[Federal Register: July 27, 2005 (Volume 70, Number 143)]
[Proposed Rules]
[Page 43335-43343]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy05-31]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 1033
[Docket No. AO-166-A72; DA-05-01-A]
Milk in the Mideast Marketing Area; Tentative Partial Decision on
Proposed Amendments and Opportunity To File Written Exceptions to
Tentative Marketing Agreement and Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This tentative partial decision adopts on an interim final and
emergency basis proposals that would amend certain features of the
pooling standards of the Mideast milk marketing order. Specifically,
this decision will: (1) Prohibit the ability to simultaneously pool the
same milk on the Mideast Federal milk order and on a marketwide
equalization pool administered by another government entity; (2) lower
the diversion limit standards; and (3) increase the performance
standards for supply plants. A separate decision will be issued that
will address proposals to deter the de-pooling of milk, adopt
transportation credits and clarify the Producer definition of the
order. This decision requires determining if producers approve the
issuance of the amended order on an interim basis.
DATES: Comments should be submitted on or before September 26, 2005.
ADDRESSES: Comments (6 copies) should be filed with the Hearing Clerk,
STOP 9200--Room 1031, United States Department of Agriculture, 1400
Independence Avenue, SW., Washington, DC 20250-9200. You may send your
comments by the electronic process available at the Federal e-
[[Page 43336]]
http://www.regulations.gov or by submitting comments to
amsdairycomments@usda.gov. Reference should be made to the title of
action and docket number.
FOR FURTHER INFORMATION CONTACT: Gino Tosi, Marketing Specialist, Order
Formulation and Enforcement Branch, USDA/AMS/Dairy Programs, STOP
0231--Room 2971, 1400 Independence Avenue, SW., Washington, DC 20250-
0231, (202) 690-3465, e-mail address: gino.tosi@usda.gov.
SUPPLEMENTARY INFORMATION: This tentative partial decision proposes to
adopt amendments which would prohibit the ability to simultaneously
pool the same milk on the Mideast Federal milk order and on a
marketwide pool administered by another government entity.
Additionally, this decision proposes to adopt amendments that would
increase supply plant shipping standards and lower diversion limits.
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.
The amendments to the rules proposed herein have been reviewed
under Executive Order 12988, Civil Justice Reform. It is not intended
to have a retroactive effect. If adopted, the proposed rule 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 (the Act), 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 with the Department
of Agriculture (USDA) 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 USDA 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 USDA'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.
During March 2005, the month during which the hearing occurred,
there were 9,767 dairy producers pooled on, and 36 handlers regulated
by, the Mideast order. Approximately 9,212 producers, or 94.3 percent,
were considered small businesses based on the above criteria. On the
processing side, approximately 26 handlers, or 72.2 percent, were
considered small businesses.
The adoption of the proposed pooling standards serve 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 Mideast milk marketing area. Criteria
for pooling are established on the basis of performance levels that are
considered adequate to meet the Class I fluid needs and, by doing so,
determine those producers who 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 criteria established 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, record keeping, 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 tentative partial decision 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 from all handlers does not significantly
disadvantage any handler that is smaller than the industry average.
No other burdens are expected to fall on the dairy industry as a
result of overlapping Federal rules. This rulemaking proceeding does
not duplicate, overlap or conflict with any existing Federal rules.
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
Amendment to Public Hearing on Proposed Rulemaking: Issued March 1,
2005; published March 3, 2005 (70 FR 10337).
Notice of Hearing: Issued February 14, 2005; published February 17,
2005 (70 FR 8043).
Preliminary Statement
Notice is hereby given of the filing with the Hearing Clerk of this
tentative partial decision with respect to the proposed amendments to
the tentative marketing agreement and the order regulating the handling
of milk in the Mideast marketing area. 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
[[Page 43337]]
marketing agreements and marketing orders (7 CFR part 900).
Interested parties may file written exceptions to this decision
with the Hearing Clerk, United States Department of Agriculture, Room
1031-Stop 9200, 1400 Independence Avenue, SW., Washington, DC 20250-
9200, by September 26, 2005. 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.
A public hearing was held upon proposed amendments to the marketing
agreement and the order regulating the handling of milk in the Mideast
marketing area. 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 governing the
formulation of marketing agreements and marketing orders (7 CFR part
900).
The proposed amendments set forth below are based on the record of
a public hearing held in Wooster, Ohio, on March 7-10, 2005, pursuant
to a notice of hearing issued February 14, 2005, published February 17,
2005 (70 FR 8043), and an amendment to the hearing notice issued March
1, 2005, published March 3, 2005 (70 FR 10337).
The material issues on the record of the hearing relate to:
1. Pooling Standards
A. Standards for Producer Milk.
a. Simultaneous pooling of milk on the order and on a marketwide
pool administered by another government entity.
b. Diversion Limit Standards.
B. Supply Plant Performance Standards.
2. Determination as to whether emergency marketing conditions exist
that warrant the omission of a recommended decision and the
opportunity to file written exceptions.
Findings and Conclusions
This tentative partial decision specifically addresses proposals,
published in the hearing notice as Proposals 1 and 2, along with a
portion of Proposal 3, seeking to change the performance standards and
producer milk provisions of the order. The portion of Proposal 3, that
would provide a definition of ``temporary loss of Grade A approval'',
Proposals 4-8, that would establish provisions to deter the ``de-
pooling'' of milk, and Proposal 9 that would establish transportation
credits will be addressed in a separate decision. The following
findings and conclusions on the material issues are based on evidence
presented at the hearing and the record thereof:
1. Pooling Standards
A. Standards for Producer Milk
Three proposals were presented at the hearing that would amend
certain features of the Producer milk provision of the Mideast order. A
proposal, published in the hearing notice as Proposal 1, seeking to
eliminate the ability to simultaneously pool the same milk on the
Mideast Federal milk order and on a marketwide equalization pool
administered by another government entity, commonly referred to as
``double dipping,'' should be adopted immediately. Additionally, a
portion of a proposal published in the hearing notice as Proposal 2,
seeking to seasonally adjust the percentage of total receipts a pool
plant could divert to nonpool plants to 50 percent for the months of
August through February and to 60 percent for the months of March
through July should be adopted immediately. Proposal 3, which sought to
adjust the number of days of the milk production of a producer that
must be physically received at a Mideast order pool plant before being
eligible for diversion to a nonpool plant, commonly referred to as
``touching base'', was abandoned at the hearing and will no longer be
referenced in this proceeding.
Proponents contend that milk has been simultaneously pooled on the
Mideast order and on a marketwide pool administered by another
government entity since January of 2000, and although no milk is
currently simultaneously pooled on the Mideast order and a marketwide
pool administered by another government entity, the possibility exists
and provisions should be adopted to eliminate its occurrence.
Additionally, proponents contend that inadequate limits on the amount
of milk that pool plants can divert to non-pool plants is allowing
large volumes of milk to be pooled on the Mideast order that does not
demonstrate a reliable and consistent service to the fluid milk needs
of the order.
The Mideast order currently does not prohibit the simultaneous
pooling of the same milk on the order and on a marketwide equalization
pool operated by another government entity. Although no milk is
currently simultaneously pooled on the Mideast order and a marketwide
equalization pool operated by another government entity, the situation
has occurred in the past.
The current Producer milk provision of the Mideast order considers
the milk of a dairy farmer to be producer milk when the milk has been
delivered to a pool plant of the order. As a condition for pooling the
milk of a producer diverted to a nonpool plant on the Mideast order, a
dairy farmer must ship two days' milk production to a pool plant during
each of the months of December through July. This standard is
applicable only if two days' milk production was not shipped to a
Mideast pool plant in each of the previous months of August through
November. A producer must also deliver two days' milk production to a
pool plant during the months of August through November in order for
the milk diverted to nonpool plants to be pooled. A pool handler may
not divert more than 60 percent of its total receipts to a nonpool
plant during the months of August through February and no more than 70
percent of its total receipts during the months of March through July.
Proposals 1 and 2 were submitted by Dairy Farmers of America (DFA),
Michigan Milk Producers Association (MMPA), Dairylea Cooperative Inc.
(Dairylea) and the National Farmers Organization (NFO). DFA is a member
owned Capper-Volstead cooperative of 13,500 farms that produce milk in
49 states. MMPA is a member owned Capper-Volstead cooperative of 1,350
farms producing milk in four states. Dairylea is a member owned Capper-
Volstead cooperative of 2,400 farms producing milk in seven states. NFO
is a member owned Capper-Volstead cooperative with over 1,500 members
in 18 states. Hereinafter, this decision will refer to DFA, MMPA,
Dairylea and NFO collectively as the ``Cooperatives.''
A witness appearing on behalf of the Cooperatives testified that
adoption of Proposal 1 would eliminate the potential for the same milk
to be simultaneously pooled on the Mideast Federal milk order and on a
marketwide pool administered by another government entity. The witness
referred to this practice as ``double dipping'' and as a practice
resulting in disorderly marketing conditions. The witness noted that
regulatory action has been taken in the Northeast, Central, Upper
Midwest, Pacific Northwest and Arizona-Las Vegas Federal milk marketing
orders to prohibit the practice. The witness testified that little milk
is currently associated with the
[[Page 43338]]
Mideast marketing order that is simultaneously pooled by another
government entity, but should be prohibited in the same manner as in
other Federal milk marketing order areas. The Cooperatives noted in
their post-hearing briefs that no opposition to adoption of Proposal 1
was received at the hearing.
A witness appearing on behalf of Dean Foods (Dean) testified in
support of Proposal 1. Dean Foods owns and operates several
distributing plants regulated by the Mideast order. The witness
testified that double dipping should be prohibited in the Mideast order
in the same manner as in other Federal orders. In their post-hearing
brief, Dean added that if the ability to simultaneously pool milk is
eliminated, the wording of the order language should be similar to the
order language used to prohibit simultaneous pooling in the Central and
Upper Midwest orders.
Continental Dairy Products (Continental) noted support for adoption
of Proposal 1 in their post-hearing brief. Continental is a member
owned Capper-Volstead cooperative that pools milk on the Mideast order.
Continental was of the opinion that double dipping should be prohibited
for the Mideast marketing area as it has been in other Federal milk
marketing orders.
A witness appeared on behalf of the Cooperatives in support of the
portion of Proposal 2 that would lower the diversion limit standards.
The witness was of the opinion that current diversion limit standards
are inadequate and have resulted in milk pooled on the order which does
not demonstrate regular and consistent performance in supplying the
Class I needs of the marketing area. The witness cited market
administrator data showing that during the months of January through
February and August through December of 2004, many pool distributing
plants and cooperative handlers diverted more than 50 percent of their
total milk receipts to nonpool plants. Adoption of the portion of
Proposal 2 to limit diversions to no more than 50 percent of total milk
receipts in August through February and 60 percent in March through
July for distributing plants and cooperative handlers would increase
shipments to distributing plants and raise returns for Mideast
producers, the witness noted.
A witness for MMPA appeared on behalf of the Cooperatives in
support of the portion of Proposal 2 that would lower diversion limit
standards. The witness was of the opinion that an adjustment to the
diversion limit standards will serve to decrease market reserves and
increase proceeds for producers servicing the needs of the fluid market
on a regular and consistent basis.
Several independent and cooperative member dairy farmers whose milk
is pooled in the Mideast order also testified in support of the portion
of Proposal 2 that would adjust diversion limit standards. Most were of
the opinion that adjusting diversion limit standards will serve to more
adequately identify the milk that is serving the needs of the Mideast
order fluid market.
A witness appearing on behalf of Prairie Farms Dairy (Prairie
Farms) testified that they were not in support of, nor in opposition
to, adoption of the portion of Proposal 2 that would adjust diversion
limits. Prairie Farms is a member owned Capper-Volstead cooperative
that pools milk on the Mideast order.
A witness appeared on behalf of White Eagle Cooperative Federation
(White Eagle) and ``constituent members'' in opposition to the portion
of Proposal 2 that would lower diversion limit standards. The members
of White Eagle Cooperative Federation include White Eagle Cooperative
Association, Alto Dairy Cooperative, Scioto Cooperative, and Erie
Cooperative Association. White Eagle Cooperative Federation also
identified Superior Dairy, United Dairy, Family Dairies USA, Dairy
Support Inc., Guggisberg Cheese and Brewster Cheese as constituent
members.
The White Eagle witness testified that lowering diversion limit
standards will decrease the volume of milk that manufacturing plants
can pool, and will remove milk located in Wisconsin, Illinois,
Minnesota and Iowa from pooling on the Mideast order. The witness was
of the opinion that when the volume of milk pooled in manufacturing
uses is decreased, producer milk that supplies manufacturing plants can
face decreased returns. In their post-hearing brief White Eagle
reiterated that lowering diversion limit standards will decrease
returns to producers whose milk is marketed through White Eagle.
A consultant witness provided additional testimony on behalf of
White Eagle in opposition to lowering the diversion limit standards of
the order. The witness testified that reducing the diversion limit
standards would disadvantage small cooperatives that pool milk on the
Mideast order. The witness was of the opinion that lowering the
diversion limit standards would increase the market power of large
cooperatives and milk processors over small cooperatives and milk
processors.
The consultant White Eagle witness relied on Market Administrator
data to demonstrate the effects of a 10 percent reduction in the
diversion limit standards for the period of 2003-2004. The witness
stated that if the proposed diversion limit standards had been
effective for the month of October 2004, the total volume of milk
pooled in the Mideast market would have been reduced by 4.1 percent.
The witness hypothesized that the reduction in milk volume pooled would
have increased the PPD by about 2 cents per hundredweight (cwt.) for
milk remaining pooled, but would have decreased the relative PPD by
about $0.73 per cwt. on the milk that was not able to be pooled because
of lowered diversion limit standards. The witness noted that the
majority of the milk not pooled would have been milk usually pooled by
small cooperatives. Accordingly, the witness was of the opinion that
lowering the diversion limit standards of the Mideast order should not
be adopted until additional analysis is done on the possible negative
effects on small cooperatives and processors.
B. Supply Plant Performance Standards
Several proposed changes to the supply plant pooling provisions of
the Mideast order, contained in Proposal 2, should also be adopted
immediately. The lack of adequate performance standards in the current
supply plant pooling provisions allow large volumes of milk to be
pooled on the order that do not demonstrate a regular service to the
Class I needs of the market causing an unwarranted decrease in the
order's blend price.
Specifically, the following amendments should be adopted
immediately: (1) Increasing supply plant performance standards for
Sec. 1033.7(c) by 10 percentage points, from 30 percent to 40 percent,
for all months, (2) increasing performance standards for supply plants
operated by a cooperative association under Sec. 1033.7(d) by five
percentage points, from 30 percent to 35 percent, for the month of
August, and by 10 percentage points, from 30 percent to 40 percent, for
the months of September through November, and (3) increasing
performance standards for a supply plant with a marketing agreement
with a cooperative under Sec. 1033.7(e) by 10 percentage points, from
35 percent to 45 percent, for the months of August through November.
Currently, the Mideast order provides that a supply plant must ship
30 percent of its total monthly receipts to a pool
[[Page 43339]]
distributing plant in order for the plant and all of the receipts of
the plant to be pooled for the month. This same standard applies to
supply plants owned and operated by a cooperative association. A supply
plant operated under a marketing agreement with a cooperative, however,
must ship 35 percent of total receipts to a pool distributing plant in
every month of the year in order for the plant and all the receipts of
the plant to be pooled.
A witness appeared on behalf of the Cooperatives in support of the
portion of Proposal 2 that raises the performance standards for supply
plants. The Cooperatives witness was of the opinion that supply plant
performance standards are inadequate and in need of review and
adjustment. Current supply plant performance standards, the witness
testified, allow for more milk to be associated with the Mideast pool
than is needed. Relying on market administrator data, the witness noted
that the projected Class I utilization of the Mideast order of 58.9
percent, specified during Federal order reform, had only been achieved
in one month since January 2000. The witness stressed that the Mideast
order has ample reserve milk supplies located within the marketing
area, but that milk located outside of the marketing area that is being
pooled on the order is lowering the proceeds of producers who are
consistently serving the fluid needs of the market.
The Cooperatives witness was of the opinion that increasing supply
plant performance standards will provide greater incentive to deliver
local milk supplies to the Class I market than the current standards.
The witness was of the opinion that returns to producers are increased
the shorter the distance milk must travel to distributing plants
because transportation costs are lower.
The Cooperatives witness testified that the costs of transporting
and procuring milk for Class I use is not being borne equally by all
producers whose milk is pooled on the order even though Class I returns
are shared by all. The witness added that increasing supply plant
performance standards would prevent milk that does not service the
fluid needs of the market from sharing in the additional proceeds
generated from fluid sales in the marketing area.
The Cooperatives witness relied on market administrator data which
showed an increase in the volume of milk pooled on the Mideast order
from states outside the marketing area including Illinois, Iowa,
Minnesota and Wisconsin. The witness testified that although the volume
of milk pooled from states outside of the Mideast marketing area has
increased, the volume of milk pooled from states within the marketing
area has remained constant. The witness added that the increase in the
volume of milk pooled from states outside of the marketing area has not
resulted in increased volumes of milk shipped to the order's pool
distributing plants. When milk that does not service the needs of the
Mideast fluid market is pooled from areas outside the states comprising
the Mideast marketing area, the witness stressed, the blend price
received by Mideast order producers who regularly demonstrate service
to the fluid market is lowered.
The Cooperatives witness relied on market administrator data to
illustrate that supply-demand relationships for milk in five different
regions of the Mideast marketing area--Northern Ohio, Southern Ohio,
Michigan, Indiana and Pennsylvania indicate that there is sufficient
locally produced milk to meet the needs of the fluid market. According
to the witness, only in the Southern Ohio/Southern Indiana region do
total Class I sales exceed the total amount of milk locally supplied.
The witness attributed the deficit local milk supply in Southern Ohio/
Southern Indiana to local milk being shipped to the Appalachian milk
marketing area.
The Cooperatives witness was also of the opinion that a ``hard'' 40
percent standard on cooperative owned supply plant shipments to
distributing plants during the fall months is superior to using the
``rolling annual average'' method currently provided by the order. The
witness added that if a cooperative owned supply plant shipped 40
percent of its total receipts to distributing plants during the fall
months, the ``rolling annual average'' method could be used during the
remainder of the year.
The Cooperatives witness testified that the performance standards
for supply plants in the Mideast order were increased as a result of a
previous Federal order hearing in 2001, but was of the opinion that the
market is in need of further refinement. The witness emphasized that
while there is a seasonal need for supplemental milk across certain
regions of the Mideast market, the current standards allow far more
milk to associate with the market than is reasonably warranted. The
witness added that increasing supply plant performance standards will
increase returns for Mideast dairy farmers who do regularly and
consistently service the needs of the fluid market.
A witness appearing on behalf of Dean was also in support of
increasing supply plant performance standards. Dean testified at the
hearing, and reiterated in their post-hearing brief, that increasing
supply plant performance standards will serve to better identify the
milk that demonstrates a consistent ability to service the fluid milk
needs of the market.
In their post-hearing brief, Dean proposed a modification to
Proposal 2 regarding cooperative owned supply plants. Specifically,
Dean suggested that a cooperative owned supply plant should be located
within the geographic boundaries of the Mideast marketing area and that
qualifying shipments to distributing plants or nonpool plants must be
classified as Class I.
A witness from MMPA appearing on behalf of the Cooperatives
modified a portion of Proposal 2 at the hearing. The witness testified
that Proposal 2 should increase the performance standards for a
cooperative owned supply plant by 5 percentage points, from 30 to 35
percent of total receipts, for the month of August, and by 10
percentage points, from 30 to 40 percent of total receipts for the
months of September through November. The witness was of the opinion
that an increase in performance standards are needed in order to ensure
that the proceeds generated from Class I sales are shared among those
who regularly supply the needs of the fluid market.
The MMPA witness testified that their cooperative exceeded the
current 30 percent performance standard (from 35 percent to 41 percent
of total receipts) during the preceding months of August through
November. The MMPA witness testified that they are in support of a
``hard'' performance standard during the August through November
period, rather than the use of the annual rolling average provision
currently provided for in all months by the order for cooperative owned
supply plants. The witness also noted that if market conditions warrant
a higher degree of performance, the Market Administrator has the
authority to increase the performance standard.
Several independent and cooperative member dairy farmers whose milk
is pooled in the Mideast order also testified in support of increasing
supply plant performance standards. Most were of the opinion that
increasing supply plant performance standards will more adequately
identify what milk is consistently serving the needs of the Mideast
fluid market.
A witness appeared on behalf of Smith Dairy in general support of
any proposal that would serve to address the reduction of producer pay
prices in the
[[Page 43340]]
Mideast order and any proposals that will better identify milk that
provides service to the Mideast fluid market. Smith Dairy operates two
distributing plants regulated by the Mideast order that are primarily
supplied by independent dairy farmers.
A witness appearing on behalf of White Eagle testified in
opposition to increasing supply plant performance standards at the
hearing and reiterated this position in their post-hearing brief. White
Eagle is of the opinion that increasing supply plant shipping standards
will displace milk from outside of the geographic boundaries of the
Mideast marketing area that has historically supplied the milk needs of
the Mideast market.
Discussion/Findings
The record of this proceeding finds that several amendments to the
pooling standards of the Mideast order should be adopted immediately to
better identify the milk of producers that should share in the order's
marketwide pool proceeds and to establish more appropriate performance
measures for providing regular and consistent service in meeting the
market's fluid needs. Currently, milk located outside the Mideast
marketing area that does not demonstrate regular and consistent
performance in supplying the needs of the Class I market is able to
qualify for pooling on the Mideast order and share in the increased
revenues arising from Class I sales in the marketing area. The vast
majority of this milk is pooled on the order at low classified use-
values and in turn lowers the blend price to those producers who
regularly and consistently supply the Class I needs of the Mideast
market. Such milk is not demonstrating a reasonable level of
performance in servicing the Class I market to receive the additional
revenue arising from Class I use of the Mideast marketing area and
therefore should not be pooled.
The pooling standards of all Federal milk marketing orders,
including the Mideast order, are intended to ensure that an adequate
supply of milk is available 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 Mideast order are
represented in the Pool Plant, Producer, and the Producer milk
provisions of the order and are performance based. 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 and provide the
criteria for determining the producer milk that has demonstrated
reasonable measures of service to the Class I market and thereby should
share in the marketwide distribution of pool proceeds.
Pooling standards that are performance based provide the only
viable method for determining those eligible to share in the marketwide
pool. It is primarily the additional revenue generated from the higher-
valued Class I use of milk that adds 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 returns arising from higher-valued Class I sales.
Pooling standards are needed to identify the milk of those
producers who are providing regular and consistent service in meeting
the Class I needs of the market. If a pooling provision does not
reasonably accomplish this end, 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
the fluid needs of the market.
Pool plant standards, specifically standards that provide for the
pooling of milk through supply plants, need to reflect the supply and
demand conditions of the marketing area. This is important because
producers whose milk is pooled, regardless of utilization, receives the
order's blend price. When the pooling provisions of the order result in
pooling milk that cannot reasonably be considered as regularly and
consistently serving the fluid needs of the market, it is appropriate
to re-examine those standards.
The geographic boundaries of the Mideast order are not intended to
limit or define which producers, which milk of those producers, or
which handlers should enjoy the benefits of being pooled on the order.
What is important and fundamental to all Federal orders, including the
Mideast order, is the proper identification of those producers, the
milk of those producers, and handlers that should share in the proceeds
arising from Class I sales in the marketing area. The Mideast order's
current pooling standards, specifically supply plant performance
standards and diversion limit standards for producer milk do not
reasonably accomplish this fundamental objective.
Since the 1960's, the Federal milk order program has recognized the
harm and disorder that results to both producers and handlers when the
same milk of a producer is simultaneously pooled on more than one
Federal order, commonly referred to as ``double-dipping''. In the past,
this situation caused price differences between producers and gave rise
to competitive equity issues. The need to prevent ``double-dipping''
became critically important as distribution areas expanded and orders
merged.
When the same milk can be simultaneously pooled on a marketwide
equalization pool operated by a government entity and on a Federal milk
marketing order, it has the same undesirable outcomes as pooling the
same milk on two Federal orders which was corrected many years ago. The
Mideast order recently has experienced ``double-dipping'' and it is
clear that the Mideast order should be amended to prevent the ability
to pool the same milk on the order and on a marketwide equalization
pool operated by another government entity. This action is consistent
with other recent Federal order amendatory actions regarding the
simultaneous pooling of the same milk on a Federal order and on other
government operated programs.
The hearing record clearly indicates that the milk of producers
that does not regularly and consistently service the needs of the fluid
market is able to pool on and receive the Mideast order's blend price.
Inadequate diversion limit standards are allowing large volumes of milk
to be diverted to non-pool manufacturing plants located far from the
marketing area; and inadequate supply plant performance standards also
enable milk which has insufficient physical association with the market
and which does not demonstrate regular and consistent service to the
Class I needs of the marketing area to be pooled on the Mideast order.
The Federal milk order system has consistently recognized that
there is a cost incurred by producers in servicing an order's Class I
market, and the order's blend price is the compensation to producers
for performing such services. The amended pooling provisions will
ensure that milk seeking to be pooled and receive the order's blend
price will regularly and consistently service the marketing area's
Class I needs. Consequently, the adopted pooling provisions will ensure
the more equitable sharing of revenue generated from Class I sales
among the appropriate producers.
Accordingly, supply plant performance standards should be increased
by 10 percentage points, from 30 percent to 40 percent of total
receipts, for all months; cooperative owned supply plant performance
[[Page 43341]]
standards should be increased by 10 percentage points, from 30 percent
to 40 percent of total receipts, for the months of September through
November.
Additionally, cooperative owned supply plant performance standards
for the month of August should be increased by five percentage points,
from 30 percent to 35 percent of total receipts, as proposed in MMPA's
modification of Proposal 2. These standards will be met using the
``rolling annual average'' standard during December through July and
the ``hard'' standard during August through November as proposed in
Proposal 2. Also, as suggested by Dean in their post-hearing brief, a
cooperative owned supply plant must be located in the marketing area.
Limiting a cooperative owned supply plant to only those that are
located within the marketing area is consistent with other pooling
conveniences afforded to other supply plants. For example, system
pooling of supply plants that regularly and consistently perform in
supplying the Class I needs of the marketing area are a legitimate
reserve supply source of milk and are restricted to supply plants
located within the marketing area. Qualifying shipments, as already
specified in the order, may only include shipments of Class I milk to
distributing plants or non-pool plants.
Performance standards for a supply plant with a marketing agreement
with a cooperative should be increased by 10 percentage points, from 35
percent to 45 percent of total receipts, for the months of August
through November.
Changes are necessary in the standards of the amount of milk that
can be diverted from pool plants to nonpool plants to ensure that milk
pooled on the order is part of the legitimate reserve supply of Class I
handlers. The hearing record evidence clearly reveals that large
volumes of milk that are not part of the legitimate reserve supply of
the pooling handler can be reported as diverted milk by the pooling
handler and receive the order's blend price.
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 when not needed for fluid use. However, it is
necessary to safeguard against excessive milk supplies becoming
associated with the market through the diversion process. Associating
more milk than is actually part of the legitimate reserve supply of the
pooling handler unnecessarily reduces the potential blend price paid to
dairy farmers who regularly and consistently service the market's Class
I needs. Without reasonable diversion limit provisions, the order's
performance standards are weakened and give rise to disorderly
marketing conditions. Accordingly, diversion limit standards for pool
plants should be lowered by ten percentage points, from 60 percent to
50 percent for the months of August through February, and from 70
percent to 60 percent for the months of March through July.
3. Determination of Emergency Marketing Conditions
Evidence presented at the hearing and in post-hearing briefs
establishes that current pooling standards of the Mideast order are
inadequate and are eroding the blend price received by producers who
are regularly and consistently serving the Class I needs of the Mideast
marketing area and should be amended on an emergency basis. The
unwarranted erosion of the blend price stems from inadequate supply
plant standards and the lack of appropriate limits on diversions of
milk. Additionally, the ability of a handler to pool the same milk on
the Mideast Federal milk order and on a marketwide equalization pool
administered by another government entity serves to potentially further
erode the order's blend price.
Consequently, it is determined that emergency marketing conditions
exist and the issuance of a recommended decision is 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.
In view of these findings, an interim final rule amending the order
will be issued as soon as the procedures are completed to determine the
approval of producers.
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 Mideast order was first issued and when
it was 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 agreement and order:
(a) The interim marketing agreement and the order, 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 with respect to the price of feeds,
available supplies of feeds, and other economic conditions which affect
market supply and demand for milk in the marketing area, and the
minimum prices specified in the interim marketing agreement and the
order, 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 agreement and the order, 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 agreement upon which a hearing has been held.
Interim Marketing Agreement and Interim Order Amending the Order
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 order regulating the handling of milk in the Mideast
marketing area, which have been decided upon as the detailed and
appropriate means of effectuating the foregoing conclusions.
It is hereby ordered, that this entire tentative partial 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 March, 2005 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 Mideast marketing area is
approved or favored by producers, as defined under the terms of the
order as hereby proposed to be amended, who during such representative
period were
[[Page 43342]]
engaged in the production of milk for sale within the aforesaid
marketing area.
It is hereby directed that a referendum be conducted and completed
on or before the 30th day from the date this decision is issued, in
accordance with the procedure for the conduct of referenda (7 CFR
900.300-311), to determine whether the issuance of the order, as
amended and as hereby proposed to be amended, regulating the handling
of milk in the Mideast marketing area is approved by producers, as
defined under the terms of the order (as amended and as hereby proposed
to be amended), who during such representative period were engaged in
the production of milk for sale within the aforesaid marketing area.
The representative period for the conduct of such referendum is
hereby determined to be March, 2005.
The agent of the Department to conduct such referendum is hereby
designated to be David Z. Walker, Market Administrator.
List of Subjects in 7 CFR Part 1033
Milk Marketing order.
Dated: July 21, 2005.
Kenneth C. Clayton,
Acting Administrator, Agricultural Marketing Service.
Interim Order Amending the Order Regulating the Handling of Milk in the
Mideast Marketing Area
This interim order shall not become effective 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 order was first issued and when it was
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 agreement and to the order
regulating the handling of milk in the Mideast marketing area. 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 order 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 order as hereby amended regulates 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, a
marketing agreement 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 Mideast marketing area shall be in
conformity to and in compliance with the terms and conditions of the
order, as amended, and as hereby amended, as follows:
The authority citation for 7 CFR part 1033 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
PART 1033--MILK IN THE MIDEAST AREA
1. Section 1033.7 is amended by:
(a) Revising paragraph (c) introductory text.
(b) Revising the introductory text to paragraph (d).
(c) Revising paragraph (d)(2).
(d) Revising paragraph (e)(1).
The revisions read as follows:
Sec. 1033.7 Pool plant.
* * * * *
(c) A supply plant from which the quantity of bulk fluid milk
products shipped to, received at, and physically unloaded into plants
described in paragraph (a) or (b) of this section as a percent of the
Grade A milk received at the plant from dairy farmers (except dairy
farmers described in Sec. 1033.12(b)) and handlers described in Sec.
1000.9(c), as reported in Sec. 1033.30(a), is not less than 40 percent
of the milk received from dairy farmers, including milk diverted
pursuant to Sec. 1033.13, subject to the following conditions:
* * * * *
(d) A plant located in the marketing area and operated by a
cooperative association if, during the months of December through July
30 percent, during the month of August 35 percent and during the months
of September through November 40 percent or more of the producer milk
of members of the association is delivered to a distributing pool
plant(s) or to a nonpool plant(s) and classified as Class I. Deliveries
for qualification purposes may be made directly from the farm or by
transfer from such association's plant, subject to the following
conditions:
(1) * * *
(2) The 30 percent delivery requirement for the months of December
through July may be met for the current month or it may be met on the
basis of deliveries during the preceding 12-month period ending with
the current month.
* * * * *
(e) * * *
(1) The aggregate monthly quantity supplied by all parties to such
an agreement as a percentage of the producer milk receipts included in
the unit during the months of August through November is not less than
45 percent and during the months of December through July is not less
than 35 percent;
* * * * *
2. Section 1033.13 is amended by:
(a) Revising paragraph (d)(4).
(b) Adding paragraph (e).
The revisions read as follows:
Sec. 1033.13 Producer milk.
* * * * *
(d) * * *
(4) Of the total quantity of producer milk received during the
month (including diversions but excluding the quantity of producer milk
received from a handler described in Sec. 1000.9(c) or which is
diverted to another pool plant), the handler diverted to nonpool plants
not more than 50 percent in each of the months of August through
February and 60 percent in each of the months of March through July.
* * * * *
(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 plan imposed under the
authority of another government entity.
Marketing Agreement Regulating the Handling of Milk in the Mideast
Marketing Area
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 900), desire to enter into this
marketing agreement and do hereby agree that the provisions
[[Page 43343]]
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. 1033.1 to 1033.86 all inclusive, of the
order regulating the handling of milk in the Mideast marketing area (7
CFR part 1033) which is annexed hereto; and
II. The following provisions: Record of milk handled and
authorization to correct typographical errors.
(a) Record of milk handled. The undersigned certifies that he/she
handled during the month of ----, 2005, ------ hundredweight of milk
covered by this marketing agreement.
(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.
Effective date. This marketing agreement shall become effective
upon the execution of a counterpart hereof by the Department in
accordance with Section 900.14(a) of the aforesaid rules of practice
and procedure.
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. 05-14769 Filed 7-26-05; 8:45 am]
BILLING CODE 3410-02-P