[Federal Register Volume 71, Number 177 (Wednesday, September 13, 2006)]
[Proposed Rules]
[Pages 54152-54170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-7498]
[[Page 54151]]
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Part IV
Department of Agriculture
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Agricultural Marketing Service
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7 CFR Part 1032
Milk in the Central Marketing Area; Final Decision on Proposed
Amendments to Marketing Agreement and to Order; Proposed Rule
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 /
Proposed Rules
[[Page 54152]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 1032
[Docket No. AO-313-A48; DA-04-06]
Milk in the Central Marketing Area; Final Decision on Proposed
Amendments to Marketing Agreement and to Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule; final decision.
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SUMMARY: This document is the final decision proposing to adopt
amendments that increase supply plant performance standards, amend
features of the ``touch-base'' provision, amend certain features of the
``split plant'' provision and decrease the diversion limit standards of
the order. This decision also limits the volume of milk a handler can
pool to 125 percent of the total volume of milk pooled in the previous
month. This final decision is subject to producer approval.
FOR FURTHER INFORMATION CONTACT: Jack Rower, Marketing Specialist,
Order Formulation and Enforcement Branch, USDA/AMS/Dairy Programs, STOP
0231-Room 2971, 1400 Independence Avenue, SW., Washington, DC 20250-
0231, (202) 720-2357, e-mail address: [email protected].
SUPPLEMENTARY INFORMATION: This final decision adopts amendments that:
(1) Increase supply plant performance standards to 25 percent for the
months of August through February and to 20 percent for the months of
March through July; (2) Require the non-pool side of a split plant to
maintain nonpool status for 12 months; (3) Amend the ``touch-base''
feature of the order to require that at least one day's production of
the milk of a dairy farmer be received at a pool plant in each of the
months of January, February, and August through November, to be
eligible for diversion to non-pool plants; (4) Lower the diversion
limit standards by five percentage points, from 80 percent to 75
percent, for the months of August through February, and by five
percentage points, from 85 percent to 80 percent for the months of
March through July; and (5) Establish provisions that limit the volume
of milk a handler may pool in a month to 125 percent of the volume of
milk pooled in the prior month.
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. They are not
intended to have a retroactive effect. If adopted, the proposed
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 (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 (Department) 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.
During January 2005, the time of the hearing, there were 5,778
dairy producers pooled on, and 23 handlers regulated by, the Central
order. Approximately 5,365 producers, or 92.9 percent, were considered
``small businesses'' based on the above criteria. Of the 23 handlers
regulated by the Central order during January 2005, 11 handlers, or
47.8 percent, were considered ``small businesses.''
The adopted amendments regarding the pooling standards serve to
revise established criteria that determine those producers, producer
milk, and plants that have a reasonable association with and
consistently serve the fluid needs of the Central 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 of the
market 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. 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 action 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.
No other burdens are expected to fall on the dairy industry as a
result of overlapping Federal rules. This rulemaking proceeding does
not
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duplicate, overlap, or conflict with any existing Federal rules.
Prior documents in this proceeding:
Notice of Hearing: Issued September 17, 2004; published September
22, 2004 (69 FR 56725).
Notice of Hearing Delay: Issued October 18, 2004; published October
13, 2004 (69 FR 61323).
Recommended Decision: Issued February 15, 2006; published February
22, 2006 (71 FR 9015).
Preliminary Statement
A public hearing was held upon proposed amendments to the marketing
agreement and the order regulating the handling of milk in the Central
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 amendments set forth below are based on the record of a public
hearing held in Kansas City, Missouri, on December 6-8, 2004, pursuant
to a notice of hearing issued September 17, 2004, published September
22, 2004 (69 FR 56725), and a notice of a hearing delay issued October
13, 2004, published October 18, 2004 (69 FR 61323).
Upon the basis of the evidence introduced at the hearing and the
record thereof, the Administrator, on February 15, 2006, issued a
Recommended Decision containing notice of the opportunity to file
written exceptions thereto.
The material issues, findings, conclusions and rulings of the
Recommended Decision, with one minor modification, are hereby approved,
adopted and are set forth herein. The material issues on the hearing
record relate to:
1. Pooling Standards
A. Performance standards for supply plants.
B. The ``Split plant'' provision.
C. System pooling for supply plants.
D. Elimination of the supply plant provision.
E. Standards for producer milk.
2. Establishing pooling limits.
3. Transportation and assembly credits.
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. Pooling Standards
A. Performance Standards for Supply Plants
A portion of a proposal, published in the hearing notice as
Proposal 1, seeking to increase supply plant performance standards by
five percentage points, from 20 percent to 25 percent, for the months
of August through February, and from 15 percent to 20 percent for the
months of March through July, is adopted. A portion of another similar
proposal, published in the hearing notice as Proposal 5, seeking to
increase supply plant performance standards by 20 percentage points,
from 15 percent to 35 percent, for the month of July, by 15 percentage
points, from 20 percent to 35 percent, for the months of August through
January and by 10 percentage points, from 15 percent to 25 percent, for
the month of March is not adopted. Currently, the Central order
requires a supply plant to ship 20 percent of its total receipts to a
distributing plant during the months of August through February, and 15
percent of its total receipts during the months of March through July,
in order for the total receipts of the supply plant to be pooled.
Proposal 1 was offered jointly by Dairy Farmers of America, Inc.,
(DFA), and Prairie Farms Cooperative (PF), hereafter referred to as
DFA/PF. DFA/PF are member-owned Capper-Volstead cooperatives that pool
milk on the Central order. Proposal 1 would increase the amount of milk
a supply plant would be required to ship to a distributing plant by
five percentage points, from 20 percent to 25 percent, for the months
of August through February, and from 15 percent to 20 percent for the
months of March through July, in order to pool all of its receipts on
the Central order.
The proponents are of the opinion that current supply plant
performance standards enable milk that does not demonstrate a
consistent and reliable service to the Class I market to be pooled on
the order. The proponents contend that the pooling of this additional
milk is causing an unwarranted lowering of the order's blend price.
A witness appearing on behalf of DFA/PF testified in support of
Proposal 1. The DFA/PF witness stated that increasing the volume of
milk a supply plant is required to ship to a pool distributing plant in
order to have all the receipts of the supply plant pooled, combined
with other proposed changes to the Central order pooling provisions,
will better identify milk ready, willing and able to service the fluid
milk needs of the Central marketing area.
The DFA/PF witness testified that the proposed increase in the
performance standards for supply plants would increase the blend price
received by dairy farmers whose milk is pooled and priced on the
Central order. The witness was of the opinion that an increase in the
blend price will serve to attract and retain milk supplies that are
otherwise shipped from the Central order area to neighboring marketing
areas. The witness asserted that increasing supply plant performance
standards will ensure that the Class I needs of the Central marketing
area are being met.
The DFA/PF witness testified that current supply plant performance
standards allow far more milk to be pooled on the Central order than is
necessary. Relying on market administrator data, the witness noted that
the projected Class I utilization of 50.1 percent, anticipated during
Federal order reform for the consolidated marketing area, was not
achieved. The witness added that the average Class I utilization in the
Central marketing area has ranged from a low of 26 percent in 2002 to
nearly 33 percent in 2003. The witness was of the opinion that these
average Class I utilization levels demonstrate that reserve supplies of
milk in the marketing area of 74 and 67 percent, respectively, for 2002
and 2003, far exceed the 49-50 percent reserve levels projected during
Federal order reform. In addition, the witness noted that increased
supply plant performance standards implemented in 2001 have not been
effective in reducing the excess reserve supply of milk in the
marketing area. The witness concluded that this data confirms that the
current performance standards of the Central order provide
opportunities for milk not regularly and consistently serving the Class
I market to be pooled on the order.
The DFA/PF witness described concerns regarding the geography of
the Central marketing area and explained that higher prices are
received for milk in the bordering Southeast and Appalachian marketing
areas. According to the witness, higher milk prices in the Appalachian
and Southeast orders tend to attract milk from the Central marketing
area and create localized supply imbalances within the eastern portion
of the marketing area. The witness testified that increasing supply
plant performance standards would deter milk originating from within
the Central order boundaries from pooling on the Appalachian and
Southeast orders. According to the witness this would tend to increase
the
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blend price paid to dairy farmers whose milk is pooled on the Central
order.
A number of DFA member dairy farmers whose milk is pooled on the
Central order testified in support of the portion of Proposal 1 that
would increase supply plant performance standards. The dairy farmer
witnesses were of the opinion that increasing supply plant performance
standards will raise the level of Class I utilization and in turn,
increase the blend price.
A witness from National All-Jersey (NAJ) representing AMPI, et al.,
(Associated Milk Producers Inc., Central Equity Cooperative, Land O'
Lakes, Inc., First District Association, Foremost Farms USA, joined by
Wells Dairy, Inc., Milnot Holdings and National All-Jersey), testified
in opposition to the portion of Proposal 1 that would increase supply
plant performance standards. NAJ is a national organization whose
mission is to promote milk pricing equity and increase the value and
demand for the milk produced by the Jersey breed. The NAJ witness was
of the opinion that increasing supply plant performance standards would
result in inefficient movements of milk and pass the costs of
regulatory inefficiencies to consumers.
In their post hearing brief, DFA/PF reiterated their support for
Proposal 1. The brief asserted that adoption of the portion of Proposal
1 that would increase supply plant performance standards would more
accurately identify the milk of producers servicing the fluid needs of
the market. According to the brief, increasing supply plant performance
standards will increase the blend price for the producers who provide
regular and consistent service to the Class I market. The DFA/PF brief
reiterated support for not pooling milk which does not provide regular
and consistent service to the fluid milk needs of the Central marketing
area.
A brief from Select Milk Producers, Inc. (Select) and Continental
Dairy Products, Inc. (Continental) supported adoption of the higher
performance standard features of Proposal 1. Select and Continental are
member-owned Capper-Volstead cooperatives whose milk is pooled on the
Central order. The brief noted that adoption of higher performance
standards would deter the pooling of milk on the order not servicing
the fluid needs of the market.
A portion of Proposal 5, advanced by Dean Foods (Dean) (who
described themselves as the largest processor and distributor of fluid
milk in the United States, owning and operating nine distributing
plants regulated by the Central order), would increase supply plant
performance standards by 20 percentage points, from 15 percent to 35
percent, for the month of July, by 15 percentage points, from 20
percent to 35 percent, for the months of August through January and by
10 percentage points, from 15 percent to 25 percent, for the month of
March. These proposed changes to supply plant performance standards are
not recommended for adoption.
Two witnesses appeared on behalf of Dean in support of increasing
supply plant performance standards. The witnesses were of the opinion
that current supply plant performance standards are inadequate to
assure a reasonable supply of fluid milk to the order's distributing
plants. The witnesses were of the opinion that increasing supply plant
performance standards as they proposed to the levels advanced would
better attract an adequate milk supply for Class I use to the marketing
area.
The first Dean witness testified that marketwide pooling and
classified pricing are built on the assumption that Class I milk is the
highest priced class and that pool revenues generated from Class I
sales will attract a regular and consistent milk supply. The witness
was of the opinion that current supply plant performance standards
allow handlers to pool milk on the Central order that does not
regularly and consistently serve the Class I market. According to the
witness, low supply plant performance standards reduce the blend price
paid to producers who consistently serve the needs of the Central order
fluid market by allowing lower-valued milk to be pooled on the order.
The first Dean witness was of the opinion that adoption of higher
performance standards would increase the volume of milk available to
the Class I market. The witness further testified that if the USDA
adopted higher performance standards for supply plants, adoption of
Proposals 9 and 10, or Proposals 11, 12, and 13 would also be
necessary. (Proposals 9, 10, 11, 12, and 13 are discussed later in this
decision.)
The second Dean witness also was of the opinion that increasing
supply plant performance standards would help to ensure that the fluid
milk needs of the marketing area are being met. According to the
witness, increasing supply plant performance standards would decrease
the volumes of milk in lower-valued uses pooled on the order, thereby
increasing the order's blend price. The witness testified that
increasing supply plant performance standards would assist fluid milk
handlers located in St. Louis and southern Illinois, who compete with
handlers located in the Appalachian and Southeast orders, obtain needed
milk supplies.
A brief submitted on behalf of DFA/PF opposed adoption of the level
of performance standards for supply plants offered by Dean. DFA/PF
noted that increasing supply plant performance standards to the levels
advanced in Proposal 5 are unnecessarily high and are more restrictive
than current market conditions could reasonably justify.
A brief submitted by AMPI, et al., reiterated the group's
opposition to increased performance standards for supply plants as
advanced by both Dean and DFA/PF. The brief highlighted the contention
that increased performance standards for supply plants would unfairly
penalize reserve suppliers of the marketing area by restricting their
ability to share in the benefits of the marketwide pool.
B. The ``Split Plant'' Provision
A proposal from Dean, published in the hearing notice as Proposal
10, seeking to require the nonpool side of a split plant to maintain
nonpool status for 12 months, is adopted. Another Dean proposal,
published in the hearing notice as Proposal 9, seeking to eliminate the
split plant provision is not adopted.
The current split plant provision provides for designating a
portion of a pool plant as a nonpool plant provided that the nonpool
portion of the plant is physically separate and operated separately
from the regulated or ``pool'' side of the plant. Current provisions
afford handlers operating a split plant the option of maintaining
nonpool status or qualifying the nonpool side of the plant for pooling
on a monthly basis.
The Dean witness testified that the nonpool side of a split plant
can facilitate the pooling of milk that does not demonstrate a regular
and consistent service to the fluid milk needs of the Central marketing
area. The witness stated that if Proposal 10 was adopted, then Proposal
4, a proposal to eliminate all supply plant provisions, and Proposal 9,
a proposal to eliminate split plants, would not be needed.
The Dean witness testified that Proposal 10 would require the
nonpool side of a split plant to maintain nonpool status for a 12-month
interval. According to the witness, adoption of this provision would
deter pooling milk that does not regularly and consistently serve the
Class I market. The witness added that Proposal 10 was advanced as an
alternative to Proposal 9. The witness testified that as advanced in
Proposal 9, a split plant could either be a pool plant
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or a nonpool plant but not both. The witness stated that if USDA did
not eliminate split plants then Dean would seek the adoption of
Proposal 10.
In a post hearing brief, Select and Continental supported adoption
of Proposal 10. The brief stated that Proposal 10 would deter the
pooling of milk that does not regularly and consistently serve the
Class I market. According to the brief, split plants should be
prohibited from using milk receipts in the nonpool side of the plant
from being pooled without demonstrating actual service to the Class I
market. The brief expressed the opinion that reducing the volume of
milk that a split plant could pool on the order from its nonpool side
would tend to increase the Central order blend price.
The Select and Continental brief however, opposed the elimination
of split plants as advanced in Proposal 9. The brief stated that
requiring a split plant to elect non-pool status for 12 months for its
nonpool side would provide sufficient incentive to prevent the pooling
of excess milk through split plants.
DFA/PF commented on brief that Dean's Proposals 4-13 in general
``go too far, too fast'' given the current market conditions of the
Central marketing area. According to the brief, DFA/PF contend that the
adoption of the Dean proposals would not serve the needs of small dairy
farms. The brief noted that some small producers may not have
alternative markets for their milk if Dean's proposal to eliminate the
split plant provision was adopted.
The AMPI, et al., brief opposed elimination of the split plant
provision or requiring a 12-month pooling commitment from operators of
split plants. Their opposition was based on the view that elimination
of split plants, or imposing a 12-month pooling commitment for split
plant operators, would unfairly restrict their ability to pool milk on
the order.
C. System Pooling for Supply Plants
Three proposals presented by Dean, published in the hearing notice
as Proposals 11, 12 and 13, and modified at the hearing, are not
adopted. Proposal 11 would have eliminated providing for supply plant
systems. Proposal 12 would have required a supply plant system to be
operated by only one handler. Proposal 13 would have required that
every plant participating in a system ship 40 percent of the system's
qualifying shipment as if they had been operating as separate plants.
Proposal 13 also would have prohibited using milk shipped directly from
producer farms as qualifying shipments. Current Central order
provisions provide the ability for 2 or more supply plants (subject to
certain additional conditions) to operate as a ``system'' in meeting
the qualifications for pooling in the same manner as a single plant.
The Dean witness testified that system pooling affords handlers the
ability to link several supply plants together in an effort to qualify
producer milk for pooling on the order. According to the witness,
current system pooling provisions allow plants and farms close to
distributing plants to deliver producer milk on behalf of more distant
plants, thereby providing for the pooling of milk that does not
regularly and consistently serve the Class I market. According to the
witness, adoption of Proposal 11 would require plants to transfer milk
to obtain and maintain eligibility for pool qualification. The witness
stated that Proposal 11 would require every handler to pool their
producers on the basis of actual deliveries to distributing plants.
The Dean witness testified in support of Proposal 12 in the event
supply plant systems were not eliminated as advanced in Proposal 11.
According to the witness, Proposal 12 would limit the use of supply
plant systems to a single handler rather than multiple handlers as
currently provided in the order. The witness testified that allowing
only a single handler to qualify pool supply plants through system
pooling provisions would ensure that each handler is willing and able
to demonstrate regular and consistent service to the fluid milk needs
of the Central marketing area.
The Dean witness testified that Proposal 13 would require each
plant in a supply plant system to meet at least 40 percent of the total
performance standard required for pooling. According to the witness,
Proposal 13 is similar to Proposal 11 in that it would prohibit the use
of milk shipped directly from producer farms to qualify a supply plant
system. However, the witness stated that Proposal 13 also would require
every supply plant in a supply plant system to ship a significant
volume of milk to the fluid market. The witness noted that
qualification of distant milk would be discouraged by adoption of
Proposals 12 and 13 since the use of milk shipped directly from
producer farms for qualification purposes would be prohibited. The Dean
witness expressed preferences for the adoption of Proposal 11 over
Proposal 12, and adoption of Proposal 12 over Proposal 13.
A witness from DFA/PF expressed opposition to Proposals 11, 12, and
13, because their adoption would eliminate or overly restrict the
operation of supply plant systems. On brief, DFA/PF noted that, as with
elimination of the split plant provision, some small producers may not
have alternative markets for their milk if supply plant systems are
eliminated or are made overly restrictive.
In a post hearing brief, AMPI, et al., reiterated opposition to
Proposals 11, 12, and 13. The AMPI, et al., brief opposed restrictions
on pooling milk of producers ready, willing, and able to serve the
Class I needs of the Central marketing area. The brief opposed
elimination or restriction of supply plant systems contending such
action would eliminate markets for the milk of small dairy farmers
without alternative markets available.
Select and Continental also opposed adoption of Proposals 11, 12
and 13 in their post-hearing brief. The brief opposed eliminating or
restricting supply plant systems on the basis that no verifiable
evidence was presented demonstrating that supply plant systems do not
provide consistent and reliable service to the Class I market.
D. Elimination of the Supply Plant Provision
A proposal by Dean, published in the hearing notice as Proposal 4,
seeking to eliminate the supply plant provision, is not adopted.
A Dean witness characterized Proposal 4 as a preferred alternative
to increasing supply plant performance standards sought in Proposals 1
and 5. The witness explained that if Proposal 4 is adopted, then
Proposals 9-13, seeking to increase performance standards for supply
plants and supply plant systems would not be needed. The witness
testified that while the role of supply plants in the milk order system
is to supply the needs of distributing plants, the milk supply of
plants for the Central marketing area is only of residual concern
because it provides an outlet for reserve producers when their milk is
not needed for fluid use.
The Dean witness testified that supply plants no longer represent
the most efficient means for supplying distributing plants. According
to the witness, supply plants play a minor role in the Central
marketing area, representing less than 5 percent of the milk shipped to
distributing plants. According to the witness, milk assembled from
farms must be received at a supply plant, cooled and stored, and
reloaded and delivered to distributing plants. The witness stated that
the increased handling of milk through supply plants reduces its
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quality compared with milk that is direct delivered from farms. The
witness said that direct delivery from farms to distributing plants is
a superior method for ensuring that milk pooled on the order serves the
Class I needs of the market. The witness was of the opinion that supply
plants inappropriately facilitate pooling milk that does not regularly
and consistently serve the Class I market.
A witness representing NAJ testified in opposition to the
elimination of supply plants. According to the witness, elimination of
the supply plant provision also would reduce the ability of dairy
farmers to pool milk on the Central order. The witness was of the
opinion that eliminating the supply plant provision would have a
negative impact on the income of the cooperatives represented by NAJ.
The witness stated that supply plants provide a legitimate means by
which producers continue to serve the Class I market of the Central
marketing area.
A witness for DFA/PF testified in opposition to the elimination of
supply plants. According to the witness, provisions for supply plants
should be provided because they continue to play a role in supplying
milk to distributing plants. DFA/PF reiterated this opposition to
Proposal 4 in their post-hearing brief. AMPI, et al., joined DFA/PF in
opposing this proposal.
E. Standards for Producer Milk
Several amendments to the Producer milk provision of the Central
order are adopted. The amendments were largely contained in Proposal 1.
Changes to the producer milk provision are necessary to more accurately
identify the milk of those dairy farmers that are regularly and
consistently serving the Class I needs of the market. The adopted
amendments include: (1) Increasing the touch-base standard so that one
day's milk production of a dairy farmer must be delivered to a pool
plant in each of the months of January, February and August through
November for the milk of the dairy farmer to be eligible for diversion
to a nonpool plant; and (2) Decreasing the diversion limit standards to
not more than 75 percent of receipts during August through February,
and not more than 80 percent of receipts for March through July.
The feature of Proposal 1 to geographically limit the location of
nonpool plants eligible to receive diverted milk to those plants in
States located in the marketing area and New Mexico is not adopted.
Proposal 1 increases the touch-base standard to require the
equivalent of at least one days' milk production of a dairy farmer be
physically received at a pool plant in each of the months of January,
February and August through November. If the touch-base standard is not
met, the milk would have to be physically received at a pool plant in
each of the months of March through July and December. The current
touch-base standard of the Central order specifies a one-time only
delivery standard.
The DFA/PF witness explained that the current one-time touch-base
standard of the Central order should be replaced by the strengthened
touch-base feature of Proposal 1. The witness continued that the months
of January, February, and August through November, were added to the
proposed touch-base standard to correspond with periods of higher Class
I demands. The DFA witness explained that requiring one day's milk
production of a producer to be delivered to a pool plant in each of
these six months should increase milk available for Class I use. The
DFA/PF witness was opposed to any touch-base standard of more than one
day per month for the six months advanced by the proposal, as being
overly restrictive.
The DFA/PF witness testified that increasing the touch-base
standard and lowering the diversion limit standards of the Central
order will help to ensure that milk that could not consistently and
reliably demonstrate service to the Class I market is not pooled on the
order. The witness testified that the pooling of such milk on the order
reduces the blend price paid to producers who consistently and reliably
serve the Class I needs of the Central marketing area.
The DFA/PF witness acknowledged that amendments to the pooling
provisions of the Central order implemented in 2003 reduced the volume
of milk pooled that was not serving the Class I needs of the market.
However, the witness noted that those changes did not contemplate that
milk from the Mountain States might seek to be pooled on the Central
order. The witness was of the opinion that the current touch-base and
diversion limit standards were inadequate to prevent the sharing of
Class I revenue with the milk of producers that could not possibly
serve the Class I market of the Central marketing area. The witness was
of the opinion that if milk located far from the Upper Midwest
marketing area \1\ and currently pooled on the Upper Midwest order were
to seek an alternative order on which to pool, the current pooling
standards of the Central order make it the most likely candidate among
Federal milk orders. The witness testified that the current pooling
standards of the Central order can not adequately prevent such milk
from pooling because the pooling standards are too liberal. According
to the witness, this milk can not demonstrate regular and reliable
service to the Class I market.
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\1\ Amendments to the pooling provisions of the Upper Midwest
order were implemented on February 1, 2006 (70 FR 73126). See Final
Partial Decision published in the Federal Register, October 5, 2005
(70 FR 58086).
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The DFA/PF witness illustrated that milk produced in Idaho, for
example, cannot profitably be delivered to distributing plants located
in the Central marketing area. According to the witness, milk produced
in this region would need to travel more than 680 miles for delivery at
the nearest distributing plant of the order located in Denver. The
witness asserted that the current one-time touch-base standard combined
with the existing diversion limit standards of the order provide the
incentive for milk located far from the marketing area to be profitably
pooled on the order which otherwise would not be economically feasible.
The witness provided a scenario where a single 50,000-pound load of
milk delivered once to Denver could cause one million pounds of milk to
be pooled on the Central order through the diversion process but
delivered to plants far from the marketing area. According to the
witness' calculations, a 50,000-pound load of milk delivered once to a
pool plant located in Denver would incur a loss $4,640. However, the
witness explained that each additional load of milk, up to one million
pounds now qualified for diversion to nonpool plants located near
producers farms, would return an additional $7,081. The witness
emphasized that the milk portrayed in this example would rely solely on
the liberal pooling standards of the order. The milk would never
consistently and reliably supply the Central marketing area.
In another scenario, the DFA/PF witness illustrated the impact of
25 million pounds of milk a month shipped from southern Idaho that
would be pooled on the Central order through the diversion process by
meeting the one-time touch-base standard during the months of November
2003-January 2004. The witness explained that pooling this volume of
milk would have reduced the Central order's blend price by $0.25 per
cwt.
In a third scenario, the DFA/PF witness demonstrated how milk
located in southern Idaho can be pooled every month through the
diversion process by meeting the one-time touch-base standard of the
Central order. The
[[Page 54157]]
witness said that this scenario was based on the 58-month period of
January 2000 to October 2004. The witness explained that this scenario
assumes that a single 50,000-pound load of milk was shipped to a
distributing plant located in the Central marketing area and all other
milk diverted to nonpool plants are located in Idaho. The witness
testified that the shipping handler would receive a positive return
averaging $0.348 per cwt per month ($201,000 over the 58-month period)
on the total volume of milk pooled. The DFA/PF witness concluded that
from their scenarios, the current Central order diversion limit and
touch-base standards encourage pooling of milk that can not and does
not regularly and consistently supply the Class I needs of the market.
A brief submitted by Select and Continental supported the producer
milk amendments called for in Proposal 1, except for limiting
diversions to nonpool plants that are located in the States comprising
the Central marketing area. The brief noted that the goal of the
Federal order program should be to ensure that milk pooled on the order
actually serves the Class I market.
Features of Proposal 5, offered by Dean, regarding diversion limits
and touch-base standards are not adopted. Proposal 5 seeks to raise the
touch-base standard to 4 days in each month of the year and decrease
diversion limits to 65 percent for the months of July through January,
and 75 percent during the months of February through June. A Dean
witness stated that increasing the touch base requirement would ensure
the increased availability of milk to serve the needs of the fluid
market. The witness testified that adopting higher touch-base and lower
diversion limit standards would ensure that pool plants would keep
their facilities operating at a higher level of output than would be
the case if more milk were diverted.
The diversion limit standard feature of Proposal 5 was modified by
Dean on brief. The modification specified that milk would not be
eligible for diversion ``unless'' (instead of ``until'') milk has been
physically received as producer milk at a pool plant, and the exception
for a loss of Grade A status was changed to a period not to exceed 21
rather than 10 days in a calendar year.
The witness from NAJ, on behalf of AMPI, et al., testified in
opposition to increasing the touch-base and lowering the diversion
limit standards as advanced. The witness stated that the proposed
lowering of diversion limits together with increasing supply plant
performance standards as called for in Proposal 5 would have negative
consequences for dairy farmer income, if adopted. The NAJ witness was
of the opinion that the aim of Proposal 5 was to deter milk from being
pooled on the order. It was the witness' opinion that the adoption of
Proposal 5 would create marketing inefficiencies and additional costs
for members of NAJ. The witness also was of the opinion that the
adoption of Proposal 5 would discourage available milk supplies in the
milkshed from pooling on the Central order.
NAJ and AMPI, et al., also submitted exceptions to increasing the
touch-base standard and lowering the diversion limit standards in the
recommended decision. NAJ and AMPI, et al., reaffirmed their opinion
that adoption of a one day touch-base standard along with a decrease in
diversion limits would unnecessarily burden their members.
Central Equity, a dairy farmer cooperative located in Missouri,
also took exception to increasing the touch-base standard. One hundred
and fourteen Central Equity dairy farmer members submitted a form-
letter detailing the difficulties the cooperative would endure in
meeting the increased touch-base standard. The cooperative members were
of the opinion that the recommended touch-base standard would
significantly increase hauling costs and require the cooperative to pay
pooling fees for access to pool plants. The cooperative added that they
are not opposed to increased performance standards in general, but are
concerned with difficulties that small cooperatives and independent
dairy farmers face in obtaining access to pool facilities.
Exceptions to increasing the touch-base standard and lowering the
diversion limit standard were also received from Wells Dairy (Wells).
Wells Dairy is an Iowa based dairy products manufacturer. Wells was of
the opinion that the recommended touch-base standard would be difficult
for certain dairy farmers and dairy farmer cooperatives to meet. Wells
noted that increasing the touch-base standard and lowering the
diversion limit standard will unduly burden dairy farmers and
cooperatives that have limited access to pooling facilities served
under full-supply contracts.
The record reveals that distributing plants in certain areas of the
marketing area are having difficulty obtaining reliable milk supplies.
Because this decision does not adopt transportation credits (discussed
later in this decision) for the movement of milk to distributing
plants, increasing the performance standards for supply plants is a
reasonable measure to better assure that all distributing plants of the
order are adequately supplied. Additionally, other measures are being
taken to prevent the pooling of milk which can not demonstrate regular
and consistent service in supplying the Class I needs of the marketing
area. The pooling of such milk results in an unwarranted lowering of
the blend price returned to those producers who demonstrate regular and
consistent service in supplying the Class I needs of the market.
The pooling standards of all Federal milk marketing orders,
including the Central order, 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 service in meeting the Class I needs of the market and
thereby receive the order's blend price. The pooling standards of the
Central order are represented in the Pool plant, Producer, and the
Producer milk provisions of the order and 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 producers eligible to share in the
marketwide pool. It is usually the additional revenue generated from
the higher-valued Class I use of milk that adds additional income to
producers, and it is reasonable to expect that only those producers who
consistently bear the costs of supplying the market's fluid needs
should share in the returns arising from higher-valued Class I sales.
An important objective of pooling standards is identifying the milk
that serves the fluid milk needs of the market, a feature which if
ineffective can result in pooling milk that is not providing such
service
Record evidence supports finding that certain features of pooling
standards of the Central order relating to performance standards for
supply plants, diversion limits, touch-base, and split plants need to
be amended given the pooling of milk that does not regularly and
consistently serve the Class I needs of the Central marketing area.
The most recent amendments to the Central order (published in the
August 27, 2003, Final Decision (68 FR 51640)) intended to correct
similar inadequacies of the supply plant pooling provisions and
diversion limit standards for the consolidated Central order. However,
the record reveals that the combination and features adopted for pool
plants in
[[Page 54158]]
2003 have not been as effective as intended to reasonably assure that
only milk of producers who regularly and consistently serve the Class I
market is pooled on the order.
Record evidence reveals that the performance and pooling standards
of the Central order are inadequate to ensure that the benefits of
consistently and reliably servicing the Class I market are shared
equitably among those producers who actually bear the costs of serving
that market. The record evidence demonstrates that milk distant from
the Central marketing area does not provide reasonable service to the
Class I market but can be pooled on the order because of current
pooling standards. This evidence shows that pooling large volumes of
milk at lower class-use values has lowered the order's blend price.
Specifically, the record shows that the current one-time touch-base
standard and the diversion limit standard of the order do not properly
identify the milk of producers who reliably and consistently serve the
Class I market.
The record demonstrates that current pooling standards of the
Central order make it the most logical order for distant milk--such as
in Southern Idaho--to be pooled. The record shows that the current
performance standards of the Central order are insufficient to prevent
milk from qualifying for pooling while not performing service to the
Class I market.
In addition, the record provides evidence that milk produced in
areas distant from the marketing area cannot profitably be delivered to
distributing plants in the Central marketing area. However, the current
liberal touch-base and diversion limit standards make pooling on the
Central order attractive while reducing the blend price of the order
for those producers who actually provide service to the Class I market.
Record evidence reveals the continued importance of supply plants
for producers whose milk provides consistent and reliable service to
the Class I market. According to the record, opposition to restrictive
supply plant standards beyond those advanced in Proposals 1 and 10 was
based on the continued need for supply plant service to distributing
plants in the marketing area. Similarly, the record reveals a consensus
among producers concerning their continued support for supply plant
systems as an integral part of milk supply networks in the Central
marketing area. Opposition to the elimination or additional restriction
of supply plants and supply plant systems in Proposals 4, 11, 12, and
13, is revealed by the record to be based on the continued importance
of supply plant systems to supplying the Class I market.
Record evidence from proponents and opponents of limiting
diversions to supply plants located in the marketing area or New Mexico
supports concluding that dairy farmers in some regions of the Central
marketing area rely on supply plants to market their milk. In addition,
the record contains evidence that supply plants and supply plant
systems continue to provide necessary service to the Class I market
without regard to the location of those plants or plant systems.
According to the record, distant milk may use the pooling standards of
the Central order as a means to pool milk that will never perform
service to the Class I market. However, the record does not show
clearly that milk diverted to supply plants outside the marketing area
or New Mexico cannot be part of the legitimate reserve of the market
which may require additional pooling safeguards. Performance rather
than plant location continues to be the standard for identifying the
milk of producers who should share in the benefits of pooling. In that
regard, this decision finds agreement with the opponents of limiting
diversions to supply plants located within the marketing area or New
Mexico, as sought in Proposal 1.
Despite the comments by AMPI et al., NAJ, Central Equity and Wells
Dairy, this decision continues to find that several of the performance
standards advanced in Proposal 1 are reasonable in light of other
adopted changes to the order's pooling provisions. The combination of
amendments increasing supply plant performance standards, modifying the
split plant provision, reducing diversion limit standards and
increasing the touch-base standard are appropriate in light of denying
proposals to establish transportation and assembly credits. The adopted
amendments should more accurately identify the milk of those producers
that provide a consistent and reliable supply of milk to the Class I
needs of the Central marketing area and assure that distributing plants
are adequately supplied.
The record indicates that milk located either inside or outside the
marketing area can be reported as diverted milk by a pooled handler.
This milk is eligible to receive the order's blend price. Under the
current pooling provisions, this can occur after a one-time delivery to
a Central marketing area pool plant. After the initial delivery,
however, such milk need never again be physically delivered to a
Central marketing area pool plant. The record evidence confirms that
usually this milk is delivered to a nonpool plant located nearer the
farms of producers located far from the marketing area who cannot serve
the Class I market. It is therefore appropriate to amend the order's
diversion provisions to ensure that milk pooled through the diversion
process is part of the legitimate reserve supply of the pool plant from
which it was diverted. This standard is a necessary safeguard against
excessive milk supplies becoming associated with the market through the
diversion process to prevent the unwarranted reduction of the order's
blend price.
However, the record does not support finding that diversions to
plants not located within the marketing area or New Mexico cannot be
part of the legitimate reserve supply for the marketing area. In this
regard, the proposed limitation on diversions based on plant location
is not reasonable. Based on the record, the proposed increase in the
touch-base standard and lowering of the diversion limitation standard
is adequate to ensure that milk consistently and reliably serving the
Class I market is properly identified. Accordingly, the portion of
Proposal 1 seeking to limit diversions to plants located in the
marketing area or New Mexico is not adopted.
Exceptions received by AMPI, et al., NAJ, Central Equity and Wells
Dairy opined the difficulties that certain cooperatives and independent
dairy farmers face in meeting an increased touch-base standard.
However, this decision continues to find that that the touch-base
standard should be amended so that at least one days' milk production
of a dairy farmer is physically received at a pool plant during
January, February, and August through November for the milk of the
dairy farmer to be eligible for diversion to a nonpool plant. Amending
the touch-base standard is widely supported by the record and should
reduce the ability of milk not performing a consistent and reliable
service to the Class I market from being pooled. The months of January,
February, and August through November are, according to the record, the
high demand months for fluid milk. Adoption of the one-day touch base
standard for each of these six months will more properly identify the
milk of those producers serving the market's Class I needs.
Accordingly, exceptions received from AMPI, et al., NAJ, Central Equity
and Wells Dairy are found to not be compelling.
Record evidence does not support finding that the 4-day touch base
[[Page 54159]]
standard advanced by Dean would improve the identification of dairy
farmers whose milk serves beyond what a 1-day standard would provide
within the context of current marketing conditions. This will be
reinforced by the other adopted amendments to the order's pooling
standards.
The amendment requiring a handler to make a 12-month commitment if
opting to create a split plant will ensure that the milk shipped from
the pool side of a split-plant serves the Class I market. This
amendment (Proposal 10, advanced by Dean) is a reasonable modification
of the split plant feature for supply plants to provide for orderly
marketing and maintain the integrity and intent of the order's
performance standards. The proposal retains the principle that milk
regularly and consistently demonstrating service to the Class I needs
of the market should benefit from being pooled on the order.
Accordingly, Proposal 10 is adopted.
The Federal milk order system recognizes that there are costs
incurred by producers in servicing an order's Class I market. The
primary reward to producers for performing such service is receiving
the order's blend price. Taken as a whole, the amended pooling
provisions will ensure that milk seeking to be pooled consistently
demonstrates service in meeting the marketing area's Class I needs.
Consequently, adoption of these amended pooling provisions will provide
for more equitable sharing of revenue generated from Class I sales
among those producers who bear those costs and assure Class I handlers
of a regular and reliable supply for fluid use.
2. Establishing Pooling Limits
Preliminary Statement
Federal milk marketing orders rely on the tools of classified
pricing and marketwide pooling to assure an adequate supply of milk for
fluid (Class I) use and to provide for the equitable sharing of the
revenues arising from the classified pricing of milk. Classified
pricing assigns a value to milk according to how the milk is used.
Regulated handlers who buy milk from dairy farmers are charged class
prices according to how they use the farmer's milk. Dairy farmers are
then paid a weighted average or ``blend'' price. The blend price that
dairy farmers are paid for their milk is derived through the marketwide
pooling of all class uses of milk in a marketing area. Thus each
producer receives an equal share of each use class of milk and is
indifferent as to the actual Class for which the milk was used. The
Class I price is usually the highest class price for milk.
Historically, the Class I use of milk provides the additional revenue
to a marketing area's total classified use value of milk.
The series of Class prices that are applicable for any given month
are not announced simultaneously. The Class I price and the Class II
skim milk price are announced prior to the beginning of the month for
which they will be effective. Class prices for milk in all other uses
for the month are not determined until on or before the 5th day of the
following month. The Class I price is determined by adding a
differential value to the higher of either an advanced Class III or
Class IV value. These values are calculated based on formulae using
National Agricultural Statistics Service (NASS) survey prices of
cheese, butter, and nonfat dried milk powder for the first two weeks of
the prior month. For example, the Class I price for August is announced
in late July and is based on the higher of the Class III or IV value
computed using NASS commodity price surveys for the first two weeks of
July.
The Class III and IV prices for the month are determined and
announced after the end of the month based on the NASS survey prices
for the selected dairy commodities during the month. For example, the
Class III and IV prices for August are based on NASS survey commodity
prices during August. A large increase in the NASS survey price for the
selected dairy commodities from one month to the next can result in the
Class III or IV price exceeding the Class I price. This occurrence is
commonly referred to by the dairy industry as a ``class price
inversion.'' A producer price inversion generally refers to when the
Class III or IV price exceeds the average classified use value, or
blend price, of milk for the month. Price inversions have occurred with
increasing frequency in Federal milk orders since the current pricing
plan was implemented on January 1, 2000, despite efforts made during
Federal Order Reform to reduce such occurrences. Price inversions can
create an incentive for dairy farmers and manufacturing handlers who
voluntarily participate in the marketwide pooling of milk to elect not
to pool their milk on the order. Class I handlers do not have this
option; their participation in the marketwide pool is mandatory.
The producer price differential, or PPD, is the difference between
the Class III price and the weighted average value of all Classes. In
essence, the PPD is the dairy farmer's share of the additional/reduced
revenues associated with the Class I, II and IV milk pooled in the
market. If the weighted average price of Class I, II and IV milk in the
pool is greater than the Class III price, then dairy farmers receive a
positive PPD. However, a negative PPD can occur if the value of the
Class III milk in the pool exceeds the value of the remaining classes
of milk in the pool. This can occur as a result of the price inversions
discussed above.
The Central Federal order operates a marketwide pool. The Order
contains pooling provisions which specify criteria that, if met, allow
dairy farmers to share in the benefits that arise from classified
pricing through pooling. The equalization of all class prices among
handlers regulated by an order is accomplished through a mechanism
known as the producer settlement fund (PSF). Typically, Class I
handlers pay the difference between the blend price and their use-value
of milk into the PSF. Manufacturing handlers typically receive a draw
from the PSF, usually the difference between the Class II, III or IV
price and the blend price. In this way, all handlers pay the class
value for milk and all dairy farmer suppliers receive at least the
order's blend price.
When manufacturing class prices of milk are high enough to result
in a use-value of milk for a handler that is higher than the blend
price, handlers of manufacturing milk may choose to not pool their milk
receipts. Opting to not pool their milk receipts allows these handlers
to avoid the obligation of paying into the PSF. The choice by a
manufacturing handler to not pool their milk receipts is commonly
referred to as ``de-pooling''. When the blend price rises above the
manufacturing class use-values of milk these same handlers again opt to
pool their milk receipts. This is often referred to as ``re-pooling''.
The ability of manufacturing handlers to de-pool and re-pool
manufacturing milk is viewed by some market participants as being
inequitable to both producers and handlers.
The ``De-pooling'' Proposals
Proponents are in agreement that milk marketing orders should
contain provisions that will tend to deter the practice of de-pooling.
Four proposals intending to deter the de-pooling of milk were
considered in this proceeding. The proposals offered different degrees
of deterrence against de-pooling by establishing limits on the amount
of milk that can be re-pooled. The proponents of these four proposals
are generally of the opinion that de-pooling erodes equity among
producers and handlers, undermines the orderly marketing of milk and is
detrimental to the Federal order system.
Two different approaches to deter de-pooling are represented by
these four
[[Page 54160]]
proposals. The first approach, published in the hearing notice as
Proposals 2 and 8, addresses de-pooling by limiting the volume of milk
a handler can pool in a month to a specified percentage of what the
handler pooled in the prior month. The second approach, published in
the hearing notice as Proposals 6 and 7, addresses de-pooling by
establishing what is commonly referred to as a ``dairy farmer for other
markets'' provision. These proposals would require milk of a producer
that was de-pooled to not be able to be re-pooled by that producer for
a defined time period. All proponents agreed that while none of the
proposals would completely eliminate de-pooling, they would likely
deter the practice.
Of the four proposals received that would limit de-pooling, this
decision adopts Proposal 2, offered by DFA/PF. Specifically, adoption
of the proposal will limit the volume of milk a handler can pool in a
month to no more than 125 percent of the volume of milk pooled in the
prior month. Milk diverted to nonpool plants in excess of this limit
would not be pooled, and milk shipped to pool distributing plants and
allocated as Class I in excess of the volume shipped to pool
distributing plants in the prior month will not be subject to the 125
percent limitation. The 125 percent limitation may be waived at the
discretion of the Market Administrator for a new handler on the order
or for an existing handler whose milk supply changes due to unusual
circumstances.
As published in the hearing notice, Proposal 8, offered by Dean
Foods, addresses de-pooling in a similar manner as Proposal 2, but
would establish a limit on the total volume of milk a handler could
pool in a given month to 115 percent of the volume that was pooled in
the prior month. This proposal was modified at the hearing to allow for
pooling the milk receipts of a new handler on the order without volume
restrictions.
As published in the hearing notice, Proposals 6 and 7, also offered
by Dean Foods would address de-pooling by establishing defined time
periods during which de-pooled milk could not be pooled. Proposal 6
essentially would require an annual pooling commitment by handler to
the market. Under Proposal 6, if the milk of a producer is de-pooled in
a month, then the milk of the producer could not re-establish
eligibility for pooling on the order during the following eleven months
unless ten days milk production was delivered to a pool distributing
plant. Under Proposal 6, handlers that de-pool milk have limited
options to return milk to the pool, either shipping ten days milk
production of a producer to a pool distributing plant or waiting eleven
months for eligibility to re-pool.
Under Dean's Proposal 7, a handler that de-pools milk cannot re-
pool for a 2 to 4 month time period, depending on the month in which
de-pooling occurred. Proposal 7 also provides the option to return milk
to the pool by shipping ten days milk production of a producer to a
pool distributing plant. Proposals 6 and 7 were modified at the
hearing.
A witness appearing on behalf of DFA/PF testified in support of
Proposal 2 and in general opposition to the practice of de-pooling. The
witness testified that adoption of Proposal 2 would minimize the
practice of de-pooling since not all the milk that was de-pooled could
immediately return to the pool in the following month. The witness
noted that both DFA and Prairie Farms de-pool milk when advantageous
but stressed that the practice of de-pooling and re-pooling is
detrimental to the Federal order system.
The DFA/PF witness testified that restricting the pooling of milk
on the basis of prior performance is not a new concept in Federal milk
marketing order provisions. The witness referenced the ``dairy farmer
for other markets'' provision currently in place in the Northeast order
as an example of pooling provisions based on prior performance. The
witness noted that Proposal 2 is similar to a ``dairy farmer for other
markets'' provision as it limits pooling based on the handler's
previous month's pooled volume. The DFA/PF witness speculated that the
manner in which Proposal 2 attempts to reduce the practice of de-
pooling is too drastic for some and not strong enough for others.
Nevertheless, adoption of Proposal 2, the witness stressed, would
provide an appropriate economic consequence to discourage those
entities that might otherwise choose to de-pool.
The DFA/PF witness was of the opinion that since the purpose of
Federal milk marketing orders are to ensure an adequate supply of milk
for the fluid market, equitably share pool proceeds, and promote
orderly marketing, milk order provisions should attract milk to its
highest valued use when needed and provide for milk to clear the market
when not needed in higher-class uses. Since Class I milk cannot be de-
pooled, the witness noted, Class I handlers can be at a disadvantage to
handlers who can de-pool during periods of price inversions. Class I
handlers are unable to maintain a competitive pay price for their milk
supply, the witness explained, since Class II, III or IV handlers who
de-pool may pay dairy farmers a higher price for their milk. The
witness stressed that when the Class I price is not high enough to
attract milk from other uses, disorderly conditions arise in the
marketplace.
The DFA/PF witness asserted that when a Class II, III or IV handler
de-pools milk, inequities arise for the dairy farmers who supplied the
de-pooling handler. In the absence of provisions to discourage de-
pooling, the witness explained, de-pooling becomes a rational economic
practice since only Class I milk is required to be pooled and its value
shared through the order's blend price.
The DFA/PF witness testified that the combination of de-pooling
with recent increasingly volatile milk prices requires immediate
regulatory measures to mitigate the disorderly effects that de-pooling
has on market participants. The witness cited market administrator data
showing that since implementation of Federal order reform in 2000 there
have been 43 months when opportunities to de-pool existed for the
Central order.
Relying on statistics provided by the market administrator, the
witness illustrated that in April 2004 a handler in the Central order
choosing to de-pool was able to pay over $4.00 per hundredweight (cwt)
more for milk than a Class I handler unable to de-pool because the
Class III price was $19.66 and the uniform price was $15.64. The
witness characterized pricing differences of this magnitude as
disruptive, disorderly and a competitive disadvantage for any Class I
handler. When similarly situated handlers face disparate costs in
procuring a supply of milk, the witness added, producers in common
procurement areas are negatively affected. The witness asserted that
this is a disorderly marketing condition.
Two DFA member dairy farmers from Nebraska testified in support of
Proposal 2. Both witnesses maintained that they received smaller milk
checks than they otherwise would have received if milk had not been de-
pooled. The witnesses added that when fluid milk bottlers experience
difficulties in obtaining a milk supply, the costs to supply that milk
should be passed on to consumers, not dairy farmers. The witnesses also
stated that in order to equalize returns from all classified uses of
milk, there needs to be a commitment to have all milk pooled every
month of the year.
Two DFA member dairy farmers from Missouri also testified in
support of Proposal 2. The witnesses noted that de-pooling amplifies
the problem of
[[Page 54161]]
negative PPD's. The witnesses were of the opinion that de-pooling
creates differences in pay prices among similarly located dairy farmers
whose milk is pooled in the Central market, and that different pay
prices represent a disorderly marketing condition. The witnesses stated
that in order to enjoy the additional funds usually generated by the
Class I market, handlers should be required to demonstrate that their
milk is available for the Class I market by not de-pooling.
A dairy farmer from Kansas testified in opposition to the practice
of de-pooling. The witness was of the opinion that a commitment to
serve the Class I market should be required in order to share in the
blend price. The witness stressed that in order to share in the returns
generated from the marketwide pool handlers and cooperatives should
participate in the pool every day not only when it may be profitable.
A witness testified on behalf of Dean in support of Proposal 8. The
witness explained that Proposal 8 addresses the practice of de-pooling
in a similar manner as Proposal 2 but would limit the pooling of milk
to 115 percent of the volume that was pooled in the prior month. The
witness was of the opinion that a monthly pooling limit would
discourage the de-pooling of milk since the greater the proportion of a
handler's milk that is de-pooled, the longer it will take to re-pool
that milk. Accordingly, the witness concluded, those who benefit the
most from de-pooling also would have the most difficulty in attempting
to regain pool status.
A witness for Dean also testified in support of Proposals 6 and 7
which would establish defined time periods during which de-pooled milk
could not be re-pooled. The witness testified that Dean prefers
adoption of Proposal 6 over Proposal 7. Proposal 6 would impose a 12-
month period during which de-pooled milk could not again be pooled
while Proposal 7 would establish a 2 to 4 month period during which de-
pooled milk could not again be pooled. Under Proposal 6, the witness
explained, if the milk of a producer were de-pooled, the milk could
only reassociate before the annual commitment period if ten days
production of the milk of the producer was delivered to a pool
distributing plant. According to the witness, Proposal 7 would provide
an option for milk that had been de-pooled to return to the pool during
certain specified months of the year depending on when the milk was de-
pooled or by shipping ten days production of the milk of a producer to
a pool distributing plant.
The Dean witness testified that a similar provision to those
contained in Proposals 6 and 7 is currently in place in the Northeast
order. The witness was of the opinion that defined time periods during
which de-pooled milk cannot again become pooled causes handlers to
behave differently by taking a longer term view of pooling. The witness
explained that handlers in the Northeast order need to evaluate more
than the current month's economic impacts of pooling or not pooling
milk, along with possible future missed opportunities.
The Dean witness further contrasted the current ``dairy farmer for
other markets'' provision effective in the Northeast to the standards
proposed in Proposals 6 and 7. The witness testified that in the
Northeast order, July is a month when de-pooled milk can return to the
pool regardless of when the milk had been de-pooled during the previous
year. Relying on market administrator data, the witness related that
during the months of February through July 2004, large volumes of milk
were de-pooled from the Northeast order. Because of the ``dairy farmer
for other markets'' provision, the witness explained, milk that was de-
pooled during the months of February through June could not return to
the pool until July. During this period, noted the Dean witness, a
large volume of milk usually pooled on the Northeast order was pooled
on the Mideast order.
The Dean witness testified that Proposal 6 would require a handler
that de-pooled milk in a month to remain off the pool for eleven
additional months or ship 10 days milk production of a producer to a
pool distributing plant in order for all milk of a producer to return
to the pool, while Proposal 7 would provide the option to either return
during designated months depending on the month in which milk was de-
pooled, or ship 10 days milk production of a producer to a pool
distributing plant in order for all milk of a producer to return to the
pool.
A second Dean witness offered additional testimony in support of
Proposal 6. The witness testified that Proposal 6 would exclude from
the pool the milk of any dairy farmer not continuously pooled under a
Federal milk order during the previous twelve months. The only
exception to this exclusion would be a dairy farmer who temporarily
lost Grade A status but was reinstated as a Grade A producer within 21
days, noted the additional Dean witness. The witness emphasized that
the portion of Proposal 6 that would require delivery of 10 days milk
production of a dairy farmer to a pool distributing plant in order for
all milk of a producer to re-join the pool would discourage de-pooling.
The 10 day delivery requirement would insure that participation in the
pool was open to any dairy farmer for whom it was technically and
economically feasible to supply milk for fluid use. According to the
witness, Proposals 6 and 7 also would make more milk readily available
to service the fluid needs of the market.
The additional Dean witness also stressed that adoption of Proposal
6 would not totally eliminate de-pooling but would make it more
difficult to re-pool milk after it had been de-pooled. The Dean witness
testified that producer milk continuously pooled on the Central, or any
other Federal milk order, which shares in both the costs and benefits
of pool participation on a continuous basis would not be affected by
adoption of Proposal 6.
The second Dean witness added that adoption of Proposal 6 would
increase returns to producers and provide for more orderly marketing
conditions. The witness was of the opinion that adoption of Proposal 6
would cause Class II, III or IV milk to remain pooled during times when
the blend price was lower than the respective class price. This would
increase the PPD, by making it less negative, and raise the blend price
received by all producers, the witness concluded. Adoption of Proposal
6 also would cause some Class III milk that is de-pooled to never
return to the pool, the witness noted, since it would no longer be
financially advantageous.
A Kansas dairy farmer testified in support of Proposal 6. The
witness stated that de-pooling cost Kansas dairymen who supplied the
needs of the fluid market $6.2 million between March 2004 and October
2004. The witness spoke in favor of any proposal that would require
greater commitment to servicing the Class I needs of the Central
marketing area.
A DFA member dairy farmer from Missouri testified that de-pooling
hurts dairy farmers and was in favor of any proposal that would limit
the ability for milk to return to the pool the immediate month after
de-pooling. The witness stated that there should be a waiting period of
at least 2 or 3 months to pool milk after the milk had been de-pooled
or a limit on the milk volume that could return to the pool the month
after de-pooling.
Land O' Lakes (LOL), initially a member of AMPI, et al., opposing
adoption of Proposals 2, 6, 7 or 8, submitted a comment to the
recommended decision in support of adoption of Proposal 2. LOL
suggested, however, a 135 percent pooling limit for
[[Page 54162]]
the month of March to compensate for 28 days in the month of February
and the increases in milk production typically seen during the spring
months.
A witness appearing on behalf of Dean testified in opposition to
Proposal 2. The witness was of the opinion that limiting pooling to 125
percent of receipts pooled during the previous month was too loose of a
standard and urged the adoption of Proposal 6 or Proposal 8.
A witness appearing on behalf of AMPI, et al., testified in
opposition to Proposals 2, 6, 7, and 8. The witness was of the opinion
that de-pooling was an issue that was national in scope, and should be
addressed in a national hearing. The witness testified that the
voluntary option of pooling or not pooling milk delivered to a nonpool
plant has been a mainstay of the Federal order system and should not be
amended. The witness was of the opinion that Proposals 2, 6, 7, and 8
do not address the root cause of price inversions--advance Class I
pricing--but rather only treats the symptom of the problem. Class I
prices are announced by the USDA in advance, noted the witness, while
milk prices for manufactured uses are announced after the month has
passed. This can cause a lag between changes in the value of milk and
changes in the advanced Class I price, added the witness, sometimes
resulting in a Class III price that exceeds the uniform and Class I
price, otherwise known as a price inversion. The witness added that it
would be appropriate to reconsider whether advanced pricing remains
sound regulatory policy.
The AMPI, et al., witness was also of the opinion that Federal
order Class I price differentials are artificially high. Milk used to
produce cheese, the witness noted, is priced entirely through the
marketplace and receives benefit from the Federal order system only
when the uniform price is higher than the Class III price. Adoption of
Proposals 2, 6, 7 or 8, the witness noted, would penalize milk used in
the production of cheese by limiting the amount of milk that could be
pooled and was a radical change in Federal order pooling philosophy.
The witness added that adoption of these proposals would require cheese
manufacturers to estimate Federal order blend prices and PPDs in an
effort to decide whether it was more profitable to de-pool, remain
pooled or a combination of both.
The AMPI, et al., witness testified that the de-pooling of milk
does not cause any reduction to the amount of milk available to serve
the fluid market. The witness was of the opinion that when milk was de-
pooled there was not a reduction in the amount of milk made available
to service the fluid market since the de-pooled milk may rejoin the
pool the next month. The AMPI, et al., witness added that the Federal
order system should be sharing money derived from Class I handlers, not
taking money from dairy farmers whose milk is used in the production of
cheese simply to offset a low Class I price created by the timing of
announcing Class prices.
The AMPI, et al., witness was also of the opinion that the
Department should not consider Proposals 2, 6, 7 and 8 on an emergency
basis. The witness testified that the proposed shift in regulatory
policy as contained within these proposals should require the issuance
of a recommended decision with opportunity for public comment.
A witness representing NAJ testified that the problems arising from
de-pooling are a result of the timing of price announcements. The
witness also stated that the de-pooling issue would best be addressed
at a national hearing.
In a post hearing brief, DFA/PF reiterated the position that the
pooling of milk in any month should not exceed 125 percent of the milk
volume pooled in the previous month. The brief indicated that the
pooling proposals (Proposals 6, 7, and 8) advanced by Dean are too
restrictive for the current marketing conditions in the Central
marketing area. According to the brief, Proposal 2 represents the least
restrictive pooling proposal that could be supported by current
marketing conditions while providing a reasonable deterrent to de-
pooling.
A brief on behalf of AMPI, et al., reiterated the view that de-
pooling and re-pooling should be addressed on a national basis and that
pooling decisions should continue to be based on immediate market
conditions. The brief expressed the view that the ability to de-pool
continues to be unrelated to the willingness to serve the needs of the
Class I market.
A brief by Select/Continental supported Proposal 6 as advanced by
Dean. The brief noted that this ``dairy farmer for other markets''
proposal offered the most comprehensive means to eliminate the
inequities of de-pooling while maintaining the strongest possible
support for producers continuously and reliably serving the needs of
the Class I market. The brief noted that Proposals 2 and 8, seeking to
restrict the ability to pool to 125 percent and 115 percent of the
previous month's volume respectively, was an improvement over current
conditions but was not as robust as Proposal 6 which would require a
12-month pooling commitment by handlers. The brief found agreement with
AMPI, et al., that de-pooling is an issue that should be addressed on a
national basis.
The brief by Dean reiterated support for Proposals 6, 7 or 8, in
order of preference, seeking to restrict the ability of handlers to de-
pool and re-pool milk in the Central marketing area. The brief
expressed the view that Class I handlers who are required to pool their
milk receipts are at a constant financial disadvantage to those
handlers who may opt to pool or not pool.
Dean, in comments to the Recommended Decision, supported adoption
of Proposal 2, but was of the opinion that the adopted amendments may
not go far enough in preventing de-pooling.
AMPI, along with First District Association (AMPI Group), took
exception to the adoption of any proposals that would deter the
practice of de-pooling. The AMPI Group reiterated their position that
Proposals 2, 6, 7 and 8 do not address the root cause of price
inversions--advance Class I pricing--but rather only treats the symptom
of the problem.
Family Dairies, a dairy farmer cooperative that pools milk on the
Central order, took exception to adopting any proposals that would
deter the practice of de-pooling. The comment suggested that price
inversions and negative PPDs should be the focus of any regulatory
change.
All Federal milk marketing orders require the pooling of milk
received at pool distributing plants--which is predominantly Class I
milk--and all pooled producers and handlers on an order share in the
additional revenue arising from higher valued Class I sales.
Manufacturing handlers and cooperatives of Class II, III and IV uses of
milk who meet the pooling and performance standards make all of their
milk receipts eligible to be pooled and usually find it advantageous.
Manufacturing handlers and cooperatives who supply a portion of their
total milk receipts to Class I distributing plants receive the
difference between their use-value of milk and the order's blend price.
Federal milk orders, including the Central order, establish limits on
the volume of milk eligible to be pooled that is not for fluid uses
primarily through diversion limit standards. However, manufacturing
handlers and cooperatives are not required, as are Class I handlers, to
pool all their eligible milk receipts.
According to the record, manufacturing handlers and cooperatives
have opted to not pool their milk receipts when the manufacturing class
prices of milk are
[[Page 54163]]
higher than the order's blend price--commonly referred to as being
``inverted.'' During such months, manufacturing handlers and
cooperatives have elected to not pool all of their eligible milk
receipts because doing so would require them to pay into the PSF of the
order, the mechanism through which handler and producer prices are
equalized. When prices are not inverted, handlers would pool all of
their eligible receipts and receive a payment or draw from the PSF. In
receiving a draw from the PSF, such handlers will have sufficient money
to pay at least the order's blend price to their supplying dairy
farmers.
When manufacturing handlers and cooperatives opt to not pool all of
their eligible milk receipts in a month, they are essentially avoiding
a payment to the PSF. This, in turn, enables them to avoid the
marketwide sharing of the additional value of milk that accrues in the
higher-valued uses of milk other than Class I. When the Class I price
again becomes the highest valued use of milk, or when other class-price
relationships become favorable, the record reveals that these same
handlers opt to again pool their eligible milk receipts and draw money
from the PSF. It is the ability of manufacturing handlers and
cooperatives opting to not pool milk and thereby avoid the marketwide
sharing of the revenue accruing from non-Class I milk sales that is
viewed by proponents as giving rise to disorderly marketing conditions.
According to proponents, producers and handlers who cannot escape being
pooled and priced under the order are not assured of equitable prices.
The record reveals that since the implementation of Federal milk
marketing order reform in January 2000, and especially in more recent
years, large and rapid increases in manufactured product prices during
certain months have provided the economic incentives for manufacturing
handlers to opt not to pool eligible milk on the Central order. For
example, during the three month period of February to April 2004, the
Class III price increased over 65 percent from $11.89 per cwt to $19.66
per cwt. During the same time period, total producer milk pooled on the
Central order decreased by nearly 50 percent from 1.16 billion pounds
to 612 million pounds. When milk volumes of this magnitude are not
pooled the impacts on producer blend prices are significant. Producers
who incur the additional costs of consistently servicing the Class I
needs of the market receive a lower return than would otherwise have
been received if they did not continue to service the Class I market.
Prices received by dairy farmers who supplied the other milk needs of
the market are not known. However, it is reasonable to conclude that
prices received by dairy farmers were not equitable or uniform.
The record reveals that ``inverted'' prices of milk are generally
the result of the timing of Class price announcements. Despite changes
made as part of Federal milk order reform to shorten the time period of
setting and announcing Class I milk prices and basing the Class I price
on the higher of the Class III or Class IV price to avoid price
inversions, large month-to-month price increases in Class III and Class
IV product prices sometimes trumped the intent of better assuring that
the Class I price for the month would be the highest-valued use of
milk. In all orders, the Class I price (and the Class II skim price) is
announced prior to or in advance of the month for which it will apply.
The Class I price is calculated by using the National Agricultural
Statistics Service (NASS) surveyed cheese, butter, nonfat dry milk and
dry whey prices for the two most current weeks prior to the 24th day of
the preceding month and then adding a differential value to the higher
of either the advanced Class III or Class IV price.
Historically, the advance pricing of Class I milk has been used in
all Federal orders because Class I handlers cannot avoid regulation and
are required to pool all of their Class I milk receipts, they should
know their product costs in advance of notifying their customers of
price. However, milk receipts for Class III and IV uses are not
required to be pooled; thus, Class III and IV product prices (and the
Class II butterfat value) are not announced in advance. These prices
are announced on or before the 5th of the following month. Of
importance here is that manufacturing plant operators and cooperatives
have the benefit of knowing all the classified prices of milk before
making a decision to pool or not pool eligible receipts.
The record reveals that the decision of manufacturing handlers or
cooperatives to pool or not pool milk is made on a month-to-month basis
and is generally independent of past pooling decisions. Manufacturing
handlers and cooperatives that elected to not pool their milk receipts
did so to avoid making payments to the PSF and they anticipated that
all other manufacturing handlers and cooperatives would do the same.
However, the record indicates that normally pooled manufacturing
handlers and cooperatives met the pooling standards of the order to
ensure that the Class I market was adequately supplied and that they
established eligibility to pool their physical receipts, including
diversions to nonpool plants. Opponents to proposals to deter de-
pooling are of the view that meeting the pooling standards of the order
and deciding how much milk to pool are unrelated events. Proponents
took the view that participation in the marketwide pool should be based
on a long-term commitment to supply the market because in the long-term
it is the sales of higher priced Class I milk that adds additional
revenue to the pool.
The producer price differential, or PPD, is the difference between
the Class III price and the weighted average value of all Class I, II
and IV milk pooled. In essence, the PPD is the residual revenue
remaining after all butterfat, protein and other solids values are paid
to producers. If the pooled value of Class I, II and IV milk is greater
than the Class III value, dairy farmers receive a positive PPD. While
the PPD is usually positive, a negative PPD can occur when class prices
rise rapidly during the six-week period between the time the Class I
price is announced and the time the Class II butterfat and III and IV
milk prices are announced. When manufacturing prices fall, this same
lag in the announcement of class prices yields a positive PPD.
As revealed by the record, when manufacturing plants and
cooperatives opted to not pool milk because of inverted price
relationships, PPD's were much more negative. When this milk is not
pooled, a larger percentage of the milk remaining pooled will be
``lower'' priced Class I milk. When manufacturing milk is not pooled,
the weighted average value of milk decreases relative to the Class II,
III or IV value making the PPD more negative. For example, record
evidence demonstrated that in April 2004, a month when a sizeable
volume of milk was not pooled, the PPD was a negative $3.97 per cwt. If
all eligible milk had been pooled, the PPD would have been $.87 per cwt
higher or a negative $3.10 per cwt. This $0.87 per cwt represents the
additional burden borne by those producers who remained pooled.
The record reveals that when manufacturing handlers and
cooperatives opt to not pool milk, unequal pay prices may result to
similarly located dairy farmers. For example, Dean noted that when a
cooperative delivers a high percentage of their milk receipts to a
distributing plant, it lessens their ability to not pool milk, making
them less competitive in a marketplace relative to other producers and
handlers. Other evidence in the record supports conclusions identical
to Dean that when a dairy
[[Page 54164]]
farmer or cooperative is able to receive increased returns from
shipping milk to a manufacturing handler during times of price
inversions, other dairy farmers or cooperatives who may have shipped
more milk to a pool distributing plant are competitively disadvantaged.
The record of this proceeding reveals that the ability of
manufacturing handlers and cooperatives to not pool all of their
eligible milk receipts gives rise to disorderly marketing conditions
and warrants the establishment of additional pooling standards to
safeguard marketwide pooling. Current pooling provisions do not require
or prohibit handlers and cooperatives from pooling all eligible milk
receipts. However, the record reveals that when handlers and
cooperatives opt to not pool milk inequities arise among producers and
handlers that are contrary to the intent of the Federal milk marketing
order program--maintaining orderly marketing conditions.
The record contains extensive testimony regarding the effects on
the milk order program resulting from advance pricing and the priority
the milk order program has placed on the Class I price being the
highest valued use of milk. It remains true that the Class I use of
milk is still the highest valued use of milk notwithstanding those
occasional months when milk used in usually lower-valued classes may be
higher. This has been demonstrated by an analysis of the effective
Class I differential values--the difference in the Class I price at the
base zone of Jackson County, Missouri, and the higher of the Class III
or Class IV price--for the 65 month period of January 2000 through May
2005 performed by USDA.\2\ These computations reveal that the effective
monthly Class I differential averaged $1.97 per cwt. Accordingly, it
can only be concluded that in the longer-term Class I sales continue to
be the source of additional revenue accruing to the pool even when, in
some months, the effective differential is negative.
---------------------------------------------------------------------------
\2\ Official notice is taken of data and information published
in Market Administrator Bulletins, as posted on individual Market
Administrator Web sites.
---------------------------------------------------------------------------
Price inversions occur when the wholesale price for manufactured
products rises rapidly indicating a tightening of milk supplies to
produce those products. It is for this reason that the Department chose
the higher of the Class III and Class IV prices as the mover of the
Class I price. Distributing plants must have a price high enough to
attract milk away from manufacturing uses to meet Class I demands. As
revealed by the record, this method has not been sufficient to provide
the appropriate price signals to assure an adequate supply of milk for
the Class I market. Accordingly, additional measures are needed as a
means of assuring that milk remains pooled and thus available to the
Class I market. Adoption of Proposal 2 is a reasonable measure to meet
the objectives of orderly marketing.
This decision does find that disorderly marketing conditions are
present when producers do not receive uniform prices. Handlers and
cooperatives opting to not pool milk do not account to the pool at the
classified use-values of those milk receipts. They do not share in all
the additional costs and burdens with those producers who are pooled
and who are incurring the costs of servicing the Class I needs of the
market. This is not a desired or reasonable outcome especially when the
same handlers and cooperatives will again pool all of their eligible
receipts when class-price relationships change in a subsequent month.
These inequities borne by the market's producers are contrary to the
intent of the Federal order program's reliance on marketwide pooling--
ensuring that all producers supplying the market are paid uniform
prices for their milk regardless of how the milk of any single producer
is used.
Despite the exceptions submitted by AMPI Group and Family Dairies,
it is reasonable that the order contain pooling provisions intended to
deter the disorderly conditions that arise when de-pooling occurs. Such
provisions maintain and enhance orderly marketing. Accordingly, this
decision finds it reasonable to adopt provisions that limit the volume
of milk a handler or cooperative may pool in a month to 125 percent of
the total volume pooled by the handler or cooperative in the prior
month. Adoption of this standard will not prevent manufacturing
handlers or cooperatives from electing to not pool milk. However, it
should serve to maintain and enhance orderly marketing by encouraging
participation in the marketwide pooling of all classified uses of milk.
This decision does not adopt a 135 percent pooling limit for the
month of March as suggested by LOL in their comments and exceptions to
the recommended decision. A 135 percent standard applicable for the
month of March was not considered and examined at the hearing.
Consideration was given on whether de-pooling should be considered
at a national hearing with other, broader national issues of milk
marketing. However each marketing area has unique marketing conditions
and characteristics which have area-specific pooling provisions to
address those specific conditions. Because of this, pooling issues are
considered unique to each order. This decision finds that it would be
unreasonable to address pooling issues, including de-pooling, on a
national basis.
Some manufacturing handlers and cooperatives argued at the hearing,
and noted in exceptions to the Recommended Decision, that their milk
did perform in meeting the Class I needs during the month and this
occurred before making their pooling decisions. They argue that the
Class I market is therefore not harmed and that the intents and goals
of the order program are satisfied. With respect to this proceeding and
in response to these arguments, this decision finds that the practice
of de-pooling undermines the intent of the Federal order program to
assure producers uniform prices across all uses of milk normally
associated with the market as a critical indicator of orderly marketing
conditions. Similarly, handlers and cooperatives who de-pool purposely
do so to gain a momentary financial benefit (by avoiding making
payments to the PSF) which would otherwise be equitably shared among
all market participants. While the order's performance standards tend
to assure that distributing plants are adequately supplied with fresh,
fluid milk, the goals of marketwide pooling are undermined by the
practice of de-pooling. Producers and handlers who regularly and
consistently bear the costs of serving the Class I needs of the market
will not equitably share in the additional value arising momentarily
from non-fluid uses of milk. These same producers and handlers will, in
turn, be required to share the additional revenue arising from higher-
valued Class I sales in a subsequent month when class-price
relationships change.
The four proposals considered in this proceeding to deter the
practice of de-pooling in the Central order have differences. They all
seek to address market disorder arising from the practice of de-
pooling. However, this decision does not find adoption of the two
``dairy farmer for other markets'' proposals--Proposals 6 and 7--
reasonable because they would make it needlessly difficult for milk to
be re-pooled and because their adoption may disrupt prevailing
marketing channels or cause the inefficient movement of milk. Likewise,
Proposal 8, to restrict pooling in a month to 115 percent of the prior
month's volume pooled by the handler, is not adopted. Adoption of
[[Page 54165]]
this proposal would disrupt current marketing conditions beyond what
the record justifies. Therefore, this decision adopts Proposal 2 to
limit the pooling of milk in any month by a handler to 125 percent of
the handler's pooled receipts in the prior month because it provides
the most reasonable measure to deter the practice of de-pooling.
3. Transportation and Assembly Credits
A proposal, published in the hearing notice as Proposal 3 and
modified at the hearing, seeking establishment of transportation and
assembly credits in the Central Order is not adopted. The published
proposal seeks to provide a credit for the shipment of milk from supply
plants to distributing plants. The proposal was modified at the hearing
to expand the transportation credit to include milk shipped directly
from dairy farms to distributing plants. In addition, the modified
proposal would provide an assembly credit for milk shipped directly
from dairy farms to distributing plants.
The proposal would provide a credit for the shipment of milk from
supply plants and dairy farms to distributing plants at a rate of
$0.003 per cwt per mile, excluding the first 25 miles of shipment and
all shipments farther than 500 miles. In addition, the proposal would
provide for a credit of $0.10 per cwt for the assembly of milk from
dairy farms to distributing plants. The Central order does not
currently have transportation or assembly credit provisions.
As published in the hearing notice, Proposal 3 was advanced by
AMPI, et al. The modification to Proposal 3, presented at the hearing
to include transportation credits for shipments from dairy farms
directly to distributing plants was advanced by DFA/PF.
On behalf of all proponents of Proposal 3, the Foremost, et al.,
witness requested that the proposal be modified to remove all
references to ``milk reload stations'' as originally offered in the
proposal. Accordingly, no additional references will be made concerning
re-load stations in this decision.
A witness appearing on behalf of AMPI, et al., testified that
transportation and assembly credits are needed in the Central marketing
area to allow transporting handlers to recover costs of assembling and
transporting milk to serve the Class I needs of the market.
The AMPI, et al., witness was of the opinion that the rates and
distance limitations proposed for the transportation and assembly
credits would compensate handlers for approximately 75 percent of the
cost of moving milk from supply plants to distributing plants within
the marketing area. The witness asserted that this was reasonable
because it would keep transportation and assembly cost recovery at less
than full cost. According to the witness, the proposed rates and
distance limitations would tend to discourage inefficient movements of
milk by handlers from seeking transportation and assembly credits.
The AMPI, et al., witness expressed the opinion that all producers
receiving the benefits of marketwide pooling should contribute to the
recovery of costs associated with moving milk within the marketing area
to serve the Class I needs of the market. The witness provided examples
of milk movements where supply plant handlers moving milk to
distributing plants were unable to recover the full costs of assembling
and transporting milk at Federal order minimum prices. The witness
testified that because handlers transporting milk directly from dairy
farms to distributing plants incur costs similar to the overhead costs
incurred by handlers transporting milk from supply plants, the
proponents seek an assembly credit for all milk that serves the Class I
market. The AMPI, et al., witness testified that even though dairy
farmers currently are charged for the cost of assembling their milk
into loads and transporting the milk to distributing plants, the
charges are insufficient to completely recoup the costs incurred by
handlers.
A witness representing DFA/PF testified in support of Proposal 3
and modified the proposal to include the transportation and assembly
credits for milk shipped directly from farms to distributing plants.
The witness asserted that the costs of assembly and transportation of
milk in the Central marketing area are not fully recouped in the market
by handlers. The witness noted that the $0.003 per mile transportation
credit rate would apply to milk shipped to a distributing plant.
The DFA/PF witness testified that additional compensation for the
transportation and assembly of milk for fluid use is needed in
particular areas of the Central marketing area because the order's
blend price is insufficient to keep milk produced in the marketing area
within the marketing area. The witness noted this was specifically
apparent in the southeastern portion of the marketing area that borders
portions of the Southeast and Appalachian orders. In addition, the
witness testified that the location values of milk for markets within
the Central marketing area, for example in St. Louis, Missouri, and
areas of southern Illinois, are similarly insufficient to attract milk.
According to the witness, this causes milk procurement problems for
some distributing plants in this localized portion of the Central
marketing area.
The DFA/PF witness testified that marketwide service payments are
authorized in the legislation that provides for Federal milk orders.
The witness explained that payments for services not elsewhere
compensated can be taken from producer revenue to compensate providers
of services that are of marketwide benefit. The witness asserted that
transportation and assembly operations performed in the Central
marketing area meet the general objectives of providing marketwide
service for marketwide benefit. According to the witness, Proposal 3,
as modified, describes a set of services that benefit the entire
market. The witness was of the opinion that the marketwide services
include: marketing of milk, farm pick-up of milk, off-load and re-load
of milk, procurement of milk, selling milking equipment, disseminating
information and prices to producers, milk testing, delivery to
distributing plants, and other field services.
According to the DFA/PF witness, inclusion of milk shipped directly
from dairy farms to distributing plants for transportation and assembly
credits would be more representative of how the majority of milk is
transported to distributing plants regulated by the order. The witness
noted that in the Central marketing area distributing plants receive
only about 4.5 percent of their milk from supply plants. The witness
testified that the modification of Proposal 3 to include milk shipped
from farms to distributing plants would more accurately represent the
transportation compensation requirements needed to ensure delivery of
milk for fluid use.
According to the DFA/PF witness, the inclusion of farm to
distributing plant shipments would require the Market Administrator of
the Central order to verify handler claims for receiving credits. The
witness indicated that least-distance routes for delivery from each
point of origin to the destination distributing plants would need to be
determined. According to the witness, the additional cost that would be
borne by the Market Administrator in administering transportation and
assembly provisions would be negligible and should not require a higher
administrative assessment. However, the witness acknowledged that
proponents had not consulted the Market Administrator's office for an
estimate of additional administrative costs that may be borne in
operating a
[[Page 54166]]
transportation and assembly credit provision.
The DFA/PF witness testified that the St. Louis area market is
unable to consistently and successfully attract milk from the Central
order's milkshed because the order's Class I price and the blend price
are lower than those in the nearby Appalachian and Southeast marketing
areas. According to the witness, marketwide service payments for
transportation and assembly of milk to serve markets such as St. Louis
would provide sufficient financial incentive to offset the higher blend
prices of these bordering Federal milk marketing areas. Additionally,
it would ensure a consistent and reliable supply of milk to meet the
needs of that portion of the Central marketing area's Class I market,
the witness said.
A witness for Prairie Farms (PF) testified in support of the
adoption of Proposal 3 as modified at the hearing. The witness was of
the opinion that without expansion of transportation and assembly
credits that included direct shipped milk, the ability to serve the
Class I needs of all locations in the Central marketing area would not
be achieved because milk would seek the higher blend prices available
in the nearby markets of the Appalachian and Southeast orders. The
witness from Prairie Farms provided example scenarios of actual and
hypothetical net returns possible for handlers shipping milk to
distributing plants in the Central, Appalachian, and Southeast
marketing areas. The witness compared these returns to net returns
available from shipping to distributing plants in Illinois and St.
Louis within the Central marketing area. According to the witness,
these example scenarios reinforced the assertion that milk is attracted
by higher Class I prices in localized areas of the Appalachian and
Southeast marketing areas.
The PF witness was of the opinion that inappropriate Class I
differential levels, as in the St Louis area example, were the root
cause of the market's inability to attract sufficient fluid milk;
however, modifications to the Class I price surface are not currently
feasible. In light of this, the witness stated that obtaining the
needed financial incentives to ensure delivery of milk to this deficit
portion of the marketing area by the use of transportation and assembly
credits is a reasonable alternative to changing the Class I
differentials.
The DFA/PF witness estimated that providing credits for milk
transported from farms to distributing plants would reduce the Central
order's blend price to dairy farmers by $0.045 per cwt per month. The
Foremost, et al., witness testified that the impact of providing
credits for assembly would reduce the Central order's blend price by
$0.036-$0.040 per cwt per month. The DFA/PF witness testified that the
combined impact of transportation credits for the supply plant to
distributing plant movements, direct delivery from farms to
distributing plants, and assembly credits would reduce the Central
marketing area's blend price by a total of $0.081-$0.085 per cwt per
month.
DFA/PF took exception to the Recommended Decision and reiterated
their support for the adoption of transportation and assembly credits.
DFA/PF again noted that transportation and assembly credits, as
proposed, were designed to reward those who supply the fluid milk needs
of the entire market and are necessary to facilitate the orderly
movement of milk.
A witness for Dean testified in support of Proposal 3 as modified
by DFA/PF. The Dean witness expressed a preference for the DFA/PF
modification to include direct farm milk shipments to distributing
plants but did not support adoption of assembly credits. The witness
noted that Dean would consider the entire Proposal 3, including the
DFA/PF modification, if the assembly credit feature were retained. The
witness was of the opinion that adopting the proposal would increase
equity among handlers and producers who supply the Class I market.
However, the witness was unable to identify distributing plants in the
St. Louis and southern Illinois portions of the marketing area that did
not or could not receive sufficient milk supplies. In addition, the
witness was unable to recall if handlers had asked or relied on the
Central marketing area's Market Administrator to increase the Central
order's performance standards to bring forth milk to meet the market's
Class I needs.
Dean reiterated support for adoption of transportation and assembly
credits in exceptions to the Recommended Decision. Dean noted that
handlers face higher costs in procuring milk supplies in the St. Louis
area, and that adoption of transportation and assembly credits would
help reduce those costs.
In a post hearing brief, Select/Continental indicated general
opposition to adopting transportation and assembly credits for milk
movements from supply plants to distributing plants. The brief
expressed support for a transportation and assembly credit provision
that would be limited to milk shipped directly from dairy farms to
distributing plants. According to the brief, milk should be attracted
to markets for specific use through classified pricing. Fluid milk,
according to the brief, should be attracted to distributing plants by
appropriate location values. According to the brief, implementing
transportation and assembly credits in the Central marketing area would
be an admission that the Class I price surface was no longer successful
in meeting the Class I needs of the marketing area.
In a post hearing brief, DFA/PF reiterated their support for
transportation and assembly credits as modified. The brief reiterated
support and reinforcement of the testimony offered to expand the scope
for transportation and assembly credits to include direct farm-to-plant
milk movements. Likewise, Dean Foods reiterated its support in a post-
hearing brief for expanding transportation and assembly credits to
include direct farm-to-plant milk movements as a means to improve the
available milk supply for its distributing plant operations in the
southeastern portion of the Central order.
Geographically, the Central marketing area is the largest Federal
milk marketing area, spanning the distance from eastern Illinois to
western Colorado. It is bordered by the Upper Midwest, Mideast,
Appalachian, Southeast, and Southwest marketing areas. The marketing
area also is bordered by unregulated areas on the west including Utah,
portions of western South Dakota, western portions of Nebraska, and all
of Wyoming. In addition the Central marketing area completely surrounds
a large unregulated area in central Missouri.
Proposal 3 as advanced by AMPI, et al., seeks to establish a
marketwide service payment in the form of a transportation credit for
the movement of milk from supply plants to distributing plants at a
rate of $0.003 per cwt per mile. The proposal provides for a distance
limit for receipt of the credit for milk movements between 25 to 500
miles from the supply plants to distributing plants. The proposal also
seeks the establishment of an assembly credit feature for which
handlers would collect $0.10 per cwt for the assembly of loads of milk
within the marketing area.
The modification to Proposal 3, advanced by DFA/PF, seeks expansion
of the transportation credit to include milk shipped directly from
dairy farms to distributing plants. The modification would establish a
transportation credit rate of $0.003 per cwt per mile for milk shipped
directly from dairy farms to distributing plants. The combination of
the two proposals effectively seeks transportation and assembly credits
for
[[Page 54167]]
all Class I milk pooled on the Central order. The rationale for the
modification to Proposal 3 is that milk shipped directly from farms to
distributing plants represents more than 95 percent of all milk shipped
to distributing plants. Milk shipped from supply plants represents
about 5 percent of all milk shipped to distributing plants.
Proponents estimate that the Central order blend price would be
lowered in the range of $0.036-$0.040 per cwt per month by the assembly
credit feature for all Class I milk, if adopted. The proponents
estimate that the impact of the transportation credit for all Class I
milk pooled on the Central order would be a blend price reduction of
approximately $0.045 per cwt, if adopted. The combined reduction to the
Central order blend price per month would be $0.081-$0.085 per cwt.
The transportation and assembly credits advanced by the proponents
are similar to the transportation and assembly credits implemented in
the Chicago Regional order, a predecessor order of the current Upper
Midwest order. The transportation and assembly credit provisions of the
Chicago Regional order were carried forward into the provisions of the
current Upper Midwest order as a part of Federal milk order reform.
These provisions were first implemented in 1987 to ensure that the
costs of serving the Class I market of the Chicago Regional marketing
area were shared by all market participants that benefited from the
revenue generated from Class I sales. The impact on producer revenue
was expected to be minimal according to the Final Decision published
October 15, 1987, (7 CFR 10130).
The transportation credit provisions of the Upper Midwest order
provide a credit of $0.028 cents per mile for bulk milk delivered from
pool plants to distributing plants. The assembly credit provisions of
the Upper Midwest order provide a credit of $0.08 cents per cwt to the
operator of a distributing plant for milk received from dairy farms and
pool plants. The credits are computed by the Market Administrator and
are deducted from the marketwide value of milk before calculation of
the order's blend price. The impact of these credits on the Upper
Midwest blend price ($0.02-$0.03 per cwt) are one fourth to one third
the magnitude of impact that proponents expect the proposed
transportation and assembly credits would have on the Central order
blend price, if adopted.
The transportation and assembly credit features of the current
Upper Midwest order and the pre-reform Chicago Regional order are
similar in the magnitudes of their costs per mile and per hundredweight
of milk handled. The transportation and assembly credit provisions of
the Chicago Regional order applied to a geographically compact milkshed
with the emphasis on encouraging milk movements to the single urban
market of Chicago. The Chicago Regional marketing area (and the Chicago
metropolitan area of the current Upper Midwest marketing area) was
supplied with milk primarily from southern and central Wisconsin. The
transportation and assembly credit feature of the current Upper Midwest
marketing order provides pool plants that serve the Class I market with
some recovery of assembly and transportation costs incurred in
transferring milk to distributing plants.
In contrast, the Central marketing area is geographically much
larger and handlers with Class I route disposition serve multiple urban
centers in a variety of States located from Illinois to Colorado.
Despite exceptions to the Recommended Decision from DFA, the record
reveals that the area of concern to the proponents is a relatively
limited area of St. Louis and portions of southern Illinois. The record
does not reveal that there are other portions of the marketing area
where problems have been identified in procuring milk supplies for
Class I use. Accordingly, it is reasonable to conclude that marketwide
service payments in the form of transportation and assembly credits on
all Class I milk may only solve a localized problem while all dairy
farmers would receive a lower blend price for their milk.
The impact of transportation and assembly credits on dairy farmer
income is far lower in the Upper Midwest marketing area than that
proposed for the Central order. For example, according to Market
Administrator data, the reduction to the Upper Midwest blend price in
October 2004 was $ 0.015 per cwt and $0.0125 per cwt for the assembly
and transportation credits, respectively. This represents an overall
reduction of $0.0275 per cwt to the Upper Midwest blend price in that
month. Market Administrator data shows that during May 2005 the
reduction to the Upper Midwest blend price attributable to the combined
impact of the transportation and assembly credit features was $0.020
per cwt.
The record reveals that the impact anticipated by proponents of
transportation and assembly credits on the Central order blend price
would be a reduction of as much as $0.081-$0.085 per cwt. The reduction
in blend prices and dairy farmer income that would result from the
adoption of a transportation and assembly credit of this magnitude
would be 3-4 times the magnitude of the blend price reduction that
dairy farmers experience in the Upper Midwest. According to Market
Administrator information, the average sized producer in the Central
marketing area produces and markets about 200,000 pounds of milk per
month. The average reduction in income for such an average producer per
month would be $160-$170 per month, or about $2000 per year. A similar
sized producer in the Upper Midwest marketing area would experience a
reduction in income of $40-$57 per month or about $500-$680 per year.
The differences in magnitudes are interesting but germane only to the
extent that transportation and assembly credits are justified.
The proposed transportation and assembly credits are justified by
proponents on the basis that the movement of milk to serve the Class I
market is a marketwide service of marketwide benefit and credits for
providing marketwide services are authorized in the Agricultural
Marketing Agreement Act of 1937, (AMAA) as amended. However, the focus
of the record evidence is on the marketing conditions in the southern
Illinois and St. Louis regions of the Central marketing area. However,
the record does not indicate that price differences as noted in
proponent testimony concerning the eastern portion of the marketing
area occur elsewhere in the Central marketing area. The record does not
support concluding that handlers serving major urban areas in other
regions of the marketing area (such as, Denver, Oklahoma City, or
Tulsa) experience difficulty in attracting milk supplies. This supports
concluding that the issues raised by the proponents are at best
localized in nature rather than marketwide.
In addition, the record reveals in the testimony of the AMPI, et
al., witness that some transportation and assembly costs incurred by
handlers for milk delivered to distributing plants are recovered by the
marketplace. While proponents have asserted that the recovery of costs
for assembly by handlers is incomplete, the record contains
insufficient information upon which to judge if lowering producer blend
prices by as much as $.08 per cwt is reasonable. The size of the likely
blend price reduction is important but not the critical factor in
determining whether transportation and assembly credits are reasonable
for the Central marketing area. The most important factor in that
regard is whether the
[[Page 54168]]
marketwide costs would provide marketwide rather than local benefits.
Contrary to exceptions to the Recommended Decision from Dean,
record evidence supplied by a Class I handler located in St. Louis
indicates that the firm is able to continue receiving, bottling, and
selling milk in the St. Louis area. This evidence suggests that milk
movements to handlers in the St. Louis area are occurring and meet the
order's Class I needs. This evidence provides a basis to conclude that
the order provisions attract sufficient milk for fluid use. In this
regard, the need for additional government intervention beyond what the
order currently provides in meeting the market's fluid demands is not
warranted.
The record evidence concerning challenges faced by handlers in
moving milk within the Central marketing area to distributing plants in
St. Louis and Illinois indicates that there may be, at best, localized
issues in supplying the Class I needs of these plants. The proponents
for transportation and assembly credits attribute these difficulties to
the higher location values and blend prices of nearby or bordering
portions of the Southeast and Appalachian orders. However, the record
reveals that handlers have not sought alternative actions to bring
forth additional milk supplies to meet Class I demands. For example,
there is no record evidence illustrating that the Market Administrator
has been called upon to change performance standards or diversion
limits which would better ensure that the Class I needs of any of the
Central marketing area's distributing plants would be met.
This decision finds that adoption of the proposed transportation
and assembly credit provision is not supported by record evidence.
Accordingly, this decision does not find agreement with the rationale
advanced by proponents that marketwide service payments in the form of
transportation and assembly credits for milk are needed to overcome
deficiencies of the Central order. At best, record evidence
demonstrates that if there are difficulties in procuring milk for Class
I use, they are isolated to a fraction of the marketing area. Adopting
transportation and assembly credits would unreasonably lower the
returns to all dairy farmers pooled on the order to address a localized
issue.
Withdrawn Proposal
A proposal published as Proposal 14, seeking to require payments
from the producer settlement fund to be made no later than the next
business day after the due date for payments into the producer
settlement fund, was advanced by the Market Administrator. The proposal
was withdrawn and was not considered in this decision.
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 Central 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 tentative 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 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 area, and the minimum
prices specified in the tentative marketing agreement and the order, as
hereby proposed to be amended, are such prices as will reflect the
aforesaid factors, ensure a sufficient quantity of pure and wholesome
milk, and be in the public interest; and
(c) The tentative 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.
Rulings on Exceptions
In arriving at the findings and conclusions, and the regulatory
provisions of this decision, each of the exceptions received was
carefully and fully considered in conjunction with the record evidence.
To the extent that the findings and conclusions and the regulatory
provisions of this decision are at variance with any of the exceptions,
such exceptions are hereby overruled for the reasons previously stated
in this decision.
Marketing Agreement and Order
Annexed hereto and made a part hereof are two documents, a
Marketing Agreement regulating the handling of milk, and an Order
amending the order regulating the handling of milk in the Central
marketing area, which has been decided upon as the detailed and
appropriate means of effectuating the foregoing conclusions.
It is hereby ordered that this entire decision and the two
documents annexed hereto be published in the Federal Register.
Determination of Producer Approval and Representative Period
March 2006 is hereby determined to be the representative period for
the purpose of ascertaining whether the issuance of the order, as
amended in the Recommended Decision published in the Federal Register
on February 22, 2006 (71 FR 9015), regulating the handling of milk in
the Central marketing area is approved or favored 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.
List of Subjects in 7 CFR Part 1032
Milk marketing orders.
Dated: September 1, 2006.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
Order Amending the Order Regulating the Handling of Milk in the Central
Marketing Area
This 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 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.
[[Page 54169]]
(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 Central 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 Central 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 provisions of the order amending the order contained in the
Recommended Decision issued by the Administrator, Agricultural
Marketing Service, on February 15, 2006, and published in the Federal
Register on February 22, 2006 (71 FR 9015), are adopted and shall be
the terms and provisions of this order. The revised order follows.
PART 1032--MILK IN THE CENTRAL MARKETING AREA
1. The authority citation for 7 CFR Part 1032 continues to read as
follows:
Authority: 7 U.S.C. 601-674, and 7253.
2. Section 1032.7 is amended by revising paragraph (c) introductory
text and paragraph (h)(7) to read as follows:
Sec. 1032.7 Pool plant.
* * * * *
(c) A supply plant from which the quantity of bulk fluid milk
products shipped to (and physically unloaded into) plants described in
paragraph (c)(1) of this section is not less than 25 percent during the
months of August through February and 20 percent in all other months of
the Grade A milk received from dairy farmers (except dairy farmers
described in Sec. 1032.12(b)) and from handlers described in Sec.
1000.9(c), including milk diverted pursuant to Sec. 1032.13, subject
to the following conditions:
* * * * *
(h) * * *
(7) That portion of a regulated plant designated as a nonpool plant
that is physically separate and operated separately from the pool
portion of such plant. The designation of a portion of a plant must be
requested in advance and in writing by the handler and must be approved
by the market administrator. Such nonpool status shall be effective on
the first day of the month following approval of the request by the
market administrator and thereafter for the longer of twelve (12)
consecutive months or until notification of the desire to requalify as
a pool plant, in writing, is received by the market administrator.
Requalification will require deliveries to a pool distributing plant(s)
as provided for in Sec. 1032.7(c). For requalification, handlers may
not use milk delivered directly from producer's farms pursuant to Sec.
1000.9(c) or Sec. 1032.13(c) for the first month.
3. Section 1032.13 is amended by revising paragraph (d)(1),
redesignating paragraphs (d)(2) through (6) as paragraphs (d)(4)
through (8), adding new paragraphs (d)(2) and (d)(3), revising
redesignated paragraph (d)(4), and adding a new paragraph (f), to read
as follows:
Sec. 1032.13 Producer milk.
* * * * *
(d) * * *
(1) Milk of a dairy farmer shall not be eligible for diversion
until milk 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 until milk of the dairy farmer has been
physically received as producer milk at a pool plant;
(2) The equivalent of at least one day's milk production is caused
by the handler to be physically received at a pool plant in each of the
months of January and February, and August through November;
(3) The equivalent of at least one day's milk production is caused
by the handler to be physically received at a pool plant in each of the
months of March through July and December if the requirement of
paragraph (d)(2) of this section (Sec. 1032.13) in each of the prior
months of August through November and January through February are not
met, except in the case of a dairy farmer who marketed no Grade A milk
during each of the prior months of August through November or January
through February;
(4) Of the 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)) the handler
diverts to nonpool plants not more than 75 percent during the months of
August through February, and not more than 80 percent during the months
of March through July, provided that not less than 25 percent of such
receipts in the months of August through February and 20 percent of the
remaining months' receipts are delivered to plants described in Sec.
1032.7(a), (b) or (i);
* * * * *
(f) The quantity of milk reported by a handler pursuant to either
Sec. 1032.30(a)(1) or Sec. 032.30(c)(1) for the current month may not
exceed 125 percent of the producer milk receipts pooled by the handler
during the prior month. Milk diverted to nonpool plants reported in
excess of this limit shall be removed from the pool. Milk received at
pool plants in excess of the 125 percent limit, other than pool
distributing plants, shall be classified pursuant to Sec.
1000.44(a)(3)(v). The handler must designate, by producer pick-up,
which milk is to be removed from the pool. If the handler fails to
provide this information the provisions of paragraph (d)(5) of this
provision shall apply. The following provisions apply:
(1) Milk shipped to and physically received at pool distributing
plants shall not be subject to the 125 percent limitation;
(2) Producer milk qualified pursuant to Sec. ----.13 of any other
Federal Order in the previous month shall not be included in the
computation of the 125 percent limitation; provided that the producers
comprising the milk supply have been continuously pooled on any Federal
Order for the entirety of the most recent three consecutive months.
(3) The market administrator may waive the 125 percent limitation:
[[Page 54170]]
(i) For a new handler on the order, subject to the provisions of
paragraph (f)(3) of this section, or
(ii) For an existing handler with significantly changed milk supply
conditions due to unusual circumstances;
(4) A bloc of milk may be considered ineligible for pooling if the
market administrator determines that handlers altered the reporting of
such milk for the purpose of evading the provisions of this paragraph.
Marketing Agreement Regulating the Handling of Milk in the Central
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 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. 1032.1 to 1032.86 all inclusive, of
the order regulating the handling of milk in the Central marketing
area (7 CFR Part 1032 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 January 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. 06-7498 Filed 9-6-06; 8:45 am]
BILLING CODE 3410-02-P