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

12963 

Vol. 79, No. 45 

Friday, March 7, 2014 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Parts 1005, 1006 and 1007 

[AMS–DA–07–0059; AO–388–A22; AO–356– 

A43 and AO–366–A51; Doc. No. DA–07–03] 

Milk in the Appalachian, Florida and 

Southeast Marketing Areas; Final 

Decision on Proposed Amendments to 

Marketing Agreements and to Orders 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule. 

SUMMARY: This final decision proposes 

to permanently adopt amendments that 

adjust the Class I pricing surface of the 

Appalachian, Florida, and Southeast 

Federal milk marketing orders. In 

addition, this decision seeks to adopt 

proposals that amend certain features of 

the diversion limit, touch-base, and 

transportation credit provisions for the 

Appalachian and Southeast milk 

marketing orders. This decision also 

proposes to adopt amendments that 

increase the maximum administrative 

assessment for the Appalachian, Florida 

and Southeast marketing orders. The 

orders as amended are subject to 

approval by producers in the affected 

markets. Producer approval for this 

action will be determined concurrently 

with amendments adopted in a separate 

final decision that amends the 

transportation balancing fund and other 

provisions of the Appalachian and 

Southeast milk marketing orders. 

FOR FURTHER INFORMATION CONTACT: Erin 

Taylor, USDA/AMS/Dairy Programs, 

Order Formulation and Enforcement 

Branch, STOP 0231-Room 2971, 1400 

Independence Avenue SW., 

Washington, DC 20250–0231, (202) 720– 

7311, email address: 

erin.taylor@ams.usda.gov. 

SUPPLEMENTARY INFORMATION: This final 

decision adopts amendments that: (1) 

Adjust the Class I pricing surface in the 

Appalachian, Florida, and Southeast 

marketing orders; (2) Make diversion 

limit standards identical for the 

Appalachian and Southeast orders: 25 

percent of deliveries to pool plants 

during the months of January, February, 

July, August, September, October, and 

November, and 35 percent in the 

months of March, April, May, June, and 

December; (3) Reduce touch-base 

standards to one day each month for the 

Appalachian and Southeast orders; (4) 

Add January and February as months 

when transportation credits are paid for 

the Appalachian and Southeast orders; 

(5) Provide for the payment of 

transportation credits in the 

Appalachian and Southeast orders for 

full loads of supplemental milk; (6) 

Provide more flexibility in the 

qualification requirements for 

supplemental milk producers to receive 

transportation credits for the 

Appalachian and Southeast orders; and 

(7) Increase the monthly transportation 

credit assessment from $.20 per 

hundredweight (cwt) to $0.30 per cwt in 

the Southeast order. This decision also 

increases the maximum administrative 

assessment for the Appalachian, 

Florida, and Southeast orders from 

$0.05 per cwt to $0.08 per cwt. 

Increasing the maximum administrative 

assessment was initially addressed in a 

separate recommended decision (73 FR 

11062). Comments concerning the 

recommended decision were requested 

but none were received. Accordingly, 

this document is the final decision on 

all proposals addressed in both the 

tentative final decision (73 FR 11194) 

for items 1 through 7 above and the 

recommended decision (73 FR 11062) 

that were simultaneously published in 

the Federal Register on February 25, 

2008. 

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 

amendments would not preempt any 

state or local laws, regulations, or 

policies, unless they present an 

irreconcilable conflict with this rule. 

The Agricultural Marketing 

Agreement Act of 1937, as amended (7 

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

administrative proceedings must be 

exhausted before parties may file suit in 

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

AMAA, any handler subject to an order 

may request modification or exemption 

from such order by filing a petition with 

the Department of Agriculture (USDA) 

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, USDA 

would rule on the petition. The AMAA 

provides that the district court of the 

United States in any district in which 

the handler is an inhabitant, or has its 

principal place of business, has 

jurisdiction in equity to review 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. 601–612), the 

Agricultural Marketing Service has 

considered the economic impact of this 

action on small entities and has certified 

that this proposed rule would not have 

a significant economic impact on a 

substantial number of small entities. For 

the purposes of the Regulatory 

Flexibility Act, a dairy farm is 

considered a small business if it has an 

annual gross revenue of less than 

$750,000 and a dairy products 

manufacturer is a small business if it 

has fewer than 500 employees. 

For the purposes of determining 

which dairy farms are small businesses, 

the $750,000 per year criterion was used 

to establish a marketing guideline of 

500,000 pounds per month. Although 

this guideline does not factor in 

additional monies that dairy producers 

receive, it should be an inclusive 

standard for most small dairy farmers. 

For purposes of determining a handler’s 

size, if the plant is part of a larger 

company operating multiple plants that 

collectively exceed the 500-employee 

limit, the plant will be considered a 

large business even if the local plant has 

fewer than 500 employees. 

During May 2007, the time of the 

hearing, there were 2,744 dairy farmers 

pooled on the Appalachian order (Order 

5), 2,924 dairy farmers pooled on the 

Southeast order (Order 7), and 283 dairy 

farmers pooled on the Florida order 

(Order 6). Of these, 2,612 dairy farmers 

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12964 Federal Register / Vol. 79, No. 45 / Friday, March 7, 2014 / Proposed Rules 

1 73 FR 14153. 

in Order 5 (or 95 percent), 2,739 dairy 

farmers in Order 7 (or 94 percent), and 

153 dairy farmers in Order 6 (or 54 

percent) were considered small 

businesses. 

During May 2007, there were a total 

of 36 plants associated with the 

Appalachian order (22 fully regulated 

plants, 10 partially regulated plants, 2 

producer-handlers, and 2 exempt 

plants). A total of 55 plants were 

associated with the Southeast order (33 

fully regulated plants, 9 partially 

regulated plants, 2 producer-handlers, 

and 11 exempt plants). A total of 25 

plants were associated with the Florida 

order (13 fully regulated plants, 9 

partially regulated plants, 1 producerhandler, and 2 exempt plants). The 

number of plants meeting small 

business criteria under the Appalachian, 

Southeast, and Florida orders were 8 (or 

22 percent), 18 (or 33 percent), and 11 

(or 44 percent), respectively. 

The adopted amendments in this final 

decision provide for an increase in Class 

I prices in the Appalachian, Southeast, 

and Florida orders. The minimum Class 

I prices of the three southeastern orders, 

as with all other Federal milk marketing 

orders, are set by using the higher of an 

advance Class III or Class IV price as 

determined by USDA and adding a 

location-specific differential, referred to 

as a Class I differential. Minimum Class 

I prices charged to regulated handlers 

are applied uniformly to both large and 

small entities. At the time of the 

hearing, the Department estimated that 

the proposed Class I price increases 

would generate higher marketwide pool 

values in all three southeastern orders of 

approximately $18–19 million for the 

Appalachian order, $17.5 million for the 

Southeast order, and $38 million for the 

Florida order, on a monthly basis. It was 

estimated that monthly minimum prices 

paid to dairy farmers (blend prices) 

would increase approximately $0.26 per 

cwt for the Appalachian order, $0.64 per 

cwt for the Southeast order, and $1.20 

per cwt for the Florida order. 

The Class I price increases were 

implemented on an interim basis 

effective May 1, 2008.1 As a result of 

those increases, marketwide pool values 

were increased in 2011 by 

approximately $16 million in the 

Appalachian order, $38 million in the 

Florida order, and $16 million in the 

Southeast order. This resulted in an 

increase in 2011 monthly minimum 

prices paid to dairy farms of $0.25 per 

cwt for the Appalachian order, $1.25 per 

cwt in the Florida order, and $1.25 per 

cwt in the Southeast order. 

The adopted amendments revise the 

Appalachian and Southeast orders by 

making the diversion limit standards for 

the orders identical—not to exceed 25 

percent in each of the months of 

January, February, and July through 

November, and 35 percent in each of the 

months of March through June and for 

the month of December. Prior to their 

interim adoption, the diversion limit 

standards of the Appalachian order for 

pool plants and cooperatives acting as 

handlers were not to exceed 25 percent 

in each of the months of July through 

November, January, and February; and 

40 percent in each of the months of 

December and March through June. For 

the Southeast order, prior to their 

interim adoption, the diversion limit 

standards for pool plants and 

cooperatives acting as handlers were not 

to exceed 33 percent in each of the 

months of July through December and 

50 percent in each of the months of 

January through June. 

In addition, the adopted amendments 

establish identical touch-base standards 

of at least one day’s milk production 

every month for a dairy farmer in the 

Appalachian and Southeast orders. Prior 

to their interim adoption, the 

Appalachian order had a touch-base 

standard of 6 days’ production in each 

of the months of July through December 

and not less than 2 days’ production in 

each of the months of January through 

June. Prior to their interim adoption, the 

Southeast order had a touch-base 

standard of not less than 10 days’ 

production in each of the months of July 

through December and not less than 4 

days’ production in each of the months 

of January through June. 

The adopted amendments to the 

pooling standards serve to revise 

established criteria that determine those 

producers, producer milk, and plants 

that have a reasonable association with 

and are consistently serving the fluid 

needs of the Appalachian and Southeast 

marketing areas. Criteria for pooling are 

established on the basis of performance 

levels that are considered adequate to 

meet the Class I needs and determine 

those producers who are eligible to 

share in the revenue that arises from the 

classified pricing of milk. The criteria 

for pooling are established without 

regard to the size of any dairy industry 

or entity. The established criteria are 

applied in an identical fashion to both 

large and small businesses and do not 

have any different economic impact on 

small entities as opposed to large 

entities. 

The adopted amendments add 

January and February to the months of 

July through December as months when 

transportation credits may be paid to 

those handlers who incur the costs of 

providing supplemental milk for the 

Appalachian and Southeast orders. The 

amendments also expand the payment 

of transportation credits for 

supplemental milk to include the full 

load of milk rather than the calculated 

Class I portion and provide more 

flexibility in the qualification 

requirements for supplemental milk 

producers to receive transportation 

credits. In addition, the maximum 

monthly transportation credit 

assessment for the Southeast order is 

increased from $0.20 per cwt to $0.30 

per cwt on all milk assigned to Class I 

use. The transportation credit 

provisions are applicable only to the 

Appalachian and Southeast orders, 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 changes will not 

have a significant economic impact on 

a substantial number of small entities. 

The adopted amendments also allow 

the Market Administrators of the 

Appalachian, Southeast, and Florida 

orders to increase the administrative 

assessment from the current $0.05 per 

cwt to $0.08 per cwt if necessary to 

maintain adequate funds for the 

operation of the orders. Administrative 

assessments are charged without regard 

to the size of any dairy industry or 

entity. Therefore, 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. 

This action does not require 

additional information collection that 

needs clearance by the Office of 

Management and Budget (OMB) beyond 

currently approved information 

collection. The primary sources of data 

used to complete the forms are routinely 

used in most business transactions. 

Forms require only a minimal amount of 

information that can be supplied 

without data processing equipment or a 

trained statistical staff. Thus, the 

information collection and reporting 

burden is relatively small. Requiring the 

same reports for all handlers does not 

significantly disadvantage any handler 

that is smaller than the industry 

average. 

Interested parties were invited to 

submit comments on the probable 

regulatory and informational impact of 

this proposed rule on small entities. 

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Federal Register / Vol. 79, No. 45 / Friday, March 7, 2014 / Proposed Rules 12965 

Prior Documents in This Proceeding 

Notice of Hearing: Issued May 3, 

2007; published May 8, 2007 (72 FR 

25986). 

Partial Tentative Final Decision: 

Issued February 25, 2008; published 

February 29, 2008 (73 FR 11194). 

Partial Recommended Decision: 

Issued February 25, 2008; published 

February 29, 2008 (73 FR 11062). 

Interim Final Rule: Issued March 12, 

2008; published March 17, 2008 (73 FR 

14153). 

Correcting Amendments: Issued May 

6, 2008; published May 9, 2008 (73 FR 

26513). 

Preliminary Statement 

A public hearing was held upon 

proposed amendments to the marketing 

agreement and the orders regulating the 

handling of milk in the Appalachian, 

Florida and Southeast marketing areas. 

The hearing was held, pursuant to the 

provisions of the Agricultural Marketing 

Agreement Act of 1937 (AMAA), as 

amended (7 U.S.C. 601–674), and the 

applicable rules of practice and 

procedure governing the formulation of 

marketing agreements and marketing 

orders (7 CFR Part 900). 

The proposed amendments set forth 

below are based on the record of a 

public hearing held in Tampa, Florida, 

on May 21–23, 2007, pursuant to a 

notice of hearing issued May 3, 2007, 

published May 8, 2007 (72 FR 11194). 

Upon the basis of the evidence 

introduced at the hearing and the record 

thereof, USDA issued a Tentative Final 

Decision and a Recommended Decision 

on February 25, 2008, containing notice 

of the opportunity to file written 

exceptions thereto. 

The materials issues on the hearing 

record relate to: 

1. Class I Prices—adjustments and 

pricing surface. 

2. Producer milk—diversion limit and 

touch-base standards. 

3. Transportation credit balancing 

fund provisions. 

4. Administrative assessment 

provisions. 

Findings and Conclusions 

This final decision proposes to adopt 

proposals, published in the hearing 

notice as Proposals 1, 2, 3, 4, 5, and 6, 

seeking to make various changes to the 

Appalachian, Southeast, and Florida 

milk marketing orders (hereinafter these 

marketing areas and marketing orders 

will collectively be referred to as the 

southeastern marketing areas or orders 

as appropriate). These amendments 

form a package of changes that 

simultaneously provide for an increase 

in Class I prices and the Class I pricing 

surface in the three southeastern orders; 

and for the Appalachian and Southeast 

orders, more stringent diversion limit 

standards, lower touch-base standards, 

and other specific changes to the 

transportation credit balancing fund 

provisions. This final decision also 

adopts proposals, published in the 

hearing notice as Proposals 4, 5, and 6, 

for increasing the maximum 

administrative assessment rate on 

producer milk from the current $0.05 

per cwt to $0.08 per cwt for the 

Appalachian, Southeast, and Florida 

orders. 

While the summary of testimony is 

presented as four separate material 

issues, the discussion and findings on 

all material issues are provided after the 

summary of comments and exceptions. 

The minimum Class I prices of the 

three southeastern orders, as with all 

other Federal milk marketing orders, are 

set by using the higher of an advance 

Class III or Class IV price as determined 

by USDA and adding a location-specific 

differential, referred to as a Class I 

differential. The Class I differentials are 

location-specific by county and parish 

for all States of the 48 contiguous 

United States. These Class I differentials 

are specified in 7 CFR 1000.52. 

The diversion limit standards of the 

Appalachian and Southeast milk orders 

are described in the Producer milk 

definition of the orders (7 CFR 1005.13 

and 7 CFR 1007.13, respectively). The 

standards specify the maximum volume 

of milk that may be diverted to a 

nonpool plant and still pooled and 

priced under each respective order. 

Prior to their interim adoption, the 

diversion limit standards of the 

Appalachian order for cooperatives 

acting as handlers (and pool plant 

operators that are not cooperatives) were 

not to exceed 25 percent in each of the 

months of July through November and 

the months of January and February. 

Those limits changed to 40 percent in 

each of the months of March through 

June as well as the month of December. 

Prior to their interim adoption for the 

Southeast order, the diversion limit 

standards for cooperatives acting as 

handlers (and pool plant operators that 

are not cooperatives) were not to exceed 

33 percent in each of the months of July 

through December and 50 percent in 

each of the months of January through 

June. As adopted herein, the diversion 

limit standards of both orders are made 

identical—not to exceed 25 percent for 

the months of January, February, and 

each of the months of July through 

November, and 35 percent for each of 

the months of March through June and 

for the month of December. This 

represents a modest tightening of the 

diversion limit standards for the 

Appalachian order and a significant 

tightening of the diversion limit 

standards for the Southeast order. 

This decision adopts identical touchbase standards of at least 1 day’s milk 

production per month for a dairy farmer 

to be considered a producer under each 

respective order’s Producer milk 

definition and for making a producer’s 

milk eligible for diversion to nonpool 

plants. This represents a significant 

change from the touch-base standards 

for the Appalachian and Southeast 

orders. Prior to their interim adoption, 

the Appalachian order touch-base 

standard was 6 days’ production in each 

of the months of July through December 

and not less than 2 days’ production in 

each of the months of January through 

June. For the Southeast order, the touchbase standard was not less than 10 days’ 

production in each of the months of July 

through December and not less than 4 

days’ production in each of the months 

of January through June. 

Currently, of the three southeastern 

orders, only the Appalachian and 

Southeast orders contain provisions for 

a transportation credit to partially offset 

handler costs of transporting 

supplemental milk for Class I use during 

certain times of the year from producers 

located outside of the two marketing 

areas. These producers are not part of 

the regular and consistent supply of 

Class I milk to the Appalachian and 

Southeast marketing areas. 

Transportation credit balancing funds 

were first established for the 

Appalachian and Southeast (or 

predecessor orders) in 1996 and operate 

independently of the producer 

settlement funds. A monthly per cwt 

assessment is charged to Class I 

handlers on a year-round basis on the 

volume of milk assigned to Class I use 

at a rate of $0.15 per cwt in the 

Appalachian order and, prior to its 

interim adoption, $0.20 per cwt in the 

Southeast order. Payments from the 

transportation credit balancing fund are 

made during the months of July through 

December (when milk supplies are 

tightest) in both orders to those handlers 

that incur the costs of providing 

supplemental milk. The transportation 

credit balancing fund provisions were 

amended in a separate rulemaking and 

made effective on an interim basis on 

December 1, 2006 (71 FR 62377), and 

were again amended by this rulemaking 

proceeding on an interim basis effective 

March 18, 2008 (73 FR 14153). 

Changes proposed in this final 

decision to the Appalachian and 

Southeast order transportation credit 

balancing fund provisions continue the 

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12966 Federal Register / Vol. 79, No. 45 / Friday, March 7, 2014 / Proposed Rules 

previous amendments that were 

adopted on an interim basis (73 FR 

14153). The amendments: (1) Extend the 

number of months that transportation 

credit balancing funds may be paid from 

the current months of July through 

December to include the months of 

January and February, with the option 

of the month of June if requested and 

approved by the market administrator; 

(2) expand the payment of 

transportation credits for supplemental 

milk to include the entire load of milk 

rather than the current calculated Class 

I utilization; (3) provide more flexibility 

in the qualification requirements for 

supplemental milk producers to receive 

transportation credits; and (4) increase 

the monthly transportation credit 

assessment rate from the current $0.20 

per cwt to $0.30 per cwt for the 

Southeast order. 

The final decision also recommends 

adoption of three proposals published 

in the hearing notice as Proposals 4, 5, 

and 6 seeking to increase the maximum 

administrative assessment rates of the 

Appalachian, Southeast, and Florida 

orders. Specifically, the maximum 

administrative assessment rates 

collected on pooled producer milk in 

the Appalachian, Southeast, and Florida 

orders will be increased from the 

current maximum administrative 

assessment rate of $0.05 per cwt to 

$0.08 per cwt. Proposal 4 was submitted 

by the Appalachian Market 

Administrator and Proposals 5 and 6 

were submitted by the Market 

Administrator for the Southeast and 

Florida orders. These proposals were 

addressed in a separate recommended 

decision that solicited comments and 

exceptions to the proposed assessment 

rate increase. No comments or 

exceptions to the recommended 

decision were received. 

1. Class I Prices—Adjustments and 

Pricing Surface 

A witness appearing on behalf of the 

proponents, Dairy Cooperative 

Marketing Association (DCMA) testified 

in support of temporarily increasing 

minimum Class I prices in the three 

southeastern milk marketing orders. The 

witness testified that all elements of 

their proposals are offered as a ‘‘single 

package’’ to address the needs of all the 

southeastern region’s dairy industry 

stakeholders. It was the opinion of the 

witness that the supply of milk for fluid 

use in these marketing areas is 

threatened and that several 

simultaneous changes to the provisions 

of the three orders are needed to attract 

a sufficient quantity of milk to meet the 

fluid needs of the markets. 

According to the witness, DCMA 

consists of nine Capper-Volstead 

cooperative members that include 

Arkansas Dairy Cooperative 

Association, Damascus, AR; Cooperative 

Milk Producers Association, Inc., 

Blackstone, VA; Dairy Farmers of 

America (DFA), Kansas City, MO; 

Dairymen’s Marketing Cooperative, Inc., 

Mt. Grove, MO; Lone Star Milk 

Producers, Inc., Windthorst, TX; 

Maryland & Virginia Milk Producers 

Cooperative Association, Inc. (MD–VA), 

Reston, VA; Select Milk Producers, Inc., 

Artesia, NM; Southeast Milk, Inc. (SMI), 

Belleview, FL; and Zia Milk Producers, 

Inc., Roswell, NM. The witness testified 

that each of the DCMA members 

marketed and pooled milk in one or 

more of the three southeastern milk 

marketing order areas during 2006. 

According to the DCMA witness, 

during December 2006 members of 

DCMA pooled more than 87 percent of 

cooperative and non-member producer 

milk on the Appalachian order, more 

than 87 percent of the cooperative and 

non-member producer milk on the 

Southeast order, and more than 96 

percent of the cooperative and nonmember producer milk on the Florida 

order. 

The DCMA witness testified that their 

proposed changes to the Class I pricing 

surface better reflect the actual cost of 

transporting milk and the pattern in 

which milk produced outside of the 

marketing areas moves into the three 

marketing areas. According to the 

witness, the cost of procuring milk for 

fluid use for the southeast region has 

increased because local production is in 

serious decline and continues to decline 

at an increasing rate. The witness noted 

that the three southeastern orders 

collectively import more than one-third 

of the region’s milk supply during the 

most deficit months of the year to cover 

the fluid milk needs. Fluid demand 

exceeds 300 million pounds of milk 

each month in the three southeastern 

marketing areas, the witness said. The 

witness characterized the economic 

situation of the dairy industry in the 

region as dire and marketing conditions 

as disorderly. The witness asserted that 

producers currently experience 

inequitable prices for their milk, that 

handlers have unequal costs, and that 

there are insufficient economic 

incentives for the procurement of milk 

supplies. 

The DCMA witness characterized the 

southeastern region as having rapid 

population growth. The witness 

indicated that the U.S. Census Bureau 

population growth estimates for the 

states of Alabama, Arkansas, Florida, 

Georgia, Mississippi, Louisiana, North 

Carolina, South Carolina, and Tennessee 

have collectively increased by 8.4 

percent from 2000 to 2006, while the 

population of the U.S. as a whole 

increased 6.2 percent. 

Using market administrator statistics 

on in-area milk production for the three 

southeastern marketing order areas, the 

DCMA witness contrasted population 

growth to the region’s milk production 

to demonstrate that the dairy industry is 

in serious decline. The witness said that 

during 2006 milk was delivered into the 

three southeastern orders from at least 

27 States. The witness explained that 

local in-area milk production (milk 

produced within the geographic 

marketing area boundaries) during 2006 

for both the Appalachian and Southeast 

areas supplied the entire Class I needs 

of these two areas only 4 months of the 

year and Florida’s in-state milk 

production was insufficient to supply 

the Class I needs in every month of 

2006. The witness estimated that the 

Appalachian and Southeast marketing 

areas are able to supply only about 76 

percent of the milk necessary to meet 

Class I, Class II, and reserve demands, 

while in Florida in-area producers are 

able to supply only about 66 percent of 

the milk necessary to meet Class I and 

reserve demands annually. The DCMA 

witness asserted that minimum Federal 

order Class I prices have increased only 

twice in the past 22 years—as a part of 

the 1985 Farm Bill and as part of 

Federal milk order reform made 

effective in January 2000. Specifically, 

the witness related that the Class I 

differential for Atlanta increased from 

$2.30 to $3.08 per cwt in 1985 but was 

increased by only $.02 to $3.10 in 

January 2000. According to the witness, 

under Federal order reform, some Class 

I differentials in distant milk surplus 

areas were increased more than in the 

milk-deficit regions of the southeast. 

The DCMA witness was also of the 

opinion that changes to the Class I price 

surface resulted in a flattened price 

surface and narrowed producer blend 

price differences between orders. The 

witness testified that such changes 

diminished the economic incentives to 

move milk within the southeastern 

marketing areas as well as to move milk 

into the deficit southeastern region of 

the U.S. According to the witness, 

minimum Class I price differences and 

returns to producers are simply not high 

enough to move milk into these deficit 

markets without substantial over-order 

premiums. 

The DCMA witness explained that 

since 1986 diesel fuel prices have risen 

more rapidly than Class I differentials 

(and thus Class I prices) in the 

southeastern region. Relying on data of 

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the Energy Information Administration 

(EIA) of the U.S. Department of Energy, 

the witness noted that the U.S. average 

diesel fuel price increased by 187 

percent from 1986 and 2006 (from $0.94 

per gallon to $2.07 per gallon.) The 

witness compared this increase to the 

0.64 percent or $0.02 per cwt increase 

in the Class I differential for Atlanta 

since 1986. 

The DCMA witness testified that the 

slope of the Class I pricing surface 

should be changed to progressively 

increase Class I prices as milk moves to 

the east and south within the three 

marketing areas. The witness was of the 

opinion that changing the slope of the 

Class I price surface inside the three 

marketing areas in this way would 

better encourage milk to move within 

the marketing areas. Additionally, the 

witness was of the opinion that pricing 

signals to producers would direct their 

supplies to the most milk-deficit 

portions of the region. In this regard, the 

witness added that simply raising Class 

I prices uniformly throughout the three 

marketing areas would not result in 

improved pricing signals to producers. 

The DCMA witness explained that in 

developing the proposed Class I price 

structure and adjustments to current 

Class I price levels, DCMA considered 

two alternatives. According to the 

witness, in one pricing alternative all 

the Class I price relationships between 

plants in the three southeastern orders 

could be retained. However, under this 

alternative, the witness explained, the 

Class I prices for the plants on the outer 

edges of the Appalachian and Southeast 

marketing area boundaries would 

increase considerably, resulting in 

significant changes in price 

relationships between those plants and 

plants regulated by adjoining Federal 

orders. 

Alternatively, the DCMA witness said 

that the slope of the Class I price surface 

within the three marketing areas could 

be altered to minimize plant-to-plant 

Class I price relationship changes. The 

witness testified that this approach 

would result in a pricing structure that 

better reflected actual milk movements 

from within and outside of the 

marketing areas. The witness pointed 

out that in either approach, plant-toplant price relationships would change 

and that the method they chose 

provided the least change in plant-toplant price relationships. 

The DCMA witness also stressed the 

need for the proposed Class I price 

adjustments to remain aligned with the 

Class I price structure in adjoining 

marketing areas. The witness said that 

the proposed Class I price surface 

outside of the three southeastern 

marketing areas would not be changed. 

The witness was of the opinion that the 

proposed Class I price adjustments are 

reasonably aligned with Class I prices in 

adjoining marketing areas. Through an 

analysis of plant-to-plant movements of 

packaged milk, the witness indicated 

that DCMA’s proposed Class I pricing 

structure provides pricing adjustments 

that are reasonable and improves the 

slope of the Class I price surface. 

The DCMA witness explained that 

both a most distant demand point and 

several supply locations were identified 

in developing the proposed Class I price 

surface. The witness indicated that 

Miami, FL, was identified as the most 

distant demand point in the 

southeastern region from any alternative 

milk supply area. According to the 

witness, the five possible major supply 

locations and their distance to Miami 

were also identified. These locations 

included: Wayne County, OH; Jasper 

County, IN; Hopkins County, TX; 

Lancaster County, PA; and Franklin 

County, PA. 

The witness indicated that of the five 

possible supply sources, Wayne County, 

OH, was determined as the least cost 

supply location with a calculated Class 

I price adjustment of $6.14 per cwt at 

Miami, FL. The witness testified that 

Class I price adjustments were 

progressively adjusted to smaller and 

smaller values as plant location values 

in the southeastern region were adjusted 

by their distance from the supply 

locations. 

According to the DCMA witness, the 

plant-to-plant cost of moving packaged 

milk was analyzed. The witness testified 

that successive movements of packaged 

fluid milk from the outer edge of the 

Appalachian and Southeast marketing 

areas towards Miami, FL, were 

analyzed. As with bulk milk 

movements, the witness explained, at 

each plant location the minimum cost of 

moving packaged milk was determined 

and compared to the minimum costs of 

moving bulk milk. The witness 

concluded that the bulk and plant-toplant packaged milk movements were 

very similar. 

The DCMA witness testified that the 

calculated Class I pricing adjustments 

were re-adjusted so that plants located 

near each other would have a similar 

Class I price adjustment. The witness 

also acknowledged that the proposed 

pricing structure could not maintain 

current Class I price relationships 

because the current Class I price surface 

does not reflect actual hauling costs. 

According to the witness, the west-toeast proposed increase in Class I price 

adjustments reflects higher hauling 

costs. 

The DCMA witness characterized the 

proposed adjustments to the calculated 

Class I price surface as being the result 

of ‘‘smoothing.’’ The witness explained 

that deviation from the calculated Class 

I price adjustment represents the 

incorporation of best professional 

judgment in assuring that plants located 

near each other have the same Class I 

price adjustment and the need to 

maintain alignment with Class I prices 

in adjoining marketing areas. 

According to the DCMA witness, the 

proposed adjustments for plant 

locations regulated by the Appalachian 

order would increase in the range of 

$0.10 per cwt to $1.00 per cwt; plants 

regulated by the Southeast order would 

increase in the range of $0.10 per cwt 

to $1.15 per cwt; and plants regulated 

by the Florida order would increase 

between $1.30 per cwt to $1.70 per cwt. 

Relying on market administrator data, 

the DCMA witness concluded that the 

proposed Class I price increases would 

generate higher marketwide pool values 

in all three southeastern orders. 

According to the witness, the estimated 

annual increase of the Appalachian 

order pool for 2004, 2005, and 2006 

resulting from the proposed Class I 

prices alone would have totaled $19.3 

million, $18.6 million, and $18.3 

million, respectively. For the Southeast 

order, the witness said, the annual pool 

value increase would have totaled $16.8 

million, $17.1 million, and $17.7 

million, respectively. For the Florida 

order, the witness said, the annual 

increase in pool value would have 

totaled $36.4 million, $38.3 million, and 

$39.2 million, respectively. In 

estimating the impact on minimum 

prices paid to dairy farmers, the witness 

said that average annual minimum 

uniform prices (as announced at current 

locations) would have increased by 

approximately $0.25 per cwt to $0.26 

per cwt for the Appalachian order, 

approximately $0.64 per cwt higher for 

the Southeast order, and $1.19 per cwt 

to $1.22 per cwt higher for the Florida 

order. 

The DCMA witness acknowledged 

and explained that changes in Class I 

price relationships between plant 

locations resulting from any changed 

Class I price surface would be 

inevitable. In this regard, the witness 

asserted that the price adjustment 

differences between plant locations 

under the DCMA proposal would not 

exceed the cost of moving Class I fluid 

milk products and therefore would not 

result in the uneconomic movement of 

milk. 

The DCMA witness concluded by 

testifying that orderly marketing would 

be improved with a Class I price 

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structure that is more reflective of the 

true hauling costs to supply the milkdeficit southeastern region. The witness 

urged that the proposed Class I price 

adjustments and pricing surface be 

adopted immediately. The witness 

reiterated that the proposed Class I price 

adjustments be temporarily adopted 

pending any system-wide changes to the 

Class I differential level and pricing 

surface. 

A total of 11 dairy farmers whose milk 

is pooled on at least 1of the 3 

southeastern orders testified at the 

hearing in support of DCMA’s package 

of proposals, but suggested 

modifications on how the package 

should be changed. 

Three of the dairy farmers who 

testified were cooperative members of 

MD–VA, DFA, and SMI (cooperatives 

previously described as member 

organizations of DCMA). These 

witnesses testified that the dairy 

industry in the southeastern region is in 

need of changes to the three marketing 

orders to respond to the decline in 

regional milk production. Their 

testimonies joined that of the DCMA 

witness supporting the DCMA 

proposals. 

A dairy farmer whose milk is 

marketed on the Southeast and Florida 

marketing orders testified on behalf of 

Cobblestone Milk Producers, Inc. and 

Mountain View Farms of Virginia in 

limited support of the Class I price 

surface feature of DCMA’s package of 

proposals provided certain 

modifications were made. This witness 

agreed with proponents concerning the 

decline of milk production in the 

southeastern region and the need to 

import supplemental milk supplies. 

According to the witness, lower 

producer pay prices in the southeastern 

region have led to rapidly declining 

production that is not being replaced by 

new farms or the expansion of existing 

farms. It was the opinion of this witness 

that the projected increases in producer 

pay prices arising from the proposed 

increase in Class I prices would not be 

enough to affect production trends in 

the southeastern region. The witness 

expressed concern that Class I 

processors would demand their overorder premiums be lowered to 

compensate for increases in the three 

orders’ minimum Class I prices. The 

witness requested that the proposed 

Class I price adjustments for the 

Appalachian and Southeast marketing 

areas be increased but did not offer 

specific amounts. 

Four dairy farmers from North 

Carolina testified in general support of 

the proposed Class I price adjustments. 

Three of the witnesses represented 

organizations that were part of the 

Southeast Producers Steering 

Committee (SPSC), whose members 

include North Carolina Dairy Producers 

Association, Georgia Milk Producers 

Association, Upper South Milk 

Producers Association, Kentucky Dairy 

Development Council (KDDC), North 

Carolina Department of Agriculture and 

Consumer Services, and the North 

Carolina Farm Bureau Federation. All 

four witnesses were of the opinion that 

the proposed Class I price adjustments 

would not be adequate to increase 

prices paid to dairy farmers in order to 

stem the decline of milk production in 

the southeastern region. The witnesses 

were of the opinion that additional 

efforts should be made to enhance local 

milk production. One dairy farmer 

witness testifying on behalf of the KDDC 

said that other adjustments needed to be 

made to the proposed Class I price 

adjustments because Kentucky dairy 

farmers would benefit less from the 

proposed adjustments than dairy 

farmers located in the Southeast and 

Florida marketing areas. Another North 

Carolina dairy farmer witness offered 

the opinion that Appalachian producers 

would need to receive at least a $1.00 

to $1.50 per cwt increase in their 

mailbox price to stimulate local milk 

production. A third North Carolina 

dairy farmer witness stressed that more 

emphasis should be made on increasing 

local milk production rather than 

seeking better ways to import milk into 

the region. Another dairy farmer, also 

from North Carolina, expressed concern 

that over-order premiums might fall 

because of the proposed Class I prices 

adjustments. In addition, an SPSC 

witness, as well as others, called for a 

comprehensive study to identify 

problems and alternatives to the 

proposals regarding the decline of milk 

production in the southeastern region. 

A witness appearing on behalf of 

National Dairy Holdings (NDH) testified 

in limited opposition to the Class I price 

adjustments of the DCMA package. 

According to the witness, NDH is a 

national dairy processor with facilities 

located throughout the United States. 

The witness indicated no specific 

opposition to Class I price increases but 

conditioned such increases on the fair 

distribution of the revenue to producers 

in the southeastern region. While the 

witness testified that NDH has no 

difficulty procuring milk for its plants 

located in the southeastern region, the 

witness acknowledged other testimony 

that identified milk production 

problems of the southeastern region and 

that the region’s producers are in need 

of relief. The witness expressed concern 

on how the proposals would impact 

NDH’s wholesale packaged milk sales. 

The witness also suggested that issues 

discussed at the hearing could be 

addressed by utilizing a point-of-sale or 

plant-point pricing method. 

A witness appearing on behalf of the 

Kroger Company (Kroger) testified in 

opposition to the proposed Class I price 

adjustments for the Appalachian and 

Southeast marketing orders. According 

to the witness, Kroger operates four 

fluid distributing plants regulated by the 

Appalachian and Southeast orders 

(Winchester Farms, Westover Dairy, 

Heritage Farms Dairy, and Centennial 

Farms Dairy). The opinion of the 

witness was that the proposed Class I 

price adjustments would disrupt 

traditional pricing relationships, which 

were established by the 1985 Farm Bill, 

and would generate competitive 

discrepancies with adjoining markets. 

The Kroger witness testified that the 

proposed Class I price adjustments 

would place their plants in an 

unacceptable competitive situation with 

each other in the Appalachian and 

Southeast marketing areas. Specifically, 

the witness requested that the Class I 

price adjustments for Louisville, KY; 

Lynchburg, VA; Murfreesboro, TN; and 

Atlanta, GA be unchanged. The witness 

also suggested that Winchester, KY, be 

increased by no more than $0.10 per cwt 

in order to maintain competitive milk 

procurement price relationships with 

other plants located in the Cincinnati 

area of the Mideast milk marketing area. 

The witness opposed the proponent’s 

position that the proposal be considered 

on an emergency basis. 

A witness appearing on behalf of the 

Milk Industry Foundation (MIF) 

testified in opposition to the Class I 

price adjustments of DCMA’s package of 

proposals. According to the witness, 

MIF is a member organization of the 

International Dairy Foods Association 

(IDFA) which represents 115 member 

companies that market approximately 

85 percent of the nation’s milk and 

dairy products. The witness testified 

that the proposed changes are not 

necessary because an adequate of 

supply of milk already exists for the 

Appalachian, Southeast, and Florida 

orders. The witness stated that because 

the Federal order system is a national 

market, milk is available from anywhere 

in the country. The witness noted overorder premiums compensate those 

entities who supply the deficit regions. 

The witness was of the opinion that 

declining milk production in the 

southeastern region has been occurring 

for many years and as such does not 

warrant an increase in Class I prices. 

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Accordingly, the witness said, 

emergency action is not warranted. 

The MIF witness was of the opinion 

that Class I prices cannot be changed in 

one region of the country without 

affecting milk marketings in other 

regions. The witness said that the 

proposed Class I price adjustments 

would change the competitive 

relationships between plants located 

within and outside of the three 

southeastern marketing areas. The 

witness argued that Class I sales would 

be discouraged because all Class I plants 

in the three marketing areas would be 

required to pay a higher price for milk. 

The witness requested a comprehensive 

analysis of the national market before 

adopting the proposed Class I price 

adjustments. 

A witness appearing on behalf of 

Dean Foods Inc. (Dean) testified in 

opposition to the proposed Class I price 

adjustments of DCMA’s package of 

proposals. The witness agreed with 

testimony of other witnesses indicating 

the deficit milk supply conditions in the 

three southeastern marketing areas and 

the need to increase prices paid to the 

region’s local dairy farmers. 

The Dean witness was of the opinion 

that a comprehensive analysis of the 

potential impacts of changing the Class 

I price surface in the three marketing 

areas had not been conducted. The 

witness characterized DCMA’s package 

of proposals as containing ‘‘too many 

moving parts’’ that make it difficult to 

evaluate the impact of the proposed 

Class I price adjustment features. The 

witness was of the opinion that 

Appalachian and Southeast marketing 

area dairy farmers are in greater need of 

higher producer prices than dairy 

farmers in the Florida marketing area 

and noted that the proposed Class I 

price adjustments would benefit 

Appalachian and Southeast marketing 

area producers the least. In this regard, 

the witness worried that the prices 

received by dairy farmers across the 

southeastern region would be unfairly 

distributed if the proposed Class I price 

changes were adopted. 

The Dean witness was of the opinion 

that the proposed Class I price surface 

and Class I pricing adjustments would 

change how milk moves to and between 

plants located within and outside of the 

three marketing areas. The Dean witness 

testified that the assumptions used by 

DCMA in laying the foundation for the 

proposed Class I price adjustments and 

Class I pricing structure are flawed. In 

this regard, the witness noted that the 

USDA 1999 Final Decision on Federal 

milk order reform indicated that the cost 

of hauling raw milk was linear [cost 

increases as the distance milk is 

transported increases at a constant rate], 

but that the cost of hauling packaged 

milk was nonlinear. Accordingly, the 

Dean witness argued that the proposed 

Class I pricing changes could give 

distributing plants located outside the 

marketing areas incentive to change 

their route dispositions in order to 

become regulated on one of the three 

marketing orders. 

According to the Dean witness, 

distributing plants located outside the 

area could become regulated at the 

expense of plants located in the area. As 

a result, the witness concluded, Class I 

revenue generated by out-of-area 

distributing plants would be returned to 

dairy farmers located far outside of the 

three southeastern marketing areas. The 

witness offered that perhaps the greatest 

beneficiaries of the proposed Class I 

pricing changes could be producers 

located as far away as Illinois and 

Indiana. 

The Dean witness also criticized 

reliance on Wooster, OH, (located in 

Wayne County) as a supply area for the 

southeastern region and being a basis of 

DCMA’s proposed Class I price 

adjustments. The witness noted while 

DCMA identifies Wooster, OH, as a 

supply area for the southeastern region, 

a Pennsylvania State proceeding held in 

2006 indicated the testimony of a DFA 

witness saying that milk was not 

available in the Wooster, OH, area to 

supply Pennsylvania. 

The Dean witness offered nine 

modifications to DCMA’s package of 

proposals. The witness explained that 

their proposed modifications to the 

package of proposals would not seek to 

provide higher Class I prices or change 

the Class I pricing surface. According to 

the witness, the Appalachian and 

Southeast marketing orders’ pooling 

provisions should be identical to those 

of the Florida marketing order 

(discussed further below). 

2. Producer Milk—Diversion Limit and 

Touch-Base Standards 

The DCMA witness testified that the 

diversion limit standards of the 

Appalachian and Southeast orders 

should be identical. According to the 

witness, diversions to nonpool plants 

allows for the pooling of milk that is 

transferred from pool to nonpool plants 

without milk first needing to be 

delivered to pool plants. In setting a 

reasonable limit, the witness was of the 

opinion that diversion limit standards 

must take into account reserve supplies 

needed for Class I use, the balancing 

needs of the markets, and the 

seasonality of production. 

The DCMA witness testified that 

milk-deficit Federal orders tend to have 

lower diversion limit standards relative 

to orders with substantial reserve milk 

supplies. The witness testified that 

while the Appalachian and Southeast 

order diversion limit standards 

generally reflect their milk-deficit 

marketing conditions, they are in need 

of tightening. Specifically, the DCMA 

witness proposed that the diversion 

limit standards be 25 percent during 

each of the months of January, February, 

and July through November, and 35 

percent for each of the months of March 

through June and for the month of 

December. 

In explaining the analysis conducted 

in arriving at the proposed new 

diversion limit standards for the 

Appalachian and Southeast orders, the 

DCMA witness testified that daily 

producer milk receipts by distributing 

plants regulated by the two orders from 

January 2004 through December 2006 

were compared to the day of the month 

when daily receipts at distributing 

plants were the greatest. The witness 

explained that the differences between 

the day of the greatest receipts and each 

day’s actual receipts for the month at 

distributing plants were then summed. 

According to the witness, the resulting 

value represents the amount of 

additional milk that would need to be 

pooled as reserve milk to be able to 

satisfy Class I demands at a distributing 

plant on the day of their greatest need. 

The witness stated that the analysis 

showed that an additional milk volume 

of 12 to 13 percent of distributing plant 

receipts would be the minimum reserve 

necessary to cover daily fluctuations in 

the demand for fluid milk at distributing 

plants. On an annual basis, the 

minimum average reserve needed as 

calculated is about 22 percent, the 

witness said. 

The witness explained that the 

proposed diversion limit standards of 25 

percent for both orders for each of the 

months of January, February, and July 

through November, are based on the 

analysis described above and the need 

to provide for an additional reserve in 

the tightest supply months. The witness 

explained that the proposed diversion 

limit standards of 35 percent for each of 

the months of March through June and 

the month of December accommodate 

seasonal fluctuations in supply. The 

witness explained that this standard 

would allow regular producers who 

supply the Class I needs of the 

marketing areas in the tight supply 

months to pool all of their additional 

production in the flush months and 

accommodate the regular decline in 

Class I sales that occurs when schools 

close for the summer months. According 

to the witness, Class I plants also 

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temporarily close or severely limit their 

receiving operations over the holiday 

period in December resulting in 

substantial surplus milk. 

Relying on market administrator data, 

the DCMA witness estimated that the 

impact on the minimum uniform prices 

from lowering the diversion limit 

standards alone would raise blend 

prices approximately $0.02 per cwt and 

$0.07 per cwt annually for the 

Appalachian and Southeast orders, 

respectively. The witness indicated that 

a change in the blend price for any 

particular producer would vary based 

on where the producer’s milk was 

delivered. 

The DCMA witness stressed that the 

proposed changes in the two orders’ 

diversion limit standards do not fully 

capture the true volume of milk likely 

to no longer be eligible to be pooled on 

the two orders. The witness explained 

that if the volume of producer milk 

delivered to pool plants were the same 

each month, then the volume of 

producer milk no longer pooled and 

priced by the orders would drop about 

6.67 percent and 29.72 percent on the 

Appalachian and Southeast orders, 

respectively. The witness further 

explained that lowering the diversion 

limit standards also should result in 

increasing minimum order blend prices 

paid to producers. According to the 

witness, proposed changes to the 

diversion limit standards of the orders, 

together with expected increases in 

revenue arising from Class I price 

adjustments and Class I pricing surface, 

will likely encourage local milk 

production, the movement of milk into 

the region from distant sources, or some 

combination of both. 

The DCMA witness testified that the 

package of proposals also includes the 

lowering of the touch-base standards of 

the Appalachian and Southeast orders 

and makes them identical. According to 

the witness, this would discourage 

uneconomic movements of milk and 

offer operational savings for 

cooperatives supplying the Class I needs 

of the marketing area. 

The DCMA witness explained that 

because of the continuing decline in 

local milk production, an increasing 

amount of milk that is produced further 

from the marketing areas is becoming a 

regular part of the supply of Class I 

milk. The witness characterized this 

milk of distant dairy farmers as the 

reserve supply needed for balancing the 

Class I needs of the two marketing areas. 

The DCMA witness was of the 

opinion that reducing the touch-base 

standard to one day each month in both 

orders is necessary for the efficient 

pooling of reserve supplies. The witness 

testified that lowering the touch-base 

standard would prevent local milk 

already supplying the markets’ Class I 

needs from being displaced by milk 

produced farther from the marketing 

areas, which is shipped in simply to 

meet pooling standards. According to 

the witness, requiring producers to 

deliver more days to pool plants when 

the milk is not truly needed results in 

increasing the cost of supplying the 

Class I needs of the two markets. 

Eight dairy farmers testified in general 

support of DCMA’s proposed changes to 

the two orders’ diversion limit and 

touch-base standards. Some were of the 

general opinion that the regular reserve 

supply for the Appalachian and 

Southeast marketing areas should be 

pooled when not delivered to Class I 

plants. While all supported the pooling 

of milk that regularly supplies the Class 

I needs of the two marketing areas, 

several dairy farmers expressed caution 

that the diversion limits were not being 

lowered enough while touch-base 

standards were needlessly being 

lowered. According to these witnesses, 

this would encourage pooling milk not 

truly supplying the markets and result 

in lower blend prices paid to local dairy 

farmers. The dairy farmers testifying 

supported adopting needed changes on 

an emergency basis. 

A witness representing Dean testified 

that the proposed changes to the 

diversion limit and touch-base 

standards would not be sufficient to 

deter the uneconomic movement of milk 

or to enhance producer prices in the 

Appalachian and Southeast marketing 

areas. According to the witness, current 

diversion limit standards are in excess 

of the markets’ balancing needs and 

should be lowered immediately. 

The Dean witness characterized the 

Appalachian and Southeast orders as 

being very similar to the Florida order 

in terms of milk consumption and 

production. The witness was of the 

opinion that the pooling standards of 

the Florida order work well and pooling 

milk not consistently serving the 

market’s Class I needs rarely occurs. The 

witness specifically proposed that 

diversion limit standards be changed to 

15 percent for each of the months of 

December through February, 20 percent 

for each of the months of March through 

June, and 10 percent for each of the 

months of July through November. 

According to the Dean witness, dairy 

farmers will receive higher blend prices 

if diversion limits are made even lower 

than proposed by DCMA. Relying on 

market administrator data, the witness 

stated that January 2004 had shown the 

highest ‘‘need’’ of reserve milk during 

2004–2006 for the Southeast order at 

approximately 22 percent of total milk 

pooled on the order. The witness 

contrasted this with October 2004 when 

the ‘‘needed’’ reserve was 

approximately 7 percent. In this regard, 

the witness suggested that diversion 

limits could be reduced below that 

proposed by DCMA. According to the 

witness, if made too low, the market 

administrator has the authority to 

change the diversion limit standards if 

warranted. 

The Dean witness opposed DCMA’s 

proposed one day per month touch-base 

standard if DCMA’s proposed diversion 

limit standards are adopted. The 

witness was of the opinion that 

inefficient movements of milk would 

result if the one day touch-base standard 

were adopted. However, the witness 

indicated support for a two-day touchbase standard provided the diversion 

limit standards of the Florida order are 

simultaneously adopted. 

The Dean witness explained that 

when touch-base requirements are low, 

locally produced milk can be displaced 

by milk located far from the marketing 

area because it needs to be transported 

to the marketing area fewer times to 

qualify for pooling and receiving a 

higher blend price. The witness was of 

the opinion that only milk that is 

necessary to serve the Class I needs of 

the market should be delivered to that 

market. According to the witness, 

reserve milk supplies located far from 

the market should not be pooled on the 

market if they are not delivered to the 

market. 

3. Transportation Credit Provisions 

The DCMA witness explained that on 

September 1, 2006, the Secretary issued 

a tentative partial decision (71 FR 

54118) which amended the 

transportation credit provisions of the 

Appalachian and Southeast orders. 

Specifically, the witness noted that the 

decision established a fuel cost adjuster 

to determine a variable mileage rate 

factor used to compute the payout of 

transportation credits and higher 

maximum transportation credit 

assessments on Class I milk for the 

Appalachian and Southeast orders. To 

accompany these adopted changes that 

were implemented on December 1, 

2006, (71 FR 62377) the witness 

proposed four other changes to the 

transportation credit provisions that are 

part of the package of changes proposed 

for the two southeastern orders. 

According to the DCMA witness, the 

four additional changes to the 

transportation credit provisions for both 

orders include: (1) extending the 

months during which transportation 

credits may be paid to include the 

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months of January and February with 

June being an optional transportation 

credit payment month; (2) expanding 

the payment of transportation credits to 

apply to the full load of milk, rather 

than the current calculated Class I 

portion of milk loads; (3) providing 

greater flexibility for supplemental milk 

producers to be eligible to receive 

transportation credit payments; and (4) 

raising the maximum monthly 

transportation credit assessment for the 

Southeast order from the current $0.20 

per cwt to $0.30 per cwt. 

According to the DCMA witness, the 

need for supplemental milk in the 

Appalachian and Southeast orders has 

increased during the months of January 

and February. The witness offered 

evidence showing that during January 

2004 through December 2006, January 

and February are months with 

increasing Class I use in the 

Appalachian and Southeast orders. The 

witness claimed that during January and 

February, local milk is not sufficient to 

supply the Class I milk needs. It is this 

combination of Class I need and 

available local producer supplies that 

show January and February as being 

more like the current transportation 

credit payment months of July through 

December than the flush months of 

March through May, the witness 

concluded. According to the witness, 

adding January and February as 

transportation credit payment months 

would give suppliers of supplemental 

milk an opportunity to recoup a portion 

of the hauling costs to supply the 

marketing areas with milk for fluid use. 

In explaining this proposed change, 

the DCMA witness said, in part, current 

transportation credit payment 

provisions result in reimbursements that 

are much lower than the real cost of 

hauling. The witness explained that the 

cost of hauling milk to Class I plants is 

the same regardless of the plant’s use or 

the Class I utilization of the market. The 

witness was of the opinion that 

expanding the transportation credit 

payments to full loads of milk delivered 

only to pool distributing plants would 

enhance orderly marketing and better 

ensure that sufficient supplemental milk 

is delivered to pool distributing plants. 

The witness supported continuing 

transportation credit payments on 

supplemental milk deliveries to pool 

distributing plants only. 

The DCMA witness proposed 

simplifying the process for determining 

what supplemental milk is eligible for 

transportation credit payments. The 

witness noted that currently, a dairy 

farm must be located outside either the 

Appalachian or the Southeast marketing 

areas, the dairy farmer must not meet 

the Producer provision under the two 

orders during more than two of the 

immediately preceding months of 

February through May, and not more 

than 50 percent of the dairy farmer’s 

milk production during those two 

months, in aggregate, can be received as 

producer milk under the order during 

those 2 months. 

The DCMA witness was of the 

opinion that the requirements for 

transportation credit payment eligibility 

should be changed to provide flexibility 

in meeting the criteria while limiting 

the receipt of transportation credits to 

only that milk which is truly 

supplemental and that is not part of the 

consistent and regular supply of milk 

serving the Class I needs of the two 

markets. Specifically, the witness 

proposed that: (1) A dairy farmer must 

not meet the Producer definition on the 

orders in more than 45 of the 92 days 

in the months March through May, or 

(2) a dairy farmer must have less than 

50 percent of their producer milk 

pooled on the orders during those 3 

months combined. The witness argued 

that limiting the producer association 

with the orders to no more than half the 

time or to no more than half their milk 

production is sufficient to identify a 

dairy farmer as a supplemental supplier 

of milk to the marketing areas. These 

changes, the witness asserted, offer 

substantial cost savings to cooperatives 

that bear the burden of sourcing and 

supplying the supplemental milk needs 

of the markets from distant locations. 

The DCMA witness testified that the 

maximum transportation credit 

assessment for the Southeast order 

needs to be increased from the current 

$0.20 per cwt to $0.30 per cwt given the 

proposed expansion of the 

transportation credit payments on full 

loads of milk to Class I distributing 

plants regulated by the two orders. The 

witness was of the opinion that 

otherwise the current assessment rate 

would be insufficient to cover 

anticipated shortfalls in the 

transportation credit balancing fund. 

While the DCMA witness proposed a 

higher transportation credit assessment 

rate for the Southeast order only, the 

witness projected that the proposed 

changes to Class I prices and the Class 

I pricing surface in the Appalachian and 

Southeast orders would lessen 

payments from the transportation credit 

balancing funds. The witness explained 

this may occur because of the greater 

positive differences (increases) from 

adopting the proposed Class I price 

adjustments and Class I pricing surface. 

The witness did acknowledge that the 

additions of the months of January and 

February as transportation credit 

payment months would tend to increase 

transportation credit payouts. 

Relying on market administrator data, 

the DCMA witness estimated that for the 

months of July through December 2006 

the Southeast order transportation credit 

payments would total $15,704,872 as a 

result of their proposal, and January and 

February 2006 payments would total 

approximately $2,900,000, resulting in 

an overall amount of approximately 

$18,604,872. At the current assessment 

rate of $0.20 per cwt, the witness 

concluded that transportation credit 

balancing funds would not have been 

sufficient to pay all transportation credit 

claims in 2006. At the proposed $0.30 

per cwt assessment rate, the witness was 

of the opinion that sufficient revenue 

would be generated to satisfy all 

transportation credit claims. 

Relying on market administrator data 

for the Appalachian order, the witness 

said that during July 2006 through 

January 2007, transportation credit 

payments would have totaled 

approximately $4,073,312. According to 

the witness, February 2006 would have 

included a payment of approximately 

$313,000, bringing the total estimated 

transportation credit payments to 

$4,383,312. According to the witness, 

the current $0.15 per cwt assessment 

rate for the Appalachian order would 

have been sufficient and no increase in 

the assessment rate would be needed. 

The DCMA witness supported 

continuing to provide for market 

administrator discretion in setting the 

transportation credit assessment rates at 

less than the maximum allowed. The 

witness was of the opinion that doing so 

will prevent the needless collection of 

revenue when the transportation credit 

balancing funds are sufficient to meet 

claims. 

Four dairy farmers testified in support 

of DCMA’s proposal to provide 

additional flexibility in determining 

which producers are supplying 

supplemental milk to the two marketing 

areas. As with other features of DCMA’s 

proposals, these dairy farmers 

supported adoption of these proposed 

changes on an emergency basis. 

The witness appearing on behalf of 

Dean expressed support for adding the 

months of January and February as 

transportation credit payment months 

for the Appalachian and Southeast 

orders on the condition that tighter 

diversion limits be adopted. The 

witness said these months should be 

considered as payment-eligible months 

because the tentative decision 

implemented in December 2006 

eliminated the ability to divert milk on 

loads of milk seeking the payment of a 

transportation credit. However, the 

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Dean witness opposed expanding 

transportation credit payment eligibility 

to entire loads of milk. In this regard, 

the witness expressed concern that this 

would essentially result in Class I sales 

funding the supply of supplemental 

milk in lower-valued Class II uses. 

4. Administrative Assessment Rate 

According to the Assistant Market 

Administrator for the Appalachian 

order, Proposal 4 was offered to ensure 

that sufficient funds are available for 

administering the Appalachian order. 

The witness added that Proposal 4 

would amend section 1005.85 (7 CFR 

1005.85) to provide for all of the 

administrative assessment language 

pertinent to the Appalachian order 

provisions and would discontinue the 

reference to section 1000.85 (7 CFR 

1000.85). The witness explained that 

administration and operating costs 

include administrative, accounting, 

human resources, economic, pooling 

and audit staff expenses. 

The Assistant Market Administrator 

for the Appalachian order stated that the 

market administrator is required to 

maintain a specific level of operating 

reserves. The reserve level, the witness 

said, must be maintained in the event 

that an order is terminated and would 

fund the necessary costs for closing out 

an order, completing pools and audits 

and paying severance and leases. The 

reserve level is detailed in the MA 

Instruction 207 that is issued by the 

Dairy Programs Deputy Administrator, 

said the witness. 

The Assistant Market Administrator 

for the Appalachian order said that the 

majority of the administrative 

assessment revenue comes from pooled 

producer milk. Additionally, the 

witness said, assessments are also 

collected on other source receipts 

assigned to Class I and certain route 

disposition in the marketing area by 

partially regulated distributing plants. 

The witness stated that although the 

maximum administrative assessment 

rate allowable on pooled producer milk 

is $0.05 per cwt, the rate currently 

collected each month is $0.04 per cwt, 

which has remained unchanged since 

January 2000. 

The Assistant Market Administrator 

for the Appalachian order said that 

during 2000–2002, producer milk 

pooled on the Appalachian order 

averaged 547 million pounds per 

month. According to the witness, the 

$0.04 per cwt assessment rate at this 

volume of milk created enough revenue 

to fund Appalachian order operations 

and maintain the mandated operating 

reserve. The witness stated that from 

2003–2005, producer milk pooled on 

the order averaged 525 million pounds 

per month and in 2006, producer milk 

pooled on the order averaged 520 

million pounds per month. The witness 

also compared the first 4 months of 

2007 to the first 4 months of 2006 and 

stated that producer milk pooled on the 

order was down 3.45 percent. 

The Assistant Market Administrator 

for the Appalachian order explained 

that about $215,000 is needed each 

month to cover basic operating 

expenses. By keeping the assessment 

rate of $.04 per cwt, the witness said 

538 million pounds of producer milk 

would be needed each month to cover 

monthly order expenses. The witness 

further explained that the Appalachian 

order was in an operating deficit in 

2003, 2004, and 2006 and had a 

balanced budget in 2005. During 2003– 

2006, the witness said, the volumes of 

pooled producer milk did not generate 

sufficient revenue to fund order 

operations and lowered the mandated 

operating reserves. 

According to the Assistant Market 

Administrator for the Appalachian 

order, a decision effective December 1, 

2006 (71 FR 62377), established a zero 

diversion limit standard on Class I milk 

receiving transportation credits. The 

decision, the witness said, reduced the 

amount of milk that could be pooled on 

the order and reduced the amount of 

assessment revenue collected during the 

period of July through December, when 

those volumes of milk would be pooled. 

In addition, the witness said that 

Proposal 1, if adopted, would add 

January and February as additional 

transportation credit payout months, 

further reducing the amount of milk that 

could be pooled on the Appalachian 

order. The witness stressed that 

tightening pooling provisions of the 

order impacts the amount of producer 

milk pooled on the order. The witness 

expressed concern that less milk pooled 

on the order would reduce 

administrative assessment revenue and 

the ability to fund order operations 

while maintaining the mandated reserve 

level. 

The Assistant Market Administrator 

for the Appalachian order said that the 

market administrator makes efforts to 

control costs of carrying out order 

operations. According to the witness, 

cost control efforts include a reduction 

of office staff by 29 percent through 

attrition since January 2003, contracting 

with outside computer services, 

negotiating a telecommunications 

contract, consolidating a field office, 

and reducing travel and mail expenses. 

The witness stressed that regardless of 

the market administrator’s efforts to 

control costs and efficiently administer 

the order, gains in efficiency cannot 

make up for revenue lost due to a 

reduction in milk volumes. 

The Assistant Market Administrator 

for the Appalachian order concluded by 

emphasizing that increasing the 

maximum administrative assessment 

rate to $.08 per cwt would be the 

maximum rate allowable and not 

necessarily the rate assessed. The 

witness said the actual rate assessed 

would only be as high as determined by 

the market administrator with approval 

by the Dairy Programs Deputy 

Administrator. 

According to the Market 

Administrator for the Southeast and 

Florida orders, Proposals 5 and 6 were 

offered to ensure that there are sufficient 

funds to carry out administration of the 

orders. The witness said the proposals 

would amend sections 1006.85 (7 CFR 

1006.85) and 1007.85 (7 CFR 1007.85) to 

provide for all of the administrative 

assessment language pertinent to the 

Southeast and Florida orders, and 

would discontinue the reference to 

section 1000.85 (7 CFR 1000.85). The 

witness explained that administration 

and operating expenses of the order 

include pooling, auditing, and 

providing market information. 

The Market Administrator for the 

Southeast and Florida orders explained 

that the order is required to maintain a 

specified level of operating reserves. 

The reserve level, the witness said, is 

detailed in the MA Instruction 207 that 

is issued by the Dairy Programs Deputy 

Administrator. The witness said the 

reserve level is kept to cover necessary 

costs of closing out an order, such as 

completing pools, audits, and paying 

severance and lease payments. 

The Market Administrator for the 

Southeast and Florida orders explained 

that the majority of the monthly 

administrative assessment is collected 

from pooled producer milk. The witness 

added that additional assessments are 

also collected from other source receipts 

associated with Class I and certain route 

disposition in the marketing area by 

partially regulated distributing plants. 

The witness stated that the market 

administrator largely depends on the 

administrative assessment revenue to 

fund the operations of the orders. The 

witness noted that since 2000, the 

administrative assessments for both the 

Southeast and Florida orders have 

contributed over 80 percent of the total 

income of the market administrator 

office. 

According to the Market 

Administrator for the Southeast and 

Florida orders, the combined monthly 

average of pooled producer milk for the 

two orders in 2000 was 862.8 million 

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pounds. In 2001, the witness said, the 

combined monthly average of producer 

milk pooled in both orders was 878.4 

million pounds and in 2002, the 

combined monthly average was 885.0 

million pounds. The witness said that 

during 2000–2002, the assessment rates 

charged in the Southeast and Florida 

orders of $0.035 and $0.03 per cwt, 

respectively, along with the volume of 

producer milk, were sufficient to fund 

order operations and maintain the 

mandated reserve funds. 

The Market Administrator for the 

Southeast and Florida orders said that 

in 2003, although producer milk in the 

Florida order increased by 5 percent, 

producer milk in the Southeast order 

decreased 11 percent, resulting in a 

considerable decrease in assessment 

collections. According to the witness, 

during 2003, funds were drawn from the 

operating reserves, reducing the reserve 

level near the mandated minimum. The 

witness said that as a result, effective 

with January 2004 milk deliveries, the 

administrative assessment rates 

increased by $0.01 to $0.045 and $0.04 

per cwt for the Southeast and Florida 

orders, respectively. 

The Market Administrator for the 

Southeast and Florida orders stated that 

in 2004, the monthly average pounds of 

producer milk pooled increased over 

2003 by 1 percent and 5 percent in the 

Southeast and Florida orders, 

respectively. The witness added that in 

2005, producer milk increased over 

2004 by 5 percent and 8.8 percent in the 

Southeast and Florida orders 

respectively, and in 2006, producer milk 

increased over 2005 by 6.8 percent and 

stayed the same in the Southeast and 

Florida orders, respectively. 

According to the Market 

Administrator for the Southeast and 

Florida orders, the administrative 

assessments implemented in 2004, with 

the increase in producer milk during 

2004–2006 and efforts to control costs, 

have been sufficient to cover operating 

expenses and build an adequate reserve 

level. The witness added that they 

continue to take measures to control 

costs. The witness said that from 2000– 

2006, cost control measures included a 

15 percent reduction in staff through 

attrition, increased use of technology to 

hold meetings and conduct audits, a 

reduction in travel expenses, and a 

decrease in communication costs. 

The Market Administrator for the 

Southeast and Florida orders explained 

that Proposal 2 seeks to limit an average 

of 12.3 percent of allowable diversions 

in the Southeast order which would 

reduce the amount of milk pooled on 

the order, as well as the value of 

administrative assessments used to fund 

order operations. The witness also noted 

a decision effective December 1, 2006, 

(71 FR 62337) that reduced allowable 

diversions by the volume of 

transportation credit claims. The 

witness also expressed concern that the 

downward trend in Southeast milk 

production and marketing decisions 

made by handlers provides an increased 

potential for variability in the revenue 

available for order operations. 

The Market Administrator for the 

Southeast and Florida orders concluded 

that while the proposals seek to increase 

the maximum assessment rate from 

$0.05 per cwt to $0.08 per cwt, the $0.08 

per cwt would not necessarily be the 

rate charged. The witness stressed that 

the assessed rate would only be high 

enough to cover operating expenses and 

maintain the mandated reserve level as 

approved by the Deputy Administrator 

for Dairy Programs. 

Post-Hearing Briefs 

Post-hearing briefs were filed by: 

Dairy Cooperative Marketing 

Association (DCMA), Southeast 

Producers Steering Committee (SPSC), 

Dean Foods Company and National 

Dairy Holdings (Dean/NDH), and the 

Milk Industry Foundation (MIF). 

The DCMA post-hearing brief echoed 

the association’s support for adoption of 

their proposals on an emergency basis. 

The brief stated that its proposals were 

developed as an integrated package and 

that the package of proposals better 

assures the Appalachian, Southeast, and 

Florida milk orders’ ability to attract a 

sufficient quantity of milk for fluid use. 

The brief said this is accomplished by 

increasing the Class I prices in the three 

milk marketing orders, lowering the 

diversion limit and touch-base 

standards, and modifying the 

transportation credit provisions. The 

brief reiterated the deficit milk supply 

situation in the southeastern region. The 

brief emphasized that procuring milk for 

Class I use for the region is a major 

challenge that is borne 

disproportionately by cooperative 

associations and their dairy farmer 

members. 

The DCMA brief explained that the 

proposed Class I price adjustments and 

changes to the Class I pricing surface in 

the Appalachian, Southeast, and Florida 

orders would accomplish two needed 

results. According to the brief, the 

changes would likely encourage local 

producers to increase milk production 

and provide pricing incentives for 

producers located outside the marketing 

areas to deliver milk to the three 

marketing areas for fluid use. 

The DCMA brief stated that, while 

plant price relationships would 

inevitably change as a result of its 

proposals, the Class I prices proposed 

are strikingly similar to plant price 

differences adopted in the 1999 Order 

Reform final rule. The brief indicated 

that this is proof that its method of 

developing the proposed Class I price 

adjustments and Class I pricing surface 

is valid and meets the requirements of 

a regulated Class I price system. 

The DCMA brief commented on the 

method used in developing its Class I 

pricing proposals as deviating from a 

model developed by Cornell University 

that was relied upon in the adoption of 

current Class I pricing structure. The 

brief addressed opponent arguments 

that the cost of shipping bulk versus 

packaged milk follows distinct cost 

equations and, therefore, different cost 

curves. According to the brief, the 

marginal costs involved in shipping 

bulk milk long distances (over 900 

miles) are still greater than zero and 

subsequently do not invalidate their 

proposed pricing structure. The brief 

characterized the proposed Class I 

pricing portion of the proposal package 

as containing all the elements used by 

the Department in the current Class I 

pricing structure. The brief also argued 

that DCMA’s proposals generate Class I 

pricing relationships consistent with the 

objectives of marketing orders in 

assuring an adequate supply of milk for 

the three marketing areas, not 

encouraging the uneconomic movement 

of milk, and being reflective of the 

supply and demand conditions for milk 

within the marketing areas. 

The DCMA brief explained that 

lowering the diversion limit standards 

in the Appalachian and Southeast 

orders would serve to enhance producer 

blend prices while the decrease in the 

producer touch-base standard would act 

to encourage more efficient milk 

movements and offer cost savings to 

milk suppliers. The brief maintained 

that while some witnesses testified in 

support of even lower (tighter) diversion 

limits, no evidence to support such 

changes was presented. The brief added 

that diversion limit standards in both 

orders will effectively be much lower 

than the proposed standards because no 

diversions may accompany 

supplemental milk pooled on the order 

which receives a transportation credit 

payment. The brief also noted that 

DCMA’s proposal for extending 

transportation credit pay-out months 

also effectively lowers pooling milk by 

diversion. 

The DCMA brief stated that extending 

the payment of transportation credits to 

include the months of January and 

February and to the entire loads of milk 

would offer the suppliers of 

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supplemental milk greater assurance 

that more of the actual costs of hauling 

milk to the southeastern region would 

be covered. According to the brief, 

simplifying the criteria that determines 

if producers are supplemental suppliers 

of milk to the marketing areas offers 

both administrative and marketing 

efficiencies. Finally, the brief explained 

that the proposed increase in the 

transportation credit assessment for the 

Southeast milk order will ensure that 

transportation credit payment claims are 

adequate to meet anticipated needs. 

The DCMA brief maintained that the 

record contains abundant evidence 

supporting the existence of emergency 

conditions in the three marketing areas 

affecting the ability to adequately 

supply fluid milk. The brief stressed 

that providing adjustments for higher 

Class I prices and modifying the Class 

I pricing surface, if even on a temporary 

basis, is necessary immediately. The 

brief indicated that milk production in 

the Southeastern states during the first 

quarter of 2007 declined at a faster rate 

than the annual decline during 2006 

and 2005, and that this increasing rate 

of milk production decline cannot be 

ignored. The brief reiterated the 

continuing increases in hauling costs 

and the longer distances milk must be 

shipped to provide sufficient supplies to 

meet fluid demands. 

A post-hearing brief was submitted on 

behalf of SPSC. The SPSC brief 

indicated support for the Class I 

portions of DCMA’s proposals but was 

not fully supportive of the proposed 

diversion limit standards, touch-base 

standards, and transportation credit 

provisions. The brief agreed with the 

DCMA proposals to increase Class I 

prices in the Appalachian, Southeast, 

and Florida orders on an emergency 

basis because it would promote milk 

production within the three marketing 

areas by enhancing local producer 

income—the primary suppliers of fluid 

milk for the three southeastern markets. 

The SPSC brief did express concern that 

even with expected higher blend prices 

to producers accruing from higher Class 

I prices, the current trend of lower local 

milk production may not be slowed. 

The SPSC brief indicated support to 

lower (tighten) diversion limit standards 

in the Appalachian and Southeast 

orders. However, the brief expressed the 

opinion that diversion limit standards 

for both orders could and should be 

reduced more than that proposed by the 

DCMA. The SPSC brief asserted that 

record evidence had not determined the 

appropriate base and reserve milk 

supply volumes, the proper diversion 

limit and touch-base standards for the 

Appalachian and Southeast orders, or 

who should bear the costs of 

maintaining reserve milk supplies for 

the Southeastern region. 

The SPSC brief was of the opinion 

that record evidence also did not clearly 

indicate that the volume of milk pooled 

on the orders for other than Class I use 

actually would be lowered by adopting 

DCMA’s proposed diversion limit and 

touch-base standards. According to its 

brief, the majority of the producer milk 

removed under the DCMA proposals 

would be unavailable in only a few 

months of the flush production months 

for the Appalachian order and in the 

months of January and February for the 

Southeast order. The brief expressed 

concern that milk could actually be 

added in both orders in the other 

months due to the decrease in the 

touch-base standard. The brief 

maintained that in-area producers and 

those who provide the primary supply 

of milk for fluid use on a regular basis 

should receive the greatest share of 

revenue attributable to that service. 

According to the brief, pooling more 

milk than needed would only continue 

to depress the income of Southeastern 

producers. 

The SPSC brief found agreement with 

Dean’s testimony that proposed a more 

aggressive lowering of diversion limit 

standards for the Appalachian and 

Southeast orders. The brief agreed with 

Dean’s position that tighter diversion 

limits would sharply reduce the 

volumes of pooled milk in the two 

orders and the relative impact on 

producer pay prices would be more 

substantial. The brief indicated support 

for continuing to provide discretionary 

authority for the market administrators 

to tighten diversion limits and raise 

touch-base standards if necessary and 

without the need to resort to the formal 

rulemaking process. 

The SPSC brief indicated conditioned 

support for DCMA’s proposed changes 

to the transportation credit provisions of 

the Appalachian and Southeast orders. 

However, the brief questioned the 

proper role of transportation credits in 

both marketing orders. The brief 

requested the Department consider the 

proper levels of producer delivery day 

requirements, diversion limits, and 

transportation credit provisions to 

achieve the stated goals of the DCMA 

package of proposals. 

A post-hearing brief submitted on 

behalf of Dean and NDH (Dean/NDH) 

agreed that the Southeastern region of 

the U.S. is a deficit milk production 

region and that the deficit is growing. 

The brief said that dairy farmers who 

regularly and consistently supply milk 

to fluid milk plants in the southeastern 

region should be appropriately 

compensated for their raw milk and 

receive the blend price of the order they 

supply. However, the brief argued that 

adopting the proposed Class I price 

adjustments and the Class I price 

surface proposals is not supported by 

record evidence or by rule of law and 

should be denied. While the Dean/NDH 

brief expressed agreement that longterm problems exist regarding the 

viability of the southeastern region dairy 

industry, it doubted that correcting 

problems that have prevailed for 25 

years could be solved overnight through 

emergency rulemaking. 

According to the Dean/NDH brief, 

there is no evidence of an emergency 

that would warrant adopting the Class I 

price proposals by the omission of a 

Recommended Decision. To the extent 

that conditions warrant the need to rely 

on milk orders to return higher prices to 

dairy farmers, the brief asserted that an 

alternative method of returning higher 

prices can be achieved by simply 

lowering the orders’ diversion limit 

standards. The Dean/NDH brief noted 

that Dean and NDH operate several fluid 

milk processing plants in the 

Southeastern region and that other 

processors testifying at the hearing 

opposed the Class I price adjustments 

and Class I pricing surface changes. The 

brief argued that such changes may have 

unintended consequences which may 

worsen the situation in the southeastern 

region. According to the Dean/NDH 

brief, adopting changes to Class I pricing 

may create incentives for plants located 

outside the Appalachian and Southeast 

marketing areas to direct their fluid milk 

sales in the marketing areas and become 

pooled on those orders. The brief argued 

that while plants may gain in blend 

price changes by altering where they 

become pooled, the price surface may 

not change for their competitors. The 

brief also asserted that since January 

2000, Class I prices were intentionally 

linked nationwide as part of Federal 

milk order reform and concluded that 

any change in Class I differentials or the 

Class I price surface, even at one price 

location, would change the economic 

incentive nationwide to serve that 

location. The brief therefore contended 

that the entire national Class I price 

surface needs to be evaluated. 

According to the Dean/NDH brief, 

DCMA’s Class I price proposals fail to 

rely on accepted economic models and 

fail to follow the Department’s 

established policies for making 

adjustments to the Class I price surface. 

Specifically, the brief argued that the 

economic calculations failed to take into 

consideration ‘‘shadow pricing,’’ which 

the brief characterized as how a market 

could react to changes such that an 

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additional price change would alter 

distribution. The brief also argued that 

the Class I price proposals fail to 

calculate unique prices for each location 

by considering relevant reserve supply 

areas and fail to account for differences 

in raw milk movements versus packaged 

milk movements. 

According to the Dean/NDH brief, the 

rationale for setting a target price for 

Miami, FL, and then backing off that 

price and ‘‘smoothing’’ the result is 

arbitrary and capricious. The brief 

contended that determining Class I 

prices in this way applied non-uniform 

methodology and did not meet the 

standards of the Administrative 

Procedure Act. In addition, the brief 

noted that no evidence or economic data 

backs up the ‘‘smoothing’’ process as 

described by DCMA testimony. 

The Dean/NDH brief asserted that 

Wooster, OH, should not be identified 

as a supply area because it has never 

been relied upon as any kind of basing 

point for pricing milk and doing so now 

would be specifically contrary to 

testimony given at a Pennsylvania State 

hearing for a recent State of 

Pennsylvania rulemaking. Accordingly, 

the brief contended that DCMA’s entire 

Class I pricing proposals should be 

rejected. 

According to the Dean/NDH brief, 

although the Class I price changes 

sought are ‘‘temporary,’’ competitive 

impacts of such changes can be longterm and result in permanent harm to 

Class I handlers. The brief asserted that 

any decision should be considered 

permanent unless it has a specific 

sunset provision. According to the brief, 

no specific sunset provision had been 

proposed or discussed in the hearing 

record. 

The Dean/NDH brief pointed out that, 

at the time of the hearing, the dairy 

industry was also experiencing record 

high Class I prices for milk further 

demonstrating the lack of need for 

emergency action. The brief noted that 

the May 2007 uniform price for Fulton 

County, GA, was $18.37 per cwt. 

According to the brief, this price is 

$1.37 per cwt higher than April 2007 

and is $5.83 per cwt, or 45.3 percent, 

higher than in May 2006. The brief also 

noted that the Class I price for June 2007 

at Fulton County was $1.92 per cwt 

higher than May 2007, and the July 2007 

price increased by $3.07 per cwt. The 

brief indicated that even a proponent 

witness acknowledged that such higher 

prices were likely to continue through 

the fall 2007. 

The Dean/NDH brief agreed that 

diversion limit standards for the 

Appalachian and Southeast orders 

should be lowered on an emergency 

basis and made identical to those of the 

Florida order. The brief indicated that 

the Florida order currently functions 

well by having lower diversion limit 

standards and this has supported the 

prevailing over-order premiums. The 

brief opined that because of the order’s 

tight pooling provisions, the need for 

transportation credits and the need for 

holding numerous formal rulemaking 

hearings has been avoided. According to 

the brief, the Florida order’s tight 

diversion limit standards have 

continually assisted that order in 

retaining strong blend prices paid to 

dairy farmers and attracting sufficient 

amounts of milk supplies. 

The Dean/NDH brief asserted that 

pool revenues should be shared only 

among those producers who truly and 

regularly serve the Class I market and 

that diversion limit standards of the 

Appalachian and Southeast orders are 

not adequately identifying those true 

and regular suppliers. The brief asserted 

that both orders can be made more 

effective by requiring a genuine 

association of a milk supply with the 

market as intended by the AMAA. 

The Dean/NDH brief indicated that if 

Dean’s proposal for adopting the 

diversion limit standards of the Florida 

order for the Appalachian and Southeast 

orders is adopted, Dean would support 

the DCMA’s one-day per month touchbase standard proposals. As Dean/NDH 

does not consider DCMA’s proposed 

diversion limit standards as being any 

change at all, it opposed any change to 

the touch-base standards of the 

Appalachian and Southeast orders. 

The Dean/NDH brief opposed the 

expansion of the payment of 

transportation credits to include the 

entire load of milk and stated that 

payments should only be paid on Class 

I milk as currently provided under the 

Appalachian and Southeast orders. The 

brief expressed concern that adopting 

the proposed changes would create the 

wrong economic incentives. The brief 

noted that suppliers of milk to a Class 

I plant with a higher than market 

average of Class II use would be 

receiving a larger economic benefit than 

Class I plants with below market 

average Class II use. According to the 

brief, this would be contrary to assuring 

equal minimum milk prices among 

similar handlers. 

The Dean/NDH brief was of the 

opinion that transportation credits have 

been a key factor in contributing to the 

decline of the dairy industry in the 

southeastern region. In this regard, the 

brief noted the proponents 

acknowledgement that in some cases 

current touch-base provisions in 

conjunction with transportation credits 

cause inefficient movements of milk. 

The brief asserted that transportation 

credits, not touch-base standards, give 

rise to inefficient movements of milk. 

A post-hearing brief by MIF reiterated 

its opposition to adopting DCMA’s 

proposals and asserted the absence of 

emergency marketing conditions that 

warrant emergency action. The brief 

noted awareness of declining milk 

production in the southeastern region 

but indicated this is not a sufficient 

basis for the adoption of the proposals 

on an emergency basis. The brief further 

argued that no emergency exists to 

warrant adoption of the proposals 

because the trends of declining milk 

production in the region and rising fuel 

costs have existed for many years. 

The MIF brief stressed that the key 

purpose of the Federal milk marketing 

order program is to ensure an adequate 

supply of milk for Class I needs. In this 

regard, the brief noted that no witnesses 

testified on the inability to procure milk 

for Class I use. The brief reiterated that 

in a survey of its membership 

conducted before the hearing, no 

member indicated difficulty securing 

milk for Class I needs in the three 

southeastern marketing areas. The brief 

also mentioned that over-order 

premiums are paid by Class I handlers 

to secure milk for fluid use and the 

proponents testified that current overover premiums currently offset higher 

fuel costs. 

The MIF brief noted that some 

southeastern dairy producers who 

testified at the hearing also participated 

in a herd-removal program called 

Cooperatives Working Together (CWT). 

In this regard, the brief cited this as an 

example of misplaced concern for 

declining milk production in the 

southeastern region. 

The MIF brief asserted Class I sales 

would suffer if higher Class I prices 

were adopted because higher raw milk 

costs would increase wholesale costs 

and result in higher retail prices paid by 

consumers. The brief noted that the 

current, general structure of Class I 

location differentials has been in place 

for 22 years and that milk bottlers have 

made significant investments in plants 

and equipment during this time. 

According to the MIF brief, plants 

could be disadvantaged in the 

marketplace solely because of increases 

in the Class I price relative to the Class 

I price of its competitors. The brief 

argued that a $0.005 difference per 

gallon could result in lost customers for 

a distributing plant and that a $0.025 

increase is enough to lose a supermarket 

account. The brief asserted that 

increasing a Class I price by $0.10 per 

cwt ($0.0086 per gallon) could yield 

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dire results for a Class I plant. The brief 

indicated that an unexpected 

consequence could be that plants 

distant to the three orders could become 

associated with one of the three orders 

due to differences between 

transportation costs and increased Class 

I prices resulting in out-of-area plants 

taking away sales from in-area plants. 

The MIF brief said that a 

comprehensive study and analysis on a 

national scale of all potential 

consequences and on demand for 

packaged milk was needed before any 

changes to Class I pricing were adopted. 

The brief reasserted the opinion that 

Class I prices could not be changed in 

the southeastern region alone because 

that would change marketing conditions 

in all marketing areas. 

A post-hearing brief submitted on 

behalf of DCMA expressed support for 

the market administrator assessment 

increase for the Appalachian, Southeast, 

and Florida milk orders in Proposals 4, 

5, and 6, respectively. 

Comments and Exceptions 

Comments and exceptions to the 

tentative partial decision (73 FR 11194) 

were filed by Dairy Cooperative 

Marketing Association, Inc. (DCMA), 

Arkansas Milk Stabilization Board 

(AMSB), Southeast Producers Steering 

Committee (SPSC), Dean Foods 

Company and National Dairy Holdings 

(Dean/NDH), and the Milk Industry 

Foundation (MIF). 

In comments and exceptions 

regarding the adopted Class I price 

surface, DCMA wrote that the amended 

Class I differentials will send 

appropriate signals to maintain and 

increase milk production within the 

three marketing areas, as well as create 

incentives to increase the movement of 

supplemental milk to these areas when 

needed. DCMA also expressed 

agreement that the Class I price surface 

changes will generate producer price 

increases in all three marketing areas. 

DCMA reiterated that the reduction in 

the volume of diverted milk in the 

Appalachian and Southeast marketing 

areas should also lead to increased 

uniform prices in those marketing areas. 

DCMA predicted that decreases in the 

touch-base standard will offer greater 

flexibility in moving pooled milk and 

will offer cost savings on pooled reserve 

supplies. Lastly, DCMA supported 

USDA’s decision to maintain and 

update the transportation credit 

balancing fund provisions. 

Comments and exceptions filed on 

behalf of the AMSB expressed support 

for the tentative partial decision, but 

proposed additional changes to Class I 

price adjustments for certain county 

locations in Arkansas. AMSB requested 

that the Class I differentials for Pulaski 

county be increased from $2.80 to $3.20 

per cwt, Sebastian county from $2.80 to 

$3.10 per cwt, and Washington and 

Benton counties from $2.60 to $3.00 per 

cwt. AMSB also proposed that the 

touch-base standard be changed from 2 

days for each of the months of July 

through December and to 6 days for 

each of the months of January through 

June. According to AMSB, significant 

decreases in milk production in 

Arkansas, as well as in Mississippi and 

Louisiana, are due, in part, to the 

Federal milk marketing orders. AMSB 

was of the opinion that their proposed 

changes are needed to stabilize dairy 

production in the State of Arkansas. 

Comments and exceptions filed on 

behalf of the SPSC expressed support 

for adjusting the Class I price surface in 

each of the three marketing areas but 

asserted that the price adjustment 

increases adopted in the tentative 

partial decision will not sufficiently 

increase local milk production in the 

three marketing areas. SPSC reiterated a 

number of positions given in record 

testimony and brief: (1) lowering the 

touch-base standards will have a 

negative impact on milk prices and 

production in the three marketing areas, 

(2) changes to the transportation credit 

balancing fund provisions will 

encourage unnecessary milk movements 

to the detriment of producer mailbox 

prices in the Appalachian and Southeast 

marketing areas, and (3) milk produced 

on farms located far from the marketing 

areas will seek to capture higher 

transportation credit payments by taking 

advantage of the lower touch-base 

standards along with the extension of 

transportation credit eligibility on the 

full loads of milk. 

Comments and exceptions filed on 

behalf of Dean/NDH expressed 

opposition to the tentative partial 

decision by reiterating its positions 

given in record testimony and posthearing brief: (1) USDA has deserted 

utilizing a nationally coordinated 

pricing surface for Class I milk; (2) 

current economic conditions demand a 

nationally coordinated price surface; 

and (3) abandonment of a nationally 

coordinated Class I price surface does 

not follow the requirements of 

Administrative Procedure Act (APA) or 

the Agricultural Marketing Agreement 

Act (AMAA). Similarly, Dean/NDH 

comments and exceptions also 

continued to criticize the method used 

to create the Class I price surface 

adjustment. 

Comments and exceptions filed on 

behalf of the MIF reiterated its 

opposition given in record testimony 

and post-hearing brief to adjusting the 

Class I price surface in the Appalachian, 

Southeast, and Florida Federal milk 

marketing areas and USDA’s conclusion 

to implement the proposed changes on 

an interim basis. According to MIF’s 

comments and exceptions, increasing 

Class I prices and adjusting the Class I 

price surface will not solve the problem 

of covering procurement costs of fluid 

milk. MIF asserted that over-order 

payments are already used to 

compensate cooperatives that bear the 

costs of balancing the supply and that 

increasing Class I prices will only 

increase costs for processors, retailers 

and consumers and discourage Class I 

sales. 

No comments and exceptions were 

received regarding the proposed 

increase in the maximum administrative 

assessment for the Appalachian, 

Southeast, and Florida orders. 

Discussion and Findings 

The record of this proceeding reveals 

that for many years milk production has 

declined in the southeastern region and 

supplying the region with supplemental 

milk has demanded the sourcing of milk 

supplies from ever farther distances 

from the marketing areas. Not only has 

the decline in milk production been in 

absolute terms, but when balanced with 

population increases, milk production 

in the region has failed to satisfy fluid 

demands year-round. 

The proposed amendments in this 

proceeding to the Appalachian, Florida, 

and Southeast milk marketing orders 

aim to assure an adequate supply of 

milk for fluid use in the southeastern 

region of the U.S. As proposed by 

DCMA, the amendments to the three 

marketing orders seek simultaneous 

changes with the aim of providing 

incentives for assuring a reliable supply 

of milk for fluid use. The amendments 

integrate: (1) Higher regulated minimum 

prices for Class I milk, (2) changes to 

assure that the revenue accruing from 

higher minimum Class I prices will be 

shared with those producers who 

regularly and consistently serve the 

region’s Class I needs of the region, (3) 

cost savings for entities who have made 

the commitment to supply the region, 

and (4) flexibility and incentives for 

supplying the Appalachian and 

Southeast marketing areas with 

supplemental milk by offsetting the cost 

of transportation. 

Class I Prices and Class I Price Surface 

Adjustments to the Class I prices for 

the three southeastern orders continue 

to be proposed for adoption in this final 

decision and result in a change to the 

Class I price surface. The changes are 

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specified in the order language. 

Assuming no other changes to the three 

southeastern orders, increasing Class I 

prices will continue to increase Class I 

prices as provided for in the interim 

rule and increase the value of each 

order’s marketwide pool. The higher 

Class I prices also will attract milk to all 

locations and increase blend prices for 

dairy farmers whose milk is pooled on 

the three southeastern milk marketing 

orders. 

The basic foundation for deriving the 

temporary adjustments to Class I prices 

begins with DCMA’s identification of 

potential supply areas and reliance on 

the areas to yield the lowest Class I 

price adjustment based on the farthest 

point of milk demand. The potential 

supply point meeting these criteria was 

Wooster, OH, and the farthest demand 

point was identified as Miami, FL. After 

identification of the lowest cost supply 

and demand point, the distance between 

these two points was relied upon to 

determine calculated price adjustments 

at all other county and parish locations 

within the marketing area boundaries of 

the three southeastern orders. The 

selection of Miami as the farthest point 

of milk consumption is consistent with 

recognition in the current pricing 

structure that Miami is the point with 

the highest Class I differential resulting 

in a Class I price designed to attract an 

adequate supply of Class I milk. 

As the proposal indicated, the 

selection of Wooster, OH, (Wayne 

County) as a supply point is one of 

several that were considered by the 

proponents. The selection of Wooster 

was made after consideration of other 

supply points because it would 

represent the least-cost point from 

which a milk supply could potentially 

be sourced from locations in the 

southeastern region. All other supply 

points considered would have resulted 

in much higher Class I price 

adjustments. 

The Class I price adjustment 

calculated for every county and parish 

location relies upon a mileage rate factor 

implemented in December 2006. This 

factor is further reduced by 20 percent. 

While this formed DCMA’s basic 

foundation for adjusting Class I prices, 

it is not the proposed Class I price 

adjustments at all locations in the 

southeastern region. 

The DCMA’s Class I price adjustments 

differ from those calculated. What the 

proponents have described as 

‘‘smoothing’’ of the Class I price 

adjustments is essentially price 

alignment. In this regard, it is clear that 

the adopted Class I price adjustments 

are different from strictly calculated 

values. The adopted Class I price 

adjustments provide reasonable 

alignment with the current Class I price 

surface beyond the geographical 

boundaries of the southeastern orders. 

Similarly, DCMA’s Class I price 

adjustments differ from calculated 

adjustments by adjusting calculated 

values to correspond to Class I 

processing plant locations. This 

establishes pricing zones that are 

conceptually identical to current pricing 

zones and assures that similarly situated 

Class I handlers will have the same 

minimum regulated Class I prices. 

Providing similar regulated prices for 

similarly situated handlers is consistent 

with the requirements of the AMAA. 

While conceptually identical, 

maintaining price alignment with 

adjoining milk marketing orders 

together with pricing zones, the adopted 

Class I price adjustments result in price 

relationships that are different from 

those that existed at the time of the 

hearing. Despite criticism that DCMA’s 

adjustments change price relationships 

between plants of the same ownership, 

the key requirement that similarly 

located plants have similar regulated 

minimum prices is maintained. 

In an effort to examine both the level 

and the reasonableness of the Class I 

price adjustments that were zoned and 

aligned with adjoining orders, DCMA 

evaluated the cost of shipping packaged 

milk. According to the record, there are 

some differences between what the 

resulting Class I price adjustments 

would be under the cost analysis of 

shipping packaged milk. Nevertheless, 

the similarities between the adopted 

Class I price adjustment and the cost 

adjustment analysis of shipping 

packaged milk are very similar. Since 

the Class I price adjustment at all 

locations does not exceed the value of 

milk at alternative locations, in either 

bulk or packaged form, the Class I price 

adjustments are reasonable. Despite 

criticism in comments and exceptions, 

this final decision continues to find that 

this method of evaluating the Class I 

pricing changes forms a rational basis to 

conclude that the proposed changes to 

Class I pricing are reasonable. The 

adopted Class I price adjustments are 

presented in Figure 1. While the Class 

I differentials in the southeastern region 

are not changed in this decision, the 

Class I price adjustments are added to 

the current Class I differentials for 

illustrative purposes. Figure 1 provides 

a graphic presentation of the combined 

value of Class I differentials plus the 

adjustment values adopted in this 

decision. 

On the basis of a pricing surface 

alone, the adopted Class I price 

adjustments will not likely result in the 

uneconomic movement of milk as 

asserted by opponents. The adopted 

pricing surface better reflects the 

economic conditions affecting the 

supply and demand for milk in the three 

southeastern marketing areas by 

providing greater pricing incentives 

indicative of actual milk movements 

and the cost of supplying milk from 

alternative locations. The adopted Class 

I price adjustments result in a steeper 

Class I price surface that correlates with 

the higher location value fluid milk has 

in the southeastern region. The location 

value of milk is higher because of the 

cost involved in transporting milk to 

locations in the milk-deficit 

southeastern region from alternative 

milk-surplus locations. 

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BILLING CODE 3410–02–C 

Opponents to DCMA’s Class I price 

adjustments assert that there is no 

reason to increase Class I prices because 

all Class I demands are being met. This 

decision continues to find that DCMA’s 

proposed adjustments to the pricing 

provisions of the three orders are 

reasonable and necessary. The record of 

this proceeding reveals that it is the 

cooperative member organizations of 

DCMA who supply the majority of the 

Class I needs of the three marketing 

areas. In making the commitment to 

supply the fluid needs of the markets, 

the supplying cooperatives have largely 

reduced the burden on Class I handlers 

to source their supply. Similarly, it is 

the cooperative organizations that 

provide the service of balancing the 

three southeastern markets. 

Opponents to DCMA’s Class I price 

adjustments noted that there is an 

adequate supply of milk to meet fluid 

demands. There is an adequate national 

supply of milk to meet the national 

demands for fluid milk. However, in the 

deficit areas of the southeastern 


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marketing areas, there must be sufficient 

incentives provided by the orders to 

encourage the movement of milk from 

reserve areas to these deficit markets. In 

this regard, the location value of milk 

needs to consider local milk supplies, 

local demand, and transportation costs. 

After consideration of comments and 

exceptions, this decision continues to 

find that the adopted Class I price 

adjustments should provide the 

additional incentives needed to offset 

some of the costs associated with the 

decreases in local supply, increases in 

local demand, and increases in 

transportation costs. 

Opponents criticized DCMA’s Class I 

adjustments by identifying that other 

means and methods are available which 

would return greater revenue to dairy 

farmers instead of increasing minimum 

prices. Other changes adopted in this 

decision will, all other things being 

equal, tend to increase minimum 

regulated prices paid to producers. 

However, these changes are founded on 

the very limited improvement gained 

from lowering the diversion limit 

standards of the Appalachian and 

Southeast orders. In light of the chronic 

milk deficit conditions of the 

southeastern region, only higher 

minimum regulated prices can 

reasonably generate the additional 

revenue needed to assure that the Class 

I needs of the region can be met 

continuously. According to market 

administrator analyses, the estimated 

annual increase of the Appalachian 

order pool for 2004, 2005, and 2006 

resulting from DCMA’s proposed Class 

I price adjustments would have been 

$19.3 million, $18.6 million, and $18.3 

million, respectively. For the Southeast 

order, the annual pool value increase 

would have been $16.8 million, $17.1 

million, and $17.7 million, respectively. 

For the Florida order, the annual 

increase in pool value would have been 

$36.4 million, $38.3 million, and $39.2 

million, respectively. While alternative 

methods such as a tightening of pooling 

standards will, among other things, tend 

to enhance producer revenue to those 

producers who regularly and 

consistently supply the market’s Class I 

needs, this alone will not establish 

minimum regulated prices high enough 

to attract an adequate supply for chronic 

milk-deficit marketing areas from 

alternative distant locations. 

Opponents expressed concern about 

producers in the region being involved 

with a voluntary producer-funded 

program known as the Cooperatives 

Working Together (CWT). CWT is a nongovernment program that includes a 

herd retirement program, which reduces 

the number of cows in the national 

dairy herd. This decision rejects this 

argument as it is not germane to the 

issues at hand. This decision is derived 

on the basis of record evidence which 

supports the adoption of the Class I 

pricing surface. 

AMSB, in its comments and 

exceptions, proposed additional Class I 

price surface changes for certain 

counties in Arkansas with the aim of 

raising local milk production. This 

decision rejects adoption of the 

proposed increases for the Arkansas 

county locations for two fundamental 

reasons. First, doing so would not result 

in a reasonably aligned Class I price 

surface with the current national Class 

I price surface. Second, the proposed 

additional increases are based on the 

narrow objective of raising local 

Arkansas milk production. It is the 

purpose of milk marketing orders to set 

minimum prices that result in an 

adequate supply of milk for fluid uses. 

In this regard, it is not important where 

the milk is produced. A function of the 

minimum prices set by the orders is to 

ensure that a sufficient supply of milk 

will be delivered to where it is 

demanded. While AMSB’s proposed 

additional Class I price increases for 

certain Arkansas counties would 

provide an even greater incentive to 

deliver milk to those locations, the 

adjustments are justified with the goal 

of increasing local milk production. 

Accordingly, AMSB’s proposed Class I 

pricing increases for certain Arkansas 

county locations cannot be deemed 

superior to those of the DCMA proposal 

that clearly seeks price increases 

necessary to assure an adequate supply 

of milk from any source while also 

maintaining reasonable alignment with 

a nationally coordinated Class I price 

surface. 

Diversion Limit and Touch-Base 

Standards—Appalachian and 

Southeast Orders 

DCMA’s proposed diversion limit and 

touch-base standards for the 

Appalachian and Southeast orders 

continue to be proposed for adoption in 

this final decision. The proposed 

changes make the diversion limit and 

touch-base standards of the two orders 

identical. Specifically, the proposed 

diversion limit standards are: (1) 25 

percent of deliveries to pool plants 

during each of the months of January, 

February, July, August, September, 

October, and November, and (2) 35 

percent in each of the months of March, 

April, May, June, and December. Both 

orders’ touch-base standards are 

amended to require at least one day’s 

milk production of a producer be 

delivered to a pool plant during the 

month in order for a producer to be 

eligible to divert milk to nonpool plants. 

Based on record evidence, adoption of 

a one-day per month touch-base 

standard for both orders and making the 

diversion limit standards of both orders 

identical accomplishes three important 

pooling standard objectives. 

Specifically, the changes: (1) provide a 

standard necessary to identify producers 

supplying the markets’ Class I needs, (2) 

provide the criteria to identify the milk 

of producers who may be eligible for 

receiving a transportation credit in 

supplying supplemental milk for Class I 

use, and (3) allows milk that is part of 

the milk supply which regularly and 

consistently services the markets’ Class 

I needs to be pooled on the orders. 

Providing for the diversion of milk is 

a desirable and needed feature of an 

order because it facilitates the orderly 

and efficient disposition of milk when 

not needed for fluid use. When 

producer milk is not needed by the 

market for Class I use, some provisions 

should be made for that milk to be 

diverted to nonpool plants but remain 

pooled and priced under the order. The 

lower diversion limits adopted in this 

decision will likely reduce the volume 

of milk eligible to be pooled by 

diversion to a significant degree on the 

Southeast order and less so on the 

Appalachian order. Assuming all other 

conditions being equal, the adopted 

changes in diversion limit standards 

will result in higher blend prices paid 

to producers. This is a desirable 

outcome, especially for the Southeast 

order where there is the need to better 

identify the milk of those producers 

who regularly and consistently service 

the Class I needs of the Southeast 

marketing area. An examination of the 

Southeast order’s utilization of milk 

belies the fact that the marketing area is 

chronically short of in-area milk 

production to meet the Class I demand 

of the marketing area. This can only be 

the result of pooling much more milk on 

the order than is necessary as part of the 

legitimate reserve supply of milk 

available to service the Class I needs of 

the market. 

The record reveals that according to 

market administrator analyses, the 

estimated impact on minimum order 

uniform prices of the proposed 

diversion limit standards in both orders 

would have average annual increases in 

uniform prices of $0.02 per cwt for the 

Appalachian order and $0.07 per cwt for 

the Southeast order. Increased blend 

prices will help to provide greater 

incentives to maintain milk production 

from current producers and provide 

greater economic incentives for dairy 

farmers located outside of the marketing 

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area to be regular and consistent 

suppliers of Class I milk to these two 

marketing areas. 

Milk diverted to nonpool plants is 

milk not physically received at a pool 

plant. However, it is included as a part 

of the total producer milk receipts of the 

diverting plant or cooperative entity 

pooling milk for its own account. A 

diversion limit establishes the amount 

of producer milk that may be associated 

with the integral milk supply of a pool 

plant or cooperative acting in its 

capacity as a handler. With regard to the 

pooling issues of the Southeast order, 

the record reveals that current diversion 

limit standards contribute to the pooling 

of large volumes of milk on the order 

that does not regularly and consistently 

service Class I market needs. Therefore, 

lowering the diversion limit standard is 

appropriate to better assure that only 

milk which regularly and consistently 

services the Class I market is pooled. 

Associating more milk than is actually 

part of the legitimate reserve supply 

available for Class I use unnecessarily 

reduces the potential blend price paid to 

dairy farmers who regularly and 

consistently service the Class I needs of 

a marketing area. Not having reasonable 

diversion limit standards weakens the 

orders’ ability to provide for orderly 

marketing. Diversion limit standards 

that are too high can open the door for 

pooling more milk on the markets than 

necessary. The record supports 

concluding that a 33 percent diversion 

limit for the Southeast order during 

each of the months of January through 

June and 50 percent for each of the 

months of July through December has 

not only resulted in lower blend prices 

harming local producers, but has also 

resulted in Class I utilization rates that 

obscure that area as a deficit market. 

For the Appalachian and Southeast 

orders, the record reveals that since the 

average reserve requirements did not 

differ greatly over the 36 month period 

(January 2004 through December 2006), 

having the same diversion limit 

standards for both orders is justifiable. 

In addition, by having identical 

diversion limit standards, the blend 

prices paid to producers increase as 

milk is supplied to locations generally 

in an easterly and southern direction. 

To the extent that this diversion limit 

standard may warrant future 

adjustments, the orders already provide 

the market administrator authority to 

adjust diversion standards as marketing 

conditions may warrant. Given the total 

milk demands of the marketing areas 

revealed by the record, a minimum of 

about 12 to 13 percent of monthly pool 

distributing plant receipts would be 

needed to meet the minimum daily, 

weekly, monthly, and seasonal needs, as 

well as a modest margin for 

unanticipated changes in the supply 

and demand relationship for Class I 

milk needs. Accordingly, the proposed 

diversion standards for the orders are 

reasonable and continue to be proposed 

for adoption in this final decision. 

Touch-base delivery standards define 

the minimum number of days of milk 

production each month that a dairy 

farmer must supply a pool plant of an 

order to be associated with that market 

and thus qualify to have their milk 

pooled by diversion. On the basis of the 

record evidence, this decision finds 

reason to support adopting a 1 day 

touch-base standard for both orders. 

Conditional supporters have voiced 

concern for DCMA’s package of 

proposed amendments that lower the 

touch-base standards of the 

Appalachian and Southeast order 

because, they believe, it represents an 

easing of a feature of the orders’ pooling 

standards at a time when the opposite 

is needed to improve producer income 

in the two orders. While this concern 

might be conceptually valid, it does not 

consider that the volume of milk pooled 

on the two orders will be appropriately 

restricted by the adopted diversion limit 

standards. In part, because the diversion 

limit standards of the orders are 

tightened, an easing of the touch-base 

standard can be made without fear of 

pooling the milk of producers who are 

not part of the regular and consistent 

supply of milk serving the Class I needs 

of the two marketing areas. 

While diversion limit standards are a 

key feature of the pooling standards of 

an order for defining the total volume of 

milk that can be pooled, an argument 

could be made that perhaps a touchbase standard is not necessary at all if 

other pooling standard features are 

appropriately tailored. However, a 

touch-base standard for the Appalachian 

and Southeast orders remains a critical 

feature of both orders because some 

criteria are needed to identify producers 

who are suppliers of supplemental milk 

to the two marketing areas and who 

thereby may be eligible to receive a 

transportation credit. 

Record evidence indicates that by 

reducing the touch-base standard to 1 

day per month, producers, especially 

cooperative member producers who 

bear the burden of supplying the vast 

majority of milk to the southeastern 

marketing areas, would avoid the cost of 

delivering their milk to pool plants 

when not necessarily needed. While a 

higher touch-base standard tends to 

support the integrity of the orders’ 

performance standards, the current 

touch-base standards result in the 

uneconomic movement of milk solely 

for the purpose of meeting a pooling 

standard. The current touch-base 

standards of the two orders too often 

result in the substitution of local milk 

with the milk of more distant producers, 

thus displacing the milk of local 

producers supplying the market. The 

milk of local producers needlessly 

incurs the cost of being transported to 

more distant locations. As a result of the 

current touch-base standard, hauling 

and marketing costs are needlessly 

higher and the supply of milk from 

distant producers may still not be 

available to serve the Class I needs of 

the two marketing areas. 

Despite comments and exceptions 

received by SPSC and AMSB and for the 

reasons discussed above, this decision 

continues to find that the diversion 

limit standards of the Appalachian and 

Southeast orders at the time of the 

hearing resulted in the pooling of more 

milk than could reasonably be 

considered as actually serving the 

markets’ Class I needs. Therefore, this 

final decision continues to support the 

reduced diversion limits proposed by 

DCMA. Additionally, the lowering of 

the touch-base standard, in light of the 

tightening of the diversion limit 

standards, does not compromise the 

integrity of the orders’ pooling 

standards. Together with the adopted 

diversion limit standards, a lower 

touch-base standard for the two orders 

offers operational cost savings to 

producers supplying the market with 

Class I milk while simultaneously 

providing for identification of the milk 

of those producers who regularly and 

consistently service the markets’ Class I 

needs. 

Until December 2006, the 

transportation credit balancing 

provisions of the Appalachian and 

Southeast orders allowed supplemental 

milk loads to be used as a platform to 

pool additional milk on the order 

through the diversion process. Official 

notice is taken of the tentative partial 

decision concerning milk in the 

Appalachian and Southeast marketing 

areas issued September 1, 2006, and 

published September 13, 2006, (71 FR 

54118) and the Interim Rule issued 

October 19, 2006, and published 

October 25, 2006 (71 FR 62337). In 

discussing the need for revised 

diversion limit standards for the 

Appalachian and Southeast orders it is 

necessary to consider the findings of 

that decision. 

The September 2006 decision 

referenced above established a zero 

diversion limit standard on 

supplemental milk supplies seeking a 

transportation credit payment. An 

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important finding in that decision 

regarding diversions associated with 

supplemental milk supplies was that 

pooling such diverted milk would 

provide additional revenue to help 

offset hauling costs not covered by the 

transportation credit payments then in 

place for the Appalachian and Southeast 

orders. The adoption of a variable 

mileage rate factor that reimburses 

hauling costs on supplemental milk at a 

level more reflective of actual costs was 

found to diminish the need to seek and 

generate such revenue to offset hauling 

costs at the expense of the local 

producers who are regularly and 

consistently supplying milk for Class I 

needs. This final decision adopts tighter 

diversion limit standards, especially for 

the Southeast order. Together with 

providing for higher Class I prices, 

tighter diversion limit standards should 

result in more orderly marketing 

conditions. The ability to pool more 

milk on the orders than the amount 

needed to regularly and consistently 

serve the Class I needs of the markets 

needlessly lowers the blend price of 

producers who regularly and 

consistently service such Class I needs. 

Transportation Credit Balancing Fund 

Provisions 

DCMA’s proposed changes to the 

Appalachian and Southeast order 

transportation credit balancing fund 

provisions continue to be proposed for 

adoption in this final decision. 

Specifically, these changes include: (1) 

Extending the number of months that 

transportation credit balancing funds 

will be paid to include the months of 

January and February. The month of 

June will continue to be a month for the 

payment of transportation credits if 

requested and approved by the market 

administrator; (2) Expanding the 

payment of transportation credits for 

supplemental milk to include the full 

load of milk; (3) Providing more 

flexibility in determining the 

qualification requirements for 

supplemental milk producers to receive 

transportation credit payments; and (4) 

Increasing the monthly transportation 

credit balancing fund assessment rate 

for the Southeast order from $0.20 per 

cwt to $0.30 per cwt. 

The transportation credit balancing 

fund provisions for both orders (and 

predecessor orders) were established in 

1996 as a result of the consistent need 

to import supplemental milk for fluid 

use during certain times of the year 

when local production is not sufficient 

to meet the markets’ fluid needs. 

Specifically, the market administrator 

applies a monthly transportation credit 

balancing fund assessment on all 

dispositions of Class I milk. The 

assessment rate adopted on an interim 

basis through a separate rulemaking 

proceeding (71 FR 62377, published 

October 25, 2006) was $0.15 per cwt and 

$0.20 per cwt for the Appalachian and 

Southeast orders, respectively. At the 

time of the hearing, transportation credit 

payments were paid from each order’s 

transportation credit balancing fund 

during the months of July through 

December to help offset the cost of 

transporting such supplemental milk for 

Class I use. As a result of this 

proceeding, January and February were 

added on interim bases as transportation 

credit payout months effective March 

18, 2008 (73 FR 14153). The 

transportation credit balancing funds 

operate independently from the 

producer settlement funds of the two 

orders. Milk from producers located 

outside of the two marketing areas who 

are not part of the regular and consistent 

supply of Class I milk, is commonly 

referred to as supplemental milk. 

The record reveals that the seasonal 

swings in milk production lead to 

inadequate milk supplies for fluid use 

in certain months and surplus supplies 

in other months. In the Appalachian 

and Southeast orders, the summer and 

fall (and sometimes winter) months are 

generally considered those months with 

inadequate (tight) milk supplies for 

fluid use, while the spring months are 

generally characterized as having 

sufficient supplies of milk for fluid use. 

Transportation credits are used as a 

method to compensate handlers that 

provide supplemental milk during the 

tight supply months by offsetting some 

of the costs of transporting milk to the 

two marketing areas. 

Prior to the interim final rule issued 

in this proceeding (73 FR 14153) the 

payment of transportation credits under 

the Appalachian and Southeast orders 

was only made during the months of 

July through December. A feature of 

DCMA’s proposal seeks to extend such 

payments to also include the months of 

January and February. Record evidence 

demonstrates reliance on supplemental 

milk supplies for each order’s marketing 

area during July through December and 

the months of January and February 

showing similar demand for 

supplemental milk supplies. 

Declining local milk production in the 

southeastern region of the country is 

well-known and is a chronic problem. 

Record evidence indicates milk 

marketings from dairy farmers located 

in both the Appalachian and Southeast 

marketing areas (pooled on any order) 

has continued to decrease since 2004. 

Specifically, evidence shows that 

annual milk marketings pooled on the 

Appalachian order have decreased from 

approximately 3.94 billion pounds in 

2004 to about 3.77 billion pounds in 

2006. For the Southeast order, milk 

marketings from in-area dairy farmers 

declined from 5.0 billion pounds in 

2004 to 4.76 billion pounds in 2006. 

Furthermore, record evidence illustrates 

that total milk production in the 

southeastern states of the U.S. has 

declined on average almost 2 percent 

each year since 1986 and has decreased 

a total of 34.6 percent since 1986—from 

18.29 billion pounds in 1986 to 11.96 

billion pounds in 2006. 

In each of the years of 2004, 2005, and 

2006, the months of July through 

January were deficit in terms of monthly 

in-area milk marketings (milk marketed 

by dairy farmers within the geographical 

boundaries of the two marketing areas) 

being consistently less than the monthly 

Class I producer milk pooled on the 

Appalachian and Southeast orders. The 

in-area deficit in January for both orders 

for all 3 years combined totaled 8.4 

million pounds. While February in-area 

milk marketings for all 3 years exceeded 

Class I demands, that surplus decreased 

from over 44 million pounds in 2004 to 

just under 14 million pounds in 2006— 

a decrease of over 68 percent. 

Record evidence reveals that the 

months of January and February are 

likely to become months during which 

local in-area milk marketings will no 

longer satisfy Class I demands and the 

Appalachian and Southeast marketing 

areas will need to increasingly rely on 

supplemental milk supplies to satisfy 

Class I demands. Accordingly, this 

decision continues to find that 

expanding the transportation credit 

payment months to include the months 

of January and February for the payment 

of transportation credits is reasonable. 

June will continue to be an optional 

month for transportation credit 

payments, if requested, to be reviewed 

and authorized by the market 

administrator. 

Currently, transportation credits are 

paid on loads of milk at the lower of the 

receiving plant’s Class I use or the 

marketwide Class I utilization. DCMA’s 

proposals seek to change these criteria 

by having the entire load of 

supplemental milk eligible to receive a 

transportation credit. The major 

justification offered by DCMA is that the 

cost of transporting supplemental milk, 

regardless of the plant’s use of that milk, 

is the same. This decision finds that a 

supplier of supplemental milk sources 

and assembles milk demanded by 

distributing plants for fluid uses, but no 

distributing plant disposes 100 percent 

of its milk receipts as Class I sales. The 

supplemental milk supplier does not 

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know how a receiving plant will use the 

supplemental milk it receives. However, 

it is reasonable to conclude that plants 

do not seek supplemental milk supplies 

without first having the demand for 

Class I use. In other words, the need for 

supplemental milk supplies is fueled by 

Class I demands that cannot be satisfied 

in the absence of transportation credits. 

It is unlikely that supplemental milk 

suppliers would supply full milk loads 

to Class I plants if the demand for milk 

was not at least equal to its Class I 

disposition, even if it has some actual 

lower-valued use of milk. 

The current calculation of 

transportation credit payments in the 

Appalachian and Southeast orders 

contain a number of features to prevent 

offsetting the full cost of transporting 

supplemental milk into the marketing 

areas. They also contain features to 

prevent the pooling of milk on the 

orders that do not regularly and 

consistently supply the fluid needs of 

the two marketing areas. Most important 

is the feature denying the ability to pool 

milk by diversion on the basis of 

supplemental milk deliveries to plants 

in the two orders. Current transportation 

credit provisions prohibit pooling 

diverted milk on the Appalachian and 

Southeast orders on loads of 

supplemental milk seeking a 

transportation credit and this 

prohibition is continued by its adoption 

in this decision. Since supplemental 

milk can no longer form a basis from 

which to pool milk through the 

diversion process, it is reasonable to 

conclude that the marketwide Class I 

utilization percentage of the orders will 

likely increase. However, this 

improvement alone will not likely result 

in offsetting the costs incurred by 

supplemental milk suppliers who both 

assemble and transport milk to plants 

regulated by the two orders to satisfy 

Class I demands. 

Record evidence reveals that the 

Appalachian and Southeast marketing 

areas incur different costs in attracting 

supplemental milk to meet Class I 

needs. In recent years, the 

transportation credit reimbursement on 

claims for the Southeast order has been 

prorated at greater rates and more often 

than those of the Appalachian order. As 

discussed in the September 13, 2006, 

tentative decision for the Appalachian 

and Southeast orders (71 FR 54118), the 

Appalachian marketing area receives the 

majority of its supplemental milk 

supplies from the northern Mid-Atlantic 

States. The Southeast marketing area 

receives the majority of its supply from 

the Midwest and Southwest States. The 

location of supplemental milk supplies 

for the Southeast marketing area 

therefore tends to be more distant from 

the marketing area than for the 

Appalachian marketing area. 

The need to again raise the monthly 

transportation credit assessment rate for 

the Southeast order is in part explained 

by the continuing need of the Southeast 

marketing area to reach ever farther to 

source milk supplies to satisfy fluid 

demands. Additionally, expanding the 

payment of transportation credits on the 

entire load of supplemental milk also 

will likely increase the payment of 

transportation credit claims. At the 

same time, payment of transportation 

credit claims will be partially offset by 

the adopted changes to the Class I 

pricing surface because the calculation 

for determining payment considers the 

change in Class I pricing values between 

the origin of supplemental milk and the 

point where it is delivered. As 

discussed above, the need for 

supplemental milk supplies is fueled by 

the marketing area’s Class I demand. 

The current transportation credit 

provisions provide precautionary 

measures such that the rate of 

assessments beyond actual handler 

claims is unlikely. The transportation 

credit provisions provide the market 

administrators the authority to reduce or 

waive assessments as necessary to 

maintain sufficient fund balances to pay 

the transportation credits claims. 

Therefore, increasing the maximum 

transportation credit assessment rates 

will not result in an accumulation of 

funds beyond what is needed to pay 

transportation credit claims. 

The record supports concluding that 

local milk production is expected to 

continue declining within both 

marketing areas. This will result in an 

even greater reliance on supplemental 

milk to meet the fluid milk needs of the 

markets. Record evidence shows a 

constant increase in both the volume 

and distance of supplemental milk 

supplies, especially for the Southeast 

marketing area. As such, it is reasonable 

to conclude that future transportation 

credit claims will increase. In this 

regard, it is important to prevent 

exhausting the transportation credit 

balancing fund before the payment of 

claims on supplemental milk. Doing so 

is consistent with the fundamental 

purposes of the transportation credit 

provisions. 

The adopted increases in Class I 

prices will likely alter the payout of 

transportation credit claims because the 

differences in origin and delivery point 

Class I prices are increased. However, 

adoption of expanded transportation 

credit payment months to include 

January and February, as well as 

payments on the entire load of milk, 

will tend to offset the payout on 

transportation credit claims resulting 

from the adopted changes in Class I 

pricing. 

An increase in the transportation 

credit assessment rate for the 

Appalachian order was not requested 

because 100 percent of the 

transportation credit requests were paid 

in 2006 and in January 2007. Hearing 

record data indicates that even with 

adoption of the proposed Class I prices, 

pooling requirements and transportation 

credit provisions, the transportation 

credit assessment rate of $0.15 per cwt 

in the Appalachian order should 

continue to be sufficient to pay future 

transportation credit requests. 

The record indicates that the actual 

transportation credits paid in 2006 for 

the Appalachian order totaled 

$3,313,590. Had the current mileage rate 

factor (MRF) been in effect for all of 

2006, transportation credit payments for 

the Appalachian order would have 

totaled $4,433,854, including the actual 

payment for January 2007 and an 

estimated payment for February. 

Analysis suggests that with the current 

MRF and proposed Class I prices in 

place, the total transportation credits 

paid during 2006 would have been 

about $456,000 less than the actual total 

transportation credit payments. Using 

market administrator data with the 

variable MRF based on 2006 calculated 

monthly averages ($0.044 per cwt per 10 

miles), paying of transportation credit 

claims on full loads of milk, and the 

proposed Class I price adjustments, the 

total transportation credits paid for 2006 

in the Appalachian order would have 

totaled $4,073,312. This is $360,000 less 

than what would have been paid with 

the MRF and the lower of a plant’s Class 

I use or marketwide Class I utilization. 

Accordingly, the current $0.15 

assessment rate for the Appalachian 

order appears to be sufficient to meet all 

claims even when paying transportation 

credits on full loads of milk delivered to 

Class I plants regulated by the order. 

The record indicates that the 

transportation credit balancing fund for 

the Southeast order has been 

insufficient to pay transportation credit 

claims. Record evidence indicates that 

during 2006, Southeast order 

transportation credit payments were 

prorated to 81, 36, 39, and 64 percent 

of the transportation credit claims for 

the months of September, October, 

November, and December, respectively. 

Such transportation credit claims also 

have increased in number of pounds 

and in number of miles. Specifically, 

the total pounds claimed for the receipt 

of transportation credits has increased 

from 374 million pounds for July 

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through December 2000 to 820 million 

pounds for July through December 

2006—an increase of 119 percent. 

Increasing the maximum 

transportation credit assessment rate for 

the Southeast order should not result in 

an unnecessary accumulation of funds. 

For the Southeast order, the record 

indicates that transportation credits 

paid in 2006 would have totaled 

$15,704,872 for the months of July 

through December and would have 

totaled $18,604,872 by including the 

months of January and February. This 

analysis is based on using the same 

MRF of $0.044 as in the Appalachian 

order analysis, paying of transportation 

credit claims on full loads of milk, and 

with the proposed Class I price 

adjustments. However, the assessment 

rate of $0.20 per cwt falls far short of the 

total revenue needed to pay all expected 

transportation credit claims. Even a 

$0.30 per cwt assessment may not 

generate sufficient revenue to meet all 

expected claims on full loads of 

supplemental milk. Nevertheless, a 

$0.30 cwt assessment is more likely to 

be sufficient to cover all expected 

transportation credit claims. 

Determining those producers eligible 

to receive a transportation credit on 

their supplemental milk deliveries 

requires that the dairy farmer be located 

outside either the Appalachian or the 

Southeast marketing areas, the producer 

must not meet the Producer definition 

of the orders during more than 2 of the 

immediately preceding months of 

February through May, and not more 

than 50 percent of the milk production 

of the dairy farmer during those 2 

months, in aggregate, can be received as 

producer milk under the order during 

those 2 months. 

DCMA has proposed that these 

requirements for the Appalachian and 

Southeast orders be made more flexible 

without substantially changing the 

identification of milk that is not a 

regular part of the supply of milk to the 

two orders. Specifically proposed is that 

a dairy farmer must not be a producer 

on the orders for more than 45 of the 92 

days in the months March through May 

or must have less than 50 percent of the 

producer’s milk pooled on the orders 

during those 3 months combined. On 

the basis of record testimony, this 

change is warranted. Specifically, it 

represents a change that provides 

flexibility in identifying supplemental 

milk producers and may result in lower 

operational costs to those producers 

incurring the costs of supplying 

supplemental milk to the Appalachian 

and Southeast marketing areas. 

Additionally, prior to the interim 

adoption, February was a month used to 

determine the qualification of 

supplemental milk producers to be 

eligible for a transportation credit 

payment. Since this decision adopts 

providing for the month of February as 

a month in which transportation credit 

payments can be made, it is necessary 

to redefine the months that a producer 

may qualify to receive transportation 

credits on either order. 

Administrative Assessment Increase 

The hearing record reveals that 

fluctuations in the volumes of milk 

pooled on the Appalachian, Southeast, 

and Florida orders can be attributed to 

a combination of declining milk 

supplies and the tightening of diversion 

limits in all three marketing areas. This 

combination can reduce market 

administrator revenues to a level too 

low for the proper administration of the 

orders while maintaining the mandated 

reserve level. The adoption of Proposals 

4, 5, and 6 will create a more stable 

revenue stream for the administration of 

the three southeastern orders. 

It is reasonable to increase the 

maximum administrative assessment 

rate to $0.08 per cwt in the 

Appalachian, Southeast and Florida 

orders to ensure that the market 

administrators have the proper funds to 

carry out all of the services provided by 

the three marketing areas. While the 

maximum administrative assessment 

rate is increased to $0.08 per cwt in the 

Appalachian, Southeast, and Florida 

orders, the actual rate charged will only 

be as high as necessary to properly 

administer the orders and provide 

necessary services to market 

participants. 

Conforming Changes 

Conforming changes were made to 7 

CFR 1000.50 Class prices, component 

prices, and advanced pricing factors. 

Specifically, the Class I skim milk price 

and the Class I butterfat price provisions 

were changed to conform to the 

amendments adopted in this proceeding 

as provided for in Proposal 7 of the 

hearing notice. The changes made to 7 

CFR 1000.50 (b) and (c) included 

reference to the adjustments adopted to 

Class I prices specified in 7 CFR 

1005.51(b), 1006.51(b), and 1007.51(b). 

The conforming changes were presented 

in the partial tentative final decision (73 

FR 11194) and implemented by the 

interim final rule (73 FR 14153). 

Rulings on Proposed Findings and 

Conclusions 

Briefs, proposed findings, and 

conclusions were filed on behalf of 

certain interested parties. These briefs, 

proposed findings, and conclusions, and 

the evidence in the record were 

considered in making the findings and 

conclusions set forth above. To the 

extent that the suggested findings and 

conclusions filed by interested parties 

are inconsistent with the findings and 

conclusions set forth herein, the claims 

to make such findings or reach such 

conclusions are denied for the reasons 

previously stated in this decision. 

General Findings 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the Appalachian, 

Florida, and Southeast 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. 

The following findings are hereby 

made with respect to the aforesaid 

marketing agreements and orders: 

(a) The tentative 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 with respect to 

the price of feeds, available supplies of 

feeds, and other economic conditions 

that affect market supply and demand 

for milk in the marketing area, and the 

minimum prices specified in the 

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 tentative 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, the marketing agreements 

upon which a hearing has been held. 

Rulings on Exceptions 

In arriving at the findings and 

conclusions, and the regulatory 

provisions of this decision, each of the 

exceptions received was carefully and 

fully considered in conjunction with the 

record evidence. To the extent that the 

findings, conclusions, and regulatory 

provisions of this decision are at 

variance with any of the exceptions, 

such exceptions are hereby overruled 

for the reasons previously stated in this 

decision. 

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12984 Federal Register / Vol. 79, No. 45 / Friday, March 7, 2014 / Proposed Rules 

Marketing Agreement and Order 

Annexed hereto and made a part 

hereof are two documents—a Marketing 

Agreement regulating the handling of 

milk and an Order Amending the Order 

regulating the handling of milk in the 

Appalachian, Florida, and Southeast 

marketing areas, that was approved by 

producers and published in the Federal 

Register on March 17, 2008 (73 FR 

14153) and on May 9, 2008 (73 FR 

26513) as an Interim Final Rule and 

Correcting Amendments, respectively. 

These documents have been decided 

upon as the detailed and appropriate 

means of effectuating the foregoing 

conclusions. 

It is hereby ordered that this entire 

decision and the Marketing Agreement 

annexed hereto be published in the 

Federal Register. 

Determination of Producer Approval 

and Representative Period 

The month of July 2013 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, Southeast, and 

Florida marketing areas is approved or 

favored by producers, as defined under 

the terms of the order as hereby 

proposed to be amended, who during 

such representative period were 

engaged in the production of milk for 

sale within the aforesaid marketing area. 

List of Subjects in 7 CFR Parts 1005, 

1006 and 1007 

Milk Marketing Orders. 

Order Amending the Order Regulating 

the Handling of Milk in the 

Appalachian, Florida, and Southeast 

Marketing Areas 

This 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 

Appalachian, Florida, and Southeast 

marketing areas. The hearing was held 

pursuant to the provisions of the 

Agricultural Marketing Agreement Act 

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

and the applicable rules of practice and 

procedure (7 CFR part 900). 

Upon the basis of the evidence 

introduced at such hearing and the 

record thereof, it is found that: 

(1) The said 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 

areas. The minimum prices specified in 

the orders as hereby amended are such 

prices as will reflect the aforesaid 

factors, insure a sufficient quantity of 

pure and wholesome milk, and be in the 

public interest; and 

(3) The said orders as hereby 

amended regulate the handling of milk 

in the same manner as, and are 

applicable only to persons in the 

respective classes of industrial or 

commercial activity specified in, a 

marketing agreement upon which a 

hearing has been held. 

Order Relative to Handling 

It is therefore ordered, that on and 

after the effective date hereof, the 

handling of milk in the Appalachian, 

Florida, and Southeast marketing areas 

shall be in conformity to and in 

compliance with the terms and 

conditions of the orders, as amended, 

and as hereby amended, as follows: 

The provisions of the order amending 

the orders contained in the interim 

amendments of the orders issued by the 

Administrator, Agricultural Marketing 

Service, on March 12, 2008, and 

published in the Federal Register on 

March 17, 2008, (72 FR 14153) and as 

corrected in the correcting amendments 

issued May 6, 2008, and published May 

9, 2008, (73 FR 26513) are adopted and 

shall be the terms and provisions of 

these orders. 

For the reasons set forth in the 

preamble, 7 CFR parts 1005, 1006 and 

1007 are proposed to be amended as 

follows: 

■ 1. The authority citation for 7 CFR 

parts 1005, 1006 and 1007 continues to 

read as follows: 

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

PART 1005—MILK IN THE 

APPALACHIAN MARKETING AREA 

■ 2. Section 1005.85 is revised, to read 

as follows: 

§ 1005.85 Assessment for order 

administration. 

On or before the payment receipt date 

specified under § 1005.71, each handler 

shall pay to the market administrator its 

pro rata share of the expense of 

administration to the order at a rate 

specified by the market administrator 

that is no more than $.08 per 

hundredweight with respect to: 

(a) Receipts of producer milk 

(including the handler’s own 

production) other than such receipts by 

a handler described in § 1000.9 (c) of 

this chapter that were delivered to pool 

plants of other handlers; 

(b) Receipts from a handler described 

in § 1000.9(c) of this chapter; 

(c) Receipts of concentrated fluid milk 

products from unregulated supply 

plants and receipts of nonfluid milk 

products assigned to Class I use 

pursuant to § 1000.43(d) of this chapter 

and other source milk allocated to Class 

I pursuant to § 1000.43(a)(3) and (8) of 

this chapter and the corresponding steps 

of § 1000.44(b) of this chapter, except 

other source milk that is excluded from 

the computations pursuant to 

§ 1005.60(d) and (e) of this chapter; and 

(d) Route disposition in the marketing 

area from a partially regulated 

distributing plant that exceeds the skim 

milk and butterfat subtracted pursuant 

to § 1000.76(a)(1)(i) and (ii) of this 

chapter. 

PART 1006—MILK IN THE FLORIDA 

MARKETING AREA 

■ 3. Section 1006.85 is revised to read 

as follows: 

§ 1006.85 Assessment for order 

administration. 

On or before the payment receipt date 

specified under § 1006.71, each handler 

shall pay to the market administrator its 

pro rata share of the expense of 

administration of the order at a rate 

specified by the market administrator 

that is no more than $.08 per 

hundredweight with respect to: 

(a) Receipts of producer milk 

(including the handler’s own 

production) other than such receipts by 

a handler described in § 1000.9(c) of this 

chapter that were delivered to pool 

plants of other handlers; 

(b) Receipts from a handler described 

in § 1000.9(c) of this chapter; 

(c) Receipts of concentrated fluid milk 

products from unregulated supply 

plants and receipts of nonfluid milk 

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2First and last section of order. 

3Name of order. 

4Appropriate part number. 

5Next consecutive section number. 

6Appropriate representative period for the order. 

products assigned to Class I use 

pursuant to § 1000.43(d) of this chapter 

and other source milk allocated to Class 

I pursuant to § 1000.44(a)(3) and (8) and 

the corresponding steps of § 1000.44(b) 

of this chapter, except other source milk 

that is excluded from the computations 

pursuant to § 1007.60(d) and (e) of this 

chapter; and 

(d) Route disposition in the marketing 

area from a partially regulated 

distributing plant that exceeds the skim 

milk and butterfat subtracted pursuant 

to 1000.76(a)(1)(i) and (ii) of this 

chapter. 

PART 1007—MILK IN THE SOUTHEAST 

MARKETING AREA 

■ 4. Section 1007.85 is revised, to read 

as follows: 

§ 1007.85 Assessment for order 

administration. 

On or before the payment receipt date 

specified under § 1007.71, each handler 

shall pay to the market administrator its 

pro rata share of the expense of 

administration of the order at a rate 

specified by the market administrator 

that is no more than $.08 per 

hundredweight with respect to: 

(a) Receipts of producer milk 

(including the handler’s own 

production) other than such receipts by 

a handler described in § 1000.9(c) of this 

chapter that were delivered to pool 

plants of other handlers; 

(b) Receipts from a handler described 

in § 1000.9(c) of this chapter; 

(c) Receipts of concentrated fluid milk 

products from unregulated supply 

plants and receipts of nonfluid milk 

products assigned to Class I use 

pursuant to § 1000.43(d) of this chapter 

and other source milk allocated to Class 

I pursuant to § 1000.44(a)(3) and (8) of 

this chapter and the corresponding steps 

of § 1000.44(b) of this chapter, except 

other source milk that is excluded from 

the computations pursuant to 

§ 1007.60(d) and (e) of this chapter; and 

(d) Route disposition in the marketing 

area from a partially regulated 

distributing plant that exceeds the skim 

milk and butterfat subtracted pursuant 

to 1000.76(a)(1)(i) and (ii) of this 

chapter. 

[Note: The following will not appear in the 

Code of Federal Regulations.] 

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 § ll to ll2 all 

inclusive, of the order regulating the 

handling of milk in the lll3

marketing area (7 CFR part ll4) which 

is annexed hereto; and 

II. The following provisions: §ll5

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 lll6, 

lll hundredweight of milk covered 

by this marketing agreement. 

(b) Authorization to correct 

typographical errors. The undersigned 

hereby authorizes the Deputy 

Administrator, or Acting Deputy 

Administrator, Dairy Programs, 

Agricultural Marketing Service, to 

correct any typographical errors which 

may have been made in this marketing 

agreement. 

Effective date. This marketing 

agreement shall become effective upon 

the execution of a counterpart hereof by 

the Department in accordance with 

Section 900.14(a) of the aforesaid rules 

of practice and procedure. 

In Witness Whereof, The contracting 

handlers, acting under the provisions of 

the Act, for the purposes and subject to 

the limitations herein contained and not 

otherwise, have hereunto set their 

respective hands and seals. 

Signature 

By (Name) lllllllllllllll

(Title) lllllllllllllllll

(Address) llllllllllllllll

(Seal) 

Attest llllllllllllllllll

Dated: February 25, 2014. 

Rex A. Barnes, 

Associate Administrator. 

[FR Doc. 2014–04692 Filed 3–6–14; 8:45 am] 

BILLING CODE 3410–02–P 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Parts 1005 and 1007 

[Doc. No. AMS–DA–09–0001; AO–388–A17 

and AO–366–A46; DA–05–06–A] 

Milk in the Appalachian and Southeast 

Marketing Areas; Final Partial Decision 

on Proposed Amendments to 

Marketing Agreements and to Orders 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule. 

SUMMARY: This final decision proposes 

to permanently adopt revised 

transportation credit balancing fund 

provisions for the Appalachian and 

Southeast milk marketing orders. 

Specifically, this document Establishes 

a variable mileage rate factor using a 

fuel cost adjustor to determine the 

transportation credit payments of both 

orders; increases the transportation 

credit assessment rate for the 

Appalachian order to $0.15 per 

hundredweight; and establishes a zero 

diversion limit standard on loads of 

milk requesting transportation credits. 

Separate decisions will address the 

proposed adoption of an intra-market 

transportation credit provision for the 

Appalachian and Southeast orders and 

for increasing the transportation credit 

rate assessment for the Southeast order. 

This final decision is subject to 

producer approval. Producer approval 

for this action will be determined 

concurrently with amendments adopted 

in a separate final decision that amends 

the Class I pricing and other provisions 

of the Appalachian, Southeast, and 

Florida milk marketing orders. 

FOR FURTHER INFORMATION CONTACT: Erin 

Taylor, USDA/AMS/Dairy Programs, 

Order Formulation and Enforcement 

Branch, STOP 0231–Room 2971, 1400 

Independence Avenue SW., 

Washington, DC 20250–0231, (202) 720– 

7183, email address: Erin.Taylor@

ams.usda.gov. 

SUPPLEMENTARY INFORMATION: This final 

decision proposes to permanently adopt 

amendments that: (1) Establish a 

variable transportation credit mileage 

rate factor which uses a fuel cost 

adjustor in both orders; (2) Increase the 

Appalachian order’s maximum 

transportation credit assessment rate to 

$0.15 per hundredweight (cwt); and (3) 

Establish a zero diversion limit standard 

on loads of milk requesting 

transportation credits. 

This administrative action is governed 

by the provisions of sections 556 and 

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