**UNITED STATES DEPARTMENT OF AGRICULTURE**

**BEFORE THE SECRETARY OF AGRICULTURE**

**Re: Docket Nos**. **AMS-DA-07-0026; AO-14-A77, et al.; DA-07-02-A**

**Tentative Partial Final Decision**

**Published June 20, 2008**

**COMMENTS ON THE TENTATIVE PARTIAL FINAL DECISION FILED BY**

KRAFT FOODS

Hearing Clerk

Stop 9200-Room 1031

United States Department of Agriculture

1400 Independence Avenue, SW

Washington, DC 20250-9200

On behalf of Kraft Foods, I am submitting these comments in response to
USDA\'s invitation to comment on the tentative partial final decision on
Class III and Class IV price formulas.

Kraft Foods supports the positions of the International Dairy Foods
Association as noted in its hearing testimony and post hearing brief, as
well as its comments on this tentative decision. Specifically, we
support the decision of USDA to increase the make allowances used in the
Class III and Class IV price formulas as well as USDA\'s decision to
reject proposals 3, 7, 8, 14, 15, 16, and 18. However, we strongly urge
USDA to reconsider its decision not to adopt proposals 9 and 12.

We support the decision to increase the make allowances (proposal 1).
The hearing record clearly noted the increases in the cost of
manufacturing the selected dairy commodities in testimony from a number
of witness, as noted by USDA in the decision: \"The record demonstrates
that current make allowanced levels are not reflective of the costs
manufacturers incur in processing raw milk into the finished products of
cheese, butter, NFDM and dry whey.\" 73 Fed. Reg. Page 35324.

Based on the decision comments, USDA appears unwilling to develop a
weighted average production cost from the Cornell Cost survey in the
cheese make allowance, and elected to use the CDFA cost study for that
reason. If USDA is unwilling to adjust the Cornell cost data to better
reflect a representative sample, we see merit to USDA\'s decision not to
use the simple average manufacturing costs derived from the Cornell
Cheese Plant survey.  However, we urge USDA to continue work towards
more representative plant cost surveys for all products in order to
provide data reflective of the entire industry for future hearings.
While not a component of this partial decision, Proposal 2 from Agrimark
would give the industry this data while allowing for more timely updates
to the cost data.

 

We also believe USDA should include the CDFA whey costs in their whey
make allowance calculations.  This data represents a small amount of dry
whey production compared to the Cornell survey, but the data is audited
data from three whey processing plants.  Including this data on a
weighted-average basis expands the amount of quality whey manufacturing
cost information, and reflects costs among a broader survey of whey
plants.

As indicated above, we strongly urge USDA to reconsider its decision not
to adopt proposals 9 and 12. Proposal 9 seeks to end the over-valuation
of the butterfat in whey cream. There was no testimony which contained
data that supported the concept that the value of this butterfat in any
use was the same as that used to manufacture Grade AA butter, yet the
current pricing formulas are based on that concept. In fact, the only
actual data on the value of whey cream in the hearing record came from
actual company invoices and summarized data in the testimony of several
witnesses, and this data proved that the butterfat in whey cream is much
less valuable than the butterfat in Grade AA butter. The decision notes
that even opponents of this proposal acknowledged that that \"\... whey
cream does have a lower value than that reflected in the Grade AA butter
price \...\" 73 Fed. Reg. Page 35327. And no one presented evidence
supporting the notion that the value of whey cream in \"\... other
higher-value uses \...\" is actually higher, nor even what those uses
are, nor what higher costs might offset or exceed this perceived higher
value. USDA must base its decision on the actual data in the hearing
record, not supposition, and therefore must adopt proposal 9.

Similarly, the decision to reject proposal 12 is not supported by the
hearing record. During the Federal Order reform process, USDA concluded
that the difference in cost between manufacturing cheddar cheese in
40-lb blocks and 500-lb barrels was 3 cents, based entirely on the
historical price difference observed, not on any actual industry cost
data. In the decision from the May 2000 hearing to consider Class III
and Class IV price formulas, USDA concluded that this 3 cents continued
to be appropriate based on the testimony of one witness from DFA, who
did not submit any cost data but merely agreed that 3-cents sounded
about right.

In the current proceeding, the hearing record for the first time
contained actual data on the differences in costs between manufacturing
blocks and barrels. That data proved that there is essentially no cost
difference. The decision notes that this data came from only one cheese
manufacturer, but this is the only data on this cost difference ever
contained in testimony in any hearing. In addition, this manufacturer
represented the only plant which has the ability to produce either
blocks or barrels from the same total volume of farm milk, and therefore
is not biased by differences in plant size or efficiencies. USDA has no
reason to reject the only data ever presented on this difference, and
therefore should adopt proposal 12.

Finally, we urge USDA to act quickly to conclude this proceeding by
issuing a final decision as soon as possible based on the comments
submitted.

Respectively submitted,

Michael McCully

Director, Dairy Procurement

Kraft Foods