Monday, March 3, 2008

FREQUENTLY ASKED QUESTIONS

FREQUENTLY ASKED QUESTIONS

What is a nationwide checkoff?
Authorized through the federal government, checkoffs collect funds from producers of
agricultural commodities and use these funds for promotion, marketing, research and other specified programs. Checkoff funds promote the commodity in a generic way without reference to a particular producer. Commodities with federally-authorized checkoff programs include avocados, blueberries, cotton, honey, mangos, mushrooms, peanuts, popcorn, soybeans and watermelons.

What is a federal marketing order?
A rule developed by the U.S. Department of Agriculture (USDA) that outlines specific details about a commodity checkoff program. The order follows guidelines established by the Commodity Promotion, Research and Information Act of 1996 (the Act) which Congress passed in 1996.

Are checkoff programs legal?
Yes, the U.S. Supreme Court has ruled that federal checkoff programs are constitutional and enforceable rules and regulations.

How does a checkoff get started?
The industry of a particular commodity submits a proposal for a checkoff to USDA’s Agricultural Marketing Service (AMS). Using the industry’s proposal and the Act, AMS develops a proposed federal marketing order and submits it for public comment (via notice by publication in the Federal Resister). After reviewing comments from the public and making any changes based on those comments, AMS publishes a final rule which establishes the official starting date for the checkoff program. [Most checkoff programs established under the 1996 Act follow what is called a delayed referendum. The program operates for up to three years after which a referendum is held to determine whether the program will be continued.]

If proposed, how soon would a nationwide checkoff on Christmas trees begin?
It takes at least a year for USDA to follow its "rule making procedures." Thus, it is highly unlikely that a checkoff could start before 2010.

If started, how can a checkoff be ended?
Producers vote to continue or discontinue the checkoff program in a referendum with those paying the checkoff eligible to vote. A referendum happens in one of three ways: in the required periodic referendum; at the request of the "checkoff board," or at the request of 10% of the eligible voters. [See "referendum section" at end of these FAQs.]

Why do commodities establish checkoff programs?
Most attempted a voluntary program to promote their commodity, sponsor research on their commodity or counter challenges from competitors. As participation in voluntary programs decline; however, donors begin asking "why should I pay when the guy down the street doesn’t." The creation of an automatic or mandatory program ensures fairness: all who benefit from the promotion and research are required to pay the checkoff assessment.

Why are some in the Christmas tree industry exploring a nationwide checkoff for Christmas trees?
The continued decline in the percentage of U.S. homes buying a farm-grown Christmas tree. In 1990, 38% of all homes in the U.S. had a real Christmas tree while 39% of the homes reported having an artificial tree. Last year (2007), only 27% of U.S. homes purchased a farm-grown Christmas tree while 58% of the homes displayed a fake tree. Many feel this loss of market share threatens the long-term existence of a farm-grown Christmas trees. And, they have noted that the fake tree industry is more aggressively promoting their product, often by stating that farm grown trees are a "messy fire hazard that threatens the environment." These leaders feel the industry needs to generate funds to aggressively promote and protect farm-grown trees. The current voluntary program generated about $900,000 in 2004 but slipped to $400,000 in 2007 forcing a reduction in industry promotion and protection programs ... thus opening a window for the fake tree industry to increase its sales. And, the decline in the number of farms making voluntary donations has reinforced the feeling that "why should I pay when my neighbor is not paying."

What are some of the reasons NOT to have a checkoff program for Christmas trees?
Here are some of the comments made about a nationwide checkoff program: "It forces me to pay the checkoff even if I don’t agree with it or its programs." "It gets the federal government involved in our industry." "I can sell everything I grow so why should I pay for nationwide promotion and marketing?" "It creates a bureaucracy to manage the program."

Is the checkoff a ploy to get more money for the National Christmas Tree Association (NCTA)?
A10: No, a marketing order is NOT for NCTA, it is for the Christmas tree growers to promote their product. A "checkoff board" – appointed by the Secretary of Agriculture and completely separate from NCTA – manages the program. This independent board determines what programs are needed to benefit the industry and how to implement those programs and activities. That board may decide to contract with NCTA and/or state associations to implement some of its programs but does not have to.

Can some of the funds be used for state-initiated research and promotion?
Yes if provided for in the marketing order and in compliance with AMS oversight. It is possible for the order to require a specific percent of collections for use in the states or to establish a system for state associations – as potential subcontractors of the "checkoff board" to submit proposals for use of checkoff funds at the state / regional level. No checkoff funds are allowed to be used for lobbying or membership activities and it is unlikely that AMS would approve programs that promote one species against another species.

Who pays the checkoff?
All producers as identified in the federal marketing order pay the assessment. Since 1996, most checkoff programs have exempted "smaller producers" since collection and compliance costs may exceed the amount collected (example: watermelon producers under 10 acres are exempt; blueberries exempts those producing less than 2,000 pounds annually). It is possible to create a dual system whereby "larger" producers pay the mandatory assessment and "smaller" producers pay a voluntary assessment.

Are imported products – such as Canadian Christmas trees – included in the checkoff program.
Yes, if the industry proposes collections on imports, then importers pay the checkoff when the produce enters the U.S. If imports are included in the checkoff collection, importers are eligible to have one or more directors on the "checkoff board" in proportion to their amount of collections.

What is the assessment rate?
The industry would propose an assessment rate. Some establish the rate as a percent of value (examples: pork collects ½% of the selling price; the peanut checkoff is 1% of total value) while others collect on a specific amount (examples: blueberries collects $12 per ton; beef collects $1 per head each time the animal is sold). Some have marketing orders that allow the "checkoff board" to change the assessment rate within minimums and maximums. Others can only change the rate by holding another referendum of eligible producers.

What rules are included to ensure that my personal information remains personal?
The courts have ruled that AMS shall not release personal or company information to any person or agency. This includes ruling that AMS shall NOT release information to the IRS. In addition, members of the "checkoff board" are note allowed to see individual of any individual producer.

How are checkoff funds collected?
First handlers deduct the checkoff for producers included in the checkoff. In the case of Christmas Trees, it is likely that the grower would be considered the first handler and thus responsible for paying the checkoff. Some have suggested that this could be done using the amount of capital gains declared on the IRS Form 4797.

Who enforces the program to be sure everyone pays their checkoff assessment?
The "checkoff board" – under authority of federal law – has initial responsibility to ensure compliance with the assessment. If a producer continues to refuse to pay the assessment, the board can refer the case to AMS which enforces collection and has authority to assess fines and other legal measures to ensure compliance.

How can the funds be used?
The Act authorizes the marketing order to contain authority for the "checkoff board" to use funds collected to "develop and carry out research, promotion and information activities designed to expand, improve or make more efficient the marketing or use of the agricultural commodity." The Act stipulates that checkoff funds shall NOT be used for to influence legislation or governmental action or policy (lobbying) nor for industry membership programs. The Act further stipulates that the promotion, research and information activities authorized cannot be false or misleading or disparaging to another agricultural commodity. Some feel USDA would interpret this to disallow any ads or information negative to artificial Christmas trees.

Who manages checkoff funds & programs?
The marketing order establishes a "checkoff board" that is empowered to manage the checkoff program under the supervision of AMS. The industry – through its proposal to AMS – establishes the desired size of the board and establishes regions, if desired, for directors.

How are directors selected for the "checkoff board?"
The U.S. Secretary of Agriculture appoints members to the "checkoff board" based on nominations from the industry. The industry proposes the size of the board (some have suggested 9 to 15 directors). The Act requires that the industry submit at least two nominees for each board seat. The Act stipulates that the board ensure fair and equitable representation by reflecting the geographical distribution of the production of the commodity involved. If imports are included in the checkoff, importers are entitled to a board seat based on its proportion of checkoff collections. The Act states that the Secretary may also appoint one or more members of the general public to the board. Normally, the board is reapportioned every five years to adjust directorships to reflect production. Most industries limit directors to three three-year terms.

How can the industry keep the checkoff from becoming a large bureaucracy?
The Act stipulates that the "checkoff board" may not spend more than 15% of its annual revenue for administration. Many orders established under the Act include a "cap" administrative expenses at no more than 5%. It is up to the industry to propose a narrower cap that stated in the Act. Some programs "cap" the amount of funds allowed for salaries. Others establish that the board shall use contractors to conduct programs thus eliminating the need for staff that duplicates the experience and expertise of others within the industry.

What would happen to existing agencies promoting farm-grown Christmas trees?
The federally-appointed "checkoff board" starts with a "clean slate." The "checkoff board" will be responsible for determining priorities, programs and agencies. Most likely, the "checkoff board" would issue "requests for proposals" for marketing agencies and other contractors and vendors. While current contractors (such as Smith & Harroff) are eligible to submit proposals, there is no guarantee that they would receive a contract for work on behalf of the "checkoff board."

What issues are being considered by the industry task force?
The Task Force is assessing whether the Christmas tree industry supports developing and submitting to USDA a proposal for nationwide checkoff for Christmas trees (wreaths and greens) and what that checkoff might look. They are addressing questions such as:
1) How could the funds be used? How much money is needed to implement marketing and research programs that can be effective in promoting and protecting farm-grown Christmas trees?
2) What assessment rate is needed to meet the objectives? Should the checkoff be based on the number of trees sold or value of the trees sold? Where is the assessment collected? When is it to be paid?
3) What is the size of the "checkoff board," regions for the board; nomination process; etc.
4) Should brokers and wholesalers pay the assessment too?
5) Should the checkoff assessment include wreaths, garland and other greens?
6) Should the order include a "cap" administrative expenses of the board and should it proscribe how the board can implement its programs?
7) Should state associations receive some checkoff funds for research and promotion and what are the processes and guidelines on how such funds are allocated?
8) If a nationwide checkoff is created, who should serve as the "voice of the industry" (the checkoff board or NCTA)?
Q: How would a nationwide checkoff impact NCTA and its programs?
A: NCTA will create a separate task force to determine how NCTA would change with a specific look at how to fund lobbying and policy advocacy programs that cannot use checkoff funds.

Referendum Procedures
[From AMS Web site]

1. Up-front or Delayed Referendum: The order may provide for a referendum to be held prior to implementation or it may be delayed. If the industry requests a delayed referendum, the referendum must be held within three years after assessment collections begin under the program.
  • If the industry proposes a delayed referendum, producers opposed to the checkoff may request a refund which would be paid after the authorizing referendum is rejected. The Act requires the "checkoff board" to establish an escrow (equal to 10% of collections) to be used to pay any refunds requested. If the order is not approved in the referendum, the board pays those refunds. If the escrow is insufficient to pay the amounts of all refunds, the refunds are to be pro-rated.

2. Who Will Vote: Those who pay assessments would vote in referenda. If imports are assessed, importers must be allowed to vote in referenda.

3. How Referendum will be Conducted: The industry has the options of advance registration and/or voting by mail or in-person.

4. Requirements for Passage: An order may provide for its approval (1) by a majority of those voting; (2) by persons voting who represent a majority of the volume of the commodity voted in the referendum; or (3) both.

5. Periodic Continuance Referenda (optional): The order may provide that USDA conduct a referendum periodically (e.g., every 5 or 6 years) to determine if the industry wants the program to continue.

No comments: