This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

67467 

Vol. 71, No. 225 

Wednesday, November 22, 2006 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Parts 1000, 1001, 1005, 1006, 

1007, 1030, 1032, 1033, 1124, 1126, and 

1131 

[Docket no. AO–14–A74, et al.; DA–06–01] 

Milk in the Northeast and Other 

Marketing Areas; Tentative Final 

Decision on Proposed Amendments 

and Opportunity To File Written 

Exceptions to Tentative Marketing 

Agreements and Orders 

7 

CFR 

part 

Marketing area AO Nos. 

1001 Northeast ................... AO–14–A73 

1005 Appalachian ............... AO–388–A14 

1006 Florida ....................... AO–356–A37 

1007 Southeast .................. AO–366–A43 

1030 Upper Midwest .......... AO–361–A38 

1032 Central ....................... AO–313–A47 

1033 Mideast ...................... AO–166–A71 

1124 Pacific Northwest ...... AO–368–A34 

1126 Southwest .................. AO–231–A67 

1131 Arizona ...................... AO–271–A39 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule. 

SUMMARY: This tentative final decision 

proposes to adopt, on an interim final 

and emergency basis, changes to the 

manufacturing allowances contained in 

the Class III and Class IV product price 

formulas applicable to all Federal milk 

marketing orders. This decision is 

subject to producer approval. 

DATES: Comments should be submitted 

on or before January 22, 2007. 

ADDRESSES: Comments (four copies) 

should be filed with the Hearing Clerk, 

Stop 9200-Room 1031, United States 

Department of Agriculture, 1400 

Independence Avenue, SW., 

Washington, DC 20250–9200. 

Comments may also be submitted at the 

Federal eRulemaking portal: http:// 

www.regulations.gov or by submitting 

comments via e-mail to: 

amsdairycomments@usda.gov. 

Reference should be made to the title of 

action and docket number. 

FOR FURTHER INFORMATION CONTACT: Jack 

Rower, Marketing Specialist, USDA/ 

AMS/Dairy Programs, Order 

Formulation and Enforcement, Stop 

0231-Room 2971-S 1400 Independence 

Avenue, SW., Washington, DC 20250– 

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

jack.rower@usda.gov. 

SUPPLEMENTARY INFORMATION: This 

tentative final decision adopts on an 

interim final and emergency basis, 

amendments to the manufacturing 

(make) allowances for cheese, butter, 

nonfat dry milk (NFDM) and dry whey 

powder contained in the Class III and 

Class IV product price formulas. 

Specifically, this decision proposes the 

following manufacturing allowances: 

Adopted make 

allowance 

Cheese ................................. $0.1682/lb 

Butter .................................... 0.1202/lb 

NFDM ................................... 0.1570/lb 

Dry whey ............................... 0.1956/lb 

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 (Act), as 

amended (7 U.S.C. 604–674), 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 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 habitant, or has its 

principal place of business, has 

jurisdiction in equity to review the 

USDA’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. 

For the month of January 2006, the 

month the initial public hearing was 

held, the milk of 52,570 dairy farmers 

was pooled on the Federal order system. 

Of the total, 49,153 dairy farmers, or 94 

percent, were considered small 

businesses. During the same month, 536 

plants were regulated by or reported 

their milk receipts to be pooled and 

price on a Federal order. Of the total, 

286 plants, or 53 percent, were 

considered small businesses. 

This decision provides that all orders 

be amended by changing the make 

allowances contained in the formulas 

used to compute component prices and 

the minimum class prices in all Federal 

milk orders. Specifically, the make 

allowance for butter would increase 

from $0.1150 to $0.1202 per pound; the 


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1 Dairy producers are not eligible to choose 

September 2007 as a month for which MILC 

payments are to be applied. This provision was 

included so that it would not be necessary to 

include MILC payments in the Federal budget for 

fiscal year 2007–08. 

make allowance for cheese would 

increase from $0.1650 to $0.1682 per 

pound; the make allowance for NFDM 

would increase from $0.1400 to $0.1570 

per pound; and the make allowance for 

dry whey would increase from $0.1590 

to $0.1956 per pound. 

The adoption of these new make 

allowances serves to approximate the 

average cost of producing cheese, butter, 

NFDM and dry whey for manufacturing 

plants located in Federal milk marketing 

areas. 

The established criteria for the make 

allowance changes are applied in an 

identical fashion to both large and small 

businesses and will not have any 

different impact on those businesses 

producing manufactured milk products. 

The following economic analysis 

discusses impacts of the order 

amendments on order participants 

including producers and manufacturers. 

Based on the economic analysis we have 

concluded that the proposed 

amendments will not have a significant 

economic impact on a substantial 

number of small entities. 

The Agricultural Marketing Service is 

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

the Internet and other information 

technologies to provide increased 

opportunities for citizen access to 

Government information and services, 

and for other purposes. 

This tentative final decision does not 

require additional information 

collection that needs clearance by the 

Office of Management and Budget 

(OMB) beyond currently approved 

information collection. The primary 

sources of data used to complete the 

forms are routinely used in most 

business transactions. The forms require 

only a minimal amount of information 

that can be supplied without data 

processing equipment or a trained 

statistical staff. Thus, the information 

collection and reporting burden is 

relatively small. Requiring the same 

reports for all handlers does not 

significantly disadvantage any handler 

that is smaller than the industry 

average. 

Interested parties are invited to 

submit comments on the probable 

regulatory and informational impact of 

this proposed rule on small entities. 

Also, parties may suggest modifications 

of this proposed rule for the purpose of 

tailoring its applicability to small 

businesses. 

Economic Analysis 

Analysis 

In order to assess the impact of make 

allowance changes in Federal order 

product pricing formulas, the 

Department has conducted an economic 

analysis. While the primary purpose of 

this tentative final decision is to amend 

the product pricing formulas used to 

price milk regulated under Federal milk 

marketing orders and classified as either 

Class III or Class IV milk, these product 

price formulas also affect the prices of 

regulated milk classified as Class I and 

Class II. 

Scope of Analysis 

Impacts of increasing make 

allowances were measured as changes 

from the USDA Agricultural Baseline 

Projections to 2015 (OCE–2006–1, 

http://www.usda.gov/oce/commodity/

ag_baseline.htm). The baseline 

projections are ‘‘a Departmental 

consensus on a long-run scenario for the 

agricultural sector.’’ Included is a 

national, annual projection of the 

supply-demand-price situation for milk. 

The USDA baseline and the model 

baseline assume: (1) The Milk Price 

Support Program (MPSP) will continue 

unchanged; (2) The Dairy Export 

Incentive Program will be utilized to the 

maximum extent allowed beginning in 

the 2006/07 fiscal year; (3) The Milk 

Income Loss Contract (MILC) program 

will continue through September 2007 1; 

and (4) The Federal Milk Marketing 

Order Program will continue 

unchanged. This analysis maintains the 

first three assumptions as unchanged. 

The only changes to the Federal Milk 

Marketing Order Program are those that 

are brought about by the changes in 

make allowances adopted in this 

decision. Since the model is an annual 

model, a simplifying assumption is 

made that the make allowance changes 

become effective January 1, 2007. 

Demands for fluid milk and 

manufactured dairy products are 

functions of per capita consumption and 

population. Per capita consumption for 

the major milk and dairy products are 

estimated as functions of own prices, 

substitute prices, and income. Retail 

margins are assumed unchanged from 

the baseline. The demands for fluid 

milk and soft manufactured products 

are satisfied first by the eligible supply 

of milk. The milk supply for 

manufactured hard products is the 

volume of milk marketings remaining 

after satisfying the volumes demanded 

for fluid and soft manufactured 

products. Milk is manufactured into 

cheese, butter or nonfat dry milk 

(NFDM) according to returns to 

manufacturing in each class. Wholesale 

prices for cheese, butter, NFDM and dry 

whey reflect supply and demand for 

these products. These manufactured 

dairy product prices underlie the 

Federal order pricing system. 

Summary of Results 

The impacts of the changes to the 

Class III and Class IV formulas that are 

set forth in this tentative final decision 

are summarized using annual and nineyear, 2007–2015, average changes from 

the model baseline. The results 

presented for the Federal order system 

are in the context of the larger U.S. 

market. In particular, the Federal order 

price formulas use national 

manufactured dairy product prices. 

Producers. Over the nine-year period, 

the average Federal order minimum 

blend price for milk at test decreases 

$0.08 (0.55 percent) from a baseline 

level of $14.71 per hundredweight 

(cwt). The average U.S. all-milk price 

decreases by about $0.05 (0.35 percent) 

from a baseline level of 14.79 per cwt. 

Federal order marketings decrease by an 

average 136 million pounds annually 

due to the production decrease in 

response to lower producer milk prices. 

Federal order milk cash receipts 

decrease by an average $125 million 

annually (0.65 percent) from baseline 

receipts of $19,165 million. U.S. milk 

marketings decrease by an average 206 

million pounds annually (0.11 percent), 

yielding an average producer revenue 

decrease of $125 million annually (0.44 

percent) from average baseline receipts 

of $28,396 million. 

Milk Manufacturers and Processors. 

Increasing Federal order make 

allowances benefits dairy manufacturers 

by widening the spread between Federal 

order minimum prices and the prices 

that they receive for manufactured dairy 

products. While prices paid for milk are 

lower, prices received for dairy products 

are higher due to the tighter milk 

supply. Over the nine year projection 

period, wholesale dairy product prices 

increase as follows: $0.0119 per pound 

(0.82 percent) for cheddar cheese, 

$0.0305 (1.99 percent) for butter, 

$0.0012 (0.14 percent) for NFDM, and 

$0.0015 (0.56 percent) for dry whey. 

With the proposed increases in make 

allowances, most Federal order 

component prices decrease on average 

over the nine-year projection period: 

$0.0038 per pound (0.16 percent) for 

protein, $0.0156 (2.24 percent) for 

nonfat solids, and $0.0361 (30.22 

percent) for other solids. For the 

butterfat price, the increase in the butter 

price more than offsets the increase in 

the butter make allowance, resulting in 


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an average increase of $0.0303 per 

pound (1.78 percent) over the projection 

period. Changes in Federal order 

component prices translate into 

reductions for Federal order skim milk 

pricing factors at 3.5 percent butterfat 

over the nine-year period: $0.22 per cwt 

for Class I and Class III, $0.14 per cwt 

for Class II and Class IV. Federal order 

Class I and III average prices decrease by 

$0.11 per cwt over the projection 

period, while Class II and IV prices 

decrease by $0.03 per cwt. 

There are notable differences between 

changes in Federal order class prices at 

3.5 percent butterfat and changes in 

Federal order class prices at class 

butterfat percentages. Butterfat tests for 

the four Federal order milk classes differ 

from one class to another due to the mix 

of products within each class. Butterfat 

proportions are higher for Class II and 

IV milk than for Class I and III milk. 

Average Class I and III prices at test are 

below baseline levels over the nine-year 

period: $0.16 per cwt (1.12 percent) for 

Class I and $0.11 per cwt (0.83 percent) 

for Class III. For Class II and Class IV 

prices at test, the increase in the 

butterfat price more than offsets the 

increase in the make allowances, 

resulting in prices above baseline levels 

for the nine-year period: $0.12 per cwt 

(0.58 percent) for Class II and $0.03 per 

cwt (0.20 percent) for Class IV. 

Consumers. The expected $0.16 per 

cwt (1.12 percent) decrease in the 

minimum nine-year average Class I 

price at test results in an average 

$0.0137 per gallon decrease in the price 

of fluid milk for consumers. Consumers 

increase consumption of fluid milk 

products slightly, resulting in an 

increase of 17 million pounds (0.04 

percent) in Federal order Class I 

marketings. Consumers reduce 

consumption of manufactured dairy 

products in response to higher dairy 

product prices. All of the manufacturing 

Federal order class marketings decrease 

as follows: 26 million pounds (0.15 

percent) for Class II, 30 million pounds 

(0.06 percent) for Class III and 97 

million pounds (0.62 percent) for Class 

IV. 

Government Outlays. In 2007, with 

lower milk prices, MILC payments 

increase by $25 million (12.94 percent) 

above the baseline level of $190 million. 

This impact rounds to approximately 

$0.01 per cwt averaged over all of the 

milk production. 

With an increase in Federal order 

make allowances, dairy product prices 

increase, milk production declines and 

government removals decrease relative 

to baseline levels. The analysis assumes 

that current MPSP make allowances will 

remain in effect throughout the 

projection period. Over the projection 

period government removals of NFDM 

decrease by an average of 9 million 

pounds (2.95 percent) per year. This 

reduces government outlays by an 

average $7 million per year over the 

projection period. 

Detailed Analysis Information 

A complete Economic Analysis, Class 

III and IV Make Allowances, Tentative 

Final Decision is available on the 

Internet at http://www.ams.usda.gov/ 

dairy/proposals/ 

classIII_IV_make_all.htm. For further 

information contact Howard McDowell, 

Senior Economist, USDA/AMS/Dairy 

Programs, Office of the Chief Economist, 

Room 2753, South Building, U.S. 

Department of Agriculture, Washington, 

DC 20250, (202) 720–7091, e-mail 

address howard.mcdowell@usda.gov. 

Prior Documents in This Proceeding 

Notice of Hearing: Issued December 

30, 2005; published January 5, 2006 (71 

FR 545). 

Notice of Intent to Reconvene 

Hearing: Issued June 28, 2006; 

published June 23, 2006 (71 FR 36715). 

Notice to Reconvene Hearing: Issued 

August 31, 2006; published September 

6, 2006 (71 FR 52502). 

Preliminary Statement 

Notice is hereby given of the filing 

with the Hearing Clerk of this tentative 

final decision with respect to the 

proposed amendments to the tentative 

marketing agreements and the orders 

regulating the handling of milk in the 

Northeast and other marketing areas. 

This notice is issued pursuant to the 

provisions of the Agricultural Marketing 

Agreement Act (AMAA) and applicable 

rules of practice and procedure 

governing the formulation of marketing 

agreements and marketing orders (7 CFR 

Part 900). 

Interested parties may file written 

exceptions to this decision with the 

Hearing Clerk, United States 

Department of Agriculture, Room 1031- 

Stop 9200, 1400 Independence Avenue, 

SW., Washington, DC 20250–9200, by 

the January 22, 2007. Four (4) copies of 

the exceptions should be filed. All 

written submissions made pursuant to 

this notice will be made available for 

public inspection at the office of the 

Hearing Clerk during regular business 

hours (7 CFR 1.27(b)). 

A public hearing was held upon 

proposed amendments to the marketing 

agreement and the orders regulating the 

handling of milk in the Northeast and 

other marketing areas. The hearing was 

held, pursuant to the provisions of the 

Agricultural Marketing Agreement Act 

of 1937 (AMAA), as amended (7 U.S.C. 

601–674), and the applicable rules of 

practice and procedure governing the 

formulation of marketing agreements 

and marketing orders (7 CFR Part 900). 

The hearing notice specifically 

invited interested persons to present 

evidence concerning the probable 

regulatory and informational impact of 

the proposals on small businesses. Some 

evidence was received that specifically 

addressed these issues, and some of the 

evidence encompassed entities of 

various sizes. 

The proposed amendments set forth 

below are based on the record of the 

first session of a public hearing held in 

Alexandria, Virginia, on January 24–27, 

2006, pursuant to a notice of a hearing 

issued December 30, 2005; published 

January 5, 2006 (71 FR 545) and a 

second session of a public hearing held 

in Strongsville, Ohio, on September 14–

15, 2006, pursuant to a reconvened 

hearing notice issued August 31, 2006; 

published September 6, 2006 (71 FR 

52502). 

The material issues on the record of 

the hearing relate to: 

1. Amending the manufacturing 

allowances. 

2. Determination of emergency 

marketing conditions. 

Findings and Conclusions 

1. Amending the Manufacturing 

Allowances 

This tentative final decision adopts on 

an interim basis, a proposal published 

in the hearing notice as Proposal 1 

which seeks to amend the 

manufacturing allowances for butter, 

cheese, NFDM and dry whey. 

Specifically, this decision adopts the 

following manufacturing allowances: 

cheese—$0.1682 per pound, butter—

$0.1202 per pound, NFDM—$0.1570 per 

pound and dry whey—$0.1956 per 

pound. 

The Federal Milk order system 

currently uses product price formulas to 

compute prices handlers must account 

for in the marketwide pooling of milk 

used in Class III and Class IV products. 

Class III and Class IV prices form the 

base from which Class I and Class II 

prices are determined. 

The price formulas used to compute 

Class III and Class IV prices contain a 

factor called a manufacturing (make) 

allowance. The make allowance factor 

represents the cost manufacturers incur 

in making raw milk into one pound of 

product. Federal milk order pricing 

formulas currently contain the following 

make allowances: cheese—$0.1650 per 

pound, butter—$0.1150 per pound, 

NFDM—$0.1400 per pound and dry 


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whey—$0.1590 per pound. These make 

allowances were last amended in 2003 

and were determined on the basis of a 

California Department of Food and 

Agriculture (CDFA) and a USDA Rural 

Business Cooperative Service (RBCS) 

survey of 1998 manufacturing costs. The 

current make allowances were 

computed by taking a weighted average 

of the CDFA and RBCS surveys and 

adjusting for return on investment, 

general and administrative costs and 

marketing costs. 

a. The following summary of 

testimony and post-hearing briefs 

pertains to the first session of the public 

hearing held January 24–27, 2006, in 

Alexandria, Virginia. 

A proposal published in the hearing 

notice as Proposal 1 seeking to amend 

the current make allowances was 

offered by Agri-Mark Dairy Cooperative 

(Agri-Mark). Agri-Mark is a CapperVolstead cooperative with 

approximately 1300 member-owners 

located throughout New England and 

New York and operates 4 manufacturing 

plants. Proposal 1 seeks to amend the 

make allowances for cheese, butter, 

NFDM and dry whey powder contained 

in the Class III and Class IV price 

formulas based upon the results of the 

California State 2004 dairy products 

manufacturing cost survey conducted by 

the CDFA and a 2004 manufacturing 

cost survey conducted by the RBCS. The 

results of these surveys, reported in 

dollars per pound, are as follows: 

All cheese 40-lb. block 

cheese 

Dry whey 

powder Butter NDFM 

RBCS2 ................................................................................. $0.13295 $0.15136 $0.11409 $0.16588 $0.16816 

CDFA ................................................................................... Not reported 0.1769 0.2673 0.1368 0.1543

2 Results do not include factors for return on investment, general and administrative costs, marketing costs and milk transportation and procurement costs. 

A witness from the RBCS testified 

regarding the methodology used by 

RBCS in conducting the 2004 Dairy 

Product Plant Costs Survey. The witness 

did not testify in either support of or in 

opposition to Proposal 1. The witness 

said the study was conducted at the 

request of dairy-farmer owned 

cooperatives as a technical assistance 

project from which cooperatives could 

compare their costs to average costs of 

all participating cooperatives. The 

witness stated that 9 cooperatives 

voluntarily submitted 2004 cost data for 

17 cheese plants, 8 butter plants and 16 

NFDM plants. Due to data 

incompatibility, the witness said that 

one butter plant and two NFDM plants 

were not included in the final study. 

The witness noted that the number of 

plants surveyed in 2004 was greater 

than the number of plants surveyed in 

1998. The witness testified that the 

study represents the second time that 

this technical assistance project 

collected and analyzed cost data for 

dried and condensed dry whey 

processing. The witness reported that 

the data collected did not include costs 

from privately owned manufacturing 

plants and that none of the plants 

surveyed were located in the State of 

California. 

The RBCS witness testified that the 

plant data represented each plant’s cost 

of producing butter, NFDM, commodity 

cheese and condensed dry whey or 

dried dry whey depending on the 

product(s) produced at the individual 

plants. The RBCS witness explained the 

basic data collection methodology used 

in requesting data from individual 

plants and testified that the 

manufacturing costs provided by the 

cooperatives represented only those 

costs incurred by the plant from the 

receiving deck to the shipping deck of 

the plant. The witness testified that milk 

procurement, milk transportation, as 

well as plant administrative and 

management overhead, return on 

investment costs and marketing costs 

were not included in the data collected. 

The witness also noted that the cost of 

producing dry whey was excluded from 

the cost of cheese manufacturing. 

According to the witness, the data 

provided were not audited or verified by 

an independent party. The witness 

explained that the cost data were 

aggregated by product category and a 

weighted average cost of production for 

each product type was then calculated. 

The witness said that the RBCS data did 

not support concluding that as plant 

size increased, costs of production 

decreased on a per unit basis. 

Two witnesses from CDFA testified 

regarding the methodology used in 

conducting a 2004 processing costs 

survey for cheddar cheese, butter, 

NFDM and dry whey powder for 

manufacturing plants located in the 

State of California. The witnesses noted 

that 2003 was the first year that CDFA 

included dry whey processing costs in 

their manufacturing cost survey. The 

witnesses did not testify in either 

support of or in opposition to Proposal 

1. 

The CDFA witnesses explained that 

plant participation in the cost survey is 

voluntary and that the 2004 survey 

represented 99.9 percent of butter 

production, 98.5 percent of Cheddar and 

Monterey Jack production, 99.17 

percent of NFDM production and 79 

percent of dry whey powder production 

in the State of California. The witnesses 

testified that all cost survey data 

collected is from audited plant cost 

records. The CDFA witnesses noted that 

the audited costs for California plants 

demonstrated that costs per unit of 

output are inversely related to plant 

size. The witnesses elaborated that as 

plant size increases, the costs of 

production on a per unit basis decrease 

consistently across manufacturing 

product categories. 

A witness appearing on behalf of 

Agri-Mark testified in support of 

Proposal 1. The witness testified that 

the costs of manufacturing dairy 

products have increased since the make 

allowances were amended in 2003 by 

relying on cost data from 1998 and 

1999. The witness asserted that many 

manufacturing plants are unable to 

recoup their increased costs in the 

marketplace and, the witness asserted, 

caused some plants located in the 

Northeast marketing area to cease 

operating. The witness argued that the 

Class III and Class IV make allowances 

should be updated using 2004 data 

contained in the CDFA and RBCS 

surveys to reflect current manufacturing 

costs. 

The Agri-Mark witness asserted that 

the role of Class III and Class IV plants 

is to balance the milk needs of the Class 

I and II markets. According to the 

witness, monthly Class III milk volumes 

as a percentage of the annual average 

monthly volume in the Northeast order 

for 2005 ranged from a high of 107 

percent in May to a low of 92 percent 

in October. Class IV usage for that same 

time period ranged from 145 percent in 

May to 48 percent in September, said 

the witness. The witness also stated that 

when milk production in the Northeast 

marketing area increased in 2000, it was 

primarily Class IV plants that balanced 

the increased supply. 

The Agri-Mark witness stressed that 

even though Class IV plants are 


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balancing the market by processing the 

additional producer milk supply, they 

are not profitable in the Northeast 

marketing area. The witness explained 

that one dairy processor attempted to 

recoup their increased energy costs in 

the market through an energy surcharge 

on its finished products. However, 

stated the witness, the surcharge was 

captured in the NASS survey price and 

subsequently the Class IV milk price 

paid by manufacturing plants also 

increased. 

The Agri-Mark witness estimated that 

its members lost $15.5 million in 2004 

because manufacturing costs were not 

adequately covered in the pricing 

formula for cheese. According to the 

witness, this resulted in a loss of 

$0.6500 per hundredweight (cwt) on all 

its producer-member milk. In this 

regard, the witness asserted that AgriMark members were subsidizing the 

Northeast order blend price because 

they are paying a classified price for 

Class III and Class IV milk that is higher 

than the value of the milk used to make 

these products. The witness conceded, 

however, that despite incurring a loss 

on its producer-member milk Agri-Mark 

does pay premiums for milk it 

purchases for processing into Class III 

and Class IV products. 

The Agri-Mark witness proposed that 

the updated cheese make allowance is 

computed by taking a weighted average 

of the RBCS 40-pound block cheddar 

and the all California total cheese 

manufacturing plant costs. The witness 

calculated this value to be $0.1794 per 

pound. The witness was of the opinion 

that the RBCS 40 pound block cost 

should be used because the CDFA 

survey had standardized its reported 

costs to plants that produce 40 pound 

blocks. 

The Agri-Mark witness proposed that 

the butter make allowance should be 

computed by using the weighted 

average cost for all RBCS butter plants 

with the weighted average costs of all 

CDFA butter plants. The witness 

calculated this value to be $0.1515 per 

pound. The witness explained that only 

the high cost sub-group of CDFA butter 

plants was used in 2003 when the 

current make allowances were adopted. 

The witness was of the opinion that 

using only the high cost sub-group 

would now be inappropriate because 

those plants were not similar in size to 

the RBCS butter plants. 

The Agri-Mark witness proposed that 

the NFDM make allowance should be 

computed using the RBCS weighted 

average cost for all NFDM plants and 

the weighted average cost of the 

medium cost sub-group of CDFA NFDM 

plants. The witness calculated this 

value to be $0.1867 per pound. The 

witness was of the opinion that this 

methodology and value was appropriate 

because of the comparable plant 

volumes between the two groups. The 

low cost plants in the CDFA survey 

produce a large volume of NFDM, the 

witness said, and including those plants 

in the calculation would distort the 

average costs of the plants in the RBCS 

study. The witness explained that using 

a weighted average by product volume 

implies that half of the product will be 

produced at a cost lower than the 

weighted average and half of the 

product would be produced at a cost 

higher than the weighted average. If the 

low cost CDFA plants were included in 

the make allowance calculation, the 

witness concluded that because of their 

high product volume more than half of 

the product and a majority of plants 

regulated by the Federal order system 

would not be able to cover their 

manufacturing costs. 

The Agri-Mark witness expressed 

concern regarding the large variation in 

the CDFA survey cost of dry whey 

($0.2673 per pound) and the RBCS 

survey cost of dry whey ($0.11409 per 

pound). According to the witness, CDFA 

has only collected data on dry whey 

processing for two years and during that 

same time period the survey cost of dry 

whey ($0.2670 per pound) was not 

recommended as the appropriate make 

allowance—instead, a make allowance 

of $0.2000 per pound was adopted. This 

was also the second time the RBCS 

survey collected data for dry whey 

production and the witness was of the 

opinion that there may have been 

problems regarding the reporting and 

allocation of dry whey costs that 

resulted in the RBCS survey product 

cost far below the CDFA cost. The 

witness insisted that because dry whey 

cost accounting methodology is new 

and not standardized, the Department 

should not rely on, or adopt the RBCS 

or CDFA survey costs for dry whey. 

Rather, the witness asserted that it 

would be more appropriate to use the 

methodology adopted when make 

allowances were last amended which 

added a factor of $0.0190 to the NFDM 

make allowance. The witness was of the 

opinion that either a $0.0190 or $0.0250 

factor would be appropriate and would 

result in a dry whey make allowance of 

either $0.2057 or $0.2117 per pound. 

The Agri-Mark witness also supported 

updating the return on investment, 

administrative and marketing cost 

factors that are incorporated into the 

make allowance calculations. The 

previous Department decision amending 

the make allowances adopted the cost 

factors that were contained in the CDFA 

survey, and the witness was of the 

opinion that the same cost factors 

contained in the 2004 CDFA survey 

should again be used. 

The Agri-Mark witness submitted data 

estimating the impact the proposed 

make allowances would have on class 

and component prices. According to the 

witness, the price of butterfat would fall 

$0.0440 per pound, the price of protein 

would remain the same, the price of 

nonfat solids would fall $0.0460 per 

pound, and the price of other solids 

would fall either $0.0480 per pound or 

$0.0540 per pound depending on the 

factor used to calculate the dry whey 

powder make allowance. Additionally, 

the witness predicted that the Class III 

price would fall either $0.4300 per cwt 

or $0.4600 per cwt (depending on the 

dry whey powder factor) and the Class 

IV price would fall $0.5500 per cwt. 

The Agri-Mark witness also offered 

data regarding increased energy costs 

that have occurred over the past 4 years. 

Referring to U.S. Department of Energy 

data, the witness asserted that crude oil 

prices increased 33 percent in 2004 and 

36 percent in 2005, and those prices are 

expected to increase 52 percent and 45 

percent above 2004 levels in 2006 and 

2007, respectively. Other similar 

increases were seen in natural gas 

prices, the witness noted. In this regard, 

the witness offered a modification to 

Proposal 1 to include an energy 

adjustment for 2005 using the Producer 

Price Indexes for Industrial Natural Gas 

and Industrial Electric Power 

Distribution. According to the witness, 

those indexes recorded a 6 percent 

increase in electric power costs and a 

23.8 percent increase in industrial 

natural gas costs from 2004 to 2005. 

If the energy adjustment were 

incorporated into the make allowance, 

the Agri-Mark witness proposed that the 

make allowances be set at $0.1815 per 

pound for cheese, $0.1543 per pound for 

butter, $0.1965 per pound for NFDM, 

and either $0.2155 per pound or 

$0.2117 per pound for dry whey 

powder. This set of proposed make 

allowances would result in a decrease of 

the Class III price of either $0.5100 or 

$0.5400 per cwt and a decrease in the 

Class IV price by $0.6500 per cwt. 

The Agri-Mark witness conceded that 

adoption of Proposal 1 would decrease 

the blend prices paid to all dairy 

farmers. The witness was of the opinion 

that their proposed higher make 

allowances would lead to lowering 

blend prices by $0.09 to $0.13 per cwt 

over 5 years. However, the witness said, 

if the make allowances are not amended 

to reflect current costs, manufacturing 

plants that are unable to recoup their 

increased costs would go out of business 


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causing disorderly marketing conditions 

because there would be fewer local 

outlets for producer milk. The witness 

claimed that some cooperatives are 

currently decreasing the price paid to 

their members in an effort to recoup 

some of their increased manufacturing 

costs. The witness said that while AgriMark pays premiums above the 

minimum Federal order blend price to 

its members, they also are collecting a 

$0.15 per cwt assessment on all of their 

members’ milk to offset some of the 

cooperative’s losses. The witness said 

that if the make allowances were not 

increased, dairy farmers who are 

members of cooperatives would 

continue to lose money as cooperatives 

that operate manufacturing plants 

would further need to decrease the price 

they pay to their members in an effort 

to recoup additional loses. The AgriMark witness strongly urged the 

Department to expedite the rulemaking 

process by eliminating a recommended 

decision. 

A second witness appearing on behalf 

of Agri-Mark offered testimony 

regarding the production costs 

experienced at Agri-Mark plants. The 

witness asserted that their production 

costs have steadily increased since 1998 

when that cost data was used in 

establishing current make allowances. 

According to the witness, Agri-Mark has 

taken many steps to increase efficiency 

and to lower costs, such as installing 

more efficient equipment, purchasing 

supplies in bulk quantities and forward 

pricing their energy needs. Despite these 

efforts, explained the witness, AgriMark has still been unable to offset 

increases in most production costs. To 

support their claim of increased 

production costs, the witness provided 

data which listed various costs 

experienced at Agri-Mark 

manufacturing plants from 2001 to 

2005. 

A post-hearing brief submitted on 

behalf of Agri-Mark; Northwest Dairy 

Association; Foremost Farms USA 

Cooperative; Associated Milk Producers, 

Inc.; and Land O’Lakes, Inc. expressed 

support for updating the make 

allowances. Hereinafter, these entities 

will be referred to as ‘‘Agri-Mark, et al.’’

The brief argued that the hearing record 

clearly establishes that manufacturers 

are incurring higher processing costs 

since current make allowances were 

adopted. The brief asserted that the 

current make allowances force many 

manufacturers to operate at a financial 

loss. The brief estimated that Agri-Mark 

members alone are incurring losses in 

excess of $700,000 per month. 

The Agri-Mark, et al., brief stated that 

unlike the competitive pricing system, 

the current pricing system does not give 

manufacturers the ability to recoup 

increased processing costs from the 

marketplace. The current set of fixed 

make allowances, wrote Agri-Mark, et 

al., do not reflect current manufacturing 

costs which are shown in the most 

current CDFA and RBCS surveys. The 

brief asserted that the inadequate make 

allowances have played a role in many 

manufacturing plant closures in recent 

years, and claimed that more plants 

would be forced out of business if the 

make allowances were not updated as 

quickly as possible. 

The Agri-Mark, et al., brief asserted 

that the RBCS and CDFA surveys are 

reliable and representative of 

manufacturing costs throughout the 

country. The brief also stressed the 

importance of including a 2005 energy 

adjuster in determining any amended 

make allowances. The brief reiterated 

Agri-Mark’s concern with the dry whey 

cost data contained in both the RBCS 

and CDFA surveys and advocated 

deriving the dry whey make allowance 

by adding a 1.9 cent per pound factor 

to the NFDM make allowance, noting 

that the same methodology was used to 

derive the current dry whey make 

allowance. 

The Agri-Mark brief conceded that 

any increase in the make allowances 

will reduce producer income. However, 

the brief stated that the Department did 

not account for the current loss of 

revenue by cooperative members whose 

manufacturing plants are currently 

operating at a financial loss in their 

baseline analysis. The brief also asserted 

that the baseline analysis did not 

include the impact on producer revenue 

due to closures which might result from 

fewer local outlets for their milk supply. 

The brief concluded that if these and 

other factors were included in the 

baseline analysis, the reduction in 

producer revenue would not be as large 

as projected. 

A witness appearing on behalf of 

National Milk Producers Federation 

(NMPF) testified in support of Proposal 

1. According to the witness, NMPF 

consists of 33 dairy-farmer cooperative 

associations that represent 75 percent of 

the country’s dairy farmers. The witness 

said that NMPF supports updating the 

make allowances to reflect current 

manufacturing costs to provide needed 

cost relief to the dairy product 

manufacturing industry. The witness 

stated that the current make allowances 

were derived from manufacturing cost 

data collected in 1998 and that costs 

have increased making the current make 

allowances obsolete. The witness 

maintained that the updated CDFA and 

RBCS survey data should be combined 

according to the same basic 

methodology used by the Department 

when the current make allowances were 

established. The witness urged the 

Department to implement these changes 

on an emergency basis and omit a 

recommended decision. 

The NMPF witness explained that 

make allowances set the maximum 

margin a manufacturer can earn for its 

products. According to the witness, if a 

manufacturer is able to produce at a per 

unit cost less the make allowance, then 

they generate a processing premium. 

However, the witness said, if a 

manufacturer’s per unit cost is greater 

than the make allowance they do not 

earn a processing premium and have no 

method under the current pricing 

formulas to recoup those costs from the 

marketplace. The witness asserted that 

this undermines the ability of 

manufacturing plants to provide market 

balancing services and the Federal 

orders the ability to provide for orderly 

marketing conditions. 

The NMPF witness testified that the 

CDFA and RBCS surveys together 

represent a large portion of the domestic 

manufacturing industry—41 percent of 

cheddar cheese production, 51 percent 

of butter production, 81 percent of 

NFDM production and 45 percent of dry 

whey production. While the witness 

supported using the Department’s 

methodology for establishing the current 

make allowances, NMPF proposed a 

modification. The current butter make 

allowance was determined after 

excluding the lower-cost CDFA butter 

plants from the calculation of the 

average plant cost, the witness 

explained. According to the witness, 

this exclusion is no longer justified 

because that group represents a large 

share of U.S. butter production and 

should now be included. 

The NMPF witness also explained 

that the most volatile input cost of 

manufacturing is energy and asserted 

that recent increases in energy costs 

have countered many cost reducing 

measures undertaken by manufacturers 

to increase productivity or efficiency. 

The witness was of the opinion that the 

energy cost factor contained in the make 

allowances should be indexed and 

adjusted monthly to take into account 

the volatile energy market. The witness 

insisted that this was an appropriate 

way to maintain equity between 

producers and manufacturers explaining 

that processors would not be unduly 

harmed when energy prices rise and 

producers would not be harmed when 

energy prices fall. Therefore, the witness 

said, the Department should adopt a 

monthly energy price adjuster using the 

monthly Bureau of Labor Statistics 


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Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Proposed Rules 67473 

Producer Price Indexes for Industrial 

Electricity and Industrial Natural Gas, 

and use the weighted average 2004 

electricity and fuels costs from the 

RBCS and CDFA surveys as the initial 

base for the adjuster. The witness added 

that if an energy index is not adopted, 

the make allowances that are 

determined as a result of the proceeding 

may become obsolete before they are 

implemented if there are large 

fluctuations in energy prices. The 

witness supported delaying 

implementation of an energy cost factor 

until the issuance of a final decision if 

its consideration would delay adopting 

adjustments in the make allowances. A 

post-hearing brief submitted on behalf 

of NMPF reiterated their support for 

updating the make allowances. 

A witness appearing on behalf of 

Land O’ Lakes (LOL) testified in support 

of Proposal 1. According to the witness, 

LOL is a Capper-Volstead cooperative 

with more than 4,000 members that 

owns manufacturing plants located 

throughout the United States. The 

witness explained that Class III and 

Class IV prices are determined in part 

by taking the market price of various 

manufactured goods and subtracting the 

cost of converting milk into that specific 

commodity (make allowance). The 

witness said that the current classified 

pricing system was implemented in 

2000 and the current make allowances 

were last adopted in 2003 relying on 

data that was collected in 1998. The 

LOL witness stated that all of LOL’s 

plants have experienced increased 

manufacturing costs since 1998. The 

witness emphasized that despite efforts 

by LOL to reduce costs increase in 

processing costs could not be 

completely offset. 

The LOL witness stressed that relative 

plant size, comparable per unit costs 

and recognition of balancing costs 

should be criteria used by the 

Department in appropriately weighting 

the CDFA and RBCS surveys to 

determine the make allowances. The 

witness further suggested that when 

establishing the butter make allowance, 

the weighted average of the CDFA and 

RBCS butter plants should be used 

because the costs of the average plant 

size measured by both surveys are 

comparable. According to the witness, 

this would result in a butter make 

allowance of $0.1515 per pound. The 

NFDM make allowance should be 

computed using the weighted average of 

the RBCS NFDM plants and Group II of 

the CDFA NFDM plants, the witness 

stated. The costs of those two groups, 

after adjusting the RBCS data for return 

on investment, general and 

administrative costs and marketing 

expenses, are similar, the witness said, 

and would result in a NFDM make 

allowance of $0.1867 per pound. 

For determining the cheese make 

allowance, the LOL witness advocated 

using the weighted average RBCS cost 

with the weighted average CDFA cost 

because those costs are similar. The 

witness asserted that the resulting 

cheese make allowance should be 

$0.1710 per pound. The witness also 

insisted that the RBCS and CDFA survey 

costs for dry whey processing are 

counter-intuitive and supported AgriMark’s modification to add a factor to 

the NFDM make allowance to determine 

the dry whey make allowance. 

The LOL witness maintained that the 

make allowances need to be amended to 

reflect current manufacturing and to 

remedy an error in the RBCS cost data 

presented at a 2000 hearing on Federal 

order product price formulas that 

contained some California plants. The 

witness also recognized that lower 

blend prices would result if Proposal 1 

is adopted. However, the witness said, 

LOL cooperative members are currently 

bearing the additional cost of processing 

manufactured products which the 

witness asserted should be born by all 

producers. The witness emphasized that 

all of the LOL butter, cheese, and NFDM 

plants that participated in the RBCS 

survey lost money in 2004 even though 

the average selling price for the 

products were above the NASS average 

price for the year. The witness urged the 

Department to expedite the hearing 

process and omit a recommended 

decision to provide cost relief to 

manufacturing operations. 

A post-hearing brief submitted on 

behalf of LOL reiterated their support of 

adoption of Proposal 1. The brief 

supported adoption of the specific make 

allowances advanced by Agri-Mark 

including a 2005 energy adjuster and 

adoption of an energy index in the 

calculation of the make allowances that 

would be updated quarterly. The brief 

expressed opposition to reopening the 

hearing record to take evidence 

regarding the proper make allowances to 

be included in the Class I and Class II 

price formulas. 

A witness appearing on behalf of the 

National Cheese Institute (NCI) testified 

in support of Proposal 1. NCI is a trade 

association with 70 member companies 

representing manufacturers, marketers, 

distributors and suppliers of cheese. 

The witness said that the make 

allowances should be updated with the 

2004 CDFA and RBCS survey data using 

the methodology that established the 

current make allowances and that they 

be adjusted for 2005 energy cost 

increases. The witness specified that 

after adding an energy adjustment the 

make allowance should be set no lower 

than the following: $0.1810 per pound 

for cheese, $0.2220 per pound for dry 

whey, $0.1540 per pound for butter and 

$0.1970 per pound for NFDM. 

The NCI witness explained that the 

Federal order pricing system prior to 

Federal order reform was based on the 

competitive market prices paid for 

unregulated milk in the Upper Midwest 

region. The witness asserted that this 

pricing scheme reacted to changes in 

manufacturing costs and therefore 

manufacturers did not need to seek 

government intervention to recover any 

cost increases. However, the current 

pricing system determines the classified 

prices received by farmers based on the 

products’ finished wholesale prices 

minus fixed make allowances that 

represents the handlers’ costs incurred 

to make the finished products, 

explained the witness. The current 

system, the witness said, does not react 

to cost changes. If a manufacturer’s costs 

of production increases, the plant still 

only receives the fixed make allowance 

to produce that specific product, the 

witness said even if this does not cover 

all of its processing costs. The witness 

noted that while a plant could increase 

its finished product prices to recover 

additional expenses, the higher prices 

would be included in the NASS product 

price survey and would consequently 

increase their cost for raw milk. 

According to the witness this circularity 

in price determination undercuts market 

forces and justifies increasing the make 

allowances. 

The NCI witness maintained that 

manufacturing costs have increased 

substantially since RBCS and CDFA 

survey data for 1998 was used to 

establish the current make allowances. 

The witness asserted that if the make 

allowances are not updated, cheese 

manufacturers will either have to decide 

to lose money on each pound of product 

or stop production entirely. While the 

witness supported the methodology 

used by the Department to set the 

current make allowances, NCI offered 

their views regarding what CDFA cost 

sub-groups should be used in 

establishing new make allowances. The 

witness also insisted that because the 

2004 CDFA and RBCS survey results do 

not include 2005 energy cost increases, 

an adjustment as proposed by AgriMark, to reflect these increases, is 

justified. The witness testified that a 2.5 

cent factor should be added to the 

NFDM make allowance to establish the 

dry whey make allowance. The NCI 

witness concluded that the increasing 

differences between current make 

allowances and actual manufacturing 


jlentini on PROD1PC65 with PROPOSAL
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costs justifies the need for emergency 

action by the Department through the 

omission of a recommended decision. 

A post-hearing brief submitted on 

behalf of NCI reiterated their support for 

updating the make allowances using 

CDFA and RBCS 2004 survey data, 

adjusted for 2005 energy costs, on an 

emergency basis. The brief stated that 

such an update should result in new 

make allowances that would be set no 

lower than the following: $0.1810 per 

pound for cheese, $0.1540 per pound for 

butter, $0.1970 per pound for NFDM 

and $0.2220 per pound for dry whey. 

The brief stated that the hearing record 

is replete with evidence demonstrating 

a significant increase in manufacturing 

costs and the manufacturers’ inability to 

recoup those costs though the 

marketplace. The brief also argued that 

the RBCS data regarding the costs of 

producing dry whey do not include all 

input costs and are not representative of 

typical U.S. dry whey drying plants. 

Therefore, the brief said, the Department 

should continue the methodology used 

in the past and establish a dry whey 

make allowance by adding a differential 

to the NFDM make allowance. 

A witness appearing on behalf of 

Lactalis America Group (Lactalis) 

testified in support of Proposal 1. 

According to the witness, Lactalis 

produces and markets a variety of 

cheeses across the United States. The 

witness testified that their 

manufacturing costs of production have 

increased 14 percent since 1998 even 

though their plant capacity had increase 

by 25 percent during that time frame. 

The witness projected that Lactalis’

costs of production would increase 16 

percent in 2006 as compared to 2005. 

The witness urged the Department to 

expedite the rulemaking process and 

omit a recommended decision. 

A witness appearing on behalf of Alto 

Dairy Cooperative (Alto) testified in 

support of Proposal 1. According to the 

witness, Alto is a Capper-Volstead 

cooperative located in Wisconsin that 

markets over 1.5 billion pounds of milk 

annually and operates 2 manufacturing 

plants. The witness stated that a 

financially stable dairy manufacturing 

industry which provides numerous 

local outlets for milk is vital to 

maintaining a stable market for dairy 

farmers. The witness was of the opinion 

that the current make allowances 

disadvantage cheese manufacturers 

because they do not adequately account 

for the current costs of manufacturing. 

The witness stated that even though 

Alto has become more efficient, their 

costs of production still increased 3 

cents per pound because of increases in 

costs for natural gas, packaging 

materials and transportation. The 

witness urged the adoption of Proposal 

1 on an expedited basis. 

A witness appearing on behalf of 

Associated Milk Producers, Inc. (AMPI) 

testified in support of Proposal 1. 

According to the witness, AMPI is a 

Capper-Volstead cooperative that 

represents 4,000 dairy farmers in 7 

Midwestern states and whose milk is 

pooled on the Upper Midwest and 

Central orders. The witness expressed 

support for increasing the make 

allowances because of increased 

manufacturing costs, particularly for 

energy, that have occurred since 2001. 

The witness was of the opinion that 

adequate make allowances are critical in 

allowing a manufacturing plant to cover 

their processing costs and earn a 

competitive rate of return on equity. The 

witness said that if the make allowances 

remained too low plant profitability will 

continue to erode and investment in 

plants and manufacturing equipment 

will decrease. The witness emphasized 

that manufactured dairy products 

compete in a national market against 

other unregulated or state-regulated 

plants that either have no regulated 

pricing system or have a make 

allowance that more accurately reflects 

current marketing conditions. 

The AMPI witness also supported the 

inclusion of a 2005 energy adjustor as 

advanced by Agri-Mark. The witness 

said that AMPI experienced 31 percent 

higher average natural gas costs in 2005 

than in 2004. The witness noted that for 

the months of September through 

December 2005, AMPI’s natural gas 

costs were on average 65 percent higher 

than during the same time period in 

2004. The witness asserted that the 

steep increases in energy prices that 

occurred in 2005 need to be reflected in 

any update of the make allowances. The 

witness also supported indexing energy 

costs as proposed by NMPF, provided 

its inclusion would not delay the 

issuance of a decision, and that its 

inclusion should be contained in a later 

decision. The witness urged the 

Department to expedite the hearing 

process and omit a recommended 

decision. 

A witness appearing on behalf of 

Foremost Farms USA Cooperative 

(Foremost) testified in support of 

Proposal 1. According to the witness, 

Foremost is a Capper-Volstead 

cooperative with 3,476 members that 

markets 5.05 billion pounds of milk and 

operates 15 manufacturing plants and 2 

distributing plants. The witness said the 

current make allowances have 

dramatically risen since 1998 and is 

causing manufacturing plants to lose 

substantial amounts of money. 

The witness explained that Foremost 

has taken numerous steps since 2000 to 

increase their competitiveness and 

efficiency by reconfiguring their product 

mix, closing numerous plants and a 

storage and distribution facility, 

increasing employee health care 

contributions, and purchasing 

packaging, ingredients, and other 

supplies in bulk. Despite these efforts 

Foremost has been unable to completely 

offset as the cost increases in energy, 

employee healthcare, and packaging 

materials, the witness stated. The 

witness claimed that at their Lancaster, 

Wisconsin, cheese plant, 2004 

manufacturing costs per pound for 

cheese had increased 25.6 percent since 

1999. According to the witness, the 

increased costs were linked to higher 

natural gas, electricity, and employee 

fringe benefits. The witness added that 

the 2005 manufacturing costs per pound 

of cheese at the same plant was 14.1 

percent higher than 2004. The witness 

also emphasized that Foremost has 

attempted to raise its product prices and 

premiums but those increases were 

incorporated into the NASS Dairy 

Product Price survey that in turn, 

resulted in higher Federal order 

minimum class prices for their raw 

milk. 

The Foremost witness stressed that 

make allowances need to be increased 

quickly; otherwise they will be unable 

to continue absorbing cost increases 

without paying their members less for 

their milk. The witness supported 

adoption of Proposal 1 with an energy 

adjustor and urged its adoption on an 

emergency basis. 

A witness appearing on behalf of 

Davisco Foods International (Davisco) 

testified in support of Proposal 1. 

According to the witness, Davisco 

operates three manufacturing plants that 

collectively produce 1 million pounds 

of cheese per day. The witness offered 

support for the testimony offered by the 

NCI. The witness stated that the price 

Davisco is able to charge for products is 

not high enough to return the classified 

price to the marketwide pool and cover 

their manufacturing costs. According to 

the witness, many of Davisco’s 

processing costs have increased from 

1998 to 2004. During this time period, 

the witness explained, labor costs have 

increased 25 percent per man hour, 

employee benefits have increased 92 

percent and natural gas costs have 

increase 149 percent per therm. The 

witness said energy costs increased 

substantially again in 2005. The witness 

insisted that in order to maintain a 

viable dairy manufacturing industry, 

make allowances need to be amended 


jlentini on PROD1PC65 with PROPOSAL
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on an emergency basis to reflect current 

market conditions. 

A witness appearing on behalf of 

Michigan Milk Producers Association 

(MMPA) testified in support of Proposal 

1. According to the witness, MMPA is 

a Capper-Volstead cooperative with 

approximately 2,400 members that 

markets over 3.3 billion pounds of milk 

per year and operates 2 manufacturing 

plants. The witness said that MMPA 

participated in the 1998 and 2004 RBCS 

manufacturing cost surveys and 

presented data revealing their cost 

increases during that time period. 

According to the witness, MMPA’s 

manufacturing costs per pound of 

NFDM were 54 percent higher in 2004 

than in 1998 and represent $2.1 million 

in additional processing costs that they 

were unable to recoup from the 

marketplace. During that same period, 

the witness noted, the manufacturing 

costs per pound of butter increased 14.3 

percent, reducing their profit margin by 

$207,000. The witness insisted that 

energy costs have been the major driver 

of cost increases and said that in 2006 

MMPA forecasts their gas costs to 

increase by nearly $1.3 million. The 

witness stressed that MMPA tried to 

increase their product prices but those 

higher prices were captured by the 

NASS product price survey which in 

turn resulted in higher raw milk costs. 

The MMPA witness emphasized the 

need for increasing make allowances to 

reflect current manufacturing costs and 

urged the Department to act on an 

emergency basis. The witness also 

offered support for indexing fuel costs 

and periodically adjusting make 

allowances to reflect changes in energy 

costs. 

A post-hearing brief submitted on 

behalf of MMPA reiterated support for 

adoption of Proposal 1. The brief stated 

that MMPA manufacturing plants have 

been incurring financial losses because 

processing costs are not fully recovered 

by current make allowances. The brief 

supported the make allowances 

advanced by Agri-Mark and NMPF. The 

brief also advocated that the make 

allowances be adjusted for 2005 energy 

cost increases and that the new 

allowances include a monthly energy 

adjuster. MMPA wrote that by indexing 

energy costs in the make allowances, 

manufacturers would not be harmed if 

future energy costs continue to increase 

and if energy costs decrease producers 

would share in the additional revenue 

resulting from lower processing costs. 

The brief described large financial 

losses that MMPA member-owned 

plants would incur if make allowances 

are not adjusted as quickly as possible. 

A witness appearing on behalf of 

Northwest Dairy Association (NDA) 

testified in support of Proposal 1. 

According to the witness, NDA is a 

Capper-Volstead cooperative with 

approximately 640 dairy-farmer 

members, of which 520 pool their milk 

on the Pacific Northwest order and also 

operates manufacturing plants in the 

northwest through its subsidiary, 

WestFarm Foods. The witness said that 

make allowances need to be updated to 

reflect the current marketing conditions. 

The witness insisted that the current 

make allowances do not reflect the 

higher costs of energy, labor and 

packaging and that efforts to recoup 

these costs from the marketplace have 

been unsuccessful. Therefore, the 

witness asserted that updating the make 

allowances is a logical step to ensure 

that manufacturing plants do not 

continue to lose money from higher 

costs that cannot be recouped. 

The NDA witness stressed that 

balancing costs should be considered as 

part of determining the appropriate 

make allowances for Class IV 

products—butter and NFDM. The 

witness claimed that NDA’s NFDM 

processing costs were 2 to 5 cents per 

pound higher in their NFDM plants that 

specifically are used to balance the 

market. The witness said that NDA 

provided dry whey cost data for the 

RBCS survey and noted an error in their 

data—NDA did not include the 

purchase of a large amount of 

condensed dry whey in their total dry 

whey processing cost. The witness 

claimed that after accounting for this 

purchase, their dry whey processing 

cost increased 1.969 cents per pound for 

all dry whey manufactured by NDA. 

The NDA witness offered support for 

adjusting the make allowances to reflect 

2005 energy costs and for indexing 

energy costs to periodically adjust the 

make allowances as proposed by NMPF. 

However, the witness insisted that 

manufacturing plants need immediate 

cost relief. The witness urged the 

Department to first amend the make 

allowances on an emergency basis and 

by including a 2005 energy adjuster. 

Then if necessary, the witness added, 

consider the NMPF proposal to index 

energy costs. 

A post-hearing brief submitted on 

behalf of NDA reiterated support for 

emergency action by the Department. 

The NDA brief focused on the 

appropriate level on the appropriate 

make allowance for dry whey. The brief 

expressed concern over the large cost 

difference in CDFA and RBCS dry whey 

cost survey data and the unintended 

exclusion of some input costs for dry 

whey processing by some of the RBCS 

survey participants. The brief 

recommended that the dry whey make 

allowance be derived by adding a factor 

to the NFDM make allowance. 

A witness appearing on behalf of 

WestFarm Foods (WestFarm) testified in 

support of Proposal 1 and offered 

testimony explaining the processing 

differences and related manufacturing 

cost differences between NFDM and dry 

whey powder. According to the witness, 

WestFarm performs the processing and 

marketing operations for NDA. The 

witness reviewed the testimony 

contained in a 2000 hearing record on 

make allowances and concluded that 

the assumptions made about dry whey 

processing are still valid. The witness 

updated the 2000 testimony with costs 

from the RBCS study, described the 

process of dry whey processing using 

reverse osmosis, and compared those 

costs to manufacturing NFDM. The 

witness concluded that in 2004 the 

additional cost of producing a pound of 

dry whey powder was 2.905 cents 

higher than producing a pound of 

NFDM with energy costs accounting for 

1.120 cents. The witness attributed the 

higher cost of producing dry whey 

powder partly to the larger volume of 

milk needed to produce a pound of dry 

whey powder than a pound of NFDM. 

The witness noted that WestFarm uses 

reverse osmosis technology to produce 

dry whey, and in 2004 their additional 

production costs were 2.7151 cents 

higher than producing NFDM. The 

witness concluded that regardless of the 

process used to produce dry whey, the 

cost of dry whey production is higher 

than that of NFDM production and 

urged the Department to take this into 

consideration when setting a make 

allowance for dry whey. 

A witness appearing on behalf of O–

AT–KA Milk Products Cooperative, Inc. 

(O–AT–KA) testified in support of 

Proposal 1. According to the witness, 

O–AT–KA is owned by three producerowned cooperatives—Upstate Farms 

Cooperative, Inc.; Niagara Milk 

Cooperative, Inc.; and Dairy Farmers of 

America, Inc.—and which operates 

manufacturing plants that produce a 

variety of manufactured milk products. 

The witness stated that O–AT–KA 

plants provide a vital balancing function 

to maintain orderly marketing of milk in 

the Northeast order. However, the 

witness said, the current fixed make 

allowances do not reflect the increased 

manufacturing costs that O–AT–KA 

members have had to bear and as a 

result, O–AT–KA producers are not 

being adequately compensated for the 

service they provide to the entire 

market. The witness asserted that efforts 

to recoup their increased costs by 


jlentini on PROD1PC65 with PROPOSAL
67476 Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Proposed Rules 

increasing their product prices would 

only result in an increase in their raw 

milk costs. Accordingly, the witness 

concluded that updating the make 

allowances remains the only method to 

provide manufacturers with cost relief. 

The O–AT–KA witness explained that 

after adjusting their 2005 manufacturing 

costs to include a return on investment 

factor, their cost of producing NFDM 

was $0.2218 per pound ($0.0818 more 

than the current NFDM make 

allowance) and their cost of producing 

butter was $0.1497 per pound ($0.0347 

per pound more than the current butter 

make allowance.) The witness 

concluded that these higher 

manufacturing costs resulted in a $1.9 

million loss in revenue for O–AT–KA 

members in 2005. The witness 

expressed concern with O–AT–KA’s 

ability to continue manufacturing milk 

products while continuously 

experiencing financial losses. 

The O–AT–KA witness offered 

support for adoption of Proposal 1 and 

the specific make allowances proposed 

by Agri-Mark. The witness was also of 

the opinion that the make allowances 

should be updated to include an energy 

adjustor to reflect the large changes in 

2005 energy costs. The witness offered 

support for a monthly energy cost 

adjustment to ensure that energy price 

changes are reflected in make 

allowances. 

The O–AT–KA witness recognized 

that increasing make allowances 

reduces producer income but asserted 

that not updating the make allowances 

would result in more plant closings, 

increased hauling costs, and lower 

producer premiums. The witness urged 

the Department to take emergency 

action and omit a recommended 

decision. 

A post-hearing brief submitted on 

behalf of O–AT–KA and Upstate Farms 

Cooperative, Inc. reiterated their 

support for updating the make 

allowances on an emergency basis. The 

brief stated that the make allowances 

should be updated with data from the 

CDFA and RBCS 2004 costs surveys, 

include an adjustment for 2005 energy 

costs and adjust make allowances by 

changes in energy. 

A witness appearing on behalf of 

Saputo Cheese USA, Inc. (Saputo) 

testified in support of Proposal 1. 

According to the witness, Saputo owns 

and operates 15 manufacturing plants 

throughout the United States and 

purchases 3 to 4 billion pounds of milk 

annually. The witness stated that the 

current make allowances are causing 

cheese manufacturers to operate their 

plants at a financial loss because of 

dramatic increases in manufacturing 

costs. The witness explained that 

Saputo has experienced a 96 percent 

increase in electricity costs, a 125 

percent increase in natural gas costs and 

an increase in excess of 150 percent in 

packaging costs from March 31, 2000, to 

December 31, 2005. The witness 

admitted that Saputo does not produce 

cheddar cheese but claimed that they 

are still unable to recoup their increased 

costs in the marketplace because of the 

competitive environment. The witness 

stated that manufacturing costs have 

increased since the 1998 cost data was 

used to establish the current make 

allowances. The witness urged the 

Department to take emergency action to 

provide manufacturers with some cost 

relief and omit issuing a recommended 

decision. 

A witness appearing on behalf of 

Glanbia Foods, Inc. (Glanbia) testified in 

support of Proposal 1. According to the 

witness, Glanbia operates three 

manufacturing plants in Idaho and the 

milk that they purchase is not pooled on 

any Federal order. The witness said that 

even though they are not Federally 

regulated they still pay prices for their 

milk supply that must be competitive 

with Federal order class prices. The 

witness said that Glanbia has 

experienced significant increases in 

manufacturing costs since 1999 and 

particularly so over the past 12–18 

months. The witness said that Glanbia’s 

electricity costs from 1999–2005 

increased by 34 percent; 370 percent for 

natural gas; 111 percent for diesel; 44 

percent for labor and 90 percent for 

employee health insurance. The witness 

expressed the opinion that the 

Department should act swiftly to update 

the make allowances. 

A witness appearing on behalf of 

Hilmar Cheese Company, Inc. (Hilmar) 

testified in support of Proposal 1. 

According to the witness, Hilmar 

operates a cheese and dry whey 

manufacturing plant in California and is 

currently building a cheese plant in 

Texas that will be receiving Federal 

marketing order priced milk. The 

witness stated that Hilmar has increased 

its efficiency between 1998 and 2004 

but those gains have not fully 

compensated for increased 

manufacturing costs. The witness 

attributed increased manufacturing 

costs to, among other things, 

packaging—an increase of 56 percent, 

supplies—an increase of 11 percent, and 

repairs and maintenance—an increase of 

113 percent. The witness stressed that 

their cost increases from 2004 to 2005 

alone were higher than the total increase 

in costs for the entire period of 1998 to 

2004. The witness was of the opinion 

that the make allowances should be 

updated and adjusted for higher 2005 

energy costs as proposed and modified 

by Agri-Mark. 

A witness appearing on behalf of Kraft 

Foods (Kraft) testified in support of 

Proposal 1. According to the witness, 

Kraft owns and operates numerous 

manufacturing plants throughout the 

United States and also purchases dairy 

products as ingredients for other 

products. The witness said the long-run 

viability of the dairy industry depends 

on both the profitability of the dairy 

farm sector and the manufacturing 

sector. Current make allowances do not 

accurately represent current 

manufacturing costs and attempts to 

increase the price of finished products 

to recoup some of the increased costs 

have proved futile, the witness 

emphasized. The witness said that this 

situation hampers manufacturer’s efforts 

to operate profitably. The witness 

explained that manufacturing input 

costs have dramatically increased since 

the 1997–1999 time period when 

manufacturing cost data was collected 

to determine the current make 

allowances. Relying on Department of 

Energy and Department of Labor data, 

the witness claimed that from 1998 to 

October 2005, electricity prices 

increased 24 percent per kilowatt hour, 

natural gas prices increased 155 percent 

per thousand cubic feet and labor costs 

increased 32 percent per hour. The 

witness concluded that these cost 

increases demonstrate the higher costs 

manufacturers face in operating and the 

need for higher make allowances to be 

adopted on an emergency basis. 

A witness appearing on behalf of the 

Association of Dairy Cooperatives in the 

Northeast (ADCNE) testified in support 

of Proposal 1. According to the witness, 

ADCNE members include Agri-Mark; 

Dairylea Cooperative, Inc.; Dairy 

Farmers of America, Inc.; Land O’Lakes, 

Inc.; Maryland and Virginia Milk 

Producers Cooperative Association, Inc.; 

O–AT–KA Milk Products Cooperative, 

Inc.; St. Albans Cooperative Creamery, 

Inc. and Upstate Farms Cooperative, Inc. 

and collectively represent more than 65 

percent of the milk pooled on the 

Northeast order. The ADCNE witness 

offered support for testimony given by 

NMPF regarding the need to raise make 

allowances. The witness was of the 

opinion that the make allowances 

should be updated using the CDFA and 

RBCS 2004 survey data and should 

contain a monthly energy cost adjustor 

to reflect price fluctuations in the 

energy market. Dairy Farmers of 

America, Inc. and Dairylea Cooperative, 

Inc. withdrew their support for 

increasing the make allowances during 


jlentini on PROD1PC65 with PROPOSAL
Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Proposed Rules 67477 

the hearing and in their post-hearing 

brief. 

The ADCNE witness asserted that 

because the Northeast marketing area 

has the largest Class IV utilization in the 

Federal order system, marketing 2.9 

billion pounds of milk in 2005, 

Northeast order Class IV plants play a 

vital role in balancing the market’s fluid 

needs. In this regard, the witness 

stressed that make allowances need to 

be amended on an emergency basis to 

ensure that Northeast order Class IV 

plants are able to recover their 

processing costs and continue their 

important role in balancing the fluid 

needs of the marketing area. 

A post-hearing brief submitted on 

behalf of ADCNE reiterated their 

support for adoption of Proposal 1. The 

brief stated that current make 

allowances are not equitable to 

manufacturers because individual plant 

processing costs have significantly 

increased since the current make 

allowances were set using 1998 costs. 

The brief also argued that the CDFA and 

RBCS survey data are reliable and 

together represent a wide variety of 

plant sizes located throughout the 

United States. The ADCNE brief 

supported using the methodology 

proposed by NMPF as the best approach 

for updating the make allowances. 

A witness appearing on behalf of 

Leprino Foods Company (Leprino) 

testified in support of Proposal 1. 

According to the witness, Leprino 

operates nine manufacturing plants in 

the United States, of which receive milk 

pooled on the Federal order system. The 

witness said that the current make 

allowances no longer accurately reflect 

the manufacturing costs to produce 

cheese and urgently need to be updated. 

The witness was of the opinion that the 

RBCS, adjusted for return on 

investment, general and administrative 

costs and marketing costs, together with 

CDFA survey results should be used to 

update the make allowances. 

However, the Leprino witness 

believed that the RBCS results for dry 

whey costs were not accurate and 

should not be relied upon in setting the 

make allowance for dry whey. The 

witness explained that the average dry 

whey plant size in the RBCS survey was 

much larger than the average size of all 

U.S. dry whey plants which, because of 

economies of scale inherent in larger 

plants, could have caused the RBCS 

survey result for dry whey to be too low. 

The witness also expressed concern that 

some input costs relevant for producing 

dry whey were not included in the 

RBCS survey such as the cost of 

condensing dry whey in other plants 

and transporting the condensed dry 

whey to a drying facility. Had these 

factors been included, the witness 

speculated, the RBCS dry whey 

processing cost may have been higher. 

The Leprino witness supported adding 

a factor to the NFDM make allowance to 

set the dry whey make allowance and 

concluded that a dry whey make 

allowance of $0.2215 per pound was 

appropriate. 

A post-hearing brief filed on behalf of 

Leprino reiterated their support for 

updating the make allowances. The brief 

stated that the hearing record contains 

voluminous amounts of evidence to 

demonstrate that manufacturing costs 

have significantly increased from the 

base period of 1997–1999 relied upon to 

set the current make allowances. The 

Leprino brief offered specific 

justification to set each of the make 

allowances to: 18.1 cents per pound for 

cheese, 22.22 cents per pound for dry 

whey, 15.4 cents per pound for butter 

and 19.7 cents per pound for NFDM. 

The brief urged the Department to take 

emergency action. 

A dairy-farmer member of Agri-Mark 

whose milk is pooled on the Northeast 

order testified in support of Proposal 1. 

The witness testified that while AgriMark producer members do not like 

paying an assessment on their 

production, they recognize that their 

manufacturing plants are in need of 

immediate cost relief due to increased 

processing costs. The witness said that 

Agri-Mark members are currently 

incurring a 15-cent per cwt assessment 

on their milk checks in order to cover 

some of the operating losses of the 

cooperative. The witness noted that 

unless the make allowances are 

updated, the assessment could soon be 

raised to 30 cents per cwt. The witness 

insisted that having a strong dairy 

processing sector is important to ensure 

that all producers have a market for 

their milk. Therefore, the witness urged 

the Department to update the make 

allowances to provide some cost relief 

to dairy manufacturers. 

A witness appearing on behalf of Rich 

Dairy Products (RDP) testified in 

support of Proposal 1. According to the 

witness, RDP buys and sells a variety of 

dairy products but does not own any 

manufacturing facilities. The witness 

supported updating the make 

allowances to reflect cost increases that 

have occurred since the establishment 

of the current make allowances. 

A dairy farmer witness appearing on 

behalf of Select Milk Producers (Select), 

Lone Star Milk Producers (Lone Star) 

and Zia Milk Producers (Zia), testified 

in opposition to Proposal 1. Hereinafter, 

these entities will be referred to as 

‘‘Select, et al.’’ Select, et al., are CapperVolstead cooperatives who collectively 

market approximately 40 percent of the 

milk pooled on the Southwest order. 

The witness stated that dairy farmers 

have also been experiencing rising costs 

for inputs such as fertilizer, fuel and 

electricity. To recoup these costs, the 

witness asserted that dairy farmers and 

their cooperatives have to become more 

efficient to lower their manufacturing 

costs. 

The Select, et al., witness cited 

consolidated hauling routes, building 

reverse osmosis plants and only 

shipping full tanker loads of milk as 

steps Select and other cooperatives have 

taken to lower their costs. The witness 

insisted that processors should seek out 

similar processing efficiencies instead of 

seeking to raise manufacturing 

allowances which would lower 

producer milk prices paid to dairy 

farmers. The witness claimed that if the 

blend price is reduced 25 cents per cwt 

as a result of raising the make 

allowances, Select, et al. farm revenue 

would be reduced by $300,000 to 

$400,000 a year. The witness also added 

that Select has long term contracts with 

its buyers that are based on the Class III 

price. If the make allowances were 

raised, the witness claimed that Select 

producers would be unable to recover 

lost revenue. 

A dairy farmer witness appearing on 

behalf of Continental Dairy Products, 

Inc. (Continental) testified in opposition 

to Proposal 1. According to the witness, 

Continental is a dairy-farmer owned 

cooperative with 21 producers located 

in Indiana, Michigan and Ohio. The 

witness was opposed to increasing make 

allowances because it would result in 

lower prices paid to dairy farmers. The 

witness stressed that farmers have also 

experienced higher costs for inputs such 

as energy, fertilizer and labor, and have 

had to either absorb these costs by 

becoming more efficient. Like 

processors, the witness said that dairy 

farmers similarly have no recourse for 

recouping cost increases from the 

marketplace. The witness insisted that 

instead of reducing producer revenue to 

pay for increased make allowances, 

manufacturing plants should seek out 

efficiencies to lower their processing 

costs. 

A brief submitted on behalf of Select, 

et al., Continental and the Dairy 

Producers of New Mexico (DPNM) 

opposed the adoption of Proposal 1. The 

brief stated that the DPNM is a trade 

association of producers located in New 

Mexico and Texas. Hereinafter, these 

entities will be referred to as 

‘‘Continental, et al.’’

The Continental, et al., brief argued 

that while supporters of Proposal 1 


jlentini on PROD1PC65 with PROPOSAL
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claimed that the 2004 RBCS study was 

an update of the 1998 study, it was 

actually a completely different study. 

The brief stated that the 2004 study 

differed from the 1998 survey because it 

surveyed twice as many plants, was 

designed specifically for the purpose 

being used as a basis for changing the 

make allowances and contained cost 

information for a different set of 

commodities. The brief claimed that 

because the 2004 RBCS survey is 

fundamentally different than the 1998 

survey, relying on the 2004 data to 

update the make allowances is not 

appropriate. 

The Continental, et al., brief also 

noted the lack of plant profitability 

information in the RBCS survey. While 

the CDFA survey results contained 

information regarding the percentage of 

plants that produce at costs above or 

below the average cost, the brief stated 

that similar information is not available 

in the RBCS survey. Continental, et al., 

wrote that plant profitability should be 

taken into account when determining 

make allowances or, as a result, the 

Department could set make allowances 

at a rate that would guarantee 

profitability for some inefficient plants 

at the expense of producer revenue. 

The Continental, et al., brief also 

insisted that the make allowances 

should not be changed because no 

consideration was given to changing the 

yield factors contained in the Class III 

and Class IV price formulas. The brief 

claimed that product yields by plants 

included in the cost surveys are 

significantly higher than the yield 

factors contained in the current product 

price formulas. Continental, et al., was 

of the opinion that changing make 

allowances without taking into account 

product yields could result in 

manufacturers receiving higher returns 

and further reduce producer revenue. 

The Continental, et al., brief also 

opposed using an energy cost adjustor 

in the make allowances. The brief stated 

that adjusting make allowances by 

changes in energy costs was not a 

proposal noticed in the hearing notice. 

The brief also questioned the accuracy 

of the proposed method for adjustments 

on changes in energy costs. The brief 

noted that such adjustments would 

make it difficult for handlers and 

producers to minimize their price risk of 

monthly changing make allowances. 

The Continental, et al., brief stated 

that supporters for increasing make 

allowances argued that they have been 

unable to recoup their higher processing 

costs from the marketplace because any 

increase to the price of their finished 

products is captured by the NASS price 

survey which, in turn, results in higher 

raw milk costs. The brief argued that 

instead of changing the make 

allowances, proponents should seek to 

fix what Continental, et al. considers as 

the root of the problem—the NASS 

survey. The brief also claimed that over 

75 percent of the cheese sold in the 

United States is not included in the 

NASS survey and therefore those plants 

can raise the price of their finished 

product prices to offset higher 

manufacturing costs without increasing 

the cost of raw milk. 

The Continental, et al., brief asserted 

that increasing the make allowances to 

any of the levels proposed could, on 

average, reduce the blend price paid to 

dairy farmers by 19 cents to as much as 

59 cents per cwt. The brief stressed that 

this would cost dairy farmers millions 

of dollars in lost revenue and would 

cause many family farms to go out of 

business. Increasing the make 

allowances, the brief concluded, would 

not provide manufacturing plants with 

an incentive to become more efficient 

because they their higher costs are 

financed by lower prices paid to dairy 

farmers. 

The Continental, et al., brief stated 

that after the past few years of high 

producer prices, milk prices are 

declining and predicted that this trend 

would continue for the next few years. 

The brief asserted that any further 

decline in prices paid to dairy farmers 

would only cause market instability and 

requested that the proceeding be 

terminated. 

The Continental, et al., brief said that 

if the Department chose to increase the 

make allowances, the new make 

allowances should not apply to the 

minimum prices for the Southwest 

order because manufacturing plants 

regulated by that order are able to 

manufacture profitably under the 

current set of make allowances. The 

brief argued that producers pooled on 

the Southwest order should not have 

their revenue decreased because of 

inefficient plants located in other parts 

of the country. 

A witness appearing on behalf of the 

National Farmers Union (NFU) testified 

in opposition to Proposal 1. The witness 

said that NFU has over 250,000 

members nationwide. The witness was 

of the opinion that increasing make 

allowances would essentially guarantee 

manufacturers a profit. The witness was 

opposed to manufacturers having a 

guaranteed profit because dairy farmers 

are not assured of a profitable milk price 

under the Federal milk order system. 

The witness testified that the current 

milk pricing system does not include 

dairy farmers’ costs of production and 

that the adoption of Proposal 1 would 

only financially harm dairy farmers. The 

witness urged the Department to deny 

Proposal 1 and instead, adopt make 

allowances that would also take into 

account dairy farmer costs of 

production. 

A witness appearing on behalf of 

Family Dairies USA (Family Dairies) 

testified in opposition to Proposal 1. 

According to the witness, Family 

Dairies is a Capper-Volstead cooperative 

located in Wisconsin with 3,700 dairy 

farmer-members. The witness testified 

that while manufacturing costs have 

increased, dairy farmers are similarly 

coping with increased production costs 

and cannot increase the price they 

receive for their milk. 

A witness appearing on behalf of 

Southeast Milk, Inc. (SMI) testified in 

opposition to Proposal 1. According to 

the witness SMI is a Capper-Volstead 

cooperative that markets milk for 

approximately 300 dairy farmers located 

in Florida, Georgia, Alabama and 

Tennessee. The witness said that SMI 

sells most of its milk to Class I plants 

and insisted that if make allowances are 

increased, their producers’ income will 

needlessly decline even though they sell 

little milk for manufacturing. According 

to the witness, SMI producers could 

collectively lose $6.3 million to $14 

million of revenue in a single year if the 

make allowances are increased. SMI 

producers do receive over-order 

premiums but the witness claimed that 

SMI would be unable to recover any lost 

revenue through additional premiums. 

The witness insisted that the number of 

Southeast and Florida dairy producers 

has been declining rapidly and the 

remaining dairy farmers in these regions 

are already struggling to produce 

enough local milk just to meet fluid 

demands. The witness claimed that any 

reduction in the Class I price would 

only accelerate the loss of dairy farmers 

in these areas. The witness also insisted 

that dairy farmers who supply primarily 

Class I plants should not have their 

income reduced by subsidizing the 

manufacturing market by providing 

larger make allowances. 

A post-hearing brief submitted on 

behalf of SMI reiterated their opposition 

increasing make allowances. The brief 

asserted that the competitive pay price 

in the Upper Midwest marketing area is 

above the announced blend price and 

claimed that if manufacturers are able to 

pay above the blend price for their raw 

milk, an increase in the make 

allowances is unwarranted. The brief 

also asserted that dairy farmers located 

in high Class I utilization markets 

would bear an inequitable loss in 

revenue if make allowances are 

increased. 


jlentini on PROD1PC65 with PROPOSAL
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A witness appearing on behalf of 

Dairy Farmers of America (DFA) and 

Dairylea Cooperative (DLC) testified in 

opposition to Proposal 1. The DFA/DLC 

witness stated that if the Department 

found it appropriate to update the make 

allowances, that an energy cost adjuster 

should be included to ensure that as 

energy prices change, that make 

allowance formula would also change. 

A post-hearing brief submitted on 

behalf of DFA/DLC supported updating 

the make allowances contingent that 

any changes apply only to the Class III 

and Class IV price formulas. The brief 

argued that unlike Class III and Class IV 

processors, manufacturers of Class I and 

Class II products have the ability to 

recoup higher processing costs from the 

marketplace. The brief stated that if 

higher make allowances are used in 

setting Class I and Class II, then prices 

processors of those products will 

receive a financial windfall for costs 

that they do not incur. The brief stressed 

that this would cause extreme financial 

harm to dairy farmers nationwide. 

A witness appearing on behalf of the 

Progressive Agriculture Organization, 

Faithopity Farms, Farm Wives United, 

Tioga Valley Milk Cooperative, Family 

Farm Defenders, American Raw Milk 

Producers Association, Pennsylvania 

Farmers Union, National Family Farm 

Coalition and the South Auburn Grange 

testified in opposition to raising make 

allowances. The witness testified that 

dairy farmer income should not be 

reduced to cover higher process costs of 

manufacturers of Class III and Class IV 

products. The witness stressed that 

dairy farmers have also experienced 

higher production costs and that dairy 

farmers cannot raise their price as a 

means to offset higher costs. 

An independent dairy farmer witness 

appearing on behalf of the Progressive 

Agriculture Organization, Pennsylvania 

Farmers Union and the National Family 

Farm Coalition Dairy subcommittee, 

testified in opposition to Proposal 1. 

The witness was opposed to raising 

make allowances because it will result 

in lower dairy farmer income. The 

witness also emphasized that dairy 

farmers cannot raise their milk price 

when their costs of production increase. 

The witness stressed that instead of 

decreasing farmer income, 

manufacturers should strive to recoup 

their costs through the marketplace or 

by becoming more efficient. 

An independent dairy farmer witness, 

whose milk is pooled on the Northeast 

order, testified in opposition to 

increasing make allowances. The 

witness stated that their farm is 

burdened with higher production costs 

and that any reduction in the blend 

price they receive would injure their 

farming operation. According to the 

witness, if higher make allowances are 

adopted, their farm income would be 

reduced approximately $3,000 to $5,500 

per year. The witness was of the opinion 

that manufacturers should recover their 

increased costs from the marketplace 

and not by reducing the income of dairy 

farmers who have no milk order 

provisions by which to recover higher 

costs. 

A second independent dairy farmer 

whose milk is pooled on the Northeast 

order testified in opposition to 

increasing make allowances. The 

witness was of the opinion that dairy 

manufacturers should recoup their 

processing costs from the marketplace 

or become more efficient to lower their 

production costs. The witness said that 

dairy farmers have also faced higher 

production costs for items such as fuel 

and health insurance. The witness said 

that dairy farmers do not have the 

ability to pass their higher costs on to 

their customers. The witness estimated 

that if higher make allowances are 

adopted, their farm income would be 

reduced to between $7,500 and $13,000 

per year. 

A dairy farmer from Tennessee whose 

milk is pooled on the Southeast order 

testified in opposition to increasing 

make allowances. The witness was 

opposed to increasing the make 

allowances because it will lower 

producer revenue. The witness said that 

the Southeast marketing area has 

declining dairy farm numbers and any 

decrease in the revenue they receive 

would only serve to accelerate the 

decline. 

A post-hearing brief submitted on 

behalf of the Kentucky Dairy 

Development Council (KDDC) expressed 

opposition to increasing the make 

allowances. According to the brief, 

KDDC represents approximately 300 

dairy farmers located in the State of 

Kentucky. The brief claimed that if the 

make allowances are adopted at levels 

proposed by Agri-Mark, Kentucky dairy 

farmers would lose an estimated 

$426,000 to $1.28 million a month. The 

brief stated that Kentucky milk 

production has been declining and any 

decrease in producer revenue would 

only hasten that decline. 

b. The following summary of 

testimony and post-hearing briefs 

pertains to the second session of the 

public hearing held September 14–15, 

2006, in Strongsville, Ohio. 

A professor from Cornell University 

testified regarding a research study 

conducted by the Cornell Program on 

Dairy Markets and Policy (CPDMP), to 

assess the cost of processing cheddar 

cheese, dry whey, butter and nonfat dry 

milk. The witness did not testify in 

support of or in opposition to any 

proposal presented at the hearing. The 

witness offered a working paper of the 

CPDMP study that explained the 

methodology and results. 

The CPDMP witness explained that 

the number of plants surveyed in the 

study were drawn from the AMS list of 

Dairy Plants Surveyed and Approved for 

Grading and a separate plant list 

maintained by CPDMP. The witness 

explained that plants eligible to 

participate in the survey were selected 

on the basis that they had to produce 

one of the four commodity products 

(cheddar cheese, dry whey, NFDM or 

butter) but the plant also had to produce 

their product(s) in one or more of the 

package sizes surveyed by NASS. The 

witness said that each plant surveyed 

was asked to provide cost data for a 

recent 12-month period including fiscal 

year data. The witness explained that 

the plants participating in the cost 

survey were geographically dispersed 

throughout the country, though none 

were located in the State of California. 

The CPDMP witness testified that a 

sample of cheese plants was selected by 

size and represented both cooperatively 

owned and proprietary plants. Five 

plants were randomly selected from the 

largest ten percent of cheese plants by 

volume and all five plants opted to 

participate in the study, the witness 

said. The witness explained other 

cheese plants were selected randomly; 

however, only 11 of these cheese plants 

had submitted complete cost data. The 

other four plants had either submitted 

incomplete cost data or had problems 

with their data and therefore were not 

included in the study. The witness 

emphasized that the sample of cheese 

plants purposely over-represented large 

sized plants. The witness explained that 

large plants would have been 

underrepresented on a cost basis if the 

survey had relied on a purely random 

draw of cheese plants. 

A total of 12 dry whey plants 

surveyed were a subset of the cheese 

plant sample and were all proprietary 

plants, said the witness. According to 

the witness, 8 NFDM plants and 10 

butter plants were selected by a nonstratified random draw of the 

population. While all 8 of the NFDM 

plants selected opted to participate in 

the study, only 4 butter plants selected 

opted to participate, noted the witness. 

The CPDMP witness described the 

cost accounting methodology used in 

the CPDMP study as very similar to the 

methodology used by CDFA’s study of 

manufacturing costs. There are 

differences, the witness noted, in that 


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CPDMP did not have the authority to 

audit data collected from the plants, that 

CPDMP did not calculate a current 

value of assets from schedules of 

economic depreciation, and that the 

sample of plants used in the CPDMP 

study was a less than the total number 

of plants. The witness added that the 

manufacturing costs contained in the 

CPDMP study contain a ROI allowance, 

but do not include marketing costs. The 

witness noted that the ROI factor used 

in the CPDMP study differs from that in 

the CDFA study. According to the 

witness, the CDFA data used detailed 

accounting records and depreciation 

schedules for plant and equipment 

while the CPDMP study relied on plant 

estimates of fair market value for plant 

and equipment. 

The witness concluded that the cost 

of processing, given in cost per pound 

of product, for the sample of plants in 

the CPDMP study was as follows: 

Cheese Dry whey NFDM Butter 

Simple Average ............................................................................................... $0.2065 $0.2282 $0.1484 $0.1492 

Weighted Average ........................................................................................... 0.1638 0.1941 0.1423 0.1108 

The CPDMP witness noted that the 

study, as well as previous cost of 

processing studies conducted by 

CPDMP, indicated that economies of 

scale are evident across all dairy 

manufacturing plant types. 

The CPDMP witness explained that 

the 16 cheese plants participating in the 

study enabled CPDMP to perform a 

nonlinear regression in a study 

addendum to make inferences of the 

cost of processing cheese for the entire 

survey population of 53 cheese plants. 

According to the witness, the CPDMP 

study estimates that the weighted 

average cost of processing cheese for the 

53 cheese plants is $0.2028 per pound. 

The witness estimated that if the cheese 

make allowance was set at this level, 82 

percent of the volume of cheddar cheese 

made in the country and 33 percent of 

the cheese plants in the country would 

be able to cover their processing costs. 

The witness explained that the weighted 

average costs of processing for dry 

whey, NFDM and butter could not be 

made because of the small number of 

plants and not knowing the volume of 

production. 

The CPDMP witness further explained 

that the nonlinear regression used the 

manufacturing cost data submitted by 

the 16 cheese plants to generate a cost 

curve and cost equation for the 53 

plants that comprise the number of 

cheese plants for the study. According 

to the witness, the derived cost equation 

suggests that a plant producing an 

amount of cheese approaching an 

infinite number of pounds per year 

would have an estimated manufacturing 

cost per pound approaching $0.170028 

which represents the lowest calculated 

cost per pound of cheese produced. On 

the other hand, a plant producing 

approximately 683,000 pounds of 

cheese per year would have a 

manufacturing cost per pound 

approaching $1.170028 and represents 

the highest calculated cost per pound of 

cheese produced. The witness reported 

that, based on the regression analysis, 

87 percent of the variability observed in 

the cost of making cheese can be 

explained by the volume of cheese 

production. 

The CPDMP witness also testified 

from another study addendum that 

during the time period that 

manufacturing plants offered cost data, 

the cost of energy had increased 

significantly. The witness attempted to 

index the cost of energy using Producer 

Price Indexes for natural gas and 

industrial electric from the Bureau of 

Labor Statistics and from this adjust 

manufacturing cost information to 

capture energy cost increases. 

According to the witness, to index the 

costs of processing to 2005 energy costs, 

the following amounts would need to be 

added to the make allowances—$0.0034 

for cheese, $0.0070 for NFDM, $0.0076 

for dry whey and $0.0029 for butter. 

A dairy farmer appearing on behalf of 

Select, et al., testified in opposition to 

changing the make allowances. 

According to the witness, Continental 

Milk Producers, Inc. and Dairy 

Producers of New Mexico endorsed the 

CPDMP witness’s testimony. The 

witness asserted that the weighted 

average costs contained in the CPDMP 

study were very similar (with the 

exception of dry whey) to the make 

allowances used in the current Class III 

and Class IV product price formulas. 

From this, the witness concluded that 

the current make allowances for cheese, 

NFDM and butter should not be 

increased. In the witness’s opinion, if 

the Department chooses to change the 

dry whey make allowance, it should be 

based on the NFDM make allowance 

plus an energy cost adjustment to 

account for the additional energy 

needed to produce dry whey. 

The Select, et al., witness testified 

that there are four cheese plants located 

in the Southwest region of the country 

and asserted that all but one of those 

plants are able to operate profitably 

under the current make allowances. The 

witness testified that the cheese plants 

in the Southwest have taken many steps 

to lower their manufacturing costs. The 

witness was of the opinion that other 

cheese plants need to also take steps to 

improve their efficiency instead of 

seeking to increase the make allowances 

to cover their costs. The witness 

asserted that some producers in the 

Southwest region are receiving $1.50 

below the Class III price for their milk 

because of the abundant supply of milk 

in the region and the higher cost of 

transporting milk to market. The 

witness estimated that if make 

allowances were increased such that the 

blend price to farmers was lowered by 

$0.50 per cwt, dairy farmers in the 

Southwest region would lose between 

$3 to $5 million dollars per month. 

A post-hearing brief submitted on 

behalf of Select, et al., reiterated their 

opposition to increasing make 

allowances and appealed to terminate 

the proceeding. Select, et al., was of the 

opinion that the CPDMP study is the 

only valid data that the Department 

should consider in whether or not make 

allowances should be changed. They 

asserted that the CPDMP study weighted 

average make allowances are so similar 

to the current make allowances that 

making any changes would be 

unjustified. If the Department 

determines that make allowances 

should be changed, Select, et al., 

proposed using the CPDMP study 

weighted average costs for butter, NFDM 

and cheese, but that the NFDM make 

allowance for dry whey be adjusted for 

additional energy costs. They also 

opposed the inclusion of an energy 

adjustor or the consideration of plant 

balancing costs in setting new make 

allowances. 

Select, et al., wrote that the adjusted 

NFDM weighted average of $0.1423 

offered by the CPDMP witness is not 

reliable because all of the CDMP study 

data was not audited. Select, et al., also 

elaborated that the CPDMP weighted 

average cost for dry whey is not reliable 

because of the small number of plants 

represented in the study and because 

most industry participants testified that 

the dry whey make allowance should be 

set at the NFDM make allowance plus 

an adjustment for additional energy 

costs. Additionally, the brief argued that 


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the CPDMP cost estimate derived for the 

53 cheese plants should not be used 

because the estimates for butter, NFDM 

and dry whey could not also be derived. 

Select, et al., wrote that the data used to 

derive the cheese manufacturing cost 

estimate is not current because it does 

not contain 2 new large cheese plants in 

the southwest region that produce in 

excess of 10 percent of the cheese 

volume represented by the total 53 

cheese plants of the study. 

Select, et al., also argued that the 

Department should not make any 

changes to the make allowances without 

first considering changes to the other 

parts of the price formulas, specifically 

factors for shrinkage and product yields. 

The Select, et al., brief characterized 

the underlying problem facing 

manufacturers is the ‘‘circularity’’ of 

price changes that are reflected in the 

NASS price survey. If manufacturers are 

able to recover their higher cost from the 

marketplace by increasing the price of 

the product, the NASS survey, in turn, 

reflects these higher prices and the 

formula, in turn, will result in a higher 

value for raw milk. They were of the 

opinion that if the circularity problem is 

addressed by the Department, 

manufacturers will be able to recoup 

their additional costs in the marketplace 

thus negating any need for raising the 

make allowances and lowering producer 

revenue. 

The Select, et al., brief claimed that 

the cheese manufacturers seeking higher 

make allowances account for less than 

20 percent of the producer milk pooled 

on the Federal Order system. The brief 

also stated that there is no evidence to 

establish a measure of efficiency for 

these manufacturers or if there are other 

factors affecting or inherent in their 

businesses which cause them to be 

unable to produce cheese at or below 

the current make allowance. The brief 

also stressed that although cheese 

manufacturers say they are unable to 

produce cheese at the current make 

allowances, one can not simultaneously 

conclude if a plant is not profitable 

because the hearing record has no data 

regarding product selling prices. 

A witness appearing on behalf of 

NMPF testified in support of increasing 

the make allowances and incorporating 

a monthly energy cost adjustor. The 

NMPF witness reiterated testimony 

given at the first public hearing 

regarding that the volatility of energy 

costs make an energy adjustor necessary 

to ensure that energy cost swings are 

reflected in the make allowances. The 

witness stated that energy costs have 

fallen since January 2006 and surmised 

that if new fixed make allowances had 

been implemented in late 2005, they 

would now be too high manufacturing 

costs have decreased due to lower 

energy prices. The witness warned that 

if the Department recommends a change 

in the make allowances without 

containing a monthly energy cost 

adjustor, the new make allowances 

could become outdated before they are 

implemented. 

A post-hearing brief submitted on 

behalf of NMPF reiterated their proposal 

for the inclusion of a monthly energy 

cost adjustor in the updated make 

allowances. NMPF wrote that the 

inclusion of a monthly energy cost 

adjustor would be the only way to 

ensure that make allowances do not 

quickly become outdated due to 

fluctuating energy costs. 

The Secretary of Agriculture for the 

Commonwealth of Pennsylvania 

(Secretary) testified in opposition to 

increasing the make allowances. The 

Secretary claimed that within the past 

10 years Pennsylvania has lost over 

2,000 dairy farms and 75,000 dairy cows 

because of low milk prices. The 

Secretary was of the opinion that any 

change in the make allowances that 

would result in a lower milk price 

would hurt dairy farmers in 

Pennsylvania and would further cause a 

decline in the number of dairy farmers 

and cows. 

An associate professor from Penn 

State University (PSU) testified 

regarding a study conducted by the 

witness to estimate the impacts of 

changing make allowances on class 

prices, blend prices, and 2006 and 2007 

Federal order pool values. The witness 

did not testify either in support of or in 

opposition to any proposal at the 

hearing and did not testify as a 

representative of PSU. The witness 

explained the study relied on the 

manufacturing cost estimates of the 

CPDMP study to analyze six different 

make allowance scenarios. According to 

the witness, the weighted average make 

allowances contained in the CPDMP 

study were very similar to the make 

allowances used in the current Class III 

and Class IV product price formulas 

with the exception of dry whey. 

The witness testified that of the six 

different make allowance scenarios 

analyzed in the witness’ study only the 

scenario relying on the weighted 

average manufacturing cost of the low 

cost plants from the CPDMP study 

resulted in higher estimated uniform 

prices to producers. The remaining five 

scenarios resulted in lower estimated 

uniform prices, ranging from $1.26 per 

cwt lower (using the weighted average 

manufacturing costs of the high cost 

plants in the CPDMP study) to $0.02 per 

cwt lower using weighted average 

manufacturing costs of all plants in the 

CPDMP study for butter, cheese, NFDM, 

and the dry whey weighted average 

manufacturing costs plus $0.0256. 

The witness was of the opinion that 

the current make allowances adequately 

cover manufacturing costs and allow 

processors to expand their plant 

capacities and production levels. The 

witness added that with current low 

prices, any increase in make allowances 

would financially harm dairy farmers. 

A post-hearing brief submitted on 

behalf of NCI supported using the 

CPDMP study as a basis for calculating 

new make allowances. NCI was of the 

opinion that the CPDMP study is the 

only publicly available data that 

accurately represents costs of processing 

for manufacturing plants located outside 

California. NCI wrote that a marketing 

cost factor of $0.0015 per pound and an 

adjustment for the higher energy cost 

observed in 2005 should be included in 

any new make allowances proposed by 

the Department. 

NCI was also of the opinion that the 

cheese manufacturing cost estimate of 

$0.2028 per pound for all 53 cheese 

plants should be used as the basis for 

determining the cheese make allowance. 

NCI asserted that the stratified cheese 

plant sample used in the CPDMP survey 

was weighted heavily towards large, low 

cost plants and as a result the weighted 

average manufacturing cost is not 

representative of the cost of making 

cheese throughout the country. Because 

CPDMP was unable to derive 

manufacturing cost estimates for butter, 

NDFM and dry whey, as CPDMP had for 

cheese, NCI wrote that relying on the 

manufacturing costs of the surveyed 

plants weighted average of those 

products as a basis for new make 

allowances. The NCI brief offered that 

make allowances be set no lower than 

the following: cheese—$0.2077 per 

pound, dry whey—$0.2032 per pound, 

butter—$0.1152 per pound and 

NFDM—$0.1508 per pound. 

Post-hearing briefs submitted 

separately by Lactalis, Kraft, Grande, 

Saputo and Glanbia also supported the 

use of the CPDMP study as the basis for 

setting new make allowances. Each 

company expressed the opinion that any 

make allowances proposed by the 

Department should include a marketing 

cost factor of $0.0015 per pound and be 

adjusted for 2005 energy costs. They 

argued that the manufacturing cost 

estimate for the 53 cheese plants should 

be used as the basis for determining a 

new cheese make allowance because it 

accounts for the entire population of 

cheese plants and not solely the 

surveyed plants that are weighted 

towards large, low cost plants. 


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According to their briefs, the lack of 

plant data for butter, NFDM and dry 

whey, each of the companies supported 

the use of the CPDMP surveyed plant’s 

weighted average manufacturing costs 

as the starting point for determining 

make allowances. 

A post-hearing brief submitted on 

behalf of Leprino supported the use of 

the CPDMP study in determining make 

allowances for cheese and dry whey. 

Leprino was of the opinion that the 

CPDMP study accurately reflects the 

cheese manufacturing costs of both 

proprietary and cooperative-owned 

plants. Beginning with the CPDMP 

cheese manufacturing cost estimate of 

$0.2028 per pound, adding a $0.0034 

per pound to adjust for 2005 energy 

costs, and a $0.0015 marking cost factor, 

Leprino proposed that the cheese make 

allowance be set no lower than $0.2077 

per pound. Leprino was of the opinion 

that the CPDMP cheese sampleweighted average manufacturing cost 

should not be used because it overrepresents large, low-cost cheese 

manufacturing plants. 

Leprino was of the opinion that the 

dry whey make allowance should be set 

no lower than $0.2032 per pound. 

Leprino computed this make allowance 

by starting with the CPDMP dry whey 

sample weighted average cost of $0.1941 

per pound, adding a $0.0076 to adjust 

for 2005 energy costs and a $0.0015 

marketing cost factor. Leprino further 

argued that the CPDMP dry whey 

weighted average manufacturing cost is 

most likely skewed in over representing 

large, low-cost plants because the dry 

whey plants surveyed is a subset of the 

cheese plant survey which is skewed 

towards large low-cost plants. Leprino 

asserted that the Department would be 

justified in setting the dry whey make 

allowance higher than $0.2032 per 

pound because the CPDMP study does 

not provide dry whey cost estimates for 

all dry whey plants. 

A post-hearing brief submitted on 

behalf of Agri-Mark, et al., offered 

varying combinations of the CDFA, 

RBCS and CPCMP study results to 

determine new make allowances. They 

emphasized that make allowances 

should be set at a level that would cover 

manufacturing costs for most plants. 

They are was of the opinion that the 

Department should consider the 

strengths and weaknesses of each 

manufacturing cost survey to determine 

what information should be relied upon 

in establishing new make allowances. 

They wrote that any new make 

allowances should be updated to reflect 

higher 2005 energy costs and that an 

adjustment factor of $0.0015 per pound 

be added to reflect marketing costs. 

Although the CPDMP cheese plant 

survey is weighted heavily towards 

large, low-cost plants, Agri-Mark, et al., 

wrote that this information can be relied 

upon to make inferences about all 

cheese plants and is the best data 

available. By relying on the CPDMP 

survey of the average annual plant 

volume by region, and the 

manufacturing cost equation generated 

to determine manufacturing costs of all 

plants, Agri-Mark, et al., inferred that 

the average manufacturing cost per 

pound of cheese in various regions of 

the country should be varied and be as 

follows: Eastern—$0.2920, Upper 

Midwest—$0.2100 and Western—

$0.1860. According to their brief, it was 

concluded that if the CPDMP surveyed 

plant’s average manufacturing cost for 

cheese of $0.1638 is adopted, all average 

cost and higher than average cost plants 

in these regions would not be able to 

recover their manufacturing costs. The 

brief expressed the opinion that the 

manufacturing cost estimate for all 

cheese plants should be a starting point 

for updating the cheese make allowance. 

After incorporating a $0.0015 marketing 

cost factor and adjusting for 2005 energy 

costs, Agri-mark, et al., offered that the 

cheese make allowance be set no lower 

than $0.2077 per pound. 

Agri-mark, et al., was of the opinion 

that because the CPDMP dry whey 

plants surveyed are a subset of the 

cheese plants surveyed, it would be 

appropriate to use the CPDMP sample 

average dry whey manufacturing cost of 

surveyed plants as a starting point for 

setting a new dry whey make allowance 

because as with the cheese plants 

surveyed, the dry whey plant surveys 

are also heavily weighted toward large, 

low-cost plants. The brief claimed that 

many small cheese plants incur 

transportation and loading costs for 

delivering dry whey to other plants for 

processing. The brief estimated this cost 

at $0.0249 per pound and that it be 

included in the manufacturing cost of 

producing dry whey. Including an 

adjustment factor to reflect higher 

energy costs, the brief offered that a new 

dry whey make allowance be set no 

lower than $0.2281 per pound. 

The Agri-Mark, et al., brief said that 

using the CPDMP study for determining 

a butter make allowance would not be 

appropriate because the sample of the 4 

plants surveyed only represent 

approximately 13 percent of the butter 

volume surveyed by NASS. They wrote 

also that the surveyed butter plants 

manufacturing costs are skewed because 

the 4 plants surveyed account for 75 

percent of California’s butter 

production. Instead, the brief offered 

using the weighted average 

manufacturing costs of the RBCS and 

CDFA study (after adjusting for 

inclusions of a marketing cost factor and 

a ROI factor to the RBCS study). After 

adjusting for higher 2005 energy costs, 

the brief offered that the butter make 

allowance be set no lower than $0.1554 

per pound. 

The Agri-Mark, et al., brief also 

argued that the CPDMP study should 

not be relied upon for determining a 

new NFDM make allowance because it 

also over-represents large, low-cost 

plants. The brief explained that because 

NFDM is a byproduct of the butter 

making process, the same method for 

computing the butter make allowance 

also should be applied in determining a 

make allowance for NFDM. Specifically, 

the brief offered that the CDFA mediumcost NFDM sub-group should be 

weighted with the RBCS NFDM 

weighted average manufacturing cost. 

After including an adjustment for higher 

2005 energy costs and a marketing cost 

factor, the brief offered that the NFDM 

make allowance be set no lower than 

$0.1848 per pound. 

The Agri-Mark, et al., brief 

maintained that lower producer prices 

resulting from higher make allowances 

should not be a factor in determining 

new make allowance levels. The brief 

expressed the opinion that if processing 

plants continue to close because they 

are unable to recoup their 

manufacturing costs, plants will cease 

operations and that lost market revenues 

would far outweigh producer revenue 

losses due to higher make allowances. 

In this regard, the brief stressed that the 

purpose of the Federal milk orders are 

to set minimum milk prices and other 

government programs such as the Price 

Support Program and the Milk Income 

Loss Program are designed to protect 

producer prices. 

A brief submitted on behalf of O–AT–

KA and Upstate Farms Cooperative, Inc. 

(O–AT–KA, et al.) expressed support for 

the brief submitted by Agri-Mark for the 

reconvened hearing. O–AT–KA, et al., 

was of the opinion that the CPDMP 

plants surveyed for butter and NFDM is 

too small and biased toward large, lowcost plants and do not accurately reflect 

the manufacturing costs of plants not 

surveyed throughout the country. The 

brief maintains that because not all 

surveyed plants had been given the 

opportunity to review their submitted 

data that cost errors, similar to those 

found by a NFDM plant that did review 

their submitted costs, could be 

contained in the study. 

A post-hearing brief submitted on 

behalf of MMPA opposed the use of the 

CPDMP study in calculating new make 

allowances. MMPA was of the opinion 


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4Other solids are defined as nonfat solids less 

protein. 

that some of the surveyed plants had 

difficulty accurately completing the 

survey because it was administered 

electronically and not by submission of 

cost information on paper. Therefore, 

MMPA offered that the study results 

may not accurately reflect current 

manufacturing costs. The brief said that 

new make allowances should be 

calculated relying on the RBCS and 

CDFA surveys and supported the 

specific make allowances offered by 

Agri-Mark. The brief expressed 

continued support to include a monthly 

energy cost adjustor as proposed by 

NMPF. 

A post-hearing brief submitted on 

behalf of DFA proposed that only 

minimal adjustments be made to 

increase the current make allowances 

because of the impact higher make 

allowances have on reducing producer 

revenue. DFA wrote that because only a 

portion of manufactured dairy products 

are surveyed by NASS, those other 

plants producing products not surveyed 

by NASS have the ability to pass on 

higher processing costs to their 

customers. Their brief indicated support 

for a monthly energy cost adjustor. 

A post-hearing brief submitted on 

behalf of Dairylea argued that instead of 

increasing make allowances, the 

Department should hold a hearing to 

address the price circularity issue 

inherent in the NASS price survey. In 

relating production cost increases for 

dairy farmers, Dairylea wrote that farm 

input costs are higher, but dairy farmers 

are not able to receive regulatory relief 

similar to what processors are seeking 

through higher make allowances. 

Dairylea estimated that the average cost 

of producing milk has increased by at 

least $1.00 per cwt since 2002 and 2003 

and that during the middle of 2006 

prices to dairy farmers declined 

approximately $2.00 per cwt. 

Dairylea was of the opinion that the 

Federal milk order system was created 

to improve milk prices to farmers and to 

protect the viability of dairy farms. 

Dairylea argued that the law providing 

for milk orders does not support the 

lowering of blend prices to producers by 

the use of higher make allowances 

without simultaneously considering 

higher farm input costs borne by dairy 

farmers. Dairylea also was of the 

opinion that Class I and II prices should 

not be lowered due to higher make 

allowances for the Class III and Class IV 

product pricing formulas. 

If the Department concludes that 

make allowances should be increased, 

Dairylea proposed that an increase 

should be reduced by 52 percent (to be 

reflective of the 2005 Federal order 

system average Class I and Class II 

utilization); and an emergency hearing 

be held to consider if Class I and Class 

II prices should not change resulting 

from changes to the make allowances. 

Only after such implementation 

preventing changes to Class I and Class 

II prices, the new make allowances 

should be restored to 100 percent of 

recommended increases. 

A post-hearing brief submitted on 

behalf of Family Dairies opposed 

increasing all current make allowances. 

They contended that dairy farmers also 

have higher production costs but do not 

have the ability to appeal to the 

Government for regulatory relief. They 

asserted that if make allowances are 

increased, dairy farmer income will be 

reduced by $300 million in the first 

year. They also noted while 

manufacturers claim they have incurred 

extremely high energy costs, the cost of 

natural gas has declined significantly 

from its high in 2005. 

Discussion and Findings 

Discussion 

At issue in this proceeding is whether 

the make allowance factors of the 

product price formulas used in setting 

Class III and Class IV milk prices should 

be changed and how they should be 

changed. In the context of this 

proceeding, make allowances reflect the 

cost that manufacturers incur in 

processing raw milk into cheese, butter, 

NFDM and dry whey. The Class III and 

Class IV milk prices are also used to 

compute component prices for butterfat, 

protein, nonfat solids, and other solids.4

As proposed by Agri-Mark, et al., 

revised make allowances would rely on 

the recent 2004 CDFA survey and the 

2004 RBCS survey. The revised make 

allowances would be established by 

using the same methodology (a 

weighted average of the RBCS and 

CDFA manufacturing costs) used in 

establishing current make allowances 

(67 FR 67906, published November 7, 

2002, and Final Rule, 68 FR 7063, 

published February 12, 2003). AgriMark, et al., contended that by 

substituting the original cost data with 

the most current data available from the 

2004 RBCS and CDFA surveys, make 

allowances would reflect cost increases 

that manufacturers incur but cannot 

recover from the marketplace. 

Additionally, Agri-Mark, et al., 

proposed that a make allowance for dry 

whey would be based on the cost of 

manufacturing NFDM. 

The Agri-Mark, et al., proposal was 

modified by NMPF to adjust Class III 

and Class IV pricing formulas by 

including a monthly energy adjustment 

based on monthly changes in the prices 

of industrial electricity and industrial 

natural gas. The monthly energy 

adjustments would be calculated as 

percentage changes in current month 

prices for industrial electricity and 

natural gas components from the 2004 

Producer Price Index (PPI) for natural 

gas and electricity. The PPIs for natural 

gas and electricity items are published 

monthly by the U.S. Department of 

Labor’s Bureau of Labor Statistics 

(www.bls.gov.) A separate modification 

offered by Agri-Mark, et al., would 

similarly account for changes in 

electricity and natural gas prices but do 

so on an annual basis. While the issues 

concerning how volatile input costs 

should be handled in the product price 

formulas have been raised in these 

modifications, the scope of this 

proceeding is limited to considering 

updating the costs associated with make 

allowances. In this regard, the broader 

consideration of using indices in 

accounting for energy price fluctuations 

would be more appropriately 

considered as part of a separate 

rulemaking to consider all aspects of the 

Class III and Class IV product price 

formulas. 

Opponents to increasing make 

allowances include independent dairy 

farmers from the Northeast and 

Appalachian marketing areas, and 

cooperatives representing a significant 

volume of the milk marketed via Federal 

orders—DFA, Dairylea, SMI, Family 

Dairies, Select, Continental, Lone Star, 

and Zia. These cooperatives view 

increasing make allowances as a benefit 

for regulated handlers at the expense of 

dairy farmers and assert that there is no 

industry consensus to support 

increasing make allowances. It is 

notable that DFA is an owner and 

operator of manufacturing plants that 

produce cheese, dry whey, and NFDM. 

Select, a cooperative that is a part owner 

and supplier of two major cheese plants 

in the southwestern U.S., testified that 

their plants do not require increased 

make allowances to operate 

successfully. DFA, Dairylea, and SMI, 

also opposed increasing make 

allowances because doing so would 

result in lower Class I and Class II prices 

and lower dairy farmer income. 

Independent dairy farmers who pool 

their milk on the Northeast and 

Appalachian orders oppose increasing 

make allowances under any 

circumstances. These dairy farmers who 

testified are of the opinion that 

increasing make allowances will lower 

milk prices received by dairy farmers 

who also are experiencing similar 

increases in their operating costs for 


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energy and other inputs. SMI similarly 

argues that dairy farmers who supply 

the high Class I utilization markets of 

the Southeast and Florida milk 

marketing areas will needlessly suffer 

reduced income. They argue that Class 

III and Class IV milk costs are 

essentially unrelated to their businesses 

as suppliers of milk for fluid uses. 

Continental and Select oppose 

increasing make allowances without 

also considering potential changes in 

yield factors for cheese, NFDM, and dry 

whey that are an important part of the 

Class III and Class IV product pricing 

formulas. They argue that failure to 

simultaneously consider higher yields 

and productivity changes would 

essentially be the same as overstating 

manufacturing costs and would result in 

a financial windfall for the most 

efficient manufacturing plants. They 

also argue that if manufacturers are able 

to pay premiums for producer milk, 

then existing make allowances should 

be considered adequate in accounting 

for all manufacturing costs. This 

argument is countered by proponents 

who note that paying premiums is 

necessary to compete with Class I 

handlers for a milk supply. Proponents 

argue that paying such premiums 

requires make allowances be increased 

to recover these additional milk costs. 

The argument that higher yield factors 

will offset lower Class III and Class IV 

milk prices and producer blend prices 

resulting from increased make 

allowances may be important. However, 

this proceeding was limited to make 

allowance factors only and as a result 

the record evidence on yield factors is 

limited. Consequently, yield factors may 

need to be addressed in the broader, 

more inclusive Class III and Class IV 

product price formula proceeding. 

Likewise, consideration of farm-to-plant 

loss as a component of the product price 

formulas may need to be considered but 

only in a separate proceeding of broader 

scope that considers the Class III and 

Class IV price formulas in their entirety. 

Most importantly, the scope of this 

proceeding has been limited to 

consideration of the cost elements 

comprising make allowances. 

Three manufacturing cost surveys 

were considered in this proceeding to 

determine if make allowances for 

cheese, dry whey, nonfat dry milk, and 

butter should be changed and by what 

amounts. The CDFA 2004 

manufacturing cost survey collects and 

reports the costs of producing these 

commodities for nearly all plants 

located in California. The RBCS survey 

of dairy manufacturing costs collects 

and reports a summary of the plant costs 

for certain plants of participating 

cooperatives located in areas regulated 

by the Federal milk order program. The 

CPDMP manufacturing cost study 

examines the processing costs of plants 

selectively sampled to be reflective of 

costs for plants of various sizes that are 

located in areas regulated by Federal 

milk marketing orders (FMMOs.) 

The CDFA and RBCS surveys have 

been conducted for more than 20 years. 

The RBCS survey was designed and 

implemented to allow participating 

cooperatives to compare their operating 

costs to an average cost basis. It does not 

provide a comprehensive view of 

manufacturing costs across plants in the 

Federal order system nor exclusively 

relied upon to establish manufacturing 

allowances. The RBCS survey was used 

in combination with the CDFA cost 

survey results to establish current make 

allowances because at the time, no other 

cost information was available from 

which to assess manufacturing costs for 

FMMO plants. 

The CPDMP study is based on a 

voluntary structured survey of 

participating manufacturing plants 

selected to represent a cross sectional 

view of manufacturing costs for cheese, 

dry whey, butter, and NFDM outside of 

California. The CPDMP study is a first 

time survey and study of plant 

manufacturing costs designed to be 

relied upon in establishing make 

allowances. 

The CDFA survey collects and reports 

plant manufacturing costs from audited 

financial records provided voluntarily 

to establish aggregated costs by 

commodity type for plants located in 

California. This survey is a continuation 

of annual surveys whose purpose and 

design includes setting of 

manufacturing allowances by the State 

of California for their manufactured 

dairy products. The CDFA methodology 

is comprehensive, representing 

manufacturing cost data for almost all 

plants located in California and 

organizing that data into the welldefined categories that include high and 

low (and in some cases medium) cost 

plants. Total plant manufacturing cost 

categories include: processing labor 

costs, processing non-labor costs, 

packaging costs, other ingredient costs, 

general and administrative costs, and a 

return on investment (ROI) cost 

element. It includes data for both 

cooperative-owned and proprietary 

plants. 

A total cost for each industry category 

(e.g., cheese) in the CDFA survey is 

reported as a weighted average for each 

of these cost elements by high or low 

(and medium for NFDM) cost plant sizes 

and a total weighted average for all 

plants. Where the collection and 

reporting of plant manufacturing costs 

for CDFA are in commodity categories 

for which five or fewer plants are 

surveyed, separate defined high and low 

cost plant calculations are omitted with 

only a weighted average manufacturing 

cost reported. This was the case for dry 

whey in the January 12, 2006, CDFA 

publication of costs and make 

allowances that are based on 2004 cost 

survey data. Because the CDFA survey 

comprehensively reports manufacturing 

costs for nearly all plants located in 

California producing the four 

commodities, there is no need to 

estimate costs of all plants from the cost 

data of surveyed plants. 

The CDFA data specifically 

establishes that economies of scale are 

evident for California processing plants 

for all four commodity types. The data 

demonstrate that plant size is a major 

determinant of plant costs, with larger 

plants having significantly lower per 

unit costs of processing than smaller 

plants. A major difference between the 

RBCS survey and both the CDFA survey 

and the CPDMP study is that the RBCS 

survey does not demonstrate that larger 

plants have lower per unit costs when 

compared with smaller plants. 

Demonstrable economies of scale as 

shown in the CDFA survey for 

California manufacturing plants and by 

the CPDMP study for manufacturing 

plants located outside of California meet 

the expectations of economic theory and 

provide evidence that the CDFA and 

CPDMP survey results are reasonable 

and comparable. The fact that the RBCS 

survey does not reveal plant size as an 

important determinant of processing 

costs supports concluding that the RBCS 

survey does not reasonably reflect costs 

across the four commodity plant types 

for plants located outside California. 

This also provides a basis to conclude 

that the RBCS survey costs are not 

comparable to costs measured and 

reported by the CDFA survey and 

CPDMP study. In addition, the RBCS 

survey costs do not conform to 

reasonable expectations of economic 

theory that predicts declining average 

costs where production volume 

increases directly with plant size. 

The CDFA plant cost data, considered 

in isolation, have somewhat limited 

utility for considering manufacturing 

costs for plants located in all FMMO 

areas because all of the plants are 

located in California. This 

comprehensive collection and reporting 

of manufacturing costs includes costs 

experienced by plants in California for 

processing non-labor, processing labor, 

and packaging categories that do not 

necessarily reflect costs experienced by 

manufacturing plants located beyond 


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California. Because of the 

comprehensiveness of CDFA’s coverage 

and California’s importance to national 

dairy markets and dairy product 

manufacturing, the CDFA survey of 

plant manufacturing costs provides an 

important reference for considering and 

calibrating the costs of similarly-sized 

and operated plants located outside of 

California. For example, record 

evidence shows that California’s NFDM 

production can account for more than 

half of all U.S. NFDM production. 

According to the record, the RBCS 

survey is based on data provided on a 

voluntary basis by participating 

cooperatives but not audited as are 

CDFA survey data. The RBCS survey 

does not include manufacturing cost 

information from proprietary plants. 

The RBCS survey released in 2006 

contained manufacturing costs for 

producing condensed and dry whey for 

the first time in the 20-year presentation 

of the manufacturing cost survey. 

Other cost comparability differences 

between the three surveys include data 

on handling costs associated with dry 

whey and methodology differences in 

defining and establishing appropriate 

manufacturing costs for dry whey. The 

differences in costs collected and 

allocated are so significant between the 

CDFA and RBCS surveys that the 

proponents for increasing make 

allowances concluded that the dry whey 

manufacturing costs from either survey 

should not be relied on to establish a 

make allowance. In the CDFA survey, 

dry whey drying costs may be 

unreasonably high because California 

has only three dry whey processing 

plants where high cost plants appear to 

skew the costs dramatically. 

Alternatively, the CPDMP study reports 

a relatively large sample of 12 plants 

that provides a more reasonable 

estimate of dry whey processing costs 

for plants outside California. 

The record reveals that balancing 

functions and balancing costs differ 

between California and non-California 

butter and NFDM plants contained in 

the CPDMP study and the RBCS cost 

survey. Plants producing butter and 

NFDM products in California that 

perform balancing functions are not 

explicitly identified as having disparate 

costs due to balancing compared to 

other similarly situated plants in 

California that do not perform market 

balancing. The CPDMP study does not 

explicitly allocate balancing costs either 

but the RBCS survey is largely 

represented by balancing plants. The 

CPDMP study noted that seasonal 

fluctuations in utilizing plant capacity 

affects costs, but these costs are not 

allocated separately as ‘‘balancing cost’’

line items. In addition, the cost of fuels 

(specifically natural gas and electricity) 

is not clearly represented in the RBCS 

survey compared with the CPDMP study 

or the CDFA survey. Record evidence 

reveals that an unknown portion of the 

RBCS fuels cost data is combined with 

water and sewer costs and not allocated 

separately. Accordingly, the record does 

not support concluding that the cost of 

fuels as reported in the RBCS survey 

reasonably represents the costs of fuels 

experienced by manufacturing plants. 

The CPDMP study and the RBCS 

survey differ in how cost data was 

collected and verified. The CPDMP 

study for example, relied upon 

electronic data entry from a 

computerized data collection system 

that aggregated and produced reports 

detailing the cost information. RBCS 

collected plant costs through a mail-in 

survey form that was reviewed and 

aggregated by the RBCS coordinator. 

CPDMP followed its data collection 

with actual plant visits designed to give 

the researcher context within which to 

consider the reasonableness of data 

collected and cost allocations for each 

plant were surveyed. The CPDMP study, 

while not providing audited data, does 

provide improvement in data collection 

and data verification. 

A comparison of the CPDMP study to 

the CDFA cost survey data does 

illustrate significant differences but the 

data are more similar than is a 

comparison of CDFA’s survey data with 

the RBCS survey data. The CPDMP 

survey does not include dairy 

manufacturing plants located in 

California. It uses a cost accounting 

reporting format that is very similar to 

that used by CDFA. The record shows 

that the CPDMP survey differs from 

CDFA’s in that CPDMP did not have 

audit authority to verify records and 

only a fraction of manufacturing plants 

outside of California participated in the 

survey. While CDFA’s data represents 

the manufacturing costs of producing 

dairy products for almost all plants in 

California, the record indicates that the 

CPDMP study sampled the costs of 16 

cheese plants, 12 dry whey plants, 8 

NFDM plants, and 4 butter plants. 

However, unlike the RBCS survey, the 

CPDMP study data includes 

manufacturing costs of both proprietary 

and cooperative-owned plants for 

cheese and dry whey, demonstrates 

evidence of economies of scale, and 

better allocates fuel costs. 

The CPDMP study presents the 

weighted average manufacturing costs 

for high and low cost plants in each of 

the four commodity product categories, 

as well as weighted average costs for 

high cost and low cost plants, in a 

format very similar to CDFA. The 

CPDMP study of surveyed plants 

consists of eight high cost and eight low 

cost cheddar cheese plants, six low cost 

and six high cost dry whey processing 

plants, four high cost and four low cost 

NFDM plants, and four butter plants. 

High and low cost plant categories 

could not be reported for the small 

sample of butter plants without risking 

disclosure of confidential business 

information of individual plants. 

The CPDMP study sample of cheese 

plants is not a random sample. It is a 

stratified random sample where 

randomness only applies to strata (size 

related groupings) of the surveyed 

plants. The sample universe for cheese 

plants include only plants that chose to 

participate in the survey and represent 

processing volumes that fit the crosssectional sample design. For cheese, a 

sample of 20 plants was planned but 

only 16 plants participated, with 5 

plants from the largest plant size, 6 

plants from medium sized plants and 5 

plants representing smaller cheese 

plants. This sample design was 

intentionally biased to over-represent 

large, lower cost plants. The record 

shows that large plant costs otherwise 

would have been seriously 

underrepresented if the survey had 

relied on a truly random selection of 

cheese plants. Random selection of 

plants from the total number of plants 

that produce cheddar cheese would 

have over-represented small plants and 

been ‘‘size-biased’’ downward because 

of the relatively large number of small 

scale plants producing cheddar cheese 

outside of California. While the plants 

selected for inclusion in the survey 

changes the applicability of statistical 

methods, the record supports 

concluding that this stratified selection 

of cheese plants, according to size, is 

reasonable for cost data collection 

because record evidence shows that 48 

percent of all American cheese 

produced outside of California is 

produced by these large, low-cost 

plants. The CPDMP survey design 

sought an additional four plants from 

the smaller-plant category but plants of 

that size did not participate in a manner 

meeting the survey time requirements. 

Importantly, 7 of 16 cheese plants that 

participated in the CPDMP survey were 

proprietary plants and these plants also 

have an accompanying dry whey 

processing plant represented in the 

survey. Thus, 7 of the 12 dry whey 

plants for which data is reported in the 

CPDMP study are proprietary plants. 

Unlike the RBCS survey, the inclusion 

of proprietary plants in the CPDMP 

study more accurately represents cheese 

and dry whey manufacturing costs for 


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plants outside of California because 

large proprietary plants represent a 

preponderance of cheese volumes 

produced in all locations. 

The record reveals that the CDFA, 

CPDMP, and RBCS surveys do not 

include a marketing cost recovery factor. 

However, record evidence provided by 

proponents indicates that a marketing 

factor is appropriate to account for sales 

costs incurred as part of the 

manufacturing process. The record 

supports concluding that a marketing 

cost recovery factor, as contained in the 

existing make allowances, should be 

continued to account for sales costs at 

processing plants. A fixed factor of 

$0.0015 will apply identically to the 

make allowances for cheese, dry whey, 

NFDM, and butter. 

The methods and means used by 

CDFA and CPDMP cost data differ in 

accounting for ROI. CDFA uses detailed 

accounting records and depreciation 

schedules to compute a ROI cost factor 

for plants and equipment. The CPDMP 

study relies on plant estimates of the 

fair market value for plants and 

equipment used in product processing 

for its ROI estimate. From the record 

evidence it is reasonable to conclude 

that an ROI cost factor should be part of 

all make allowances even though the 

ROI value for each of the four 

commodity categories in the CPDMP 

study is different than the values 

included in the CDFA survey. The RBCS 

cost survey does not include a ROI cost 

category. 

A reasonable conclusion finds that the 

CPDMP survey provides more 

comprehensive information on the cost 

of processing by manufacturing plants 

in the Federal milk order program than 

does the RBCS survey. The fact that 

economies of scale are evident in the 

CPDMP study is a marked improvement 

which can be used to support using 

these costs of processing dairy products 

over the RBCS survey costs. The 

inclusion of proprietary plant 

manufacturing costs, representing a 

preponderance of cheese processor 

volume outside of California, provides 

broader and improved information on 

the costs of processing because the 

RBCS survey is limited by design and 

purpose to survey costs of cooperativeowned plants. The CPDMP study was 

designed, in part, to consider the costs 

that should be relied upon in 

establishing make allowances used in 

Federal order product price formulas. 

The format that the cost data is 

reported by the CPDMP study enables 

more direct comparisons with the CDFA 

survey than does the RBCS survey. The 

enhanced verification of plant 

manufacturing costs and cost allocations 

in the CPDMP study represents a 

significant improvement to the RBCS 

cost survey. The costs attributable to 

ROI, despite differences between the 

CPDMP study and CDFA’s survey, is 

another improvement because this 

factor is not included in the RBCS 

survey. The record therefore supports 

finding that the CPDMP study is 

preferred to the RBCS survey for the 

purpose of determining make 

allowances for cheese, dry whey, NFDM 

and butter. 

While CPDMP’s study provides 

improved manufacturing cost data for 

plants in the Federal milk order 

program, combining it with the 

additional information available in the 

CDFA survey establishes a superior set 

of data on which to determine revised 

make allowances. Specifically, this 

tentative final decision finds agreement 

with the proponents of Proposal 1 that 

combining the CDFA survey with costs 

representative of Federal order 

manufacturing costs for cheese, NFDM, 

and butter (except dry whey) is the most 

reasonable approach for determining 

changes to the make allowances. CDFA 

survey data should be combined with 

the CPDMP study results because 

California’s production volumes of 

cheese, dry whey, NFDM and butter are 

of such national significance it would be 

unreasonable to ignore California plant’s 

manufacturing costs in the Class III and 

Class IV product price formulas. 

CPDMP’s data gathering was designed 

to collect average manufacturing costs 

from groups of dairy manufacturing 

plants so that representative average 

cost estimates could be used in 

developing make allowances. Butter 

manufacturing costs were estimated 

from 4 plants. NFDM costs were 

estimated from 8 plants reporting 

average costs for 4 high cost and 4 low 

cost plants. In the case of cheese, 

CPDMP used regression techniques to 

derive an average manufacturing cost 

that could be used to estimate the costs 

of cheese plants that were not surveyed. 

The record does not support a finding 

for using the estimation results reported 

by CPDMP that proponents for 

increasing make allowances have based 

their arguments because the CPDMP 

results are based on the estimation of an 

equation which generates an estimated 

cost curve based on the cost survey of 

16 cheese plants. 

CPDMP’s estimated equation coupled 

with cheese production volume 

estimates from 53 plants yields a low 

manufacturing cost of $0.17 per pound 

and a high manufacturing cost of $1.17 

per pound. The estimated low cost of 

$0.17 per pound is higher than the 

$0.1459 per pound average of the 8 low 

cost-plants of the study sample. Using 

the equation and the 53 plants’ volumes 

yields a weighted average 

manufacturing cost of $0.2028 per 

pound which is 94.7 percent of the 

$0.2140 per pound average 

manufacturing cost of high cost cheese 

plants from the plant sample, and 23.8 

percent higher than the weighted 

average cost of $0.1638 per pound for 

the survey sample of plants. These 

comparisons raise questions about the 

representativeness of the results of this 

simple regression analysis. However, 

the 16 plant sample observations are 

sufficient for estimating a representative 

average manufacturing cost for plants in 

both the high cost and low cost strata, 

and for estimating a weighted average 

cost across all sampled plants. 

It is useful to consider the sample 

weighted average cost of $0.1638 per 

pound in terms of the 8 plant high-cost 

average of $0.2140 per pound and 8 

plant low-cost average of $0.1459 per 

pound. The low-cost and high-cost 

production volume shares as provided 

in the record show about 74 percent of 

production volume is produced at the 

low average cost of $0.1459 per pound 

and about 26 percent of the volume is 

produced at the higher average cost of 

$0.2140 per pound. Based on the shape 

of the curve represented in the record, 

it appears that 74 percent is a 

conservative estimate of low-cost 

production volume. 

In their post-hearing briefs 

proponents for raising the cheese make 

allowance seek to use this estimation as 

justification for increasing it to $0.2028 

per pound or higher. Based on the 

preceding analysis, increasing the 

cheese make allowance from the current 

$0.1650 per pound to $0.2028 per 

pound is not reasonable. 

Even if the methodology used to 

calculate the estimated make allowance 

of $0.2028 per pound of cheese was 

statistically acceptable, the Department 

would not use it as the new make 

allowance for cheese. The use of 

different methodologies to establish 

make allowances for different products 

likely would result in unintended 

consequences that could distort the 

competitive situation between cheese 

plants and butter-NFDM plants. CPDMP 

did not have similar population data 

available to do comparable regression 

analyses for butter, NFDM and dry 

whey. For cheese, the regression 

methodology resulted in a make 

allowance estimate that was $0.039 per 

pound higher than the weighted average 

cost of the sample. It is possible that if 

the regression methodology could be 

used for butter, NFDM and dry whey 

that estimated average make allowances 


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for those products also would be higher 

than the weighted average costs from 

the plant samples. Therefore, if 

comparable increases in make 

allowances would result for the other 

products, the use of this different 

methodology only for cheese could give 

cheese plants a $0.39 per cwt of milk 

advantage as it competes for a supply of 

milk. 

The CPDMP study contains an 

addendum concerning the cost of 

natural gas and electricity in dairy 

manufacturing. This addendum uses a 

specific time period for estimating these 

costs for each of the four dairy 

commodity categories. The collection of 

cost data for manufacturing occurred 

during a 26 month period that does not 

correspond to the 12 month period for 

which these energy cost estimates were 

derived from data available from the 

Bureau of Labor Statistics. While 

proponents advance that this energy 

cost data should be included in the 

manufacturing costs of producing 

cheese, dry whey, NFDM, and butter, 

the periods for which the costs should 

be applied and whether these costs are 

already captured in the cost survey data 

of the CPDMP study are not clearly 

stated in the addendum. The volatility 

of energy costs, revealed by the record, 

is important in considering total 

manufacturing costs. As presented in 

the addendum to the CPDMP study, the 

energy cost information cannot be relied 

upon to consider changes to make 

allowances. 

Findings 

This tentative final decision finds that 

combining the weighted average 

manufacturing costs of the CDFA survey 

and CPDMP study for cheese, nonfat dry 

milk and butter into a single weighted 

average is appropriate for updating 

make allowances for those three 

products. The CPDMP study weighted 

average manufacturing cost of dry whey 

(without California) should be used for 

the dry whey make allowance. All four 

adopted make allowances include an 

additional factor of $0.0015 per pound 

to account for product marketing costs. 

The make allowances are weighted by 

the processing volumes reported in the 

2005 NASS Dairy Product Summary and 

applied to the manufacturing costs of 

plants in California (for CDFA total 

average manufacturing costs) and those 

States outside of California (for CPDMP 

total average manufacturing costs), 

respectively. 

This tentative final decision finds that 

the CPDMP survey of four butter plants 

is half of the survey size that would 

have been acceptable as representing the 

butter manufacturing costs for butter 

plants located outside of California. The 

eight butter plants appearing in the 

CDFA survey located in California 

provide a reasonable basis on which to 

reinforce and improve estimating the 

cost of manufacturing butter outside of 

California because no other better 

source of cost data is available on which 

such costs can be reasonably based. In 

this regard, there is merit that CDFA 

cost data accurately represents costs for 

butter plants outside of California and 

should be combined with CPDMP cost 

data on a weighted average basis to 

provide an updated make allowance for 

butter. 

This tentative final decision finds 

agreement with proponents such as 

Kraft, Glanbia, Lactalis, Saputo, and 

Leprino, that the CPDMP study’s 

weighted average manufacturing cost of 

dry whey plus a marketing cost factor of 

$0.0015 per pound best represents the 

cost of dry whey for plants outside of 

California. Three of CDFA’s dry whey 

plants have a manufacturing cost 

variance so large that it would be 

unreasonable to combine the total 

weighted CDFA value with the 12 plant 

CPDMP sample. The make allowance 

adopted for dry whey plus a marketing 

factor is $0.1956 per pound. 

This tentative final decision finds 

agreement with the Agri-Mark, et al., 

proponents’ contention that mediumsized California NFDM plants are 

representative of Federal order NFDM 

plants. CDFA medium sized plant 

weighted total average manufacturing 

costs are combined with the CPDMP 

eight plant sample total weighted 

average manufacturing costs plus a 

marketing factor. The NFDM make 

allowance adopted is $0.1570 per 

pound. 

The CDFA weighted average cost for 

cheese of $0.1769 is combined with the 

CPDMP total weighted average cost for 

cheese of $0.1638 plus a marketing 

factor to compute a cheese make 

allowance. The make allowance for 

cheese is weighted by the California and 

non-California volumes of American 

cheese. The cheese make allowance 

adopted is $0.1682 per pound. 

The following table summarizes the 

proposed changes: 

SUMMARY OF MAKE ALLOWANCE CHANGES

Proposed Current Change 

Cheese ......................................................................................................................................... $0.1682 $0.1650 $0.0032 

Dry whey ...................................................................................................................................... 0.1956 0.1590 0.0366 

NFDM ........................................................................................................................................... 0.1570 0.1400 0.0170 

Butter ........................................................................................................................................... 0.1202 0.1150 0.0052 

2. Determining whether emergency 

marketing conditions exist that would 

warrant omission of a Recommended 

Decision and opportunity to file written 

exceptions 

Evidence presented at the hearing and 

in post-hearing briefs establishes that 

current manufacturing allowances 

contained in the product price formulas 

do not reflect the current costs of 

manufacturing milk into cheese, butter, 

NFDM and dry whey. Data presented at 

the hearing demonstrates that 

manufacturing costs have increased 

since manufacturing allowances were 

last updated in 2003, relying upon 1998 

manufacturing cost data. The record 

contains requests by numerous parties 

that the rule should be implemented on 

an emergency basis. 

Consequently, it is determined that 

emergency marketing conditions exist 

that warrant omitting the issuance of a 

recommended decision. The record 

clearly establishes a basis as noted 

above for amending the orders on an 

interim basis. The opportunity to file 

written exceptions to the proposed 

amended orders remains. 

In view of these findings, an interim 

final rule amending the orders will be 

issued as soon as the procedures to 

determine the approval of producers are 

completed. 

Rulings on Proposed Findings and 

Conclusions 

Briefs and 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 


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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 Northeast and 

other marketing orders were first issued 

and when they were amended. The 

previous findings and determinations 

are hereby ratified and confirmed, 

except where they may conflict with 

those set forth herein. 

(a) The interim marketing agreements 

and the orders, 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 areas, and the 

minimum prices specified in the 

tentative marketing agreements and the 

orders, as hereby proposed to be 

amended, are such prices as will reflect 

the aforesaid factors, ensure a sufficient 

quantity of pure and wholesome milk, 

and be in the public interest; and 

(c) The interim marketing agreements 

and the orders, 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, 

marketing agreements upon which a 

hearing has been held. 

Interim Marketing Agreements and 

Interim Order Amending the Orders 

Annexed hereto and made a part 

hereof are two documents—an Interim 

Marketing Agreement regulating the 

handling of milk and an Interim Order 

amending the orders regulating the 

handling of milk in the Northeast and 

other marketing areas, which have been 

decided upon as the detailed and 

appropriate means of effectuating the 

foregoing conclusions. 

It is hereby ordered, that this entire 

tentative decision and the interim 

orders and the interim marketing 

agreements annexed hereto be 

published in the Federal Register. 

Referendum Order To Determine 

Producer Approval; Determination of 

Representative Period; and Designation 

of Referendum Agent 

It is hereby directed that referenda be 

conducted and completed on or before 

the 30th day from the date this decision 

is published in the Federal Register, in 

accordance with the procedure for the 

conduct of referenda (7 CFR 900.300–

311), to determine whether the issuance 

of the orders as amended and as hereby 

proposed to be amended, regulating the 

handling of milk in the Northeast and 

Mideast marketing areas is approved or 

favored by producers, as defined under 

the terms of the orders (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 

areas. 

The representative period for the 

conduct of such referenda is hereby 

determined to be July 2006. 

The agents of the Secretary to conduct 

such referenda are hereby designated to 

be the respective market administrators 

of the aforesaid orders. 

Determination of Producer Approval 

and Representative Period 

The month of July 2006 is hereby 

determined to be the representative 

period for the purpose of ascertaining 

whether the issuance of the order, as 

amended and as hereby proposed to be 

amended, regulating the handling of 

milk in the Appalachian, Florida, 

Southeast, Upper Midwest, Central, 

Pacific Northwest, Southwest and 

Arizona marketing areas is approved or 

favored by producers, as defined under 

the terms of the orders as hereby 

proposed to be amended, who during 

such representative period were 

engaged in the production of milk for 

sale within the aforesaid marketing 

areas. 

List of Subjects in 7 CFR Parts 1000, 

1001, 1005, 1006, 1007, 1030, 1032, 

1033, 1124, 1126, and 1131 

Milk marketing orders. 

Dated: November 17, 2006. 

Lloyd C. Day, 

Administrator, Agricultural Marketing 

Service. 

Interim Order Amending the Orders 

Regulating the Handling of Milk in the 

Northeast and Other Marketing Areas 

This interim order shall not become 

effective until the requirements of 

§ 900.14 of the rules of practice and 

procedure governing proceedings to 

formulate marketing agreements and 

marketing orders have been met. 

Findings and Determinations 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the orders were 

first issued and when they were 

amended. The previous findings and 

determinations are hereby ratified and 

confirmed, except where they may 

conflict with those set forth herein. 

(a) Findings. A public hearing was 

held upon certain proposed 

amendments to the tentative marketing 

agreements and to the orders regulating 

the handling of milk in the Northeast 

and other marketing areas. The hearing 

was held pursuant to the provisions of 

the Agricultural Marketing Agreement 

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

674), and the applicable rules of 

practice and procedure (7 CFR Part 900). 

Upon the basis of the evidence 

introduced at such hearing and the 

record thereof, it is found that: 

(1) The said orders 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, ensure a sufficient quantity of 

pure and wholesome milk, and be in the 

public interest; and 

(3) The said orders as hereby 

amended regulate 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 Northeast and 

other marketing areas shall be in 

conformity to and in compliance with 

the terms and conditions of the order, as 

amended, and as hereby amended, as 

follows: 

1. The authority citation for 7 CFR 

parts 1000, 1001, 1005, 1006, 1007, 

1030, 1032, 1033, 1124, 1126 and 1131, 

is amended to read as follows: 

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

PART 1000—GENERAL PROVISIONS 

OF FEDERAL MILK MARKETING 

ORDERS 

1. Section 1000.50 is amended by: 

a. Revising paragraph (l); 


jlentini on PROD1PC65 with PROPOSAL
Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Proposed Rules 67489 

5First and last section of order. 

6Name of order. 

7Appropriate Part number. 

8Next consecutive section number. 

9Appropriate representative period for the order. 

b. Revising paragraph (m); 

c. Revising paragraph (n)(2); 

d. Revising paragraph (n)(3)(i); and 

e. Revising paragraph (o). 

The revisions read as follows: 

Section 1000.50 Class Prices, 

Component Prices, and Advanced 

Pricing Factors. 

* * * * * 

(l) Butterfat price. The butterfat price 

per pound, rounded to the nearest onehundredth cent, shall be the U.S. 

average NASS AA Butter survey price 

reported by the Department for the 

month, less 12.02 cents, with the result 

multiplied by 1.20. 

(m) Nonfat solids price. The nonfat 

solids price per pound, rounded to the 

nearest one-hundredth cent, shall be the 

U.S. average NASS nonfat dry milk 

survey price reported by the Department 

for the month, less 15.70 and 

multiplying the result by 0.99. 

(n) * * * 

(1) * * * 

(2) Subtract 16.82 cents from the price 

computed pursuant to paragraph (n)(1) 

of this section and multiply the result 

by 1.383; 

(3) * * * 

(i) Subtract 16.82 cents from the price 

computed pursuant to paragraph (n)(1) 

of this section and multiply the result 

by 1.572; and 

* * * 

(o) Other solids price. The other solids 

price per pound, rounded to the nearest 

one-hundredth cent, shall be the U.S. 

average NASS dry whey survey price 

reported by the Department for the 

month minus 19.56 cents, with the 

result multiplied by 1.03. 

* * * 

(q) * * * 

(3) An advanced butterfat price per 

pound, rounded to the nearest onehundredth cent, shall be calculated by 

computing a weighted average of the 2 

most recent U.S. average NASS AA 

Butter survey prices announced before 

the 24th day of the month, subtracting 

12.02 cents from this average, and 

multiplying the result by 1.20. 

Marketing Agreement Regulating the 

Handling of Milk in Certain Marketing 

Areas 

The parties hereto, in order to 

effectuate the declared policy of the Act, 

and in accordance with the rules of 

practice and procedure effective 

thereunder (7 CFR part 900), desire to 

enter into this marketing agreement and 

do hereby agree that the provisions 

referred to in paragraph I hereof, as 

augmented by the provisions specified 

in paragraph II hereof, shall be and are 

the provisions of this marketing 

agreement as if set out in full herein. 

I. The findings and determinations, 

order relative to handling, and the 

provisions of § lll to lll5 all 

inclusive, of the order regulating the 

handling of milk in the llll6

marketing area (7 CFR Part lll7) 

which is annexed hereto; and 

II. The following provisions: 

§ llll8 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 llll9, 

llll hundredweight of milk 

covered by this marketing agreement. 

(b) Authorization to correct 

typographical errors. The undersigned 

hereby authorizes the Deputy 

Administrator, or Acting Deputy 

Administrator, Dairy Programs, 

Agricultural Marketing Service, to 

correct any typographical errors which 

may have been made in this marketing 

agreement. 

Effective date. This marketing 

agreement shall become effective upon 

the execution of a counterpart hereof by 

the Department in accordance with Sec. 

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) lllllllllllll

(Title) lllllllllllllll

(Address) lllllllllllll

(Seal) 

Attest lllllllllllllll

[FR Doc. 06–9340 Filed 11–20–06; 3:01 pm] 

BILLING CODE 3410–02–P 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Parts 1000, 1001, 1005, 1006, 

1007, 1030, 1032, 1033, 1124, 1126, and 

1131 

[Docket No. AO–14–A76, et al.; DA–07–01] 

Milk in the Northeast and Other 

Marketing Areas; Notice of Hearing on 

Proposed Amendments to Tentative 

Marketing Agreements and Orders 

7 

CFR 

part 

Marketing area AO Nos. 

1001 Northeast ................... AO–14–A76 

1005 Appalachian ............... AO–388–A20 

1006 Florida ....................... AO–356–A41 

1007 Southeast .................. AO–366–A49 

1030 Upper Midwest .......... AO–361–A42 

1032 Central ....................... AO–313–A51 

1033 Mideast ...................... AO–166–A75 

1124 Pacific Northwest ...... AO–368–A37 

1126 Southwest .................. AO–231–A70 

1131 Arizona ...................... AO–271–A42 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule; Notice of public 

hearing on proposed rulemaking. 

SUMMARY: A national public hearing is 

being held to consider and take 

evidence on a proposal seeking to 

amend the Class I and Class II milk price 

formulas applicable to all Federal milk 

marketing orders. Evidence also will be 

taken at the hearing to determine 

whether emergency marketing 

conditions exist that would warrant 

omission of a recommended decision 

under the rules of practice and 

procedure (7 CFR 900.12(d)). 

DATES: The hearing will convene at 1 

p.m., Monday, December 11, 2006. 

ADDRESSES: The hearing will be held at 

the Sheraton Station Square Hotel, 300 

West Station Square Drive, Pittsburgh, 

Pa. 15219. Telephone number: (412) 

261–2000. 

FOR FURTHER INFORMATION CONTACT: 

Gino Tosi, Associate Deputy 

Administrator for Order Formulation 

and Enforcement, USDA/AMS/Dairy 

Programs, Stop 0231–Room 2971, 1400 

Independence Avenue, SW., 

Washington, DC 20250–0231, (202) 720–

2357, e-mail address: 

gino.tosi@usda.gov. 

Persons requiring a sign language 

interpreter or other special 

accommodations should contact David 

Walker, Market Administrator, at (330) 

225–4758; e-mail: 

dwalker@fmmaclev.com before the 

hearing begins. 


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