54152 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Part 1032 

[Docket No. AO–313–A48; DA–04–06] 

Milk in the Central Marketing Area; 

Final Decision on Proposed 

Amendments to Marketing Agreement 

and to Order 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule; final decision. 

SUMMARY: This document is the final 

decision proposing to adopt 

amendments that increase supply plant 

performance standards, amend features 

of the ‘‘touch-base’’ provision, amend 

certain features of the ‘‘split plant’’ 

provision and decrease the diversion 

limit standards of the order. This 

decision also limits the volume of milk 

a handler can pool to 125 percent of the 

total volume of milk pooled in the 

previous month. This final decision is 

subject to producer approval. 

FOR FURTHER INFORMATION CONTACT: Jack 

Rower, Marketing Specialist, Order 

Formulation and Enforcement Branch, 

USDA/AMS/Dairy Programs, STOP 

0231–Room 2971, 1400 Independence 

Avenue, SW., Washington, DC 20250– 

0231, (202) 720–2357, e-mail address: 

jack.rower@usda.gov. 

SUPPLEMENTARY INFORMATION: This final 

decision adopts amendments that: (1) 

Increase supply plant performance 

standards to 25 percent for the months 

of August through February and to 20 

percent for the months of March 

through July; (2) Require the non-pool 

side of a split plant to maintain nonpool 

status for 12 months; (3) Amend the 

‘‘touch-base’’ feature of the order to 

require that at least one day’s 

production of the milk of a dairy farmer 

be received at a pool plant in each of the 

months of January, February, and 

August through November, to be eligible 

for diversion to non-pool plants; (4) 

Lower the diversion limit standards by 

five percentage points, from 80 percent 

to 75 percent, for the months of August 

through February, and by five 

percentage points, from 85 percent to 80 

percent for the months of March 

through July; and (5) Establish 

provisions that limit the volume of milk 

a handler may pool in a month to 125 

percent of the volume of milk pooled in 

the prior month. 

This administrative action is governed 

by the provisions of Sections 556 and 

557 of Title 5 of the United States Code, 

and therefore, is excluded from the 

requirements of Executive Order 12866. 

The amendments to the rules 

proposed herein have been reviewed 

under Executive Order 12988, Civil 

Justice Reform. They are not intended to 

have a retroactive effect. If adopted, the 

proposed amendments would not 

preempt any State or local laws, 

regulations, or policies, unless they 

present an irreconcilable conflict with 

this rule. 

The Agricultural Marketing 

Agreement Act of 1937 (the Act), as 

amended (7 U.S.C. 601–674), provides 

that administrative proceedings must be 

exhausted before parties may file suit in 

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

Act, any handler subject to an order may 

request modification or exemption from 

such order by filing with the 

Department of Agriculture (Department) 

a petition stating that the order, any 

provision of the order, or any obligation 

imposed in connection with the order is 

not in accordance with the law. A 

handler is afforded the opportunity for 

a hearing on the petition. After a 

hearing, the Department would rule on 

the petition. The Act provides that the 

district court of the United States in any 

district in which the handler is an 

inhabitant, or has its principal place of 

business, has jurisdiction in equity to 

review the Department’s ruling on the 

petition, provided a bill in equity is 

filed not later than 20 days after the date 

of the entry of the ruling. 

Regulatory Flexibility Act and 

Paperwork Reduction Act 

In accordance with the Regulatory 

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

Agricultural Marketing Service has 

considered the economic impact of this 

action on small entities and has certified 

that this proposed rule will not have a 

significant economic impact on a 

substantial number of small entities. For 

the purpose of the Regulatory Flexibility 

Act, a dairy farm is considered a ‘‘small 

business’’ if it has an annual gross 

revenue of less than $750,000, and a 

dairy products manufacturer is a ‘‘small 

business’’ if it has fewer than 500 

employees. 

For the purposes of determining 

which dairy farms are ‘‘small 

businesses,’’ the $750,000 per year 

criterion was used to establish a 

production guideline of 500,000 pounds 

per month. Although this guideline does 

not factor in additional monies that may 

be received by dairy producers, it 

should be an inclusive standard for 

most ‘‘small’’ dairy farmers. For 

purposes of determining a handler’s 

size, if the plant is part of a larger 

company operating multiple plants that 

collectively exceed the 500-employee 

limit, the plant will be considered a 

large business even if the local plant has 

fewer than 500 employees. 

During January 2005, the time of the 

hearing, there were 5,778 dairy 

producers pooled on, and 23 handlers 

regulated by, the Central order. 

Approximately 5,365 producers, or 92.9 

percent, were considered ‘‘small 

businesses’’ based on the above criteria. 

Of the 23 handlers regulated by the 

Central order during January 2005, 11 

handlers, or 47.8 percent, were 

considered ‘‘small businesses.’’ 

The adopted amendments regarding 

the pooling standards serve to revise 

established criteria that determine those 

producers, producer milk, and plants 

that have a reasonable association with 

and consistently serve the fluid needs of 

the Central milk marketing area. Criteria 

for pooling are established on the basis 

of performance levels that are 

considered adequate to meet the Class I 

fluid needs of the market and, by doing 

so, determine those producers who are 

eligible to share in the revenue that 

arises from the classified pricing of 

milk. 

Criteria for pooling are established 

without regard to the size of any dairy 

industry organization or entity. 

Therefore, the proposed amendments 

will not have a significant economic 

impact on a substantial number of small 

entities. 

A review of reporting requirements 

was completed under the Paperwork 

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

Chapter 35). It was determined that 

these proposed amendments would 

have no impact on reporting, record 

keeping, or other compliance 

requirements because they would 

remain identical to the current 

requirements. No new forms are 

proposed and no additional reporting 

requirements would be necessary. 

This action does not require 

additional information collection that 

requires clearance by the Office of 

Management and Budget (OMB) beyond 

currently approved information 

collection. The primary sources of data 

used to complete the forms are routinely 

used in most business transactions. 

Forms require only a minimal amount of 

information which can be supplied 

without data processing equipment or a 

trained statistical staff. Thus, the 

information collection and reporting 

burden is relatively small. Requiring the 

same reports for all handlers does not 

significantly disadvantage any handler 

that is smaller than the industry 

average. 

No other burdens are expected to fall 

on the dairy industry as a result of 

overlapping Federal rules. This 

rulemaking proceeding does not 


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Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54153 

duplicate, overlap, or conflict with any 

existing Federal rules. 

Prior documents in this proceeding: 

Notice of Hearing: Issued September 

17, 2004; published September 22, 2004 

(69 FR 56725). 

Notice of Hearing Delay: Issued 

October 18, 2004; published October 13, 

2004 (69 FR 61323). 

Recommended Decision: Issued 

February 15, 2006; published February 

22, 2006 (71 FR 9015). 

Preliminary Statement 

A public hearing was held upon 

proposed amendments to the marketing 

agreement and the order regulating the 

handling of milk in the Central 

marketing area. The hearing was held, 

pursuant to the provisions of the 

Agricultural Marketing Agreement Act 

of 1937, as amended (7 U.S.C. 601–674), 

and the applicable rules of practice and 

procedure governing the formulation of 

marketing agreements and marketing 

orders (7 CFR Part 900). 

The amendments set forth below are 

based on the record of a public hearing 

held in Kansas City, Missouri, on 

December 6–8, 2004, pursuant to a 

notice of hearing issued September 17, 

2004, published September 22, 2004 (69 

FR 56725), and a notice of a hearing 

delay issued October 13, 2004, 

published October 18, 2004 (69 FR 

61323). 

Upon the basis of the evidence 

introduced at the hearing and the record 

thereof, the Administrator, on February 

15, 2006, issued a Recommended 

Decision containing notice of the 

opportunity to file written exceptions 

thereto. 

The material issues, findings, 

conclusions and rulings of the 

Recommended Decision, with one 

minor modification, are hereby 

approved, adopted and are set forth 

herein. The material issues on the 

hearing record relate to: 

1. Pooling Standards 

A. Performance standards for supply 

plants. 

B. The ‘‘Split plant’’ provision. 

C. System pooling for supply plants. 

D. Elimination of the supply plant 

provision. 

E. Standards for producer milk. 

2. Establishing pooling limits. 

3. Transportation and assembly credits. 

Findings and Conclusions 

The following findings and 

conclusions on the material issues are 

based on evidence presented at the 

hearing and the record thereof: 

1. Pooling Standards 

A. Performance Standards for Supply 

Plants 

A portion of a proposal, published in 

the hearing notice as Proposal 1, seeking 

to increase supply plant performance 

standards by five percentage points, 

from 20 percent to 25 percent, for the 

months of August through February, 

and from 15 percent to 20 percent for 

the months of March through July, is 

adopted. A portion of another similar 

proposal, published in the hearing 

notice as Proposal 5, seeking to increase 

supply plant performance standards by 

20 percentage points, from 15 percent to 

35 percent, for the month of July, by 15 

percentage points, from 20 percent to 35 

percent, for the months of August 

through January and by 10 percentage 

points, from 15 percent to 25 percent, 

for the month of March is not adopted. 

Currently, the Central order requires a 

supply plant to ship 20 percent of its 

total receipts to a distributing plant 

during the months of August through 

February, and 15 percent of its total 

receipts during the months of March 

through July, in order for the total 

receipts of the supply plant to be 

pooled. 

Proposal 1 was offered jointly by 

Dairy Farmers of America, Inc., (DFA), 

and Prairie Farms Cooperative (PF), 

hereafter referred to as DFA/PF. DFA/PF 

are member-owned Capper-Volstead 

cooperatives that pool milk on the 

Central order. Proposal 1 would 

increase the amount of milk a supply 

plant would be required to ship to a 

distributing plant by five percentage 

points, from 20 percent to 25 percent, 

for the months of August through 

February, and from 15 percent to 20 

percent for the months of March 

through July, in order to pool all of its 

receipts on the Central order. 

The proponents are of the opinion 

that current supply plant performance 

standards enable milk that does not 

demonstrate a consistent and reliable 

service to the Class I market to be 

pooled on the order. The proponents 

contend that the pooling of this 

additional milk is causing an 

unwarranted lowering of the order’s 

blend price. 

A witness appearing on behalf of 

DFA/PF testified in support of Proposal 

1. The DFA/PF witness stated that 

increasing the volume of milk a supply 

plant is required to ship to a pool 

distributing plant in order to have all 

the receipts of the supply plant pooled, 

combined with other proposed changes 

to the Central order pooling provisions, 

will better identify milk ready, willing 

and able to service the fluid milk needs 

of the Central marketing area. 

The DFA/PF witness testified that the 

proposed increase in the performance 

standards for supply plants would 

increase the blend price received by 

dairy farmers whose milk is pooled and 

priced on the Central order. The witness 

was of the opinion that an increase in 

the blend price will serve to attract and 

retain milk supplies that are otherwise 

shipped from the Central order area to 

neighboring marketing areas. The 

witness asserted that increasing supply 

plant performance standards will ensure 

that the Class I needs of the Central 

marketing area are being met. 

The DFA/PF witness testified that 

current supply plant performance 

standards allow far more milk to be 

pooled on the Central order than is 

necessary. Relying on market 

administrator data, the witness noted 

that the projected Class I utilization of 

50.1 percent, anticipated during Federal 

order reform for the consolidated 

marketing area, was not achieved. The 

witness added that the average Class I 

utilization in the Central marketing area 

has ranged from a low of 26 percent in 

2002 to nearly 33 percent in 2003. The 

witness was of the opinion that these 

average Class I utilization levels 

demonstrate that reserve supplies of 

milk in the marketing area of 74 and 67 

percent, respectively, for 2002 and 2003, 

far exceed the 49–50 percent reserve 

levels projected during Federal order 

reform. In addition, the witness noted 

that increased supply plant performance 

standards implemented in 2001 have 

not been effective in reducing the excess 

reserve supply of milk in the marketing 

area. The witness concluded that this 

data confirms that the current 

performance standards of the Central 

order provide opportunities for milk not 

regularly and consistently serving the 

Class I market to be pooled on the order. 

The DFA/PF witness described 

concerns regarding the geography of the 

Central marketing area and explained 

that higher prices are received for milk 

in the bordering Southeast and 

Appalachian marketing areas. 

According to the witness, higher milk 

prices in the Appalachian and Southeast 

orders tend to attract milk from the 

Central marketing area and create 

localized supply imbalances within the 

eastern portion of the marketing area. 

The witness testified that increasing 

supply plant performance standards 

would deter milk originating from 

within the Central order boundaries 

from pooling on the Appalachian and 

Southeast orders. According to the 

witness this would tend to increase the 


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blend price paid to dairy farmers whose 

milk is pooled on the Central order. 

A number of DFA member dairy 

farmers whose milk is pooled on the 

Central order testified in support of the 

portion of Proposal 1 that would 

increase supply plant performance 

standards. The dairy farmer witnesses 

were of the opinion that increasing 

supply plant performance standards 

will raise the level of Class I utilization 

and in turn, increase the blend price. 

A witness from National All-Jersey 

(NAJ) representing AMPI, et al., 

(Associated Milk Producers Inc., Central 

Equity Cooperative, Land O’ Lakes, Inc., 

First District Association, Foremost 

Farms USA, joined by Wells Dairy, Inc., 

Milnot Holdings and National AllJersey), testified in opposition to the 

portion of Proposal 1 that would 

increase supply plant performance 

standards. NAJ is a national 

organization whose mission is to 

promote milk pricing equity and 

increase the value and demand for the 

milk produced by the Jersey breed. The 

NAJ witness was of the opinion that 

increasing supply plant performance 

standards would result in inefficient 

movements of milk and pass the costs 

of regulatory inefficiencies to 

consumers. 

In their post hearing brief, DFA/PF 

reiterated their support for Proposal 1. 

The brief asserted that adoption of the 

portion of Proposal 1 that would 

increase supply plant performance 

standards would more accurately 

identify the milk of producers servicing 

the fluid needs of the market. According 

to the brief, increasing supply plant 

performance standards will increase the 

blend price for the producers who 

provide regular and consistent service to 

the Class I market. The DFA/PF brief 

reiterated support for not pooling milk 

which does not provide regular and 

consistent service to the fluid milk 

needs of the Central marketing area. 

A brief from Select Milk Producers, 

Inc. (Select) and Continental Dairy 

Products, Inc. (Continental) supported 

adoption of the higher performance 

standard features of Proposal 1. Select 

and Continental are member-owned 

Capper-Volstead cooperatives whose 

milk is pooled on the Central order. The 

brief noted that adoption of higher 

performance standards would deter the 

pooling of milk on the order not 

servicing the fluid needs of the market. 

A portion of Proposal 5, advanced by 

Dean Foods (Dean) (who described 

themselves as the largest processor and 

distributor of fluid milk in the United 

States, owning and operating nine 

distributing plants regulated by the 

Central order), would increase supply 

plant performance standards by 20 

percentage points, from 15 percent to 35 

percent, for the month of July, by 15 

percentage points, from 20 percent to 35 

percent, for the months of August 

through January and by 10 percentage 

points, from 15 percent to 25 percent, 

for the month of March. These proposed 

changes to supply plant performance 

standards are not recommended for 

adoption. 

Two witnesses appeared on behalf of 

Dean in support of increasing supply 

plant performance standards. The 

witnesses were of the opinion that 

current supply plant performance 

standards are inadequate to assure a 

reasonable supply of fluid milk to the 

order’s distributing plants. The 

witnesses were of the opinion that 

increasing supply plant performance 

standards as they proposed to the levels 

advanced would better attract an 

adequate milk supply for Class I use to 

the marketing area. 

The first Dean witness testified that 

marketwide pooling and classified 

pricing are built on the assumption that 

Class I milk is the highest priced class 

and that pool revenues generated from 

Class I sales will attract a regular and 

consistent milk supply. The witness was 

of the opinion that current supply plant 

performance standards allow handlers 

to pool milk on the Central order that 

does not regularly and consistently 

serve the Class I market. According to 

the witness, low supply plant 

performance standards reduce the blend 

price paid to producers who 

consistently serve the needs of the 

Central order fluid market by allowing 

lower-valued milk to be pooled on the 

order. 

The first Dean witness was of the 

opinion that adoption of higher 

performance standards would increase 

the volume of milk available to the Class 

I market. The witness further testified 

that if the USDA adopted higher 

performance standards for supply 

plants, adoption of Proposals 9 and 10, 

or Proposals 11, 12, and 13 would also 

be necessary. (Proposals 9, 10, 11, 12, 

and 13 are discussed later in this 

decision.) 

The second Dean witness also was of 

the opinion that increasing supply plant 

performance standards would help to 

ensure that the fluid milk needs of the 

marketing area are being met. According 

to the witness, increasing supply plant 

performance standards would decrease 

the volumes of milk in lower-valued 

uses pooled on the order, thereby 

increasing the order’s blend price. The 

witness testified that increasing supply 

plant performance standards would 

assist fluid milk handlers located in St. 

Louis and southern Illinois, who 

compete with handlers located in the 

Appalachian and Southeast orders, 

obtain needed milk supplies. 

A brief submitted on behalf of DFA/ 

PF opposed adoption of the level of 

performance standards for supply plants 

offered by Dean. DFA/PF noted that 

increasing supply plant performance 

standards to the levels advanced in 

Proposal 5 are unnecessarily high and 

are more restrictive than current market 

conditions could reasonably justify. 

A brief submitted by AMPI, et al., 

reiterated the group’s opposition to 

increased performance standards for 

supply plants as advanced by both Dean 

and DFA/PF. The brief highlighted the 

contention that increased performance 

standards for supply plants would 

unfairly penalize reserve suppliers of 

the marketing area by restricting their 

ability to share in the benefits of the 

marketwide pool. 

B. The ‘‘Split Plant’’ Provision 

A proposal from Dean, published in 

the hearing notice as Proposal 10, 

seeking to require the nonpool side of a 

split plant to maintain nonpool status 

for 12 months, is adopted. Another Dean 

proposal, published in the hearing 

notice as Proposal 9, seeking to 

eliminate the split plant provision is not 

adopted. 

The current split plant provision 

provides for designating a portion of a 

pool plant as a nonpool plant provided 

that the nonpool portion of the plant is 

physically separate and operated 

separately from the regulated or ‘‘pool’’

side of the plant. Current provisions 

afford handlers operating a split plant 

the option of maintaining nonpool 

status or qualifying the nonpool side of 

the plant for pooling on a monthly basis. 

The Dean witness testified that the 

nonpool side of a split plant can 

facilitate the pooling of milk that does 

not demonstrate a regular and consistent 

service to the fluid milk needs of the 

Central marketing area. The witness 

stated that if Proposal 10 was adopted, 

then Proposal 4, a proposal to eliminate 

all supply plant provisions, and 

Proposal 9, a proposal to eliminate split 

plants, would not be needed. 

The Dean witness testified that 

Proposal 10 would require the nonpool 

side of a split plant to maintain nonpool 

status for a 12-month interval. 

According to the witness, adoption of 

this provision would deter pooling milk 

that does not regularly and consistently 

serve the Class I market. The witness 

added that Proposal 10 was advanced as 

an alternative to Proposal 9. The witness 

testified that as advanced in Proposal 9, 

a split plant could either be a pool plant 


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or a nonpool plant but not both. The 

witness stated that if USDA did not 

eliminate split plants then Dean would 

seek the adoption of Proposal 10. 

In a post hearing brief, Select and 

Continental supported adoption of 

Proposal 10. The brief stated that 

Proposal 10 would deter the pooling of 

milk that does not regularly and 

consistently serve the Class I market. 

According to the brief, split plants 

should be prohibited from using milk 

receipts in the nonpool side of the plant 

from being pooled without 

demonstrating actual service to the 

Class I market. The brief expressed the 

opinion that reducing the volume of 

milk that a split plant could pool on the 

order from its nonpool side would tend 

to increase the Central order blend 

price. 

The Select and Continental brief 

however, opposed the elimination of 

split plants as advanced in Proposal 9. 

The brief stated that requiring a split 

plant to elect non-pool status for 12 

months for its nonpool side would 

provide sufficient incentive to prevent 

the pooling of excess milk through split 

plants. 

DFA/PF commented on brief that 

Dean’s Proposals 4–13 in general ‘‘go 

too far, too fast’’ given the current 

market conditions of the Central 

marketing area. According to the brief, 

DFA/PF contend that the adoption of 

the Dean proposals would not serve the 

needs of small dairy farms. The brief 

noted that some small producers may 

not have alternative markets for their 

milk if Dean’s proposal to eliminate the 

split plant provision was adopted. 

The AMPI, et al., brief opposed 

elimination of the split plant provision 

or requiring a 12-month pooling 

commitment from operators of split 

plants. Their opposition was based on 

the view that elimination of split plants, 

or imposing a 12-month pooling 

commitment for split plant operators, 

would unfairly restrict their ability to 

pool milk on the order. 

C. System Pooling for Supply Plants 

Three proposals presented by Dean, 

published in the hearing notice as 

Proposals 11, 12 and 13, and modified 

at the hearing, are not adopted. Proposal 

11 would have eliminated providing for 

supply plant systems. Proposal 12 

would have required a supply plant 

system to be operated by only one 

handler. Proposal 13 would have 

required that every plant participating 

in a system ship 40 percent of the 

system’s qualifying shipment as if they 

had been operating as separate plants. 

Proposal 13 also would have prohibited 

using milk shipped directly from 

producer farms as qualifying shipments. 

Current Central order provisions 

provide the ability for 2 or more supply 

plants (subject to certain additional 

conditions) to operate as a ‘‘system’’ in 

meeting the qualifications for pooling in 

the same manner as a single plant. 

The Dean witness testified that system 

pooling affords handlers the ability to 

link several supply plants together in an 

effort to qualify producer milk for 

pooling on the order. According to the 

witness, current system pooling 

provisions allow plants and farms close 

to distributing plants to deliver 

producer milk on behalf of more distant 

plants, thereby providing for the pooling 

of milk that does not regularly and 

consistently serve the Class I market. 

According to the witness, adoption of 

Proposal 11 would require plants to 

transfer milk to obtain and maintain 

eligibility for pool qualification. The 

witness stated that Proposal 11 would 

require every handler to pool their 

producers on the basis of actual 

deliveries to distributing plants. 

The Dean witness testified in support 

of Proposal 12 in the event supply plant 

systems were not eliminated as 

advanced in Proposal 11. According to 

the witness, Proposal 12 would limit the 

use of supply plant systems to a single 

handler rather than multiple handlers as 

currently provided in the order. The 

witness testified that allowing only a 

single handler to qualify pool supply 

plants through system pooling 

provisions would ensure that each 

handler is willing and able to 

demonstrate regular and consistent 

service to the fluid milk needs of the 

Central marketing area. 

The Dean witness testified that 

Proposal 13 would require each plant in 

a supply plant system to meet at least 

40 percent of the total performance 

standard required for pooling. 

According to the witness, Proposal 13 is 

similar to Proposal 11 in that it would 

prohibit the use of milk shipped directly 

from producer farms to qualify a supply 

plant system. However, the witness 

stated that Proposal 13 also would 

require every supply plant in a supply 

plant system to ship a significant 

volume of milk to the fluid market. The 

witness noted that qualification of 

distant milk would be discouraged by 

adoption of Proposals 12 and 13 since 

the use of milk shipped directly from 

producer farms for qualification 

purposes would be prohibited. The 

Dean witness expressed preferences for 

the adoption of Proposal 11 over 

Proposal 12, and adoption of Proposal 

12 over Proposal 13. 

A witness from DFA/PF expressed 

opposition to Proposals 11, 12, and 13, 

because their adoption would eliminate 

or overly restrict the operation of supply 

plant systems. On brief, DFA/PF noted 

that, as with elimination of the split 

plant provision, some small producers 

may not have alternative markets for 

their milk if supply plant systems are 

eliminated or are made overly 

restrictive. 

In a post hearing brief, AMPI, et al., 

reiterated opposition to Proposals 11, 

12, and 13. The AMPI, et al., brief 

opposed restrictions on pooling milk of 

producers ready, willing, and able to 

serve the Class I needs of the Central 

marketing area. The brief opposed 

elimination or restriction of supply 

plant systems contending such action 

would eliminate markets for the milk of 

small dairy farmers without alternative 

markets available. 

Select and Continental also opposed 

adoption of Proposals 11, 12 and 13 in 

their post-hearing brief. The brief 

opposed eliminating or restricting 

supply plant systems on the basis that 

no verifiable evidence was presented 

demonstrating that supply plant systems 

do not provide consistent and reliable 

service to the Class I market. 

D. Elimination of the Supply Plant 

Provision 

A proposal by Dean, published in the 

hearing notice as Proposal 4, seeking to 

eliminate the supply plant provision, is 

not adopted. 

A Dean witness characterized 

Proposal 4 as a preferred alternative to 

increasing supply plant performance 

standards sought in Proposals 1 and 5. 

The witness explained that if Proposal 

4 is adopted, then Proposals 9–13, 

seeking to increase performance 

standards for supply plants and supply 

plant systems would not be needed. The 

witness testified that while the role of 

supply plants in the milk order system 

is to supply the needs of distributing 

plants, the milk supply of plants for the 

Central marketing area is only of 

residual concern because it provides an 

outlet for reserve producers when their 

milk is not needed for fluid use. 

The Dean witness testified that supply 

plants no longer represent the most 

efficient means for supplying 

distributing plants. According to the 

witness, supply plants play a minor role 

in the Central marketing area, 

representing less than 5 percent of the 

milk shipped to distributing plants. 

According to the witness, milk 

assembled from farms must be received 

at a supply plant, cooled and stored, 

and reloaded and delivered to 

distributing plants. The witness stated 

that the increased handling of milk 

through supply plants reduces its 


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54156 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

1Amendments to the pooling provisions of the 

Upper Midwest order were implemented on 

February 1, 2006 (70 FR 73126). See Final Partial 

Decision published in the Federal Register, October 

5, 2005 (70 FR 58086). 

quality compared with milk that is 

direct delivered from farms. The witness 

said that direct delivery from farms to 

distributing plants is a superior method 

for ensuring that milk pooled on the 

order serves the Class I needs of the 

market. The witness was of the opinion 

that supply plants inappropriately 

facilitate pooling milk that does not 

regularly and consistently serve the 

Class I market. 

A witness representing NAJ testified 

in opposition to the elimination of 

supply plants. According to the witness, 

elimination of the supply plant 

provision also would reduce the ability 

of dairy farmers to pool milk on the 

Central order. The witness was of the 

opinion that eliminating the supply 

plant provision would have a negative 

impact on the income of the 

cooperatives represented by NAJ. The 

witness stated that supply plants 

provide a legitimate means by which 

producers continue to serve the Class I 

market of the Central marketing area. 

A witness for DFA/PF testified in 

opposition to the elimination of supply 

plants. According to the witness, 

provisions for supply plants should be 

provided because they continue to play 

a role in supplying milk to distributing 

plants. DFA/PF reiterated this 

opposition to Proposal 4 in their posthearing brief. AMPI, et al., joined DFA/ 

PF in opposing this proposal. 

E. Standards for Producer Milk 

Several amendments to the Producer 

milk provision of the Central order are 

adopted. The amendments were largely 

contained in Proposal 1. Changes to the 

producer milk provision are necessary 

to more accurately identify the milk of 

those dairy farmers that are regularly 

and consistently serving the Class I 

needs of the market. The adopted 

amendments include: (1) Increasing the 

touch-base standard so that one day’s 

milk production of a dairy farmer must 

be delivered to a pool plant in each of 

the months of January, February and 

August through November for the milk 

of the dairy farmer to be eligible for 

diversion to a nonpool plant; and (2) 

Decreasing the diversion limit standards 

to not more than 75 percent of receipts 

during August through February, and 

not more than 80 percent of receipts for 

March through July. 

The feature of Proposal 1 to 

geographically limit the location of 

nonpool plants eligible to receive 

diverted milk to those plants in States 

located in the marketing area and New 

Mexico is not adopted. 

Proposal 1 increases the touch-base 

standard to require the equivalent of at 

least one days’ milk production of a 

dairy farmer be physically received at a 

pool plant in each of the months of 

January, February and August through 

November. If the touch-base standard is 

not met, the milk would have to be 

physically received at a pool plant in 

each of the months of March through 

July and December. The current touchbase standard of the Central order 

specifies a one-time only delivery 

standard. 

The DFA/PF witness explained that 

the current one-time touch-base 

standard of the Central order should be 

replaced by the strengthened touch-base 

feature of Proposal 1. The witness 

continued that the months of January, 

February, and August through 

November, were added to the proposed 

touch-base standard to correspond with 

periods of higher Class I demands. The 

DFA witness explained that requiring 

one day’s milk production of a producer 

to be delivered to a pool plant in each 

of these six months should increase 

milk available for Class I use. The DFA/ 

PF witness was opposed to any touchbase standard of more than one day per 

month for the six months advanced by 

the proposal, as being overly restrictive. 

The DFA/PF witness testified that 

increasing the touch-base standard and 

lowering the diversion limit standards 

of the Central order will help to ensure 

that milk that could not consistently 

and reliably demonstrate service to the 

Class I market is not pooled on the 

order. The witness testified that the 

pooling of such milk on the order 

reduces the blend price paid to 

producers who consistently and reliably 

serve the Class I needs of the Central 

marketing area. 

The DFA/PF witness acknowledged 

that amendments to the pooling 

provisions of the Central order 

implemented in 2003 reduced the 

volume of milk pooled that was not 

serving the Class I needs of the market. 

However, the witness noted that those 

changes did not contemplate that milk 

from the Mountain States might seek to 

be pooled on the Central order. The 

witness was of the opinion that the 

current touch-base and diversion limit 

standards were inadequate to prevent 

the sharing of Class I revenue with the 

milk of producers that could not 

possibly serve the Class I market of the 

Central marketing area. The witness was 

of the opinion that if milk located far 

from the Upper Midwest marketing 

area 1 and currently pooled on the 

Upper Midwest order were to seek an 

alternative order on which to pool, the 

current pooling standards of the Central 

order make it the most likely candidate 

among Federal milk orders. The witness 

testified that the current pooling 

standards of the Central order can not 

adequately prevent such milk from 

pooling because the pooling standards 

are too liberal. According to the witness, 

this milk can not demonstrate regular 

and reliable service to the Class I 

market. 

The DFA/PF witness illustrated that 

milk produced in Idaho, for example, 

cannot profitably be delivered to 

distributing plants located in the Central 

marketing area. According to the 

witness, milk produced in this region 

would need to travel more than 680 

miles for delivery at the nearest 

distributing plant of the order located in 

Denver. The witness asserted that the 

current one-time touch-base standard 

combined with the existing diversion 

limit standards of the order provide the 

incentive for milk located far from the 

marketing area to be profitably pooled 

on the order which otherwise would not 

be economically feasible. 

The witness provided a scenario 

where a single 50,000-pound load of 

milk delivered once to Denver could 

cause one million pounds of milk to be 

pooled on the Central order through the 

diversion process but delivered to 

plants far from the marketing area. 

According to the witness’ calculations, 

a 50,000-pound load of milk delivered 

once to a pool plant located in Denver 

would incur a loss $4,640. However, the 

witness explained that each additional 

load of milk, up to one million pounds 

now qualified for diversion to nonpool 

plants located near producers farms, 

would return an additional $7,081. The 

witness emphasized that the milk 

portrayed in this example would rely 

solely on the liberal pooling standards 

of the order. The milk would never 

consistently and reliably supply the 

Central marketing area. 

In another scenario, the DFA/PF 

witness illustrated the impact of 25 

million pounds of milk a month 

shipped from southern Idaho that would 

be pooled on the Central order through 

the diversion process by meeting the 

one-time touch-base standard during the 

months of November 2003–January 

2004. The witness explained that 

pooling this volume of milk would have 

reduced the Central order’s blend price 

by $0.25 per cwt. 

In a third scenario, the DFA/PF 

witness demonstrated how milk located 

in southern Idaho can be pooled every 

month through the diversion process by 

meeting the one-time touch-base 

standard of the Central order. The 


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witness said that this scenario was 

based on the 58-month period of 

January 2000 to October 2004. The 

witness explained that this scenario 

assumes that a single 50,000-pound load 

of milk was shipped to a distributing 

plant located in the Central marketing 

area and all other milk diverted to 

nonpool plants are located in Idaho. The 

witness testified that the shipping 

handler would receive a positive return 

averaging $0.348 per cwt per month 

($201,000 over the 58-month period) on 

the total volume of milk pooled. The 

DFA/PF witness concluded that from 

their scenarios, the current Central order 

diversion limit and touch-base 

standards encourage pooling of milk 

that can not and does not regularly and 

consistently supply the Class I needs of 

the market. 

A brief submitted by Select and 

Continental supported the producer 

milk amendments called for in Proposal 

1, except for limiting diversions to 

nonpool plants that are located in the 

States comprising the Central marketing 

area. The brief noted that the goal of the 

Federal order program should be to 

ensure that milk pooled on the order 

actually serves the Class I market. 

Features of Proposal 5, offered by 

Dean, regarding diversion limits and 

touch-base standards are not adopted. 

Proposal 5 seeks to raise the touch-base 

standard to 4 days in each month of the 

year and decrease diversion limits to 65 

percent for the months of July through 

January, and 75 percent during the 

months of February through June. A 

Dean witness stated that increasing the 

touch base requirement would ensure 

the increased availability of milk to 

serve the needs of the fluid market. The 

witness testified that adopting higher 

touch-base and lower diversion limit 

standards would ensure that pool plants 

would keep their facilities operating at 

a higher level of output than would be 

the case if more milk were diverted. 

The diversion limit standard feature 

of Proposal 5 was modified by Dean on 

brief. The modification specified that 

milk would not be eligible for diversion 

‘‘unless’’ (instead of ‘‘until’’) milk has 

been physically received as producer 

milk at a pool plant, and the exception 

for a loss of Grade A status was changed 

to a period not to exceed 21 rather than 

10 days in a calendar year. 

The witness from NAJ, on behalf of 

AMPI, et al., testified in opposition to 

increasing the touch-base and lowering 

the diversion limit standards as 

advanced. The witness stated that the 

proposed lowering of diversion limits 

together with increasing supply plant 

performance standards as called for in 

Proposal 5 would have negative 

consequences for dairy farmer income, 

if adopted. The NAJ witness was of the 

opinion that the aim of Proposal 5 was 

to deter milk from being pooled on the 

order. It was the witness’ opinion that 

the adoption of Proposal 5 would create 

marketing inefficiencies and additional 

costs for members of NAJ. The witness 

also was of the opinion that the 

adoption of Proposal 5 would 

discourage available milk supplies in 

the milkshed from pooling on the 

Central order. 

NAJ and AMPI, et al., also submitted 

exceptions to increasing the touch-base 

standard and lowering the diversion 

limit standards in the recommended 

decision. NAJ and AMPI, et al., 

reaffirmed their opinion that adoption 

of a one day touch-base standard along 

with a decrease in diversion limits 

would unnecessarily burden their 

members. 

Central Equity, a dairy farmer 

cooperative located in Missouri, also 

took exception to increasing the touchbase standard. One hundred and 

fourteen Central Equity dairy farmer 

members submitted a form-letter 

detailing the difficulties the cooperative 

would endure in meeting the increased 

touch-base standard. The cooperative 

members were of the opinion that the 

recommended touch-base standard 

would significantly increase hauling 

costs and require the cooperative to pay 

pooling fees for access to pool plants. 

The cooperative added that they are not 

opposed to increased performance 

standards in general, but are concerned 

with difficulties that small cooperatives 

and independent dairy farmers face in 

obtaining access to pool facilities. 

Exceptions to increasing the touchbase standard and lowering the 

diversion limit standard were also 

received from Wells Dairy (Wells). 

Wells Dairy is an Iowa based dairy 

products manufacturer. Wells was of the 

opinion that the recommended touchbase standard would be difficult for 

certain dairy farmers and dairy farmer 

cooperatives to meet. Wells noted that 

increasing the touch-base standard and 

lowering the diversion limit standard 

will unduly burden dairy farmers and 

cooperatives that have limited access to 

pooling facilities served under fullsupply contracts. 

The record reveals that distributing 

plants in certain areas of the marketing 

area are having difficulty obtaining 

reliable milk supplies. Because this 

decision does not adopt transportation 

credits (discussed later in this decision) 

for the movement of milk to distributing 

plants, increasing the performance 

standards for supply plants is a 

reasonable measure to better assure that 

all distributing plants of the order are 

adequately supplied. Additionally, 

other measures are being taken to 

prevent the pooling of milk which can 

not demonstrate regular and consistent 

service in supplying the Class I needs of 

the marketing area. The pooling of such 

milk results in an unwarranted lowering 

of the blend price returned to those 

producers who demonstrate regular and 

consistent service in supplying the Class 

I needs of the market. 

The pooling standards of all Federal 

milk marketing orders, including the 

Central order, are intended to ensure 

that an adequate supply of milk is 

available to meet the Class I needs of the 

market and provide the criteria for 

determining the producer milk that has 

demonstrated service in meeting the 

Class I needs of the market and thereby 

receive the order’s blend price. The 

pooling standards of the Central order 

are represented in the Pool plant, 

Producer, and the Producer milk 

provisions of the order and are based on 

performance, specifying standards that 

if met, qualify a producer, the milk of 

a producer, or a plant to share in the 

benefits arising from the classified 

pricing of milk. 

Pooling standards that are 

performance-based provide the only 

viable method for determining those 

producers eligible to share in the 

marketwide pool. It is usually the 

additional revenue generated from the 

higher-valued Class I use of milk that 

adds additional income to producers, 

and it is reasonable to expect that only 

those producers who consistently bear 

the costs of supplying the market’s fluid 

needs should share in the returns 

arising from higher-valued Class I sales. 

An important objective of pooling 

standards is identifying the milk that 

serves the fluid milk needs of the 

market, a feature which if ineffective 

can result in pooling milk that is not 

providing such service 

Record evidence supports finding that 

certain features of pooling standards of 

the Central order relating to 

performance standards for supply 

plants, diversion limits, touch-base, and 

split plants need to be amended given 

the pooling of milk that does not 

regularly and consistently serve the 

Class I needs of the Central marketing 

area. 

The most recent amendments to the 

Central order (published in the August 

27, 2003, Final Decision (68 FR 51640)) 

intended to correct similar inadequacies 

of the supply plant pooling provisions 

and diversion limit standards for the 

consolidated Central order. However, 

the record reveals that the combination 

and features adopted for pool plants in 


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2003 have not been as effective as 

intended to reasonably assure that only 

milk of producers who regularly and 

consistently serve the Class I market is 

pooled on the order. 

Record evidence reveals that the 

performance and pooling standards of 

the Central order are inadequate to 

ensure that the benefits of consistently 

and reliably servicing the Class I market 

are shared equitably among those 

producers who actually bear the costs of 

serving that market. The record 

evidence demonstrates that milk distant 

from the Central marketing area does 

not provide reasonable service to the 

Class I market but can be pooled on the 

order because of current pooling 

standards. This evidence shows that 

pooling large volumes of milk at lower 

class-use values has lowered the order’s 

blend price. Specifically, the record 

shows that the current one-time touchbase standard and the diversion limit 

standard of the order do not properly 

identify the milk of producers who 

reliably and consistently serve the Class 

I market. 

The record demonstrates that current 

pooling standards of the Central order 

make it the most logical order for distant 

milk—such as in Southern Idaho—to be 

pooled. The record shows that the 

current performance standards of the 

Central order are insufficient to prevent 

milk from qualifying for pooling while 

not performing service to the Class I 

market. 

In addition, the record provides 

evidence that milk produced in areas 

distant from the marketing area cannot 

profitably be delivered to distributing 

plants in the Central marketing area. 

However, the current liberal touch-base 

and diversion limit standards make 

pooling on the Central order attractive 

while reducing the blend price of the 

order for those producers who actually 

provide service to the Class I market. 

Record evidence reveals the 

continued importance of supply plants 

for producers whose milk provides 

consistent and reliable service to the 

Class I market. According to the record, 

opposition to restrictive supply plant 

standards beyond those advanced in 

Proposals 1 and 10 was based on the 

continued need for supply plant service 

to distributing plants in the marketing 

area. Similarly, the record reveals a 

consensus among producers concerning 

their continued support for supply plant 

systems as an integral part of milk 

supply networks in the Central 

marketing area. Opposition to the 

elimination or additional restriction of 

supply plants and supply plant systems 

in Proposals 4, 11, 12, and 13, is 

revealed by the record to be based on 

the continued importance of supply 

plant systems to supplying the Class I 

market. 

Record evidence from proponents and 

opponents of limiting diversions to 

supply plants located in the marketing 

area or New Mexico supports 

concluding that dairy farmers in some 

regions of the Central marketing area 

rely on supply plants to market their 

milk. In addition, the record contains 

evidence that supply plants and supply 

plant systems continue to provide 

necessary service to the Class I market 

without regard to the location of those 

plants or plant systems. According to 

the record, distant milk may use the 

pooling standards of the Central order as 

a means to pool milk that will never 

perform service to the Class I market. 

However, the record does not show 

clearly that milk diverted to supply 

plants outside the marketing area or 

New Mexico cannot be part of the 

legitimate reserve of the market which 

may require additional pooling 

safeguards. Performance rather than 

plant location continues to be the 

standard for identifying the milk of 

producers who should share in the 

benefits of pooling. In that regard, this 

decision finds agreement with the 

opponents of limiting diversions to 

supply plants located within the 

marketing area or New Mexico, as 

sought in Proposal 1. 

Despite the comments by AMPI et al., 

NAJ, Central Equity and Wells Dairy, 

this decision continues to find that 

several of the performance standards 

advanced in Proposal 1 are reasonable 

in light of other adopted changes to the 

order’s pooling provisions. The 

combination of amendments increasing 

supply plant performance standards, 

modifying the split plant provision, 

reducing diversion limit standards and 

increasing the touch-base standard are 

appropriate in light of denying 

proposals to establish transportation 

and assembly credits. The adopted 

amendments should more accurately 

identify the milk of those producers that 

provide a consistent and reliable supply 

of milk to the Class I needs of the 

Central marketing area and assure that 

distributing plants are adequately 

supplied. 

The record indicates that milk located 

either inside or outside the marketing 

area can be reported as diverted milk by 

a pooled handler. This milk is eligible 

to receive the order’s blend price. Under 

the current pooling provisions, this can 

occur after a one-time delivery to a 

Central marketing area pool plant. After 

the initial delivery, however, such milk 

need never again be physically 

delivered to a Central marketing area 

pool plant. The record evidence 

confirms that usually this milk is 

delivered to a nonpool plant located 

nearer the farms of producers located far 

from the marketing area who cannot 

serve the Class I market. It is therefore 

appropriate to amend the order’s 

diversion provisions to ensure that milk 

pooled through the diversion process is 

part of the legitimate reserve supply of 

the pool plant from which it was 

diverted. This standard is a necessary 

safeguard against excessive milk 

supplies becoming associated with the 

market through the diversion process to 

prevent the unwarranted reduction of 

the order’s blend price. 

However, the record does not support 

finding that diversions to plants not 

located within the marketing area or 

New Mexico cannot be part of the 

legitimate reserve supply for the 

marketing area. In this regard, the 

proposed limitation on diversions based 

on plant location is not reasonable. 

Based on the record, the proposed 

increase in the touch-base standard and 

lowering of the diversion limitation 

standard is adequate to ensure that milk 

consistently and reliably serving the 

Class I market is properly identified. 

Accordingly, the portion of Proposal 1 

seeking to limit diversions to plants 

located in the marketing area or New 

Mexico is not adopted. 

Exceptions received by AMPI, et al., 

NAJ, Central Equity and Wells Dairy 

opined the difficulties that certain 

cooperatives and independent dairy 

farmers face in meeting an increased 

touch-base standard. However, this 

decision continues to find that that the 

touch-base standard should be amended 

so that at least one days’ milk 

production of a dairy farmer is 

physically received at a pool plant 

during January, February, and August 

through November for the milk of the 

dairy farmer to be eligible for diversion 

to a nonpool plant. Amending the 

touch-base standard is widely supported 

by the record and should reduce the 

ability of milk not performing a 

consistent and reliable service to the 

Class I market from being pooled. The 

months of January, February, and 

August through November are, 

according to the record, the high 

demand months for fluid milk. 

Adoption of the one-day touch base 

standard for each of these six months 

will more properly identify the milk of 

those producers serving the market’s 

Class I needs. Accordingly, exceptions 

received from AMPI, et al., NAJ, Central 

Equity and Wells Dairy are found to not 

be compelling. 

Record evidence does not support 

finding that the 4-day touch base 


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standard advanced by Dean would 

improve the identification of dairy 

farmers whose milk serves beyond what 

a 1-day standard would provide within 

the context of current marketing 

conditions. This will be reinforced by 

the other adopted amendments to the 

order’s pooling standards. 

The amendment requiring a handler 

to make a 12-month commitment if 

opting to create a split plant will ensure 

that the milk shipped from the pool side 

of a split-plant serves the Class I market. 

This amendment (Proposal 10, 

advanced by Dean) is a reasonable 

modification of the split plant feature 

for supply plants to provide for orderly 

marketing and maintain the integrity 

and intent of the order’s performance 

standards. The proposal retains the 

principle that milk regularly and 

consistently demonstrating service to 

the Class I needs of the market should 

benefit from being pooled on the order. 

Accordingly, Proposal 10 is adopted. 

The Federal milk order system 

recognizes that there are costs incurred 

by producers in servicing an order’s 

Class I market. The primary reward to 

producers for performing such service is 

receiving the order’s blend price. Taken 

as a whole, the amended pooling 

provisions will ensure that milk seeking 

to be pooled consistently demonstrates 

service in meeting the marketing area’s 

Class I needs. Consequently, adoption of 

these amended pooling provisions will 

provide for more equitable sharing of 

revenue generated from Class I sales 

among those producers who bear those 

costs and assure Class I handlers of a 

regular and reliable supply for fluid use. 

2. Establishing Pooling Limits 

Preliminary Statement 

Federal milk marketing orders rely on 

the tools of classified pricing and 

marketwide pooling to assure an 

adequate supply of milk for fluid (Class 

I) use and to provide for the equitable 

sharing of the revenues arising from the 

classified pricing of milk. Classified 

pricing assigns a value to milk 

according to how the milk is used. 

Regulated handlers who buy milk from 

dairy farmers are charged class prices 

according to how they use the farmer’s 

milk. Dairy farmers are then paid a 

weighted average or ‘‘blend’’ price. The 

blend price that dairy farmers are paid 

for their milk is derived through the 

marketwide pooling of all class uses of 

milk in a marketing area. Thus each 

producer receives an equal share of each 

use class of milk and is indifferent as to 

the actual Class for which the milk was 

used. The Class I price is usually the 

highest class price for milk. Historically, 

the Class I use of milk provides the 

additional revenue to a marketing area’s 

total classified use value of milk. 

The series of Class prices that are 

applicable for any given month are not 

announced simultaneously. The Class I 

price and the Class II skim milk price 

are announced prior to the beginning of 

the month for which they will be 

effective. Class prices for milk in all 

other uses for the month are not 

determined until on or before the 5th 

day of the following month. The Class 

I price is determined by adding a 

differential value to the higher of either 

an advanced Class III or Class IV value. 

These values are calculated based on 

formulae using National Agricultural 

Statistics Service (NASS) survey prices 

of cheese, butter, and nonfat dried milk 

powder for the first two weeks of the 

prior month. For example, the Class I 

price for August is announced in late 

July and is based on the higher of the 

Class III or IV value computed using 

NASS commodity price surveys for the 

first two weeks of July. 

The Class III and IV prices for the 

month are determined and announced 

after the end of the month based on the 

NASS survey prices for the selected 

dairy commodities during the month. 

For example, the Class III and IV prices 

for August are based on NASS survey 

commodity prices during August. A 

large increase in the NASS survey price 

for the selected dairy commodities from 

one month to the next can result in the 

Class III or IV price exceeding the Class 

I price. This occurrence is commonly 

referred to by the dairy industry as a 

‘‘class price inversion.’’ A producer 

price inversion generally refers to when 

the Class III or IV price exceeds the 

average classified use value, or blend 

price, of milk for the month. Price 

inversions have occurred with 

increasing frequency in Federal milk 

orders since the current pricing plan 

was implemented on January 1, 2000, 

despite efforts made during Federal 

Order Reform to reduce such 

occurrences. Price inversions can create 

an incentive for dairy farmers and 

manufacturing handlers who voluntarily 

participate in the marketwide pooling of 

milk to elect not to pool their milk on 

the order. Class I handlers do not have 

this option; their participation in the 

marketwide pool is mandatory. 

The producer price differential, or 

PPD, is the difference between the Class 

III price and the weighted average value 

of all Classes. In essence, the PPD is the 

dairy farmer’s share of the additional/ 

reduced revenues associated with the 

Class I, II and IV milk pooled in the 

market. If the weighted average price of 

Class I, II and IV milk in the pool is 

greater than the Class III price, then 

dairy farmers receive a positive PPD. 

However, a negative PPD can occur if 

the value of the Class III milk in the pool 

exceeds the value of the remaining 

classes of milk in the pool. This can 

occur as a result of the price inversions 

discussed above. 

The Central Federal order operates a 

marketwide pool. The Order contains 

pooling provisions which specify 

criteria that, if met, allow dairy farmers 

to share in the benefits that arise from 

classified pricing through pooling. The 

equalization of all class prices among 

handlers regulated by an order is 

accomplished through a mechanism 

known as the producer settlement fund 

(PSF). Typically, Class I handlers pay 

the difference between the blend price 

and their use-value of milk into the PSF. 

Manufacturing handlers typically 

receive a draw from the PSF, usually the 

difference between the Class II, III or IV 

price and the blend price. In this way, 

all handlers pay the class value for milk 

and all dairy farmer suppliers receive at 

least the order’s blend price. 

When manufacturing class prices of 

milk are high enough to result in a usevalue of milk for a handler that is higher 

than the blend price, handlers of 

manufacturing milk may choose to not 

pool their milk receipts. Opting to not 

pool their milk receipts allows these 

handlers to avoid the obligation of 

paying into the PSF. The choice by a 

manufacturing handler to not pool their 

milk receipts is commonly referred to as 

‘‘de-pooling’’. When the blend price 

rises above the manufacturing class usevalues of milk these same handlers 

again opt to pool their milk receipts. 

This is often referred to as ‘‘re-pooling’’. 

The ability of manufacturing handlers to 

de-pool and re-pool manufacturing milk 

is viewed by some market participants 

as being inequitable to both producers 

and handlers. 

The ‘‘De-pooling’’ Proposals 

Proponents are in agreement that milk 

marketing orders should contain 

provisions that will tend to deter the 

practice of de-pooling. Four proposals 

intending to deter the de-pooling of 

milk were considered in this 

proceeding. The proposals offered 

different degrees of deterrence against 

de-pooling by establishing limits on the 

amount of milk that can be re-pooled. 

The proponents of these four proposals 

are generally of the opinion that depooling erodes equity among producers 

and handlers, undermines the orderly 

marketing of milk and is detrimental to 

the Federal order system. 

Two different approaches to deter depooling are represented by these four 


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proposals. The first approach, published 

in the hearing notice as Proposals 2 and 

8, addresses de-pooling by limiting the 

volume of milk a handler can pool in a 

month to a specified percentage of what 

the handler pooled in the prior month. 

The second approach, published in the 

hearing notice as Proposals 6 and 7, 

addresses de-pooling by establishing 

what is commonly referred to as a 

‘‘dairy farmer for other markets’’

provision. These proposals would 

require milk of a producer that was depooled to not be able to be re-pooled by 

that producer for a defined time period. 

All proponents agreed that while none 

of the proposals would completely 

eliminate de-pooling, they would likely 

deter the practice. 

Of the four proposals received that 

would limit de-pooling, this decision 

adopts Proposal 2, offered by DFA/PF. 

Specifically, adoption of the proposal 

will limit the volume of milk a handler 

can pool in a month to no more than 

125 percent of the volume of milk 

pooled in the prior month. Milk 

diverted to nonpool plants in excess of 

this limit would not be pooled, and milk 

shipped to pool distributing plants and 

allocated as Class I in excess of the 

volume shipped to pool distributing 

plants in the prior month will not be 

subject to the 125 percent limitation. 

The 125 percent limitation may be 

waived at the discretion of the Market 

Administrator for a new handler on the 

order or for an existing handler whose 

milk supply changes due to unusual 

circumstances. 

As published in the hearing notice, 

Proposal 8, offered by Dean Foods, 

addresses de-pooling in a similar 

manner as Proposal 2, but would 

establish a limit on the total volume of 

milk a handler could pool in a given 

month to 115 percent of the volume that 

was pooled in the prior month. This 

proposal was modified at the hearing to 

allow for pooling the milk receipts of a 

new handler on the order without 

volume restrictions. 

As published in the hearing notice, 

Proposals 6 and 7, also offered by Dean 

Foods would address de-pooling by 

establishing defined time periods during 

which de-pooled milk could not be 

pooled. Proposal 6 essentially would 

require an annual pooling commitment 

by handler to the market. Under 

Proposal 6, if the milk of a producer is 

de-pooled in a month, then the milk of 

the producer could not re-establish 

eligibility for pooling on the order 

during the following eleven months 

unless ten days milk production was 

delivered to a pool distributing plant. 

Under Proposal 6, handlers that de-pool 

milk have limited options to return milk 

to the pool, either shipping ten days 

milk production of a producer to a pool 

distributing plant or waiting eleven 

months for eligibility to re-pool. 

Under Dean’s Proposal 7, a handler 

that de-pools milk cannot re-pool for a 

2 to 4 month time period, depending on 

the month in which de-pooling 

occurred. Proposal 7 also provides the 

option to return milk to the pool by 

shipping ten days milk production of a 

producer to a pool distributing plant. 

Proposals 6 and 7 were modified at the 

hearing. 

A witness appearing on behalf of 

DFA/PF testified in support of Proposal 

2 and in general opposition to the 

practice of de-pooling. The witness 

testified that adoption of Proposal 2 

would minimize the practice of depooling since not all the milk that was 

de-pooled could immediately return to 

the pool in the following month. The 

witness noted that both DFA and Prairie 

Farms de-pool milk when advantageous 

but stressed that the practice of depooling and re-pooling is detrimental to 

the Federal order system. 

The DFA/PF witness testified that 

restricting the pooling of milk on the 

basis of prior performance is not a new 

concept in Federal milk marketing order 

provisions. The witness referenced the 

‘‘dairy farmer for other markets’’

provision currently in place in the 

Northeast order as an example of 

pooling provisions based on prior 

performance. The witness noted that 

Proposal 2 is similar to a ‘‘dairy farmer 

for other markets’’ provision as it limits 

pooling based on the handler’s previous 

month’s pooled volume. The DFA/PF 

witness speculated that the manner in 

which Proposal 2 attempts to reduce the 

practice of de-pooling is too drastic for 

some and not strong enough for others. 

Nevertheless, adoption of Proposal 2, 

the witness stressed, would provide an 

appropriate economic consequence to 

discourage those entities that might 

otherwise choose to de-pool. 

The DFA/PF witness was of the 

opinion that since the purpose of 

Federal milk marketing orders are to 

ensure an adequate supply of milk for 

the fluid market, equitably share pool 

proceeds, and promote orderly 

marketing, milk order provisions should 

attract milk to its highest valued use 

when needed and provide for milk to 

clear the market when not needed in 

higher-class uses. Since Class I milk 

cannot be de-pooled, the witness noted, 

Class I handlers can be at a disadvantage 

to handlers who can de-pool during 

periods of price inversions. Class I 

handlers are unable to maintain a 

competitive pay price for their milk 

supply, the witness explained, since 

Class II, III or IV handlers who de-pool 

may pay dairy farmers a higher price for 

their milk. The witness stressed that 

when the Class I price is not high 

enough to attract milk from other uses, 

disorderly conditions arise in the 

marketplace. 

The DFA/PF witness asserted that 

when a Class II, III or IV handler depools milk, inequities arise for the dairy 

farmers who supplied the de-pooling 

handler. In the absence of provisions to 

discourage de-pooling, the witness 

explained, de-pooling becomes a 

rational economic practice since only 

Class I milk is required to be pooled and 

its value shared through the order’s 

blend price. 

The DFA/PF witness testified that the 

combination of de-pooling with recent 

increasingly volatile milk prices 

requires immediate regulatory measures 

to mitigate the disorderly effects that depooling has on market participants. The 

witness cited market administrator data 

showing that since implementation of 

Federal order reform in 2000 there have 

been 43 months when opportunities to 

de-pool existed for the Central order. 

Relying on statistics provided by the 

market administrator, the witness 

illustrated that in April 2004 a handler 

in the Central order choosing to de-pool 

was able to pay over $4.00 per 

hundredweight (cwt) more for milk than 

a Class I handler unable to de-pool 

because the Class III price was $19.66 

and the uniform price was $15.64. The 

witness characterized pricing 

differences of this magnitude as 

disruptive, disorderly and a competitive 

disadvantage for any Class I handler. 

When similarly situated handlers face 

disparate costs in procuring a supply of 

milk, the witness added, producers in 

common procurement areas are 

negatively affected. The witness 

asserted that this is a disorderly 

marketing condition. 

Two DFA member dairy farmers from 

Nebraska testified in support of 

Proposal 2. Both witnesses maintained 

that they received smaller milk checks 

than they otherwise would have 

received if milk had not been de-pooled. 

The witnesses added that when fluid 

milk bottlers experience difficulties in 

obtaining a milk supply, the costs to 

supply that milk should be passed on to 

consumers, not dairy farmers. The 

witnesses also stated that in order to 

equalize returns from all classified uses 

of milk, there needs to be a commitment 

to have all milk pooled every month of 

the year. 

Two DFA member dairy farmers from 

Missouri also testified in support of 

Proposal 2. The witnesses noted that depooling amplifies the problem of 


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negative PPD’s. The witnesses were of 

the opinion that de-pooling creates 

differences in pay prices among 

similarly located dairy farmers whose 

milk is pooled in the Central market, 

and that different pay prices represent a 

disorderly marketing condition. The 

witnesses stated that in order to enjoy 

the additional funds usually generated 

by the Class I market, handlers should 

be required to demonstrate that their 

milk is available for the Class I market 

by not de-pooling. 

A dairy farmer from Kansas testified 

in opposition to the practice of depooling. The witness was of the opinion 

that a commitment to serve the Class I 

market should be required in order to 

share in the blend price. The witness 

stressed that in order to share in the 

returns generated from the marketwide 

pool handlers and cooperatives should 

participate in the pool every day not 

only when it may be profitable. 

A witness testified on behalf of Dean 

in support of Proposal 8. The witness 

explained that Proposal 8 addresses the 

practice of de-pooling in a similar 

manner as Proposal 2 but would limit 

the pooling of milk to 115 percent of the 

volume that was pooled in the prior 

month. The witness was of the opinion 

that a monthly pooling limit would 

discourage the de-pooling of milk since 

the greater the proportion of a handler’s 

milk that is de-pooled, the longer it will 

take to re-pool that milk. Accordingly, 

the witness concluded, those who 

benefit the most from de-pooling also 

would have the most difficulty in 

attempting to regain pool status. 

A witness for Dean also testified in 

support of Proposals 6 and 7 which 

would establish defined time periods 

during which de-pooled milk could not 

be re-pooled. The witness testified that 

Dean prefers adoption of Proposal 6 

over Proposal 7. Proposal 6 would 

impose a 12-month period during which 

de-pooled milk could not again be 

pooled while Proposal 7 would 

establish a 2 to 4 month period during 

which de-pooled milk could not again 

be pooled. Under Proposal 6, the 

witness explained, if the milk of a 

producer were de-pooled, the milk 

could only reassociate before the annual 

commitment period if ten days 

production of the milk of the producer 

was delivered to a pool distributing 

plant. According to the witness, 

Proposal 7 would provide an option for 

milk that had been de-pooled to return 

to the pool during certain specified 

months of the year depending on when 

the milk was de-pooled or by shipping 

ten days production of the milk of a 

producer to a pool distributing plant. 

The Dean witness testified that a 

similar provision to those contained in 

Proposals 6 and 7 is currently in place 

in the Northeast order. The witness was 

of the opinion that defined time periods 

during which de-pooled milk cannot 

again become pooled causes handlers to 

behave differently by taking a longer 

term view of pooling. The witness 

explained that handlers in the Northeast 

order need to evaluate more than the 

current month’s economic impacts of 

pooling or not pooling milk, along with 

possible future missed opportunities. 

The Dean witness further contrasted 

the current ‘‘dairy farmer for other 

markets’’ provision effective in the 

Northeast to the standards proposed in 

Proposals 6 and 7. The witness testified 

that in the Northeast order, July is a 

month when de-pooled milk can return 

to the pool regardless of when the milk 

had been de-pooled during the previous 

year. Relying on market administrator 

data, the witness related that during the 

months of February through July 2004, 

large volumes of milk were de-pooled 

from the Northeast order. Because of the 

‘‘dairy farmer for other markets’’

provision, the witness explained, milk 

that was de-pooled during the months of 

February through June could not return 

to the pool until July. During this 

period, noted the Dean witness, a large 

volume of milk usually pooled on the 

Northeast order was pooled on the 

Mideast order. 

The Dean witness testified that 

Proposal 6 would require a handler that 

de-pooled milk in a month to remain off 

the pool for eleven additional months or 

ship 10 days milk production of a 

producer to a pool distributing plant in 

order for all milk of a producer to return 

to the pool, while Proposal 7 would 

provide the option to either return 

during designated months depending on 

the month in which milk was depooled, or ship 10 days milk production 

of a producer to a pool distributing 

plant in order for all milk of a producer 

to return to the pool. 

A second Dean witness offered 

additional testimony in support of 

Proposal 6. The witness testified that 

Proposal 6 would exclude from the pool 

the milk of any dairy farmer not 

continuously pooled under a Federal 

milk order during the previous twelve 

months. The only exception to this 

exclusion would be a dairy farmer who 

temporarily lost Grade A status but was 

reinstated as a Grade A producer within 

21 days, noted the additional Dean 

witness. The witness emphasized that 

the portion of Proposal 6 that would 

require delivery of 10 days milk 

production of a dairy farmer to a pool 

distributing plant in order for all milk 

of a producer to re-join the pool would 

discourage de-pooling. The 10 day 

delivery requirement would insure that 

participation in the pool was open to 

any dairy farmer for whom it was 

technically and economically feasible to 

supply milk for fluid use. According to 

the witness, Proposals 6 and 7 also 

would make more milk readily available 

to service the fluid needs of the market. 

The additional Dean witness also 

stressed that adoption of Proposal 6 

would not totally eliminate de-pooling 

but would make it more difficult to repool milk after it had been de-pooled. 

The Dean witness testified that producer 

milk continuously pooled on the 

Central, or any other Federal milk order, 

which shares in both the costs and 

benefits of pool participation on a 

continuous basis would not be affected 

by adoption of Proposal 6. 

The second Dean witness added that 

adoption of Proposal 6 would increase 

returns to producers and provide for 

more orderly marketing conditions. The 

witness was of the opinion that 

adoption of Proposal 6 would cause 

Class II, III or IV milk to remain pooled 

during times when the blend price was 

lower than the respective class price. 

This would increase the PPD, by making 

it less negative, and raise the blend 

price received by all producers, the 

witness concluded. Adoption of 

Proposal 6 also would cause some Class 

III milk that is de-pooled to never return 

to the pool, the witness noted, since it 

would no longer be financially 

advantageous. 

A Kansas dairy farmer testified in 

support of Proposal 6. The witness 

stated that de-pooling cost Kansas 

dairymen who supplied the needs of the 

fluid market $6.2 million between 

March 2004 and October 2004. The 

witness spoke in favor of any proposal 

that would require greater commitment 

to servicing the Class I needs of the 

Central marketing area. 

A DFA member dairy farmer from 

Missouri testified that de-pooling hurts 

dairy farmers and was in favor of any 

proposal that would limit the ability for 

milk to return to the pool the immediate 

month after de-pooling. The witness 

stated that there should be a waiting 

period of at least 2 or 3 months to pool 

milk after the milk had been de-pooled 

or a limit on the milk volume that could 

return to the pool the month after depooling. 

Land O’ Lakes (LOL), initially a 

member of AMPI, et al., opposing 

adoption of Proposals 2, 6, 7 or 8, 

submitted a comment to the 

recommended decision in support of 

adoption of Proposal 2. LOL suggested, 

however, a 135 percent pooling limit for 


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the month of March to compensate for 

28 days in the month of February and 

the increases in milk production 

typically seen during the spring months. 

A witness appearing on behalf of 

Dean testified in opposition to Proposal 

2. The witness was of the opinion that 

limiting pooling to 125 percent of 

receipts pooled during the previous 

month was too loose of a standard and 

urged the adoption of Proposal 6 or 

Proposal 8. 

A witness appearing on behalf of 

AMPI, et al., testified in opposition to 

Proposals 2, 6, 7, and 8. The witness 

was of the opinion that de-pooling was 

an issue that was national in scope, and 

should be addressed in a national 

hearing. The witness testified that the 

voluntary option of pooling or not 

pooling milk delivered to a nonpool 

plant has been a mainstay of the Federal 

order system and should not be 

amended. The witness was of the 

opinion that Proposals 2, 6, 7, and 8 do 

not address the root cause of price 

inversions—advance Class I pricing—

but rather only treats the symptom of 

the problem. Class I prices are 

announced by the USDA in advance, 

noted the witness, while milk prices for 

manufactured uses are announced after 

the month has passed. This can cause a 

lag between changes in the value of milk 

and changes in the advanced Class I 

price, added the witness, sometimes 

resulting in a Class III price that exceeds 

the uniform and Class I price, otherwise 

known as a price inversion. The witness 

added that it would be appropriate to 

reconsider whether advanced pricing 

remains sound regulatory policy. 

The AMPI, et al., witness was also of 

the opinion that Federal order Class I 

price differentials are artificially high. 

Milk used to produce cheese, the 

witness noted, is priced entirely through 

the marketplace and receives benefit 

from the Federal order system only 

when the uniform price is higher than 

the Class III price. Adoption of 

Proposals 2, 6, 7 or 8, the witness noted, 

would penalize milk used in the 

production of cheese by limiting the 

amount of milk that could be pooled 

and was a radical change in Federal 

order pooling philosophy. The witness 

added that adoption of these proposals 

would require cheese manufacturers to 

estimate Federal order blend prices and 

PPDs in an effort to decide whether it 

was more profitable to de-pool, remain 

pooled or a combination of both. 

The AMPI, et al., witness testified that 

the de-pooling of milk does not cause 

any reduction to the amount of milk 

available to serve the fluid market. The 

witness was of the opinion that when 

milk was de-pooled there was not a 

reduction in the amount of milk made 

available to service the fluid market 

since the de-pooled milk may rejoin the 

pool the next month. The AMPI, et al., 

witness added that the Federal order 

system should be sharing money 

derived from Class I handlers, not taking 

money from dairy farmers whose milk is 

used in the production of cheese simply 

to offset a low Class I price created by 

the timing of announcing Class prices. 

The AMPI, et al., witness was also of 

the opinion that the Department should 

not consider Proposals 2, 6, 7 and 8 on 

an emergency basis. The witness 

testified that the proposed shift in 

regulatory policy as contained within 

these proposals should require the 

issuance of a recommended decision 

with opportunity for public comment. 

A witness representing NAJ testified 

that the problems arising from depooling are a result of the timing of 

price announcements. The witness also 

stated that the de-pooling issue would 

best be addressed at a national hearing. 

In a post hearing brief, DFA/PF 

reiterated the position that the pooling 

of milk in any month should not exceed 

125 percent of the milk volume pooled 

in the previous month. The brief 

indicated that the pooling proposals 

(Proposals 6, 7, and 8) advanced by 

Dean are too restrictive for the current 

marketing conditions in the Central 

marketing area. According to the brief, 

Proposal 2 represents the least 

restrictive pooling proposal that could 

be supported by current marketing 

conditions while providing a reasonable 

deterrent to de-pooling. 

A brief on behalf of AMPI, et al., 

reiterated the view that de-pooling and 

re-pooling should be addressed on a 

national basis and that pooling 

decisions should continue to be based 

on immediate market conditions. The 

brief expressed the view that the ability 

to de-pool continues to be unrelated to 

the willingness to serve the needs of the 

Class I market. 

A brief by Select/Continental 

supported Proposal 6 as advanced by 

Dean. The brief noted that this ‘‘dairy 

farmer for other markets’’ proposal 

offered the most comprehensive means 

to eliminate the inequities of de-pooling 

while maintaining the strongest possible 

support for producers continuously and 

reliably serving the needs of the Class I 

market. The brief noted that Proposals 2 

and 8, seeking to restrict the ability to 

pool to 125 percent and 115 percent of 

the previous month’s volume 

respectively, was an improvement over 

current conditions but was not as robust 

as Proposal 6 which would require a 12- 

month pooling commitment by 

handlers. The brief found agreement 

with AMPI, et al., that de-pooling is an 

issue that should be addressed on a 

national basis. 

The brief by Dean reiterated support 

for Proposals 6, 7 or 8, in order of 

preference, seeking to restrict the ability 

of handlers to de-pool and re-pool milk 

in the Central marketing area. The brief 

expressed the view that Class I handlers 

who are required to pool their milk 

receipts are at a constant financial 

disadvantage to those handlers who may 

opt to pool or not pool. 

Dean, in comments to the 

Recommended Decision, supported 

adoption of Proposal 2, but was of the 

opinion that the adopted amendments 

may not go far enough in preventing depooling. 

AMPI, along with First District 

Association (AMPI Group), took 

exception to the adoption of any 

proposals that would deter the practice 

of de-pooling. The AMPI Group 

reiterated their position that Proposals 

2, 6, 7 and 8 do not address the root 

cause of price inversions—advance 

Class I pricing—but rather only treats 

the symptom of the problem. 

Family Dairies, a dairy farmer 

cooperative that pools milk on the 

Central order, took exception to 

adopting any proposals that would deter 

the practice of de-pooling. The comment 

suggested that price inversions and 

negative PPDs should be the focus of 

any regulatory change. 

All Federal milk marketing orders 

require the pooling of milk received at 

pool distributing plants—which is 

predominantly Class I milk—and all 

pooled producers and handlers on an 

order share in the additional revenue 

arising from higher valued Class I sales. 

Manufacturing handlers and 

cooperatives of Class II, III and IV uses 

of milk who meet the pooling and 

performance standards make all of their 

milk receipts eligible to be pooled and 

usually find it advantageous. 

Manufacturing handlers and 

cooperatives who supply a portion of 

their total milk receipts to Class I 

distributing plants receive the difference 

between their use-value of milk and the 

order’s blend price. Federal milk orders, 

including the Central order, establish 

limits on the volume of milk eligible to 

be pooled that is not for fluid uses 

primarily through diversion limit 

standards. However, manufacturing 

handlers and cooperatives are not 

required, as are Class I handlers, to pool 

all their eligible milk receipts. 

According to the record, 

manufacturing handlers and 

cooperatives have opted to not pool 

their milk receipts when the 

manufacturing class prices of milk are 


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higher than the order’s blend price—

commonly referred to as being 

‘‘inverted.’’ During such months, 

manufacturing handlers and 

cooperatives have elected to not pool all 

of their eligible milk receipts because 

doing so would require them to pay into 

the PSF of the order, the mechanism 

through which handler and producer 

prices are equalized. When prices are 

not inverted, handlers would pool all of 

their eligible receipts and receive a 

payment or draw from the PSF. In 

receiving a draw from the PSF, such 

handlers will have sufficient money to 

pay at least the order’s blend price to 

their supplying dairy farmers. 

When manufacturing handlers and 

cooperatives opt to not pool all of their 

eligible milk receipts in a month, they 

are essentially avoiding a payment to 

the PSF. This, in turn, enables them to 

avoid the marketwide sharing of the 

additional value of milk that accrues in 

the higher-valued uses of milk other 

than Class I. When the Class I price 

again becomes the highest valued use of 

milk, or when other class-price 

relationships become favorable, the 

record reveals that these same handlers 

opt to again pool their eligible milk 

receipts and draw money from the PSF. 

It is the ability of manufacturing 

handlers and cooperatives opting to not 

pool milk and thereby avoid the 

marketwide sharing of the revenue 

accruing from non-Class I milk sales 

that is viewed by proponents as giving 

rise to disorderly marketing conditions. 

According to proponents, producers and 

handlers who cannot escape being 

pooled and priced under the order are 

not assured of equitable prices. 

The record reveals that since the 

implementation of Federal milk 

marketing order reform in January 2000, 

and especially in more recent years, 

large and rapid increases in 

manufactured product prices during 

certain months have provided the 

economic incentives for manufacturing 

handlers to opt not to pool eligible milk 

on the Central order. For example, 

during the three month period of 

February to April 2004, the Class III 

price increased over 65 percent from 

$11.89 per cwt to $19.66 per cwt. 

During the same time period, total 

producer milk pooled on the Central 

order decreased by nearly 50 percent 

from 1.16 billion pounds to 612 million 

pounds. When milk volumes of this 

magnitude are not pooled the impacts 

on producer blend prices are significant. 

Producers who incur the additional 

costs of consistently servicing the Class 

I needs of the market receive a lower 

return than would otherwise have been 

received if they did not continue to 

service the Class I market. Prices 

received by dairy farmers who supplied 

the other milk needs of the market are 

not known. However, it is reasonable to 

conclude that prices received by dairy 

farmers were not equitable or uniform. 

The record reveals that ‘‘inverted’’

prices of milk are generally the result of 

the timing of Class price 

announcements. Despite changes made 

as part of Federal milk order reform to 

shorten the time period of setting and 

announcing Class I milk prices and 

basing the Class I price on the higher of 

the Class III or Class IV price to avoid 

price inversions, large month-to-month 

price increases in Class III and Class IV 

product prices sometimes trumped the 

intent of better assuring that the Class I 

price for the month would be the 

highest-valued use of milk. In all orders, 

the Class I price (and the Class II skim 

price) is announced prior to or in 

advance of the month for which it will 

apply. The Class I price is calculated by 

using the National Agricultural 

Statistics Service (NASS) surveyed 

cheese, butter, nonfat dry milk and dry 

whey prices for the two most current 

weeks prior to the 24th day of the 

preceding month and then adding a 

differential value to the higher of either 

the advanced Class III or Class IV price. 

Historically, the advance pricing of 

Class I milk has been used in all Federal 

orders because Class I handlers cannot 

avoid regulation and are required to 

pool all of their Class I milk receipts, 

they should know their product costs in 

advance of notifying their customers of 

price. However, milk receipts for Class 

III and IV uses are not required to be 

pooled; thus, Class III and IV product 

prices (and the Class II butterfat value) 

are not announced in advance. These 

prices are announced on or before the 

5th of the following month. Of 

importance here is that manufacturing 

plant operators and cooperatives have 

the benefit of knowing all the classified 

prices of milk before making a decision 

to pool or not pool eligible receipts. 

The record reveals that the decision of 

manufacturing handlers or cooperatives 

to pool or not pool milk is made on a 

month-to-month basis and is generally 

independent of past pooling decisions. 

Manufacturing handlers and 

cooperatives that elected to not pool 

their milk receipts did so to avoid 

making payments to the PSF and they 

anticipated that all other manufacturing 

handlers and cooperatives would do the 

same. However, the record indicates 

that normally pooled manufacturing 

handlers and cooperatives met the 

pooling standards of the order to ensure 

that the Class I market was adequately 

supplied and that they established 

eligibility to pool their physical 

receipts, including diversions to 

nonpool plants. Opponents to proposals 

to deter de-pooling are of the view that 

meeting the pooling standards of the 

order and deciding how much milk to 

pool are unrelated events. Proponents 

took the view that participation in the 

marketwide pool should be based on a 

long-term commitment to supply the 

market because in the long-term it is the 

sales of higher priced Class I milk that 

adds additional revenue to the pool. 

The producer price differential, or 

PPD, is the difference between the Class 

III price and the weighted average value 

of all Class I, II and IV milk pooled. In 

essence, the PPD is the residual revenue 

remaining after all butterfat, protein and 

other solids values are paid to 

producers. If the pooled value of Class 

I, II and IV milk is greater than the Class 

III value, dairy farmers receive a 

positive PPD. While the PPD is usually 

positive, a negative PPD can occur when 

class prices rise rapidly during the sixweek period between the time the Class 

I price is announced and the time the 

Class II butterfat and III and IV milk 

prices are announced. When 

manufacturing prices fall, this same lag 

in the announcement of class prices 

yields a positive PPD. 

As revealed by the record, when 

manufacturing plants and cooperatives 

opted to not pool milk because of 

inverted price relationships, PPD’s were 

much more negative. When this milk is 

not pooled, a larger percentage of the 

milk remaining pooled will be ‘‘lower’’

priced Class I milk. When 

manufacturing milk is not pooled, the 

weighted average value of milk 

decreases relative to the Class II, III or 

IV value making the PPD more negative. 

For example, record evidence 

demonstrated that in April 2004, a 

month when a sizeable volume of milk 

was not pooled, the PPD was a negative 

$3.97 per cwt. If all eligible milk had 

been pooled, the PPD would have been 

$.87 per cwt higher or a negative $3.10 

per cwt. This $0.87 per cwt represents 

the additional burden borne by those 

producers who remained pooled. 

The record reveals that when 

manufacturing handlers and 

cooperatives opt to not pool milk, 

unequal pay prices may result to 

similarly located dairy farmers. For 

example, Dean noted that when a 

cooperative delivers a high percentage 

of their milk receipts to a distributing 

plant, it lessens their ability to not pool 

milk, making them less competitive in 

a marketplace relative to other 

producers and handlers. Other evidence 

in the record supports conclusions 

identical to Dean that when a dairy 


jlentini on PROD1PC65 with PROPOSALS4
54164 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

2Official notice is taken of data and information 

published in Market Administrator Bulletins, as 

posted on individual Market Administrator Web 

sites. 

farmer or cooperative is able to receive 

increased returns from shipping milk to 

a manufacturing handler during times of 

price inversions, other dairy farmers or 

cooperatives who may have shipped 

more milk to a pool distributing plant 

are competitively disadvantaged. 

The record of this proceeding reveals 

that the ability of manufacturing 

handlers and cooperatives to not pool 

all of their eligible milk receipts gives 

rise to disorderly marketing conditions 

and warrants the establishment of 

additional pooling standards to 

safeguard marketwide pooling. Current 

pooling provisions do not require or 

prohibit handlers and cooperatives from 

pooling all eligible milk receipts. 

However, the record reveals that when 

handlers and cooperatives opt to not 

pool milk inequities arise among 

producers and handlers that are 

contrary to the intent of the Federal 

milk marketing order program—

maintaining orderly marketing 

conditions. 

The record contains extensive 

testimony regarding the effects on the 

milk order program resulting from 

advance pricing and the priority the 

milk order program has placed on the 

Class I price being the highest valued 

use of milk. It remains true that the 

Class I use of milk is still the highest 

valued use of milk notwithstanding 

those occasional months when milk 

used in usually lower-valued classes 

may be higher. This has been 

demonstrated by an analysis of the 

effective Class I differential values—the 

difference in the Class I price at the base 

zone of Jackson County, Missouri, and 

the higher of the Class III or Class IV 

price—for the 65 month period of 

January 2000 through May 2005 

performed by USDA.2 These 

computations reveal that the effective 

monthly Class I differential averaged 

$1.97 per cwt. Accordingly, it can only 

be concluded that in the longer-term 

Class I sales continue to be the source 

of additional revenue accruing to the 

pool even when, in some months, the 

effective differential is negative. 

Price inversions occur when the 

wholesale price for manufactured 

products rises rapidly indicating a 

tightening of milk supplies to produce 

those products. It is for this reason that 

the Department chose the higher of the 

Class III and Class IV prices as the 

mover of the Class I price. Distributing 

plants must have a price high enough to 

attract milk away from manufacturing 

uses to meet Class I demands. As 

revealed by the record, this method has 

not been sufficient to provide the 

appropriate price signals to assure an 

adequate supply of milk for the Class I 

market. Accordingly, additional 

measures are needed as a means of 

assuring that milk remains pooled and 

thus available to the Class I market. 

Adoption of Proposal 2 is a reasonable 

measure to meet the objectives of 

orderly marketing. 

This decision does find that 

disorderly marketing conditions are 

present when producers do not receive 

uniform prices. Handlers and 

cooperatives opting to not pool milk do 

not account to the pool at the classified 

use-values of those milk receipts. They 

do not share in all the additional costs 

and burdens with those producers who 

are pooled and who are incurring the 

costs of servicing the Class I needs of 

the market. This is not a desired or 

reasonable outcome especially when the 

same handlers and cooperatives will 

again pool all of their eligible receipts 

when class-price relationships change 

in a subsequent month. These inequities 

borne by the market’s producers are 

contrary to the intent of the Federal 

order program’s reliance on marketwide 

pooling—ensuring that all producers 

supplying the market are paid uniform 

prices for their milk regardless of how 

the milk of any single producer is used. 

Despite the exceptions submitted by 

AMPI Group and Family Dairies, it is 

reasonable that the order contain 

pooling provisions intended to deter the 

disorderly conditions that arise when 

de-pooling occurs. Such provisions 

maintain and enhance orderly 

marketing. Accordingly, this decision 

finds it reasonable to adopt provisions 

that limit the volume of milk a handler 

or cooperative may pool in a month to 

125 percent of the total volume pooled 

by the handler or cooperative in the 

prior month. Adoption of this standard 

will not prevent manufacturing handlers 

or cooperatives from electing to not pool 

milk. However, it should serve to 

maintain and enhance orderly 

marketing by encouraging participation 

in the marketwide pooling of all 

classified uses of milk. 

This decision does not adopt a 135 

percent pooling limit for the month of 

March as suggested by LOL in their 

comments and exceptions to the 

recommended decision. A 135 percent 

standard applicable for the month of 

March was not considered and 

examined at the hearing. 

Consideration was given on whether 

de-pooling should be considered at a 

national hearing with other, broader 

national issues of milk marketing. 

However each marketing area has 

unique marketing conditions and 

characteristics which have area-specific 

pooling provisions to address those 

specific conditions. Because of this, 

pooling issues are considered unique to 

each order. This decision finds that it 

would be unreasonable to address 

pooling issues, including de-pooling, on 

a national basis. 

Some manufacturing handlers and 

cooperatives argued at the hearing, and 

noted in exceptions to the 

Recommended Decision, that their milk 

did perform in meeting the Class I needs 

during the month and this occurred 

before making their pooling decisions. 

They argue that the Class I market is 

therefore not harmed and that the 

intents and goals of the order program 

are satisfied. With respect to this 

proceeding and in response to these 

arguments, this decision finds that the 

practice of de-pooling undermines the 

intent of the Federal order program to 

assure producers uniform prices across 

all uses of milk normally associated 

with the market as a critical indicator of 

orderly marketing conditions. Similarly, 

handlers and cooperatives who de-pool 

purposely do so to gain a momentary 

financial benefit (by avoiding making 

payments to the PSF) which would 

otherwise be equitably shared among all 

market participants. While the order’s 

performance standards tend to assure 

that distributing plants are adequately 

supplied with fresh, fluid milk, the 

goals of marketwide pooling are 

undermined by the practice of depooling. Producers and handlers who 

regularly and consistently bear the costs 

of serving the Class I needs of the 

market will not equitably share in the 

additional value arising momentarily 

from non-fluid uses of milk. These same 

producers and handlers will, in turn, be 

required to share the additional revenue 

arising from higher-valued Class I sales 

in a subsequent month when class-price 

relationships change. 

The four proposals considered in this 

proceeding to deter the practice of depooling in the Central order have 

differences. They all seek to address 

market disorder arising from the 

practice of de-pooling. However, this 

decision does not find adoption of the 

two ‘‘dairy farmer for other markets’’

proposals—Proposals 6 and 7—

reasonable because they would make it 

needlessly difficult for milk to be repooled and because their adoption may 

disrupt prevailing marketing channels 

or cause the inefficient movement of 

milk. Likewise, Proposal 8, to restrict 

pooling in a month to 115 percent of the 

prior month’s volume pooled by the 

handler, is not adopted. Adoption of 


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this proposal would disrupt current 

marketing conditions beyond what the 

record justifies. Therefore, this decision 

adopts Proposal 2 to limit the pooling of 

milk in any month by a handler to 125 

percent of the handler’s pooled receipts 

in the prior month because it provides 

the most reasonable measure to deter 

the practice of de-pooling. 

3. Transportation and Assembly Credits 

A proposal, published in the hearing 

notice as Proposal 3 and modified at the 

hearing, seeking establishment of 

transportation and assembly credits in 

the Central Order is not adopted. The 

published proposal seeks to provide a 

credit for the shipment of milk from 

supply plants to distributing plants. The 

proposal was modified at the hearing to 

expand the transportation credit to 

include milk shipped directly from 

dairy farms to distributing plants. In 

addition, the modified proposal would 

provide an assembly credit for milk 

shipped directly from dairy farms to 

distributing plants. 

The proposal would provide a credit 

for the shipment of milk from supply 

plants and dairy farms to distributing 

plants at a rate of $0.003 per cwt per 

mile, excluding the first 25 miles of 

shipment and all shipments farther than 

500 miles. In addition, the proposal 

would provide for a credit of $0.10 per 

cwt for the assembly of milk from dairy 

farms to distributing plants. The Central 

order does not currently have 

transportation or assembly credit 

provisions. 

As published in the hearing notice, 

Proposal 3 was advanced by AMPI, et al. 

The modification to Proposal 3, 

presented at the hearing to include 

transportation credits for shipments 

from dairy farms directly to distributing 

plants was advanced by DFA/PF. 

On behalf of all proponents of 

Proposal 3, the Foremost, et al., witness 

requested that the proposal be modified 

to remove all references to ‘‘milk reload 

stations’’ as originally offered in the 

proposal. Accordingly, no additional 

references will be made concerning reload stations in this decision. 

A witness appearing on behalf of 

AMPI, et al., testified that transportation 

and assembly credits are needed in the 

Central marketing area to allow 

transporting handlers to recover costs of 

assembling and transporting milk to 

serve the Class I needs of the market. 

The AMPI, et al., witness was of the 

opinion that the rates and distance 

limitations proposed for the 

transportation and assembly credits 

would compensate handlers for 

approximately 75 percent of the cost of 

moving milk from supply plants to 

distributing plants within the marketing 

area. The witness asserted that this was 

reasonable because it would keep 

transportation and assembly cost 

recovery at less than full cost. 

According to the witness, the proposed 

rates and distance limitations would 

tend to discourage inefficient 

movements of milk by handlers from 

seeking transportation and assembly 

credits. 

The AMPI, et al., witness expressed 

the opinion that all producers receiving 

the benefits of marketwide pooling 

should contribute to the recovery of 

costs associated with moving milk 

within the marketing area to serve the 

Class I needs of the market. The witness 

provided examples of milk movements 

where supply plant handlers moving 

milk to distributing plants were unable 

to recover the full costs of assembling 

and transporting milk at Federal order 

minimum prices. The witness testified 

that because handlers transporting milk 

directly from dairy farms to distributing 

plants incur costs similar to the 

overhead costs incurred by handlers 

transporting milk from supply plants, 

the proponents seek an assembly credit 

for all milk that serves the Class I 

market. The AMPI, et al., witness 

testified that even though dairy farmers 

currently are charged for the cost of 

assembling their milk into loads and 

transporting the milk to distributing 

plants, the charges are insufficient to 

completely recoup the costs incurred by 

handlers. 

A witness representing DFA/PF 

testified in support of Proposal 3 and 

modified the proposal to include the 

transportation and assembly credits for 

milk shipped directly from farms to 

distributing plants. The witness asserted 

that the costs of assembly and 

transportation of milk in the Central 

marketing area are not fully recouped in 

the market by handlers. The witness 

noted that the $0.003 per mile 

transportation credit rate would apply 

to milk shipped to a distributing plant. 

The DFA/PF witness testified that 

additional compensation for the 

transportation and assembly of milk for 

fluid use is needed in particular areas of 

the Central marketing area because the 

order’s blend price is insufficient to 

keep milk produced in the marketing 

area within the marketing area. The 

witness noted this was specifically 

apparent in the southeastern portion of 

the marketing area that borders portions 

of the Southeast and Appalachian 

orders. In addition, the witness testified 

that the location values of milk for 

markets within the Central marketing 

area, for example in St. Louis, Missouri, 

and areas of southern Illinois, are 

similarly insufficient to attract milk. 

According to the witness, this causes 

milk procurement problems for some 

distributing plants in this localized 

portion of the Central marketing area. 

The DFA/PF witness testified that 

marketwide service payments are 

authorized in the legislation that 

provides for Federal milk orders. The 

witness explained that payments for 

services not elsewhere compensated can 

be taken from producer revenue to 

compensate providers of services that 

are of marketwide benefit. The witness 

asserted that transportation and 

assembly operations performed in the 

Central marketing area meet the general 

objectives of providing marketwide 

service for marketwide benefit. 

According to the witness, Proposal 3, as 

modified, describes a set of services that 

benefit the entire market. The witness 

was of the opinion that the marketwide 

services include: marketing of milk, 

farm pick-up of milk, off-load and reload of milk, procurement of milk, 

selling milking equipment, 

disseminating information and prices to 

producers, milk testing, delivery to 

distributing plants, and other field 

services. 

According to the DFA/PF witness, 

inclusion of milk shipped directly from 

dairy farms to distributing plants for 

transportation and assembly credits 

would be more representative of how 

the majority of milk is transported to 

distributing plants regulated by the 

order. The witness noted that in the 

Central marketing area distributing 

plants receive only about 4.5 percent of 

their milk from supply plants. The 

witness testified that the modification of 

Proposal 3 to include milk shipped from 

farms to distributing plants would more 

accurately represent the transportation 

compensation requirements needed to 

ensure delivery of milk for fluid use. 

According to the DFA/PF witness, the 

inclusion of farm to distributing plant 

shipments would require the Market 

Administrator of the Central order to 

verify handler claims for receiving 

credits. The witness indicated that leastdistance routes for delivery from each 

point of origin to the destination 

distributing plants would need to be 

determined. According to the witness, 

the additional cost that would be borne 

by the Market Administrator in 

administering transportation and 

assembly provisions would be negligible 

and should not require a higher 

administrative assessment. However, 

the witness acknowledged that 

proponents had not consulted the 

Market Administrator’s office for an 

estimate of additional administrative 

costs that may be borne in operating a 


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transportation and assembly credit 

provision. 

The DFA/PF witness testified that the 

St. Louis area market is unable to 

consistently and successfully attract 

milk from the Central order’s milkshed 

because the order’s Class I price and the 

blend price are lower than those in the 

nearby Appalachian and Southeast 

marketing areas. According to the 

witness, marketwide service payments 

for transportation and assembly of milk 

to serve markets such as St. Louis would 

provide sufficient financial incentive to 

offset the higher blend prices of these 

bordering Federal milk marketing areas. 

Additionally, it would ensure a 

consistent and reliable supply of milk to 

meet the needs of that portion of the 

Central marketing area’s Class I market, 

the witness said. 

A witness for Prairie Farms (PF) 

testified in support of the adoption of 

Proposal 3 as modified at the hearing. 

The witness was of the opinion that 

without expansion of transportation and 

assembly credits that included direct 

shipped milk, the ability to serve the 

Class I needs of all locations in the 

Central marketing area would not be 

achieved because milk would seek the 

higher blend prices available in the 

nearby markets of the Appalachian and 

Southeast orders. The witness from 

Prairie Farms provided example 

scenarios of actual and hypothetical net 

returns possible for handlers shipping 

milk to distributing plants in the 

Central, Appalachian, and Southeast 

marketing areas. The witness compared 

these returns to net returns available 

from shipping to distributing plants in 

Illinois and St. Louis within the Central 

marketing area. According to the 

witness, these example scenarios 

reinforced the assertion that milk is 

attracted by higher Class I prices in 

localized areas of the Appalachian and 

Southeast marketing areas. 

The PF witness was of the opinion 

that inappropriate Class I differential 

levels, as in the St Louis area example, 

were the root cause of the market’s 

inability to attract sufficient fluid milk; 

however, modifications to the Class I 

price surface are not currently feasible. 

In light of this, the witness stated that 

obtaining the needed financial 

incentives to ensure delivery of milk to 

this deficit portion of the marketing area 

by the use of transportation and 

assembly credits is a reasonable 

alternative to changing the Class I 

differentials. 

The DFA/PF witness estimated that 

providing credits for milk transported 

from farms to distributing plants would 

reduce the Central order’s blend price to 

dairy farmers by $0.045 per cwt per 

month. The Foremost, et al., witness 

testified that the impact of providing 

credits for assembly would reduce the 

Central order’s blend price by $0.036–

$0.040 per cwt per month. The DFA/PF 

witness testified that the combined 

impact of transportation credits for the 

supply plant to distributing plant 

movements, direct delivery from farms 

to distributing plants, and assembly 

credits would reduce the Central 

marketing area’s blend price by a total 

of $0.081–$0.085 per cwt per month. 

DFA/PF took exception to the 

Recommended Decision and reiterated 

their support for the adoption of 

transportation and assembly credits. 

DFA/PF again noted that transportation 

and assembly credits, as proposed, were 

designed to reward those who supply 

the fluid milk needs of the entire market 

and are necessary to facilitate the 

orderly movement of milk. 

A witness for Dean testified in 

support of Proposal 3 as modified by 

DFA/PF. The Dean witness expressed a 

preference for the DFA/PF modification 

to include direct farm milk shipments to 

distributing plants but did not support 

adoption of assembly credits. The 

witness noted that Dean would consider 

the entire Proposal 3, including the 

DFA/PF modification, if the assembly 

credit feature were retained. The 

witness was of the opinion that 

adopting the proposal would increase 

equity among handlers and producers 

who supply the Class I market. 

However, the witness was unable to 

identify distributing plants in the St. 

Louis and southern Illinois portions of 

the marketing area that did not or could 

not receive sufficient milk supplies. In 

addition, the witness was unable to 

recall if handlers had asked or relied on 

the Central marketing area’s Market 

Administrator to increase the Central 

order’s performance standards to bring 

forth milk to meet the market’s Class I 

needs. 

Dean reiterated support for adoption 

of transportation and assembly credits 

in exceptions to the Recommended 

Decision. Dean noted that handlers face 

higher costs in procuring milk supplies 

in the St. Louis area, and that adoption 

of transportation and assembly credits 

would help reduce those costs. 

In a post hearing brief, Select/ 

Continental indicated general 

opposition to adopting transportation 

and assembly credits for milk 

movements from supply plants to 

distributing plants. The brief expressed 

support for a transportation and 

assembly credit provision that would be 

limited to milk shipped directly from 

dairy farms to distributing plants. 

According to the brief, milk should be 

attracted to markets for specific use 

through classified pricing. Fluid milk, 

according to the brief, should be 

attracted to distributing plants by 

appropriate location values. According 

to the brief, implementing 

transportation and assembly credits in 

the Central marketing area would be an 

admission that the Class I price surface 

was no longer successful in meeting the 

Class I needs of the marketing area. 

In a post hearing brief, DFA/PF 

reiterated their support for 

transportation and assembly credits as 

modified. The brief reiterated support 

and reinforcement of the testimony 

offered to expand the scope for 

transportation and assembly credits to 

include direct farm-to-plant milk 

movements. Likewise, Dean Foods 

reiterated its support in a post-hearing 

brief for expanding transportation and 

assembly credits to include direct farmto-plant milk movements as a means to 

improve the available milk supply for 

its distributing plant operations in the 

southeastern portion of the Central 

order. 

Geographically, the Central marketing 

area is the largest Federal milk 

marketing area, spanning the distance 

from eastern Illinois to western 

Colorado. It is bordered by the Upper 

Midwest, Mideast, Appalachian, 

Southeast, and Southwest marketing 

areas. The marketing area also is 

bordered by unregulated areas on the 

west including Utah, portions of 

western South Dakota, western portions 

of Nebraska, and all of Wyoming. In 

addition the Central marketing area 

completely surrounds a large 

unregulated area in central Missouri. 

Proposal 3 as advanced by AMPI, et 

al., seeks to establish a marketwide 

service payment in the form of a 

transportation credit for the movement 

of milk from supply plants to 

distributing plants at a rate of $0.003 per 

cwt per mile. The proposal provides for 

a distance limit for receipt of the credit 

for milk movements between 25 to 500 

miles from the supply plants to 

distributing plants. The proposal also 

seeks the establishment of an assembly 

credit feature for which handlers would 

collect $0.10 per cwt for the assembly of 

loads of milk within the marketing area. 

The modification to Proposal 3, 

advanced by DFA/PF, seeks expansion 

of the transportation credit to include 

milk shipped directly from dairy farms 

to distributing plants. The modification 

would establish a transportation credit 

rate of $0.003 per cwt per mile for milk 

shipped directly from dairy farms to 

distributing plants. The combination of 

the two proposals effectively seeks 

transportation and assembly credits for 


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all Class I milk pooled on the Central 

order. The rationale for the modification 

to Proposal 3 is that milk shipped 

directly from farms to distributing 

plants represents more than 95 percent 

of all milk shipped to distributing 

plants. Milk shipped from supply plants 

represents about 5 percent of all milk 

shipped to distributing plants. 

Proponents estimate that the Central 

order blend price would be lowered in 

the range of $0.036–$0.040 per cwt per 

month by the assembly credit feature for 

all Class I milk, if adopted. The 

proponents estimate that the impact of 

the transportation credit for all Class I 

milk pooled on the Central order would 

be a blend price reduction of 

approximately $0.045 per cwt, if 

adopted. The combined reduction to the 

Central order blend price per month 

would be $0.081–$0.085 per cwt. 

The transportation and assembly 

credits advanced by the proponents are 

similar to the transportation and 

assembly credits implemented in the 

Chicago Regional order, a predecessor 

order of the current Upper Midwest 

order. The transportation and assembly 

credit provisions of the Chicago 

Regional order were carried forward 

into the provisions of the current Upper 

Midwest order as a part of Federal milk 

order reform. These provisions were 

first implemented in 1987 to ensure that 

the costs of serving the Class I market 

of the Chicago Regional marketing area 

were shared by all market participants 

that benefited from the revenue 

generated from Class I sales. The impact 

on producer revenue was expected to be 

minimal according to the Final Decision 

published October 15, 1987, (7 CFR 

10130). 

The transportation credit provisions 

of the Upper Midwest order provide a 

credit of $0.028 cents per mile for bulk 

milk delivered from pool plants to 

distributing plants. The assembly credit 

provisions of the Upper Midwest order 

provide a credit of $0.08 cents per cwt 

to the operator of a distributing plant for 

milk received from dairy farms and pool 

plants. The credits are computed by the 

Market Administrator and are deducted 

from the marketwide value of milk 

before calculation of the order’s blend 

price. The impact of these credits on the 

Upper Midwest blend price ($0.02–

$0.03 per cwt) are one fourth to one 

third the magnitude of impact that 

proponents expect the proposed 

transportation and assembly credits 

would have on the Central order blend 

price, if adopted. 

The transportation and assembly 

credit features of the current Upper 

Midwest order and the pre-reform 

Chicago Regional order are similar in 

the magnitudes of their costs per mile 

and per hundredweight of milk 

handled. The transportation and 

assembly credit provisions of the 

Chicago Regional order applied to a 

geographically compact milkshed with 

the emphasis on encouraging milk 

movements to the single urban market 

of Chicago. The Chicago Regional 

marketing area (and the Chicago 

metropolitan area of the current Upper 

Midwest marketing area) was supplied 

with milk primarily from southern and 

central Wisconsin. The transportation 

and assembly credit feature of the 

current Upper Midwest marketing order 

provides pool plants that serve the Class 

I market with some recovery of 

assembly and transportation costs 

incurred in transferring milk to 

distributing plants. 

In contrast, the Central marketing area 

is geographically much larger and 

handlers with Class I route disposition 

serve multiple urban centers in a variety 

of States located from Illinois to 

Colorado. Despite exceptions to the 

Recommended Decision from DFA, the 

record reveals that the area of concern 

to the proponents is a relatively limited 

area of St. Louis and portions of 

southern Illinois. The record does not 

reveal that there are other portions of 

the marketing area where problems have 

been identified in procuring milk 

supplies for Class I use. Accordingly, it 

is reasonable to conclude that 

marketwide service payments in the 

form of transportation and assembly 

credits on all Class I milk may only 

solve a localized problem while all 

dairy farmers would receive a lower 

blend price for their milk. 

The impact of transportation and 

assembly credits on dairy farmer income 

is far lower in the Upper Midwest 

marketing area than that proposed for 

the Central order. For example, 

according to Market Administrator data, 

the reduction to the Upper Midwest 

blend price in October 2004 was $ 0.015 

per cwt and $0.0125 per cwt for the 

assembly and transportation credits, 

respectively. This represents an overall 

reduction of $0.0275 per cwt to the 

Upper Midwest blend price in that 

month. Market Administrator data 

shows that during May 2005 the 

reduction to the Upper Midwest blend 

price attributable to the combined 

impact of the transportation and 

assembly credit features was $0.020 per 

cwt. 

The record reveals that the impact 

anticipated by proponents of 

transportation and assembly credits on 

the Central order blend price would be 

a reduction of as much as $0.081–$0.085 

per cwt. The reduction in blend prices 

and dairy farmer income that would 

result from the adoption of a 

transportation and assembly credit of 

this magnitude would be 3–4 times the 

magnitude of the blend price reduction 

that dairy farmers experience in the 

Upper Midwest. According to Market 

Administrator information, the average 

sized producer in the Central marketing 

area produces and markets about 

200,000 pounds of milk per month. The 

average reduction in income for such an 

average producer per month would be 

$160–$170 per month, or about $2000 

per year. A similar sized producer in the 

Upper Midwest marketing area would 

experience a reduction in income of 

$40–$57 per month or about $500–$680 

per year. The differences in magnitudes 

are interesting but germane only to the 

extent that transportation and assembly 

credits are justified. 

The proposed transportation and 

assembly credits are justified by 

proponents on the basis that the 

movement of milk to serve the Class I 

market is a marketwide service of 

marketwide benefit and credits for 

providing marketwide services are 

authorized in the Agricultural 

Marketing Agreement Act of 1937, 

(AMAA) as amended. However, the 

focus of the record evidence is on the 

marketing conditions in the southern 

Illinois and St. Louis regions of the 

Central marketing area. However, the 

record does not indicate that price 

differences as noted in proponent 

testimony concerning the eastern 

portion of the marketing area occur 

elsewhere in the Central marketing area. 

The record does not support concluding 

that handlers serving major urban areas 

in other regions of the marketing area 

(such as, Denver, Oklahoma City, or 

Tulsa) experience difficulty in attracting 

milk supplies. This supports concluding 

that the issues raised by the proponents 

are at best localized in nature rather 

than marketwide. 

In addition, the record reveals in the 

testimony of the AMPI, et al., witness 

that some transportation and assembly 

costs incurred by handlers for milk 

delivered to distributing plants are 

recovered by the marketplace. While 

proponents have asserted that the 

recovery of costs for assembly by 

handlers is incomplete, the record 

contains insufficient information upon 

which to judge if lowering producer 

blend prices by as much as $.08 per cwt 

is reasonable. The size of the likely 

blend price reduction is important but 

not the critical factor in determining 

whether transportation and assembly 

credits are reasonable for the Central 

marketing area. The most important 

factor in that regard is whether the 


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marketwide costs would provide 

marketwide rather than local benefits. 

Contrary to exceptions to the 

Recommended Decision from Dean, 

record evidence supplied by a Class I 

handler located in St. Louis indicates 

that the firm is able to continue 

receiving, bottling, and selling milk in 

the St. Louis area. This evidence 

suggests that milk movements to 

handlers in the St. Louis area are 

occurring and meet the order’s Class I 

needs. This evidence provides a basis to 

conclude that the order provisions 

attract sufficient milk for fluid use. In 

this regard, the need for additional 

government intervention beyond what 

the order currently provides in meeting 

the market’s fluid demands is not 

warranted. 

The record evidence concerning 

challenges faced by handlers in moving 

milk within the Central marketing area 

to distributing plants in St. Louis and 

Illinois indicates that there may be, at 

best, localized issues in supplying the 

Class I needs of these plants. The 

proponents for transportation and 

assembly credits attribute these 

difficulties to the higher location values 

and blend prices of nearby or bordering 

portions of the Southeast and 

Appalachian orders. However, the 

record reveals that handlers have not 

sought alternative actions to bring forth 

additional milk supplies to meet Class 

I demands. For example, there is no 

record evidence illustrating that the 

Market Administrator has been called 

upon to change performance standards 

or diversion limits which would better 

ensure that the Class I needs of any of 

the Central marketing area’s distributing 

plants would be met. 

This decision finds that adoption of 

the proposed transportation and 

assembly credit provision is not 

supported by record evidence. 

Accordingly, this decision does not find 

agreement with the rationale advanced 

by proponents that marketwide service 

payments in the form of transportation 

and assembly credits for milk are 

needed to overcome deficiencies of the 

Central order. At best, record evidence 

demonstrates that if there are difficulties 

in procuring milk for Class I use, they 

are isolated to a fraction of the 

marketing area. Adopting transportation 

and assembly credits would 

unreasonably lower the returns to all 

dairy farmers pooled on the order to 

address a localized issue. 

Withdrawn Proposal 

A proposal published as Proposal 14, 

seeking to require payments from the 

producer settlement fund to be made no 

later than the next business day after the 

due date for payments into the producer 

settlement fund, was advanced by the 

Market Administrator. The proposal was 

withdrawn and was not considered in 

this decision. 

Rulings on Proposed Findings and 

Conclusions 

Briefs, proposed findings and 

conclusions were filed on behalf of 

certain interested parties. These briefs, 

proposed findings and conclusions and 

the evidence in the record were 

considered in making the findings and 

conclusions set forth above. To the 

extent that the suggested findings and 

conclusions filed by interested parties 

are inconsistent with the findings and 

conclusions set forth herein, the 

requests to make such findings or reach 

such conclusions are denied for the 

reasons previously stated in this 

decision. 

General Findings 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the Central order 

was first issued and when it was 

amended. The previous findings and 

determinations are hereby ratified and 

confirmed, except where they may 

conflict with those set forth herein. 

The following findings are hereby 

made with respect to the aforesaid 

marketing agreement and order: 

(a) The tentative marketing agreement 

and the order, as hereby proposed to be 

amended, and all of the terms and 

conditions thereof, will tend to 

effectuate the declared policy of the Act; 

(b) The parity prices of milk as 

determined pursuant to Section 2 of the 

Act are not reasonable in view of the 

price of feeds, available supplies of 

feeds, and other economic conditions 

which affect market supply and demand 

for milk in the marketing area, and the 

minimum prices specified in the 

tentative marketing agreement and the 

order, as hereby proposed to be 

amended, are such prices as will reflect 

the aforesaid factors, ensure a sufficient 

quantity of pure and wholesome milk, 

and be in the public interest; and 

(c) The tentative marketing agreement 

and the order, as hereby proposed to be 

amended, will regulate the handling of 

milk in the same manner as, and will be 

applicable only to persons in the 

respective classes of industrial and 

commercial activity specified in, the 

marketing agreement upon which a 

hearing has been held. 

Rulings on Exceptions 

In arriving at the findings and 

conclusions, and the regulatory 

provisions of this decision, each of the 

exceptions received was carefully and 

fully considered in conjunction with the 

record evidence. To the extent that the 

findings and conclusions and the 

regulatory provisions of this decision 

are at variance with any of the 

exceptions, such exceptions are hereby 

overruled for the reasons previously 

stated in this decision. 

Marketing Agreement and Order 

Annexed hereto and made a part 

hereof are two documents, a Marketing 

Agreement regulating the handling of 

milk, and an Order amending the order 

regulating the handling of milk in the 

Central marketing area, which has been 

decided upon as the detailed and 

appropriate means of effectuating the 

foregoing conclusions. 

It is hereby ordered that this entire 

decision and the two documents 

annexed hereto be published in the 

Federal Register. 

Determination of Producer Approval 

and Representative Period 

March 2006 is hereby determined to 

be the representative period for the 

purpose of ascertaining whether the 

issuance of the order, as amended in the 

Recommended Decision published in 

the Federal Register on February 22, 

2006 (71 FR 9015), regulating the 

handling of milk in the Central 

marketing area is approved or favored 

by producers, as defined under the 

terms of the order (as amended and as 

hereby proposed to be amended) who 

during such representative period were 

engaged in the production of milk for 

sale within the aforesaid marketing area. 

List of Subjects in 7 CFR Part 1032 

Milk marketing orders. 

Dated: September 1, 2006. 

Lloyd C. Day, 

Administrator, Agricultural Marketing 

Service. 

Order Amending the Order Regulating 

the Handling of Milk in the Central 

Marketing Area 

This order shall not become effective 

unless and until the requirements of 

§ 900.14 of the rules of practice and 

procedure governing proceedings to 

formulate marketing agreements and 

marketing orders have been met. 

Findings and Determinations 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the order was first 

issued and when it was amended. The 

previous findings and determinations 

are hereby ratified and confirmed, 

except where they may conflict with 

those set forth herein. 


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Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54169 

(a) Findings. A public hearing was 

held upon certain proposed 

amendments to the tentative marketing 

agreement and to the order regulating 

the handling of milk in the Central 

marketing area. The hearing was held 

pursuant to the provisions of the 

Agricultural Marketing Agreement Act 

of 1937, as amended (7 U.S.C. 601–674), 

and the applicable rules of practice and 

procedure (7 CFR part 900). 

Upon the basis of the evidence 

introduced at such hearing and the 

record thereof, it is found that: 

(1) The said order as hereby amended, 

and all of the terms and conditions 

thereof, will tend to effectuate the 

declared policy of the Act; 

(2) The parity prices of milk, as 

determined pursuant to Section 2 of the 

Act, are not reasonable in view of the 

price of feeds, available supplies of 

feeds, and other economic conditions 

which affect market supply and demand 

for milk in the aforesaid marketing area. 

The minimum prices specified in the 

order as hereby amended are such 

prices as will reflect the aforesaid 

factors, insure a sufficient quantity of 

pure and wholesome milk, and be in the 

public interest; and 

(3) The said order as hereby amended 

regulates the handling of milk in the 

same manner as, and is applicable only 

to persons in the respective classes of 

industrial or commercial activity 

specified in, a marketing agreement 

upon which a hearing has been held. 

Order Relative to Handling 

It is therefore ordered, that on and 

after the effective date hereof, the 

handling of milk in the Central 

marketing area shall be in conformity to 

and in compliance with the terms and 

conditions of the order, as amended, 

and as hereby amended, as follows: 

The provisions of the order amending 

the order contained in the 

Recommended Decision issued by the 

Administrator, Agricultural Marketing 

Service, on February 15, 2006, and 

published in the Federal Register on 

February 22, 2006 (71 FR 9015), are 

adopted and shall be the terms and 

provisions of this order. The revised 

order follows. 

PART 1032—MILK IN THE CENTRAL 

MARKETING AREA 

1. The authority citation for 7 CFR 

Part 1032 continues to read as follows: 

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

2. Section 1032.7 is amended by 

revising paragraph (c) introductory text 

and paragraph (h)(7) to read as follows: 

§ 1032.7 Pool plant. 

* * * * * 

(c) A supply plant from which the 

quantity of bulk fluid milk products 

shipped to (and physically unloaded 

into) plants described in paragraph 

(c)(1) of this section is not less than 25 

percent during the months of August 

through February and 20 percent in all 

other months of the Grade A milk 

received from dairy farmers (except 

dairy farmers described in § 1032.12(b)) 

and from handlers described in 

§ 1000.9(c), including milk diverted 

pursuant to § 1032.13, subject to the 

following conditions: 

* * * * * 

(h) * * * 

(7) That portion of a regulated plant 

designated as a nonpool plant that is 

physically separate and operated 

separately from the pool portion of such 

plant. The designation of a portion of a 

plant must be requested in advance and 

in writing by the handler and must be 

approved by the market administrator. 

Such nonpool status shall be effective 

on the first day of the month following 

approval of the request by the market 

administrator and thereafter for the 

longer of twelve (12) consecutive 

months or until notification of the 

desire to requalify as a pool plant, in 

writing, is received by the market 

administrator. Requalification will 

require deliveries to a pool distributing 

plant(s) as provided for in § 1032.7(c). 

For requalification, handlers may not 

use milk delivered directly from 

producer’s farms pursuant to § 1000.9(c) 

or § 1032.13(c) for the first month. 

3. Section 1032.13 is amended by 

revising paragraph (d)(1), redesignating 

paragraphs (d)(2) through (6) as 

paragraphs (d)(4) through (8), adding 

new paragraphs (d)(2) and (d)(3), 

revising redesignated paragraph (d)(4), 

and adding a new paragraph (f), to read 

as follows: 

§ 1032.13 Producer milk. 

* * * * * 

(d) * * * 

(1) Milk of a dairy farmer shall not be 

eligible for diversion until milk of such 

dairy farmer has been physically 

received as producer milk at a pool 

plant and the dairy farmer has 

continuously retained producer status 

since that time. If a dairy farmer loses 

producer status under the order in this 

part (except as a result of a temporary 

loss of Grade A approval), the dairy 

farmer’s milk shall not be eligible for 

diversion until milk of the dairy farmer 

has been physically received as 

producer milk at a pool plant; 

(2) The equivalent of at least one day’s 

milk production is caused by the 

handler to be physically received at a 

pool plant in each of the months of 

January and February, and August 

through November; 

(3) The equivalent of at least one day’s 

milk production is caused by the 

handler to be physically received at a 

pool plant in each of the months of 

March through July and December if the 

requirement of paragraph (d)(2) of this 

section (§ 1032.13) in each of the prior 

months of August through November 

and January through February are not 

met, except in the case of a dairy farmer 

who marketed no Grade A milk during 

each of the prior months of August 

through November or January through 

February; 

(4) Of the quantity of producer milk 

received during the month (including 

diversions, but excluding the quantity of 

producer milk received from a handler 

described in § 1000.9(c)) the handler 

diverts to nonpool plants not more than 

75 percent during the months of August 

through February, and not more than 80 

percent during the months of March 

through July, provided that not less than 

25 percent of such receipts in the 

months of August through February and 

20 percent of the remaining months’

receipts are delivered to plants 

described in § 1032.7(a), (b) or (i); 

* * * * * 

(f) The quantity of milk reported by a 

handler pursuant to either 

§ 1032.30(a)(1) or § 032.30(c)(1) for the 

current month may not exceed 125 

percent of the producer milk receipts 

pooled by the handler during the prior 

month. Milk diverted to nonpool plants 

reported in excess of this limit shall be 

removed from the pool. Milk received at 

pool plants in excess of the 125 percent 

limit, other than pool distributing 

plants, shall be classified pursuant to 

§ 1000.44(a)(3)(v). The handler must 

designate, by producer pick-up, which 

milk is to be removed from the pool. If 

the handler fails to provide this 

information the provisions of paragraph 

(d)(5) of this provision shall apply. The 

following provisions apply: 

(1) Milk shipped to and physically 

received at pool distributing plants shall 

not be subject to the 125 percent 

limitation; 

(2) Producer milk qualified pursuant 

to § ll.13 of any other Federal Order 

in the previous month shall not be 

included in the computation of the 125 

percent limitation; provided that the 

producers comprising the milk supply 

have been continuously pooled on any 

Federal Order for the entirety of the 

most recent three consecutive months. 

(3) The market administrator may 

waive the 125 percent limitation: 


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54170 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

(i) For a new handler on the order, 

subject to the provisions of paragraph 

(f)(3) of this section, or 

(ii) For an existing handler with 

significantly changed milk supply 

conditions due to unusual 

circumstances; 

(4) A bloc of milk may be considered 

ineligible for pooling if the market 

administrator determines that handlers 

altered the reporting of such milk for the 

purpose of evading the provisions of 

this paragraph. 

Marketing Agreement Regulating the 

Handling of Milk in the Central Marketing 

Area 

The parties hereto, in order to effectuate 

the declared policy of the Act, and in 

accordance with the rules of practice and 

procedure effective thereunder (7 CFR Part 

900), desire to enter into this marketing 

agreement and do hereby agree that the 

provisions referred to in paragraph I hereof 

as augmented by the provisions specified in 

paragraph II hereof, shall be and are the 

provisions of this marketing agreement as if 

set out in full herein. 

I. The findings and determinations, order 

relative to handling, and the provisions of 

§§ 1032.1 to 1032.86 all inclusive, of the 

order regulating the handling of milk in the 

Central marketing area (7 CFR Part 1032 

which is annexed hereto); and 

II. The following provisions: Record of 

milk handled and authorization to correct 

typographical errors. 

(a) Record of milk handled. The 

undersigned certifies that he/she handled 

during the month of January 

2005,_hundredweight of milk covered by this 

marketing agreement. 

(b) Authorization to correct typographical 

errors. The undersigned hereby authorizes 

the Deputy Administrator, or Acting Deputy 

Administrator, Dairy Programs, Agricultural 

Marketing Service, to correct any 

typographical errors which may have been 

made in this marketing agreement. 

Effective date. This marketing agreement 

shall become effective upon the execution of 

a counterpart hereof by the Department in 

accordance with Section 900.14(a) of the 

aforesaid rules of practice and procedure. 

In witness whereof, the contracting 

handlers, acting under the provisions of the 

Act, for the purposes and subject to the 

limitations herein contained and not 

otherwise, have hereunto set their respective 

hands and seals. 

Signature 

By (Name) lllllllllllllll

(Title) lllllllllllllllll

(Address) llllllllllllllll

(Seal) 

Attest 

[FR Doc. 06–7498 Filed 9–6–06; 8:45 am] 

BILLING CODE 3410–02–P 


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