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Frequently Asked Questions about the industry check-off program

June 2, 2009
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The Natural Stone Council (NSC) and the entire industry will need to have support in Congress to introduce and enact legislation to authorize a Check-off Program to generate funds to promote the use of natural stone. To better understand the program we have developed a list of frequently asked questions.
 
What is a Check-off Program?
A check-off program is an industry-funded marketing and research program designed to increase domestic and/or international demand for that industry’s commodity. This is accomplished through promotion, research, new product development, and a variety of other marketing tools. These programs raise money like businesses do when selling stock to shareholders (in our case, stone producers, processors, importers, etc.) with board of directors that is accountable to the shareholders.
 

What industries currently use Check-off Programs?
Most check-off programs are operated within the agriculture sector. They include the National Dairy Board (Got Milk? ®), Cattlemen’s Beef Board (Beef. It’s What’s for Dinner®), Cotton Board (The Fabric of Our Lives®), plus several more. Outside of agriculture, there is the check-off program for the propane industry, the Propane Education and Research Council (PERC). Combined, these boards/councils raise almost $800 million dollars to promote their respective products to consumers every year.

The NSC forecasts this program will generate $6 - $8 million for promoting the use of our products.
 
Who pays for the check-off?
Each check-off program is supported entirely by its own industry. No taxpayer or government funds are involved. Contribution rates vary among the different check-offs, but they are always based on a percentage of net sales or assessed at a set rate per production unit. Each check-off program participant contributes at the same rate, no matter where the operation is located. The rate of assessment for our industry will be ½ of 1% (or $0.005 per dollar) of the declared value of the dimension natural stone at the point of assessment.
 

Who will be covered by the program?

Anyone who imports dimension natural stone or processes domestically produced dimension natural stone as a first handler worth a minimum of $500,000 annually.

 

What is a First Handler?

For the purpose of this program, a first handler is NOT determined by the act of quarrying blocks. Rather, a first handler is defined as:

 

The first level of action or series of actions or operations conducing to an end; especially: the first operation or treatment adding value to quarried natural stone. The action, operation or treatment is further defined as a set of quality control activities which transforms quarried blocks and byproducts into goods that are valuable to internal and/ or external customers of the organization performing the action, operation or treatment.

 

What is the rate of assessment?

The rate of assessment will be ½ of 1% ($0.005 per dollar) of the declared market value of the dimension natural stone.
 
How do check-offs benefit the industries they represent?
The fundamental goal of every check-off program is to increase product demand, in this case natural stone. This will result in increasing the potential long-term economic growth of all sectors of the industry. Check-off programs also foster fairness within the industry by requiring everyone doing more than $500,000 annually in business to contribute to the program.
 

Do check-offs benefit consumers and clients?
Yes, check-off programs benefit consumers and clients by providing:

  1. Product information to help make informed choices.
  2. Research to create new and improved products that meet consumer and client quality, safety and appropriate application expectations.
Who directs check-off programs?
Check-off programs are directed by industry-governed boards, appointed by the appropriate government agency. Specifically, a National Stone Research & Promotion Board would be created. This board will be responsible for allocating funds and approving business plans and programs. Check-off program participants have the right to periodic referenda on whether to retain or discontinue their respective programs.
 
Do check-off programs receive government assistance?
No. Check-off programs are funded entirely by their respective industries, not by taxpayers or government agencies.
 

How is the federal government involved in check-off programs?
Check-off programs were established by acts of Congress. USDA's Agricultural Marketing Service (AMS) has primary oversight responsibilities over the agriculture check-offs, while the Department of Energy works with the Propane Education and Research Council. USDA's Foreign Agricultural Service (FAS) provides additional oversight responsibilities for check-off program activities in global markets.


Who controls the money?

The Natural Stone Research and Promotion Board’s Board of Directors controls the money with oversight by the appropriate Federal Department.


Who picks Board?  

The Natural Stone Council Board of Directors will nominate candidates to the board to the Secretary of the appropriate federal department. The Secretary will make the final appointments. These candidates will be generally representative of various segments of the industry paying the assessments (importers, first handlers, etc.)

Do we keep 100% of the funds donated or do we have to give some to Uncle Sam?

These are industry funds and the check-off is designed to keep 100% of the funds so you can build market share in the US.  The federal department providing oversight may charge an oversight fee, but it should be minimal.  For example, the USDA charges the NMB (National Mango Board) $108,000 annually to run oversight over the NMB.  The NMB’s annual operating budget is $3.5 Million.


It has been reported that there have been numerous industry issues and problems with some of the agricultural commodity check-off programs.  Is this true?

 

Most of those problems were solved with a 1996 Act of Congress to establish a generic check-off statute. Congress conceived the generic check-off statute in part to avoid having to enact individual check-offs, but also to insure that new check-offs were developed in a way that avoided legal challenges and avoided challenges by international trading partners.  The forced commercial speech issues related to check-offs were remedied in amendments in the 1996 and 2002 Farm Bills, and this constitutional law issue should not be a concern.  In addition, the U.S. Supreme Court in 2005 affirmed the constitutionality of the so-called beef check-off program, one of the 17 promotion programs for agricultural products that are now active nationally.  The Supreme Court cases and the “fixes” in legislation stand USDA approved check-offs in a fairly safe legal position currently. 

There are still intra-industry issues with check-offs (e.g. soybeans) but those are indicative of internal industry political concerns about how the check-offs are governed and how funds are used, etc-but not running to the validity, constitutionality, etc. of the underlying law.

I'm trying to get the Government out of our business. Isn't  this  going the wrong way?

These programs are designed to give the natural stone industry the tools to grow market share, by using its own money.  There is a cost associated with asking the government to give you the ability to assess yourselves, and that cost is oversight.  In all the agriculture check-off programs (Got Milk; Beef - It’s What’s for Dinner; Pork – The Other White Meat, etc.), there is an understanding that these programs work with the USDA to make these programs work.  The USDA has been very good at letting the programs do their own thing and this is the kind of model we are proposing.  

How is this going to help the industry’s monument producers? 

This program is designed to use industry monies to promote natural stone in the US marketplace.  Since monument producers are selling product in the U.S. marketplace, this program should help bring awareness.

Do domestic quarriers have to pay, or is it paid by the firm that makes the first saw cut?

Domestic quarries would pay the assessment when they are also the first handler.

 

Wouldn’t assessing at the quarry site for all material both domestic and international be easier?

Assessing at the quarry for all material both domestic and international would make things much easier, however the material that is assessed at the quarry and gets exported rough, could come back finished, and run into the possibility of being assessed twice. To avoid such duplications, there could be paper trails for material that leaves the U.S. rough then returns finished, however it would be a difficult to enforce. 

 

Are assessments payable on domestic natural stone only or on domestic and imported dimension natural stone?

The program is designed to increase market share in the U.S. market, hence assessments will be paid on all natural stone in the U.S. market whether domestically produced or imported,

 

Can the exporter to the U.S. pay the assessment, rather than the importer?

As the program is currently designed, the importer of record of natural stone will be required to pay the assessment.  U.S. statutes are not enforceable outside the U.S., hence the exporter could pay the assessment voluntarily, but Customs will still collect the assessment from the importer.

 

Is there a list of harmonized tariff numbers that will trigger the assessment?

Yes, there should be.  We will have to work closely with Customs to determine what these numbers are.

 

Where will the info for the board structure come from and is this domestic only or domestic and imported stone?

The sales volume figures will come from USGS figures http://minerals.usgs.gov/minerals/pubs/commodity/.  Yes, the figures tracking domestic production will be a benchmark, as will import figures from U.S. Customs.

What is the reason to start this check-off program? Many members of the natural stone industry continue to see competing materials such as concrete, brick, etc. gaining positions in the marketplace. On their member’s behalf, to strengthen their position in the market and to have a sustainable marketing effort that is equitable among industry members, the NSC is on a quest to develop and finance the Natural Stone Research and Promotion Board as an effective coordinated program of research, promotion, industry information, and consumer information regarding natural stone; strengthen the position of the natural stone industry in the U.S. markets; and maintain, develop and expand domestic markets for natural stone. 
 

What will the funds be used for?

 The Natural Stone Research and Promotion Board will invest and manage industry funds to: 1) educate consumers on the advantages of using natural stone and the proper care and maintenance of natural stone; 2) provide ongoing education to members of the industry on the safe use and handling of natural stone; and 3) support research related to the application and use of natural stone.

 

How much money will the check-off program generate annually?

The rate of assessment will be ½ of 1%, ($0.005 per dollar) of the first invoice of a first handled domestic dimension natural stone and the declared invoice value of imported dimension natural stone. According to 2008 statistics; (source U.S. Geological Survey), the estimated value of U.S. produced dimension natural stone in 2008 was $288,000,000 and the estimated value of imported natural stone in the same period was $2,500,000,000; for a total value of $2,788,000,000, therefore the NSRPB’s assessment value in 2008 would have been $13,940,000.  The global economic downturn will pose a challenge to increased demand, domestic production, and imports of dimension stone in the near term, so the check off program will most likely not generate assessments at that level in the early years.

 

Who contributes to the check-off program?

Any company that is a first handler and sells $500,000 or more of domestically produced natural stone in a twelve month period and anyone who imports more than $500,000 of declared value of dimension natural stone in a twelve month period will contribute to the NSRPB. This will include:

Natural Stone Importers - Importers that import natural stone into the United States as a principal or as an agent, broker or consignee of any person who produces or handles natural stone outside the United States and who is listed as the importer of record for such natural stone will contribute to the NSRPB

Natural Stone Processors/First Handlers - any person or business that buys natural stone from domestic quarries and executes the first level of processing of the raw material, adding value and making it into a product that is saleable will contribute to the NSRPB.

 

Will foreign companies be involved or only domestic companies?

The NSRPB is designed to promote natural stone in the U.S. marketplace; this includes domestic stone as well as foreign stone imported into the U.S. U.S. companies that are first handlers of dimension natural stone, (regardless of where it originated in the U.S.) will be involved in the NSRPB, while imported dimension natural stone will be represented by the importer of record, which most often is a U.S. company. 

 

What is the rate of assessment that companies will pay and how will each company know their competitors will pay a comparable rate?

The rate of assessment for the NSRPB is proposed to be ½ of 1%, ($0.005 per dollar) of the first invoice of a finished product of domestically processed natural stone and declared invoice value of imported product. The proposed legislation is designed to give the NSRPB the support of the federal government to ensure the assessment is remitted evenly, throughout the industry. Industries, (such as Milk, Beef and Cotton) rely on spot audits to ensure everyone is paying their fair share to their respective check-offs. 

 

At what point in production will stone be assessed?

Under the proposed program, each first handler of domestically quarried dimension natural stone will remit $0.005 per dollar of the market value of the processed natural stone to the federal department administering the Natural Stone Research and Promotion Board.  The assessment will be provided to the Natural Stone Research and Promotion Board by the federal department along with a monthly report.  On imported dimension natural stone, the NSRPB assessment would be collected from importers of natural stone by U.S. Customs. 

 

Who decides how the money is spent?

Natural stone importers and domestic processors will make up the NSRPB of Directors, who in turn will determine how the industry’s revenue will be spent. At least two nominees of natural stone importers and processors for each seat on the Board will be submitted to the Secretary of the appropriate federal department by the NSC to be considered to serve on the NSRPB. The Secretary will make the final appointment of the NSRPB of Directors. 

 

Who votes on the implementation of this program?

Companies that will be subject to the assessment (dimension natural stone importers and domestic processors) will receive a ballot and determine if this program will be implemented. 

 

How is the government involved in this process?

Government involvement in this program begins with Congress considering and passing legislation that authorizes the creation of a NSRPB. Once a government agency is authorized  to implement this program, they will administer a referendum to determine if the natural stone importers and processors want an industry-wide check-off. They will request a list of qualified importers and processors from the NSC, and then send each domestic processor (First Handler) and importer a ballot. Once the ballots are completed and returned, the Department will count the ballots and determine if 51% or more of the ballots returned are in favor of the program. 

 

If the referendum passes, the Department will work with the NSC to submit at least two nominees of natural stone importers and processors for each seat to serve the NSRPB. Once the Secretary appoints the board, the board will convene and set policy, budget and hire staff. At this point, the federal department will step back and provide oversight to NSRPB. Oversight may include reviewing NSPRB programs to ensure activities are designed to maintain and expand the understanding of, preference for consumption of natural stone in the United States.

 

Other Points to Consider:

Industry wide check-offs are common throughout the agriculture sector. Producers, handlers and importers of milk, beef, watermelons, potatoes, blueberries, soybeans, pork, peanuts, popcorn, cotton, eggs, lamb, cherries, almonds, watermelons, mangos and mushrooms all have tools created by their own respective check-offs to help them reach out to trade and consumers. The Propane Education and Research Council is a check-off program designed and managed by the propone industry members to enhance propane market share in the US.

 

Although these programs are far from perfect, they clearly empower their respective industries to speak with a single voice. They also provide a sustainable source of revenue to build a long term marketing effort. Check-offs also foster fairness when it comes to funding industry promotions by eliminating the free-rider issue, (an industry member benefiting from promotions funded by someone else). Industry wide check-offs are managed by industry members, using industry funds (no federal tax dollars) to help their own industry. At the end of the day, the industry can decide to shut the check-off down if they determine it is not doing the job, or they can increase the assessment to do more.

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