[Federal Register: August 18, 2003 (Volume 68, Number 159)]
[Proposed Rules]
[Page 49375-49390]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18au03-31]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
[[Page 49375]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Parts 1124 and 1135
[Docket No. AO-368-A30, AO-380-A18; DA-01-08]
Milk in the Pacific Northwest and Western Marketing Areas;
Tentative Decision on Proposed Amendments and Opportunity To File
Written Exceptions to Tentative Marketing Agreement and to Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This tentative decision adopts, on an interim final and
emergency basis, provisions that amend certain features of the Pacific
Northwest and Western milk marketing orders. Specifically, the ability
to simultaneously pool the same milk on either the Pacific Northwest or
the Western orders and on a State-operated order that has marketwide
pooling is eliminated. For the Western order, the Pool plant provision
is amended to establish a ``net shipments'' provision for milk
deliveries to distributing plants and the Producer milk provision is
amended to establish a net diversions provision. Additionally, the
Proprietary bulk tank handler provision of the Western order is
removed. Public comments on these actions, the other pooling and
related provisions not adopted, and the marketwide service payment
provision not adopted by this tentative decision are requested. This
decision requires determination of whether producers approve the
issuance of the amended orders on an interim basis.
DATES: Comments are due on or before October 17, 2003.
ADDRESSES: Comments (6 copies) should be filed with the Hearing Clerk,
United States Department of Agriculture, Room 1083-STOP 9200, 1400
Independence Avenue, SW., Washington, DC 20250-9200.
FOR FURTHER INFORMATION CONTACT: Gino M. Tosi, Marketing Specialist,
USDA/AMS/Dairy Programs, Order Formulation and Enforcement Branch, Room
2968-STOP 0231, 1400 Independence Avenue, SW., Washington, DC 20250-
0231, (202) 690-1366, e-mail address: gino.tosi@usda.gov.
SUPPLEMENTARY INFORMATION: This administrative action is governed by
the provisions of Sections 556 and 557 of Title 5 of the United States
Code and, therefore, is excluded from the requirements of Executive
Order 12866.
These amendments to the rules proposed herein have been reviewed
under Executive Order 12988, Civil Justice Reform. They are not
intended to have a retroactive effect. If adopted, the amendments would
not preempt any state or local laws, regulations, or policies, unless
they present an irreconcilable conflict with this rule.
The Agricultural Marketing Agreement Act of 1937, as amended (7
U.S.C. 601-674), provides that administrative proceedings must be
exhausted before parties may file suit in court. Under Section
608c(15)(A) of the Act, any handler subject to an order may request
modification or exemption from such order by filing a petition stating
that the order, any provision of the order, or any obligation imposed
in connection with the order is not in accordance with the law. A
handler is afforded the opportunity for a hearing on the petition.
After a hearing, the Department would rule on the petition. The Act
provides that the district court of the United States in any district
in which the handler is an inhabitant, or has its principal place of
business, has jurisdiction in equity to review the Department's ruling
on the petition, provided a bill in equity is filed not later than 20
days after the date of the entry of the ruling.
Regulatory Flexibility Act and Paperwork Reduction Act
In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.), the Agricultural Marketing Service has considered the economic
impact of this action on small entities and has certified that this
proposed rule will not have a significant economic impact on a
substantial number of small entities. For the purpose of the Regulatory
Flexibility Act, a dairy farm is considered a ``small business'' if it
has an annual gross revenue of less than $750,000, and a dairy products
manufacturer is a ``small business'' if it has fewer than 500
employees.
For the purposes of determining which dairy farms are ``small
businesses,'' the $750,000 per year criterion was used to establish a
production guideline of 500,000 pounds per month. Although this
guideline does not factor in additional monies that may be received by
dairy producers, it should be an inclusive standard for most ``small''
dairy farmers. For purposes of determining a handler's size, if the
plant is part of a larger company operating multiple plants that
collectively exceed the 500-employee limit, the plant will be
considered a large business even if the local plant has fewer than 500
employees.
In the Western Federal milk order, 551 of the 791 dairy producers
(farmers), or almost 70 percent, whose milk was pooled under the order
at the time of the hearing, April 2002, would meet the definition of
small businesses. On the processing side, 5 of the 12 milk plants
associated with the Western milk order during April 2002 would qualify
as ``small businesses,'' constituting about 42 percent of the total.
In the Pacific Northwest Federal milk order, 805 of the 1,164 dairy
producers (farmers), or about 69 percent, whose milk was pooled under
the Pacific Northwest Federal milk order at the time of the hearing,
April 2002, would meet the definition of small businesses. On the
processing side, 9 of the 20 milk plants associated with the Pacific
Northwest milk order during April 2002, would qualify as ``small
businesses,'' constituting about 45 percent of the total.
Based on these criteria, more than 69 percent of the producers in
both orders would be considered as small businesses. The adoption of
the proposed pooling standards serves to revise established criteria
that determine those producers, producer milk, and plants that have a
reasonable association with, and are consistently serving the fluid
needs of the Pacific Northwest and Western milk marketing area and are
not associated with other marketwide pools concerning the same milk.
Criteria for pooling are established
[[Page 49376]]
on the basis of performance levels that are considered adequate to meet
the Class I fluid needs and, by doing so, determine those that are
eligible to share in the revenue that arises from the classified
pricing of milk. Criteria for pooling are established without regard to
the size of any dairy industry organization or entity. The established
criteria are applied in an identical fashion to both large and small
businesses and do not have any different economic impact on small
entities as opposed to large entities. Therefore, the proposed
amendments will not have a significant economic impact on a substantial
number of small entities.
A review of reporting requirements was completed under the
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was
determined that these proposed amendments would have no impact on
reporting, recordkeeping, or other compliance requirements because they
would remain identical to the current requirements. No new forms are
proposed and no additional reporting requirements would be necessary.
This notice does not require additional information collection that
requires clearance by the Office of Management and Budget (OMB) beyond
currently approved information collection. The primary sources of data
used to complete the forms are routinely used in most business
transactions. Forms require only a minimal amount of information which
can be supplied without data processing equipment or a trained
statistical staff. Thus, the information collection and reporting
burden is relatively small. Requiring the same reports for all handlers
does not significantly disadvantage any handler that is smaller than
the industry average.
Interested parties are invited to submit comments on the probable
regulatory and informational impact of this proposed rule on small
entities. Also, parties may suggest modifications of this proposal for
the purpose of tailoring their applicability to small businesses.
Prior documents in this proceeding:
Notice of Hearing: Issued February 26, 2002; published March 4,
2002 (67 FR 9622).
Correction of Notice of Hearing: Issued March 14, 2002; published
March 19, 2002 (67 FR 12488).
Preliminary Statement
Notice is hereby given of the filing with the Hearing Clerk of this
tentative final decision with respect to proposed amendments to the
tentative marketing agreements and the orders regulating the handling
of milk in the Pacific Northwest and Western marketing areas. This
notice is issued pursuant to the provisions of the Agricultural
Marketing Agreement Act and the applicable rules of practice and
procedure governing the formulation of marketing agreements and
marketing orders (7 CFR Part 900).
Interested parties may file written exceptions to this decision
with the Hearing Clerk, U.S. Department of Agriculture, Room 1083-STOP
9200, 1400 Independence Avenue, SW, Washington, DC 20250-9200, by the
October 17, 2003. Six (6) copies of the exceptions should be filed. All
written submissions made pursuant to this notice will be made available
for public inspection at the office of the Hearing Clerk during regular
business hours (7 CFR 1.27(b)).
The hearing notice specifically invited interested persons to
present evidence concerning the probable regulatory and informational
impact of the proposals on small businesses. While no evidence was
received that specifically addressed these issues, some of the evidence
encompassed entities of various sizes.
The proposed amendments set forth below are based on the record of
a public hearing held at Salt Lake City, Utah, on April 16-19, 2002,
pursuant to a notice of hearing issued February 26, 2002, and published
March 4, 2002, (67 FR 9622) and a correction of notice of hearing
issued March 14, 2002, and published March 19, 2002 (67 FR 12488).
The material issues on the record of the hearing relate to:
1. Simultaneous pooling of milk on a Federal and a State-operated
milk order.
2. Pooling Standards of the Western Order.
a. Supply plant performance standards.
b. Cooperative supply plant performance standards.
c. Standards for Producer milk.
d. Proprietary bulk tank handler provision.
e. Establishing pooling standards for ``State-units.''
3. Marketwide Service Payments.
4. Pooling provision clarifications.
5. Determining whether emergency marketing conditions exist that
would warrant the omission of a recommended decision and the
opportunity to file written exceptions.
Findings and Conclusions
The following findings and conclusions on the material issues are
based on evidence presented at the hearing and the record thereof:
1. Simultaneous Pooling on a Federal and State-Operated Milk Order
Two proposals, published in the hearing notice as Proposals 1 and
10, seeking to exclude the same milk from being simultaneously pooled
on the Pacific Northwest and Western orders and any State-operated
order which provides for marketwide pooling, should be adopted
immediately. The practice of pooling milk on a Federal order and
simultaneously pooling the same milk on a State-operated order has come
to be referred to as ``double dipping''. The Pacific Northwest and
Western orders do not currently prohibit milk to be simultaneously
pooled on the order and a State-operated order that provides for
marketwide pooling. Proposals 1 and 10 were offered by Northwest Dairy
Association (NDA), a cooperative association that markets the milk of
their dairy-farmer members in the Pacific Northwest and Western milk
marketing areas.
A witness appearing on behalf of NDA, testified that double dipping
not only creates disorderly conditions in California, it also results
in competitive inequities in Federal milk order areas. The NDA witness
explained that once minimal pool qualification standards are met, milk
pooled via this manner rarely is delivered to a Federal order marketing
area.
The NDA witness provided evidence indicating that in 2001, over
$4.5 million was diverted from the Western Order pool and the producer
blend price was reduced by an average of 10 cents per hundredweight
(cwt) through double dipping. The witness was of the opinion that milk
pooled through double dipping provided no service or delivery of milk
from California yet the California milk receives the benefit of the
Western order's blend price.
The NDA witness testified that there was no evidence of double
dipping presently occurring on the Pacific Northwest order. However,
the witness was of the opinion that the Pacific Northwest order would
be targeted. The witness drew this conclusion on the premise that as
soon as the double dipping loophole is closed in other orders,
California milk will be pooled on orders that do not yet prohibit the
practice.
Two witnesses, one representing Gossner Foods, Inc. (Gossner), an
ultra high temperature (UHT) fluid milk processor located in Utah, and
the second, Utah Dairymen's Association (UDA), a cooperative located in
Utah, also provided testimony in support of Proposal 10. The witnesses
concurred that by eliminating double dipping,
[[Page 49377]]
producers pooled on the order would benefit financially and enhance
their ability to stay in business.
A witness representing River Valley Milk Producers Inc. (River
Valley), a dairy farmer cooperative located in Southwestern Idaho,
testified in support of eliminating double dipping. The witness was of
the opinion that producers from outside of the marketing area should
meet pooling standards by demonstrating actual performance in supplying
the Western marketing area as a condition for pooling their milk and
receiving the blend price. However, the witness stressed that producer
milk which already participates in a State marketwide pool should be
prohibited from participating in a Federal order pool.
The Commissioner of the Utah Department of Agriculture and Food
testified in support of eliminating double dipping on the Western milk
order. The witness testified that increasing volumes of California milk
are diluting the Class I utilization of the market and lowering the
blend price paid to producers. The witness found this to be patently
unfair and stressed that double dipping lowers the income of Utah dairy
farmers.
Three dairy farmers from Utah testified in support of prohibiting
double dipping. These witnesses stated that double dipping on the
Western order has had a significant negative impact on their pay
prices. They maintained that it is unfair and wrong for dairy farmers
to have their milk price reduced as a result of California milk being
pooled on the order. One dairy farmer witness also added that the loose
pooling provisions of the Western Order have resulted in unwarranted
financial gain to those who do not supply the Class I milk market of
the Western marketing area. This witness indicated that this
contributed to the financial ruin of a quarter of Western Order dairy
farmers over the past four years.
There was no direct opposition to eliminating or preventing double
dipping. However, a witness testifying on behalf of the Dairy Farmers
of America (DFA), a dairy farmer cooperative that markets the milk of
their members in both orders and in most other Federal milk orders
offered their own proposals. These proposals were published in the
hearing notice as Proposals 2, 3, 4, 5, 6, 7, 8, and 9, and are
offered, said the witness, to address broader pooling standards and
concerns rather than focusing on the single pooling issue of double
dipping. These proposals are discussed later in this decision.
For nearly 70 years, the Federal government has operated the milk
marketing order program. The law authorizing the use of milk marketing
orders, the Agricultural Marketing Agreement Act of 1937 (AMAA), as
amended, provides authority for milk marketing orders as an instrument
which dairy farmers may voluntarily opt to use to achieve objectives
consistent with the AMAA and that are in the public interest. An
objective of the AMAA, as it relates to milk, was the stabilization of
market conditions in the dairy industry. The declaration of the AMAA is
specific: ``the disruption of the orderly exchange of commodities in
interstate commerce impairs the purchasing power of farmers and
destroys the value of agricultural assets which support the national
credit structure and that these conditions affect transactions in
agricultural commodities with a national public interest, and burden
and obstruct the normal channels of interstate commerce.''
The AMAA provides authority for employing several methods to
achieve more stable marketing conditions. Among these is classified
pricing which entails pricing milk according to its use by charging
processors differing prices on the basis of form and use. In addition,
the AMAA provides for specifying when and how processors are to account
for and make payments to dairy farmers. Plus, the AMAA requires that
milk prices established by an order be uniform to all processors and
that the price charged can be adjusted by, among other things, the
location at which milk is delivered by producers (Section 608c(5)).
As these features and constraints provided for in the AMAA were
employed in establishing prices under Federal milk orders, some
important market stabilization goals were achieved. The most often
recognized goal was the near elimination of ruinous pricing practices
of handlers competing with each other on the basis of the price they
paid dairy farmers for milk and in price concessions made by dairy
farmers. The need for processors to compete with each other on the
price they paid for milk was significantly reduced because all
processors are charged the same minimum amount for milk, and processors
had assurance that their competitors were paying the same value-
adjusted minimum price.
The AMAA also authorizes the establishment of uniform prices to
producers as a method to achieve stable marketing conditions.
Marketwide pooling has been adopted in all Federal orders because of
its superior features of providing equity to both processors and
producers, thereby helping to prevent disorderly marketing conditions.
A marketwide pool, using the mechanism of a producer settlement fund to
equalize on the use-value of milk pooled on an order, meets that
objective of the AMAA of ensuring uniform prices to producers supplying
a market.
The California State milk order program clearly has objectives
similar to those of the AMAA. Exhibits presented at the hearing
indicate that the California State order program has a long history in
the development and evolution of a classified pricing plan and in
providing equity in pricing to handlers and producers. Important as
classified pricing has been in setting minimum prices, the issue of
equitable returns to producers for milk could not be satisfied by only
the use of a classified pricing plan. Some California plants had higher
Class I fluid milk use than did others and some plants processed little
or no fluid milk products. As with the Federal order system, producers
who were fortunate enough to be located nearer Class I processors had
been receiving a much larger return for their milk than producers
shipping to plants with lower Class I use or to plants whose main
business was the manufacturing of dairy products. Over time, disparate
price differences grew between producers located in the same production
area of the state which, in turn, led to disorderly marketing
conditions and practices. These included producers who became
increasingly willing to make price concessions with handlers by
accepting lower prices and in paying higher charges for services such
as hauling. Contracts between producers and handlers were the norm, but
the contracts were not long-term (rarely more than a single month) and
could not provide a stable marketing relationship from which the dairy
farmers could plan their operations.
In 1967, the California State legislature passed and enacted the
Gonsalves Milk Pooling Act. The law provided the authority for the
California Agriculture Secretary to develop and implement a pooling
plan, which was implemented in 1968. The California pooling plan
provides for the operation of a State-wide pool for all milk that is
produced in the State and delivered to California pool plants. It uses
an equalization fund that equalizes prices among all handlers and sets
minimum prices to be paid to all producers pooled on the State order.
While the pooling plan details vary somewhat from pooling details under
the Federal order program, the California pooling
[[Page 49378]]
objectives are basically identical to those of the Federal program.
It is clear from this review of the Federal and California State
programs that the orderly marketing of milk is intended in both
systems. Both plans provide a stable marketing relationship between
handlers and dairy farmers and both serve the public interest. It would
be incorrect to conclude that the Federal and California milk order
programs have differing purposes when the means, mechanisms, and goals
are so nearly identical. In fact, the Federal order program has
precedent in recognizing that the California State milk order program
has marketwide pooling. Under milk order provisions in effect prior to
milk order reform, and under Sec. 1000.76(c), a provision currently
applicable to all Federal milk marketing orders, the Department has
consistently recognized California as a State government program with
marketwide pooling.
Since the 1960's the Federal milk order program recognized the harm
and disorder that resulted to both producers and handlers when the same
milk of a producer was simultaneously pooled on more than one Federal
order. When this occurs, producers do not receive uniform minimum
prices, and handlers receive unfair competitive advantages. The need to
prevent ``double pooling'' became critically important as distribution
areas expanded and orders merged. The issue of California milk, already
pooled under its State-operated program and able to simultaneously be
pooled under a Federal order, has essentially the same undesirable
outcomes that Federal orders once experienced and subsequently
corrected. It is clear that the Pacific Northwest and Western orders
should be amended to prevent the ability of milk to be pooled on more
than one order when both orders employ marketwide pooling.
There are other State-operated milk order programs that provide for
marketwide pooling. For example, New York operates a milk order program
for the western region of that State. A key feature explaining why this
State-operated program has operated for years alongside the Federal
milk order program is the exclusion of milk from the State pool when
the same milk is already pooled under a Federal order. Because of the
impossibility of the same milk being pooled simultaneously, the Federal
order program has had no reason to specifically address double dipping
or double pooling issues, the disorderly marketing conditions that
arise from such practice, or the primacy of one regulatory program over
another. The other states with marketwide pooling similarly do not
double-pool Federal order milk.
The record testimony and evidence show milk pooled on the Western
order originates from locations distant from the area. However, this
decision acknowledges that with the advent of the economic incentives
for California milk to be pooled on the Western order and, at the same
time, enjoy the benefits of being pooled under California's State-
operated milk order program, more milk has come to be pooled on the
order that has no legitimate association with the integral milk
supplies of Western order pool plants. The association at present has
been made possible only through what some market participants describe
as a regulatory loophole. The record also supports concluding that the
Pacific Northwest order should be similarly amended to preclude the
ability to simultaneously pool the same milk on the order if the same
milk is already pooled on a State-operated order that provides for
marketwide pooling.
California milk should only be eligible for pooling on the Pacific
Northwest and Western orders when it is not pooled on the California
State order and when it meets the Pacific Northwest and Western order
pooling standards. It is the ability of milk from California to
``double dip'' that is a source of disorderly marketing conditions for
the Western order and should be preempted in the case of the Pacific
Northwest order.
Proposals 1 and 10 offer a reasonable solution for prohibiting the
same milk to draw pool funds from Federal and State marketwide pools
simultaneously. It is consistent with the current prohibition against
the same milk pooling simultaneously in more than one Federal order
pool. Adoption of Proposals 1 and 10 will not establish any barrier to
the pooling of milk from any source that actually demonstrates
performance in supplying the Pacific Northwest and Western market's
Class I needs. In this regard, adoption of Proposals 1 and 10
specifically prohibit the practice of double dipping which two other
proposals (Proposals 2 and 9), discussed below, do not.
The amendatory language provided below has been modified by the
Department but nevertheless accomplishes the intent of Proposals 1 and
10. As published in the hearing notice, amendatory language was
proposed for the Producer definition of the Pacific Northwest and
Western milk orders. The amendments adopted in this tentative decision
to prohibit double dipping has been made in each respective order's
Producer milk definition. This change is made because milk marketing
orders do not regulate producers in their capacity as producers.
Additionally, the amendatory language adopted is consistent with that
adopted in other milk orders where the practice of double dipping has
been eliminated.
2. Pooling Standards of the Western Order
Testimony summaries regarding the pooling standards for the Western
order are provided individually. The discussion of all pooling
standards and the decision's findings and conclusions regarding pooling
standards is presented immediately after testimony summary for d below.
a. Supply Plant Performance Standards
An inadequacy of the supply plant pooling provision contributes to
the inappropriate pooling of milk and the unwarranted erosion of the
blend price received by those producers who are regularly and
consistently serving the fluid demands of the Western marketing area.
Proposal 3, offered by DFA, seeking adoption of a ``net shipments''
standard for supply plant deliveries to the order's distributing plants
for the purpose of meeting the shipping standard, should be adopted
immediately. A net shipments standard would exclude from a supply
plant's qualifying shipments any transfer or diversion of bulk fluid
milk products made by the distributing plant receiving the shipment.
The Western marketing order currently provides automatic pool plant
status during the 6-month period of March through August for supply
plants provided they were pool plants during each of the immediately
preceding months of September through February. The current order does
not provide for a net shipments method in determining if the supply
plant performance standard has been met.
A witness appearing on behalf of DFA testified that a net shipments
provision for pooling purposes would better ensure that milk physically
received and retained at a distributing plant for Class I use would be
a superior method of determining if the supply plant performance
standard is being met. According to the witness, this feature would
deter a supply plant from physically shipping milk into the facilities
of a distributing plant only to have the milk reloaded and moved to
another plant for uses other than Class I. The witness added that a net
shipments provision also would ensure that milk being pooled was
[[Page 49379]]
demonstrating a service in meeting the Class I needs of the market.
A witness appearing on behalf of NDA testified in opposition to
adopting Proposal 3. The witness was of the opinion that the net
shipments provision for supply plants was designed and intended to
reduce the amount of milk that could be pooled on the Western order.
The witness explained that no other Federal milk order contained a net
shipments provision because pool supply plants and other reserve plants
provide a benefit by balancing the needs of the fluid market and
pooling milk in a way that prevent disorderly marketing conditions from
arising.
A witness representing Gossner opposed the establishment of a net
shipment provision for the Western order. Additionally a witness
representing Glanbia Foods, Inc. (Glanbia), and another witness
representing Davisco Foods International (Davisco), offered testimony
in opposition to the adoption of a net shipments provision for the
Western order. Glanbia is a handler that operates two cheese plants
located in the Western marketing area, and Davisco is a handler that
operates proprietary cheese plants located in Idaho and in Minnesota.
The Glanbia witness testified that a net shipments provision would
preclude many producers located in Idaho from being pooled on the
Western order when their milk is not needed for fluid use even though
it is available and stands ready and able to supply the Class I needs
of the marketing area. The Gossner witness indicated that market
alternatives for pooling milk within the Western region were already
very limited and the adoption of this proposal could entirely eliminate
them. The Davisco witness testified that a net shipments provision
would limit their ability to pool their producers and viewed this as
essentially erecting barriers to market entry on the Western order.
A witness representing KDK, Inc. (KDK), a fluid processing plant
located in Draper, Utah, also presented testimony in opposition to
adopting a net shipments provision. The witness indicated that their
plant transfers milk to exempt plants and, on occasion, to producer-
handlers. The witness was of the opinion that adoption of a net
shipments provision would result in milk currently associated with
their plant no longer being able to be pooled because their supplier
would be unable to meet the shipping standard.
b. Cooperative Supply Plant Performance Standards
A proposal, published in the hearing notice as Proposal 4, seeking
to increase the cooperative supply plant pooling standard should not be
adopted. Proposal 4, offered by DFA, seeks to increase the cooperative
supply plant performance standard that specifies the percentage of
cooperative producer milk that needs to be physically received by a
distributing plant of the Western order to 50 percent in order for the
cooperative supply plant to qualify as a pool plant of the order.
The Western order currently provides for a cooperative association
that operates a plant as a unique type of supply plant. The cooperative
association's plant must be located within the marketing area and at
least 35 percent of the milk which the cooperative association handles
is physically received at a Western order distributing plant during the
month or the immediately preceding 12-month period.
In offering Proposal 4, the DFA witness testified that while no
plants currently utilize the cooperative supply plant provision, some
cooperatively-owned manufacturing plants may seek such status if DFA's
other proposal to decrease the diversion limit standard, (discussed
later in this decision) is adopted. The witness maintained that
increasing the cooperative supply plant shipping standard is intended
to ensure that plants opting for this type of pool plant status would
be demonstrating adequate performance in supplying the Class I needs of
the Western marketing area.
Opposition to Proposal 4 was offered by witnesses representing
Glanbia, Gossner, and Davisco. The Glanbia witness was of the opinion
that the proposal was designed to prevent market entry and
participation by dairy farmers who may be attracted to the Western
market. The Gossner witness stated that producers should have as many
options as possible in marketing their milk because it brings about
increased competition and may also bring better milk prices. The
Davisco witness asserted that Proposal 4 would only decrease
opportunities for Idaho milk from becoming pooled on the Western order.
This would, the witness said, pressure Idaho producers to find other
means by which to pool their milk on the Western order.
The NDA witness also testified in opposition to Proposal 4. The
witness was of the opinion that increasing the cooperative supply plant
performance standard would create competitive inequities and may even
create new disorderly marketing conditions. The witness indicated that
to be able to utilize the cooperative supply plant provision, Class I
sales would need to be increased and to accomplish this, a cooperative
would likely need to engage in price cutting tactics to win sales from
competitors. The witness predicted that an outcome such as this would
be disorderly.
c. Standards for Producer Milk
A proposal, published in the hearing notice as Proposal 6, seeking
to lower the diversion limit standard for producer milk should not be
adopted. This proposal was offered by DFA. Specifically, Proposal 6
seeks to reduce the diversion limit for producer milk to nonpool plants
to 70 percent of total receipts. The Western order currently provides a
diversion limit standard for producer milk of 90 percent of total milk
receipts. The DFA witness was of the opinion that the pooling of milk
which does not demonstrate a service in supplying the needs of the
Class I market is inconsistent with Federal order policy. Returns to
producers who regularly supply the Class I market are unnecessarily
reduced when milk is pooled that cannot demonstrate such service, the
witness asserted.
The DFA witness also testified that milk which does not actually
supply the Class I needs of the market, but shares in the revenue
generated from fluid milk sales, is an indicator of faulty pooling
provisions. The witness asserted that if the current pooling standards
are not amended, local dairy farmers who are actually supplying the
local Class I market will continue to receive lower returns.
The DFA witness testified that the Western order's current
diversion limit standard of 90 percent is inadequate because it allows
milk to be pooled on the order than can not demonstrate a regular and
consistent service in meeting the needs of the fluid market. According
to the witness, it is appropriate to lower the limit on the amount of
producer milk that pool plants can divert to nonpool plants.
The Commissioner of the Utah Department of Agriculture and Food
testified in support of Proposal 6. The witness reasoned that by
lowering the diversion limit standard, prices paid to Utah dairy
farmers would increase. Lowering the diversion limit standard would
increase the relative Class I use of milk pooled on the order,
explained the witness. It would also allow Utah family dairy farms to
compete fairly, and be compensated more equitably for the service they
provide, the witness
[[Page 49380]]
said. If the diversion limit standard is not lowered, cautioned the
witness, dairy farms in Utah will continue to be endangered and result
in harming Utah's rural communities.
A witness representing UDA, testified in support of Proposal 6.
This witness stated that reducing the diversion limit standard from 90
to 70 percent would result in similar diversion limit standards in
effect in other Federal milk orders such as the Arizona-Las Vegas,
Mideast, Appalachian, Central and Southwest orders. The UDA witness
added that lowering the diversion limit standard also would remedy some
of the financial damage borne by Utah and Idaho milk producers
resulting from the reform of Federal milk marketing orders in 2000.
A witness representing River Valley also testified in support of
lowering the Western order's diversion limit standard. The witness,
however, supported lowering the standard to 80 percent, not the 70
percent proposed by DFA. The witness expressed concern about the
consequences of easily pooling large volumes of milk on the Western
order. The witness provided evidence showing that the amount of milk
pooled on a daily basis increased by more than 5.5 million pounds
between October and November 2001--a 58 percent increase. The witness
hypothesized that an 80 percent diversion limit would continue to allow
handlers the ability to efficiently divert milk to nonpool plants while
also providing a smoother regulatory transition for regulated handlers.
Seven Utah dairy farmers provided testimony supporting the lowering
of the diversion limit standard. The witnesses were of the opinion that
the pooling standards adopted as part of Federal milk order reform
created loopholes that have caused some handlers and producers to be
financially rewarded without the need to demonstrate actual shipments
of milk for the Class I market. As a result, the witnesses said, dairy
farmers have observed that their blend price is lower than it otherwise
would be. These witness asserted that dairy farmers should not be
permitted to collect money from their fellow dairy farmers if they do
not demonstrate performance in supplying the fluid needs of the market.
The witness representing Gossner testified in opposition to
Proposal 6. The witness was of the opinion that great disruption would
occur to their business operation if the diversion limit standard is
lowered. The witness explained that a large portion of their Class I
sales are contracts with governmental agencies. The contracts they hold
are bid annually, the witness said, and the loss of a contract would
make it very difficult for them to meet the proposed pooling standards.
The Gossner witness also asserted that DFA holds a virtual monopoly
in supplying the Class I market in Utah and Southern Idaho. In this
regard, the witness advocated the view that dairy farmers are best
served when they have more than one buyer for their milk and that
Gossner is trying to provide producers an alternative Class I market
for their milk. The witness stated that producers would benefit by
maintaining a 90 percent diversion limit standard because it leaves
Gossner with the flexibility to add producers for pooling as needed and
maintain the flexibility to react to changing marketing conditions.
A witness representing Glanbia also testified against lowering the
diversion limit standard. The witness was of the opinion that the
proposed change was an unwarranted attempt to disassociate much of
Idaho's historically pooled milk supply because it is not needed for
fluid use. If diversion limits are decreased, the witness said, a large
portion of their producer milk would not be pooled. If a producer
wished to remain pooled, the witness explained, they would be forced to
join a cooperative whose supply is large enough to meet the proposed
standards. If adopted, the witness concluded, the new diversion limit
standard would inhibit a producer's ability to choose how to market
their milk and remain pooled on the order.
The witness representing Magic Valley Milk Producer Association,
Inc. (Magic Valley), testified in opposition to Proposal 6. Magic
Valley is a milk marketing cooperative located in Idaho that has
producer members in both Idaho and Utah. The witness was of the opinion
that adoption of Proposal 6 would severely hinder Magic Valley's
ability to pool the milk of their producers thereby placing them at a
competitive disadvantage in their ability to market the milk of their
members at competitive prices. For example, the witness explained, with
the 90 percent diversion limit standard in effect from January 2001 to
March 2002, the monthly volume of milk pooled on the order averaged
396,900,356 pounds. If a 70 percent standard had been in effect over
that same time period, the witness contrasted, the monthly average
volume of milk that could have been pooled would have been 285,410,615
pounds. The witness concluded from this example that on average, about
111,489,741 pounds would no longer have been able to be pooled.
The witness representing Davisco, also testified in opposition to
lowering the diversion limit standard. The witness was of the opinion
that disorderly marketing in the Western market already exists and
attributed the disorder to the pooling standards adopted as part of
Federal milk order reform. Since January 1, 2000, the witness
emphasized, Davisco had been unable to pool two-thirds of their
producers. The witness concluded that their inability to pool all of
their producers would be remedied by raising the diversion limit
standard to 95 percent or by suspending the diversion limit standard
altogether.
The witness representing NDA also testified in opposition to
lowering the diversion standard. Not only would there be less milk that
could be pooled, the witness noted, but the current Western order
already pools far less than the total milk production that occurs
within the marketing area. The witness concluded from this observation
that lowering the diversion limit standard would only make it more
difficult for producers to pool their milk on the order. The witness
was of the opinion this would give rise to disorderly marketing
conditions in a number of forms including the use of ``price
incentives'' serving to undercut the published Class I price, the
potential expansion or creation of new bottling operations which could
be used to ``raid'' the retail market, the ``paper-pooling'' of milk on
other Federal milk orders, and being charged a fee for the benefit of
being pooled on the order.
The NDA witness estimated that if Proposal 6 is adopted,
approximately 150 million pounds, or about 38 percent of the monthly
average volume of milk pooled in 2001 would no longer be pooled. This
occurrence, according to the witness, would bring an immediate shift in
the balance of economic power within the Western order. This result,
together with the forms of disorderly conditions previously described
cited above, the witness asserted, also would result in political
reaction, Congressional review, and waning political support for the
Federal milk order program.
The NDA witness asserted that the practice of buying and selling
pooling rights is an important indicator and cause of disorderly
marketing conditions. The witness explained that this is because a
person selling pooling rights can gain competitive advantages not
available to others thus compounding disorderly marketing conditions.
Finally, the witness concluded, no justification exists for lowering
the diversion limit standard of
[[Page 49381]]
the Western order, adding that perhaps the standard should be raised.
A proposal, published in the hearing notice as Proposal 7, seeking
to establish a ``netting'' provision for diverted milk from a pool
distributing plant by the amount of any transfers out of that plant,
should be adopted immediately. This proposal was offered by DFA. The
Western order does not currently contain this provision as a feature of
how the order defines producer milk.
The DFA witness testified that by adopting a ``netting'' provision,
a distributing plant's ability to divert milk would be based on the
actual amount of milk retained by the distributing plant. According to
the witness, this feature would deter a plant from physically receiving
milk into the facility only to have milk reloaded and moved to another
plant for uses other than Class I. The witness added that the provision
would ensure that milk being pooled was demonstrating a service in
meeting the Class I needs of the market.
Many witnesses testified in opposition to Proposal 7. A witness
representing NDA was of the opinion that if adopted, the provision
would reduce the ability to pool milk by limiting the ability of a
plant to maximize the use of its pooling base. Witnesses representing
Davisco, Glanbia, Gossner and Magic Valley all concurred that adoption
of DFA's proposal would have a dramatic negative impact on their
ability to pool the milk of their producers. The witnesses were all of
the opinion that Proposal 7's only real purpose was to prevent many
Idaho producers from having their milk pooled on the Western order.
d. Proprietary Bulk Tank Handler Provision
A proposal, published in the hearing notice as Proposal 5, seeking
to eliminate the Proprietary bulk tank handler (PBTH) provision of the
Western order, should be adopted immediately. The proposal was offered
by DFA. The PBTH provision is a pooling provision and feature of only
the Western order. It provides for a person who operates a plant that
produces Class II, III, and IV milk products, and who operates a truck
that picks up the milk of a producer, to be a regulated handler of the
order.
According to the DFA witness, PBTH's are able to pool large volumes
of milk that do not actually service the Class I market. The witness
testified that PBTH milk is received into a plant to qualify it for
pooling and is subsequently pumped back out of the plant to be
delivered to a manufacturing plant. The witness emphasized that milk
pooled through a PBTH in this manner never services the Class I market.
The DFA witness testified, however, that their major concern with
the PBTH provision was that some entities are purchasing milk below the
order's minimum prices from PBTH's. The witness asserted that this
results in inequity among handlers in the minimum prices they pay for
milk and undermines the key pricing principle of the Federal milk order
system of uniform prices to handlers. The witness testified that in
removing the PBTH provision handlers currently using the provision
could be able to pool their milk by utilizing other provisions that are
contained in the order.
In brief, DFA asserted that the record evidence clearly
demonstrated that large volumes of milk are pooled on the order through
the PBTH provision, but demonstrates only minimal service to the Class
I market. DFA noted that under the current diversion limit standard, a
PBTH can pool 20 loads of milk for every one load used in actual Class
I production. More importantly, DFA stressed that this one load of milk
is sold at less than minimum class prices.
The DFA brief maintained that pooling milk is not an entitlement.
Instead, milk must demonstrate actual performance to the Class I
market. DFA concluded that because the order contains other provisions
that are more performance based through which a PBTH could qualify for
pooling, the PBTH provision should be removed.
A witness representing River Valley testified in support of
eliminating the PBTH provision. The witness viewed the provision as a
loophole in the Western order's pooling provisions that allows
manufacturing plants to qualify milk for pooling on the order that does
not demonstrate any reasonable service in supplying the Class I needs
of the market. The witness asserted that PBTH's have used financial
incentives to solicit producers located near distributing plants to
become patrons and then use those nearby producers to qualify all the
milk of a PBTH. Because the producers were already delivering milk to
the distributing plant, the witness emphasized, no actual new milk is
being made available to service fluid demand, but the amount of milk
that can be pooled is significantly increased. The witness noted that
this milk is being used in Class II, III, and IV uses. The witness
characterized pooling milk in this way as fostering disorderly
marketing conditions which justifies removing the PBTH provision from
the Western order.
A witness representing NDA testified in opposition to Proposal 5.
The NDA witness said that the PBTH provision is provided as a more
efficient way for some handlers to operate their plants. The witness is
of the opinion that the goal of Proposal 5 is to make it more difficult
for some producers to be pooled. According to the witness,
accomplishing this end should not be a reason for its removal from the
order. If there are problems with the PBTH provision it should be
modified, not eliminated, the witness stressed.
A brief filed by NDA also expressed opposition to removing the PBTH
provision. NDA agreed that all pool plants should be accountable to the
pool at minimum class prices and that different wholesale prices for
milk between handlers can create disorderly marketing conditions.
Nevertheless, NDA also held there would be no guarantee that uniformity
of pricing between handlers would actually be achieved by eliminating
the provision. NDA stressed that it is a handler's need to pool milk
that is the catalyst for selling milk below class prices.
Eliminating the PBTH provision would, maintained NDA, agitate the
problem and cause handlers to seek other ways to pool milk. Rather than
its elimination, the NDA witness advocated modification of the
provision to address its shortcomings.
Two witnesses representing Glanbia and Davisco also testified in
opposition to Proposal 5. These witnesses stated that if adopted, the
proposal would create market disorder and discontent for some Idaho
producers who would no longer be able to pool their milk on the Western
order. The Davisco witness asserted that Federal order reform adopted
performance standards that could not accommodate pooling the milk
supply of the consolidated Western order, even though this milk supply
stood willing and available to serve the Class I needs of the market.
Under the current standards, Davisco is able to pool less than half of
the producers they did prior to milk order reform, the witness said.
The Davisco witness estimated that if the PBTH provision is removed,
they would be able to pool less than 5 percent of their milk supply.
The Davisco witness emphasized that their milk stands ready to
supply the Class I market, but is has never been needed for the fluid
market. In this regard, the witness was of the opinion that producers
should not be penalized by not having the ability to pool their milk
simply because it is not needed for Class I use.
[[Page 49382]]
The Glanbia witness was of the opinion that eliminating the PBTH
provision would inhibit the ability and freedom of dairy farmer to
choose how to market their milk. The witness thought this may also
force producers to join a cooperative to assure that their milk would
be pooled on the order, an outcome consistent with lowering the
diversion limit standard. A brief submitted by Glanbia and Davisco
continued stressing their opposition to Proposal 5. Their brief
maintained, among other things, that elimination of the PBTH provision
would prevent many producers, who stand willing to service the Class I
market, from being able to pool their milk on the Western order.
A witness representing Stoker Wholesale, Inc., a pool distributing
plant located in Idaho, testified against eliminating the PBTH
provision. The witness indicated that if adopted, the proposal would
jeopardize their ability to remain competitive with other processors in
the marketing area. The Stoker witness indicated that their main
concern was that the removal of the PBTH provision would allow a
dominant cooperative to gain too much market power. In this regard, the
witness foreshadowed that Stoker might be forced to purchase milk from
a dominant cooperative and along with paying the order's minimum class
prices, would also be forced to pay other charges dictated by the
cooperative. Such an outcome would be devastating to Stoker and hinder
their ability to compete in the Western marketing area, concluded the
witness.
Two Idaho dairy farmers testified in opposition to Proposal 5. The
farmers were of the opinion that if the PBTH provision was eliminated,
farmers would have to pool their milk through a cooperative. One
witness testified that this would eliminate the number of outlets
available to farmer's to market their milk and put the market's milk
supply in the hands of fewer entities. The witness also noted that
while the fewer entities controlling the milk supply could raise their
prices, it would also result in higher retail costs to consumers. The
witnesses were also of the opinion that the low milk prices they are
facing arise from complicated economic and political factors and are
not caused by dairy farmers having the opportunity to pool their own
milk.
A proposal, published in the hearing notice as Proposal 11, seeking
to reach a balance of assuring handler equity while retaining the PBTH
provision should not be adopted. Proposal 11 was offered by Meadow Gold
Dairies (Meadow Gold). Meadow Gold is a dairy processor regulated in
the Western order. Because this decision eliminates the PBTH provision
from the Western order, amending the provision is rendered moot.
Two companion proposals to Proposal 11, also offered by Meadow
Gold, published in the hearing notice as Proposals 12 and 13, should
not be adopted. Proposals 12 and 13 offer language for the Western
order to address payment obligation changes which would arise from
modifying the PBTH provision. Because the PBTH provision is eliminated
from the order, the need for these proposals are also rendered moot.
Similarly, another proposal, published in the hearing notice as
Proposal 14, offered by the Market Administrator to provide additional
clarity to the PBTH definition, is not adopted. The need to provide
additional clarity to a provision that is being eliminated is also
rendered moot.
A witness representing Meadow Gold viewed Proposals 11 and 13 as a
remedy to the alternative to removing the PBTH provision and Proposal
12 as ensuring that pool plants must pay PBTH's at least the order's
minimum class prices. According to the Meadow Gold witness, their major
concern with the PBTH provision is that plants buying from a PBTH are
not required to pay minimum class prices. Proposals 11 and 13 would
ensure that milk is considered producer milk at the pool plant and that
the pool plant is responsible for accounting to the pool and paying
producers, the witness said. This would give the MA authority to verify
payment to the Producer-Settlement Fund and to the producers supplying
the PBTH, the witness said.
The witness maintained that the AMAA provides authority for the
Secretary to ensure that handlers are paying minimum class prices for
their milk purchases. The witness indicated that Meadow Gold would not
object to removing the PBTH provision if the Department determined that
the problems arising from the provision would be more appropriately
remedied by its removal from the order.
A witness representing NDA, testified that while NDA understood the
current problems regarding the PBTH provision, they had yet to
determine their position on Proposals 11 through 13. However, in their
post-hearing brief, NDA expressed support of Proposals 11, 12 and 13.
They acknowledged that Proposals 11 and 13 are presented as a
``package'' and viewed Proposal 12 as an alternative. NDA asserted that
they had no preference as to which approach should be adopted and
expressed confidence in the Department for rendering its decision on
how best to address the PBTH issue.
A witness representing DFA testified that while they support
evidence presented in support of Proposals 11 through 13, DFA believed
that removal of the PBTH provision was a more appropriate course of
action.
Witnesses representing Glanbia, Davisco, and Stoker testified in
opposition to Proposal 11. The witnesses stated that they could not
support this proposal because it would essentially regulate
transactions between one type of handler to another while leaving other
similar transactions such as bulk transfers, packaged milk transfers,
custom bottling, tolling arrangements, and pooling fees untouched. The
Davisco witness was also of the opinion that the AMAA does not grant
the Secretary authority to regulate handler-to-handler transactions.
The Stoker witness opposed Proposals 11 through 13 for the same reasons
given in opposing the removal of the PBTH provision.
The witness representing NDA supported Proposal 14, stating that
they were of the opinion that the Market Administrator's proposal would
assist in the interpretation and administration of the order.
The pooling standards of all milk marketing orders are intended to
ensure that an adequate supply of milk is supplied to meet the Class I
needs of the market and to provide the criteria for identifying the
milk of those producers who are reasonably associated with the market
as a condition for receiving the order's blend price. The pooling
standards of the Western order are represented in the Pool Plant,
Producer, Proprietary bulk tank handler, and the Producer milk
provisions of the order. Taken as a whole, these provisions are
intended to ensure that an adequate supply of milk is available to meet
the Class I needs of the market. In addition, these provisions provide
the criteria for identifying those producers whose milk is reasonably
associated with the market and thereby share in the marketwide
distribution of proceeds arising primarily from Class I sales. Pooling
standards of the Western order are based on performance, specifying
standards that, if met, qualify a producer, the milk of a producer, or
a plant to share in the benefits arising from the classified pricing of
milk.
Pooling standards that are performance-based provide the only
viable method for determining those eligible to share in the marketwide
pool. This is because it is the added value from the Class I use of
milk that adds
[[Page 49383]]
additional income, and it is reasonable to expect that only those
producers who consistently bear the costs of supplying the market's
fluid needs should be the ones to share in the distribution of pool
proceeds. Pooling standards are also needed to identify the milk of
those producers who are providing service in meeting the Class I needs
of the market. If the pooling provisions do not reasonably accomplish
these aims, the proceeds that accrue to the marketwide pool from fluid
milk sales are not properly shared with the appropriate producers. The
result is the unwarranted lowering of returns to those producers who
actually incur the costs of servicing and supplying the fluid needs of
the market.
Similarly, pooling standards should provide for those features and
accommodations that reflect the needs of proprietary handlers and
cooperatives in providing the market with milk and dairy products. When
the use of a pooling feature provision deviates from its intended
purpose and gives rise to conditions that are contrary to the
objectives of classified pricing and marketwide pooling as articulated
in the AMAA, it is appropriate to re-examine the need for continuing to
provide that feature as a necessary component of the pooling standards
of the order. Because one of the objectives of classified pricing is
assuring that all similarly situated handlers regulated under the terms
of an order pay the same classified use-value, a pooling feature which
can be used to circumvent this objective should be considered as
inappropriate for inclusion in the order.
The Final Decision of Federal milk order reform examined and
discussed the various pooling standards and features of the pre-reform
orders for their applicability in new and larger consolidated milk
orders. The pooling standards and features adopted for the consolidated
Western Order were designed to reflect and retain those standards and
features of the pre-reform orders so as not to cause a significant
change and indeed to provide for the continued pooling of milk that had
been pooled by those market participants.
The record provides evidence to conclude that a performance
standard feature for supply plants is needed. Additionally, a pooling
feature in defining producer milk is also needed to provide an
appropriate limit on diversions by distributing plants. The lack of
adequately defining how much milk a distributing plant can divert
contributes to the inappropriate pooling of milk through the diversion
process. Some milk being pooled under the Western order by diversion is
not an integral reserve supply of the distributing plant diverting
milk. These inadequacies inappropriately pool milk classified at lower-
valued uses which results in an unwarranted lowering of the blend price
to those producers whose milk actually and consistently demonstrates
service to the Class I needs of the market.
The record evidence also provides strong evidence that the
Proprietary bulk tank handler provision gives rise to disorderly
marketing conditions because the order is unable to establish minimum
prices that are uniform among regulated handlers, a requirement of
Section 608c(5) of the AMAA. The record clearly reveals that this
pooling feature of the Western order is being used as a means to pool
milk that could not otherwise be pooled and allows for the sale of milk
for Class I use below the order's minimum Class I price. While this
provision served its purpose in the pre-reform Southwest Idaho-Eastern
Oregon order, its purpose and usefulness for the larger consolidated
Western order can no longer be justified.
This decision finds that some milk is being pooled and is receiving
the benefit of the Western order blend price without demonstrating
actual and consistent service in supplying the Class I needs of the
Western milk marketing area. This finding is attributed to inadequate
pooling standard features needed to accomplish the intent of the
order's pooling standards. The pooling provisions provided in the Final
Decision of milk order reform established pooling standards and pooling
features that envisioned the needs of the market participants resulting
from the consolidation of two pre-reform milk marketing areas to form
the current Western milk marketing area. The milk order reform Final
Decision did not intend or envision that the pooling standards and
pooling features adopted would result in the sharing of Class I
revenues with those persons, or the milk of those persons, who would
not be demonstrating a measure of service in fulfilling the Class I
needs of the Western marketing area. The reform Final Decision also did
not envision that the PBTH provision, carried into the consolidated
Western order from the pre-reform Southwestern Idaho-Eastern Oregon
order, would enable entities to sell milk for fluid use below the
order's minimum Class I price.
The Final Decision of milk order reform examined and discussed
various pooling standards and features of the pre-reform orders for
applicability in a new, larger consolidated milk order. The pooling
standards and features adopted for the Western order were intended to
reflect and retain those standards and features of the pre-reform
orders so as to not cause a significant change, and indeed to provide
for the continued pooling of milk that had been pooled by market
participants. The 35 percent shipping standard for supply plants
adopted as part of milk order reform was slightly higher than that of
the Southwestern Idaho-Eastern Oregon order and was slightly lower than
that provided for in the Great Basin order. Nevertheless, the adopted
35 percent standard was intended to result in no milk losing its
association in the larger consolidated order due to a change in a
regulatory provision.
With regard to producer milk, the Final Decision of milk order
reform established a limit for producer milk diversions to nonpool
plants at 90 percent. This standard is identical to the diversion limit
then applicable in the Southwestern Idaho-Eastern Oregon order, but is
higher than the applicable standards of 75 percent for cooperatives and
70 percent for proprietary handlers in the Great Basin order. The 90
percent standard was determined to be appropriate for the consolidated
Western order because it would permit all milk then associated with the
market that was not needed at pool plants to continue to be pooled and
priced under the order. The 90 percent standard was also adopted
because it was envisioned that it would provide handlers more
flexibility to efficiently move milk and not preclude most producers
associated with either the Great Basin or Southwestern Idaho-Eastern
Oregon orders from having their milk pooled in the new consolidated
order.
This decision agrees with DFA and those who expressed support for
adopting Proposals 3 and 7. The record reveals that because the Western
order does not account for milk deliveries from supply plants to
distributing plants on a net basis, more milk is being pooled on the
order through the diversion process than can be considered a integral
reserve supply of distributing plants. The act of physically receiving
milk certainly demonstrates performance in supplying the fluid needs of
the market. However, by pumping the same amount, or some portion of the
milk physically received out of a distributing plant for other than
Class I use, undermines the intent and importance of the performance
standard. In practice, the unloading and reloading of milk creates an
artificial base for pooling additional milk that cannot otherwise meet
the specified performance standards.
[[Page 49384]]
Similarly, a netting provision on producer milk diverted from
distributing plants is also needed to properly identify the milk of
those producers that actually supply the marketing area's fluid needs.
A ``net diversions'' provision is warranted for inclusion as part of
the Producer milk definition of the order because the current diversion
limit standard of the order does not properly limit the amount of milk
that can be pooled by distributing plants. The diversion limit standard
as it relates to supply plants is based on receipts. For supply plants,
diverted milk is a component of the total receipts of the plant. For
distributing plants, however, the pooling basis is determined by the
amount of milk physically received. If a supply plant delivery no
longer becomes a pool-qualifying shipment because shipments are
determined on a net basis, then that milk should not be considered as
physically received by the distributing plant and should therefore not
be included as part of the basis for calculating the amount of milk
that can be diverted from the distributing plant.
This decision finds that the adoption of Proposals 3 and 7 is
warranted. Milk deliveries to distributing plants will be limited to
milk transferred or diverted and physically received by distributing
pool plants, less any transfers or diversions of bulk fluid milk
products from the distributing plant. Relying on net shipments and net
diversions for determining pool qualifying deliveries to distributing
plants strengthens the principle of performance in supplying the Class
I needs of the market as a condition for pooling diverted milk.
Determining shipments and diversions on a net basis should also more
appropriately identify the milk of those producers that should share in
the distribution of Class I revenue by receipt of the order's blend
price.
The record evidence does not support increasing the cooperative
supply plant performance standard above the current 35 percent of
receipts as sought in Proposal 4. The proposal is presented on the
assumption that this decision would lower the diversion limit standard
to 70 percent, and that in doing so, may cause entities to seek this
special pool plant status. This proposal is rejected on the basis that
the record does not reveal why this standard should be different from
the ``regular'' supply plant standard. Additionally, speculation of how
entities may choose to pool milk on the order is not, in the context of
proposing a change in this performance standard, an appropriate basis
upon which to make a change.
Providing for the diversion of milk is a desirable and needed
feature of an order because it facilitates the orderly and efficient
disposition of milk not needed for fluid use. When producer milk is not
needed by the market for Class I use, some provision should be made for
milk to be diverted to nonpool plants for use in manufactured products
and still be pooled and priced under the order. Additionally, it is
also necessary to safeguard against excessive milk supplies becoming
associated with the market through the diversion process.
In the context of this proceeding, milk diverted by distributing
plants is milk not physically received at the plants. While diverted
milk is not physically received, it is nevertheless an integral part of
the milk supply of the diverting distributing plant. If such milk is
not part of the integral supply of the diverting plant, then that milk
should not be associated with the diverting plant and should not be
pooled. Associating more milk than is actually part of the legitimate
reserve supply of the diverting plant unnecessarily reduces the
potential blend price paid to dairy farmers who service the market's
Class I needs.
Diversion limit standards that are too high can open the door for
pooling more milk on the market. The record does not support lowering
the diversion limit below the current 90 percent standard. As explained
above, the lack of a netting provision for diversions by distributing
plants has resulted in the inappropriate pooling of milk on the Western
order. In this regard, the record evidence cannot attribute more milk
being pooled on the order because the diversion limit standard is too
high.
These findings, together with the original intents of the order's
pooling provisions, may be altered if marketing conditions warrant
their adjustments. In this regard, the Western order provides the
Market Administrator with the authority to make needed adjustments to
the shipping and diversion limit standards of the order.
e. Establishing Pooling Standards for State-Units
Two Proposals, published in the hearing notice as Proposals 2 and
9, seeking to establish pooling units organized and reported as
``State-units'' in the Pacific Northwest and Western milk orders
respectively, should not be adopted. These proposals were offered by
DFA. Specifically, the proposals would specify that milk from those
States located outside of the States and counties that comprise the
Western and Pacific Northwest marketing areas would be reported
separately in units, organized by the State from which the milk
originates. Each State-unit would need to meet the performance
standards applicable for supply plants as a condition for being pooled
on the orders. Neither order currently provides separate pooling
standards for milk located outside of each respective marketing area.
The DFA witness explained that Proposals 2 and 9 address broader
pooling issues by establishing reasonable performance standards for
milk located outside of market areas and do not just simply prohibit
the practice of double dipping as discussed earlier in this decision.
In this regard, the witness indicated that Proposals 2 and 9 are
offered to address the pooling of large volumes of milk from locations
distant from the Pacific Northwest and Western marketing areas.
According to the witness, large volumes of milk are being pooled
without meeting any reasonable measures of performance in serving the
Class I needs of the market.
The DFA witness testified that since the implementation of milk
order reform, organizations like DFA have made purposeful pooling
decisions to maximize returns and have engaged in the practice of
double dipping to accomplish this end. Nevertheless, the witness
acknowledged that the practice of double dipping is unfair and should
be corrected. The witness continued to explain that the impact of
double dipping on an order's blend price paled in comparison to the
blend price impact caused by inadequate pooling provisions that do not
properly stress the importance of demonstrating performance in
regularly and consistently supplying the Class I needs of a marketing
area. Additionally, the witness expressed the opinion that the
relationship between the Class I pricing surface and the pooling
provisions was fundamentally changed as part of milk order reform.
Specifically, the witness noted, the movement to a nationally
coordinated Class I pricing structure that makes adjustments to the
Class I differential level by county accounts for the changed
relationship.
The DFA witness stressed that while the new Class I price structure
has a relationship to the blend price paid to producers, the connection
between milk value and the distance of milk from the market are not
adequately linked. The disconnect is further aggravated by the adoption
of faulty pooling standards that run counter to three key criteria used
during milk order reform in establishing the Class I price structure,
the witness asserted. The three key criteria include, the witness said,
sending appropriate marketing signals,
[[Page 49385]]
recognizing the value of milk at location, and recognizing handler
equity with regard to raw product costs. The witness expressed the
opinion that these outcomes were not anticipated by the Department.
The DFA witness drew from the Final Decision on milk order reform
which detailed how milk marketing orders should pool milk and for
identifying those producers whose milk should be eligible for pooling
in the consolidated orders. In this regard, the witness particularly
noted the Department's rejection of ``open pooling'' and that pooling
provisions be performance oriented. According to the witness, the lack
of pooling provisions that are sufficiently performance oriented result
in volumes of ``distant'' milk pooled on orders that do not and would
not ever perform any reasonable and consistent servicing of the Class I
needs of a market in a manner similar to ``local'' milk. The witness
asserted that inadequate performance standards have lowered producer
blend prices and have caused the type of disorderly marketing
conditions intended to be avoided by the Class I price structure
criteria cited above.
The DFA witness concluded Proposals 2 and 9 are justified because
their adoption would more appropriately link milk value and where milk
is located relative to a market. According to the witness, these
proposals are also superior to the adoption of other proposals
(Proposals 1 and 10) because those proposals are aimed solely at
eliminating or preventing double dipping. DFA asserted that Proposals 2
and 9 provide: (1) appropriate recognition to the concept of a
marketing area where handlers compete for the majority of their Class I
sales and the importance of performance as a condition for having milk
eligible for pooling, (2) a measurable economic outcome consistent with
Federal milk marketing order principles which do not prohibit pooling
milk if the economics for doing so are positive, and (3) an adequate
and reasonable safeguard for low Class I utilization markets in which
lower diversion limits or higher performance standards for supply
plants might otherwise cause hardship.
A NDA witness indicated an initial lack of understanding on the
ramifications of Proposals 2 and 9 and expected to articulate a
position in post-hearing briefs. The witness did express
dissatisfaction on how milk order reform addressed the location value
of milk and its relationship to pooling provisions in general. In their
post-hearing brief, NDA indicated that they can support adoption of
Proposal 9. However, NDA viewed Proposal 9 as having limited
usefulness. With regard to Proposal 2, NDA's brief concluded that a
State-unit pooling approach for out-of-area milk was not appropriate
for the Pacific Northwest order because it does not adequately address
the issue of double dipping. The brief was of the opinion that other
proposals under consideration in another rulemaking proceeding for the
Pacific Northwest order were more appropriate for that marketing order.
A witness representing River Valley testified in support of
Proposal 9. The witness was of the opinion that local producer milk
should not be used as a basis for qualifying distant milk for pooling
on the order. The witness testified that the milk of producers from
outside the market should be expected to meet the pooling standards of
the order in the way local milk does as a condition for receiving the
order's blend price.
Opposition to Proposal 9 was presented by Glanbia and Davisco. The
Glanbia witness viewed the proposal as being designed to build barriers
to market entry by dairy farmers located in and out of the Western
order milkshed who otherwise may be attracted to pool their milk on the
Western order.
The record does not support the adoption of performance standards
for pooling milk on the Pacific Northwest or Western orders on the
basis of its location or as the proponent and supporters of Proposal 2
and 9 describe as State-units. The marketing conditions of the Pacific
Northwest and Western orders do not exhibit the need to require
additional performance standards for milk located outside of the
marketing area beyond those adopted in this decision. Accordingly, all
plants, regardless of location, may become eligible to have the milk of
producers pooled on the Pacific Northwest and Western orders by meeting
the performance standards specified for the various types of pool
plants.
It is not important who provides the milk for Class I use or from
where this milk originates. The order boundaries of the Pacific
Northwest and Western orders were not intended to limit or define which
producers, which milk of those producers, or which handlers could enjoy
the benefits of being pooled on those orders. What is important and
fundamental to all Federal orders, including the Pacific Northwest and
Western orders, is assuring an adequate supply of milk to meet the
market's fluid needs, the proper identification of those producers who
supply the market, and an equitable means of compensating those
producers from the market's pool proceeds.
A significant portion of the testimony received at the hearing
implicated the current Class I price structure as an important factor
that has caused the inappropriate pooling of milk across the Federal
order system including the Pacific Northwest and Western orders. The
current price structure was faulted specifically as not providing
appropriate location adjustments for milk as had been the case prior to
the implementation of milk order reform.
Testimony indicated that the lack of location adjustments
effectively undermines the pooling standards of the order. The decision
to pool milk was once based on the economics of transporting milk--
comparing the costs of transporting milk to the benefit of receiving
the order's blend price. Testimony indicates this factor is as
important as the pooling standards of the order. Critics of the Class I
pricing structure were of the opinion that placing a relative value on
milk based on its distance from the market provides appropriate pooling
discipline and fosters orderly marketing conditions.
The reform of milk orders, contained in the Recommended Decision
(63 FR 4802) and Final Decision (64 FR 16026), made purposeful changes
to the Class I pricing structure. In this regard, a fixed adjustment
for Class I milk prices was provided for every county location in the
48 contiguous states to create a national Class I pricing surface for
the system of milk marketing orders. Changing this characteristic of
the pricing structure ensured handlers that regardless of the marketing
order by which regulated, the applicable prices they are charged would
be the same.
Such changes made a more clear distinction between the value milk
has at location and the pooling standards of any individual marketing
order. Location adjustments were never a part of the pooling standards
of the Pacific Northwest and Western orders or any other milk marketing
order. Instead, location adjustments were an integral part of the
pricing provisions of the order. However, it is acknowledged that how
location adjustments were applied tended to strengthen the
effectiveness of the order's pooling standards. Pooling standards have
always established the criteria for pooling milk on the order and
continue to do so in the consolidated milk marketing orders. With the
Class I price surface adopted by order reform, more direct reliance is
placed on pooling standards to identify the milk that should be pooled
on the order.
[[Page 49386]]
Pooling provisions of all orders are intended to define appropriate
standards for the prevailing marketing conditions in assuring that the
marketing area would be supplied with a sufficient supply of milk for
fluid use and to identify those producers--and the milk of those
producers--that actually service the Class I needs of the market. The
issue before the Department regarding pooling is the consideration of
amendments that will provide standards for determining reasonable
performance measures and to more properly identify the milk that
regularly and consistently supplies the market's Class I needs.
As discussed earlier, the pooling standards of the consolidated
Federal milk orders, including the Pacific Northwest and Western
orders, were not intended to exclude any milk from being pooled on any
order, provided the fluid needs of a marketing area are served. The
reform of Federal milk orders rejected the concept of open pooling, and
provided that each market would pool the milk that actually
demonstrates a reasonable level of serving the fluid needs of the
market as reflected in those order's pooling standards. The
determination of the boundaries of the Pacific Northwest and Western
marketing areas was guided by identifying the common characteristics of
the predecessor orders that could be consolidated and to promulgate a
marketing order containing provisions to provide for orderly marketing
conditions. The consolidation of the pre-reform orders into the current
Pacific Northwest and Western orders was not intended to determine
those areas from which milk should, or should not, be obtained to serve
the market.
The adoption of revised pooling standards, specifically adoption of
netting provisions for supply plant performance standards and
diversions from distribution plants and the removal of the PBTH
provision in this decision, should assure milk will be available for
the market's fluid needs and properly identify the milk of those
producers that actually demonstrates consistent service to the market's
Class I needs. Therefore the proposal for establishing State units is
unnecessary for the Pacific Northwest and Western orders. Additionally,
the State-unit proposal does not adequately or specifically prohibit
the practice of double dipping in either the Pacific Northwest or
Western orders. Accordingly, Proposals 2 and 9 are not adopted.
3. Marketwide Service Payments
A proposal, published in the hearing notice as Proposal 8, seeking
to establish a marketwide service payment provision in the form of a
transportation and assembly credit for the Western order, should not be
adopted. Currently, the Western order does not provide for
transportation and assembly credits or any other form of a marketwide
service payment.
Proposal 8, offered by DFA, specifically seeks to modify the
Western order by establishing a transportation credit and an assembly
credit. The transportation credit would provide $0.0032 per mile for
each hundredweight(cwt) of milk delivered to a pool distributing plant
when the farm supplying the plant is located over 80 miles away. The
credit would only apply to milk picked up directly from a farm located
within the marketing area, processed at a Class I pool plant located in
the order, with payment being made to the milk supplying producer or
cooperative. The assembly credit of ten cents per cwt would apply to
milk delivered to pool distributing plants. The proposal also
recognizes that the reporting requirements of the order would also need
amending to properly administer the transportation and assembly credit
provision.
A witness appearing on behalf DFA testified that establishing a
transportation and assembly credit is necessary to recoup costs
associated with supplying the Western marketing area's Class I market.
The witness argued that some producers are providing services which
benefit the entire marketplace, but are unable to recoup the cost of
these services from the marketplace. The DFA witness was of the opinion
that the Federal milk marketing order system is structured to allow
producers servicing the Class I needs of the marketing area to
equitably share in the revenues generated in that marketing area.
However, the DFA witness was also of the opinion that in the Western
order, the costs of supplying the Class I market is noticeably higher
for some, explaining that not all producers equitably share the cost of
servicing the Class I market.
The DFA witness stated that large supplies of milk produced in the
Western order are, in general, located far from distributing plants. As
such, the witness continued, the costs of transporting milk to pool
distributing plants are higher than in other Federal orders. The
witness explained that a transportation credit would provide producers
a means to recoup some of the cost of transporting milk to a pool
distributing plant when it must be shipped long distances.
The DFA witness testified that because of weekly and monthly
fluctuations in demand for Class I milk, supplying extra milk for Class
I use or processing excess milk not needed for Class I use imposes
extra costs for manufacturing plants that have the capacity to process
this milk. The witness presented an example that detailed a DFA
manufacturing plant's 2001 average daily processing capacity, referred
to as ``throughput.'' The example illustrated that plant throughput was
noticeably lower in the fall months of 2001, ranging from a low of
795,951 pounds per day to a high of 1,269,379 pounds per day in the
spring months. Given such significant variation, the witness said, it
is necessary that the market have the available balancing capacity to
accommodate such fluctuations in demand.
The DFA witness also noted that a plant's manufacturing costs have
a direct correlation to the plant's capacity that is idled during
certain times of the year. During months of low Class I demand,
explained the witness, manufacturing plants operate at full capacity
resulting in lower per unit costs. However, during months of high fluid
demand, the witness continued, manufacturing plants operate at less
than full capacity but incur costs similar to when plants are operated
at capacity. It is the costs arising from idled or unused capacity that
is borne by a few pool manufacturing plants of the order while their
service in balancing the Class I demand of the marketplace benefits the
entire market, explained the witness. Therefore, concluded the witness,
an assembly credit would help producers who are providing a service of
marketwide benefit the means to recoup some of the costs they are
unable to generate from the marketplace. The DFA witness estimated that
the blend price would be reduced by approximately 2.2 cents per cwt if
the assembly credit was adopted.
Two Utah dairy farmers testified in support of Proposal 8. The
farmers stated that since Federal order reform, the Class I utilization
in Utah has dramatically decreased which in turn has had a direct
negative impact on the blend price Utah farmers receive. The dairy
farmers were of the opinion that the adoption of an assembly and
transportation credit would help restore some of the lost revenue
represented by a lower blend price.
A witness appearing on behalf of Stoker testified in support of
Proposal 8. Another witness appearing on behalf of
[[Page 49387]]
the Utah Farmers Union, also testified in support of Proposal 8.
A witness appearing on behalf of NDA, testified in opposition to
Proposal 8. The witness stated that currently only one Federal order,
the Upper Midwest order, has an assembly credit provision, stressing
that the marketing conditions of that order are quite different from
the Western order. In the Upper Midwest, the witness explained, farms
tend to be significantly smaller and it is necessary to assemble milk
from numerous farms in order to ``assemble'' a full tanker load of
milk. The witness contrasted this by explaining that most farms in the
Western order are large enough that a single farm is capable of
shipping a full tanker load of milk. The witness concluded that it was
therefore not appropriate to provide credit for the assembly of milk
that does not need ``assembling.''
The NDA witness also asserted that the justification given for an
assembly credit--the need to recover some of the balancing costs of the
market--is itself inconsistent. Typically, the witness said, balancing
functions are provided by manufacturing plants for processing milk when
it is not needed at Class I plants. However, explained the witness, the
proposed assembly credit would apply to those who deliver milk to Class
I facilities and would not be limited to manufacturing plants that
actually perform the balancing function. In this regard, the witness
indicated, a credit for balancing should instead be paid to those pool
plants that actually provide a balancing function and not to those who
supply milk to Class I facilities.
The witness concluded that NDA was not aware of any difficulty of
Western order distributing plants obtaining necessary milk supplies
where milk must be assembled into a full tanker load before delivery to
a pool distributing plant. Money should not be drawn from the Western
order producer-settlement fund as an assembly credit because no
``assembly'' actually takes place, emphasized the witness.
The NDA witness also opposed the transportation credit feature of
Proposal 8. While there are transportation credits in three other
Federal orders, the witness said, they function in a different manner
than that proposed for the Western order. In the Upper Midwest order
transportation credits only apply to transfers of milk between plants,
stated the witness, and not to direct shipments from farms to
distributing plants. The witness also noted that in two southern orders
where Class I use is high, transportation credits were established to
fund bringing milk into the marketing area to fulfill all Class I
needs. However, the witness contrasted, Western order Class I
utilization is relatively low and does not exhibit the need for a
transportation credit to encourage shipments of milk to satisfy Class I
demands.
The NDA witness also asserted that the Western order already has a
$0.30 difference in the level of applicable Class I differentials to
encourage milk shipments towards population centers where most
distributing plants are located. Accordingly, the witness maintained,
there is no need to provide an additional incentive for moving milk to
pool distributing plants.
The witness also predicted that adopting a transportation credit
would give rise to disorderly marketing conditions because it would
provide an incentive for milk located farther away to be delivered to
distributing plants while milk located nearer would then need to be
shipped to manufacturing plants located farther away. The NDA witness
concluded that there are no cost disadvantages that would be corrected
by providing the Western order with transportation and assembly credit
provisions.
Two witnesses appearing on behalf of KDK and Gossner testified in
opposition to Proposal 8. The witnesses were of the opinion that
Western order producers should not be paying for assembly credit for a
few pool plants that are unable to recoup their costs of balancing.
They also stressed that it was inappropriate to establish a
transportation credit to encourage the movement of distant milk when
producers located nearer to pool distributing plants are willing and
able to supply the market without a credit.
A witness appearing on behalf of River Valley also testified in
opposition to Proposal 8. The witness stated that the order's blend
price should not be reduced to pay for transportation and assembly
credits. Instead, the witness said, Class I plants should pay their
milk suppliers a direct delivery differential in lieu of a
transportation credit and that the level of the Class I differential
should be increased. In that way, the witness explained, the blend
price paid to producers would be unaffected.
Objections by several parties were raised regarding evidence
presented in support of some features of Proposal 8. The objecting
parties argued that the testimony given equating balancing costs with
assembly costs was beyond the scope of the hearing notice. The
objectors moved that such testimony be stricken from the record.
Objectors maintained that assembly costs and balancing costs are two
entirely different concepts. Because the concept of balancing was not
noticed in the hearing notice, the objectors stressed, interested
parties were not prepared to discuss the concept of balancing. The
objectors also maintained that in previous Federal order hearings where
assembly credits were proposed, balancing functions and associated
costs were never presented in a context for explaining the need for an
assembly credit.
The presiding Administrative Law Judge (ALJ) overruled the
objection to strike evidence regarding balancing costs from the record.
However, the presiding ALJ found that balancing is fundamentally
different from assembly. Accordingly, the ALJ ruled the assembly credit
feature of Proposal 8 as being beyond the scope of the proposal
presented in the hearing notice.
The record lacks sufficient evidence for the adoption of the
transportation and assembly credit proposal. The relative low Class I
utilization of the Western marketing area characterizes the order as a
market in which manufacturing predominates. In this regard, the record
makes clear that the Class I needs of the market are sufficiently
supplied, even though certain pooling provisions lack needed features.
In fact, the record evidence which supports the adoption of a net
diversions feature for diverted milk by distributing plants effectively
undercuts the argument that somehow additional compensation or
incentive should be provided to attract milk to distributing plants
beyond that provided by the level of the Class I differential. If
distributing plants engage in the behavior of physically receiving milk
and then pumping the milk out of the plant and diverting it for uses
other than Class I, it is abundantly clear that distributing plants are
certainly adequately supplied with milk.
This decision finds that the evidence and testimony for the
adoption of Proposal 8 has more to do with proponents responding to the
Western order's improper and inadequate features of pooling provisions
than in explaining how the ``services'' of a few are providing benefit
for the entire market. Improper or inadequate features of pooling
provisions do not provide justification for adopting this sort of
mechanism by which to compensate for lower producer revenue resulting
from improper or inadequate features of pooling provisions.
Additionally, this decision agrees with the ALJ's determination
that the assembly credit portion of Proposal 8 is beyond the scope of
the hearing notice. For this reason alone the proposal warrants denial.
As indicated by NDA,
[[Page 49388]]
the concept of ``assembly'' is far different from the concept of
``balancing.'' This is especially so given the context of testimony
explaining balancing and balancing costs as a reflection of unused
manufacturing plant capacity while diminimus testimony on milk assembly
and assembly costs was offered.
4. Pooling Provision Clarifications
Proposals 15 and 16, seeking to clarify order language in the
Producer and Producer milk provisions of the Western order, should be
adopted immediately. Currently the Producer provision does not list
Class II milk at nonpool plants as a type of utilization that a handler
can opt to not pool without causing a producer to lose producer status.
The current Producer milk definition does not allow a dairy farmer who
lost producer status to again qualify milk for diversion until delivery
of one days' milk production has been received at a pool plant.
Proposal 15, offered by the Western order Market Administrator
(MA), seeks to modify the Producer provision by adding Class II
utilization of milk at a non-pool plant as a type of milk utilization a
handler may elect to not pool without jeopardizing the producer status
of that producer. Proposal 16, also offered by the MA, seeks to modify
the Producer milk provision by allowing a dairy farmer to re-qualify
for producer status in the same manner that a dairy farmer who has
never qualified can have their milk pooled on the order.
Witnesses appearing on behalf of DFA and NDA testified in support
of Proposals 15 and 16. The witnesses stated that both proposals make
necessary changes to the order that reflect current market needs.
Furthermore, said the witnesses, the changes will assist in the
interpretation and administration of the order. Neither proposal
received opposition testimony.
5. Determination of Emergency Marketing Conditions
Evidence presented at the hearing establishes that the pooling
standards of the Western order are inadequate and have resulted in the
unwarranted erosion of the blend price received by producers who are
serving the Class I needs of the market and should be changed on an
emergency basis. The unwarranted erosion of such producers' blend
prices stems, in part, from improper performance standard features as
they relate to pool supply plants, from inadequate features as they
relate to producer milk diversions by distributing plants, and the PBTH
provision. These shortcomings of the pooling provisions have allowed
milk that does not provide consistent and reasonable service in meeting
the needs of the Class I market to be pooled on the Western order.
Additionally, the PBTH provision gives rise to disorderly marketing
conditions and renders the order unable to establish prices to handlers
that are uniform. Consequently, it is determined that emergency
marketing conditions exist and the issuance of a recommended decision
is therefore being omitted. The record clearly establishes a basis as
noted above for amending the order on an interim basis and the
opportunity to file written exceptions to the proposed amended order
remains.
Evidence presented at the hearing also establishes that California
milk pooled simultaneously on the California State-operated order and a
Federal order, a practice commonly referred to as double dipping, would
render the Pacific Northwest milk order and does render the Western
milk order unable to establish prices that are uniform to producers and
to handlers and contributes to the unwarranted erosion of milk prices
to Western producers and the erosion of milk prices that could result
to producers supplying milk for the Pacific Northwest marketing area
should double dipping occur in the Pacific Northwest marketing area.
In view of this situation, an interim final rule amending the
orders should be issued as soon as the procedures are completed to
determine the approval of producers whose milk is pooled in both the
Pacific Northwest and Western orders.
Rulings on Proposed Findings and Conclusions
Briefs, proposed findings and conclusions were filed on behalf of
certain interested parties. These briefs, proposed findings and
conclusions, and the evidence in the record were considered in making
the findings and conclusions set forth above. To the extent that the
suggested findings and conclusions filed by interested parties are
inconsistent with the findings and conclusions set forth herein, the
requests to make such findings or reach such conclusions are denied for
the reasons previously stated in this decision.
General Findings
The findings and determinations hereinafter set forth supplement
those that were made when the Pacific Northwest and Western orders were
first issued and when they were amended. The previous findings and
determinations are hereby ratified and confirmed, except where they may
conflict with those set forth herein.
The following findings are hereby made with respect to the
aforesaid marketing agreements and orders:
(a) The interim marketing agreements and the orders, as hereby
proposed to be amended, and all of the terms and conditions thereof,
will tend to effectuate the declared policy of the Act;
(b) The parity prices of milk as determined pursuant to Section 2
of the Act are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in the marketing areas, and the minimum
prices specified in the interim marketing agreements and the orders, as
hereby proposed to be amended, are such prices as will reflect the
aforesaid factors, insure a sufficient quantity of pure and wholesome
milk, and be in the public interest; and
(c) The interim marketing agreements and the orders, as hereby
proposed to be amended, will regulate the handling of milk in the same
manner as, and will be applicable only to persons in the respective
classes of industrial and commercial activity specified in, the
marketing agreements upon which a hearing has been held.
Interim Marketing Agreement and Interim Order Amending the Orders
Annexed hereto and made a part hereof are two documents, an Interim
Marketing Agreement regulating the handling of milk, and an Interim
Order amending the orders regulating the handling of milk in the
Pacific Northwest and Western marketing areas, which have been decided
upon as the detailed and appropriate means of effectuating the
foregoing conclusions.
It is hereby ordered that this entire tentative decision and the
interim order and the interim marketing agreement annexed hereto be
published in the Federal Register.
Determination of Producer Approval and Representative Period
The month of April 2002 is hereby determined to be the
representative period for the purpose of ascertaining whether the
issuance of the order, as amended and as hereby proposed to be amended,
regulating the handling of milk in the Pacific Northwest and Western
marketing areas is approved or favored by producers, as defined under
the terms of the orders as hereby proposed to be amended, who during
such representative period were engaged in the production of milk for
sale within the aforesaid marketing areas.
[[Page 49389]]
List of Subjects in 7 CFR Part 1124 and 1135
Milk marketing orders.
Dated: August 8, 2003.
A.J. Yates,
Administrator, Agricultural Marketing Service.
Interim Order Amending the Orders Regulating the Handling of Milk in
the Pacific Northwest and Western Marketing Areas
This interim order shall not become effective unless and until the
requirements of Sec. 900.14 of the rules of practice and procedure
governing proceedings to formulate marketing agreements and marketing
orders have been met.
Findings and Determinations
The findings and determinations hereinafter set forth supplement
those that were made when the orders were first issued and when
amended. The previous findings and determinations are hereby ratified
and confirmed, except where they may conflict with those set forth
herein.
(a) Findings. A public hearing was held upon certain proposed
amendments to the tentative marketing agreements and to the orders
regulating the handling of milk in the Pacific Northwest and Western
marketing areas. The hearing was held pursuant to the provisions of the
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-
674), and the applicable rules of practice and procedure (7 CFR part
900).
Upon the basis of the evidence introduced at such hearing and the
record thereof, it is found that:
(1) The said orders as hereby amended, and all of the terms and
conditions thereof, will tend to effectuate the declared policy of the
Act;
(2) The parity prices of milk, as determined pursuant to Section 2
of the Act, are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in the aforesaid marketing area. The minimum
prices specified in the order as hereby amended are such prices as will
reflect the aforesaid factors, insure a sufficient quantity of pure and
wholesome milk, and be in the public interest; and
(3) The said orders as hereby amended regulate the handling of milk
in the same manner as, and is applicable only to persons in the
respective classes of industrial or commercial activity specified in,
the marketing agreements upon which a hearing has been held.
Order Relative to Handling
It is therefore ordered, that on and after the effective date
hereof, the handling of milk in the Pacific Northwest and Western
marketing areas shall be in conformity to and in compliance with the
terms and conditions of the orders, as amended, and as hereby amended,
as follows:
PART 1124--MILK IN THE PACIFIC NORTHWEST MARKETING AREA
1.The authority citation for 7 CFR part 1124 and 1135 continues to
read as follows:
Authority: 7 U.S.C. 601-674.
2. Section 1124.13 is amended by:
(a) Revising the introductory text; and
(b) Adding a new paragraph (f).
The revision and addition read as follows:
Sec. 1124.13 Producer milk.
Except as provided for in paragraph (f) of this section, Producer
milk means the skim milk (or skim milk equivalent of components of skim
milk), including nonfat components, and butterfat in milk of a producer
that is:
* * * * *
(f) Producer milk shall not include milk of a producer that is
subject to inclusion and participation in a marketwide equalization
pool under a milk classification and pricing program imposed under the
authority of a State government maintaining marketwide pooling of
returns.
PART 1135--MILK IN THE WESTERN MARKETING AREA
3. Section 1135.7 is amended by adding a new paragraph (c)(5).
The addition reads as follows:
Sec. 1135.7 Pool plant.
* * * * *
(c) * * *
(5) Shipments used in determining qualifying percentages shall be
milk transferred or diverted to and physically received by distributing
pool plants, less any transfers of bulk fluid milk products from such
distributing pool plants.
* * * * *
Sec. 1135.11 [Removed]
4. Section 1135.11 is removed.
5. Section 1135.13 is amended by:
(a) Revising the introductory text.
(b) Revising paragraph (d)(1);
(c) Redesignating paragraph (d)(3) through (d)(6) as (d)(4) through
(d)(7);
(d) Adding a new paragraph (d)(3); and
(e) Adding a new paragraph (e).
The revisions and additions read as follows:
Sec. 1135.13 Producer milk.
Except as provided for in paragraph (e) of this section, Producer
milk means the skim milk (or skim milk equivalent of components of skim
milk), including nonfat components, and butterfat in milk of a producer
that is:
* * * * *
(d) * * *
(1) Milk of a dairy farmer shall not be eligible for diversion
unless at least one day's milk production of such dairy farmer has been
physically received as producer milk at a pool plant and the dairy
farmer has continuously retained producer status since that time. If a
dairy farmer loses producer status under the order in this part (except
as a result of a temporary loss of Grade A approval), the dairy
farmer's milk shall not be eligible for diversion unless one day's milk
production has been physically received as producer milk at a pool
plant during the month;
* * * * *
(3) Receipts used in determining qualifying percentages shall be
milk transferred to, diverted to, or delivered from farms of producers
pursuant to Sec. 1000.9(c) and physically received by plants described
in Sec. 1135.7(a) or (b), less any transfers of diversions of bulk
fluid milk products from such pool distributing plants.
* * * * *
(e) Producer milk shall not include milk of a producer that is
subject to inclusion and participation in a marketwide equalization
pool under a milk classification and pricing program imposed under the
authority of a State government maintaining marketwide pooling of
returns.
6. Section 1135.12 is amended by:
(a) Revising paragraph (b)(5).
The revision reads as follows:
Sec. 1135.12 Producer.
* * * * *
(b) * * *
(5) A dairy farmer whose milk was received at a nonpool plant
during the month from the same farm (except a nonpool plant that has no
utilization of milk products in any class other than Class II, Class
III, or Class IV) as other than producer milk under the order in this
part or any other Federal order. Such a dairy farmer shall be known as
a dairy farmer for other markets.
* * * * *
Marketing Agreement Regulating the Handling of Milk in Certain
Marketing Areas
The parties hereto, in order to effectuate the declared policy
of the Act, and in accordance with the rules of practice and
procedure effective thereunder (7 CFR part
[[Page 49390]]
900), desire to enter into this marketing agreement and do hereby
agree that the provisions referred to in paragraph I hereof as
augmented by the provisions specified in paragraph II hereof, shall
be and are the provisions of this marketing agreement as if set out
in full herein.
I. The findings and determinations, order relative to handling,
and the provisions of Sec. Sec. ------\1\ to ------, all inclusive,
of the order regulating the handling of milk in the (---- Name of
order --------) marketing area (7 CFR PART --\2\) which is annexed
hereto; and
---------------------------------------------------------------------------
\1\ First and last sections of applicable order.
\2\ Appropriate part number.
---------------------------------------------------------------------------
II. The following provisions: Sec. ------\3\ Record of milk
handled and authorization to correct typographical errors.
---------------------------------------------------------------------------
\3\ Applicable section number.
---------------------------------------------------------------------------
(a) Record of milk handled. The undersigned certifies that he/
she handled during the month of ------\4\ 2002, ------\5\
hundredweight of milk covered by this marketing agreement.
---------------------------------------------------------------------------
\4\ Appropriate representative period for the order.
\5\ Hundredweight poundage of milk.
---------------------------------------------------------------------------
(b) Authorization to correct typographical errors. The
undersigned hereby authorizes the Deputy Administrator, or Acting
Deputy Administrator, Dairy Programs, Agricultural Marketing
Service, to correct any typographical errors which may have been
made in this marketing agreement.
Sec. ------------\6\ Effective date. This marketing agreement
shall become effective upon the execution of a counterpart hereof by
the Secretary in accordance with Section 900.14(a) of the aforesaid
rules of practice and procedure.
---------------------------------------------------------------------------
\6\ Applicable section number.
---------------------------------------------------------------------------
In Witness Whereof, The contracting handlers, acting under the
provisions of the Act, for the purposes and subject to the
limitations herein contained and not otherwise, have hereunto set
their respective hands and seals.
Signature By (Name)----------------------------------------------------
(Title)----------------------------------------------------------------
(Address)--------------------------------------------------------------
(Seal)
Attest
[FR Doc. 03-20689 Filed 8-15-03; 8:45 am]
BILLING CODE 3410-02-P