54118 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Parts 1005 and 1007 

[Docket No. AO–388–A17 and AO–366–A46; 

DA–05–06] 

Milk in the Appalachian and Southeast 

Marketing Areas; Tentative Partial 

Decision and Opportunity to File 

Written Exceptions on Proposed 

Amendments to Tentative Marketing 

Agreements and to Orders 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule; tentative partial 

decision. 

SUMMARY: This document is the 

tentative partial decision proposing to 

adopt on an interim final and 

emergency basis amendments to the 

transportation credit balancing fund 

provisions of the Appalachian and 

Southeast milk marketing orders. 

Specifically, this document would 

establish a variable mileage rate factor 

using a fuel cost adjustor to determine 

the transportation credit payments of 

both orders, increase the maximum 

transportation credit assessment rate for 

both orders and establish a zero 

diversion limit standard on all milk 

receiving transportation credits in both 

orders. Other proposals concerning 

producer milk provisions and 

establishing transportation credit 

provisions on intra-market order 

movements of milk within the 

Appalachian and Southeast marketing 

areas will be addressed in a separate 

decision to be issued soon. This 

decision requires determining if 

producers approve the issuance of the 

amended orders on an interim basis. 

DATES: Comments must be submitted on 

or before November 13, 2006. 

ADDRESSES: Comments (six copies) 

should be filed with the Hearing Clerk, 

United States Department of 

Agriculture, STOP 9200—Room 1031, 

1400 Independence Avenue, SW., 

Washington, DC 20250–1031. You may 

send your comments by the electronic 

process available at the Federal 

eRulemaking portal: http:// 

www.regulations.gov or by submitting 

comments to 

amsdairycomments@usda.gov. 

Reference should be made to the title of 

action and docket number. 

FOR FURTHER INFORMATION CONTACT: 

Gino Tosi, Associate Deputy 

Administrator, USDA/AMS/Dairy 

Programs, Order Formulation and 

Enforcement Branch, STOP 0231— 

Room 2971, 1400 Independence 

Avenue, SW., Washington, DC 20250– 

0231, (202) 690–1366, e-mail address: 

gino.tosi@usda.gov. 

SUPPLEMENTARY INFORMATION: This 

tentative partial decision proposes to 

adopt amendments that would: (1) 

Establish a variable transportation credit 

mileage rate factor which uses a fuel 

cost adjustor in both orders, (2) increase 

the Appalachian order’s maximum 

transportation credit assessment rate to 

$0.15 per hundredweight (cwt) and the 

Southeast order’s maximum 

transportation credit assessment rate to 

$0.20 per cwt and (3) establish a zero 

diversion limit standard on eligible 

Class I milk receiving transportation 

credits in both orders. 

This administrative action is governed 

by the provisions of Sections 556 and 

557 of Title 5 of the United States Code 

and, therefore, is excluded from the 

requirements of Executive Order 12866. 

The amendments to the rules 

proposed herein have been reviewed 

under Executive Order 12988, Civil 

Justice Reform. They are not intended to 

have a retroactive effect. If adopted, the 

proposed amendments would not 

preempt any state or local laws, 

regulations, or policies, unless they 

present an irreconcilable conflict with 

this rule. 

The Agricultural Marketing 

Agreement Act of 1937, as amended (7 

U.S.C. 601–674) (the Act), provides that 

administrative proceedings must be 

exhausted before parties may file suit in 

court. Under Section 608c(15)(A) of the 

Act, any handler subject to an order may 

request modification or exemption from 

such order by filing with the 

Department of Agriculture (Department) 

a petition stating that the order, any 

provision of the order, or any obligation 

imposed in connection with the order is 

not in accordance with the law. A 

handler is afforded the opportunity for 

a hearing on the petition. After a 

hearing, the Department would rule on 

the petition. The Act provides that the 

district court of the United States in any 

district in which the handler is an 

inhabitant, or has its principal place of 

business, has jurisdiction in equity to 

review the Department’s ruling on the 

petition, provided a bill in equity is 

filed not later than 20 days after the date 

of the entry of the ruling. 

Regulatory Flexibility Act and 

Paperwork Reduction Act 

In accordance with the Regulatory 

Flexibility Act (5 U.S.C. 601 et seq.), the 

Agricultural Marketing Service has 

considered the economic impact of this 

action on small entities and has certified 

that this proposed rule would not have 

a significant economic impact on a 

substantial number of small entities. For 

the purpose of the Regulatory Flexibility 

Act, a dairy farm is considered a ‘‘small 

business’’ if it has an annual gross 

revenue of less than $750,000, and a 

dairy products manufacturer is a ‘‘small 

business’’ if it has fewer than 500 

employees. 

For the purposes of determining 

which dairy farms are ‘‘small 

businesses,’’ the $750,000 per year 

criterion was used to establish a 

marketing guideline of 500,000 pounds 

per month. Although this guideline does 

not factor in additional monies that may 

be received by dairy producers, it 

should be an inclusive standard for 

most ‘‘small’’ dairy farmers. For 

purposes of determining a handler’s 

size, if the plant is part of a larger 

company operating multiple plants that 

collectively exceed the 500-employee 

limit, the plant will be considered a 

large business even if the local plant has 

fewer than 500 employees. 

During January 2006, the time of the 

hearing, there were 3,055 dairy farmers 

pooled on the Appalachian order (Order 

5). For the Southeast order (Order 7), 

3,367 dairy farmers were pooled on the 

order. Of these, 2,889 dairy farmers in 

Order 5 (or 95 percent) and 3,218 dairy 

farmers in Order 7 (or 96 percent) were 

considered small businesses. 

During January 2006, there were a 

total of 37 plants associated with the 

Appalachian order (22 fully regulated 

plants, 11 partially regulated plants, 2 

producer-handler and 2 exempt plants). 

A total of 51 plants were associated with 

the Southeast order (31 fully regulated 

plants, 9 partially regulated plants and 

12 exempt plants). The number of plants 

meeting the small business criteria 

under the Appalachian and Southeast 

orders were 9 (or 24 percent) and 18 (or 

35 percent), respectively. 

The proposed amendments adopted 

in this tentative final decision would 

amend the transportation credit 

provisions of the Appalachian and 

Southeast orders. The Appalachian and 

Southeast orders contain provisions for 

a transportation credit balancing fund. 

To partially offset the costs of 

transporting supplemental milk into 

each marketing area to meet fluid milk 

demand at distributing plants during the 

months of July through December, 

handlers are charged an assessment 

year-round to generate revenue used to 

make payments to qualified handlers. 

The proposed amendments would 

establish a variable mileage rate factor 

that would be adjusted monthly by 

changes in the price of diesel fuel (a fuel 

cost adjustor) as reported by the 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54119 

Department of Energy for paying claims 

from the transportation credit balancing 

funds of the Appalachian and Southeast 

orders. Currently, the mileage rate of 

both orders is fixed at 0.35 cents per cwt 

per mile. 

The proposed amendments would 

increase the maximum rates of the 

assessments for the Appalachian and 

Southeast orders. Specifically, the 

maximum assessment rate for the 

Appalachian order would be increased 

by 5.5 cents per cwt from the current 9.5 

cents per cwt to 15 cents per cwt. The 

maximum assessment rate for the 

Southeast order would be increased by 

10 cents per cwt to 20 cents per cwt. 

The increase in each order’s maximum 

transportation credit assessment rate is 

intended to minimize the proration and 

depletion of each order’s transportation 

credit balancing fund during those 

months when supplemental milk is 

needed to service the fluid needs of both 

marketing areas. The increases in the 

maximum assessment rates for the 

Appalachian and Southeast orders 

adopted in this decision are necessary 

due to, primarily, expected higher 

mileage reimbursement rates arising 

from escalating fuel costs and the 

transporting of milk over longer 

distances and, secondarily, the expected 

continuing need to rely on 

supplemental milk supplies arising from 

declining local milk production in the 

marketing areas. 

The proposed amendments also 

would amend the producer milk 

provisions of the Appalachian and 

Southeast orders by eliminating the 

current ability to pool diverted milk 

associated with supplemental milk 

receiving a transportation credit 

payment. While this tentative partial 

decision does not specifically adopt the 

Dean Foods Company proposal 

(published in the hearing notice as 

Proposal 4), the Department agrees with 

the need to limit diverted milk pooled 

on the order made possible by 

supplemental milk eligible to receive 

transportation credits. 

Currently, the Appalachian and 

Southeast orders provide transportation 

credits on supplemental shipments of 

milk for Class I use provided the milk 

was from a dairy farmer who was not 

defined as a ‘‘producer’’ under the 

orders during more than 2 of the 

immediately preceding months of 

February through May and not more 

than 50 percent of the milk production 

of the dairy farmer, in aggregate, was 

received as producer milk under the 

order during those 2 months and whose 

milk is produced on a farm not located 

within the specified marketing areas of 

either order. The provisions of each 

order provide the Market Administrator 

the discretionary authority to adjust the 

50 percent milk production standard to 

assure orderly marketing and efficient 

handling of milk in the marketing areas. 

The proposed amendments would be 

applied to all Appalachian and 

Southeast order handlers and 

producers—both consist of large and 

small businesses. The proposed 

amendments will affect all 

supplemental producers and handlers 

equally regardless of their size. 

Accordingly the proposed amendments 

should not have a significant economic 

impact on a substantial number of small 

entities. 

The Agricultural Marketing Service is 

committed to complying with the EGovernment Act, to promote the use of 

the Internet and other information 

technologies to provide increased 

opportunities for citizen access to 

Government information and services, 

and for other purposes. 

This notice does not require 

additional information collection that 

needs clearance by the Office of 

Management and Budget (OMB) beyond 

currently approved information 

collection. The primary sources of data 

used to complete the forms are routinely 

used in most business transactions. 

Forms require only a minimal amount of 

information that can be supplied 

without data processing equipment or a 

trained statistical staff. Thus, the 

information collection and reporting 

burden is relatively small. Requiring the 

same reports for all handlers does not 

significantly disadvantage any handler 

that is smaller than the industry 

average. 

Interested parties are invited to 

submit comments on the probable 

regulatory and informational impact of 

this proposed rule on small entities. 

Also, parties may suggest modifications 

of this proposal for the purpose of 

tailoring their applicability to small 

businesses. 

Prior Documents in This Proceeding 

Notice of Hearing: Issued December 

22, 2005; published December 28, 2005 

(70 FR 76718). 

Preliminary Statement 

Notice is hereby given of the filing 

with the Hearing Clerk of this tentative 

partial decision with respect to 

proposed amendments to the tentative 

marketing agreements and the orders 

regulating the handling of milk in the 

Appalachian and Southeast marketing 

areas. This notice is issued pursuant to 

the provisions of the Agricultural 

Marketing Agreement Act (AMAA) and 

the applicable rules of practice and 

procedure governing the formulation of 

marketing agreements and marketing 

orders (7 CFR Part 900). 

Interested parties may file written 

exceptions to this decision with the 

Hearing Clerk, U.S. Department of 

Agriculture, STOP 9200—Room 1031, 

1400 Independence Avenue, SW., 

Washington, DC 20250–9200, by 

November 13, 2006. Six (6) copies of 

these exceptions should be filed. All 

written submissions made pursuant to 

this tentative partial decision will be 

made available for public inspection at 

the Office of the Hearing Clerk during 

regular business hours (7 CFR 1.27(b)). 

The hearing notice specifically 

invited interested persons to present 

evidence concerning the probable 

regulatory and informational impact of 

the proposals on small businesses. Some 

evidence was received that specifically 

addressed these issues, and some of the 

evidence encompassed entities of 

various sizes. 

A public hearing was held upon 

proposed amendments to the marketing 

agreement and the orders regulating the 

handling of milk in the Appalachian 

and Southeast marketing areas. The 

hearing was held, pursuant to the 

provisions of the Agricultural Marketing 

Agreement Act of 1937 (AMAA), as 

amended (7 U.S.C. 601–674), and the 

applicable rules of practice and 

procedure governing the formulation of 

marketing agreements and marketing 

orders (7 CFR Part 900). 

The proposed amendments set forth 

below are based on the record of a 

public hearing held in Louisville, 

Kentucky, on January 10–12, 2006, 

pursuant to a notice of hearing issued 

December 22, 2005, published 

December 28, 2005 (70 FR 76718). 

The material issues on the record of 

hearing relate to: 

1. Transportation Credits 

A. Establishing a variable mileage rate 

factor. 

B. Increasing the maximum assessment 

rates. 

C. Establishing diversion limit standards. 

2. Determination of emergency marketing 

conditions. 

Findings and Conclusions 

This tentative partial decision 

specifically adopts on an interim basis, 

proposals published in the hearing 

notice as Proposals 3, 1 and certain 

objectives of Proposal 4. Proposal 3 

seeks to establish a variable mileage rate 

factor using a fuel cost adjustor. 

Proposal 1 seeks to increase the 

maximum transportation credit 

assessment rates for both orders. The 

intent of Proposal 4 is to discourage the 

volume of milk pooled by diversions by 


rmajette on PROD1PC67 with PROPOSALS2
54120 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

reducing the amount of transportation 

credits a handler could receive. A 

complete discussion and findings on 

these three proposals appears after the 

summaries of testimony. 

Proposal 2, seeking to establish an 

intra-market transportation credit 

provision for both the Appalachian and 

Southeast orders and Proposal 5, 

seeking to reduce the volume of milk 

diverted to an out-of-area plant, will be 

addressed in a separate decision to be 

issued soon. Therefore, no further 

references to Proposals 2 and 5 will be 

made in this decision. 

The following findings and 

conclusions on the material issues are 

based on evidence presented at the 

hearing and the record thereof: 

1. Transportation Credits 

A. Establishing a Variable Mileage Rate 

Factor 

A proposal, published in the hearing 

notice as Proposal 3, which seeks to 

establish a variable mileage 

reimbursement rate factor (MRF) that 

uses a fuel cost adjustor in the 

transportation credit payment 

provisions in both the Appalachian and 

Southeast orders should be adopted 

immediately. The orders currently 

provide for a fixed mileage rate of 0.35 

cents per cwt per mile. The proposal 

was offered by Dairy Farmers of 

America, Inc., (DFA). DFA is a dairy 

farmer member-owned Capper-Volstead 

cooperative with 12,800 member 

farmers whose milk is pooled 

throughout the Federal order system, 

including the Appalachian and 

Southeast orders. 

A witness appearing on behalf of 

Southern Marketing Agency, Inc. (SMA) 

and Dairy Cooperative Marketing 

Association, Inc. (DCMA) testified in 

support of Proposal 3. SMA and DCMA 

are marketing agencies-in-common 

operating in the southeast region of the 

country. Members of SMA include 

Arkansas Dairy Cooperative 

Association; Dairy Farmers of America, 

Inc.; Dairymen’s Marketing Cooperative, 

Inc.; Lone Star Milk Producers, Inc.; and 

Maryland & Virginia Milk Cooperative 

Association, Inc. Members of DCMA 

include Zia Milk Producers Association; 

Select Milk Producers Association; 

Cooperative Milk Producers 

Association, Inc.; and Southeast Milk, 

Inc. Dairylea Cooperative, Inc. also 

requested that the witness testify on 

their behalf and in support of Proposal 

3. 

The SMA witness testified that the 

southeastern region of the United States 

is experiencing declining milk 

production while the population and 

demand for fluid milk are increasing. As 

a result, the witness stated that the 

Appalachian and Southeast marketing 

areas must continually seek 

supplemental supplies of milk from 

outside their normal milksheds. The 

witness added that the volume of 

supplemental milk needed to meet 

demands that cannot be met by local 

production, and the distances from 

where the supplemental milk is 

obtained continues to increase. The 

witness explained that these marketing 

conditions result in payments to 

handlers from the transportation credit 

balancing funds being depleted at a rate 

faster than the rate they are assessed. 

The SMA witness presented monthly 

fuel cost data for the United States and 

nine U.S. sub-regions from the Energy 

Information Administration of the 

United States Department of Energy 

(EIA). Relying on EIA data, the witness 

asserted that the cost of diesel fuel has 

escalated sharply in recent years. 

According to the witness, the national 

average diesel fuel price in mid-1997 

was reported to be approximately $1.15 

to $1.17 per gallon while the national 

average diesel fuel price in mid-2005 

was reported to be $2.20 to $2.50 per 

gallon. The witness emphasized that 

these current diesel fuel prices are much 

higher than the prices that existed when 

the transportation credit provisions 

were first implemented in 1996 and 

amended in 1997. 

The SMA witness noted that the cost 

of hauling has also increased in recent 

years. Relying on EIA data, the SMA 

witness estimated the cost of hauling to 

be in the range of $1.75 to $1.80 per 

loaded mile in 1997, whereas the cost in 

2005 was about $2.35 per loaded mile. 

As diesel fuel costs have increased, the 

witness explained, so have other costs 

such as equipment, insurance and labor. 

The SMA witness emphasized that 

there have been no adjustments made to 

the MRF of the transportation credit 

provisions since they were last amended 

in 1997. The witness recounted that the 

original mileage rate was reduced by 

five percent, from 0.37 cents per cwt per 

mile to 0.35 cents per cwt per mile in 

1997. 

The SMA witness explained that in 

1997, approximately 94 to 95 percent of 

the transportation costs on 

supplemental milk were covered by 

transportation credit balancing fund 

payments. The witness reiterated that 

since no adjustments have been made to 

the orders’ transportation credit 

reimbursement rate since 1997, the 

percentage of hauling costs covered by 

the transportation credits today are 

substantially less than those in 1997. 

According to the SMA witness, the 

current use of a fixed mileage rate is not 

responsive to changes in hauling costs. 

The witness explained that Proposal 3 

would compute a variable 

transportation credit mileage rate per 

cwt per mile that would adjust with 

changes in the cost of diesel fuel. The 

witness stressed the importance and 

need to keep information on hauling 

costs current by using independent fuel 

cost data. The witness stated that 

hauling cost rates, adjusted for changes 

in fuel costs, are common in industry. 

The SMA witness illustrated 

components used to calculate the 

proposed variable MRF. According to 

the witness, a monthly average diesel 

fuel price, a reference diesel fuel price, 

an average mile-per-gallon truck fuel 

use, a reference hauling cost per loaded 

mile and a reference load size are the 

components needed to calculate the 

proposed variable MRF. 

Using EIA data for the United States 

and nine U.S. sub-regions, the SMA 

witness explained that using the Lower 

Atlantic and Gulf Coast EIA regions in 

computing the monthly mileage rates 

would be reflective of the Appalachian 

and Southeast marketing areas. Relying 

on EIA data, the witness explained that 

the Lower Atlantic region is comprised 

of the states of Virginia, West Virginia, 

North Carolina, South Carolina, Georgia 

and Florida. Similarly, the witness 

added, the Gulf Coast region is 

comprised of Alabama, Mississippi, 

Arkansas, Louisiana, Texas and New 

Mexico. According to the witness, of the 

nine sub-regions described by the EIA, 

the Lower Atlantic and Gulf Coast 

regions best reflect the Appalachian and 

Southeast marketing areas 

geographically. The witness also noted 

that according to EIA data, the diesel 

fuel costs for these two regions are 

among the lowest reported nationally. 

In establishing a reference diesel fuel 

price for the proposed transportation 

credit mileage rate calculation, the SMA 

witness relied on EIA retail diesel fuel 

prices for the time period of October to 

November 2003. During that period, the 

witness said, diesel fuel prices averaged 

$1.48 per gallon nationally and ranged 

from $1.42 per gallon in the Lower 

Atlantic to $1.43 per gallon in the Gulf 

Coast EIA regions. Due to the relatively 

little fluctuation of diesel fuel prices 

during October to November 2003, the 

witness was of the opinion that this 

period is a fair and conservative 

timeframe on which to establish a 

reference diesel fuel price. The witness 

concluded by suggesting $1.42 per cwt 

per mile should be used as the reference 

diesel price. 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54121 

The SMA witness submitted a random 

selection of actual milk hauler bills as 

the basis for computing a reference 

hauling cost component of the proposed 

MRF. According to the witness, actual 

origination and destination points, 

miles moved, and rates and fuel 

surcharges per loaded mile were 

depicted on each hauling bill. For the 

month of October 2005, the witness 

stated that hauling costs ranged from 

$1.89 to $2.70 per loaded mile, with the 

average being $2.48 per loaded mile. In 

order to be consistent with the 

timeframe used for the reference diesel 

price, the witness submitted selected 

milk hauling bills from October to 

November 2003 as the basis for 

determining the reference hauling cost. 

The witness testified that for this time 

period the simple average hauling rate 

charged per loaded mile in the 

Southeast was $1.9332 and $1.8913, 

respectively, and averaged $1.9122. 

Accordingly, the witness offered that 

the average hauling rate of $1.91 per 

loaded mile become the reference 

hauling cost used in calculating the 

MRF. 

The SMA witness provided data 

compiled by the United States 

Department of Transportation (USDOT) 

on combination truck fuel economy. 

According to the witness, the USDOT 

data show that the average miles 

traveled per gallon for a combination 

truck in 2002 was 5.2 miles per gallon. 

The witness was of the opinion that the 

dairy industry fuel economy is similar 

as it ranges between 5.0 to 6.0 miles per 

gallon. Accordingly, the witness 

advocated using a 5.5 miles per gallon 

fuel consumption rate in computing the 

proposed MRF. The witness also 

testified that a 5,600 gallon tanker at its 

fullest can carry 48,160 pounds of milk. 

Therefore, the witness explained, 48,000 

should be the reference load size used 

in calculating the MRF. 

The SMA witness summarized that 

Proposal 3 calculates a variable monthly 

MRF by using: (1) EIA data from a base 

period defined as October and 

November 2003, (2) hauling cost of 

$1.91 per loaded mile, (3) a reference 

diesel fuel rate of $1.42 per gallon, (4) 

a fuel economy of 5.5 miles per gallon 

and (5) a load size of 48,000 pounds. 

The SMA witness explained that the 

proposed mileage rate would be 

calculated by averaging the four most 

recent weeks of retail on-highway diesel 

prices for both the Lower Atlantic and 

Gulf Coast, as reported by the EIA that 

are available prior to each order’s 

announcement of the Advance Class 

milk prices. According to the witness, 

the proposed mileage rate would then 

be computed and included in each 

orders’ announcement of Advanced 

Class milk prices that are announced 

publicly on the Friday on or before the 

23rd of the current month. 

The SMA witness stressed that the 

proposed mileage rate computation 

reflects less than the actual cost of 

hauling for various reasons. The witness 

asserted that the proposed mileage rate 

is based on costs of hauling from 2003, 

rather than a more current timeframe, 

and therefore would only reflect 

changes in the cost of diesel fuel since 

that time. The witness also reiterated 

that the proposed mileage rates would 

only apply to milk used in Class I 

shipped directly from farms to plants 

that exceeds 85 miles. The SMA witness 

was of the opinion that transportation 

costs will continue to increase and that 

adopting the proposed changes to the 

transportation credit provisions will 

avoid exhausting the transportation 

credit balancing fund before costs are 

reimbursed. 

The SMA witness asserted that they 

were incurring substantial losses in 

supplying supplemental milk for Class I 

use to the Appalachian and Southeast 

marketing areas. The witness indicated 

that hauling costs in supplying 

supplemental milk reach over $15 

million annually. 

Six DFA farmer-members testified in 

support of Proposal 3. According to 

these witnesses, it is the cooperative 

members of SMA who are acting as 

handlers to supply the supplemental 

fluid milk needs of both marketing 

areas. According to the witnesses, this 

results in additional costs that are 

absorbed by the dairy farmer members 

of the cooperatives that comprise SMA. 

The witnesses argued that hauling costs 

and the distance supplemental milk 

must be hauled continues to increase. 

The six DFA dairy farmer witnesses 

were of the opinion that Proposal 3 is 

a reasonable solution to deal with the 

continued production decline and 

population driven demand increase in 

the southeastern region of the United 

States. The witnesses were of the 

opinion that using a fuel adjustor that 

moves up and down with changes in the 

cost of diesel fuel would more 

adequately cover the costs of 

transporting supplemental milk in the 

marketing areas. 

A post-hearing brief submitted by 

DFA, and supported by SMA, reiterated 

support for adopting a fuel cost adjustor. 

A post-hearing brief was submitted on 

behalf of Arkansas Dairy Cooperative 

Association (ADCA) in support of 

Proposal 3. According to ADCA, their 

members’ milk does not usually qualify 

for transportation credit payments 

because their milk is typically pooled 

on the Southeast and Central orders 

year-round. However, ADCA noted that 

their members are impacted by the cost 

of hauling supplemental milk into the 

southeast because of their membership 

in a marketing agency-in-common. 

A post-hearing brief was submitted on 

behalf of Dairymen’s Marketing 

Cooperative, Inc. (DMCI) in support of 

Proposal 3. The brief emphasized that as 

fuel costs continue to increase, the Class 

I differential surface becomes more 

outdated and unable to reflect the costs 

of moving milk. 

A post-hearing brief was submitted on 

behalf of Lone Star Milk Producers 

(Lone Star) in support of Proposal 3 

because it would establish updated 

mileage rates for making payments from 

the transportation credit balancing 

funds. The brief stated that the hauling 

cost factor used to develop the mileage 

rate for the transportation credit 

balancing fund has not been updated 

since the mid 1990’s and is inadequate. 

A post-hearing brief submitted by 

Maryland & Virginia Milk Producers 

Cooperative Association, Inc. (Maryland 

& Virginia) reiterated support for the 

adoption of Proposal 3. 

A post-hearing brief was submitted on 

behalf of South East Dairy Farmers 

Association (SEDFA). The brief 

expressed support for a variable mileage 

rate based on the changes in the cost of 

diesel fuel. The brief stated that the 

industry uses a consistent fuel economy 

estimate of 5.0 to 6.0 miles per gallon 

when calculating expected milk 

transportation costs. The brief stressed 

that the extreme rise in diesel fuel 

prices in recent months has made the 

adoption of Proposal 3 critical for 

producers who incur the cost of hauling 

milk to the market. 

A dairy farmer who supplies milk to 

Dean Foods Company (Dean) testified in 

support of the intent of Proposal 3. The 

witness stated that a dynamic mileage 

rate that adjusts to the energy markets 

is better than a static factor that is 

unable to change with changes in energy 

costs. 

A dairy farmer who markets milk to 

Dean through Dairy Marketing Service 

(DMS) testified in favor of Proposal 3. 

The witness stated that using a variable 

MRF derived from a source outside of 

the dairy industry such as the USDOT 

would help decrease the chances of 

industry manipulating what information 

should be used in calculating a MRF. 

A witness appearing on behalf of 

Southeast Milk, Inc. (SMI) testified in 

support of Proposal 3. SMI is a dairy 

marketing cooperative with 

approximately 300 dairy farmer 

members in Florida, Georgia, Alabama 

and Tennessee. The SMI witness stated 


rmajette on PROD1PC67 with PROPOSALS2
54122 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

that relying on cost indexes of other 

government agencies determined on a 

national scale makes the data less 

subject to manipulation by any given 

industry. 

A witness testified on behalf of Dean 

in support of Proposal 3. According to 

the witness Dean owns and operates 8 

plants regulated by the Appalachian 

marketing area and 10 plants regulated 

by the Southeast marketing area. The 

Dean witness agreed with the benefit of 

using an adjustor in determining the 

MRF to reflect changes in fuel prices 

over time. However, the witness also 

was of the opinion that the MRF should 

be reduced by 95 percent in order to be 

consistent with the Secretary’s past 

decisions that transportation credits do 

not encourage the uneconomic 

movement of milk or inefficiencies. 

The Dean witness testified that there 

is a need for supplemental supplies of 

milk for the marketing areas and that 

supplying such milk presents 

challenges. Nevertheless, the witness 

was of the opinion and expressed 

concern for the continuing and potential 

abuse of transportation credits. The 

witness asserted that current order 

provisions allow supplemental milk to 

receive transportation credits when 

such milk is not demanded. Moreover, 

the witness stressed that there is no 

assurance that transportation credit 

balancing fund payments would flow to 

the dairy farmer members of the 

cooperatives acting as handlers located 

in the two marketing areas regardless of 

their status as independent or 

cooperative members. 

A post-hearing brief submitted on 

behalf of Dean reiterated support for 

Proposal 3, indicating that disorderly 

marketing conditions exist because the 

milk supply in the Southeastern United 

States is deficit and the cost of 

supplying the market is not borne 

equally. 

A witness appearing on behalf of 

Land O’Lakes, Inc. (LOL) testified in 

support of Proposal 3. LOL is a dairy 

cooperative with over 4,000 dairy 

farmer member-owners who are pooled 

on six Federal Orders. The witness 

stated that their member’s milk located 

in the Northeast and Midwest have 

provided supplemental supplies to both 

the Appalachian and Southeast 

marketing orders for the past 10 years. 

According to the witness, LOL is a 

continuous supplemental milk supplier 

to the Appalachian and Southeast 

orders and has higher costs hauling 

milk. The witness asserted that basing 

the MRF on changes in diesel fuel prices 

would be responsive to costs actually 

experienced by the handlers who move 

milk into these two deficit markets. 

A post-hearing brief submitted by 

LOL reiterated support for the adoption 

of Proposal 3. The brief said that in 

order to fulfill the supplemental milk 

needs of the two marketing areas, milk 

is sourced from 28 states, which 

demonstrates the distance milk must 

travel has further increased adding to 

the justification of why Proposal 3 

should be adopted. 

An independent dairy farmer from 

New Market, Tennessee, testified in 

opposition to any changes to the 

Appalachian or Southeast marketing 

orders. The witness testified that 

additional government intervention in 

moving milk was not necessary and that 

supply and demand should be relied 

upon to dictate what services are 

needed. The witness asserted that 

amending the orders as proposed would 

change the way milk is moved and that 

would hinder efficient milk hauling. 

The witness also was of the opinion that 

there is no assurance transportation 

credits received for supplying 

supplemental milk would truly reach 

the market’s producers. The witness 

expressed concerns that the proposed 

increases in the transportation credit 

rate could affect producer decisions and 

producer blend prices. 

A witness testified on behalf of the 

Kentucky Dairy Development Council 

(KDDC). KDDC is a member-based 

organization that represents 

approximately 1,360 dairy farmers in 

Kentucky. KDDC did not state support 

or opposition for the proposals 

presented at the hearing. The witness 

was of the opinion that noncompetitive 

pricing is discouraging milk production 

in the southeastern United States. The 

witness stated the opinion that farm 

milk prices in Kentucky and in the 

Southeastern states have eroded and 

that KDDC was opposed to any Federal 

Order changes which would further 

erode farm prices. The witness did 

testify in support of changes to the 

orders that would strengthen the 

position of dairy farmers in Kentucky 

and in other Southeastern states. 

A post-hearing brief was submitted by 

KDDC in support of Proposal 3 even 

though no specific position was taken 

on proposals considered during the 

hearing. The brief said that Proposal 3 

would benefit Kentucky dairy farmers 

by providing assistance in recovering 

market service costs. 

B. Increasing the Maximum Assessment 

Rate 

A proposal, published in the hearing 

notice as Proposal 1, offered by DFA, 

that seeks to increase the maximum 

transportation credit balancing fund 

assessment rates for the Appalachian 

and Southeast orders should be adopted 

immediately. Specifically, this proposal 

would increase the maximum 

transportation credit balancing fund 

assessment rate in the Appalachian 

order by $0.055 per cwt on Class I milk 

so that the maximum rate of assessment 

would be $0.15 per cwt. The Southeast 

order maximum assessment rate would 

be increased by $0.10 per cwt so that the 

maximum rate of assessment would be 

$0.20 per cwt. 

A witness appearing on behalf of 

DCMA and SMA testified in support of 

Proposal 1. As previously described in 

testimony regarding Proposal 3, the 

SMA witness said that the current 

transportation credit provisions provide 

for collecting a maximum transportation 

credit assessment to handlers on all 

Class I milk for the Appalachian and 

Southeast marketing areas year-round. 

While the Market Administrator has the 

discretion to waive the maximum 

transportation credit assessments if 

deemed necessary, the SMA witness 

explained that the Market Administrator 

of each order collected the maximum 

assessments in 2004 and 2005. 

However, the witness said that the 

collected assessments in both orders 

had been insufficient to pay the 

requested credits necessitating the 

proration of payments from the 

transportation credit balancing fund. 

The SMA witness stated that even 

with the November 1, 2005, 

implementation of the most recent 

transportation credit assessment 

increase of 3 cents per cwt for both 

orders, the assessment rate will likely 

not be able to ensure payments from the 

transportation credit balancing funds on 

all milk eligible to receive payment. 

The SMA witness estimated that the 

transportation credit assessment rate for 

the Appalachian order for 2004 would 

have needed to be $0.0889 per cwt and 

$0.0953 per cwt for all of 2005 in order 

to cover all of the transportation credits 

requested. The witness also estimated 

that the Southeast area transportation 

credit assessment rate would needed to 

have been $0.1318 per cwt and $0.1246 

per cwt in 2004 and 2005, respectively, 

to cover all requested credits. The 

witness also noted that the 

transportation credits requested for both 

the Appalachian and Southeast 

marketing orders for the months of July, 

September and October of 2005 

exceeded the transportation credits 

requested in all of 2004. The witness 

said that this also demonstrates that 

increased volumes of supplemental milk 

were transported from locations located 

farther from the marketing areas. 

The witness said that the reason the 

Market Administrators’ prorated 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54123 

payments from the transportation credit 

balancing funds was because the rate of 

assessments exceeded collections. The 

witness was of the opinion that this 

occurred because more supplemental 

milk was sourced from more distant 

locations. 

Relying on Market Administrator 

data, the witness concluded that only 55 

percent of the actual cost of transporting 

supplemental milk was covered by the 

transportation credit payments in the 

Appalachian Order and only 39 percent 

of the actual cost was covered for the 

Southeast Order in 2004. The witness 

estimated that for 2005, only 53 percent 

and 43 percent of the actual hauling 

costs for supplemental milk would be 

covered for the Appalachian and 

Southeast orders respectively. 

In explaining the need for the 

adoption of Proposal 3, the SMA 

witness reiterated that the combined 

effect of higher mileage hauling rates 

and supplemental milk being hauled 

from more distant locations resulted in 

a smaller portion of actual 

transportation costs being funded with 

transportation credits than in 1997. The 

witness was of the opinion that 

transportation costs will continue to 

increase thus making it necessary to 

again increase the assessment rate. 

Further illustrating the need to 

increase the maximum transportation 

credit assessment rate, the SMA witness 

related that if a transportation credit 

reimbursement rate of 0.46 cents per 

cwt per mile had been in place rather 

than the current rate of 0.35 cents per 

cwt per mile, the Appalachian order 

would have required an assessment of 

$0.133 per cwt in 2004 in order to 

prevent the proration of transportation 

credit claims, and 2005 would have 

required an assessment of $0.1415 per 

cwt. Similarly, the witness stated for the 

Southeast order, the assessment rate 

would have needed to have been 

$0.1927 per cwt for 2004 and $0.1869 

per cwt for 2005. 

The SMA witness testified that the 

differing rates of transportation credit 

balancing fund assessments proposed 

for the Appalachian and Southeast 

orders reflect the differing costs of 

supplying supplemental milk into each 

marketing area. The witness stated that 

while the transportation credit 

assessment was waived for 2 months 

during 2002 and 2003, assessments were 

not waived for the Southeast order. The 

witness asserted that while both orders 

rely on some of the same sources for 

supplemental milk, the Appalachian 

marketing area receives most of its milk 

from the more northern Mid-Atlantic 

States while the Southeast marketing 

area receives most of its supplemental 

milk from States located to the west and 

southwest of the marketing area. 

Further, the witness added that different 

assessment rates are warranted for the 

two orders because supplemental milk 

moves greater distances to service the 

Southeast market than it does to service 

the Appalachian market. 

The six DFA dairy farmer witnesses 

that testified in support of Proposal 3 

also testified in support for increasing 

the transportation credit assessments for 

both orders. The witnesses were of the 

opinion that the assessment increases 

would generate funds needed to 

maintain a sufficient transportation 

credit fund balance to pay eligible 

claims. In addition, the witnesses were 

of the opinion that the orders’ current 

location adjustments are not able to 

reflect the rapidly increasing costs of 

transporting milk from where it is 

located to where it is needed. Similarly, 

the witnesses stated that over-order 

premiums cannot be commanded from 

the market to offset rapidly increasing 

transportation costs. 

The six DFA dairy farmer witnesses 

were also of the opinion that the intent 

of increasing the transportation credit 

assessment rates was a reasonable 

solution to mitigate continued 

production declines and the increasing 

demand for milk in the southeastern 

United States by a growing population. 

The witnesses added that higher fuel 

costs and longer hauling distances from 

which to obtain supplemental milk 

supplies are costing the markets’

producers. When producers go out of 

business, the witnesses related, the gap 

between supply and demand widens 

thereby increasing the cost of supplying 

the market with supplemental milk. 

Post-hearing briefs submitted by DFA 

reiterated the position and testimony by 

SMA in support of increasing the 

transportation credit assessment rates 

immediately. 

A post-hearing brief was submitted on 

behalf of Select Milk Producers, Inc. 

(Select) and Continental Dairy Products, 

Inc. (Continental) in support of Proposal 

1. Select’s members are located in New 

Mexico, Texas, Kansas and Oklahoma, 

and Continental’s members are located 

in Indiana, Michigan and Ohio. The 

brief stated that both cooperatives 

supply the Appalachian and Southeast 

marketing areas with supplemental 

milk. The brief stated support for 

testimony given at the hearing by 

proponents for increasing the 

transportation credit assessment rates of 

the two orders. The brief also stated that 

while the proposals under consideration 

will not fix long-term marketing and 

transportation problems, Proposal 1 

should be adopted in conjunction with 

the Department considering alternative 

approaches in an effort to correct the 

milk deficit problems in the southeast 

region of the United States. 

The Select/Continental brief 

expressed the opinion that blend prices, 

not Class I prices, provide the economic 

incentive to supply milk to a marketing 

area. The brief stated that when 

producers in a large marketing area 

share the same blend price the incentive 

to move milk within the large marketing 

area is greatly diminished. In addition, 

the brief indicated that the pricing of 

diverted milk ignores the true relative 

value of milk to the market where 

pooled which results in milk being 

pooled that is not available to meet the 

Class I needs of the market. 

A post-hearing brief was submitted on 

behalf of South East Dairy Farmers 

Association (SEDFA). The brief 

expressed support for Proposal 1 as 

published in the hearing notice. SEDFA 

represents cooperative and independent 

producers who are normal and 

supplemental milk suppliers and are 

located in and outside of the 

Appalachian and Southeast marketing 

areas. 

The SEDFA brief asserted that 

whether milk is produced within or 

outside of the two marketing areas, the 

cost of moving Class I supplemental 

milk should be borne by the 

marketplace. The brief stated that while 

the percent reimbursement of actual 

hauling costs is much lower than in 

1997, the amount of supplemental milk 

being brought into the marketing areas 

is increasing. The brief concluded that 

because reimbursement of actual 

hauling cost is smaller, the higher costs 

not reimbursed has fallen 

disproportionately to producers. The 

brief agreed with Lone Star and 

Maryland & Virginia that the 3-cent 

increase in the transportation credit 

assessments implemented in November 

2005 would be insufficient to cover 

expected transportation credit claims 

during 2006. 

A witness appearing on behalf of DFA 

testified in support of Proposal 1. The 

witness testified that the pay prices for 

cooperative producers in the southeast 

region of the country (Tennessee, 

Louisiana, Missouri, Virginia, North 

Carolina, South Carolina and Alabama) 

between January through June 2005 for 

DFA cooperative members ranged from 

$0.25 per cwt below the blend price to 

$0.30 per cwt above the blend price 

with the majority being at about $0.20 

per cwt above the blend price. The 

witness indicated that over-order 

premiums paid to producers ranged 

from $0.10 to $0.90 per cwt above the 

blend price and were similar to the pay 


rmajette on PROD1PC67 with PROPOSALS2
54124 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

price of their competitors in these areas 

who are not DFA members. 

A witness appearing on behalf of LOL 

testified in support of Proposal 1. The 

LOL witness agreed with other 

proponents that the transportation 

credit balancing fund for both orders 

has been insufficient to support 

transportation credit payments. While 

the witness supported the transportation 

credit assessment increases effective in 

November 2005, the witness did not 

think that this would be sufficient to 

reimburse future claims. 

A post-hearing brief submitted by 

LOL reiterated their support for the 

adoption of Proposal 1. The brief 

indicated that the southeast region of 

the country is not able to fulfill Class I 

demands during any season of the year 

and must rely on supplemental supply 

from about 28 States outside the 

Appalachian and Southeast marketing 

areas. The brief noted that 

transportation credits installed in the 

southeastern region in 1996 were based 

on recognition that the region’s Class I 

needs could only be met by 

supplemental milk from dairy farms 

located outside of the region. 

A witness testifying on behalf of Dean 

expressed cautious support for 

increasing the transportation credit 

assessment rates of the two orders 

because the availability of additional 

credits needs to be balanced with a 

consideration for abuses and undesired 

results. The witness was of the opinion 

that handlers who receive such credits 

also are pooling milk on the orders 

through the diversion process that does 

not actually serve the market’s Class I 

needs. 

A post-hearing brief submitted on 

behalf of Dean agreed with proponents 

of Proposal 1 that disorderly marketing 

conditions exist. The brief stated that 

the southeast area’s milk supply is 

deficit and the cost of supplying the 

market is not borne equally. 

A witness testified on behalf of SMI 

in opposition to Proposal 1. The witness 

characterized transportation credits as a 

subsidy and was of the opinion that 

subsidizing the transportation of milk 

produced outside of the marketing areas 

results in economic disincentives for 

local milk production and incentives for 

milk from outside the two marketing 

areas to replace local supplies. The 

witness noted that when transportation 

credits were first adopted in 1996, the 

average Class I utilization of the 

southeast region was in the mid-80 

percent range. Since the implementation 

of transportation credits, the witness 

contrasted the Class I utilization noting 

that it had fallen to the 60 percent range. 

It was the opinion of the witness that 

transportation credit provisions are 

contributing to the declining milk 

production in the two marketing areas. 

The SMI witness testified that 

transportation credits should be 

eliminated. As an alternative, the 

witness suggested (1) establishing a 

method by which Class I prices could be 

adjusted based on more regional 

marketing conditions, (2) adopting a 

base-excess plan, (3) increasing the 

current Class I differential level and (4) 

any other provisions that would 

encourage local milk production. 

A Kentucky dairy farmer testified in 

opposition to Proposal 1. The witness 

argued that providing transportation 

credits devalues local milk, results in 

lower prices to local producers, and is 

a cause of the declining milk production 

in the two marketing areas. The witness 

expressed concern that Proposal 1 will 

provide for more milk located outside 

the marketing areas the opportunity to 

be pooled on the orders even though 

that milk is not delivered to either 

marketing area on a daily basis as is the 

locally produced milk. According to the 

witness, local producers are not able to 

receive the full value for local 

production because transportation 

credits give producers located far from 

the marketing areas price advantages. 

The witness concluded by stating that 

pooling milk located outside of both 

marketing areas does not represent Class 

I use and this milk should not be pooled 

on the Appalachian or Southeast orders. 

A dairy farmer witness who supplies 

milk to Dean testified in opposition to 

Proposal 1. The witness viewed 

increasing assessment rates on 

transportation credits as detrimental to 

dairy farmers located in the 

Appalachian and Southeast marketing 

areas who regularly supply the Class I 

needs of the market. The witness was of 

the opinion that Proposal 1 lacks 

safeguards on the amount of additional 

milk that could be pooled on the orders 

by diversions. The witness said this 

additional pooled milk would 

unnecessarily lower the blend price 

received by producers and essentially 

result in out-of-area milk supplies 

becoming less expensive relative to milk 

produced in-area. As a consequence, the 

witness said local in-area producers will 

be forced out of business because of 

lower prices thereby further increasing 

the need for additional out-of-area 

supplemental milk supplies to meet the 

Class I needs of the marketing areas. 

The witness suggested that instead of 

providing additional transportation 

credits, a review of the level of Class I 

differentials and a review of diversions 

and touch-base provisions should be 

considered in another hearing. 

An independent dairy farmer from 

New Market, Tennessee, testified 

against making any changes to the 

Appalachian and Southeast marketing 

orders including the adoption of 

Proposal 1. In addition to the witness’

testimony regarding Proposal 3 already 

described, the witness was of the 

opinion that additional government 

intervention to provide for the 

increasing transportation credit 

assessment rate was not necessary and 

that supply and demand forces should 

dictate what services are needed. The 

witness asserted that amending the 

orders as proposed would change the 

way milk is transported and would 

hinder efficient handling of milk. The 

witness was of the opinion that there 

would be no assurance that the 

transportation credits would benefit the 

producers who were pooled on the two 

orders and incurred the additional costs 

of servicing the Class I market. 

A dairy farmer who also markets milk 

to Dean through DMS testified in 

opposition to Proposal 1. The witness 

said that local producers of the 

Appalachian and Southeast marketing 

areas are unable to supply all the fluid 

milk needs of the two marketing areas 

because local milk production in these 

areas is declining. The witness 

suggested that if Proposal 1 were 

adopted, the accounting of the total 

transportation costs of all milk 

movements should be supplied to the 

Market Administrators and be made 

available for public inspection. The 

witness also suggested making changes 

to the level of adjustments of milk 

prices by location (location adjustments) 

as an alternative to increasing the 

transportation credit assessment rate. 

The witness said if location adjustments 

were changed, the pooling standards for 

both orders would also need to be 

adjusted. Specifically, the witness 

suggested increasing the number of 

days’ production needed to touch base 

or increasing the performance standards 

of the orders. 

A post-hearing brief submitted by the 

Kentucky Dairy Development Council 

(KDDC) supported Proposal 1 even 

though they did not state their position 

at the hearing. The brief noted that 

increasing the transportation credit 

assessment rate would benefit Kentucky 

dairy farmers by providing assistance in 

recovering costs associated with serving 

the market. 

C. Establishing Diversion Limit 

Standards 

A proposal submitted by Dean Foods, 

published in the hearing notice as 

Proposal 4, seeks to reduce a handler’s 

ability to utilize transportation credits to 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54125 

help broaden the number of producers 

who touch base. The intent of the 

proposal is to limit the pooling of 

additional surplus milk on the orders 

through the diversion process. 

Currently, large volumes of milk are 

being pooled through diversions on the 

Appalachian and Southeast orders from 

locations distant from the marketing 

areas. While Proposal 4 would provide 

incentives to limit the pooling of milk 

through the diversion process, it would 

do so indirectly by limiting the payment 

of transportation credits. This decision 

chooses to directly limit diversions by 

establishing a zero diversion limit on 

milk that receives transportation credits. 

A witness appearing on behalf of 

Dean testified in support of Proposal 4 

while also expressing cautious support 

for the proposed transportation credit 

assessment increase (Proposal 1). The 

witness was of the opinion that handlers 

supplying supplemental milk to the two 

marketing areas receive a financial 

benefit from pooling diverted milk on 

the orders but maintained that such 

milk does not serve the fluid market. 

The witness explained that while the 

diverted milk typically does not serve 

the two markets, it is nevertheless 

pooled on the two orders because the 

blend prices are higher than what this 

milk could receive if pooled on other 

Federal orders. 

The Dean witness testified that the 

establishment of large marketing orders 

has created new marketing problems. 

According to the witness, when the 

Federal order system had a larger 

number of smaller markets, each order’s 

marketwide pools were small. Markets 

with large populations relative to 

associated milk, the witness explained, 

had higher Class I utilizations and 

higher blend prices to attract 

supplemental milk supplies. Markets 

with significant supplies of milk and 

smaller populations, the witness related, 

had lower Class I utilizations and 

producers pooled in those markets were 

provided with the economic incentive 

to look for higher returns in markets 

with higher blend prices. The witness 

further explained that smaller marketing 

areas limited the size of the Class I 

market and in turn limited how much 

milk could be pooled by diversion. The 

witness said that not only were smaller 

orders effective in limiting a handler’s 

ability to pool milk through diversions, 

but smaller orders also had 

disincentives to pooling diverted milk. 

According to the witness, the relative 

value of diverted milk was tied to its 

distance from the market. 

The Dean witness also testified that 

the Class I price surface adopted during 

Federal milk order reform changed the 

relative relationship of milk value to its 

distance from the market. According to 

the witness, the location value of 

diverted milk prior to reform was based 

on adjusting milk value based on the 

distance to an order’s pricing point. The 

witness said this resulted in each plant 

having a different location adjustment 

value to its milk receipts depending on 

the order on which its receipts were 

pooled. The witness explained that the 

further milk was located from the 

order’s pricing point, the less likely that 

such milk would be pooled as 

diversions. 

The Dean witness expressed concern 

that no longer valuing milk relative to 

the order on which it is pooled had a 

material effect on the value of pooling 

milk located far from the market by 

diversion. The witness was of the 

opinion that the flatter Class I price 

surface, with fixed differential levels by 

county, places a value on milk that is 

not reflective of its value to the 

marketing order where pooled and has 

made it economically desirable to pool 

milk located far from the market by the 

diversion process. The witness was also 

of the opinion that this served to 

provide the incentive for pooling distant 

milk by diversions. 

The Dean witness testified that even 

though there are closer milk supplies, 

distant milk is being pooled on both 

orders and asserted that transportation 

credits amplify the pooling of milk on 

the orders which does not service the 

Class I needs of the markets. The 

witness was of the opinion that pooling 

distant milk by diversions are clearly 

disorderly marketing conditions for the 

two markets. According to the witness, 

when such milk is pooled, local farmers 

who are consistently serving the Class I 

needs of the markets receive a 

needlessly lower blend price. 

According to the Dean witness, the 

objective of Proposal 4 is to modify the 

receipt of transportation credits 

depending on a handler’s specific 

service to the Class I need of the markets 

and to lower the payment of 

transportation credits to those handlers 

who have higher levels of diversions. 

The witness stated that the current 

reimbursement rate of transportation 

credits is the same for each handler 

regardless of the level of its relative 

service to the fluid market. The witness 

explained that when a handler delivers 

100 percent of its receipts to a pool 

distributing plant, it receives 

transportation credits at the same rate as 

a handler delivering only the minimum 

volume needed to meet the pooling 

qualifications. The witness related that 

the handlers only meeting the minimum 

pooling standards are then able to divert 

milk which is not available to the 

market. Additionally, the witness 

indicated that adjusting a handler’s 

receipt of transportation credits in this 

way will maintain and help extend the 

transportation credit balancing funds. 

The Dean witness acknowledged the 

need for balancing because distributing 

plants do not typically need to receive 

milk every day of the week. However, 

the witness asserted that not limiting 

diversions undermines the purpose of 

the Federal order system. The witness 

explained that their proposed 30 

percent diversion limit on supplemental 

milk seeking transportation credits was 

reasonable because a distributing plant 

typically receives milk for five days per 

week. The need to divert milk for two 

days per week, the witness explained, 

justifies the 30 percent diversion limit. 

The Dean witness explained that based 

on data provided by the Market 

Administrator, there are handlers in 

both orders who receive transportation 

credits and who divert significantly 

more pounds of milk than the orders 

need to balance the Class I demands of 

pool distributing plants. 

A post-hearing brief submitted on 

behalf of Dean reiterated support for the 

adoption of Proposal 4 provided that 

Proposals 1 and 3 are adopted. The brief 

stated that Proposal 4, when adopted 

with Proposals 1 and 3, would tend to 

limit the abuse of transportation credits 

on supplemental milk for Class I use 

because Proposal 4 sets a cap on the 

receipt of transportation credits by 

handlers. The brief also stressed that the 

adoption of Proposal 4 would exercise 

some control over how much milk 

would be pooled on the orders through 

the diversion process. 

A dairy farmer who supplies milk to 

Dean testified in support of Proposal 4. 

The witness agreed with Dean and other 

opponents that orders should only pool 

the milk of producers who truly serve 

the Class I needs of the market; 

otherwise revenue essentially leaves the 

two marketing areas. According to the 

witness, this loss of revenue leads to the 

area’s dairy farmers exiting the industry 

and further reduces the availability of 

local milk supplies. The witness said 

that the result is the need for acquiring 

more milk produced from far outside 

the marketing areas. The witness was of 

the opinion that it is the shipments of 

supplemental milk into the marketing 

areas that provide the ability to pool 

milk by diversion when it is not 

available to the market. 

A witness from SMI testified in 

support of Proposal 4 provided 

Proposals 1 and 3 are adopted. 

A Kentucky dairy producer testified 

in support of Proposal 4 and said that 


rmajette on PROD1PC67 with PROPOSALS2
54126 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

supplemental milk receiving 

transportation credits should have some 

limits on the amount of additional milk 

that can be pooled by diversions. The 

witness was of the opinion that 

transportation credits give producers 

located outside the marketing areas a 

price advantage because their diverted 

milk receives the blend price of the 

orders. 

A witness appearing on behalf of LOL 

testified in opposition to Proposal 4. 

The witness noted that transportation 

credits were established to attract 

supplemental milk and to partially 

offset the cost of hauling supplemental 

milk into the deficit markets. The 

witness explained that the orders’

specify conditions that must be met for 

being eligible to receive transportation 

credit payments. The current 

transportation credit provisions, the 

witness said, already limit payments for 

supplemental milk from outside the 

marketing areas to the milk of dairy 

farmers who are not defined as 

‘‘producers’’ under the orders. The 

witness also said that payments are 

limited to Class I pounds and are not 

made on the first 85 miles of hauling 

milk from farms to the plant that 

receives supplemental milk. 

The LOL witness stressed that 

additional limitations would do nothing 

to encourage the delivery of needed 

supplemental milk into the marketing 

areas during the short production 

months. The witness was of the opinion 

that if the intent is to change the 

diversion limits of the orders, those 

changes should be addressed in a 

separate hearing. 

A post-hearing brief submitted by 

LOL reiterated opposition to Proposal 4. 

The brief reiterated the positions given 

at the hearing. The brief also stated that 

Proposal 4 improperly assumes that all 

handlers supplying supplemental milk 

have equal access to distributing plants 

and that distributing plants Class I use 

of milk is the same as the Class I 

utilization of the two markets. 

A witness appearing on behalf of 

SMA also testified in opposition to 

Proposal 4. The SMA witness stated that 

there is some rational basis for the 

intent limiting transportation credits to 

a handler who diverts more milk to 

nonpool plants above reasonable levels. 

However, the witness was of the 

opinion that it is the touch-base and 

diversion limit standards of the orders 

that already provide sufficient 

safeguards to pooling milk not needed 

for Class I use. According to the witness, 

adoption of the proposal would 

disproportionately place burdens on 

market participants. 

The SMA witness explained that it is 

difficult to establish specific diversion 

limits on supplemental milk as 

contained in Proposal 4 because of 

individual differences in the balancing 

needs of each distributing plant, noting 

that these needs continually change. 

The witness emphasized that there are 

difficulties in balancing pool 

distributing plants of the orders yearround and suppliers sometimes have no 

control over factors that may alter 

balancing needs. The witness noted that 

some of SMA’s purchase agreements for 

supplemental milk included 

arrangements where transportation 

credit payments are paid directly to the 

cooperative acting as the supplier. In 

this regard, the witness expressed 

concern that providing a separate 

diversion limit on milk receiving 

transportation credit payments would 

unfairly penalize them when a 

distributing plant overestimates its need 

for supplemental milk. The witness 

stated that extreme variations in daily, 

weekly and monthly deliveries to pool 

distributing plants occur. Relying on 

Market Administrator data for January 

2004 through October 2005 that showed 

the ratio of the highest delivery day to 

the lowest delivery, the witness 

concluded that a 30 percent reserve 

factor would not have been sufficient to 

cover distributing plant balancing 

needs. 

The SMA witness also was of the 

opinion that Proposal 4 would give an 

advantage to pool distributing plant 

operators to the detriment of 

cooperatives who in their capacity as 

handlers are supplying supplemental 

milk. The witness said that while 

cooperatives handle the majority of 

supplemental milk for the orders, they 

may receive little or no transportation 

credit payments under Proposal 4. 

According to the witness, a diversion 

limit could only benefit handlers 

located nearer to the marketing areas. 

A post-hearing brief was submitted on 

behalf of ADCA in opposition to 

Proposal 4. The brief stressed that the 

seasonality of production in the 

southeastern region is the highest in the 

country and means that a greater reserve 

of milk must be assured. The brief 

concluded that Proposal 4 would create 

inequities between handlers supplying 

supplemental milk and encourage 

uneconomic movements of milk. 

A post-hearing brief was submitted on 

behalf of DMCI in opposition to 

Proposal 4. The brief asserted that there 

are too many unanswered questions 

about how Proposal 4 would be applied. 

The brief stated that a distributing 

plant’s reserve milk needs are an 

individual business decision and should 

only be limited by the order’s pooling 

provisions. 

A post-hearing brief submitted by 

DFA and other SMA members reiterated 

their opposition to Proposal 4. The brief 

noted that there are many months when 

a 30 percent diversion limit is 

insufficient to cover balancing needs. 

Therefore, if Proposal 4 were 

implemented, the brief said, it could 

disproportionately affect different 

supplemental supplies and distributing 

plants in the marketing areas. 

A post-hearing brief was submitted on 

behalf of Lone Star in opposition to 

Proposal 4. The brief opposed the 

adoption of Proposal 4 because it would 

establish a ‘‘one-size-fits-all’’ or single 

diversion limit for all Class I handlers. 

The brief noted that a distributing 

plant’s reserve milk needs are 

individual decisions of the plant in 

response to its customer base and 

seasonal changes in demand. The brief 

was of the opinion that the orders 

already provide diversion limit 

standards and touch-base requirements 

that are some of the strictest in the 

Federal order system. 

Findings/Discussion 

The issue before the Department in 

this decision is to consider changes to 

the transportation credit provisions of 

the Appalachian and Southeast milk 

marketing orders. Transportation credit 

provisions have been a feature of the 

current orders (and their predecessor 

orders) since 1996. The need for 

transportation credit provisions arose 

from a consistent need to import milk 

from considerable distances to the 

marketing areas during certain months 

of the year when milk local production 

in the areas was not sufficient to meet 

Class I demands. Transportation credit 

provisions provide payments to 

handlers to cover a portion of the costs 

of hauling supplemental milk supplies 

into the Appalachian and Southeast 

marketing areas during the months of 

July through December—a time period 

during which supplemental milk is 

needed to meet the demand for Class I 

milk at distributing plants. 

The transportation credit provisions 

are designed to distinguish between 

producers who are supplying the 

markets on these orders from producers 

who are not supplying the markets on 

these orders. The milk of producers who 

are located outside of the marketing 

areas and who are not considered 

‘‘producers’’ of the order are eligible to 

receive transportation credits. 

The record reveals that the 

Appalachian and especially the 

Southeast marketing areas are 

chronically unable to meet Class I 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54127 

1 It should be noted that as a result of the 

Emergency Hurricane hearing held for the 

Appalachian, Florida and Southeast marketing 

Continued 

demands. Local milk production 

relative to demand has declined and is 

expected to continue declining. 

Consequently, local milk production is 

not always able to fulfill the Class I 

needs of the markets which necessitates 

the need for supplemental milk from 

distant locations. As local milk 

production has eroded, the volume of 

supplemental milk needed for fluid use 

and the distance from the marketing 

areas that supplemental supplies are 

obtained has been increasing, especially 

for the Southeast marketing area. These 

combined factors have caused the 

transportation credit balancing fund 

(TCBF) to be insufficient in covering 

requested transportation credit 

payments in the past. The TCBF will 

likely not be able to cover future 

requested payments unless the 

amendments contained in the decision 

also are adopted. 

While both marketing areas are able to 

supply the Class I needs of their 

respective markets during the spring 

‘‘flush’’ months without the need for 

transportation credits, the record clearly 

indicates that both orders are not able to 

fully supply their fluid needs with local 

production during the last 6 months of 

the year. The chronic shortage of milk 

for fluid uses during this time period 

has worsened over time, especially in 

the Southeast marketing area. Evidence 

shows that the trend of declining 

production relative to demand will 

increase the need for supplemental milk 

supplies and is likely to continue into 

the foreseeable future. 

Variable Mileage Rate Factor—a Fuel 

Cost Adjustor 

Based on record evidence, this 

tentative partial decision finds that the 

MRF used to determine the payment of 

transportation credits should include a 

fuel cost adjustor as proposed in DFA’s 

Proposal 3. 

The original fixed mileage rate for 

both orders was 0.37 cents per cwt per 

mile when the transportation credit 

provisions were first established in 

1996. The computation of the 

transportation credit payments was 

based on the total miles supplemental 

milk was shipped from its point of 

origination to its destination—the 

receiving pool distributing plant. In 

1997, several amendments were made to 

the transportation credit provisions of 

the orders that included a reduction of 

the mileage rate from 0.37 cents per cwt 

per mile to the current 0.35 cents per 

cwt per mile. 

Additional amendments made in 1997 

to the transportation credit provisions 

included excluding the first 85 miles 

supplemental milk was hauled from 

farms in determining the total miles 

shipped. Additionally, the amendments 

eliminated the use of the producer 

settlement fund of the orders as a source 

of revenue for the payment of 

transportation credits on supplemental 

milk when the TCBF was unable to pay 

net transportation credit claims. No 

other amendments have been made to 

the MRF used in the transportation 

credit provisions since 1997. 

Proposal 3 adjusts the MRF by 

changes in the cost of diesel fuel. 

Specifically, a monthly average diesel 

fuel price, a reference diesel fuel price, 

an average mile-per-gallon truck fuel 

use, a reference hauling cost per loaded 

mile and a reference load size are all 

component factors needed to determine 

the variable MRF to be used in the 

calculation of payments from the TCBF. 

The EIA data for the United States 

and nine U.S. sub-regions are a reliable 

and reasonable data source to establish 

certain components needed for 

determining a variable MRF. The data 

are representative of diesel fuel prices in 

the Appalachian and Southeast 

marketing orders and can be relied upon 

as a basis to make adjustments to the 

MRF. Reliance on EIA data that is 

independent and unbiased will make 

determination of the MRF objective and 

uniformly applicable to all handlers. 

Proposal 3 suggested the use of the 

Lower Atlantic and Gulf Coast EIA 

regions in the computation of monthly 

mileage rates for the Appalachian and 

Southeast orders is reasonable. The 

record reveals that not only do the 

Lower Atlantic and Gulf Coast regions 

best reflect the Appalachian and 

Southeast marketing areas 

geographically, but also that the diesel 

fuel prices for these two regions are 

among the lowest in the country. Hence, 

it is appropriate to utilize these 

geographic defined data sets in the 

mileage rate calculations. 

The record reveals that fuel prices and 

other factors impacting hauling prices 

have increased greatly since the 

establishment of transportation credits. 

Specifically, the record indicates that 

current diesel fuel prices exceed those 

prices that prevailed when 

transportation credit provisions were 

first implemented in 1996 and amended 

in 1997. The national average diesel fuel 

prices in mid-1997 were reported to be 

approximately $1.15 to $1.17 per gallon, 

while the national average diesel fuel 

price in mid-2005 was reported to be 

$2.20 to $2.50 per gallon. Additionally, 

while diesel fuel prices have increased, 

all other costs impacting hauling costs 

also have increased. According to the 

record, EIA data indicates that the 

hauling costs ranged from $1.75 to $1.80 

per loaded mile in 1997 to about $2.35 

per loaded mile in January 2006. 

Establishing a reference diesel fuel price 

for the MRF calculation using the EIA 

retail diesel fuel prices from the time 

period of October to November 2003 is 

reasonable. According to the EIA data, 

national average diesel fuel costs during 

this period demonstrated price stability 

relative to any other time between 1997 

and 2005. 

From October to November 2003, 

national diesel fuel prices fluctuated by 

only 0.1 cents. Specifically, diesel fuel 

prices averaged $1.48125 per gallon in 

October 2003 and $1.48225 per gallon in 

November 2003. Similarly, the record 

shows that for both the Lower Atlantic 

and Gulf Coasts, diesel fuel prices 

ranged from $1.4210 to $1.43075 per 

gallon between October and November 

2003. The stability of diesel fuel prices 

during October to November 2003 

supports this time period as a 

reasonable point to use in determining 

a reference diesel fuel price. Therefore, 

the record supports using $1.42 per 

gallon as the reference diesel price in 

the MRF calculation. 

Evidence submitted by SMA provides 

a basis for determining a reference 

average hauling cost per loaded mile as 

a component for determining the MRF. 

The evidence consisted of data 

randomly selected from actual hauler 

bills paid to cooperatives during 

October and November 2003 and for 

October and November 2005. The record 

supports utilizing hauling cost data 

from October and November 2003 as a 

basis for computing the reference 

hauling cost in the MRF consistent with 

the time frame used for the reference 

diesel price. 

The randomly selected hauling bills 

depict actual origination and 

destination points of the milk hauled, 

miles traveled, and the rates and fuel 

surcharges per loaded mile for each bill. 

For the month of October 2005, the data 

indicate that hauling costs ranged from 

$1.89 to $2.70 per loaded mile, with an 

average cost of $2.48 per loaded mile. 

Data also show that the simple average 

hauling rate charged per loaded mile in 

the Southeast marketing area was 

$1.9332 and $1.8913 in October and 

November 2003, respectively, with a 

two-month simple average cost of 

$1.9122 per loaded mile. Therefore, it is 

reasonable to conclude that a reference 

hauling rate of $1.91 per loaded mile be 

used as a component in the MRF 

calculations.1


rmajette on PROD1PC67 with PROPOSALS2
54128 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

orders during the fall of 2004, a reasonable haul rate 

used to determine how handlers would be 

compensated for the transportation costs of 

extraordinary movements of milk was established 

for a temporary time period. Specifically, a 

maximum of $2.25 per loaded mile hauling rate was 

established. 

Another component needed in the 

calculation of the MRF is the average 

number of miles traveled per gallon of 

fuel used in transporting milk. Data 

regularly maintained by the United 

States Department of Transportation on 

combination truck fuel economy 

indicates the average miles per gallon 

for a combination truck in 2002 was 5.2 

miles per gallon and in 2003 was 5.1 

miles per gallon. The record also reveals 

testimony that the dairy industry 

typically estimates fuel economy at 

between 5.0–6.0 miles per gallon. 

Therefore, because 5.5 miles per gallon 

is the median point and to promote 

efficiencies, the record finds that a 5.5- 

mile per gallon fuel consumption rate is 

reasonable and should be used to 

compute the MRF. 

The record also supports using 48,000 

pounds as a reasonable reference load 

size for determining the MRF. Data 

reveal that a 5,600 gallon tanker truck at 

its fullest capacity can carry 48,160 

pounds of milk. Therefore, using 48,000 

pounds as the reference load size 

component is appropriate for 

calculating the MRF. 

Proposal 3 would calculate the MRF 

by averaging the four most recent weeks 

of weekly retail on-highway diesel 

prices for both the Lower Atlantic and 

Gulf Coast, as reported by the EIA. 

Record evidence supports announcing 

the monthly MRF at the same time as 

Advanced Class Prices on or before the 

23rd of the current month. This way, 

handlers will know in advance the rate 

at which transportation credits will be 

paid. 

Table 1 shows an example of the 

calculation of the MRF to be used in the 

transportation credit provisions: 

TABLE 1.—EXAMPLE OF THE CALCULATION OF THE TRANSPORTATION CREDIT MILEAGE RATE FACTOR (MRF) FOR JULY

2006 1

EIA weekly retail on-highway diesel fuel prices 2 Lower 

Atlantic Gulf Coast 

5/29/2006 ..................................................................................................................................................... 2.815 2.798 

6/5/2006 ....................................................................................................................................................... 2.825 2.805 

6/12/2006 ..................................................................................................................................................... 2.866 2.848 

6/19/2006 ..................................................................................................................................................... 2.867 2.859 

Monthly average diesel fuel price 3 ............................................................................................................. $2.835 per gallon 

Reference diesel fuel price ......................................................................................................................... ¥$1.420 per gallon 

Fuel price difference 4 ................................................................................................................................. $1.415 per gallon 

Reference truck fuel use ............................................................................................................................. ÷ 5.5 miles per gallon 

Fuel cost adjustment factor 5 ...................................................................................................................... $0.257 per loaded mile 

Reference haul cost .................................................................................................................................... + $1.910 per loaded mile 

Fuel-adjustment haul cost 6 ......................................................................................................................... $2.167 per loaded mile 

Reference load size .................................................................................................................................... ÷ 48,000 pounds 

July 2006 Mileage Rate Factor 7 ................................................................................................................. $0.00451 dollars per cwt per mile 

1To have been announced on June 23, 2006, with the Announcement of Advanced Class Prices. 

2 Dollars per gallon. Reported every Monday by the Energy Information Administration of the U.S. Department of Energy. 

3 Calculated by rounding down to three decimal places the average of the four most recent weeks of retail on-highway diesel fuel prices for the 

Lower Atlantic and Gulf Coast EIA regions combined prior to the Advanced Class Price announcement. 4 Calculated by subtracting the reference diesel fuel price of $1.42 per gallon from the calculated average diesel fuel price for the month. 5 Calculated by dividing the fuel price difference by 5.5 miles per gallon fuel use and rounding down to three decimal places. 

6 Calculated by adding fuel cost adjustment factor for the month to the reference haul cost of $1.91 per loaded mile. 

7 Calculated by dividing the fuel-adjusted haul cost by the number of hundredweights (cwt’s) on the reference load size (48,000 pounds = 480 

cwt’s) and rounding down to five decimal places. 

Concern exists that relying on a 

variable MRF may result in reimbursing 

the total, rather than a portion, of the 

hauling costs on supplemental milk. In 

this regard, a variable MRF that is 

consistent and reflective of the original 

intent of the transportation credit 

provisions of the Appalachian and 

Southeast orders is necessary. As 

already discussed, approximately 94 to 

95 percent of the total transportation 

costs on supplemental milk were 

covered by the TCBF payments for both 

orders in 1997. However, the record 

reveals that for 2005, 53 percent and 42 

percent of the total transportation costs 

for the Appalachian and Southeast 

orders, respectively, were covered by 

TCBF payments. 

It is not possible to predetermine the 

percent of the total transportation costs 

that will be reimbursed by TCBF 

payments due to a number of unknown 

variables. However, the transportation 

credit provisions already contain 

precautionary measures for how the 

MRF is calculated. The record indicates 

that reference diesel fuel prices and 

reference hauling costs per loaded mile 

are components of the mileage rate 

calculation and are based on 2003 data 

that are much more current than the 

data considered and adopted in 1997 

establishing a fixed mileage rate. It 

should also be noted that the current 

and proposed mileage rate are used to 

reimburse only the pounds of Class I 

milk shipped, and not total producer 

milk shipped. This provides an 

important safeguard against paying 

excessive transportation credit 

payments. Finally, current 

transportation credit provisions do not 

include the first 85 miles that 

supplemental milk is shipped from 

farms in determining the total miles 

shipped. This feature also plays a part 

against safeguard to excessive 

transportation credit payments. 

As discussed earlier in this decision, 

transportation credit provisions of the 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54129 

Appalachian and Southeast orders were 

originally established to partially offset 

the cost of transporting supplemental 

milk supplies into each marketing area 

to meet fluid milk demands. The 

transportation credit assessment rates 

have been increased twice in an effort 

to ensure that the TCBF would be 

sufficient to meet the expected claims. 

When first established for the 

Appalachian, Southeast and predecessor 

orders (Orders 5, 7, 11 and 46), the 

maximum transportation credit 

assessment charged to Class I handlers 

was $0.06 per cwt for each order. The 

first increase was adopted in 1997 by 

raising the maximum assessment by 

$0.005 per cwt for the Appalachian 

order and by $0.01 per cwt for the 

Southeast order. The second increase in 

the maximum assessment rates for both 

orders became effective in November 

2005. The maximum assessment rates 

for both orders were increased by 3 

cents per cwt from $0.065 to the current 

rate of $0.095 per cwt for the 

Appalachian order and from $0.070 to 

$0.10 per cwt for the Southeast order. The hearing record reveals that the 

Appalachian order was able to pay all 

transportation credit claims for every 

month since implementation through 

September 2004. For the remainder of 

2004, the Appalachian Market 

Administrator began prorating the 

transportation credit payments. As 

discussed earlier in this decision, the 

Southeast order has prorated the 

transportation credit payments since 

2001. 

Specifically, the record shows that for 

the Appalachian order 41, 39 and 43 

percent of the transportation credit 

claims were paid in October, November 

and December of 2004, respectively. 

Likewise for the Southeast order, only 

86, 21, 26, 28 and 47 percent of the 

claims were paid for the months of 

August through December of 2004, 

respectively. 90 percent and 31 percent 

of the claims were paid from the 

Appalachian order in September and 

October of 2005, respectively. Similarly, 

the record reveals that for the Southeast 

order, only 41 percent and 23 percent of 

the claims were paid for the same time 

periods in 2005. Despite the assessment 

rate increase that became effective 

November 2005, evidence indicates that 

only 58 percent of the transportation 

credit claims for the Appalachian order 

were paid and only 40 percent of the 

claims for the Southeast order were paid 

during November of 2005. Table 2 

below illustrates the percent paid from 

the TCBF for the Appalachian and 

Southeast orders: 

TABLE 2.—PERCENT OF TRANSPORTATION CREDITS PAID

Percent of transportation credits paid 

Appalachian 

marketing 

area 

FO 5 

Southeast 

marketing 

area 

FO 7 

Jul 04 ....................................................................................................................................................................... 100.0 100.0 

Aug 04 ..................................................................................................................................................................... 100.0 85.5 

Sep 04 ..................................................................................................................................................................... 100.0 21.4 

Oct 04 ...................................................................................................................................................................... 40.6 26.3 

Nov 04 ..................................................................................................................................................................... 39.0 28.4 

Dec 04 ..................................................................................................................................................................... 42.8 47.0 

Jul 05 ....................................................................................................................................................................... 100.0 100.0 

Aug 05 ..................................................................................................................................................................... 100.0 100.0 

Sep 05 ..................................................................................................................................................................... 89.6 41.3 

Oct 05 ...................................................................................................................................................................... 30.6 23.1 

Nov 05 * ................................................................................................................................................................... 58.0 40.3 

*Effective November 1, 2005, the transportation credit assessment rates were increased by 3 cents for the Appalachian and Southeast orders. 

Source: Appalachian and Southeast Market Administrator data. 

Maximum Assessment Rates 

The record demonstrates that at the 

current transportation credit mileage 

rate of 0.35 cents per cwt per mile, the 

TCBF assessments for Appalachian and 

Southeast marketing areas have been 

insufficient to pay all transportation 

credit claims, especially during the time 

when payment of credits are most 

needed. Preventing the proration of the 

transportation credit reimbursement 

payments would have required that the 

assessment rates be higher than they are 

currently. Evidence submitted by the 

SMA witness showed that the maximum 

transportation credit assessment rate for 

the Appalachian order would have 

needed to be $0.0889 and $0.0953 per 

cwt for 2004 and 2005, respectively. 

Similarly, evidence by the SMA witness 

suggested that the assessment rate for 

the Southeast order would have needed 

to be $0.1318 and $0.1246 per cwt for 

2004 and 2005, respectively. Such 

evidence further supports the need to 

increase the transportation credit 

assessment rates. 

The adoption of the variable MRF that 

would be calculated and adjusted with 

changes in diesel fuel prices (as 

presented in Proposal 3) will most likely 

increase the current mileage rate of 0.35 

cents per cwt per mile. Relying on EIA 

data, the record reveals that applying 

the calculated mileage rates to the 

months of July through December 2005 

would have resulted in transportation 

credit mileage rates ranging from 0.432 

to 0.461 cents per cwt per mile for both 

orders. If a transportation credit mileage 

reimbursement rate of 0.46 cents per 

cwt per mile had been in place rather 

than the current rate of 0.35 cents per 

cwt, the maximum transportation credit 

assessments needed for the Appalachian 

order to assure that the TCBF covered 

all claims would had to have been 

$0.133 and $0.1415 per cwt for 2004 

and 2005, respectively. The Southeast 

order would have needed a maximum 

transportation credit assessment rate of 

$0.1927 and $0.1869 per cwt for 2004 

and 2005, respectively. This analysis 

supports concluding that increasing the 

current Appalachian order maximum 

transportation credit assessment rate by 

5.5 cents per cwt and the Southeast 

order maximum assessment rate by 10 

cents per cwt is warranted. 

The proposed increase in the 

maximum transportation credit 

assessment rate for the Southeast order 

is greater than the amount for the 

Appalachian marketing area. The record 

reveals that the Appalachian and 

Southeast marketing areas experience 

differing costs in supplying 

supplemental milk to meet Class I 

needs. As previously noted, 


rmajette on PROD1PC67 with PROPOSALS2
54130 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

transportation credit assessments have, 

in the past, been waived in the 

Appalachian order. This has not been 

the case for the Southeast order. The 

transportation credit reimbursement on 

claims for the Southeast order have been 

prorated at greater rates than those of 

the Appalachian order in 2004 and is 

reflective of higher costs in supplying 

supplemental milk to the Southeast 

marketing area. The Appalachian 

marketing area receives the majority of 

its supplemental milk supplies from the 

northern, Mid-Atlantic States. The 

Southeast marketing area receives the 

majority of its supply from the Midwest 

and southwestern states. The location of 

supplemental milk supplies for the 

Southeast marketing area tends to be at 

a farther distance from the marketing 

area than for the Appalachian marketing 

area. Accordingly, the record supports 

increasing the maximum transportation 

credit assessments for both marketing 

areas by different amounts. 

Precautionary measures are currently 

provided in the transportation credit 

provisions such that the rate of 

assessments beyond actual handler 

claims is unlikely. The transportation 

credit provisions provide the Market 

Administrators the authority to reduce 

or waive assessments as necessary to 

maintain sufficient fund balances to pay 

the transportation credits requested. 

Therefore, increasing the maximum 

transportation credit assessment rates 

will not result in an accumulation of 

funds beyond what is needed to pay 

transportation credit claims and no 

additional precautionary measures are 

necessary beyond those currently 

provided. 

The record supports concluding that 

local milk production is expected to 

continue declining within both 

marketing areas and will result in an 

even greater reliance on supplemental 

milk to meet the fluid milk needs of the 

markets. Record evidence shows a 

constant increase in both the volume 

and distance that supplemental milk 

supplies are obtained, especially for the 

Southeast marketing area. As such, it is 

reasonable that future transportation 

credit claims will increase. In this 

regard, it is important to prevent 

exhausting the TCBF before the 

payment of claims on supplemental 

milk. Doing so is consistent with the 

fundamental purposes of the 

transportation credit provisions. 

Therefore, the adoption of Proposal 1, as 

proposed by DFA, will tend to better 

assure that the rate of assessments will 

keep pace with the payments from the 

TCBF. 

Diversion Limit Standard for 

Supplemental Milk 

The intent of a proposal offered by 

Dean, published in the hearing notice as 

Proposal 4, seeks to provide a method 

to limit the amount of additional milk 

being pooled by diversion on the 

Appalachian and Southeast orders. As 

proposed, Dean’s proposal would 

change the amount of transportation 

credits paid on eligible supplemental 

milk depending on the amount of milk 

delivered to plants other than pool 

distributing plants—this includes 

diversions to plants located outside of 

the marketing areas and deliveries to 

pool supply plants. Simply put, the 

greater the volume of diversions, the 

lower the amount of transportation 

credits paid. In this regard, Dean’s 

proposal attempts to provide an 

incentive to limit diversions indirectly 

by reducing transportation credits paid 

on supplemental milk. This decision 

agrees with the need to limit pooling 

diverted milk on the orders that is 

linked to supplemental milk deliveries 

to distributing plants. Rather than 

attempt to create disincentives to 

pooling diverted milk indirectly, this 

decision addresses the issue directly by 

adopting a zero diversion limit standard 

on supplemental milk deliveries to 

distributing plants that receives 

transportation credits. 

The record reveals that the volume of 

supplemental milk needed to serve the 

Class I needs of the marketing areas has 

grown over time and is expected to 

continue growing. Supplemental milk is 

representing a greater percentage of the 

Southeast market’s total Class I 

utilization. The record reveals that for 

the months of July through December, 

supplemental milk accounted for 16 

percent of total Class I utilization in 

2004. For 2005, such supplemental milk 

as a percent of total Class I utilization 

increased to 19 percent. 

In addition, the record indicates that, 

for the Southeast marketing area, the 

monthly weighted average distance 

supplemental milk eligible to receive 

transportation credits traveled ranged 

from 578 to 627 miles during July 

through December 2000. During July 

through November 2005, the weighted 

average distance increased and ranged 

from 682 to 755 miles. The amount of 

supplemental milk receiving 

transportation credits during 2005 was 

nearly 686 million pounds, 541 million 

pounds during 2004, and 363 million 

pounds during 2000. This represents an 

89 percent increase in the amount of 

supplemental milk receiving 

transportation credits in 2005 since 

2000, and a 27 percent increase since 

2004. 

For the Southeast order, the record 

reveals that total diversions at locations 

outside of the Appalachian and 

Southeast marketing areas totaled 883.4 

million pounds in 2004. Total 

diversions outside of the marketing 

areas for 2005, not including the months 

of November and December, was 965.6 

million pounds, an increase of 9.3 

percent from 2004. Such data for 

November and December 2005 was not 

contained in the record. For the months 

of January through June, when 

transportation credits are not available, 

total diversions outside the marketing 

areas increased almost 18 percent from 

2004 to 2005. During the time period of 

July through October, when 

transportation credits are available, 

such diversions increased over 27 

percent from 2004 to 2005. It is 

reasonable, given the trend of the data, 

that the percentage increase from 2004 

would have been greater than 27 percent 

if data had been available for the 

months of November and December 

2005. 

It is reasonable to conclude that 

diversions outside the Appalachian and 

Southeast marketing areas are most 

likely be attributed to supplemental 

milk eligible to receive transportation 

credits. The record reveals that for the 

Southeast marketing area, the 27 percent 

increase in the amount of milk receiving 

transportation credits from 2004 

through 2005 corresponds with the 27 

percent increase of diversions outside 

the marketing areas between 2004 and 

2005. It is also reasonable to conclude 

from the record that it is in the interests 

of the handler supplying supplemental 

milk, and in this case, cooperatives in 

their capacity as handlers, to maximize 

the value of diversions. Doing so would 

require pooling the maximum amount of 

diverted milk to the closest location 

from where supplemental milk was 

sourced. Therefore, relying on data 

provided by the Market Administrator 

for the Southeast marketing area, for the 

months when transportation credits are 

available, the calculated total maximum 

diverted pounds associated with 

supplemental milk would have totaled 

over 178 million pounds in 2004 and 

over 226 million pounds in 2005. On 

the basis of these calculations, an 

estimate of diversions attributed to 

supplemental milk is 64 percent of total 

diversions for both 2004 and 2005, 

ranging from 56 percent to 77 percent of 

the total known diversions outside the 

marketing areas. 

The contribution from diversions 

associated with supplemental milk to 

total outside diversions is nearly three 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54131 

times greater than the contribution of 

the supplemental milk to Class I 

utilization. As previously discussed, for 

2004 and 2005, supplemental milk 

represented about 15.9 and 19 percent, 

respectively, of total Class I utilization. 

However, estimated diversions 

attributable to supplemental milk 

represent approximately 64 percent of 

total diversions. Clearly, not only do 

transportation credits offset the costs of 

hauling supplemental milk to the 

markets, they also contribute to pooling 

much more milk on the orders through 

the diversion process. 

For the Appalachian order, data 

contained in the record is much more 

limited on determining the diversions 

arising from supplemental milk that is 

eligible to receive transportation credits. 

What can be reasonably concluded is 

that the pooling of diverted milk that is 

linked to supplemental milk is not 

nearly the magnitude of such pooled 

diversions as on the Southeast order. 

For the Appalachian order, evidence 

indicates that total diversions at 

locations outside of the Appalachian 

and Southeast marketing areas, for the 

time period of January through June, 

increased by 64.4 percent from 2004 to 

2005. Total diversions from the time 

period of July through November, when 

transportation credits are available, 

decreased over 20 percent from 2004 to 

2005. 

For the Appalachian order, only two 

month data—October and November 

2005—is available to estimate the 

maximum diversions that could be 

associated with to supplemental milk. 

Relying on Appalachian Market 

Administrator data, it is estimated that 

the maximum diversions from milk 

eligible to receive transportation credits 

during October and November 2005 to 

be approximately 34 percent and 28 

percent, respectively, of the total 

diversions at locations outside the 

Appalachian and Southeast marketing 

areas. Supplemental milk on the 

Appalachian order for October and 

November 2005 is estimated to be 

approximately 19 percent and 16 

percent, respectively, of the total Class 

I milk pooled. 

Pooling diversions of this milk differs 

from pooling diverted milk that is part 

of regular supply of milk of the 

marketing area. Pooling diverted milk, 

made possible by supplemental milk 

eligible to receive transportation credits, 

allows more milk to be pooled on the 

order than normal. Pooling of this milk 

is different than pooling milk that is 

part of the regular supply for the 

marketing area. The difference is that 

producers of milk eligible to receive 

transportation credits are not a part of 

the regular and consistent supply of 

milk that serves the Class I needs of the 

markets. These producers are, therefore, 

supplemental suppliers of milk to the 

Appalachian and Southeast marketing 

areas. Transportation credit qualifying 

criteria excludes the milk of producers 

who are regularly pooled on the orders. 

Pooling diverted milk arising from 

supplemental milk receiving 

transportation credits not only offsets 

the intended benefit of increasing the 

supply of milk for fluid uses, it also 

lowers blend prices. Higher blend prices 

provide important economic signals: 

The incentive (1) to continue supplying 

the markets, (2) to increase local 

production and (3) to attract the milk of 

producers to become regular and 

consistent suppliers. 

The lower blend prices received by 

producers who regularly supply the 

markets relative to producers who 

supply supplemental milk send 

contradictory pricing signals. Lower 

blend prices do not send the proper 

price signals to local producers to 

increase local production or to continue 

supplying the Class I needs of the 

markets, and the signal to attract a 

regular and consistent milk supply from 

other producers is negated. 

The availability of transportation 

credits on supplemental milk provides a 

platform to pool additional diverted 

milk at locations distant to the 

marketing areas. Milk diverted from 

supplemental producers is more likely 

to be diverted at locations far from the 

marketing areas. The record reveals that 

suppliers of the supplemental milk to 

the Appalachian and Southeast 

marketing areas pool diverted milk at 

locations as far away as California and 

Utah. Supplemental milk suppliers 

benefit in three ways: (1) Receiving 

reimbursement for costs of transporting 

milk to the deficit markets, (2) receiving 

cost savings from the diverted milk not 

transported to the marketing areas and 

(3) receiving higher blend prices on the 

diverted milk that would have 

otherwise been pooled on a different 

order with a typically lower blend price. 

The pooling of milk that is not part of 

the regular and consistent supply of 

milk which serves the Class I needs of 

the market is contradictory to the intent 

of an order’s pooling standards and 

provisions. The pooling standards of the 

orders serve to identify the milk of 

producers who regularly and 

consistently serve the Class I needs of 

the marketing areas. Pooling milk that is 

available but not immediately needed 

for Class I use is provided through 

diversion limit standards. Diversion 

limit standards provide the criteria in 

determining how much additional milk 

can be pooled on the orders. Diverted 

milk in this context reflects the 

legitimate reserve supply of milk 

available to serve the Class I needs of 

the marketing areas and, therefore, 

receives the blend of the orders. 

Since implementation of Federal milk 

order reform, there have been many 

formal rulemakings that amended orders 

to more properly identify the milk of 

producers which should and should not 

be pooled on the orders. The milk of 

producers who are the consistent and 

reliable suppliers in serving the Class I 

needs of the market should have their 

milk pooled. This foundation principle 

of orderly marketing in milk marketing 

orders is essentially disregarded for 6 

months every year because the orders 

allow the pooling of diverted milk from 

producers who are specifically 

identified as not being ‘‘producers’’

under either of the orders. 

The lowering of blend prices by 

pooling such diverted milk is an 

unintended outcome not foreseen when 

the transportation credit provisions of 

the Appalachian and Southeast orders 

were implemented and amended. As the 

blend prices are reduced so is the 

incentive for local milk production. The 

markets become less capable of 

supplying their own Class I needs and 

supplemental milk supplies needed to 

meet Class I needs are not likely to be 

supplied without reliance on additional 

transportation credits. 

The pooling of diverted milk 

associated to supplemental milk would 

seem to offer substantial benefits to 

cooperative suppliers. The record 

reveals that when transportation credits 

were first implemented, well over 90 

percent of hauling costs were offset 

while today about 45 percent is 

reimbursed. This clearly represents a 

burden that is borne by the cooperatives 

who are supplying supplemental milk. 

Pooling diverted milk at locations far 

from the marketing areas based on 

supplemental milk eligible to receive 

transportation credits would provide 

additional revenue to help offset 

hauling costs not covered by the current 

assessment rate. This diverted milk 

receives the blend price of the order on 

which it is pooled. The benefit is that 

the blend price received on such 

diverted milk on either the Appalachian 

or Southeast order, as the case may be, 

is historically higher than the price the 

milk would otherwise receive. 

As presented above, this decision 

adopts a variable mileage rate factor, 

which will reimburse hauling costs at a 

level more reflective of actual costs, in 

addition to a significantly higher 

transportation credit assessment. To the 

extent that it is necessary to offset the 


rmajette on PROD1PC67 with PROPOSALS2
54132 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

higher costs of transporting 

supplemental milk, the adoption of a 

variable MRF and the increase in the 

assessment rates should significantly 

reduce or eliminate the need to seek 

generating revenue to offset hauling 

costs at the expense of producers of the 

two marketing areas who are regularly 

and consistently supplying milk for the 

Class I needs. 

Accordingly, this decision finds that 

the pooling of diverted milk arising 

from supplemental milk supplies 

receiving transportation credits 

needlessly results in the unwarranted 

lowering of the blend price to producers 

whose milk regularly and consistently 

supplies the Class I needs of the 

Appalachian and Southeast marketing 

area. Such milk is not part of the 

reliable and consistent supply of milk 

serving the Class I needs of the two 

markets and is not available for such 

service. Pooling this milk on the orders 

is indicative of disorderly marketing. 

Consequently, such milk should not be 

pooled on the orders. Accomplishing 

this intent necessitates adoption of a 

zero diversion limit standard on 

supplemental milk supplies receiving 

transportation credits. 

2. Determination of Emergency 

Marketing Conditions 

Evidence presented at the hearing and 

in post-hearing briefs establishes that 

current transportation credits of the 

Appalachian and Southeast orders are 

inadequate to meet current and 

expected future needs into the 

foreseeable future. Adopting a variable 

MRF by which to reimburse the 

suppliers of supplemental milk is 

needed due to the escalating fuel costs, 

coupled with the declining milk 

production in the southeastern United 

States that makes supplemental milk 

needs necessary to meet the fluid needs 

of the markets. The increases in the 

maximum rates of assessment for the 

Appalachian and Southeast orders 

adopted in this decision are necessary to 

sufficiently cover the transportation 

credit balancing fund payments. 

Conversely, the blend price received by 

producers who are regularly and 

consistently serving the Class I needs of 

the Appalachian and Southeast 

marketing areas is being unnecessarily 

eroded by pooling diverted milk that is 

associated with supplemental milk 

supplies eligible to receive 

transportation credits. 

Additionally, the need for immediate 

action per dairy producer approval is 

warranted because the current 

transportation credit provisions will be 

inadequate to meet the fluid needs of 

the marketing areas and the need of 

supplies to recover a higher percentage 

of costs associated with providing 

supplemental milk during the months of 

July through December of 2006. 

Consequently, it is determined that 

emergency marketing conditions exist to 

omit the issuance of a recommended 

decision. The record clearly establishes 

a basis as noted above for amending the 

orders on an interim basis. The 

opportunity to file written exceptions to 

the proposed amended orders remains. 

In view of these findings, an interim 

final rule amending the order will be 

issued as soon as the procedures are 

completed to determine the approval of 

producers. 

Rulings on Proposed Findings and 

Conclusions 

Briefs, proposed findings and 

conclusions were filed on behalf of 

certain interested parties. These briefs, 

proposed findings and conclusions, and 

the evidence in the record were 

considered in making the findings and 

conclusions set forth above. To the 

extent that the suggested findings and 

conclusions filed by interested parties 

are inconsistent with the findings and 

conclusions set forth herein, the claims 

to make such findings or reach such 

conclusions are denied for the reasons 

previously stated in this decision. 

General Findings 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the Appalachian 

and Southeast orders was first issued 

and when they were amended. The 

previous findings and determinations 

are hereby ratified and confirmed, 

except where they may conflict with 

those set forth herein. 

The following findings are hereby 

made with respect to the aforesaid 

marketing agreement and order: 

(a) The interim marketing agreement 

and the order, as hereby proposed to be 

amended, and all of the terms and 

conditions thereof, will tend to 

effectuate the declared policy of the Act; 

(b) The parity prices of milk as 

determined pursuant to section 2 of the 

Act are not reasonable with respect to 

the price of feeds, available supplies of 

feeds, and other economic conditions 

that affect market supply and demand 

for milk in the marketing area, and the 

minimum prices specified in the interim 

marketing agreement and the order, as 

hereby proposed to be amended, are 

such prices as will reflect the aforesaid 

factors, ensure a sufficient quantity of 

pure and wholesome milk, and be in the 

public interest; and 

(c) The interim marketing agreement 

and the order, as hereby proposed to be 

amended, will regulate the handling of 

milk in the same manner as, and will be 

applicable only to persons in the 

respective classes of industrial and 

commercial activity specified in, the 

marketing agreement upon which a 

hearing has been held. 

Interim Marketing Agreement and 

Interim Order Amending the Order 

Annexed hereto and made a part 

hereof are two documents—an Interim 

Marketing Agreement regulating the 

handling of milk and an Interim Order 

amending the order regulating the 

handling of milk in the Appalachian 

and Southeast marketing areas, which 

have been decided upon as the detailed 

and appropriate means of effectuating 

the foregoing conclusions. 

It is hereby ordered, that this entire 

tentative partial decision and the 

interim orders and the interim 

marketing agreements annexed hereto 

be published in the Federal Register. 

Determination of Producer Approval 

and Representative Period 

The month of June 2006 is hereby 

determined to be the representative 

period for the purpose of ascertaining 

whether the issuance of the order, as 

amended and as hereby proposed to be 

amended, regulating the handling of 

milk in the Appalachian and Southeast 

marketing areas is approved or favored 

by producers, as defined under the 

terms of the order as hereby proposed to 

be amended, who during such 

representative period were engaged in 

the production of milk for sale within 

the aforesaid marketing area. 

List of Subjects in 7 CFR Parts 1005 and 

1007 

Milk marketing order. 

Dated: September 1, 2006. 

Lloyd C. Day, 

Administrator, Agricultural Marketing 

Service. 

Interim Order Amending the Order 

Regulating the Handling of Milk in the 

Appalachian and Southeast Marketing 

Areas 

This interim order shall not become 

effective until the requirements of 

§ 900.14 of the rules of practice and 

procedure governing proceedings to 

formulate marketing agreements and 

marketing orders have been met. 

Findings and Determinations 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the order was first 

issued and when it was amended. The 

previous findings and determinations 

are hereby ratified and confirmed, 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54133 

except where they may conflict with 

those set forth herein. 

(a) Findings. A public hearing was 

held upon certain proposed 

amendments to the tentative marketing 

agreement and to the order regulating 

the handling of milk in the Appalachian 

and Southeast marketing areas. The 

hearing was held pursuant to the 

provisions of the Agricultural Marketing 

Agreement Act of 1937, as amended (7 

U.S.C. 601–674), and the applicable 

rules of practice and procedure (7 CFR 

Part 900). 

Upon the basis of the evidence 

introduced at such hearing and the 

record thereof, it is found that: 

(1) The said order as hereby amended, 

and all of the terms and conditions 

thereof, will tend to effectuate the 

declared policy of the Act; 

(2) The parity prices of milk, as 

determined pursuant to section 2 of the 

Act, are not reasonable in view of the 

price of feeds, available supplies of 

feeds, and other economic conditions 

which affect market supply and demand 

for milk in the aforesaid marketing area. 

The minimum prices specified in the 

order as hereby amended are such 

prices as will reflect the aforesaid 

factors, insure a sufficient quantity of 

pure and wholesome milk, and be in the 

public interest; and 

(3) The said order as hereby amended 

regulates the handling of milk in the 

same manner as, and is applicable only 

to persons in the respective classes of 

industrial or commercial activity 

specified in, a marketing agreement 

upon which a hearing has been held. 

Order Relative to Handling 

It is therefore ordered, that on and 

after the effective date hereof, the 

handling of milk in the Appalachian 

and Southeast marketing areas shall be 

in conformity to and in compliance with 

the terms and conditions of the order, as 

amended, and as hereby amended, as 

follows: 

The authority citation for 7 CFR parts 

1005 and 1007 continues to read as 

follows: 

Authority: 7 U.S.C. 601–674, and 7253. 

PART 1005—MILK IN THE 

APPALACHIAN MARKETING AREA 

1. Section 1005.13 is amended by 

revising paragraphs (d)(3) and (d)(4) to 

read as follows: 

§ 1005.13 Producer milk. 

* * * * * 

(d) * * * 

(3) The total quantity of milk diverted 

during the month by a cooperative 

association shall not exceed 25 percent 

during the months of July through 

November, January, and February, and 

40 percent during the months of 

December and March through June, of 

the producer milk that the cooperative 

association caused to be delivered to, 

and physically received at, pool plants 

during the month, excluding the total 

pounds of bulk milk received directly 

from producers meeting the conditions 

as described in § 1005.82(c)(2)(ii) and 

(iii), and for which a transportation 

credit is requested; 

(4) The operator of a pool plant that 

is not a cooperative association may 

divert any milk that is not under the 

control of a cooperative association that 

diverts milk during the month pursuant 

to paragraph (d) of this section. The 

total quantity of milk so diverted during 

the month shall not exceed 25 percent 

during the months of July through 

November, January, and February, and 

40 percent during the months of 

December and March through June, of 

the producer milk physically received at 

such plant(or such unit of plants in the 

case of plants that pool as a unit 

pursuant to § 1005.7(d)) during the 

month, excluding the quantity of 

producer milk received from a handler 

described in § 1000.9(c) and excluding 

the total pounds of bulk milk received 

directly from producers meeting the 

conditions as described in 

§ 1005.82(c)(2)(ii) and (iii), and for 

which a transportation credit is 

requested; 

* * * * * 

2. Section 1005.81 is revised to read 

as follows: 

§ 1005.81 Payments to the transportation 

credit balancing fund. 

(a) On or before the 12th day after the 

end of the month (except as provided in 

§ 1000.90), each handler operating a 

pool plant and each handler specified in 

§ 1000.9(c) shall pay to the market 

administrator a transportation credit 

balancing fund assessment determined 

by multiplying the pounds of Class I 

producer milk assigned pursuant to 

§ 1005.44 by $0.15 per hundredweight 

or such lesser amount as the market 

administrator deems necessary to 

maintain a balance in the fund equal to 

the total transportation credits 

disbursed during the prior June January 

period, after adjusting the transportation 

credits disbursed during the prior 

Juney–January period to reflect any 

changes in the current mileage rate 

versus the mileage rate(s) in effect 

during the prior June January period. In 

the event that during any month of the 

June–January period the fund balance is 

insufficient to cover the amount of 

credits that are due, the assessment 

should be based upon the amount of 

credits that would had been disbursed 

had the fund balance been sufficient. 

(b) The market administrator shall 

announce publicly on or before the 23rd 

day of the month (except as provided in 

§ 1000.90) the assessment pursuant to 

paragraph (a) of this section for the 

following month. 

3. Section 1005.82 is amended by 

revising paragraphs (d)(2)(ii) and 

(d)(3)(iv) to read as follows: 

§ 1005.82 Payments from the 

transportation credit balancing fund. 

* * * * * 

(d) * * * 

(2) * * * 

(ii) Multiply the number of miles so 

determined by the mileage rate for the 

month computed pursuant to 

§ 1005.83(a)(6); 

* * * * * 

(3) * * * 

(iv) Multiply the remaining miles so 

computed by the mileage rate for the 

month computed pursuant to 

§ 1005.83(a)(6); 

* * * * * 

4. Add a new § 1005.83 to read as 

follows: 

§ 1005.83 Mileage rate for the 

transportation credit balancing fund. 

(a) The market administrator shall 

compute a mileage rate each month as 

follows: 

(1) Compute the simple average 

rounded down to three decimal places 

for the most recent 4 four weeks of the 

Diesel Price per Gallon as reported by 

the Energy Information Administration 

of the United States Department of 

Energy for the Lower Atlantic and Gulf 

Coast Districts combined. 

(2) From the result in paragraph (a)(1) 

in this section subtract $1.42 per gallon; 

(3) Divide the result in paragraph 

(a)(2) of this section by 5.5, and round 

down to three decimal places to 

compute the fuel cost adjustment factor; 

(4) Add the result in paragraph (a)(3) 

of this section to $1.91; 

(5) Divide the result in paragraph 

(a)(4) of this section by 480; 

(6) Round the result in paragraph 

(a)(5) of this section down to five 

decimal places to compute the mileage 

rate. 

(b) The market administrator shall 

announce publicly on or before the 23rd 

day of the month (except as provided in 

§ 1000.90) the mileage rate pursuant to 

paragraph (a) of this section for the 

following month. 


rmajette on PROD1PC67 with PROPOSALS2
54134 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

PART 1007—MILK IN THE SOUTHEAST 

MARKETING AREA 

5. Section 1007.13 is amended by 

revising paragraphs (d)(3) and (d)(4) to 

read as follows: 

§ 1007.13 Producer milk. 

* * * * * 

(d) * * * 

(3) The total quantity of milk diverted 

during the month by a cooperative 

association shall not exceed 33 percent 

during the months of July through 

December, and 50 percent during the 

months of January through June, of the 

producer milk that the cooperative 

association caused to be delivered to, 

and physically received at, pool plants 

during the month; excluding the total 

pounds of bulk milk received directly 

from producers meeting the conditions 

as described in § 1007.82(c)(2)(ii) and 

(iii), and for which a transportation 

credit is requested; 

(4) The operator of a pool plant that 

is not a cooperative association may 

divert any milk that is not under the 

control of a cooperative association that 

diverts milk during the month pursuant 

to paragraph (d) of this section. The 

total quantity of milk so diverted during 

the month shall not exceed 33 percent 

during the months of July through 

December, or 50 percent during the 

months of January through June, of the 

producer milk physically received at 

such plant (or such unit of plants in the 

case of plants that pool as a unit 

pursuant to § 1007.7(e)) during the 

month, excluding the quantity of 

producer milk received from a handler 

described in § 1000.9(c) and excluding 

the total pounds of bulk milk received 

directly from producers meeting the 

conditions as described in 

§ 1007.82(c)(2)(ii) and (iii), and for 

which a transportation credit is 

requested; 

* * * * * 

6. Section 1007.81 is revised to read 

as follows: 

§ 1007.81 Payments to the transportation 

credit balancing fund. 

(a) On or before the 12th day after the 

end of the month (except as provided in 

§ 1000.90), each handler operating a 

pool plant and each handler specified in 

§ 1000.9(c) shall pay to the market 

administrator a transportation credit 

balancing fund assessment determined 

by multiplying the pounds of Class I 

producer milk assigned pursuant to 

§ 1007.44 by $0.20 per hundredweight 

or such lesser amount as the market 

administrator deems necessary to 

maintain a balance in the fund equal to 

the total transportation credits 

disbursed during the prior June-January 

period, after adjusting the transportation 

credits disbursed during the prior JuneJanuary period to reflect any changes in 

the current mileage rate versus the 

mileage rate(s) in effect during the prior 

June-January period. In the event that 

during any month of the June-January 

period the fund balance is insufficient 

to cover the amount of credits that are 

due, the assessment should be based 

upon the amount of credits that would 

had been disbursed had the fund 

balance been sufficient. 

(b) The market administrator shall 

announce publicly on or before the 23rd 

day of the month (except as provided in 

§ 1000.90) the assessment pursuant to 

paragraph (a) of this section for the 

following month. 

7. Section 1007.82 is amended by 

revising paragraphs (d)(2)(ii) and 

(d)(3)(iv) to read as follows: 

§ 1007.82 Payments from the 

transportation credit balancing fund. 

* * * * * 

(d) * * * 

(2) * * * 

(ii) Multiply the number of miles so 

determined by the mileage rate for the 

month computed pursuant to 

§ 1007.83(a)(6); 

* * * * * 

(3) * * * 

(iv) Multiply the remaining miles so 

computed by the mileage rate for the 

month computed pursuant to 

§ 1007.83(a)(6); 

* * * * * 

8. Add a new § 1007.83 to read as 

follows: 

§ 1007.83 Mileage rate for the 

transportation credit balancing fund. 

(a) The market administrator shall 

compute mileage rate each month as 

follows: 

(1) Compute the simple average 

rounded down to three decimal places 

for the most recent 4 weeks of the Diesel 

Price per Gallon as reported by the 

Energy Information Administration of 

the United States Department of Energy 

for the Lower Atlantic and Gulf Coast 

Districts combined. 

(2) From the result in paragraph (a)(1) 

in this section subtract $1.42 per gallon; 

(3) Divide the result in paragraph 

(a)(2) of this section by 5.5, and round 

down to three decimal places to 

compute the fuel cost adjustment factor; 

(4) Add the result in paragraph (a)(3) 

of this section to $1.91; 

(5) Divide the result in paragraph 

(a)(4) of this section by 480; 

(6) Round the result in paragraph 

(a)(5) of this section down to five 

decimal places to compute the MRF. 

(b) The market administrator shall 

announce publicly on or before the 23rd 

day of the month (except as provided in 

§ 1000.90) the mileage rate pursuant to 

paragraph (a) of this section for the 

following month. 

Marketing Agreement Regulating the 

Handling of Milk in the Appalachian and 

Southeast Marketing Areas 

The parties hereto, in order to effectuate 

the declared policy of the Act, and in 

accordance with the rules of practice and 

procedure effective thereunder (7 CFR part 

900), desire to enter into this marketing 

agreement and do hereby agree that the 

provisions referred to in paragraph I hereof, 

as augmented by the provisions specified in 

paragraph II hereof, shall be and are the 

provisions of this marketing agreement as if 

set out in full herein. 

I. The findings and determinations, order 

relative to handling, and the provisions of 

§§ 1005.1 to 1005.86 and 1007.1 to 1007.86 

all inclusive, of the order regulating the 

handling of milk in the Upper Midwest 

marketing area (7 CFR Part 1030) which is 

annexed hereto; and 

II. The following provisions: Record of 

milk handled and authorization to correct 

typographical errors. 

(a) Record of milk handled. The 

undersigned certifies that he/she handled 

during the month of llll 2006, llll 

hundredweight of milk covered by this 

marketing agreement. 

(b) Authorization to correct typographical 

errors. The undersigned hereby authorizes 

the Deputy Administrator, or Acting Deputy 

Administrator, Dairy Programs, Agricultural 

Marketing Service, to correct any 

typographical errors which may have been 

made in this marketing agreement. 

Effective date. This marketing agreement 

shall become effective upon the execution of 

a counterpart hereof by the Department in 

accordance with § 900.14(a) of the aforesaid 

rules of practice and procedure. 

In Witness Whereof, The contracting 

handlers, acting under the provisions of the 

Act, for the purposes and subject to the 

limitations herein contained and not 

otherwise, have hereunto set their respective 

hands and seals. 

Signature 

By (Name) lllllllllllllll

(Title) lllllllllllllllll

(Address) llllllllllllllll

(Seal) 

Attest llllllllllllllllll

[FR Doc. 06–7497 Filed 9–6–06; 8:45 am] 

BILLING CODE 3410–02–P 


rmajette on PROD1PC67 with PROPOSALS2