Natural Stone Council

2009 Special Edition/ Check-off Program

Dear Industry Member,

Now that the political scene is becoming somewhat established in Washington DC, work has begun in earnest to investigate the feasibility of establishing a check-off program for the natural stone industry. A prominent Washington government relations and lobbying firm with success in establishing and advising check-off boards has been hired to assist us in the process. This firm has relationships with key decision makers in Congress and the Executive Branch who will be important in authorizing and administering any natural stone check-off program. We have had several meetings with leading members of Congress and their staff to determine their willingness to work with us. Although there are still many unknowns, we are encouraged by the progress made to date. 

We are concerned by some of the misinformation that has been circulating the industry regarding the nature of check-off programs in general and more importantly, the role that the Natural Stone Council (NSC) is playing in pursuing the option as a viable method for funding the ongoing research and promotion of natural stone in North America.

Below are the steps required in the process of establishing a check-off program.

1. The first is to clarify the appropriate federal agency to administer and oversee the natural stone check-off. In our case, we are presently working with the House and Senate Agriculture Committees, which have the most experience in Congress with these programs, including jurisdiction over a generic authority framework for administering various agricultural check-offs through the Department of Agriculture.  With the support of these Committees, we would propose to clarify the current law’s “generic” authority for establishing and administering check-offs to include natural stone. To do so would require Congress to pass legislation amending the law to authorize the creation of a Natural Stone Research and Promotion Board (NSRPB).    

2. Once we are armed with this authority, we will need to figure out exactly how the program will work. This phase is likely to take some serious time and effort as the industry sets the parameters for the program and works through the specifics of how money is collected, who it is collected from, who serves on the NSRPB, how it functions, how the money is spent, etc. This is the detail work. The USDA will offer help based on their experience with other check-offs, but it is really up to our industry to figure out these details. If successful, this will be our program and we will choose how it should run.   

3. After the first two steps are accomplished, the matter of proposing check-off, with all of the necessary details specified, will be presented to the appropriate Federal agency (in this example the USDA) with a request that an “order” be issued to implement the program.    

4. At this point, we will have all the details in front of us and it will be up to us to decide whether or not we want to implement our work. The USDA will send each qualifying importer and domestic producer a ballot. If the industry referendum passes, the USDA will work with our industry to nominate board members and make appointments. The USDA will then step back and provide oversight to make sure the board is acting in a manner consistent with its charter and the board will proceed with setting policy, budgeting, hiring staff, and conducting industry research and promotion.

The steps outlined above are the major requirements for implementing a check-off program and we are currently working on step one. Depending on developments, the program could be authorized and administered through the USDA, or through another mechanism.

The program has political and practical sides, neither of which can exist without the other. The political process of obtaining federal authorization is as important as the practical side of obtaining industry agreement. The proposed check-off program is effectively a self-imposed fee, created and administered by our own industry with oversight only (not controlled) by the Federal Government. The assessment fee will be determined in an equitable way so no one industry segment will benefit at the expense of another. In fact, part of the USDA’s role is to ensure that industry segments are properly represented.  We will be in a position to direct these funds to the issues that we believe are important to our industry such as research and promotion, technology development, safety and the environment.  

It has been suggested that the NSC is attempting to push a check-off program on its industry members without giving them a chance to learn and understand it. Please know that this is not our intent. We are doing the due diligence necessary to make sure that when the time comes to vote on whether or not we want a check-off program to fund ongoing research and promotion in support of the natural stone industry, we will all be able to make an informed decision. To draw conclusions now without the benefit of working through the details of how a program like this could work for us would be premature.   

To help increase communication about the issues involved in the program, we have developed a list of frequently asked questions and answers in this edition of the newsletter. This information can be used by individuals who are meeting with officials in Washington and/or to begin a dialogue with other members of our industry. Please know that many of these details are subject to change as we do the hard work of building consensus on the details of the program. In addition, we have provided a brief summary on our meeting with Senator Harkin, who oversees the Agricultural Committee.

We hope this special edition helps you to better understand what the NSC is doing on your behalf. We believe the goals of the NSC are worth pursuing and we know they will require significant industry support. Without a reliable source of significant funding on an ongoing basis, much of what we are trying to accomplish for our industry will not be possible. Please look for continued updates on the check-off program in future editions of the quarterly newsletter.      
 

Sincerely,

The NSC Board of Directors

Mark Fernandes         Jim Owens 
Ed Walsh                     Will Bybee 
Jane Bennett               Garis Distelhorst 
Brenda Edwards         Gasper (GK) Naquin                
Tom Robinson             Chuck Monson 
Rusty Adams               John Mattke 
Alex Bachrach              David Large
Michael Schlough        Chris Klimpel
Duke Pointer

Frequently Asked Questions and Answers

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 a 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 to promote their respective products to consumers every year.

The NSC forecasts this program will generate six to eight million dollars 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 half of one percent (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 by-products 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 half of one percent ($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 and Promotion Board (NSRPB) 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 Board of Directors for the NSRPB will control the money with oversight by the appropriate federal department.

Who picks the Board?  
The NSC Board of Directors will nominate candidates 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 natural stone can build market share in the U.S. The federal department providing oversight may charge an oversight fee, but it should be minimal. For example, the USDA charges the National Mango Board (NMB) $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 statute in part to avoid having to enact individual check-offs, but also to insure that new programs were developed in a way that avoided legal challenges and issues with international trading partners. The forced commercial speech issues related to check-offs were remedied by 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 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 and are currently in a safe legal position.

There are still intra-industry issues with check-offs (e.g. soybeans) but those are indicative of internal industry political concerns about how those programs are governed and how funds are used. These issues do not question the  validity or  constitutionality of the underlying law.

How will intra-industry disputes or questions be handled?
There will be ample time to resolve any intra-industry differences as the industry crafts and gains the authority to implement and administer a check-off program. Until there is authority to establish a natural stone check-off program, we have to focus all of our efforts on enactment of legislative changes that allow us to have that conversation.  

Existing statutes (and the established general legislative, judicial, and administrative norms) require some combination of initial and/or periodic referenda on the program to protect industry participants and to avoid the assertion that the program will run in perpetuity or is difficult to terminate. Experience with agricultural research and promotion programs show that the USDA will not allow a check-off to be established that does not ensure that industry segments are properly represented and that the check-off is administered in a manner that avoids international challenges.

Experience with sorghum and other check-offs show that the process can take well over a year in order to fairly address the issues and concerns raised by different industry segments, getting the conversion factors right, working out the board representation, etc.

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 yourself and that 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 cooperate with the USDA to make these programs work. The USDA has been very good at letting the programs go their own direction 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 money to promote natural stone in the U.S. 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 a paper trail for material that leaves the U.S. rough then returns finished. However, this would be 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 these numbers.

From where will the information for the board structure come? Is this domestic or 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 and brick gain position in the marketplace. The NSC is on a quest to develop and finance the NSRPB as an effective coordinated program of research, promotion, and industry and consumer information regarding natural stone. We would also like to strengthen the position of the industry in the U.S. markets and maintain, develop and expand domestic markets for natural stone.

For what purpose will the funds be used?
The NSRPB 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 half of one percent ($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. American 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 an American 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 half of one percent ($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 NSRPB. The assessment will be provided to the NSRPB 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 on the NSRPB. Once the secretary appoints the board, they 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, and consumption of natural stone in the United States.

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 its job, or they can increase the assessment to do more.

Senator Harkin Meeting Summary

Representatives from the NSC traveled to Washington, DC to meet with key Congressional staff to advocate for the enactment of legislation authorizing the implementation of an industry funded check-off program. One of these meetings was with Senator Tom Harkin, Chairman of the Agriculture Committee. Below you will find an encouraging summary of this meeting.

Representing the Board were several partners from Cornerstone along with Fred Becker and his son Chris serving as Iowa constituents. The two hours shared with Senator Harkin could not have been better spent. The meeting provided quality time with the senator and other important members of his staff.

It seems that everywhere we go there is a healthy amount of interest and support for our cause. The senator and his team, much like the folks from Minnesota, North Carolina and Georgia, were extremely complimentary of our efforts and very interested in the details of our industry. They were clearly moved by our story about the second, third and fourth generation companies across the country collaborating with each other to create a voice equal to that of big corporations such as Owens Corning and DuPont. They connected with this and our need to fund our own research and promotion. We spent a long time talking about the USDA, check-off programs in general and the current bill the natural stone industry is attempting to modify.

Our discussion focused on seeking Senator Harkin’s support for our effort to amend the existing “generic” research and promotion authority for “agricultural commodities” to include natural stone. Part of our position is that the Agriculture Committee has jurisdiction over “rural development,” and that if the generic statute is amended to also serve the purpose of “rural development,” natural stone research and promotion could easily fall within that purpose.

In answer to questions about the level of consensus among the industry in support of a natural stone check-off, we made clear that amending the generic statute provides the best avenue for building consensus – through the USDA regulatory process – without Congress having to play arbitrator for the industry. In other words, amending the generic statute provides the best means to encourage consensus in the industry, minimizes the level of work and controversy in the Congress and in turn maximizes administrative efficiency in the Executive Branch.