be the rate of assessment imposed on the industry?
  4. Who will pay the assessment? Will it be the producer of the commodity or the processor?
  5. Who will sit on the board that governs the program and determine how the money is to be spent?
  6. Does the industry prefer to have an up-front or delayed referendum?


Promotion Programs Are Worth The Effort

As any commodity group that has a national or even state-level promotion program can attest, when the programs are properly run, they work. Sales are increased, exports are made, and vital research is accomplished. As federal and state government budgets continue to shrink, the need for commodity industries to invest their own money and control their own destiny will continue to grow. Therefore, as the government’s role in agriculture continues to shrink, the role of industry-funded research and promotion programs will continue to increase.

If you would like a more detailed decision memorandum on the development of promotion programs, please contact Suzanne Bucciarelli at McLeod, Watkinson & Miller (202) 842-2345.

Mr. McLeod is a partner in the firm and practices agricultural and agribusiness law. He is a former General Counsel and Staff Director for the Senate Agriculture Committee.


Congress Adopts Several Tax Changes That Affect Farmers

Just before the August recess, Congress adopted two bills which contain various wage, tax, and retirement savings changes impacting the agricultural community. The Small Business Job Protection Act of 1996 (H.R. 3448) and the Health Insurance Portability & Accountability Act of 1996 (H.R. 3103), now await President Clinton’s signature. The bills contained the following provisions:



Safe Drinking Water Act Becomes Law

President Clinton signed new Safe Drinking Water Act legislation into law on Aug. 6. The legislation will upgrade local water facilities and streamline federal health regulations. Reforms to the federal drinking water law represent a “watershed” achievement in every sense of the word.

Establishes “Source Water” Petition Process

The legislation creates a mechanism whereby communities can petition states for funding and technical assistance to protect drinking water sources. This “source water” petition process will allow farmers and food processors located upstream from public water supplies to work cooperatively with municipalities and water authorities to avoid and solve pollution problems on a watershed basis. The law also would require states to assess source water areas of drinking water systems and identify the origins of contaminants.

Federal Funding

Central to the measure is $7.6 billion in authorized federal funding through FY'2003 for state-administered grants and loans to help communities meet federal drinking water standards. Funds would be available from a State Revolving Loan Fund (SRF) designed to assist local water systems in financing infrastructure improvements in drinking water facilities. States also will have the flexibility to transfer funds between Clean Water Act and Safe Drinking Water Act SRFs.

Standard Setting

In a change from current law, the Environmental Protection Agency (EPA) would no longer have to create new regulations by setting standards for 25 additional contaminants every three years. Instead, 18 months after enactment, and every five years thereafter, the EPA would publish a list of contaminants found in the drinking water, then use the list when proposing to regulate new contaminants.

The legislation also establishes a new process for the EPA to regulate contaminants. In proposing a regulation, the EPA must publish a non-binding analysis that assesses both the costs and benefits of a proposed regulation.

Customer Right-to-Know

The legislation also requires large water systems to provide annual reports to their customers on water contaminants and their health effects. Water systems serving 500 to 10,000 people can publish the information in local newspapers. Systems serving 500 persons or fewer are not required to distribute such information, but they must make it available upon request.

Small Water Systems

Recognizing that smaller water systems may not have the financial resources to purchase the best available technology, the legislation provides variances for systems serving 3,300 persons or fewer. In addition, water systems serving up to 10,000 people could obtain variances with the permission of EPA. However, even with these exemptions, systems would have to meet federal standards for many contaminants, including bacteria and lead.

Richard Pasco is an attorney in the firm specializing in legislative, environmental, agricultural, food safety, food labeling, and trade issues.





The Agricultural Law Letter is published to highlight recent changes and developments in the law and public policy. As with any publication of this type, it is essential that before any action is taken based upon this information, competent, individualized, and professional advice should be obtained. Copyright 1997 by McLeod, Watkinson & Miller. Reproduction in part or in whole is permitted with permission from McLeod, Watkinson & Miller. Contact Suzanne Bucciarelli at (202) 842-2345, or write to One Massachusetts Avenue, NW, Suite 800, Washington, D.C. 20001. Subscriptions to the newsletter are $25 per year.