34570 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations

apply for service must pay for the

services rendered. These user fees are

proportional to the volume of shell eggs

graded, so that costs are shared by all

users. Shell egg processors who meet

the facility and operating requirements

are entitled to pack their eggs in

packages bearing official USDA grade

identification when AMS graders are

present to certify that the eggs meet the

requirements as labeled. Plants in which

these grading services are performed are

called official plants. There are about

700 shell egg processors registered with

the Department that have 3,000 or more

laying hens. Of these, 159 are official

plants that use USDA’s grading service

and would be subject to this rule. Of

these 159 official plants, the AMS

believes approximately 25 would meet

the small business definition.

The EPIA, enacted in 1970, authorizes

the mandatory inspection of egg

products operations and the mandatory

surveillance of the disposition of shell

eggs that are undesirable for human

consumption, with implementing

regulations in 7 CFR part 59. Congress

amended the refrigeration and labeling

requirements of the EPIA as part of the

Food, Agriculture, Conservation and

Trade Act Amendments of 1991.

In 1992, the AMS proposed changes

to 7 CFR part 59 to implement the 1991

EPIA amendments and to 7 CFR part 56

to make its temperature and labeling

requirements consistent with part 59.

Before AMS published the final rule,

however, the Department consolidated

food safety responsibilities under FSIS.

Egg products inspection functions under

the EPIA were delegated to FSIS, while

shell egg surveillance and grading

functions continued to be administered

by AMS. FSIS promulgated a final rule

with request for comments to

implement the 1991 EPIA amendments

in 7 CFR part 59, later redesignated as

9 CFR part 590, which became effective

August 27, 1999. Among other changes,

the amendments require a storage

temperature at no greater than 45 °F (7.2

°C) for eggs after they have been packed

into containers destined for the ultimate

consumer.

Since the proposed changes to the

shell egg grading regulations were not

finalized, AMS is revising 7 CFR part 56

to conform to the FSIS temperature and

labeling requirements mandated by the

1991 EPIA amendments. Because the

proposed rule was published some years

ago, AMS published this rule as an

interim final rule with request for

comments. We are only making changes

deemed necessary to avoid conflict

between the requirements of the final

rule published by FSIS and the AMS

shell egg grading program.

All shell egg processors that currently

use or are likely to use USDA grading

service typically have over 3,000 layers

and are therefore required to comply

with the provisions of the EPIA.

Accordingly, all eggs these processors

pack into consumer containers for the

ultimate consumer must comply with

EPIA refrigeration and labeling

requirements. Additionally, industry

practice is to refrigerate all processed

and graded eggs the same way, whether

packed into containers destined for the

ultimate consumer, or only officially

identified as U.S. Grade AA, A, or B.

Therefore, AMS has determined that

the provisions of this rule will not

impose any additional requirements on

small or large egg handlers.

Accordingly, it will not have a

significant economic impact on a

substantial number of small entities that

use USDA’s voluntary shell egg grading

service. In addition, FSIS discussed its

RFA analysis when it published its final

rule for 7 CFR part 59, and determined

that it would not have a significant

economic impact on a substantial

number of all small entities that

produce and process chicken eggs.

Executive Order 12866

This rule has been determined to be

not significant for purposes of Executive

Order 12866 and, therefore, has not

been reviewed by the Office of

Management and Budget (OMB).

Executive Order 12988

This rule has been reviewed under

Executive Order 12988, Civil Justice

Reform. It is not intended to have

retroactive effect. This rule will not

preempt any State or local laws,

regulations, or policies, unless they

present an irreconcilable conflict with

this rule. There are no administrative

procedures that must be exhausted prior

to any judicial challenge to the

provisions of this rule.

Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501

et seq.), the information collection and

recordkeeping requirements that appear

in part 56 have been previously

approved by the Office of Management

and Budget (OMB) under OMB control

number 0581–0128. There are no new

requirements provided for in this

rulemaking action.

After consideration of all relevant

material presented, including the

comments received, we are finalizing

the interim rule without change.

List of Subjects in 7 CFR Part 56

Eggs and egg products, Food grades

and standards, Food labeling, Reporting

and recordkeeping requirements.

PART 56—VOLUNTARY GRADING OF

SHELL EGGS

Accordingly, the interim rule

amending 7 CFR part 56 which was

published at 64 FR 56945 on October

22, 1999, is adopted as a final rule

without change.

Dated: May 24, 2000.

Kathleen A. Merrigan,

Administrator, Agricultural Marketing

Service.

[FR Doc. 00–13481 Filed 5–30–00; 8:45 am]

BILLING CODE 3410–02–P

NORTHEAST DAIRY COMPACT

COMMISSION

7 CFR Parts 1306, 1307 and 1309

Over-Order Price Regulation

AGENCY: Northeast Dairy Compact

Commission.

ACTION: Final rule.

SUMMARY: The Northeast Dairy Compact

Commission amends the over-order

price regulation to establish a milk

supply management plan. This new

program addresses the requirement in

the Northeast Interstate Dairy Compact

that the Commission take such action as

necessary and feasible to ensure that the

over-order price regulation does not

create an incentive for milk producers to

generate additional supplies of milk.

This rule establishes an assessment/

refund plan under which the

Commission will withhold 7.5 cents

from the per hundredweight producer

price in each month there is a Compact

payment, so long as the resultant

Compact producer price is at least 25

cents per hundredweight. The

Commission will, on an annual basis,

return the withheld funds to only those

Compact eligible producers who

increased their milk production at a rate

of one percent or less, as compared to

the prior year’s milk production. The

refund will be paid to eligible producers

by distributing one-half of the assessed

funds on an equal payment to each

eligible producer and one-half on a per

hundredweight basis of the total milk

production for the program year, up to

a maximum per hundredweight refund

of $12,000. The program year will be

from July 1 through June 30. This

supply management plan is intended to

ensure that the over-order price

regulation does not create an incentive

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations 34571

1 62 FR 29626, May 30, 1997. 2 63 FR 65563, Nov. 27, 1998.

3 64 FR 19084, Apr. 19, 1999.

4 64 FR 33027, June 21, 1999.

to generate additional supplies of milk

and that it continues to meet the

Commission’s primary mission to assure

the continued viability of dairy farming

in the northeast and to assure New

England consumers of an adequate and

local supply of milk.

EFFECTIVE DATE: July 1, 2000.

ADDRESSES: Northeast Dairy Compact

Commission, 34 Barre Street, Suite 2,

Montpelier, Vermont 05602.

FOR FURTHER INFORMATION CONTACT:

Kenneth M. Becker, Executive Director,

Northeast Dairy Compact Commission at

the above address or by telephone at

(802) 229–1941, or by facsimile at (802)

229–2028.

SUPPLEMENTARY INFORMATION:

I. Background

The Northeast Dairy Compact

Commission (‘‘Commission’’) was

established under authority of the

Northeast Interstate Dairy Compact

(‘‘Compact’’). The Compact was enacted

into law by each of the six participating

New England states as follows:

Connecticut—Pub. L. 93–320; Maine—

Pub. L. 89–437, as amended, Pub. L. 93–

274; Massachusetts—Pub. L. 93–370;

New Hampshire—Pub. L. 93–336;

Rhode Island—Pub. L. 93–106;

Vermont—Pub. L. 93–57. In accordance

with Article I, Section 10 of the United

States Constitution, Congress consented

to the Compact in Pub. L. 104–127

(FAIR Act), Section 147, codified at 7

U.S.C. 7256. Subsequently, the United

States Secretary of Agriculture, pursuant

to 7 U.S.C. 7256(1), authorized

implementation of the Compact. In

November 1999, the Congressional

consent to the Compact was extended

through September 30, 2001. 7 U.S.C.

7256(3), as amended by Pub. L. 106–113

§ 4.

Pursuant to its rulemaking authority

under Article V, Section 11 of the

Compact, the Commission concluded an

informal rulemaking process and voted

to adopt a compact over-order price

regulation on May 30, 1997. 1 The

Commission has subsequently amended

and extended the compact over-order

price regulation. The current compact

over-order price regulation is codified at

7 CFR Chapter XIII.

The Compact requires the

Commission, when establishing a

compact over-order price, to ‘‘take such

action as necessary and feasible to

ensure that the over-order price does not

create an incentive for producers to

generate additional supplies of milk.’’

Compact Article IV, Section 9(f). As

required by this section, the

Commission has taken several steps to

monitor milk production in New

England since implementation of the

over-order price regulation. In 1997, the

Commission contracted with two

Universities to conduct various studies,

including an assessment of the cost of

milk production in New England and an

analysis of milk supply in the Compact

region. In 1998, the Commission’s

Committee on Regulations and

Rulemaking held five regional meetings

to obtain information from the region’s

farmers regarding the increase in milk

production in the region and the

Commission’s responsibilities under

Article IV, Section 9(f) of the Compact.

The Commission also conducted an

historical review of milk supply control

methods that have been attempted in

the past on a national or regional level.

Finally, the Commission initiated a

series of informal rulemaking

proceedings.

The Commission began informal

rulemaking proceedings relating to milk

supply management by issuing a notice

on November 27, 1998. In that notice

the Commission requested public

comment and testimony on several

subjects and issues, including whether

additional supply management policies

and provisions should be incorporated

into the over-order price regulation. 2

The Commission specifically solicited

comments on four distinct methods of

addressing milk supply management

through the Compact producer price

payment. The four options were: (1) to

establish a cap that would limit the milk

eligible for the Compact payments to up

to 95,000 pounds of a producer’s

monthly milk production; (2) to

establish a cap that would limit the milk

eligible for the Compact payments at the

1998 production level for farms

producing in excess of 600,000 pounds

per month; (3) a refund/assessment plan

that would withhold an assessment

from each Compact monthly pool and

refund the assessed funds to only

producers who did not increase their

milk production during the program

period; and (4) a split pool proposal that

would withhold a certain amount from

each monthly pool and then redistribute

those funds to all eligible producers by

dividing the total and paying a set

percentage to all farms on an equal basis

and the remainder on a per

hundredweight basis.

The Commission held a public

hearing to receive testimony on

December 11, 1998 in Boxborough,

Massachusetts and comments were

received until 5:00 p.m. on December

31, 1998. At its January 13, 1999

meeting, the Commission voted to close

the subjects and issues rulemaking

proceeding and to refer the issues and

comments and testimony received to the

Committee on Regulations and

Rulemaking for review and analysis.

The Committee was directed to return to

the Commission with its

recommendations no later than the May

1999 meeting.

The Committee presented its

recommendations to the Commission at

the April 7, 1999 meeting. The

Commission voted to initiate an

informal rulemaking proceeding and to

propose a specific assessment and

refund program to address its

responsibilities under Article IV,

Section 9(f) of the Compact.3 The

assessment and refund program

proposed assessing a flat rate of

$250,000, or approximately four cents

per hundredweight, from each producer

pool. The assessment obligation would

have carried forward to the next pool in

any month without a Compact payment.

The refund of the assessments would

have been paid to only those producers

who increased their milk production at

a rate of one percent or less. The refund

would be paid in two parts, the first at

a flat rate to each eligible producer, and

the second part to only those producers

who reduced their milk production

based on the hundredweight of milk

that the current year’s production was

less than the prior year’s production.

The Commission held a public hearing

on May 5, 1999 in Concord, New

Hampshire and received comments

until May 19, 1999.

At its meeting on June 2, 1999, and

after considering the testimony and

comments submitted in the rulemaking

proceeding, the Commission voted to

reopen the proceeding and to propose as

a second option a base/excess plan, in

addition to a modified assessment/

refund plan.4 The proposed base/excess

plan would establish a monthly base

production level for each producer,

using the prior year’s production in that

month as the base. The producer would

then only be eligible for Compact

payments on the volume of milk

produced in the current month up to the

base volume of milk produced in the

same month in the prior year. There

would be no Compact payment on milk

produced in excess of the base. The

amended assessment and refund plan

would establish an assessment of five

cents per hundredweight against the

producer pay price, but only in months

with a Compact payment.

34572 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations

5 65 FR 12146, Mar. 8, 2000.

6Summary of Testimony Concerning the Issue of

Increased Milk Production in the Region, Written

Comments December 1998 rulemaking record,

hereinafter ‘‘WC 12/98’’ at 22–38.

7Written Statements Submitted at the Public

Hearings, WC 12/98 at 57–163.

8Producer Letters and Phone Calls Concerning

the Issue of Increased Milk Production, WC 12/98

at 164–257.

9Supply Management Options Proposed for the

US Dairy Industry: Historical Review, WC 12/98 at

44–56.

10WC 12/98 at 39.

11 63 FR 65563, November 27, 1998.

The Commission held public hearings

on July 7, 1999 in West Springfield,

Massachusetts and August 4, 1999 in

White River Junction, Vermont on the

proposed base/excess and modified

assessment/refund plans. The

Commission received written comments

through August 18, 1999.

At its September 1, 1999 meeting, the

Commission voted to postpone

deliberation on the proposed supply

management rules pending resolution of

legislation in Congress regarding

reauthorization and expansion of the

Compact. The Commission repeated this

action at its October 6, 1999 and

November 10, 1999 meetings.

Following Congressional

reauthorization on November 29, 1999,

the Commission began deliberations on

the proposed supply management rules

at its December 1, 1999 meeting. The

Commission voted to reject the

proposed base/excess plan, due to

excessive administrative costs

associated with that proposal, as

demonstrated in the hearing record

through testimony and comment, and to

move forward with the analysis of the

public comment on the proposed

assessment/refund program. The

Commission’s Committee on

Regulations and Rulemaking continued

its analysis of the rulemaking record.

At the February 2, 2000 Commission

meeting, because so much time had

passed since the last public comment

period and new milk production

statistics were available, the

Commission voted to close the pending

supply management proceedings and

instructed the Committee on

Regulations to hold a public meeting

and to return to the Commission’s

March meeting with a new proposed

rule to address the Commission’s

responsibilities under Article IV,

Section 9(f) of the Compact. The

Committee held a public meeting on

February 23, 2000 to discuss the

Commission’s supply management

options.

On March 8, 2000 the Commission

voted to propose a revised assessment/

refund plan that would assess five cents

against the producer price in each

month with a Compact pool, and refund

those funds to all producers who had

maintained their milk production at or

below one percent of the prior year’s

production. The refund would be

distributed in two parts, with the first

paid to all eligible producers at an equal

payment to each producer and the

second part on a per hundredweight

basis of total milk production for the

program year. The Commission held a

public hearing on April 5, 2000 in

Bedford, New Hampshire. 5 The

Commission accepted written comments

until April 19, 2000.

Based on the comments received in

the public meetings on supply

management in April and May 1998 and

February 2000 and oral testimony and

written comments and exhibits received

in the December 1998 subjects and

issues rulemaking proceeding, and the

May, July and August 1999 and April

2000 public hearings and proposed

rulemaking proceedings, the

Commission implements a supply

management plan through an

assessment and refund payment to

producers who maintain their milk

production up to one percent of the

prior year’s production level. The

comments and testimony received as

part of the public participation in the

rulemaking proceedings and the milk

supply management plan are described

in detail below.

II. Summary of Public Comments and

Testimony

A. Summary of 1998 Proceedings

The Commission has closely

monitored the milk supply in the New

England states since the implementation

of the over-order price regulation. In

1998, the Commission initiated a

comprehensive investigation into the

increase in milk production that

occurred in the first three quarters of

1998 and to evaluate how best to

address its obligations under Article IV,

Section 9(f) of the Compact. These

activities included holding five regional

meetings of the Committee on

Regulations and Rulemaking and the

review and analysis of supply

management options proposed for the

United States Dairy Industry over the

years. The Commission also initiated a

subjects and issues rulemaking

proceeding to obtain public comments

and testimony regarding additional

regulation of the New England milk

supply.

The Commission held five regional

meetings of its Committee on

Regulations and Rulemaking in April

and May of 1998. These meetings were

held in Vermont, Massachusetts,

Saratoga Springs, New York,

Connecticut and Maine. The

Commission received oral and written

comments in response to those

meetings. A summary of the oral 6 and

written 7 comments is included in the

December 1998 rulemaking record.

Additional letters and telephone calls

were received by the Commission in

response to the regional meetings of the

Committee on Regulations and

Rulemaking and the letters are also

included in the record. 8 The

overwhelming opinion of dairy farmers

was that the Compact over-order price

was not responsible for the increase in

milk supply, but rather that the

favorable weather and grain prices and

long term business plans were

responsible. Still many individuals did

express support for the adoption of a

supply management plan by the

Compact Commission.

In addition, the Commission reviewed

the supply management options

proposed for the United States dairy

industry. 9 The review includes a

discussion of Federal Milk Market

Orders, The Dairy Price Support

Program, Voluntary Supply Control

Programs, such as the Milk Diversion

Program, the Dairy Termination

Program, and Refundable Assessment,

as well as Mandatory Supply Control,

such as allocating the ‘‘right of

production’’ and a quota system. This

review also includes a bibliography.

In December 1998, the Commission

initiated a public hearing, at the request

of the Massachusetts delegation to the

Commission, to consider placing a limit

on the amount of milk on which the

Compact over-order producer price is

paid. The purpose of the proposed limit,

or cap, would be ‘‘to increase the level

of income stability for the average sized

farmers and to limit the incentives for

increased production in the Compact

region.’’ 10 On November 27, 1998, the

Commission published a notice of

proposed rulemaking and requested

testimony and comments on whether to

amend the formula for distribution of

monies from the producer-settlement

fund, including whether to adopt a cap

on the amount of milk, per producer,

eligible for the Compact over-order

producer price and whether additional

supply management policies and

provisions should be incorporated into

the over-order price regulation. 11 The

Commission held a public hearing on

December 11, 1998 in Boxborough,

Massachusetts and received written

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations 34573

12 63 FR 65564, November 27, 1998.

13Carmen Ross, Tr. 14 and WC 12/98 at 2–16; 63

FR 65564.

14Ross, WC 12/98 at 17–19.

15Ross, WC 12/98 at 20.

16 64 FR 19084 (April 19, 1999).

17Carmen Ross, May 1999 Transcript (‘‘Tr. 5/99’’)

at 4–61.

comments and exhibits until December

31, 1998.

In its November 27, 1998 notice of

proposed rulemaking, the Commission

specifically solicited comments on four

proposals: the Massachusetts Cap

Proposal, a Proposal to Cap the Largest

Producers, a Split Pool Proposal, and a

Refund/Assessment Option. 12 These

proposals were developed as a result of

the Massachusetts delegation cap

proposal and the comments submitted

in response to the five regional meetings

and the supply management option

review.

The Commission’s Regulations

Administrator, Carmen Ross, prepared

several comparison charts of the

Massachusetts cap proposal and an

additional split pool option, as an

alternative method of addressing the

concerns expressed by the

Massachusetts delegation. 13 In addition,

Mr. Ross included data from the Market

Administrator Order #1 regarding the

number of farms by size category and

year for comparison purposes. 14 Using

this data, Mr. Ross compiled another

chart summarizing the milk production

by farm size. 15

The majority of the commenters

addressed the cap proposal and supply

management issues. Some commenters

addressed the income distribution

issues and others offered alternative

proposals. A few commenters addressed

the split pool and refund/assessment

proposals.

1. Cap Proposals

The vast majority of the commenters

opposed the cap proposals and a few

commenters supported the cap. Other

commenters simply recommended that

the producer payment regulations

should not be changed.

Most of the commenters who opposed

a cap proposal were concerned that a

cap would not be fair, would create a

disincentive, would be divisive, and

ultimately would not save the smaller

farms, because farms go out of business

for many reasons and not because of

price in the short term. Many of these

commenters emphasized the need for all

size farms, that small farms benefit from

the larger farms in their area, and the

importance for individual farms to be

able to decide how large, or small, they

need or want to be.

2. Income Distribution

The majority of the commenters

opposed changing the basic producer

pay formula and expressed support for

the Commission’s current methodology.

Many of the commenters who opposed

a change in the income distribution

formula emphasized that many of the

so-called larger farms are family farms

run by two or more family members and

supporting several related families, and

gave the same reasons as those opposing

a cap proposal for their opposition such

as the importance of fairness in the

regulation and the concern that

divisiveness among farmers would

result from changing the income

distribution formula.

3. Supply Management

Supply management was also

opposed by a great majority of

commenters, both at the hearing in

Boxborough and at the Committee’s

hearings in the Spring of 1998. Many of

those opposed to supply management

also did not believe that the Compact

was causing the increase in production

in New England, but rather attributed

the increase to warm weather and good

quality feed at low prices. Others stated

that they increased production as part of

a long-term plan to expand. Many of the

commenters, especially at the Spring

1998 meetings, expressed how helpful

the Compact payments have been, but

these same commenters also stated

unequivocally that the Compact

payments did not cause them to

increase production. Other commenters

questioned why supply management is

needed when farms are still going out of

business and New England continues to

be dependent on milk from other states,

primarily New York.

Some commenters did support the

Compact Commission instituting some

form of supply management. A few

commenters did think that the Compact

payments are the cause of increased

production in New England.

4. Split Pool Proposal and Refund/

Assessment Proposal

Few comments were received

specifically addressing the split pool

proposals or other two-tiered system,

and these comments were offered only

if the Commission determined that an

amendment to the income distribution

methodology was required. Similarly,

the Refund and Assessment proposal

received few comments.

B. Summary of 1999 Rulemaking

Proceedings

At the January 13, 1999 Commission

deliberative meeting, the December

1998 supply management rulemaking

record was referred to the Committee on

Regulations and Rulemaking for

analysis and review. The Committee

reported its recommendations to the

Commission at the April 7, 1999

meeting and the Commission published

a proposed rule on April 19, 1999. 16

The proposed rule would have

established an assessment/refund

program under which the Commission

would withhold up to $3 million dollars

per year, at the rate of $250,000 from

each Compact monthly pool. In months

without a Compact pool, the assessment

would accrue to the next monthly pool.

At the end of the calendar year, the

Commission would refund the assessed

funds to producers who had increased

production of 1% or less, as compared

to the prior year’s production. One-half

of the assessment would be refunded at

a flat rate to each eligible producer. The

remaining half would be refunded only

to those producers who decreased

production, on a per hundredweight

payment based on the volume of

reduced production. The Commission

held a public hearing on May 5, 1999 in

Bedford, New Hampshire and received

written comments until May 19, 1999.

The Commission received testimony

from its Regulations Administrator,

Carmen Ross, and four other witnesses

at the May 5, 1999 public hearing on the

first proposed assessment/refund rule.

Mr. Ross’ testimony was an explanation

of the Commission’s proposed rule. 17

One commenter generally supported

the Commission’s proposal, but offered

an alternative approach involving an

individual base for each farmer. Another

commenter expressed the view that New

England is not the cause of the national

oversupply of milk. This commenter

opposed a supply management plan,

because the only producers to reduce

production are those who had a bad

year and felt the existing regulation

works well. He expressed the view that

the 2.8 percent of income that the

Compact payments represent, is not

enough to make management decisions.

He felt that his farm is set up for a

certain number of cows, and to reduce

the number would start a domino effect

of decreased production.

One commenter presented testimony

on behalf of three farmer cooperatives,

in which he generally felt a supply

management plan was not necessary,

but as an alternative offered a plan to

establish a base for each producer. This

commenter felt by making Compact

payments only up to the prior year’s

production level would address the

incentive aspect of Article IV, Section

9(f) of the Compact. This commenter

also opposed making refund payments

34574 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations

18 64 FR 33027 (June 21, 1999).

19The proposal also indicated the Commission

would modify the rule relative to the Commodity

Credit Corporation to return remaining funds from

a CCC reserve account to the producer-settlement

fund. The current rule requires such funds to be

returned to producers who did not increase their

milk production and is not changed by this final

rule. 20 65 FR 12146, Mar. 8, 2000.

on the volume of reduced production.

This opinion was shared by another

commenter.

The Commission also received

eighteen written comments. Of these,

eleven supported the Commission’s

actions to address milk supply issues

and eight opposed any supply

management plan. Of those opposing a

supply management plan, the

commenters expressed concern for how

the plan would affect small or new

farms or younger farmers trying to grow

their businesses. Others felt that the

Commission has already taken sufficient

steps to ensure the Compact payments

do not create an incentive to generate

additional supplies of milk, through the

payments to the Commodity Credit

Corporation and refunding the balance

to farmers who did not increase

production, implementation of the

diversion and transfer rule and by

setting the Compact price at a floor of

$16.94.

Many of the commenters supporting

the proposed assessment and refund

plan felt that the assessment would have

to be higher than four cents, some

recommended up to twenty cents or

twenty per cent of the monthly Compact

producer price, to be effective. Another

commenter felt the five cent assessment

was adequate, but should be capped at

$2.5 million for the program year.

Several commenters objected to the

proposed plan to make part of the

refund payment on the reduced volume

of milk production, instead of the

historical dairy pricing policy of

payments based on total milk produced.

Many commenters urged the

Commission to match the base of

comparison, not to the prior year’s

production volume, but rather to a

producers contribution to a milk supply

volume balanced to the New England

consumer demand. Other commenters

objected to the accrual of the assessment

obligation to the next pool, in months

with no Compact payment.

At its June 2, 1999 meeting, the

Commission considered the testimony

and comments received and voted to

modify the proposed assessment/refund

rule and to alternatively propose a base/

excess rule.18 The assessment/refund

plan was modified to withhold five

cents from each Compact pool, without

an assessment accruing in months

without a Compact pool. The modified

proposal also included a $12,000 cap on

the amount of the refund to be paid out

on a per hundredweight basis.19

The Commission also proposed, as an

alternative, a base/excess plan. Under

that proposal, all compact qualified

producers would be assigned a base

production level for each month. The

base would be the equivalent of the

volume of milk produced in the same

month in the prior calendar year.

Producers would then receive compact

payments on only their base production

volume, or actual production volume,

whichever is less. Any amount of milk

produced in excess of the base would

not receive Compact payments.

Adjustments to the base would be

dependent on the rate of increased

production in the Compact region as

compared to the national average. The

Commission held public hearings on

July 7, 1999 in West Springfield,

Massachusetts and on August 4, 1999 in

White River Junction, Vermont. Both of

these public hearings were held in the

evening to accommodate summer farm

work schedules and to encourage

farmers to attend. Comments were

received through August 18, 1999.

The Commission received testimony

from twenty-seven witnesses in those

two public hearings and received eleven

additional written comments. Of these

commenters, one commenter supported

a supply management plan, and

suggested that supply be matched to

consumer demand and twenty-eight

opposed the Commission taking any

action regarding supply management,

but nine would support the base/excess

plan, if the Commission felt it was

necessary. The reasons given for

opposing a supply management plan

included that it is not necessary because

milk production is due to weather

conditions and feed quality and price,

the Commission has already taken

sufficient actions and that milk supply

is a national problem and the small

amount of money represented by the

Compact payments to New England

milk producers cannot effect the

national milk supply.

Two of the witnesses appeared at the

request of the Commission. They were

David Walker, Federal Order #4 Market

Administrator and Eric Rasmussen,

Federal Order #1 Market Administrator.

These witnesses testified to their

administrative experience with plans

similar to those proposed by the

Commission. Mr. Walker explained the

heavy administrative aspect of

implementing a base/excess plan and

Mr. Rasmussen explained the

experience with administering and

auditing functions his office performed

for the Commission in the 1999 refund

of the balance in the Commodity Credit

Corporation escrow account to

producers who did not increase their

milk production.

The Commission notes that the

commenters participating in the

rulemaking proceedings described

above provided comments of

exceptional quality. Many commenters

thoroughly analyzed the charts

presented by the Commission and of

those who presented alternative

proposals, many produced their own

charts and compared the results to the

charts presented by the Commission.

The Commission appreciates the

thoughtful participation and assistance

offered by these commenters and has

found the opinions, data and comments

of great value.

C. Summary of Current Proceeding

The Commission proposed the instant

rule on March 8, 2000.20 The

Commission proposed a revised

assessment and refund plan that would

withhold five cents from the producer

price in each Compact monthly pool.

The Commission would refund the

assessment on an annual basis to those

producers who had increased

production at a rate of one percent or

less, as compared to the prior calendar

year’s production. One-half of the

assessed funds would be distributed to

all eligible producers at a flat rate and

one-half would be distributed based on

the total volume of milk produced for

the year, up to a maximum per

hundredweight refund of $12,000. This

proposed rule responded to previous

comments by deleting the provision that

would have the assessment accrue to the

next pool, in months without a Compact

payment and by paying the per

hundredweight refund to all eligible

producers, instead of only those who

actually decreased production, and by

making that payment on the total

volume of milk produced, rather than

on the volume of reduced production.

The Commission received testimony

from three witnesses and three written

comments. All those commenting

supported a supply management plan.

Three commenters felt the assessment

should be higher than the proposed five

cents, and suggested at least ten cents,

and one commenter supported the

proposal but only if the assessment is no

more than five cents.

D. Analysis of Comments Received

The Commission concludes that the

adopted milk supply management plan

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations 34575

21Executive Summary, Milk Market Impacts of

the Northeast Dairy Compact, Department of

Community Development and Applied Economics,

University of Vermont November 1999.

22 62 FR 23039–40, April 28, 1997; 62 FR 29635,

May 30, 1997; 62 FR 62814, Nov. 25, 1997.

23 Impacts of the Northeast Interstate Dairy

Compact on New England Milk Supply, Charles F.

Nicholson, Budy Resosudarmo and Rick

Wackernagel, Department of Community

Development and Applied Economics, The

University of Vermont.

is both necessary and feasible and is

therefore required by Article IV, Section

9(f) of the Compact. The Commission

further concludes that its responsibility

under that section is met with this

program and the other actions

previously taken by the Commission to

ensure that the over-order price

regulation does not create an incentive

to producers to generate additional

supplies of milk, while assuring the

viability of dairy farming in the

northeast.

The Commission does not disagree

with the many commenters who noted

that a national milk supply management

program should be considered and not

just a program applicable in the

northeast. However, the Commission

notes its peculiar responsibility relative

to milk supply in the northeast under

the Compact and concludes that this

program is appropriate.

The Commission also does not

disagree with the numerous commenters

that milk supply is greatly effected by

weather conditions and feed quality and

cost. Nevertheless, the Commission is

charged with taking action that is

necessary and feasible relative to milk

supply and concludes that the

assessment/refund plan adopted by this

amendment meets that obligation.

The Commission also recognizes the

many statements from producers that

the Compact has not caused them to

increase their milk production. The

Commission does not disagree with

their statements that good weather, good

quality feed and low feed cost

contributed to the milk production

increase in the New England states in

1998 and 1999. However, the

Commission also defers to the results of

its commissioned study that concludes

that even taking those factors into

account, one percent of the milk

production increase between July 1997

and June 1998 is attributable to the

Compact payments.21

The Commission concludes that the

assessment and refund plan is sufficient

to meet the requirements of Article IV,

Section 9(f) of the Compact. Many

commenters suggested that the proposed

rate of five cents per hundredweight

was insufficient and some suggested up

to twenty percent of the Compact

producer price be set as the assessed

rate. The Commission agrees that five

cents may be insufficient, but that ten

cents is more than necessary in light of

current milk production data that shows

New England production below the

national average. Therefore, the

Commission concludes that 7.5 cents

reduction in the producer price for

twelve months is sufficient to result in

a supply management refund pool that

will encourage producers to stabilize

their milk production at one percent or

less. A stable milk supply in New

England is a goal for the Compact and

will assure consumers of an adequate

and local supply of milk. Therefore, the

Commission adopts an assessment rate

of 7.5 cents against the producer price

in each month there is a Compact

payment.

However, the Commission is

concerned that when federal milk prices

are high, that is a signal that more milk

is needed, and therefore will not impose

the 7.5 cents assessments when it would

result in a producer pay price of less

than 25 cents.

The Commission agrees with the

numerous commenters that the refund

should be paid on total production, and

not on reduced production. The

Commission understands the opposition

of some commenters to the two-tier

refund design of the supply

management plan. However, the

Commission recognizes the different

impacts on different size farms and

different pressures on farms in more

populated states. The Commission

concludes that the two-tier refund

design will best assure a local supply of

milk throughout New England.

The milk supply management plan

implemented by this rule is a voluntary

plan. This rule does not require young

or new farmers to restrict their business

growth plans. However, it does provide

an incentive for farmers to stabilize their

production.

The Commission has been very

cognizant of the repeated requests from

those participating in the public

meetings and hearings that any plan be

equitable and fair to all farmers. The

Commission adopts this supply

management plan after much careful

consideration and deliberation and

concludes that this plan allows many

factors to be balanced while providing

equity and fairness to all farmers

through this voluntary supply

management plan.

III. Milk Supply Management Plan

The milk supply management plan

implemented by this rule is designed to

meet the Commission’s responsibilities

under Article IV, Section 9(f) of the

Compact. That provision provides that

‘‘[w]hen establishing a compact overorder price, the commission shall take

such action as necessary and feasible to

ensure that the over-order price does not

create an incentive for producers to

generate additional supplies of milk.’’

The supply management plan is

relatively straightforward to administer

and implement and therefore the

Commission concludes that it is a

feasible method of addressing supply

management. The proposed supply

management plan is necessary to ensure

that the Compact Over-order price does

not create an incentive for producers to

generate additional supplies of milk, as

required by Article IV, Section 9(f) of

the Compact.

Since promulgation of the Compact

Over-order Price Regulation in 1997, the

Commission has closely monitored milk

production levels in New England. One

of the main goals in initially

promulgating the Over-order Price

Regulation was to at least stabilize the

dairy industry supplying the New

England consumer milk markets and to

increase the local supply of milk.22

The Commission received the results

of a study, conducted by the University

of Vermont, of the milk supply in the

first year of the Compact Over-order

Price Regulation. The study concluded

that the Over-order Price Regulation was

meeting its initial goal of stabilizing the

milk supply and that one percent of the

increase in milk supply between July

1997 and June 1998 was due to the

Compact payments.23 This study

analyzed the milk supply in New

England and factored in many variables,

including weather and feed quality and

prices in concluding that the Compact

Over-order Price Regulation was

increasing milk supply by one percent,

a stated goal of the Commission in

implementing the price regulation in

1997. The study does not include an

analysis of the impact of the price

regulation after June 1998.

Table 1 shows the total volume of

milk in the Compact pool between July

1997 and December 1999. The volume

of milk includes milk produced outside

of New England, and distributed within

New England, and does not include

milk excluded pursuant to the Compact

limitations on qualification of diverted

and transferred milk.

34576 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations

24 63 FR 65517, Nov. 27, 1998.

TABLE 1.—VOLUME OF MILK IN THE COMPACT POOL JULY 1997 THROUGH DECEMBER 1999

[In million pounds]

Month 1997 1998 1999

Jan ............................................................................................................................................... ........................ 544.2 568.3

Feb ............................................................................................................................................... ........................ 508.1 528.3

Mar ............................................................................................................................................... ........................ 561.2 563.0

Apr ............................................................................................................................................... ........................ 541.8 568.5

May .............................................................................................................................................. ........................ 580.8 599.0

June ............................................................................................................................................. ........................ 552.1 569.2

July ............................................................................................................................................... 531.0 567.9 564.3

Aug ............................................................................................................................................... 532.2 551.3 559.8

Sept .............................................................................................................................................. 503.9 529.5 530.4

Oct ............................................................................................................................................... 517.3 544.3 545.9

Nov ............................................................................................................................................... 498.0 527.3 525.3

Dec ............................................................................................................................................... 535.1 566.0 560.7

Average ................................................................................................................................ 519.6 547.9 556.9

Table 2 shows the volume of milk that has been depooled, or excluded from qualification for Compact payments,

pursuant to the Compact limitations on diverted and transferred milk.24 The limitations on diverted and transferred

milk became effective in January 1999 and applied to the first Compact pool in April 1999. The applicable regulations

are codified at 7 CFR 1301.23(d) and 1304.2(c).

TABLE 2.—VOLUME OF DEPOOLED MILK JANUARY 1999 THROUGH DECEMBER 1999

[In million pounds]

Month Depooled

Milk

Jan ........................................................................................................................................................................................................... ....................

Feb ........................................................................................................................................................................................................... ....................

Mar ........................................................................................................................................................................................................... ....................

Apr ........................................................................................................................................................................................................... 4.3

May .......................................................................................................................................................................................................... 1.2

June ......................................................................................................................................................................................................... .9

July ........................................................................................................................................................................................................... 1.5

Aug ........................................................................................................................................................................................................... 4.8

Sept .......................................................................................................................................................................................................... 4.7

Oct ........................................................................................................................................................................................................... 2.0

Nov ........................................................................................................................................................................................................... 2.2

Dec ........................................................................................................................................................................................................... 1.4

Total .................................................................................................................................................................................................. 23.0

Table 3 shows the total volume of milk qualified for Compact payments, after exclusions pursuant to the diverted

and transferred milk limitations, by quarter. Table 3 also shows the percent increase in milk volume over the same

quarter in the prior year.

TABLE 3.—COMPACT PRODUCER MILK BY QUARTER, JULY 1997 THROUGH DECEMBER 1999

Quarter

1997

million

pounds

1998

million

pounds

1999

million

pounds

1997/1998

(percent)

1998/1999

(percent)

Jan-Mar .................................................................................................... .................... 1,613.5 1,659.6 .................... 2.9

Apr-June .................................................................................................. .................... 1,674.7 1,736.7 .................... 3.7

Jul-Sep ..................................................................................................... 1,567.1 1,648.7 1,654.5 5.2 0.4

Oct-Dec .................................................................................................... 1,550.4 1,637.6 1,631.9 5.6 ¥0.4

Average ............................................................................................ 1,558.75 1,643.6 1,670.7 5.4 1.6

Table 4 shows the federal blend price, the Compact producer price and the percent of total producer price attributed

to Compact payments.

TABLE 4.—TOTAL PRODUCER PRICE AND PERCENT ATTRIBUTED TO COMPACT PAYMENTS

Month

Federal

blend

price

(zone 21)

Compact

producer

price

Total

producer

price

% of total

due to

compact

July 1997 ....................................................................................................................... 11.97 1.28 13.25 9.66

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations 34577

25 Impacts of the Northeast Interstate Dairy

Compact on New England Milk Supply, Charles F.

Nicholson, Budy Resosudarmo and Rick

Wackernagel, Department of Community

Development and Applied Economics, The

University of Vermont.

26 ‘‘USDA Agricultural Baseline Projections to

2009,’’ Staff Report WAOB–2000–1, Office of the

Chief Economist, USDA.

TABLE 4.—TOTAL PRODUCER PRICE AND PERCENT ATTRIBUTED TO COMPACT PAYMENTS—Continued

Month

Federal

blend

price

(zone 21)

Compact

producer

price

Total

producer

price

% of total

due to

compact

August ............................................................................................................................ 12.26 1.31 13.57 9.65

September ..................................................................................................................... 12.54 1.36 13.90 9.78

October .......................................................................................................................... 13.60 0.81 14.41 5.62

November ...................................................................................................................... 14.10 0.44 14.54 3.03

December ...................................................................................................................... 14.06 0.40 14.46 2.77

January 1998 ................................................................................................................. 14.02 0.34 14.36 2.37

February ......................................................................................................................... 14.30 0.04 14.34 0.28

March ............................................................................................................................. 14.10 0.16 14.26 1.12

April ................................................................................................................................ 13.96 0.14 14.10 1.00

May ................................................................................................................................ 13.38 0.33 13.71 2.41

June ............................................................................................................................... 13.68 0.71 14.39 2.41

July ................................................................................................................................. 13.14 1.02 14.16 7.20

August ............................................................................................................................ 15.00 0.24 15.24 1.57

September ..................................................................................................................... 16.47 0.00 16.47 0

October .......................................................................................................................... 16.76 0.00 16.76 0

November ...................................................................................................................... 16.67 0.00 16.67 0

December ...................................................................................................................... 17.18 0.00 17.18 0

January 1999 ................................................................................................................. 17.29 0.00 17.29 0

February ......................................................................................................................... 15.82 0.00 15.82 0

March ............................................................................................................................. 15.69 0.00 15.69 0

April ................................................................................................................................ 11.76 1.43 13.19 10.8

May ................................................................................................................................ 12.42 0.82 13.24 6.2

June ............................................................................................................................... 12.79 0.73 13.52 5.4

July ................................................................................................................................. 12.97 1.01 13.98 7.22

August ............................................................................................................................ 13.64 0.70 14.34 4.88

September ..................................................................................................................... 15.34 0.21 15.55 1.35

October .......................................................................................................................... 15.47 0.00 15.47 0

November ...................................................................................................................... 15.41 0.00 15.41 0

December ...................................................................................................................... 12.15 1.00 13.15 7.60

Average .................................................................................................................. 14.26 0.49 14.75 3.32

In addition to the public comment

and testimony discussed above, the

Commission considered the data shown

in Tables 1 through 4, and published as

part of the proposed rule, and the data

and conclusions provided in the

University of Vermont Milk Supply

studies, as well as milk production data

published by the United States

Department of Agriculture (USDA)

National Agricultural Statistics Service

(NASS) and milk supply and demand

data and estimates published by the

USDA World Agricultural Outlook

Board (WAOB), to design a feasible

supply management plan. The supply

management plan adopted by the

Commission, and approved by

producers, is designed (1) to ensure that

the over-order price does not create an

incentive for producers to generate

additional supplies of milk, and (2) to

be consistent with the Commission’s

primary responsibility of assuring the

viability of dairy farming in the

northeast, and to assure consumers of an

adequate, local supply of pure and

wholesome milk. Compact Article I,

Section 1 and Article IV, Section 9(f).

The Commission concludes that

establishing a voluntary supply

management plan, that includes an

allowance for an annual increase of one

percent, will meet these dual objectives.

In implementing this program the

Commission notes that the Compact

producer price, since the inception of

the price regulation in July 1997, has

averaged only 3.3% of the total

producer pay price, and therefore the

Commission recognizes there are some

limitations on the ability to affect

producer decisions through the

Compact price. The Commission also

acknowledges that weather and other

circumstances, such as feed quality, that

affect milk production and supply, are

unaffected by the Compact price.

The Commission finds, based on the

University of Vermont studies, that

changes in production technology, such

as genetic advances and improvements

to feeding systems, milking systems and

other farm management practices, led to

a 2% growth rate in average annual milk

production per cow in New England for

the ten-year period between 1988 and

1998.25 Those same studies also found

that milk production increased at a rate

of 1.3% in the Compact region, between

July 1997 and June 1998, of which 1%

was attributable to the Compact

producer price.

Therefore, the Commission recognizes

that milk production is partially

determined by price and partially

determined by weather and other factors

that are uncontrolled by the producer

and unaffected by price levels. The

Commission intends the supply

management plan to affect, through the

incentive aspects of the Compact price,

the producer decisions regarding milk

production that are directly related to

the Compact price.

On the demand side, the Commission

notes that USDA projects commercial

disappearance of dairy products to grow

at approximately 1% annually for the

next decade.26 The Commission finds

that a 1% annual growth in demand

justifies the conservative allowance of a

1% annual increase in supply to

encourage a stable milk production level

34578 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations

27 63 FR 65517 (Nov. 27, 1998).

consistent with demand for milk in New

England and to accomplish the

expressed goals of the Compact.

The Commission also concludes that

the 1% allowance is supported by the

relative equilibrium between milk

supply and demand in New England

since the implementation, on January 1,

1999, 27 of the rule limiting Compact

payments on milk diverted and

transferred out of the region. Pursuant to

that rule, some milk has been excluded

from the monthly Compact pool, as

reflected in Table 2. However, the low

percentage of depooled milk (e.g. 0.15%

in June 1999 and 0.7% in April 1999)

indicates a relative equilibrium between

supply and demand in the New England

milk market.

This demonstrates that since the

inception of the compact price

regulation in July 1997, including the

1% increase in milk supply in New

England attributable to the Compact

producer price, as determined by the

University of Vermont studies, a relative

equilibrium between milk supply and

demand in New England has been

achieved.

The Commission finds, based on the

public comment and testimony in this

proceeding and the findings in prior

rulemaking proceedings regarding price

level, that the established level Compact

Class I price of $16.94 per

hundredweight will continue to be

sufficient to ensure an adequate supply

of milk to New England consumers. The

Commission acknowledges that those

producers who increase production

greater than one percent will receive

slightly less compact price at the end of

the program year. However, those who

maintain a stable level of milk

production will receive slightly more.

The Commission concludes that the

adopted supply management program,

as applied to all producers supplying

the New England market, will ensure

that the Compact producer price does

not create an incentive to generate

additional supplies of milk.

The supply management plan assesses

7.5 cents per hundredweight from the

producer price in each monthly

Compact pool. By taking an equal rate

from each producer pool, the

Commission intends that the impact on

the monthly producer pay price will be

minimized and predictable, thereby

continuing to ensure a sufficient and

stable pay price to producers to cover

their costs of production. These funds

will be accumulated in a separate

interest-bearing account throughout the

twelve-month plan year in a supply

management-settlement fund.

At the conclusion of the plan year,

producers will have 45 days to submit

an application to the Commission for a

refund from the supply managementsettlement fund. Producers will be

eligible for the refund if they

maintained their milk production

volume at a rate of increase of 1%, or

less, compared to the prior year’s

production. One-half of the supply

management-settlement fund will be

distributed to eligible producers on a

per producer basis, with each producer

receiving an equal payment. The

amount of the flat rate refund will be

determined by dividing the total

number of eligible producers into onehalf the value of the supply

management-settlement fund.

In addition, eligible producers will

receive a refund amount based on a

price per hundredweight of their total

volume of milk produced in the plan

year, up to a maximum of $12,000. The

second-half of the supply managementsettlement fund will be distributed on

the per hundredweight basis. The

amount of this half of the refund will be

determined by dividing the total volume

of milk produced by eligible producers

into one-half the value of the supply

management-settlement fund to

determine the rate per hundredweight

each eligible producer will receive.

The assessment/refund program will

provide a reward to those producers

who stabilize their milk production and

will create an incentive for all producers

to maintain a stable, local supply of

milk for the New England milk market.

All producers will share equally in

the burden of funding this program

through a reduction in the producer pay

price. Only those producers who reduce

or maintain their production level at 1%

or less will be eligible for a refund.

However, the program will not

otherwise restrict the milk production of

those producers who, for business

reasons unrelated to the compact

payments, choose to increase their milk

production at a rate greater than 1% per

year. All producers, and in particular,

young and new farmers must be

permitted to operate their businesses

according to their own plan. With

improvements in genetics and farm

efficiency, milk production volume on

an individual farm will increase even if

the same herd size is maintained.

Therefore, the Commission has designed

this supply management plan to be

voluntary in nature.

It is the intention and judgment of the

Commission that the combination of

this supply management assessment/

refund plan and the rules limiting

compact payments on diverted and

transferred milk will operate in

coordination to regulate the supply of

milk in New England relative to the

consumer demand and to ensure that

the compact payments do not create an

incentive to generate supplies of milk in

excess of the tolerance levels prescribed

for diverted and transferred milk.

IV. Technical Amendments to the OverOrder Price Regulation

The Commission amends section

1306.3 and adds a new Part 1309 to

provide the necessary regulations to

implement the supply management

assessment/refund plan. The

Commission also makes corresponding

technical changes required by the

specific amendments and additions to

the current regulations.

The Commission amends section

1306.3, by first redesignating existing

paragraphs (e) through (g) as paragraphs

(f) through (h) and adding a new

paragraph (e). The new paragraph

specifies that the Commission will

withhold 7.5 cents from each monthly

producer pool to fund the supply

management-settlement fund, but only

if the resultant over-order producer

price is at least 25 cents.

A new Part 1309 is added to provide

the regulations to implement the supply

management plan. Section 1309.1

defines producer qualifications for the

refund program and designates the plan

year as between July 1 and June 30.

Section 1309.2 defines the procedure for

computing the refund prices to be paid

to qualified producers. Section 1309.3

provides the authority for the

establishment of a supply managementsettlement fund and specifies that

assessed funds will be returned to the

producer-settlement fund if the supply

management plan year is six months or

less. Finally, section 1309.4 would

describe the procedure for issuing

payments to producers eligible for a

refund under the supply management

plan.

V. Summary of Required Findings

Article V, Section 12 of the Compact

directs the Commission to make four

findings of fact before an amendment of

the Over-Order Price Regulation can

become effective. Each required finding

is discussed below.

A. Whether the Public Interest Will Be

Served by the Amendments

The first finding considers whether

the amendment of the Over-order Price

Regulation serves the public interest.

The Commission previously determined

that an Over-order Price Regulation

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations 34579

28 62 FR 29638, May 30, 1997; 62 FR 62825, Nov.

25, 1997.

29As noted in prior rulemaking proceedings, the

Commission limits its assessment to issues relating

to the fluid milk market. See e.g., 62 FR 29632, May

30, 1997 and 62 FR 62812, Nov. 25, 1997.

30See e.g., 62 FR 29632–29637, May 30, 1997 and

62 FR 62812–622817, Nov. 25, 1997.

serves the public interest,28 and the

Commission reaffirms that

determination. The Commission also

finds that the public interest will be

served by amendment of the Over-order

Price Regulation to establish a milk

supply management plan to ensure that

the price regulation does not create an

incentive to generate additional

supplies of milk.

The Commission emphasizes that the

amendments establishing a milk supply

management plan do not impact on the

New England milk consumers. The

Over-order Price Regulation is

structured so that assessments and

obligations are based on Class I milk

distributed in the New England market.

The milk supply management plan

affects only the distribution of the

obligations collected to milk producers,

and is therefore, cost-neutral to New

England consumers.

B. The Impact on the Price Level Needed

To Assure a Sufficient Price to

Producers and an Adequate Local

Supply of Milk

The second finding considers the

impact of the amendments on the level

of producer price needed to cover costs

of production and to assure an adequate

local supply of milk for the inhabitants

of the regulated area.29

The Commission reaffirms its prior

findings regarding the sufficiency of pay

prices for milk needed to meet the New

England market demand.30 In adopting

these amendments, the Commission

notes that the primary impact of the

assessment/refund plan will be to

reduce the pay price to those producers

whose milk production increased

greater than one percent over the prior

year’s production level by 7.5 cents per

hundredweight from the Compact Class

I price of $16.94. Therefore, the

Commission concludes that the

amendments will not negatively impact

on the price level paid to producers that

is needed to assure an adequate local

supply of milk for New England

consumers. The Commission concludes

that the over-order price regulation,

including these amendments, will

assure a sufficient price to producers

and an adequate local supply of milk.

In reaching this conclusion, the

Commission recognizes the vital role the

Compact producer price has made in

stabilizing the milk production in the

New England region since

implementation in July 1997 and the

importance of ensuring that the

Compact price does not create an

incentive to producers to generate

excessive amounts of milk. The

Commission also recognizes that the

historical supply of milk making up the

New England milkshed requires

substantial contributions of milk from

outside the New England states.

The Commission notes that the

Compact payments to producers are

intended to assure the continued

viability of dairy farming in the

northeast. Compact Article 1, Section 1.

The Over-order Price Regulation, as

amended, balances this purpose with

the equally important purpose of

assuring an adequate, local supply of

pure and wholesome milk for the

Compact area consumers. Compact

Article 1, Section 1. The Compact

specifically charges the Commission to

also ‘‘take such action as necessary and

feasible to ensure that the over-order

price does not create an incentive for

producers to generate additional

supplies of milk.’’ Compact Article IV,

Section 9(f). The Commission concludes

that the amended regulation meets all

three of these objectives and best

preserves the integrity of the Compact

by appropriately balancing these

objectives.

C. Whether the Major Provisions of the

Order, Other Than Those Fixing

Minimum Milk Prices, Are in the Public

Interest and Are Reasonably Designed

To Achieve the Purposes of the Order

The third finding requires a

determination of whether the provisions

of the regulation other than those

establishing minimum milk prices are in

the public interest. The amendments

establish a voluntary milk supply

management plan. Therefore, the matter

of the public interest is addressed under

the first required finding and not under

this finding. In any event, the

Commission finds that the price

regulation, as hereby amended, is in the

public interest in the manner

contemplated by this finding.

D. Whether the Terms of the Proposed

Amendment Are Approved by

Producers.

The fourth finding, requiring a

determination of whether the

amendment has been approved by

producer referendum pursuant to

Article V, Section 13 of the Compact is

invoked in this instance given that the

amendments will affect the level of the

price regulation on the producer side. In

this final rule, as in the previous final

rules, the Commission makes this

finding premised upon certification of

the results of the producer referendum.

The procedure for the producer

referendum and certification of the

results is set forth in 7 CFR part 1371.

Pursuant to 7 CFR 1371.3, and the

referendum procedure certified by the

Commission, a referendum was held

during the period of May 12, 2000

through May 22, 2000. All producers

who were producing milk pooled in the

Federal Order #1, or for consumption in

New England during December 1999,

the representative period determined by

the Commission, were deemed eligible

to vote. Ballots were mailed to these

producers on or before May 12, 2000 by

the Federal Order #1 Market

Administrator. The ballots included an

official summary of the Commission’s

action. Producers were notified that, to

be counted, their ballots had to be

returned to the Commission offices by

5:00 p.m. on May 22, 2000. The ballots

were opened and counted in the

Commission offices on May 23, 2000

under the direction and supervision of

Robert Starr, designated ‘‘Referendum

Agent.’’

Ten Cooperative Associations were

notified of the procedures necessary to

block vote. Cooperatives were required

to provide prior written notice of their

intention to block vote to all members

on a form provided by the Commission,

and to certify to the Commission that (1)

timely notice was provided, and (2) that

they were qualified under the CapperVolstead Act. Cooperative Associations

were further notified that the

Cooperative Association block vote had

to be received in the Commission office

by 5:00 p.m. on May 22, 2000. Certified

and notarized notification to its

members of the Cooperative’s intent to

block vote or not to block vote had to

be mailed by May 16, 2000 with notice

mailed to the Commission offices no

later than May 18, 2000.

Notice of Referendum Results

On May 23, 2000 the duly authorized

referendum agent verified all ballots

according to procedures and criteria

established by the Commission. A total

of 3983 ballots were mailed to eligible

producers. All producer ballots and

cooperative block vote ballots received

by the Commission were opened and

counted. Producer ballots and

cooperative block vote ballots were

verified or disqualified based on criteria

established by the Commission,

including timeliness, completeness,

appearance of authenticity, appropriate

certifications by cooperative

associations and other steps taken to

avoid duplication of ballots.

34580 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations

Block votes cast by Cooperative

Associations were then counted.

Producer votes against their cooperative

associations block vote were then

counted for each cooperative

association. These votes were deducted

from the cooperative association’s total

and were counted appropriately. Ballots

returned by cooperative members who

cast votes in agreement with their

cooperative block vote were disqualified

as duplicative of the cooperative block

vote.

Votes of independent producers, not

members of any cooperative association,

were then counted.

The referendum agent then certified

the following:

A total of 3983 ballots were mailed to

eligible producers.

A total of 1700 ballots were returned to

the Commission.

A total of 24 ballots were disqualified—

late, incomplete or duplicate.

A total of 1648 ballots were verified.

A total of 1513 verified ballots were cast

in favor of the price regulation.

A total of 135 verified ballots were cast

in opposition to the price regulation.

Accordingly, notice is hereby

provided that of the verified ballots cast,

1648, 91.8%, or 1513, a minimum of

two-thirds were in the affirmative.

Therefore, the Commission concludes

that the terms of the proposed

amendment are approved by producers.

VI. Required Findings of Fact

Pursuant to Compact Article V,

Section 12, the Compact Commission

hereby finds:

(1) That the public interest will be

served by the amendment of minimum

milk price regulation to dairy farmers

under Article IV to establish a milk

supply management plan through an

assessment and refund program.

(2) That a level price of $16.94 (Class

I, Suffolk County, Massachusetts) to

dairy farmers under Article IV will

assure that producers supplying the

New England market receive a price

sufficient to cover their costs of

production and will elicit an adequate

supply of milk for the inhabitants of the

regulated area and for manufacturing

purposes.

(3) That the major provisions of the

order, other than those fixing minimum

milk prices, are in the public interest

and are reasonably designed to achieve

the purposes of the order.

(4) That the terms of the proposed

amendments are approved by producers

pursuant to a producer referendum

required by Article V. section 13.

List of Subjects in 7 CFR Parts 1306,

1307 and 1309

Milk.

Codification in Code of Federal

Regulations

For reasons set forth in the preamble,

the Northeast Dairy Compact

Commission amends 7 CFR parts 1306

and 1307 and adds a new part 1309 as

follows:

PART 1306—COMPACT OVER-ORDER

PRODUCER PRICE

1. The authority citation for part 1306

continues to read as follows:

Authority: 7 U.S.C. 7256.

2. In § 1306.3 redesignate paragraphs

(e) through (g) as paragraphs (f) through

(h) and add a new paragraph (e) to read

as follows:

§ 1306.3 Computation of basic over-order

producer price.

* * * * *

(e) Subtract 7.5 cents per

hundredweight from the basic overorder producer price computed

pursuant to this section and deposit that

amount in the supply managementsettlement fund, provided that the

resultant over-order producer price is at

least 25 cents.

* * * * *

PART 1307—PAYMENTS FOR MILK

3. The authority citation for part 1307

continues to read as follows:

Authority: 7 U.S.C. 7256.

4. Section 1307.1 is amended in

paragraphs (a), (b) and (c) by removing

‘‘1306.3(f)’’ and adding ‘‘1306.3(h)’’ in

its place and by adding in paragraph (c)

‘‘1306.3(d)’’ after ‘‘1306.3(c),’’.

5. A new part 1309 is added to read

as follows:

PART 1309—SUPPLY MANAGEMENT

REFUND PROGRAM

Sec.

1309.1 Producer qualification for supply

management refund program.

1309.2 Computation of supply management

refund prices.

1309.3 Supply management-settlement

fund.

1309.4 Payment to producers of supply

management refund.

Authority: 7 U.S.C. 7256.

§ 1309.1 Producer qualification for supply

management refund program.

A dairy farmer who is a qualified

producer pursuant to § 1301.11(a) or (b)

of this chapter for the entire refund year,

July 1 through June 30, and the dairy

farmer’s milk production during the

refund year is less than or the increase

is not more than 1% of the milk

production of the preceding refund year.

§ 1309.2 Computation of supply

management refund prices.

The compact commission shall

compute the supply management refund

prices applicable to all qualified milk as

follows:

(a) Combine into one total the values,

including all interest earned, deducted

pursuant to § 1306.3(e) of this chapter

for the refund year;

(b) Subtract 50% from the total value

computed pursuant to paragraph (a) of

this section to be used for the per farm

payments to producers who submitted

documentation pursuant to § 1309.4(a);

(c) Divide the resulting amount by the

sum of all milk production reported by

producers qualified pursuant to § 1309.1

and who submitted documentation

pursuant to § 1309.4(a).

§ 1309.3 Supply management-settlement

fund.

(a) The compact commission shall

establish and maintain a separate fund

known as the supply managementsettlement fund. It shall deposit into the

fund all amounts deducted pursuant to

§ 1306.3(e) of this chapter. It shall pay

from the fund all amounts due

producers pursuant to § 1309.4;

(b) All amounts subtracted under

§ 1309.2(c), including interest earned

thereon, shall remain in the supply

management-settlement fund as an

obligated balance until it is withdrawn

for the purpose of effectuating § 1309.4;

(c) The compact commission shall

place all monies subtracted under

§ 1306.3(e) of this chapter in an interestbearing bank account or accounts in a

bank or banks duly approved as a

Federal depository for such monies, or

invest them in short-term U.S.

Government securities;

(d) If, after payments to producers of

supply management refund pursuant to

§ 1309.4 there is a surplus in the fund,

it is to be returned to the producersettlement fund.

(e) The supply management program

will continue through the operation of

the compact over-order price regulation.

If the refund year is six months or less,

the supply management-settlement fund

is to be returned to the producersettlement fund.

§ 1309.4 Payment to producers of supply

management refund.

(a) All producers who are qualified

pursuant to § 1309.1 shall become

eligible to receive payment of the

supply management refund computed

pursuant to § 1309.2 by submitting to

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Rules and Regulations 34581

the compact commission documentation

that the producer milk production

during the refund year is less than or the

increase is not more than 1% of the milk

production of the preceding calendar

year. Such documentation shall be filed

with the commission not later than 45

days after the end of the refund year.

(b) The commission will make

payment to all producers qualified

pursuant to § 1309.1 and eligible

pursuant to paragraph (a) of this section

in the following manner:

(1) A per farm payment computed by

dividing the amount subtracted

pursuant to § 1309.2(b) by the total

eligible producers; and

(2) The value determined by

multiplying the supply management

refund price computed pursuant to

§ 1309.2(e) by the producer’s milk

pounds, not to exceed $12,000.

Dated: May 24, 2000.

Kenneth M. Becker,

Executive Director.

[FR Doc. 00–13507 Filed 5–30–00; 8:45 am]

BILLING CODE 1650–01–P

NATIONAL CREDIT UNION

ADMINISTRATION

12 CFR Part 714

Leasing

AGENCY: National Credit Union

Administration (NCUA).

ACTION: Final rule.

SUMMARY: The final leasing rule updates

and redesignates NCUA’s long-standing

policy statement on leasing, Interpretive

Ruling and Policy Statement (IRPS) 83–

3, as an NCUA regulation. IRPS 83–3

authorizes federal credit unions (FCUs)

to engage in either direct or indirect

leasing and either open-end or closedend leasing of personal property to their

members if such leasing arrangements

are the functional equivalent of secured

loans. In addition, the final rule

formalizes NCUA’s position, set forth in

legal opinion letters, that FCUs do not

have to own the leased property in an

indirect leasing arrangement if certain

requirements are satisfied.

DATES: This rule is effective June 30,

2000.

FOR FURTHER INFORMATION CONTACT: Paul

M. Peterson, Staff Attorney, Division of

Operations, Office of the General

Counsel, (703) 518–6555.

SUPPLEMENTARY INFORMATION:

A. Background

In 1983, the NCUA Board issued

Interpretive Ruling and Policy

Statement (IRPS) 83–3, Federal Credit

Union Leasing of Personal Property to

Members, 48 FR 52560 (November 21,

1983), stating that FCUs may lease

personal property to their members if

the leasing of the personal property is

the functional equivalent of secured

lending. In 1997, the NCUA Board

determined that IRPS 83–3 would be

better suited as a regulation. 62 FR

11773 (March 13, 1997). In 1998, the

Board issued a notice of proposed

rulemaking (NPRM) and request for

comment on leasing. 63 FR 57950

(October 29, 1998). The Board evaluated

the comments received and

incorporated many of the suggested

changes. Due to these changes to the

original proposed leasing regulation, the

Board issued a second NPRM and

request for comment. 64 FR 55866

(October 15, 1999). The comment period

for the second NPRM expired on

December 17, 1999.

B. Comments

NCUA received twelve comments on

the second proposed leasing regulation.

Comments were received from three

federal credit unions, two credit union

trade associations, four credit union

leagues, one bank trade association, one

insurance company, and one leasing

company. In general, the commenters

support the rule, although most

commenters suggest modifications.

Those commenters who compared the

second proposed rule to the first think

the second proposal is an improvement.

Specific comments are addressed in the

section-by-section analysis below.

C. Format

In drafting the proposed leasing

regulation, the NCUA Board chose to

use a plain English, question and

answer format. The Board supports

plain English as a means to increase

regulatory comprehension and improve

compliance among those affected by the

regulation. Plain English drafting

emphasizes the use of informative

headings (often written as a question),

lists and charts where appropriate, nontechnical language, and sentences in the

active voice. The NCUA wrote this

proposed regulation as a series of

questions and answers. The word ‘‘you’’

in an answer refers to an FCU.

D. Section-by-Section Analysis

This analysis contains a section-bysection summary of the second

proposed rule; discusses the comments

received on each section, if any; and

describes any changes made as a result

of those comments. The phrase

‘‘proposed section’’ as used below refers

to draft language in the second NPRM.

Section 714.1—What Does This Part

Cover?

Proposed § 714.1 stated that part 714

covers the standards and requirements

that an FCU must follow when engaged

in the lease financing of personal

property. We received no comments and

made no changes in the final rule.

Section 714.2—What are the Permissible

Leasing Arrangements?

Proposed § 714.2 stated that FCUs

may engage in direct or indirect leasing,

and closed-end or open-end leasing.

Proposed § 714.2(c) provides ‘‘[i]n an

open-end lease, your member assumes

the risk and responsibility for any

difference in the estimated residual

value and the actual value of the

property at lease end.’’ Proposed

§ 714.2(d) provides that for a closed-end

lease the FCU assumes the risk and

responsibility for that same difference.

Two commenters note that any

excessive wear and tear on the leased

property will be included in the

difference between the estimated

residual value and the actual value of

the property at lease end so that the

proposed rule apparently assigns the

responsibility for excessive wear and

tear differently depending on whether

the lease is open-end or closed-end. One

of these commenters suggests that

§ 714.2 be modified to place the risk and

responsibility for excess wear and tear

on the lessor FCU, regardless of the form

of leasing. The other commenter

suggests that the responsibility for

excess wear and tear should always be

with the member lessee.

As stated in the preamble to IRPS 83–

3, the lessee is always responsible for a

decrease in value due to excessive wear

and tear. The lessee, with possession of

the leased property, is in the best

position to protect the property from

excess wear and tear regardless of

whether the lease is open-end or closed

end. Accordingly, the Board amends

§ 714.2(d) to clarify that, in closed-end

leasing, the member lessee will be

responsible for excessive wear and tear

and the FCU will be responsible for the

remainder of the difference between the

estimated residual value and the actual

value. Proposed § 714.2(c) on open-end

leasing already places the responsibility

for excessive wear and tear on the

member lessee and needs no

modification in the final rule.

The following example illustrates the

allocation of risks in closed-end leasing.

Assume you, an FCU, lease a $12,000

car under a closed-end leasing

arrangement. At lease inception, the car

has an estimated residual value of

$3,000. The lease is not covered by any