62810 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

1 7 U.S.C. 7256(3) ‘‘Consent for the Northeast

Interstate Dairy Compact shall terminate concurrent

with the Secretary’s implementation of the dairy

pricing and Federal milk marketing order

consolidation and reforms under section 7203 of

this title.’’

2 7 CFR 1305.2.

3 7 CFR 1307.4.

NORTHEAST DAIRY COMPACT

COMMISSION

7 CFR Parts 1301, 1304, 1305, 1306 and

1307

Compact Over-Order Price Regulation

AGENCY: Northeast Dairy Compact

Commission.

ACTION: Final rule.

SUMMARY: This rule extends the present

compact over-order price regulation

(‘‘price regulation’’) for all Class I, fluid

milk route distributions in the territorial

region of the six New England states

beyond its present expiration date of

December 31, 1997. The rule extends

the price regulation for the period

January 1, 1998 through termination of

the Compact enabling legislation.1 The

regulation is established in the

combined, Federal Milk Market Order

#1 and compact over-order, amount of

$16.94 (Zone 1).

In so extending the price regulation,

the Northeast Dairy Compact

Commission (‘‘Compact Commission’’)

reaffirms and again bases the decision

on its findings that such price regulation

is necessary to assure the viability of

dairy farming in New England, that it is

necessary to assure the region’s

consumers of a continued, adequate,

local supply of fresh and wholesome

milk, reasonably priced, and that it is

otherwise in the public interest. The

Compact Commission also establishes

the price regulation based on the finding

that the regulation has been approved

by producer referendum pursuant to

Article V, section 13 of the Northeast

Interstate Dairy Compact. Notice of

approval by referendum is published

separately in this Federal Register.

This rule also establishes a Task Force

under Article VII. D. of the Compact

Commission’s Bylaws to determine

whether it is appropriate to provide

similar reimbursement to the region’s

School Lunch Programs, established

under the National School Lunch Act of

1946 and the Child Nutrition Act of

1966 for any adverse financial impact.

The Task Force is to report back on its

assessment of whether it is appropriate

to reimburse the programs and, if so, to

recommend a procedure for

reimbursement to the Compact

Commission at its regularly scheduled

meeting for February, 1998.

Finally, the price regulation extends

the administrative assessment of 3.2

cents per hundredweight of milk on all

route dispositions of Class I, fluid milk

in the territorial region of the six New

England states. It is noted that the

additional, start-up assessment of

approximately 1.3 cents per

hundredweight presently imposed will

expire with final payment in December,

1997.

EFFECTIVE DATE: January 1, 1998.

ADDRESSES: Northeast Dairy Compact

Commission, 43 State Street, P.O. Box

1058, Montpelier, VT 05601.

FOR FURTHER INFORMATION CONTACT:

Daniel Smith, Executive Director,

Northeast Dairy Compact Commission at

the above address or by telephone at

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

229–2028.

SUPPLEMENTARY INFORMATION:

Background

The Compact Commission was

established under authority of the

Northeast Interstate Dairy Compact

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

into law by each of the six participating

New England states as follows:

Connecticut—Public Law 93–320;

Maine—Public Law 89–437, as

amended, Public Law 93–274;

Massachusetts—Public Law 93–370;

New Hampshire—Public Law 93–336;

Rhode Island—Public Law 93–106;

Vermont—Public Law 89–95, as

amended, 93–57. Consistent with

Article I, Section 10 of the United States

Constitution, Congress consented to the

Compact in Public Law 104–127 (FAIR

ACT), Section 147, codified at 7 U.S.C.

7256. Subsequently, the United States

Secretary of Agriculture, pursuant to 7

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

implementation of the Compact.

Section 8 of the Compact empowers

the Compact Commission to engage in a

broad range of activities designed to

‘‘promote regulatory uniformity,

simplicity and interstate cooperation.’’

For example, the Compact authorizes

the Compact Commission to engage in a

range of inquiries into the existing milk

programs of both the participating states

and the federal milk marketing system,

to make recommendations to

participating states, and to work to

improve industry relations as a whole.

See Compact, Art. IV, section 8.

In addition to the powers conferred by

Section 8, the Compact also authorizes

the Compact Commission to consider

adopting a compact over-order price

regulation. See Compact, Art. IV, section

9. A ‘‘compact over-order price’’ is

defined as:

A minimum price required to be paid to

producers for Class I milk established by the

Commission in regulations adopted pursuant

to sections nine and ten of this compact,

which is above the price established in

federal marketing orders or by state farm

price regulation in the regulated area. Such

price may apply throughout the region or in

any part or parts thereof as defined in the

regulations of the commission.

See Compact, Art. II, section 2(8).

The regulated price authorized by the

Compact is actually an incremental

amount above, or ‘‘over-order’’ the

minimum price for the same milk

established by Federal Milk Market

Order #1. The price regulation

establishes the minimum procurement

price to be paid by fluid milk processors

for milk that is ultimately utilized for

fluid milk consumption in the New

England region.2 Price regulation also

provides for payment of a uniform

‘‘over-order’’ price, out of the proceeds

of the price regulation, to all dairy

farmers making up the New England

milkshed regardless of the utilization of

their milk.3 See Compact, Art. IV,

section 9 (‘‘The Commission is hereby

empowered to establish the minimum

price for milk to be paid by pool plants,

partially regulated plants and all other

handlers receiving milk from producers

located in a regulated area.’’.)

Section 11 of the Compact delineates

the administrative procedure the

Compact Commission must follow in

deciding whether to adopt a price

regulation:

Before promulgation of any regulations

establishing a compact over-order price or

commission marketing order, including any

provision with respect to milk supply under

subsection 9(f), or amendment thereof, as

provided in Article IV, the commission shall

conduct an informal rulemaking proceeding

to provide interested persons with an

opportunity to present data and views. Such

rulemaking proceeding shall be governed by

section four of the Federal Administrative

Procedures Act, as amended (5 U.S.C. 553).

In addition, the commission shall, to the

extent practicable, publish notice of

rulemaking proceedings in the official

register of each participating state. Before the

initial adoption of regulations establishing a

compact over-order price or a commission

marketing order and thereafter before any

amendment with regard to prices or

assessments, the commission shall hold a

public hearing. The Commission may

commence a rulemaking proceeding on its

own initiative or may in its sole discretion

act upon the petition of any person including

individual milk producers, any organization

of milk producers or handlers, general farm

organizations, consumer or public interest

groups, and local, state or federal officials.

Section 12(a) of the Compact directs

the Commission to make four findings

of fact before an over-order price
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62811

4The Commission limited its assessment to issues

relating to the fluid milk market, given the

limitations on its authority to regulate the price of

milk used for manufacturing purposes. See

Compact, Section 9(a); see also 7 U.S.C. 7256(2).

5The Commission issued a notice of Hearing on

December 13, 1996 at 61 FR 65604 and held public

hearings on December 17 and 19, 1996. The Notice

also invited the public to submit written comments

through January 2, 1997. Following the close of this

comment period, the Commission met on January

16, 1997 and established three working groups to

consider the testimony and data submitted. The

Commission issued a Notice of Additional

Comment Period on March 14, 1997. 62 FR 12252.

This comment period closed on March 31, 1997; the

reply comment period closed April 9, 1997. Based

on the testimony and comment received, the

Compact Commission issued a proposed rule on

April 28, 1997 to adopt price regulation. 62 FR

23032. As part of the proposed rule, the

Commission published for comment technical

regulations to be codified at 7 CFR Section 1300,

et seq. Minor corrections to the proposed rule were

published on May 8, 1997, 62 FR 25140, to provide

clarification and to correct errors. The Compact

Commission received additional comment in

response to the proposed rule issued April 28, 1997.

6 62 FR 29626 (May 30, 1997).

7 62 FR 47156 (September 8, 1997). 8 7 U.S.C. 7256(3).

regulation can become effective.

Specifically, the Commission shall make

findings of fact with respect to:

(1) Whether the public interest will be

served by the establishment of minimum

milk prices to dairy farmers under Article IV.

(2) What level of prices will assure that

producers receive a price sufficient to cover

their costs of production and will elicit an

adequate supply of milk for the inhabitants

of the regulated area and for manufacturing

purposes.4

(3) Whether the major provisions of the

order, other than those fixing minimum milk

prices, are in the public interest and are

reasonably designed to achieve the purposes

of the order.

(4) Whether the terms of the proposed

regional order or amendment are approved

by producers as provided in section thirteen.

Compact, Art. V. Section 12.

Pursuant to Section 11 of the

Compact, the Compact Commission

initiated a rulemaking procedure in

December, 1996.5 The rulemaking

culminated on May 30, 1997 with the

issuance of a final rule establishing a

compact over-order price regulation for

the period July 1–December 31, 1997.6

On September 8, 1997, the Compact

Commission issued notice of proposed

rulemaking to consider whether to

extend the price regulation beyond the

present December 31, 1997 expiration

date.7 The technical provisions of the

price regulation established by final rule

of May 30, 1997 and as codified at 7

CFR Chapter 1300, and the summary

and analysis of the rule, were issued as

a proposed rule in the September 8,

1997 notice of rulemaking, with the

further proposals that the regulation be

extended for one year and that it be

amended generally. Pursuant to

Compact, Art. IV, Section 11, the

Compact Commission held a public

hearing on September 24, 1997 on the

proposed rule, and accepted written

comment pursuant to its bylaws until

October 8, 1997.

Based on the oral and written

comment received, and upon the

reasoning set forth in its previous

proposed and final rules, the Compact

Commission hereby extends the present

price regulation for the period January

1, 1998 through termination of the

Compact enabling legislation. As

explained below, the amount of the

price regulation remains unchanged at

$16.94. As also explained below, the

technical regulation, as codified at 7

CFR Chapter 13 [§§ 1301.11(b),

1304.5(a), 1305.1, 1306.1, 1306.2,

1306.3(b) through (f), 1307.1, 1307.2,

and 1307.4(f)], is amended in certain

instances.

Immediately following is a summary

analysis and response to the comment

received during the present rulemaking

procedure. A more detailed review and

response follows, organized around the

finding analysis required by Section 12

of the Compact. This analysis also

summarizes and incorporates the

relevant reasoning developed in the

previous rulemaking. The analysis also

identifies and describes any

amendments to the price regulation

made as part of this final rule.

I. Summary Analysis of Comments

Received in Response to the Proposed

Rule and Compact Commission’s

Response

Oral and written comment received in

the September 24, 1997 hearing and

additional written comments received

by the Compact Commission’s

published deadline of October 8, 1997

were duly considered by the Compact

Commission. The Compact Commission

met on October 23, 1997 to consider and

act on the comment received. Public

notice of this meeting was published on

October 16, 1997 in the Federal

Register. 62 FR 53769.

Eighty-nine separate comments were

received during the hearing and written

comment period. Of the total

commenters, five expressed opposition

to the regulation’s extension and eightyfour expressed support for its extension.

The five commenters expressing

opposition to the regulation’s extension

include an economist for Public Voice

for Food and Health Policy, a public

interest group based in Washington, DC,

and four representatives of

Massachusetts ACORN, a low income

community advocacy group in

Dorchester, MA. These commenters

expressed concern primarily with the

regulation’s impact on low income

consumers in the New England region.

The Compact Commission recognizes

and acknowledges the concerns raised

by these opposing commenters. As

explained in greater detail in the

subsequent analysis, one of the central

reasons the Compact Commission

adopted its initial regulation for the

limited period of six months on May 30,

1997 was to ensure close monitoring of

the regulation’s impact on consumers,

including low income consumers. See

62 FR 29638. This careful scrutiny is

derived from the finding analysis and

inquiry into the public interest in milk

price regulation which the Compact

Commission must make under the

Compact, and which is concerned with,

among other issues, the impact of price

regulation upon consumers, including

low income consumers.

While accentuating the need for

continued, careful scrutiny, the

commenters have not established that

the price regulation is causing such

anomalous market distortions of the

retail market as to justify elimination of

price regulation. When viewed in the

context of, and balanced with, the

comments presented in support of

continuing the regulation, along with

the reasoning derived from the prior

rulemaking, the Compact Commission

concludes the interests of consumers in

a stable milk supply and, ultimately,

stabilized prices, will continue to be

served by extending the price

regulation.

Fifty-four of the eighty-four

commenters expressing support for

extension of the regulation were dairy

farmers. Other commenters expressing

support for extension include

representatives of dairy farmer

cooperatives, farm credit agencies,

banks, dairy processors, dairy feed and

fertilizer suppliers, Farm Bureaus, farm

machinery dealers, New England state

WIC Programs, New England state

Departments of Agriculture, a state

legislator, a large animal veterinarian,

and a consumer.

These commenters, farmers and

others alike, expressed support for

extending the regulation for periods of

varying duration. The broad majority

supported extension through the

termination of the Compact

Commission’s authority to establish an

over-order price regulation under the

Congressional Consent to the Compact.8

The supporting comment also was

mixed with regard to whether the

amount of the over-order price should

be kept at the same rate or increased,

and, if increased, at what rate. Most of
62812 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

9The Commission limited its assessment to issues

relating to the fluid milk market, given the

limitations on its authority to regulate the price of

milk used for manufacturing purposes. See

Compact, § 9(a); see also 7 U.S.C. section 7256(2).

At the same time, for purposes of this analysis, it

must be recognized that the present supply needs

for manufacturing purposes are not available for

fluid usage.

10This assessment was presented under the

second, broader public interest analysis in the first

rulemaking procedure.

the comment supported an increase

reflecting the increase in the Consumer

Price Index. Finally, a number of the

commenters recommended certain

amendments to the technical codified

price regulation.

In view of these amendments

suggested by the commenters, the

Compact Commission notes that, in

addition to allowing for close review of

the regulation’s impact on the retail

market, the limited, six month duration

of the initial price regulation was also

established to ensure close scrutiny of

the regulation’s impact on the overall

fluid milk marketplace. As with review

of the impact on the retail market, this

overall assessment is necessary to

determine whether the price regulation

has caused such market distortions as to

require its discontinuation, or whether

its extension will continue to serve the

public interest.

As explained in detail below, the

Compact Commission concludes from

this rulemaking process that the public

interest is best served by the regulation’s

extension from January 1, 1998 through

termination of the Compact enabling

legislation. Accounting for the concerns

of the commenters, the Compact

Commission concludes the public

interest, including those of low income

consumers, will be better served by

extending the price regulation so as to

establish stable prices across the

wholesale and retail markets in New

England for the continuous period July

1, 1997 through termination of the

Compact enabling legislation. The

Commission concludes that close

scrutiny of the regulation’s impact must

continue and, accordingly, schedules

subsequent rulemaking with review of

all relevant issues to be commenced,

pursuant to Section 11 of the Compact,

no later than July 1, 1998.

The comments received, with regard

to the significant concerns and relative

positions on the critical issues invoked

by the finding analysis mandated by

Section 12(a) of the Compact, are now

addressed in detail.

II. Summary and Further Explanation

of Findings Regarding Adoption of

Over-order Price

As noted above, Section 12(a) of the

Compact directs the Commission to

make four findings of fact before an

over-order price regulation can become

effective. The issues relating to the first

three topics (excluding the referendum

procedure) were exhaustively reviewed

in the Compact Commission’s initial

proposed rule. The Compact

Commission’s findings on these topics,

based on that analysis, were reaffirmed

with further discussion in the

subsequently adopted final rule on May

30, 1997, which rule served as the

proposed rule in the present rulemaking

process. The analysis of these issues

contained in the previous proposed and

final rules is again reaffirmed, subject to

the further discussion contained here.

As in the previous rulemaking, the

second finding required by the Compact

(the level of prices needed to assure a

sufficient price to producers and an

adequate supply of milk) is discussed

initially. The Compact Commission

finds that a price of $16.94 per

hundredweight continues to be needed

to achieve these dual goals. The first

finding required by the Compact

(whether the public interest will be

served by the establishment of

minimum milk prices) is then

discussed. The Compact Commission

further finds that the public interest will

be served by an over-order price

regulation in the amount of $16.94 to

extend from January 1, 1998 through

termination of the Compact enabling

legislation.

With respect to both of these findings,

the Compact Commission’s inquiry has

been guided by Section 9(e) of the

Compact, which sets forth several

factors which the Compact Commission

must consider during the hearing

process to determine whether to adopt

and if so, the amount of, an over-order

price:

In determining the price, the commission

shall consider the balance between

production and consumption of milk and

milk products in the regulated area, the costs

of production, including, but not limited to

the price of feed, the cost of labor including

the reasonable value of the producer’s own

labor and management, machinery expense,

and interest expense, the prevailing price for

milk outside the regulated area, the

purchasing power of the public and the price

necessary to yield a reasonable return to the

producer and the distributor.

The third finding required by the

Compact is then discussed; the Compact

Commission concludes that the major

provisions of this order, other than

those establishing minimum milk

prices, are in the public interest and

reasonably designed to achieve the

purposes of the order.

The fourth required finding is

whether the terms of the proposed order

have been approved by producer

referendum, pursuant to Article IV,

section 12 of the Compact. In this final

rule, the Compact Commission makes

this finding premised upon certification

of such approval, published separately

in this Federal Register. The procedure

for such certification is set forth infra in

the section of this rule addressing the

fourth finding.

A. What Level of Prices Will Assure That

Producers Receive a Price Sufficient To

Cover Their Costs of Production and

Elicit an Adequate Local Supply of Milk

As one of the four underlying findings

required for the establishment of price

regulation, the Compact Commission

must determine:

(2) What level of prices will assure that

producers receive a price sufficient to cover

their costs of production and will elicit an

adequate supply of milk for the inhabitants

of the regulated area and for manufacturing

purposes.9

Compact Art. V, section 12(a)(2).

As in the prior rulemaking, the

Compact Commission’s deliberations

regarding the level of price required to

cover costs of production focused again

on the variety of cost inputs identified

in Section 9(e) of the Compact. With

regard to the price needed to elicit an

adequate local supply of milk, the

Compact Commission reviewed the

nature of the balance of production and

consumption in the region, as also

called for by Section 9(e) of the

Compact.10 This required review again

prompts assessment of the degree to

which farm prices have been

insufficient to cover costs of production

over time (‘‘price insufficiency’’), and

the degree to which such insufficiency

has affected the balance of production

and consumption in the region.

Assessment of this issue also required

consideration of the wide swings over

time in farmer pay prices under federal

regulation, which have caused farm

financial stress and made it difficult for

farmers to plan financially (‘‘price

instability’’), and the failure of farmer

pay prices to keep up with inflation.

Farmer Costs of Production

The Compact Commission’s inquiry

with regard to whether prices are

sufficient to cover the cost of production

was guided by Section 9(e) of the

Compact, which directs the Commission

to consider cash costs of production,

including feed, machinery expense,

labor, and interest, as well as the noncash costs of value for the farmer’s own

labor and a reasonable return on the

farmer’s investment.

With regard to the various specific

components of cash and non-cash costs
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62813

11 In addition, a cost-of-production study

conducted by Wackernagel and relied upon by the

Commission (62 FR 23034) indicated that feed and

crop expenses together can account for some 39%

of a farmer’s cash operating expenses.

12Reenie De Geus and William Gillmeister, Dairy

Economists for the Vermont and Massachusetts

Departments of Agriculture, Written comment,

(‘‘WC’’), October 8, 1997.

13The Report describes the current national

situation to be: ‘‘Forage supplies will be of

mediocre quality and high priced, even though the

silage crop looks promising in most areas. Milk-feed

price ratios will be at levels normally associated

with conservative concentrate feeding and belowtrend growth in milk per cow.’’

14Reenie De Geus, WC, October 8, 1997.

15 Vermont dairy farmers reiterated this point in

their submissions. Paul Doten, Harvey T. Smith,

WC, October 8, 1997.

16 David Jaquier, Dairy Farmer, East Canaan, CT,

Public Hearing (‘‘PH’’) at p.134, September 14,

1997.

17Walter Fletcher, Donna Caverly, Richard

Woodger, Maine Dairy Farmers, WC, October 8,

1997.

18See 62 FR 29633. Economist Reenie De Geus

noted in record testimony that expenditures on

machinery and other depreciation expenses tend to

rise in the good years and are delayed in the bad

years. Reenie De Geus, WC 75.

19Claude and Jeanne Bourbeau, Dairy Farmers,

Swanton, Vermont, WC, October 8, 1997.

20 David Hinsworth, Dairy Farmer, Royalton,

Vermont, WC, October 8, 1997.

21WC, October 8, 1997.

22See: Wackernagel, which analyzed Agrifax and

ELFAC farms over a 3-year period; Maine cost-ofproduction studies; and Pelsue and ERS-USDA

studies submitted by Smith.

23Lester Bailey, Robert L. Foster, and Claude and

Jeanne Bourbeau, Dairy Farmers, WC, October 8,

1997.

24Onan Whitcomb, Williston, Vt., WC, October 8,

1997.

25Allaire P. Palmer, Dairy Farmer, Cornish,

Maine, WC, October 8, 1997.

26 Douglas Carlson, Dairy Farmer, Canaan, CT,

and Dale Lewis, Dairy Farmer, Haverill, NH, PH at

p. 99 and p. 140, respectively, September 24, 1997.

27Robert A. Smith of the Yankee Farm Credit

System suggested a 4% rate of return was

reasonable in his testimony at the September 24,

1997 PH and in his comments submitted in the

previous rulemaking in April, 1997. 62 FR 23033.

The Maine cost-of-production studies, which

analyze southern New England, used a 5% return

on equity. Id. at 23034. In addition, Michael

Sciabarrasi of University of New Hampshire

Cooperative Extension Service, suggested that 5%

was a minimal rate of return. Id.

reviewed under Section 9(e) of the

Compact, the Compact Commission

determined in the previous rulemaking

that feed costs are a significant

production cost component. The

Commission found that feed costs can

account for as much as 50 percent of a

farmer’s cost of production. 62 FR

23034. Farmers indicated that feed costs

had risen beyond their means. In 1996,

in particular, feed costs increased by

some 29 percent. 62 FR 29633.11

According to the comment received in

the present rulemaking, feed costs

continue to account for a significant

portion of cost of production. A

Vermont dairy farmer indicated that the

ratio of purchased grain cost to the

value of milk produced for his farm has

normally been 20% but that, since

January of 1997, it has averaged 32%.

De Geus and Gillmeister, in their joint

submission,12 report that the Economic

Research Service (ERS) of the USDA

indicate that feeds account for as much

as 50% of the cash expenses for milk

production in 1996. They also report

that feed prices are down this year

relative to 1996 but remain historically

high. They rely on the ERS September

1997 Livestock, Dairy, and Poultry

Monthly Report,13 as well as the recent

farm experience in New England, to

conclude that high grain and high hay

prices will raise this year’s production

costs higher, but not as high as last

year’s level.

De Geus, in a separate submission,14

indicates that Vermont feed costs are

expected to remain high because of

flooding in northern Vermont and

drought conditions in southern

Vermont, parts of New York, and much

of the rest of New England.15 A dairy

farmer from Connecticut reported that,

since last September, his grain costs had

increased approximately 8%.16 Other

commenters noted that the increase in

grain prices they are experiencing is

creating an imbalance between their

production costs and farm price for

milk.17

Machinery expense as a factor in the

cost of production arises primarily in

the context of depreciation; that is,

depreciation must be covered by

replacing old and worn out equipment.

See 62 FR 29633. As in the prior

rulemaking, farmers again indicated that

pay prices are too low to permit them

to make these investments.18 Claude and

Jeanne Bourbeau indicated that that

‘‘[their] debt load has increased in the

past year due to depreciation of farm

equipment. Money is needed to replace

equipment and the milk check does not

provide adequate funds to replace this

equipment.’’ 19 Another farmer indicated

that it doesn’t make sense to invest in

new equipment because it would just

add to his debt load and increase his

monthly payments.20 Both Wesley Snow

of Brookfield, Vermont and Robert Dow

of Dover, Maine indicated that the

increase in equipment costs since they

purchased their current equipment

makes replacement impossible, given

their current milk price.21

Section 9(e) also directs the Compact

Commission to consider interest and

labor costs in assessing the sufficiency

of farmer pay prices. (Measurement of

these components of costs of

production, in particular, provide for

much of the variability in the range of

cost of production noted below.) In the

previous rulemaking, the Compact

Commission determined that both

interest and non-family labor expenses

constitute a significant proportion of

costs of production: from $0.50 to $1.18

per hundredweight for interest

expenses, and $1.08 to $1.92 per

hundredweight for labor expenses. 62

FR 29633.22

Section 9(e) also directs the Compact

Commission to consider certain noncash costs, including a reasonable value

for the farmer’s own labor and a

reasonable return on the farmer’s

investment. In considering whether pay

prices provide a reasonable value for the

farmer’s labor, the Compact Commission

previously determined that dairy farms

in New England are still predominately

family operated, and, that in light of

farmer pay prices, much of this family

labor is completely uncompensated, or

significantly undercompensated. Id. The

Commission concluded that this failure

to compensate for family labor

discourages entry into the dairy

industry. See 62 FR at 23035.

Comment received in this rulemaking

again supports this determination. A

number of commenters indicated that

they were experiencing difficulty in

hiring labor at rates they were able to

pay.23 One dairy farmer indicated that

he must pay his hired help more than

he pays himself.24

Allaire Palmer reports that his ‘‘family

employees have not had a raise in four

years and work for six dollars per hour.

Rent is furnished because employees are

required to be available twenty-four

hours per day.’’ 25 Two dairy farmers

testified that their children and

grandchildren were not interested in

continuing the family tradition of

farming because of the long hours and

short profit.26 On the basis of the record,

the Compact Commission finds that

current pay prices continue to

discourage family entry into dairy

farming because they fail to offer

reasonable value for the farmer’s labor.

With regard to whether pay prices

provide a reasonable return on the

farmer’s investment, the Compact

Commission noted several comments

received in the previous rulemaking

indicating that a reasonable return

ranges between 4% and 5%.27 The

Commission determined that, for an

extended period of time, pay prices

have been insufficient to provide a rate

of return on equity that reaches these

levels. 62 FR 29633.

Comment received from farmers in

the present rulemaking again

highlighted the impact of these
62814 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

28Allaine Palmer, David Bradshaw, Rosemarie

Jeleniewski, Harold Larrabee, and Roger Scott,

Dairy Farmers, WC, October 8, 1997.

29 Douglas Carlson, PH at p. 102.

30 62 FR 29632–33.

31Robert A. Smith, Manager of Public Affairs and

Regional Council Relations, CoBank and Northeast

Farm Credit Associations, PH at p. 75, September

24, 1997.

32 Id.

33 De Geus, WC.

34 Id.

35 Gary Warren, Vice-President, Fairdale Farms,

Bennington, VT, PH at p. 124, September, 24, 1997.

36 Ivar Green, Allaire Palmer, David Bradshaw,

Claude and Jeanne Bourbeau, and Neal Rea, WC,

October 8, 1997; Ed Platt, PH, September 24, 1997.

It is to be noted that some of their estimates include

a return on equity and while others do not.

37The Commission notes that it is in process of

conducting the comprehensive cost of production

study authorized by its previous final rule. See 62

FR29632. One commenter (Gillmeister) argues for a

division of the proceeds of price regulation based

upon a presentation of varying costs of production

among the New England states and New York. The

Commission declines to adopt the approach of this

commenter as premature, given that the

Commission has just undertaken its study process

to determine costs of production in the states and

the region.

38This combined price reflects the federal Market

Order #1 blend price plus the Compact over-order

producer price. For a more complete discussion of

the components of the actual pay or ‘‘mail box’’

price paid to farmers see 62 FR 23037.

expenses upon their costs of production

and the failure of pay prices to cover

them completely. A number of

commenters pointed out that failure of

pay prices to cover their costs of

production left them with no return on

their investment.28 Douglas Carlson

pointed out in his testimony that

because of the large number of recent

farm foreclosures, auctions are not

bringing a reasonable return on the

original investment, reflecting a lower

general value of farm capital

investments.29 The Compact

Commission, therefore, reaffirms the

determination that pay prices are

insufficient to provide a rate of return

on equity that reaches a reasonable

range between 4% and 5%.

This survey of various cost inputs of

under Section 9(e) of the Compact

underscores the pressure farmers

operate under with regard to the

inability of pay prices to cover costs of

production. With regard to identifying

overall costs of production, as

determined by the previous rulemaking,

numerous studies provide a variety of

estimates.30 While based on different

methods for determining costs of

production, particularly with respect to

non-cash costs, these studies provide

the basis for making the overall

assessment of price needed to cover cost

of production, as required by the

Compact. In the previous rulemaking,

based on a comprehensive assessment of

a number of studies, the Compact

Commission concluded that the range of

the costs of production for New England

is somewhere between $14.06 and

$16.46. Id.

The Compact Commission received

additional comment on the measure of

overall cost of production in the present

rulemaking from a number of

commenters. Robert A. Smith of

Northeast Farm Credit Associations

again reported that, on the basis of a

report prepared by Farm Credit Partners

surveying farms in New England, New

York and Pennsylvania, the costs of

production for the region were $14.25/

cwt. for 1995 and $15.00/cwt. for 1996.

When adjusted for a 4% return on

equity, these costs become $15.37/cwt.

for 1995 and $16.02/cwt. for 1996.31 The

cost figures for New England were the

same as for the larger region as a

whole.32

Reenie De Geus, Vermont’s

Department of Agriculture, Food and

Market dairy economist, reported that

the average costs of production for

Vermont farms in the Farm Credit

Partners survey was $14.06/cwt. for

1995 and $15.32/cwt. for 1996, up 9%.33

For that six year period, 1991 to 1996,

the average cost of production for these

Vermont farms is $14.65/cwt. with only

a 3% return on equity.34 A

representative of a dairy processor

testified that the cost of production is in

the range of $13.50/cwt. to $14.00/cwt.35

Comment from individual farmers

indicated a range for their costs of

production from $12.66/cwt. to $17.95/

cwt.36 for an average among them of

$14.65/cwt.

Combined with the analysis

conducted during the prior rulemaking,

the Compact Commission determines in

this rule that the cost of production

remains in the range of $14.06/cwt. to

$16.46/cwt.37 Acccordingly, the

Commission concludes that an overall

combined pay price 38 in this range is

necessary ‘‘to assure that producers

receive a price sufficient to cover their

costs of production’’ within the meaning

of the finding analysis required by

Section 12(a) of the Compact.

In the prior rulemaking, the Compact

Commission concluded that an overorder pay price in the range of $0.46–

$1.90 was necessary to bring farmer pay

prices up to the level necessary to cover

cost of production. See 62 FR 29633

(Final Rule); 62 FR 23040–41 (Proposed

Rule). Assuming Class I utilization of 50

percent, this means that price regulation

in the amounts of $0.92–$3.80 would be

necessary to achieve the necessary range

of over-order payment.

Elicitation of an Adequate Local Supply

of Milk

The required finding with regard to

pay price accounts for the broader

assessment of the level needed to elicit

an adequate supply of milk, in addition

to the relatively discrete assessment of

the level needed to cover cost of

production. In the prior rulemaking, the

Compact Commission determined that

the Compact § 9(e) scrutiny of the

balance of production and consumption

of fluid, or beverage milk, in the region

is critical to this additional assessment.

See 62 FR 29634–35.

The Compact Commission determined

that production and consumption is

presently in balance, but in a balance of

pronounced and unsustainable stress

that must be alleviated. 62 FR 23040.

The Compact Commission concluded

that overall milk production was in

decline in the New England region and

in the portion of New York State which

has traditionally been a supplemental

part of the New England milkshed. 62

FR 23039–40. The Compact Commission

also found that supplies of milk are

being transported increasing distances

from the region’s population centers and

associated processing plants. 62 FR

23040. While over fifty percent of the

milk produced in the New England

milkshed is presently utilized in a

variety of manufactured dairy products,

the Compact Commission concluded

that substitution of such milk cannot be

relied upon to provide an alternative

supply for fluid utilization purposes. 62

FR 23039. In sum, the Compact

Commission concluded that the balance

of production and consumption in the

region depended on at least stabilizing,

if not increasing, the present, local

supply through price regulation. 62 FR

23040.

Assessment of how to alleviate the

stress on the region’s supply of milk

through price regulation requires

consideration of how best to alleviate

the stress under which producers

operate. This inquiry naturally reverts

back to the issue of the degree to which

farmer pay prices are not sufficient to

cover costs of production. In addition,

as previously determined, the review

leads the Compact Commission to

conclude that the nature of the

persistently unstable farmer pay prices

and the degree to which farmer prices

have failed to keep pace with inflation

are also structural factors of stress.

Price Insufficiency

As noted above, the Compact

Commission’s comprehensive review in

the prior rulemaking of the various cost

inputs and the variety of studies of
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62815

39Their joint submission in this rulemaking,

however, argues against using the Consumer Price

Index (CPI) as a structural adjustment to the

Compact over-order price because the dairy farmer’s

costs of production are driven by factors other than

those measured by the CPI, such as the cost of grain.

The Commission concludes that the CPI is not a

perfect fit for systemic cost increases on the farm.

40Robert Wellington, Sr. Vice-President,

AgriMark Cooperative, WC, October 8, 1997; Lee

and Charlotte Bosworth, Auburn, ME; Mary

Connolly, Pittsfield, ME; Alaine Palmer, Cornish,

ME; Pery and Carol Hogden, Randolph, VT; David

Hansen, North Brookfield, MA; Edward A. Ellis,

Hebron, CT; Wesley and Brenda Snow, Brookfield,

VT; Robert Dow, Dover, ME; Lowell J. Davenport Jr.,

Ancramdale, NY; Dairy Farmers, WC, October 8,

1997.

41See De Geus and Gillmeister, Id. In large part

based on their comment, CPI is rejected for

automatic adjustment to the Compact over-order

price. See below.

42Based in part on this concern, the Commission

concluded on May 30, 1997 that adoption of a price

regulation for the limited duration of six months

would allow for continuing evaluation of broader

market conditions. Id.

43Market Order #1 Administrator Statistics.

44Wellington, PH at p. 8.

45Leon Berthiaume, PH at pp. 57–58. Robert

Wellington also testified at the PH at p. 8 that AgriMark, the region’s largest cooperative, accounting

for 1630 of the approximately 3840 pool producers

in Federal Market Order #1, indicates a loss of 73

member producers in July, 1997 from the previous

July. It also was down 61 members in August

compared to the previous August. Agri-Mark also

added 10 new New York members in July, 1997 as

compared with the previous July, and 17 such new

members in August, as compared with the previous

year. According to the testimony, ‘‘New York has

been the only area available to obtain the additional

milk needed for New England consumers.’’

46Warren, PH at p. 128.

47Smith, PH at p. 76.

48Leon Graves, Commissioner, Vt. Dept. of

Agriculture, Food and Markets, WC, October 8,

1997.

49 John Schnittker, Public Voice for Food and

Health Policy, PH at p. 13, September 24, 1997;

Gillmeister, WC, October 8, 1997; De Geus and

Gillmeister, WC, October 8, 1997.

50Wellington, PH at p. 114.

51Wellington, PH at p. 110; Carl Peterson, Dairy

Farmer and President, AgriMark, PH at p. 70.

overall cost of production provided the

basis for the Compact Commission to

determine the amount and degree to

which farmer pay prices were not

sufficient to cover costs of production.

62 FR 29633. Based on its review of the

studies, overall, the Compact

Commission concluded that costs of

production have exceeded the farm pay

price by an amount in the range of

$0.46–$1.90. Id.

As also noted above, the newly

received data, in combination with the

previous analysis, leads the Compact

Commission again to conclude that

farmer pay prices are failing to cover

costs of production and that there is a

continuing need for an over-order price

that results in farmer pay prices in the

range of $0.46 to $1.90.

Failure of Farmer Pay Prices To Keep

Up With Inflation

The Compact Commission determined

in the prior rulemaking that the failure

of farmer pay prices to keep up with

inflation was a significant factor

contributing to chronic price

insufficiency and farm financial stress.

62 FR 29633–64. For this reason, the

Compact Commission adopted the joint

proposal of Reenie De Geus and William

Gillmeister, dairy economists for the

Vermont and Massachusetts

Departments of Agriculture,

respectively, to establish an over-order

price regulation based, in part, on an

inflation adjustment.39

Comment received in the present

rulemaking did not focus on the issue of

the chronic, structural failure of prices

to keep up with inflation to the same

degree as in the prior rulemaking. This

is perhaps a result of the fact that the

price regulation adopted as part of the

prior rulemaking was premised, in part,

on a structural adjustment for inflation.

In any event, the Commission remains

mindful that the relationship between

farmer pay prices and inflation remains

a critical concern. Certainly, the

comment received supports this

determination.40

The Compact Commission also

remains mindful, however, of the

concern expressed by several

commenters in the prior rulemaking (62

FR 29634) and a comment submitted in

this rulemaking 41 that an inflation

adjustment not be built in as a

permanent, automatic adjustment.42 The

Compact Commission’s determination

of the proper balance between

adjustment for inflation and accounting

for broader market conditions, in

establishing the appropriate level of

price regulation, is presented in the

summary analysis of this section, below.

Price Instability

The Compact Commission received a

wealth of testimony and comment in the

prior rulemaking indicating that wide

fluctuations in the price of milk are also

a primary cause of farm financial stress

and, in particular, made it difficult for

farmers to plan financially. 62 FR

29633.

The comment received in the present

rulemaking accentuates the fact of

persistent fluctuations in the pricing

structure under federal regulation. The

price drop from the Autumn of last year

to the present was both precipitous and

dramatic. Between October, 1996 and

July, 1997, the New England Market

Order #1 Blend price fell from $16.84 to

$11.97.43 For October, 1997, the blend

price is estimated to be $13.50 44

Not surprisingly, farmers again

expressed their reluctance to make longterm investments in their farming

operations, and their concern that when

prices dropped precipitously they were

unable to meet their most basic

obligations. For example, the ability of

farmers to pay machinery expenses is

further diminished by price instability

because farmers are unable to invest

(e.g., in new machinery or in upgrading

their facilities), given the wide

fluctuations in the price of milk.

Of most concern, Leon Berthiaume,

General Manager of St. Albans

Cooperative Creamery, testified that—

In May through July, 66 to 100 of our

members received a check of less than

$1,000.00 for 15 days worth of milk

production. We also during [sic] this period

of time there was 20 to 50 members that

received no check at all for those 15 days of

production. We are continuing to experience

farm auctions. In the last 21⁄2 weeks, we have

lost 12 members from our Cooperative, and

in the next week we have three more

members that are scheduled to be auctioned

off.45

Gary Warren, in his testimony at the

public hearing, underscored the benefits

of price stability across the market, from

farmer to consumer.46 Robert A. Smith

pointed out that volatility in milk prices

makes it very difficult for farmers to

effectively plan and make the type of

investments necessary to position

themselves for the future.47

In addition to testimony of the

apparent, continuing, stress on supply,

however, the Compact Commission

received testimony that production had

nonetheless increased by 2.2 percent in

1997.48 This indicates that, in the short

term, despite the persistent failure over

time of prices to cover cost of

production and the structural

conditions of market stress, farmers are

still able to produce milk to cover

demand. The Compact Commission

concludes this is in part because of the

presence of a range of cost of

production,49 and in part because of the

working dynamic between the fluid and

manufactured milk markets under

federal regulation. One commenter

indicated such increased production

may also in part be a function of the

cool 1997 summer.50 In addition,

testimony in the record indicates that

increased production may be a factor of

persistently low farm prices.51 (The

Compact Commission also notes that, in

addition to price enhancement under

the Compact price regulation for August

and September, 1997, according to De

Geus, ‘‘last year was an abnormally high

year both for price and costs with the

result that farmers had a positive return
62816 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

52See footnote 27; 62 FR 29633.

53Schnittker, PH at p. 11.

54 62 FR 29634 (May 30, 1997).

55Assuming Class I utilization of 50 percent, the

amount of the over-order regulation price must be

twice the over-order producer price to account for

the entire, identified, amounts.

56The Commission here reaffirms its reliance

upon the study by Professor Wackerngel, cited at

length in both the previous proposed and final

rules, which analyzed in detail the impact of

Compact price enhancement and price stabilization

upon two different farm sizes—an 80 cow herd and

a 350 cow herd. 62 FR 29634 (May 30, 1997).

57 7 U.S.C. 7256(3).

58Wellington, PH at p. 107; Berthiaume, PH at p.

58; Sally Beach, Independent Dairymen’s Coop., PH

at p. 82.

59 De Geus and Gillmeister, WC.

60Warren, PH at p. 126.

61See: note 34 supra.

of one cent for the first time in six

years.’’) 52

The Compact Commission concludes,

accordingly, that the required

determination of the amount needed

both to cover cost of production and to

assure an adequate supply must account

simultaneously for both the persistent

gap between cost of production and pay

prices and the level of supply in the

market in spite of that gap. The finding

analysis reflects an intended balancing

of the basic economic requirement that

pay prices cover cost of production to

ensure sustainability with a recognition

that supply may still be provided

despite some gap between cost of

production and pay prices.

John Schnittker argues, without

supporting evidence, that the price

regulation would primarily help the

larger and generally more financially

healthy dairy producers and would help

the smaller and financially stressed

producers the least.53 The commenter

made the same argument in the previous

rulemaking process, also without

supporting evidence. The Compact

Commission there concluded that the

criticism of the Compact over-order

price regulation by Schnittker was

incorrect. 62 FR 29634. The assertion

assumes that the smaller producer is

less efficient than the larger producer.

On the basis of the detailed analysis of

Professor Wackernagel,54 the

Commission again concludes, however,

that the financial viabililty of both 80

cow farms and 350 cow farms will be

improved substantially by the Compact

over-order price regulation.

Summary Analysis—Level of Prices

Needed to Assure That Producers

Receive a Price Sufficient To Cover

Their Costs of Production and Elicit an

Adequate Local Supply of Milk

As noted above, the Compact

Commission has determined that an

over-order price in the range of $0.46–

$1.90 continues to be needed to assure

that farmer costs of production are

covered, requiring an over-order price

regulation in the range of $0.92–$3.80.55

With regard to the price needed to elicit

an adequate supply of milk for the

region, the Compact Commission again

notes that such an amount is not

necessarily identical with that required

to cover costs of production. The

Compact Commission further concludes

that the analysis of the appropriate level

of price regulation must also account for

price instability and the failure of

producer prices to account for

inflation,56 as well as the regulation’s

duration.

As noted at the outset, the prior

rulemaking resulted in establishment of

an over-order price regulation of $16.94

for six months duration. 62 FR 29632.

The Compact Commission received

numerous comments from farmers on

the appropriate level of price and

duration for an extension of the price

regulation. The majority of these

commenters recommended that the

price be adjusted by the CPI at 2.2%,

with such adjustment to last through the

termination of the Compact.57

Wellington and Berthiaume made a

similar recommendation; Beach

recommended an adjustment by the CPI

at 2.2% for a period of six months.58 De

Geus and Gillmeister recommended that

it be raised by 2%.59 (In his separate

comment, Gillmeister proposed a six

months’ duration; De Geus proposed

extension through sunset.) Warren

suggested that the price be raised by

$1.00.60

Viewing the comment in light of all

the relevant factors, the Compact

Commission finds the argument of De

Geus and Gillmeister 61 persuasive for

not further adjusting the amount of the

Compact over-order price regulation in

direct proportion to the Consumer Price

Index. The function of the initial

regulation was a one-time regulatory

adjustment in response to the strikingly

apparent, chronic, structural failure of

the marketplace to account for inflation.

Price regulation forward must be

responsive to the variety of market

forces at work, including but not limited

to inflation, as argued by these

commenters.

The Compact Commission further

concludes that the present amount of

the price regulation at $16.94 is

sufficiently responsive to the variety of

market forces referred to above. The

resulting degree of price enhancement

provided by the price regulation still

ensures that the net pay price remains

within the range, albeit at the low end,

of that identified as necessary to provide

for covering the costs of production.

The Compact Commission also

determines that extension of the $16.94

price regulation for the period January

1, 1998 through termination of the

Compact enabling legislation, so as to

establish uniform regulation and price

for a total period of at least 21 months,

will provide critical assurance of

continued price stability for producers.

Finally, the presence of a regulation of

stable, continuous, duration will still

allow the Commission to hear and

consider the need to make further

adjustment to account for increased

costs of production and inflation at any

time, before farmer pay prices again

begin to lag far behind inflation. The

Commission will commence

rulemaking, pursuant to Section 11 of

the Compact, no later than July 1, 1998

to consider whether any further

adjustment in the Compact over-order

regulation price is necessary and

appropriate.

In this regard, the Commission takes

official notice of the fact that the first

three months of the regulation increased

farmer pay prices, on average, by

approximately $1.30 per

hundredweight, raising the combined,

regulated minimum pay price from

approximately $12.00 to approximately

$13.30 per hundredweight. For the next

two months of the regulation, it is

projected that the regulation will

increase the pay price by approximately

$.75 and $.40, respectively, yielding

combined pay prices of approximately

$13.90—$14.10 per hundredweight. The

regulation, accordingly, is providing

both price enhancement and stability.

With this background, the response of

the Compact Commission to the

comments received from farmers and

cooperative representatives indicating

the need for further price enhancement

is to extend the current regulation at the

same price. The extension of the

regulation serves the essential function

of establishing combined price

enhancement and price stability in the

market for a period of at least 21

consecutive months. At the same time,

the extension in no way precludes the

Commission from finding that a further

adjustment in price is warranted after

making an assessment of the costs of

production, market prices and

production levels during the rulemaking

process the Commission will commence

no later than July 1, 1998.

In sum, extension of the price

regulation in the amount of $16.94

through termination of the Compact

enabling legislation is the appropriate

‘‘level of price needed to assure that

producers receive a price sufficient to
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62817

62With regard to the Compact’s emphasis on the

‘‘prevailing price for milk outside the regulated

area’’ and the first ‘‘public interest’’ finding, the

Compact Commission again determines this data to

be relevant with regard to the retail price of milk

outside the region. (It is also relevant to the farm

price of milk outside the region.) Based on the

comments received in the prior rulemaking, the

Commission identified the retail prices in two

separate markets outside the Compact region as a

benchmark for tracking the impact of price

regulation on retail prices in the region, 62 FR

23046–47 (April 28, 1997), and to compare ‘‘the

current, relative alignment in prices between the

New England and New York regions against the

relative alignments once price regulation is in

place.’’ 62 FR 23048 (April 28, 1997). The

comprehensive study to conduct this tracking

analysis is currently being developed by the

Commission.

63As a general manager of a processing facility

testified, stable wholesale prices should lead to

stable retail prices. Warren, PH at p. 130.

64The Commission also concluded that the actual

impact on retail prices could only be determined by

careful monitoring and tracking over time. 62 FR

23048 (April 28, 1997). The Commission is in

process of establishing and implementing the study

procedure necessary to accomplish this assessment.

cover their costs of production and elicit

an adequate local supply of milk.’’

B. Whether the Public Interest Will Be

Served by the Establishment of

Minimum Milk Prices to Dairy Farmers

In the prior rulemaking, the Compact

Commission first focused specifically on

the producer related-inquiry of Section

9(e) in making the finding concerning

the appropriate level of price required

by the Compact, and then referred to the

conclusions there determined in making

the broader ‘‘public interest finding’’

required by the Compact. 62 FR 29632.

This analytical approach is adopted for

purposes of extending the rule. This

analytical approach is also adopted with

regard to the dual findings required for

establishment of the proper level of

price under the rule.

The Compact Commission also adopts

the two-part assessment of the broader

‘‘public interest’’ utilized in the prior

rulemaking. This assessment is

premised first on a review of those

components of the public interest

specifically identified by section 9(e),

followed by consideration of a broader

range of subjects and issues drawn from

these specific components.

As set forth in section A, above,

focusing on the producer/milk supplyrelated finding inquiry, the Compact

Commission found the amount of

$16.94 per hundredweight to be the

appropriate level of price regulation,

extended for the period January 1, 1998

through termination of the Compact

enabling legislation. This level of price

was determined to be necessary to

‘‘cover * * * costs of production and

elicit * * * an adequate supply of

milk’’ within the meaning of the

required finding analysis. The price

assures in addition, thereby, that the

‘‘balance between production and

consumption of milk productions in the

regulated area’’ will be maintained

within the meaning of Compact, section

9(e).

With regard to the review of ‘‘the

purchasing power of the public’’

contemplated by Compact, section 9(e),

the Compact Commission has again

determined that this inquiry is relevant

to assessing the impact of price

regulation on the consumer market, the

‘‘critical part of the Compact

Commission’s assessment of the public

interest under this finding section.’’ 62

FR 23045. This inquiry focuses

‘‘primary concern on the consumer

interest because milk is a staple

product.’’ Id.62

The Compact Commission determined

in the prior rulemaking that the

continuing erosion of the region’s

milkshed has had a direct—and

adverse—impact on retail prices, and

hence on the purchasing power of the

public, in part because of the increased

transportation costs associated with an

expanding milkshed. 62 FR 29635. The

Compact Commission similarly

determined that ‘‘farm/wholesale price

volatility had also likely had an adverse

impact on retail prices over time, and

that stabilization of the farm/wholesale

price through a compact over-order

price regulation, traced through to the

endpoint retail market, likely will

manifest as a corresponding positive

impact on retail prices.’’ 63 Id. Finally,

the Compact Commission determined

that ‘‘the foregoing analysis supports the

conclusion that the purchasing power of

the public likely will be enhanced,

rather than diminished, as a result of the

stabilizing effects of the over-order price

regulation.’’ Id.

Based on the reasoning presented in

the proposed and final rules, the

Compact Commission reaffirms these

determinations.64

The detailed data and comment

received with regard to the consumer

interest focused on prevailing retail

prices for Class I fluid milk in the region

and the potential and actual impact of

the price regulation on the retail market.

Adverse comment was also received

with regard to retail prices and concerns

about the regulation’s impact on low

income consumers. Comment was also

submitted with regard to extension of

the State WIC program reimbursement

provisions.

Impact on Retail Prices—Data and

Analysis

De Geus and Gillmeister submitted

joint testimony with regard to the

impact of the price regulation on the

overall retail market. Data was

submitted placing the price regulation’s

impact within a context of price

movements between 1995 and the

present. The relationship between the

procurement cost for raw milk and the

retail price was assessed. According to

their testimony,

The important point to note in the

relationship between tables 1 and 2 is that

farm prices for Class I milk fell dramatically

in January of 1997, while retail price [sic]

remained elevated. Then, when the Compact

[sic] implemented the Final Rule in July of

1997, the prevailing price jumped 30 cents

from their already elevated level. In Figure 1,

Vermont shows a 20 cent increase in the

price of a gallon of milk. Then in August the

prevailing price in Boston fell 10 cents and

remained unchanged in September.

Expectations are that the prevailing price will

fall more over time.

The commenters further indicated

that—

The baseline projections for dairy product

prices for 1998 shows a decrease in prices of

0.4%. That is to say, dairy product prices are

expected to decline * * *. Overall, we feel

that the consumer is doing quite well. While

fluid milk prices increased in July, they

should decrease some over the next several

months as competition for the growing sea of

consumer dollars begins to over-ride any

over-order price.

TABLE 1: FEDERAL MARKET ORDER #1 (ZONE 1) CLASS I PRICES 1995–1997

[Per cwt] 65

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Average

15.10 14.62 14.59 15.03 15.13 14.47 14.36 14.66 14.47 14.79 15.32 15.85 14.85

16.11 16.15 15.97 15.83 15.94 16.33 17.01 17.16 17.73 18.18 18.61 17.37 16.82

14.85 14.58 15.18 15.69 15.73 14.69 16.94 16.94 16.94 16.94 16.94 16.94 15.54

65Source: Gillmeister and DeGeus, infra, (Market Order #1 Administrator Statistics).
62818 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

67 De Geus indicated that the data gathered for the

Connecticut market, identifying a price increase of

20 cents, includes ‘‘Mom and Pop’’ stores while the

Vermont data, identifying a price increase of 15

cents, does not. According to De Geus, this

difference is attributable to the difference in data

collection. WC.

68Cf. 62 FR 29629 citing Hansen, Hahn, and

Weimar, ‘‘Determinants of the Farm-to-Retail Milk

Price Spread’’, Agriculture Information Bulletin

Number 693 (March 1994). See also Kinnucan and

Forker, ‘‘Asymmetry in Farm-Retail Price

Transmission for Major Dairy Products’’, Amer. J.

Ag. Econ., 285–292 (May, 1987).

69One commenter who is the general manager of

a processing facility supported the Commission’s

analysis with his assessment that stable wholesale

prices should lead to stable retail prices. PH at p

130.

70 Joyce Campbell, Patricia Maben, and Florence

Knedsen of Massachusetts ACORN, a low income

community advocacy group, PH at pp. 14–25;

Felicia Fields, President, Boston ACORN, WC.

71 John Schnittker, Public Voice for Food and

Health, PH at p 9. The Commission notes in

response to this comment that, despite the apparent

initial spike in prices, the Commission does not

determine that the apparent impact of the price

regulation is some form of a price increase

attributable to a direct ‘‘pass-through’’, as

apparently inferred by the commenter. As in the

previous rulemaking the Commission declines to

adopt this approach in view of the lack of

explanation, and given that it is directly contrary

to the developed literature on this issue which

suggests a contrary conclusion. As the Commission

determined in its proposed rule, price stabilization

eliminates the need for retailers to retain significant

margins in order to protect against the uncertainty

in wholesale costs that exists when prices are

volatile. See 62 FR 23049 (citing Hahn, et al.).

Because retailers will not have to engage in this

‘‘risk response’’ pricing strategy to ensure cost

recovery, the Commission again disagrees with the

commenter’s conclusory remarks regarding the

impact of price regulation on retail prices.

72The WIC reimbursement provisions were

established in part to cover such a contingency.

TABLE 2: BOSTON RETAIL PRICES 1995–1997

[Per gallon] 66

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Average

2.59 2.49 2.49 2.59 2.49 2.49 2.49 2.49 2.49 2.49 2.49 2.59 2.52

2.59 2.59 2.69 2.59 2.69 2.59 2.59 2.79 2.59 2.59 2.59 2.59 2.62

2.59 2.59 2.69 2.59 2.59 2.59 2.89 2.79 2.79 .............. .............. .............. 2.67

66Source: Gillmeister and De Geus, infra, (International Association of Milk Control Agencies).

De Geus submitted additional

individual testimony, indicating similar

retail price experience in Vermont and

Connecticut:

RETAIL PRICE

Vermont:

$/gallon

Connecticut:

$/gallon

November 1996 $2.49 $2.67

December .......... 2.53 2.68

January 1997 .... 2.54 2.65

February ............ 2.51 2.62

March ................ 2.48 2.61

April ................... 2.49 2.60

May ................... 2.48 2.65

June .................. 2.49 2.61

July .................... 2.64 2.81

August ............... 2.62 2.83

September ......... 2.62 2.78

As can be seen, prices in Vermont

increased by 15 cents after initiation of

the price regulation in July, then

declined the following month, and held

constant in September. In Connecticut,

prices were observed to have increased

by 20 cents after initiation of the price

regulation in July, another 2 cents in

August, and then decreased by 5 cents

for September.

Despite the apparent initial spike in

retail prices,67 the Compact Commission

concludes that the regulation has not

affected the retail market so

anomalously as to require its

elimination. Rather, it is concluded

from the data and analysis presented

that the retail market can best be

understood as in the process of

adjustment to the current price

regulation. The Commission particularly

notes that the average Class I price for

1997 will be 11 cents less than last year,

while the retail price for the Boston

market is expected to be 5 cents greater.

Recognizing that last year’s prices were

unusually high, and that the retail

market usually takes time to adjust to

price changes,68 it is noted that the

retail price has increased 15 cents since

1995, while the farm price, including

that imposed by the price regulation has

increased by only six cents.

The Compact Commission also takes

note that the over-order price obligation

for July, 1997 was $3.00, while for

November it will be substantially less,

in the amount of $0.91. The impact of

having a flat price in the market,

resulting from the interplay between the

underlying federal, Class I price and the

Compact ‘‘over-order’’ price,

accordingly, thus has yet to be fully

assimilated into the pricing dynamic of

the market.

The data and analysis presented are

not inconsistent with the Compact

Commission’s prior determination that

stabilization of the farm/wholesale price

through a compact over-order price

regulation, traced through to the

endpoint retail market, likely will

manifest as a corresponding positive

impact on retail prices.’’ 62 FR 29635.69

Indeed, if the commenters cited above

are correct in their assessment of the

likely trend of retail prices in 1998, it

will only require a slight such ‘‘drift

downward’’ for retail prices to reach

their 1995 level.

Comment on the Impact of the Compact

Over-order Price Regulation on Low

Income Consumers

The Compact Commission received

four comments from an organization

representing low income consumers 70

who expressed opposition to the

extension of the price regulation. Their

comments centered on a concern with

increased retail prices for fluid milk

faced by low income parents and

grandparents. Because they attributed

recent price increases in their

neighborhoods to the Compact

Commission’s decision to establish the

price regulation, they are opposed to its

extension.

Another commenter expressed

opposition based on his analysis that

the regulation was benefiting farmers at

the expense of consumers, particularly

low income consumers. According to

this commenter, the over-order price

now in effect could increase consumer

cost for milk in the Compact region by

as much as $70 million over the next

year.71

The Compact Commission’s response

to these commenters flows from its

assessment of the actual and potential

impact on the retail market described

above. As indicated, the Commission

determined price regulation would

likely have a ‘‘positive impact’’ on retail

prices over time, though cognizant of

the possibility of short-term increases in

milk prices at the retail level, when it

adopted the regulation. Establishment of

a six month regulation ensured either

expiration of the regulation in short

order or review of the regulation soon

after its adoption to determine whether

unexpected anomalies were occurring

so as to preclude its extension.72

Even accounting for these adverse

comments, the Compact Commission

determines that no such anomalies are

occurring in the marketplace. Rather,

the market is in process of responding

to the imposition of a flat, combined
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62819

73 De Geus and Gillmeister, infra.

74The WIC reimbursement provisions remain in

effect as part of this extended price regulation.

75Pub.L. 79–346 and Pub.L. 89–642; see also: 62

FR 29637 (May 30, 1997).

76The Commission takes official notice that the

Massachusetts WIC Program guidelines show

program eligibility at 185% of the federal poverty

level. Under the guidelines, a family of four is

eligible at an income of $29,639 per annum or $572

monthly.

77The comment received and used for this

analysis included a study by R. Aplin, E. Erba, M.

Stephenson, ‘‘An Analysis of Processing and

Distribution Productivity and Costs in 35 Fluid

Milk Plants,’’ February 1997, R.B. 97–03, Cornell

University, and an extract by the same authors,

entitled ‘‘Presentation at IDFA Annual Meeting in

Dallas, Texas (October 1996). (This extract provides

‘‘estimated costs of marketing 2% lowfat milk

through supermarkets, New York Metro Area, $ per

gallon, 1995). In comment received on the proposed

rule, Professor Aplin indicates that the extract was

based on identified costs of the northeast plants that

were part of the broader, overall study group. The

Commission also relied upon a study by the

Economic Research Service (ERS) of the United

States Department of Agriculture, Food Cost

Review/AER–729. The Commission found the

Aplin et al. study more representative, given its

identified inclusion of a significant percentage of

northeast plants. Moreover, the ERS study

incorporated data drawn from vertically integrated,

or combined, processing/retailing facilities. The

Compact region only includes one such operation.

78See: footnote 64, supra.

79As in the prior rulemaking, the impact on the

farm submarket is presented under the inquiry

mandated by the farmer/supply finding.

Class I price, and the actual impact of

the regulation is yet to be determined.

The interplay of the underlying federal

Class I pricing regulation and the ‘‘overorder’’ mechanism, combining to

establish the flat, combined price, have

yet to work through the asymmetric

pricing regimen of retail milk prices.

Moreover, while prices may have spiked

up in response to initial imposition of

the price regulation, according to the

received data and analysis, they

declined the next month and ‘‘are

expected to fall more over time.’’ 73

The Compact Commission notes

further that the WIC program,74 along

with the School Lunch Program,75

provides a buffer to assist low income

consumers with increases in the retail

cost of milk that might occur.76 In view

of the existence of these programs, and

given the current market picture

presented by the data and analysis as a

whole, the Commission determines that

the adverse comment does not establish

the need for elimination of the price

regulation.

Reasonable Rate of Return to the

Distributor

With regard to the ‘‘price necessary to

yield a reasonable rate of return to the

distributor,’’ Compact, Section 9(e), the

Compact Commission has previously

determined that ‘‘[t]he focus of this

inquiry is the determination of a price

that ensures a reasonable rate of return,’’

and, more specifically, ‘‘whether

processing plants are currently covering

costs of production,’’ including the

distributors’ rate of return on capital. 62

FR 23045.

Working from this framework, the

Compact Commission sought and

received comment on wholesale costs

and prices. The data received persuaded

the Compact Commission to conclude

that processors are in fact covering their

margins, including a return on capital of

$0.06 per gallon.77 The Compact

Commission further determined that

‘‘minimization of such persistent

fluctuations in price can only serve as

a benefit to stability of firm participants

in the wholesale market.’’ 62 FR 29635.

The Compact Commission hereby

reaffirms the resulting determination

that the benefits of price stabilization 78

in the wholesale market parallel the

benefits of price stabilization at the farm

level, namely, allowing processors to

engage in long-term economic planning

and investment, and thereby improve

their economic efficiency and

performance. Id.

Broadened Inquiry Under Compact

Section 9(e)

As indicated in the introduction to

this finding section, the Compact

Commission determined under the prior

rulemaking that the ultimate finding

required by Section 12 of the Compact—

whether ‘‘the public interest will be

served by the establishment of

minimum milk prices to dairy

farmers’’—necessitated consideration of

a broader range of subjects and issues

than those specifically delineated by

Section 9(e) of the Compact.

Accordingly, the Compact Commission

sought comment regarding the potential

impact of price regulation on each of the

farm, wholesale and retail sub-markets

which comprise the overall market for

fluid milk. 62 FR 23042. These inquiries

were broken down further into the

individual components of these

respective sub-markets, including some

of the components specifically listed in

Section 9(e) of the Compact, as

discussed above. This broad-ranging

inquiry, focusing on all phases of the

fluid milk market, allowed the Compact

Commission to gather substantial data

and make an informed determination

that an over-order price regulation

would be in the public interest, overall,

and with regard to its specific impact on

each of the three discrete sub-markets—

farm, wholesale and retail. 62 FR

23048–50. For purposes of

completeness, the Compact

Commission’s conclusions with regard

to the wholesale and retail submarkets

are again expressly presented, along

with analysis of relevant comment

received as part of this rulemaking

process.79

Wholesale Sub-Market—The Compact

Commission assessed the impact of

price regulation on the wholesale

market by considering the issue of rate

of return to processors, as discussed

above, (62 FR 23045), and by assessing

whether price regulation would result in

market distortion with regard to

wholesale price and thereby contravene

the public interest. 62 FR 23048. In

assessing the concern with market

distortion, the Compact Commission

carefully reviewed present patterns of

supply for the region’s wholesale needs.

The Compact Commission determined

that the wholesale market presently is

supplied almost totally in the form of

raw, bulk product transported from

areas of concentration of dairy farms in

the rural part of the region to the fluid

processing plants located in close

proximity to the region’s cities. 62 FR

23045. The Compact Commission also

determined that the marginal, remainder

of the wholesale market is supplied by

finished, packaged milk transported

from processing plants located some

distance away from the region’s cities.

Id.

With regard to the primary bulk

supply component of the wholesale

market, the Compact Commission

determined that there was unlikely to be

market distortion caused by price

regulation that could adversely affect

the wholesale price. According to the

comment received in the previous

rulemaking, present patterns of raw

product supply between processors and

independent farmers or cooperative

organizations of farmers are relatively

stable and are unlikely to be affected by

a regulated price increase in the amount

and for the duration established by the

price regulation. 62 FR 23048.

The Compact Commission also

concluded that price regulation was

unlikely to cause market distortion with

regard to the secondary packaged

product component of the market. The

concern here is whether price regulation

can be administered uniformly with

regard to raw product and, as identified

and addressed in the current rule,

packaged milk supplies. If a significant

portion of the packaged milk supplies is

left unregulated, this might distort the

market by creating a competitive

advantage for such packaged products,

encouraging their substitution as a

source of wholesale supply. 62 FR

23048. Given that packaged milk as
62820 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

80 GAO Report 13–239877 at 2 (October 16, 1992),

submitted by Jeffords as Additional Reply

Comment, April 9, 1997; See also 62 FR 23050.

The Commission further notes that the

purchasing patterns of other institutional buyers

such as the military and hospitals, as described in

the GAO study similarly mirror the broader,

competitive market. The Commission concludes

that these institutional buyers will also benefit from

the impact of price regulation on the competitive

market.

81Mary Kelligrew Kassler, Director of the

Massachusetts WIC Program, WC; Jadwiga

Goclowski, Division Director/State WIC Director,

Department of Health, State of Connecticut, WC.

wholesale supply is more expensive

than raw product supply, such

substitution resulting from market

distortion would increase retail prices

and be contrary to the public interest.

The Compact Commission concluded

that raw product and packaged product

supplies could be regulated uniformly

and that such uniform regulation will

prevent market distortion, including

indirect impact on price. (The basis for

this conclusion was presented under the

third finding analysis of the prior

rulemaking. 62 FR 29637)

The comment received in the present

rulemaking initially confirms the

Compact Commission’s assessment that

the price regulation would not adversely

affect the relatively stable market

patterns of the wholesale sub-market. As

presented in the next finding analysis,

the Commission received and has

responded in detail to comment

received indicating the need for

marginal adjustment in the operation of

the price regulation in the wholesale

market. Such comment indicating the

need only for marginal adjustment

confirms that the regulation has not had

such an anomalous impact on the

marketplace so as to require its

elimination. At the same time, the

Compact Commission reaffirms the need

to continue to monitor comprehensively

the regulation’s impact on this submarket, as detailed in the prior

rulemaking. The Commission is in

process of implementing the tracking

mechanism necessary to conduct the

required monitoring established by the

prior rulemaking.

Retail Sub-Market—With regard to the

retail market, the Compact Commission

concluded in the prior rulemaking that

price regulation was likely overall to

have a positive impact on ‘‘the

purchasing power of the public’’ within

the meaning of Compact Section 9(e),

and thereby to be distinctly in the

public interest. See 62 FR 23048. (The

Commission’s underlying conclusion,

that stabilizing the milk supply and

removing variability in the federally

regulated, farm/wholesale, pricing

structure would likely combine to have

a positive, downward impact on retail

prices is explained in further detail at

62 FR 23048–50.) As noted above, the

Commission has reaffirmed this

conclusion in view of the comment

received with regard to retail prices.

In the prior rulemaking, the Compact

Commission also made a further

determination of the potential, positive

impact of price regulation with regard to

the broader, consumer-based market.

More specifically, the Commission

concluded that price regulation will not

have a negative impact on government

supplemental nutrition programs such

as the National School Lunch Program.

The Commission made this further

determination based on its assessment

that the pricing patterns of such

programs were premised on essentially

the same competitive patterns of the

broader, consumer-based market. See 62

FR 23050. Citing a General Accounting

Office description of the program, the

Commission noted in its proposed rule:

The National School Lunch Act of 1946

(Pub L. 79–396) and the Child Nutrition Act

of 1966 (Pub L. 89–642) authorize USDA to

reimburse state and local school authorities—

under grant agreements—for some or all of

the costs of these programs. Reimbursements

are based on either the number of meals

served or the number of half pints served.

The schools use these funds, as well as state

and local funds and moneys collected from

students, to purchase food, including milk,

for these programs. These purchases are

made through either sealed bid or negotiated

procurements. USDA’s regulations require

that these procurements be conducted in a

manner that provides for the maximum

amount of open and free competition.80

The Compact Commission reaffirms

this understanding of the expected

interplay between the price regulation

and the School Lunch Program. Given

the critical concern with the potential

impact on such supplemental food

nutrition programs, and in view of the

comment received on this issue, the

Commission determines it appropriate

to establish a Task Force pursuant to

Article VII. D. of the Compact

Commission’s Bylaws to assess more

closely the regulation’s actual and

potential impact on the School Lunch

programs. The Task Force shall report

back to the Commission at its regularly

scheduled meeting for February, 1998.

Based on the Committee’s assessment of

the impact of the Compact over-order

price regulation, it shall make

recommendations as to whether the

region’s School Lunch Programs should

receive reimbursement for some or all of

any increased costs attributable to the

price regulation and, if so, the method

for reimbursing the appropriate local

authorities.

Price Regulation and the WIC Program

The Compact Commission did

determine in the prior rulemaking that

pricing and reimbursement patterns for

one government supplemental nutrition

program, the WIC Program, are not

configured according to the same

pattern as the broader consumer-based

retail market. 62 FR 23050; 29637.

Accordingly, the Commission exempted

the WIC program from operation of the

price regulation. Id. at 23050–53; 29637.

Two of the State WIC Program

Directors submitted comment in support

of extending the provisions in the

current rule for reimbursing State WIC

Programs for their costs incurred as a

result of the Compact over-order price

regulation.81 The current rule includes a

formal agreement between the Compact

Commission and the six State WIC

Programs that governs the terms of the

reimbursement program. The Compact

Commission herein extends that

agreement for the effective period of the

rule.

About the WIC Program

The Special Supplemental Nutrition

Program for Women, Infants and

Children (WIC) is a unique health and

nutrition program serving women and

children with—or at risk of

developing—nutrition-related health

problems. WIC provides access to

healthcare, free nutritious food, and

nutrition information to help keep low

to moderate income pregnant women,

infants and children under five healthy

and strong. The Program provides a

monthly ‘‘prescription’’ for nutritious

foods tailored to supplement the

individual dietary needs of each

participant. Milk and other dairy

products play a large and important role

in every participant’s food package.

The WIC Program is a Federally

funded program carried out according to

provisions of the Federal Child

Nutrition Act. The Program is funded

through the Food and Consumer Service

of the United States Department of

Agriculture (USDA) and administered

on the local level by State WIC Programs

in the Connecticut, Maine,

Massachusetts, New Hampshire, Rhode

Island, Vermont State Departments of

Public Health (the States). Additional

state funds are also provided in

Massachusetts. Participants are issued

WIC checks or vouchers at local

agencies for WIC authorized foods. The

checks or vouchers—which do not have

a predetermined value—are redeemed at

authorized retail stores at current store

prices in accordance with posted prices.

Prepayment edits are performed on each

check to ensure that specific food
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62821

82The comment received and used for the cost

analysis relied upon the study by Aplin et al, ‘‘An

Analysis of Processing and Distribution

Productivity and Costs in 35 Fluid Milk Plants’’,

February 1997, R.B. 97–03, Cornell University and

the extract by the same authors, entitled

‘‘Presentation at IDFA Annual Meeting in Dallas,

Texas (October 1996). (This extract provides

‘‘estimated costs of marketing 2% lowfat milk

through supermarkets, New York Metro Area, $ per

gallon, 1995). In comment received on the proposed

rule, Professor Aplin indicates that the represented

supermarket costs were representative of New

England supermarkets, as well. The Commission

notes that these studies focus on supermarket costs.

Supermarkets represent the primary retail outlet for

fluid milk in the marketplace. According to the

Aplin study, retail cost, with return is $2.12 per

gallon.

purchasing, pricing and payment

requirements are met.

Because WIC is not an entitlement

program and has a capped program

appropriation, any increase in food

costs results in fewer women and

children being served. It is imperative,

therefore, that WIC’s funds be held

harmless from any adverse impact due

to a Regulation. While the Compact

Commission has again concluded that

price regulation should have a ‘‘positive

impact’’ on retail markets, it has also

found that the market is presently

adjusting to the price regulation with an

as-yet indeterminable, overall, actual

outcome. In order to ensure that WIC

funds are held harmless, it is necessary

to extend the reimbursement procedure

during the effective period of the

Compact over-order price regulation.

Continuing Assessment of Impact

The Compact Commission, in its

current rule, provides for continuous

monitoring and analysis of Class I fluid

milk retail price data in order to

accurately assess and evaluate any

regulation-related adverse or beneficial

impact on costs to consumers and WIC,

and to make related adjustments to

assure that the public interest is served

and consumers and the WIC Program

and its participants are protected. The

Compact Commission, under this rule,

will continue to monitor and analyze

information at both the New England

Regional and individual State levels—

including each State’s WIC programs—

comprising representative samples of

market areas and retail store types,

proportion of sales by package size, and

degree to which retail price fluctuations

differ for package sizes in relation to

each other.

WIC Reimbursement System

Given that State WIC Programs have

a September 30th fiscal year end, the

Compact Commission can not make the

Program whole after the fact. WIC must

operate in a funding ‘‘limbo’’ between

October and January when its State

Program grants are announced.

Uncertainty regarding the potential

effect of price regulation, or

reimbursements to States made by the

Compact Commission at a later date,

would force State WIC managers to

lower first quarter participation levels.

The State WIC Programs have proposed

and the Commission has agreed to a

method by which the WIC Program will

be held harmless from any impact

related to a demonstration of a Compact

Over-Order Price Regulation for Class 1

fluid milk. The Commission will

reimburse each respective State WIC

Program. The amount of reimbursement

will be based on a formal agreement to

be entered into by the Compact

Commission and the six New England

State WIC Program Directors, as

approved by the Food and Consumer

Service of the USDA. Under the

agreement, the reimbursement amounts

will be based on: (1) The quantities of

milk purchased with WIC checks and

(2) the amount of any Compact OverOrder Price Regulation.

The Compact Commission has also

made provision for continuing

monitoring and analysis of retail and

wholesale prices for fluid milk. Should

there be continuing adverse impacts on

consumers, in general, and low income

consumers, in particular, the

Commission will be able to react.

Impact on Retailers

Finally, the Compact Commission

reaffirms its prior determination that

price regulation does not and will not

likely have an adverse impact on the

retailers, themselves. In summary: in

similar manner as with its assessment of

the wholesale market in the prior

rulemaking, the Commission reviewed

retail costs and prices to determine if

retailers are covering costs, including

return on capital, under present market

conditions. 62 FR 23045, 23046–48. The

Compact Commission concluded that

such margins are presently being

covered, and that price regulation will

not adversely affect the ability of retail

outlets to continue to cover their

margins. Id. at 23048.82

Public Interest Finding—Summary

Analysis

Based on this analysis under Compact

section 9(e) and the broader marketwide analysis, the Compact Commission

concludes that continuing the price

regulation in the amount of $16.94 for

the period January 1, 1998 through

termination of the Compact enabling

legislation will ensure the ‘‘public

interest’’ is served in the manner

contemplated by the finding analysis

under Compact section 12(a)(2). The

Compact Commission concludes the

current price regulation has begun to

achieve its intended purposes of price

stabilization and limited price

enhancement for producers without

distortion of downstream wholesale and

retail markets. While the actual impact

on the downstream markets cannot yet

be determined comprehensively, the

data and comment presented indicate

that at worst only marginal adjustments

are necessary and that at best the

regulation may be serving its intended

purpose of having a positive, downward

pressure on retail prices. Extension of

the regulation in substantially similar

form will continue its function as a

limited market adjustment which again

accounts for its potential impact on all

levels of the market, from farm to retail,

including the benefits of market

stability.

As noted throughout the analysis

under this and the previous finding

section, the Compact Commission has

again considered and accounted for the

variety of potential market impacts in

fashioning this extension of the price

regulation. The Commission remains

concerned with its potential, adverse

impact on the wholesale market, as well

as with regard to unanticipated impacts

on consumer prices.

While the Compact Commission has

concluded that the regulation has not

and is not likely to adversely affect the

wholesale market and may well, indeed,

have a positive impact on retail prices,

the Commission will ensure

comprehensive monitoring of these

market functions. The Commission has

also determined that it will commence

a rulemaking proceeding, pursuant to

section 11 of the Compact, no later than

July 1, 1998 during which it will make

an assessment of, among other issues,

the data and analysis received as a

result of its tracking analysis.

As a final safeguard against

unanticipated, adverse consequences,

the Commission has again acted to

‘‘hold harmless’’ the WIC Program by

reestablishing the reimbursement

provisions for all New England State

WIC Programs, despite the

Commission’s conclusion of the

remoteness of there occurring

unanticipated, adverse consequences in

the retail market. Finally, as a new

element of this monitoring procedure

adopted under the previous rulemaking,

the Commission will establish a Task

Force to assess the specific impact of the

regulation on the region’s School Lunch

Programs and to determine whether it is

appropriate to establish some form of

reimbursement for these programs.
62822 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

83Leon Berthiaume, St. Albans Coop., PH at p. 63

and WC; Sally Beach, IDA, PH at p. 85; Douglas

Carlson, dairy farmer, PH at p. 102; David Jaquier,

dairy farmer, PH at p. 137; Norma O’Leary, Ct. Farm

Bureau, WC; Carl Peterson, dairy farmer, PH at p.

70; Robert Wellington, AgriMark Coop., PH at p.

111 and WC.

84Berthiaume indicated in his testimony, PH at p.

59–64 that production for St. Albans Cooperative

was the same for January through June, 1997 as it

was for the same period in 1996. It increased 1%

in July, 1997 and 2.3% in August, 1997, well below

the average increase in the 20 largest dairy states

which was 5% and 4.4%, respectively.

85Peterson. PH, p. 70.

86Wellington, WC. In his written comment, he

also made the point that farm prices regularly below

the costs of production will not themselves generate

any long-term additional supplies of milk.

87Smith and Wellington. op. cit.

88Leon Graves, Commissioner, Vt. Dept. of

Agriculture, Food and Markets, WC.

89Wellington, WC.

90When establishing a compact over-order price,

the commission shall take such action as necessary

and feasible to ensure that the price does not create

an incentive for producers to generate additional

supplies of milk.’’ Compact. section 9(f).

91 ‘‘Before the end of each fiscal year that a

Compact price regulation is in effect, the Northeast

Interstate Dairy Compact Commission shall

compensate the Commodity Credit Corporation for

the cost of any purchases of milk and milk products

by the Corporation that result from the projected

rate of increase in milk production for the fiscal

year within the Compact region in excess of the

projected national average rate of the increase in

milk production, as determined by the Secretary [of

Agriculture].’’ 7 U.S.C. 7256(6).

92Leon Berthiaume, WC.

C. Whether the Major Provisions of the

Order, Other Than Those Fixing

Minimum Prices, Are Reasonably

Designed To Achieve the Purposes of

the Order

The third provision of section 12(a) of

the Compact requires that the Compact

Commission determine whether the

non-price provisions of the proposed

rule would also be in the public interest,

and, based on the record before it, the

Commission so finds. The Commission’s

assessment focuses on two conditions:

assurance that the regulation does not

create an incentive for dairy farmers to

produce additional, surplus supplies of

milk, and second, the Commission’s

regulation is uniform and equitable and

does not unduly distort traditional

markets and marketing channels. The

Compact Commission finds that both

conditions are met by the final rule, as

amended from the proposed rule.

Based on their individual farm or

cooperative experience with production

over the period January through August,

1997, several commenters 83 indicated

that the price regulation had not created

an incentive for dairy farmers to

produce additional, surplus supplies of

milk. They indicated that production for

either their farm or their cooperative

was roughly the same in 1997 for the 8

month period as for the same period in

1996.84 One dairy farmer indicated that

in his experience, it is low prices that

cause the farmer to produce more milk

in order to meet the monthly fixed

commitments for farm expenses.85

Similarly, another commenter indicated

that the over-order producer price

would likely not be an incentive for

increased production because the farmer

will have a better cash flow under the

regulation and can avoid the extra costs

of increasing production with additional

cows or other strategies.86

Two commenters 87 based their

opinion that the regulation will not

elicit increased production on an

analysis of the interactive effect of the

compact over-order price when applied

in complement to the Basic Formula

Price (BFP) of the federal Milk Market

Order #1. Because the current compact

over-order price of $16.94 establishes a

partial floor price to the producer, the

supply and demand in the New England

milkshed, the farmer receives

appropriate economic signals about the

amount of production called for by the

market. They independently conclude

that this mechanism provides a more

stable price for the producer while

allowing the natural mechanisms of the

marketplace to influence supply and

demand.

The joint submission of Renee De

Gues and William Gillmeister, both

dairy economists for the Vermont and

Massachusetts Departments of

Agriculture, respectively, indicates that,

based on reported data, production

levels in the region have not changed

dramatically since the Final Rule was

implemented on July 1, 1997. Based on

the data they submitted, they conclude

that ‘‘the Compact is not stimulating

production in New York and

Pennsylvania because from July through

September, milk production in those

states seems to have matched milk

production patterns for the U.S.’’, as a

whole. Receipts for New York and New

England, while up over the same period

in 1996, were normal when compared to

1994 and 1995. In their joint

submission, they report that receipts

from New York, Vermont and

Connecticut increased by 0.6%, 0.17%,

and 3.5%, respectively, from July to

August, 1997. Receipts from Maine,

Massachusetts, New Hampshire, and

Rhode Island fell by 1.6%, 2.1%, 1.4%,

and 2.4%, respectively, from July to

August, 1997. Moreover, production

levels were considerably below the

average increase in the national

production.88

The Compact Commission notes that

the Commodity Credit Corporation

(CCC) made no purchases of surplus

milk in the region during fiscal year

1996 or 1997.89 The Commission

established a monitoring plan in the

May 30, 1997 Final Rule that will track

regional and national rates of

production to determine whether the

regional rate of increased production is

within 0.25% of the national rate of

increased production. If New England

production levels do increase within

this range, then for each such month,

the Commission will estimate the

potential cost of CCC surplus purchases

of surplus which might occur should

the rate of regional increased production

exceed the national rate. The

Commission will retain a portion of the

proceeds of the price regulation

sufficient to cover such estimated costs,

as necessary. See 62 FR 23054. In this

rulemaking, the Commission determines

that the tracking procedure and the plan

for paying CCC for any surplus

purchases are still the most viable and

reasonable method for dealing with any

increased production in the region.

On the basis of this record, the

Compact Commission concludes that

neither additional supplies nor surplus

production has occurred to date nor

does it expect any to occur under an

extension of the Compact over-order

price regulation. The Commission will

continue the tracking procedures

established under the current regulation

to monitor production, so as to allow

appropriate action should an

unanticipated change in production

patterns occur. 62 FR 23054. Pursuant to

section 9(f) 90 of the Compact, the

Commission finds that it is not now

necessary to take any action to ensure

that the over-order price does not create

an incentive for producers to generate

additional supplies of milk. If the

monitoring procedures indicate the

need for such action, the Commission

will take the necessary and feasible

action, as appropriate, to reimburse the

Commodity Credit Corporation for any

purchases of resulting surplus

supplies.91

One commenter 92 suggested an

amendment to the codified regulations

that would establish a method for

assessing pro rata all pooled producers

for a three month period for the purpose

of any retroactive payment to the

Commodity Credit Corporation for

surplus purchases. The Commission’s

response is that, should payments at the

end of the fiscal year to the commodity

Credit Corporation be necessary and

appropriate, the entire producer pool

ought to bear those costs, when

incurred. This mechanism provides an

added disincentive for over-production
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62823

93Carmen L. Ross, Compact Regulation

Administrator, PH at pp. 44–55.

94Under the federal Milk Market Order #1

regulatory provisions, producers qualify who ship

milk for over half of the days in July through August

each year.

95Eugene Madill, CEO, Dairylea Coop., PH at p.

37.

96Wellington, PH at p. 109 and WC.

97 Gary Dake, Vice-President, Stewart’s Processing

Corp., Saratoga Springs, NY, WC. 98 Garry Warren, PH at p.126.

by the pool producers appropriate under

Section 9(e) of the Compact.

The inquiry on the second condition

centers on the technical provisions,

currently codified in 7 CFR parts 1300,

1301, and 1303–1307. These provisions

establish the definitions and procedures

for the assessment of price regulation

collection from processors and

disbursements to producers. The

Commission finds, generally, that these

provisions continue to ensure uniform

and equitable administration of the

price regulation. The provisions

continue to be patterned closely upon

the underlying federal Milk Market

Order #1, as they were when adopted on

May 30, 1997. 62 FR 29637. They are

designed to and have, in fact, worked

since July 1, 1997 in complement to the

Market Order with the direct, technical

assistance of the Market Order #1

Administrator’s office.

In response to the Compact

Commission’s proposal to extend and

amend generally the current provisions

of the regulation, a number of comments

were received at both the public hearing

and in later written submissions. To

allow later written comment on a

number of technical administrative

issues, the Compact Regulation

Administrator 93 suggested in his

testimony at the September 24, 1997

public hearing, that an additional

criteria be added to 7 CFR 1301.11(b),

relating to qualifying as a producer

under the regulation, to include having

moved milk into the regulated area for

more than half the days during

December of 1997. The current rule

provides that any dairy farmer who

moved milk into New England in

December of 1996 for over half of the

days on which he or she shipped milk

qualified for the over-order producer

price. This reflects the traditional

parallel provision of the federal Milk

Market Order for qualifying for pooling

during a specific time period of each

year.94 Those who qualify during this

specific period have demonstrated that

they are traditionally associated the

regional milkshed. The Commission

finds it reasonable and consistent to

provide a parallel one month qualifying

period for December of 1997 added to

December of 1996. It, therefore, amends

7 CFR 1301.11(b) to insert ‘‘and

December 1997’’ after December, 1996

in the current regulation.

The same commenter also suggested

that 7 CFR 1301.11(b) be further

amended by adding a provision that

would limit the total amount of milk at

a pool plant eligible to qualify out of

region producers to the total bulk

receipts of fluid milk products less the

total bulk transfers of fluid milk

products (not including bulk transfers of

skimmed milk and condensed milk).

The principal criterion for qualifying

a producer for the over-order producer

price is whether the farmer has

committed to supply the Compact area

milkshed. Out of area producer milk

being shipped into a Compact area pool

plant and then transferred out of the

plant for distribution outside of the

regulated area does not meet that

criteria. The commenter noted that,

under the current version of this

section, milk could be shipped into a

pool plant only to qualify the producer

for the Compact over-order producer

price. The Commission finds that the

suggestion deals adequately with this

problem and is consistent with the

principal criteria for producer

qualification of a demonstrated

commitment to supply the New England

milkshed. There are, however,

additional problems associated with this

suggested provision.

Another commenter 95 advocated that

the current rule not be amended and

that the current treatment of plant

diversions be left in place, to parallel

the treatment under the federal Milk

Market Order. He pointed out that plant

diversions are part of everyday life in all

regions of the country and that these

diversions are required by a variety of

circumstances. A third commenter 96

pointed out that it would be unfair to

penalize the out of area producers and

prevent their qualification because

business necessity at the plant required

that producer’s milk be transferred on

any particular day. He suggested that

‘‘reloading’’ occurs for a variety of

reasons, among which are varying

seasonal demand and supply in the

milkshed, and that a percentage limit on

bulk milk transfers for purposes of

qualifying out of region producers could

solve the problem while not distorting

normal business practice.

A dairy processor from New York 97

identified a somewhat related concern

with regard to the current rules for

qualified out of region producers whose

milk is shipped to a pool plant in the

regulated area with sales outside the

regulated area in competition with the

New York processor. According to the

commenter, the New York processing

facility must match the over-order

producer price paid by the New

England-based pool plant to qualified

New York producers in order to assure

maintenance of raw product supply.

According to the commenter, this

payment raises the New York

processor’s costs compared with the

New England processing facility’s costs.

This comment raises a similar

concern to that presented with regard to

bulk transfers, in that new milk is being

pooled which is not traditionally

associated with the pool for the

regulated New England area. The

Commission responds to this comment

by amending the regulation to limit

producer qualification in some

instances with regard to milk utilized

for sales outside the region. All out of

region producers historically associated

with the milkshed for the region, or

those providing supply in December

1996 and 1997, will qualify on that

basis. Newly supplying producers,

however, will qualify only to the extent

that their receiving plant has sales in the

regulated region attributable to such

new, additional, supply.

In recognition of the problem to

which Ross’s suggested amendment is

addressed, to reflect the need to

accommodate reloading as a current

business practice for balancing milk

supplies to fit consumer needs and

available plant capacity, and to correct

the problem pointed out by the New

York processor, the Compact

Commission adopts two new provisions

in § 1301.11(b) which will:

(a) restrict a handler’s ability to

increase its out of region producer

supply not traditionally associated with

regulated area, by limiting the out of

region producer qualification to only

10% of the milk received from those

producers but subsequently reloaded

and transferred in bulk for disposition

out of the region; and will:

(b) provide for minimization or

elimination of qualification of out of

region producers whose milk is shipped

to a pool plant that packages the milk

for sale outside of the regulated area,

solely for such sales.

To reflect the decisions of the

Compact Commission to include these

new provisions, 7 CFR 1301.11 (b) is

amended as indicated infra in

‘‘Codification in Code of Federal

Regulations’’.

One commenter 98 suggested that the

five month qualifying period be reduced

to 3 months to allow more out of region

producers to take advantage of the overorder producer price. Another
62824 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

99Wellington, WC.

100Carmen L. Ross, Id.

101 62 FR 29630.

102See: Discussion of the WIC Programs, supra.

103 62 FR 23054 and 29638. 104Leon J. Berthiaume, WC.

commenter,99 however, advocated that

the qualifying period remain at the five

months required by the current

provision. The Compact Commission’s

response to these comments is that the

five month period is a reasonable

measure of a producer’s initial

commitment to supply the New England

milk pool. The Commission concludes

that the current provision with the

suggested amendments adopted above

ensures equitable and uniform treatment

of out of region producers. The

Commission, therefore, will continue

the current five month requirement in 7

CFR 1301.11(b).

A previous commenter 100 suggested

another amendment to clarify the

current regulation in 7 CFR 1304.5

dealing with the classification of milk.

He suggested deleting the current

provision at § 1304.5(a) and adding a

new subsection (a) to clarify that fluid

milk products which had been pooled at

a New England pool plant and shipped

to a partially regulated plant will be

attributed only to the pool plant. This

suggestion ensures that milk already

subject to the Compact over-order

obligation at the pool plant will not

again be subject to the obligation at a

partially regulated plant to which it is

later shipped.

Although no double billing has

occurred under the current provision,

this clarification will ensure that it

cannot happen. There was no comment

opposing this suggestion.

The Compact Commission agrees that

the current provision should be clarified

to ensure uniform and equitable

administration of the regulation. The

Commission, therefore, adopts the

amendment to delete the current

language at 7 CFR 1304.5(a) and to

replace it with a new subsection (a) as

is indicated infra in ‘‘Codification in

Code of Federal Regulations.’’

The Commission notes that the

current codified provision at § 1305.1

establishing the Compact over-order

Class I price does not include the dollar

amount adopted by the Commission on

May 30, 1997. Because of the need for

clarity in the codified regulations, the

Compact Commission amends that

section to include reference to the new

Compact over-order price of $16.94, as

indicated infra in ‘‘Codification in Code

of Federal Regulations.’’

The same commenter suggested that 7

CFR 1306.1 and 1306.2 be amended to

establish a parallel exemption from

regulation with that of the federal Milk

Market Order #1 for any dairy processor

who handles less than an average of 300

quarts per day. He points out that these

limited amounts of milk should be

excluded from the Compact pool as a de

minimus exemption because of the

relatively small amounts of the Compact

over-order obligation and consequent

producer price distribution. There was

no further comment received on this

suggestion.

The Compact Commission finds merit

in the suggestion as a way to simplify

administration of the regulation and to

reflect the practice under the federal

Milk Market Order system. The

Commission, therefore, amends 7 CFR

1306.1 and 1306.2 as is indicated infra.

‘‘Codification in Code of Federal

Regulations.’’

The same commenter pointed out

that, in the notice of final rule,101 the

Compact Commission adopted the

requirement of a formal agreement for a

reimbursement system between the

Commission and the State WIC Program

directors, to be approved by the Food

and Consumer Service of the USDA,

that will ensure reimbursement of any

additional costs incurred by those

programs because of the over-order

price regulation, the requirement was

inadvertently omitted from the

codification. In the same final rule

notice, the Commission had also

approved the establishment of a

Commission reserve account for

reimbursement of anticipated WIC

Program costs.

As explained in the prior finding

analysis, the Commission has

reestablished and extended the WIC

reimbursement system.102 The

Commission, therefore, amends 7 CFR

1306.3 to add a new subsection (b).

In addition, the Compact Commission

notes that, although it adopted a

mechanism for reserving funds to cover

any costs to be reimbursed to the

Commodity Credit Corporation for

surplus purchases in its Proposed and

Final Rule,103 it did not include any

provision in the codified regulations. To

address that omission, the Commission

amends 7 CFR 1306.3 further to add a

new subsection (c) and to redesignate

the remaining subsections to be (d)

through (f), as indicated infra in

‘‘Codification in Code of Federal

Regulations.’’

The same commenter also suggested

changes needed to 7 CFR 1307.1 both to

accommodate new references required

by the above amendments and to correct

the language. There was no additional

comment on these suggestions. The

Commission adopts these suggestions

and amends 7 CFR 1307.1, as indicated

infra in ‘‘Codification in Code of Federal

Regulations.’’

The same commenter suggested

changes to 7 CFR 1307.2 to clarify the

intent and to delete subsection (c)

which is not needed. There were no

additional comments on this suggestion.

The Compact Commission agrees with

the comments and amends 7 CFR 1307.2

by deleting (c) in its entirety and

amending (b) (1) and (2), as indicated

infra in ‘‘Codification in Code of Federal

Regulations.’’

This same commenter’s last

suggestion for changes to the codified

provisions of the regulation was to

amend 7 CFR 1307.4 to exclude milk at

a partially regulated plant that was

diverted from a pool plant, where it was

already pooled for purposes of the

Compact over-order price obligation.

There was no additional comment on

this suggestion. Because this

amendment will ensure that the price

obligation not be assessed twice on the

same milk, the Commission adopts the

suggestion and amends 7 CFR 1307.4(f),

as indicated infra in ‘‘Codification in

Code of Federal Regulations.’’

Another commenter 104 suggested an

amendment to 7 CFR 1304.4(a)(ii) to

avoid the assessment of the over-order

obligation on a cooperative for bulk

milk which the cooperative ships to

other pool or partially regulated plants.

He points out that under the current

regulation the cooperative and its

membership are financially responsible

for the assessment for which the

receiving plant is billed by the

cooperative and which will ultimately

be paid by the receiving plant. He

suggests that it is more appropriate that

the second processing plant be

financially responsible than the farmer

cooperative.

The Compact Commission’s response

is that the over-order price obligation is

imposed on this particular cooperative

as a processor operating a compact pool

plant. It is a traditional technique of

milk market regulation to impose the

obligation on the pool plant that

receives the milk from the producer. It

is, therefore, appropriate that the

cooperative continue to be responsible

for the obligation as the operator of the

receiving pool plant.

With these amendments to the current

codified provisions of the price

regulation, the Commission finds that

the major provisions of the order, other

than those fixing minimum prices, are

reasonably designed to achieve the

purposes of the order.
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62825

105Section 13 of the Compact requires that the

Commission conduct a referendum among

producers and that, at least, two-thirds of the voting

producers approved the regulation. A separate

notice in the Federal Register certifies the results

of the referendum pursuant to the following

Referendum Approval Certification Procedure:

The Compact Commission resolves and adopts

this procedure for certifying whether the price

regulation adopted by this final rule has been duly

approved by producer referendum in accordance

with Compact Article V, section 12.

llll is hereby designated as ‘‘Referendum

Agent’’ and authorized to administer this

procedure.

The designated Referendum Agent shall:

1. Verify all ballots with respect to timeliness,

producer eligibility, cooperative identification,

authenticity and other steps taken to avoid

duplication of ballots. Verification of ballots shall

include those cast individually by block vote.

Ballots determined by the Referendum Agent to be

invalid shall be marked ‘‘disqualified’’ with a

notation of the reason for disqualification.

Disqualified ballots shall not be considered in

determining approval or disapproval of the

regulation.

2. Compute and certify the following:

A. The total number of ballots cast.

B. The total number of ballots disqualified.

C. The total number of verified ballots cast in

favor of the price.

D. The total number of verified ballots cast in

opposition to the price regulation.

E. Whether two-thirds of all verified ballots were

cast in the affirmative.

3. Report to the Executive Director of the

Compact Commission the certified computations

and results of the referendum under Section 2.

4. At the completion of his or her work, seal all

ballots, including the disqualified ballots, and shall

submit a final report to the Executive Director

stating all actions taken in connection with the

referendum. The final report shall include all

ballots cast and all other information furnished to

or compiled by the Referendum Agent.

The ballots cast, the identity of any person or

cooperative, or the manner in which any person or

cooperative voted, and all information furnished to

or compiled by the Referendum Agent shall be

regarded as confidential.

The Executive Director shall publish the certified

results of the referendum in the Federal Register.

Finally, the Compact Commission

concludes that the administrative

assessment of $0.032 per

hundredweight of milk on all route

dispositions of class I fluid milk in the

territorial region of the six New England

states should be extended in order to

finance the budgeted costs for

administration of the Compact

Commission’s regulations through the

effective period of the rule. The

Commission notes that the additional,

start-up assessment of approximately

$0.013 per hundredweight presently

imposed will expire with final payment

in December of 1997.

III. Required Findings of Fact

Pursuant to Compact Article V,

Section 12, the Compact Commission

hereby finds:

(1) That the public interest will be

served by the continuation of minimum

prices in the amount of $16.94 (Zone 1)

to dairy farmers under Article IV for the

period January 1, 1998 through

termination of the Compact enabling

legislation.

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

1) will assure that producers receive a

price sufficient to cover their costs of

production and will elicit an adequate

supply of milk for the inhabitants of the

regulated area and for manufacturing

purposes.

(3) That the major provisions of the

order, other than those fixing minimum

milk prices, are in the public interest

and are reasonably designed to achieve

the purposes of the order.

(4) That the terms of the proposed

price regulation were approved by

producers by referendum.105

List of Subjects in 7 CFR Parts 1300,

1301, 1303–1307

Milk.

Codification in Code of Federal

Regulations

For reasons set forth in the preamble,

the Compact Commission amends title

7, chapter XIII, as follows:

PART 1301—DEFINITIONS

1. The authority citation for part 1301

continues to read as follows:

Authority: 7 U.S.C. 7256

2. In § 1301.11, paragraph (b) is

revised to read as follows:

§ 1301.11 Producer.

* * * * *

(b) A dairy farmer who produces milk

outside of the regulated area that is

moved to a pool plant, provided that on

more than half of the days on which the

handler caused milk to be moved from

the dairy farmer’s farm during December

1996 and December 1997, all of that

milk was physically moved to a pool

plant in the regulated area. Or: to be

considered a qualified producer, on

more than half of the days on which the

handler caused milk to be moved from

the dairy farmer’s farm during the

current month and for five (5) months

subsequent to July of the preceding

calendar year, all of that milk must have

moved to a pool plant, provided that the

total amount of milk at a pool plant

eligible to qualify producers who did

not qualify in December 1996 and

December 1997 shall not exceed the

total bulk receipts of fluid milk products

less:

(1) Producer receipts as described in

paragraph (a) of this section and

producer receipts as described in

paragraph (b) of this section who are

qualified based on December 1996 and

December 1997;

(2) 90% of the total bulk transfers of

fluid milk products (not including bulk

transfers of skimmed milk and

condensed milk) disposed outside of the

regulated area; and

(3) 100% of packaged fluid milk

products disposed outside of the

regulated area.

* * * * *

PART 1304—CLASSIFICATION OF

MILK

1. The authority for part 1304

continues to read as follows:

Authority: 7 U.S.C. 7256.

2. In § 1304.5, paragraph (a) is revised

to read as follows:

§ 1304.5 Classification of producer milk at

a partially regulated plant.

* * * * *

(a) Subtract from the total pounds of

fluid milk products in Class I the

pounds of fluid milk products in:

(1) Receipts of Class I fluid milk

products from pool plants if reported

and classified Class I by the pool plant;

(2) Disposition of Class I fluid milk

products outside of the regulated area;

(3) Receipts of exempt fluid milk

products pursuant to Section 1301.13

(a), (b), and (c) of this Chapter.

* * * * *

PART 1305—CLASS PRICE

1. The authority citation for part 1305

continues to read as follows:

Authority: 7 U.S.C. 7256.

2. Section 1305.1 is revised to read as

follows:

§ 1305.1 Compact over-order class I price

and compact over-order obligation.

The compact over-order Class I price

per hundredweight of milk shall be as

follows:

(a) The class I price shall be $16.94

per hundredweight.

(b) The compact over-order obligation

shall be computed as follows:

(1) The compact Class I price ($16.94);

(2) Deduct Federal Order #1 Zone 1,

Class I price;

(3) The remainder shall be the

compact over-order obligation.

PART 1306—COMPACT OVER-ORDER

PRODUCER PRICE

1. The authority for part 1306

continues to read as follows:

Authority: 7 U.S.C. 7256.

2. Sections 1306.1, 1306.2, and 1306.3

are revised to read as follows:
62826 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

§ 1306.1 Handler’s value of milk for

computing basic over-order producer price.

For the purpose of computing the

basic over-order producer price, the

compact commission shall determine

for each month the value of milk of each

handler with respect to each of the

handler’s pool plants and of each

handler described in § 1301.9 (d) of the

chapter with respect to milk that was

not received at a pool plant, as directed

in this section. Any pool plant that does

not exceed a daily average of 300 quarts

of disposition in the compact regulated

area in the month shall not be subject

to the compact over-order obligation.

The total assessment for each handler is

to be calculated by multiplying the

pounds of Class I fluid milk products as

determined pursuant to § 1304.1 (a) by

the compact over-order obligation.

§ 1306.2 Partially regulated plant

operator’s value of milk for computing

basic over-order producer price.

For the purpose of computing the

basic over-order producer price, the

compact commission shall determine

for each month the value of milk

disposition in the regulated area by the

operator of a partially regulated plant as

directed in this section. Any partially

regulated plant that does not exceed a

daily average of 300 quarts of

disposition in the compact regulated

area in the month shall not be subject

to the compact over-order obligation.

The total assessment for each handler is

to be calculated by multiplying the

pounds of Class I fluid milk products as

determined pursuant to § 1304.1 (a) of

this chapter by the compact over-order

obligation.

§ 1306.3 Computation of basic over-order

producer price.

The compact commission shall

compute the basic over-order producer

price per hundredweight applicable to

milk received at plants as follows:

(a) Combine into one total the values

computed pursuant to § 1306.1 and

§ 1306.2 of this chapter for all handlers

from whom the compact commission

has received at the Compact

Commission’s office prior to the 9th day

after the end of the month the reports

for the month prescribed in § 1303.1 and

the payments for the preceding month

required under § 1307.3 (a) of this

chapter.

(b) Subtract 3% of the total value

computed pursuant to paragraph (a)

above for the purpose of retaining a

reserve for WIC pursuant to the Formal

Agreement for reimbursement of WIC

Program costs entered into between the

Commission and the six New England

State WIC Program Directors, as

approved by the Food and Consumer

Service of the United States Department

of Agriculture (USDA);

(c) In any month when the average

percentage increase in production in the

regulated area comes within 0.25 of the

average percentage increase in

production for the nation, subtract from

the total value computed pursuant to

paragraph (a) above, for the purpose of

retaining a reserve, an amount estimated

by the Commission in consultation with

the USDA for anticipated costs to

reimburse the Commodity Credit

Corporation (CCC) at the end of its fiscal

year for any surplus milk purchases.

Should those funds not be needed

because no surplus purchases were

made by the CCC at the end of its fiscal

year, it is to be disbursed as follows:

(1) Any producer who has received

payment from a handler pursuant to

§ 1307.4 shall become eligible to receive

a pro rata disbursement by submitting to

the Commission documentation that the

producer did not increase production of

milk during and after the month on

which the regional rate of production

increase met or exceeded the national

rate of production increase, as compared

to the same period in the preceeding

year. Such documentation shall be filed

with the Commission not later than 45

days after the end of the fiscal year.

(2) The Commission shall calculate

the amount of refund to be provided to

each eligible producer by taking into

account the total amount of retained

proceeds, the total production of milk

by all producers eligible for refunds,

and the total amount of production by

each eligible producer.

(d) Add an amount equal to not less

than one-half of the unobligated balance

of the producer-settlement fund at the

close of business on the 8th day after the

end of the month;

(e) Divide the resulting amount by the

sum of the following for all handlers

included in these computations:

(1) The total hundredweight of

producer milk;

(2) The total hundredweight for which

a value is computed pursuant to

§ 1306.2(a); and

(f) Subtract not less than four (4) cents

nor more than five (5) cents for the

purpose of retaining a cash balance in

the producer-settlement fund. The result

shall be the basic over-order producer

price for the month.

PART 1307—PAYMENTS FOR MILK

1. The authority citation for part 1307

continues to read as follows:

Authority: 7 U.S.C. 7256.

2. Sections 1307.1 and 1307.2 are

revised to read as follows:

§ 1307.1 Producer-settlement fund.

(a) The compact commission shall

establish and maintain a separate fund

known as the producer-settlement fund.

It shall deposit into the fund all

amounts received from handlers under

§ 1307.3, § 1307.7, and § 1307.8 of this

Chapter and the amount subtracted

under § 1306.3(f). It shall pay from the

fund all amounts due handlers under

§ 1307.3, § 1307.7, and § 1307.8 and the

amount added under § 1306.3(d) subject

to their right to offset any amounts due

from the handler under these sections

and under § 1308.1 of this chapter.

(b) All amounts subtracted under

§ 1306.3(f), including interest earned

thereon, shall remain in the producersettlement fund as an obligated balance

until it is withdrawn for the purpose of

effectuating § 1306.3(d).

(c) The compact commission shall

place all monies subtracted under

§ 1306.3(b), 1306.3(c), and 1306.3(f) in

an interest-bearing bank account or

accounts in a bank or banks duly

approved as a Federal depository for

such monies, or invest them in shortterm U.S. Government securities.

§ 1307.2 Handlers’ producer-settlement

fund debits and credits.

On or before the 15th day after the

end of the month, the compact

commission shall render a statement to

each handler showing the amount of the

handler’s producer-settlement fund

debit or credit, as calculated in this

section.

(a) The producer-settlement fund

debit for each plant and each

cooperative association in its capacity as

a handler under § 1301.9 (d) of this

chapter shall be the value computed

pursuant to §§ 1306.1 and 1306.2.

(b) The producer-settlement fund

credit for each plant and each

cooperative association in its capacity as

a handler under § 1301.9 (d) shall be

computed as specified in this paragraph.

(1) Multiply the quantities of

producer milk that were reported by

pool plants pursuant to § 1303.1 and the

quantities or route disposition in the

marketing area by partially regulated

plants for which a value was

determined pursuant to § 1306.2(a) by

the basic over-order producer price

computed under § 1306.3.

(2) For any cooperative association in

its capacity as a handler under § 1301.9

(d), multiply the quantities of all

producer milk reported pursuant to

§ 1303.1(c) by the basic over-order

producer price computed under

§ 1306.3.

3. In § 1307.4, paragraph (f) is revised

to read as follows:
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 62827

1U.S.C. 7256(3).

§ 1307.4 Payments to producers.

* * * * *

(f) At a partially regulated plant each

handler shall make payments, on a pro

rata basis, to all producers and dairy

farmers for milk (excluding diverted

pool producer milk) received from them

during the month, the payment received

pursuant to § 1307.3 (b).

Daniel Smith,

Executive Director.

[FR Doc. 97–30602 Filed 11–24–97; 8:45 am]

BILLING CODE 1650–01–P

NORTHEAST DAIRY COMPACT

COMMISSION

7 CFR Chapter XIII

Results of Producer Referendum

AGENCY: Northeast Dairy Compact

Commission.

ACTION: Notice of referendum results.

SUMMARY: On October 23, 1997, the

Northeast Dairy Compact Commission

adopted, by final rule, an extension of

the current over-order price regulation

through the termination of the Compact

enabling legislation,1 which is

published elsewhere in this issue of the

Federal Register. To become effective,

the extension of a price regulation must

be approved by at least two-thirds of all

producers voting by referendum. A

producer referendum was held during

the period of October 24 through

November 12, 1997. The extension of

the Commission’s price regulation

through termination of the Compact

enabling legislation was approved by

more than two-thirds of all producers

voting in the referendum. This

document discusses the referendum on

the final rule and gives notice of the

results.

ADDRESSES: Northeast Dairy Compact

Commission, 43 State Street, P.O. Box

1058, Montpelier, Vermont 05601.

FOR FURTHER INFORMATION CONTACT:

Daniel Smith, Executive Director,

Northeast Dairy Compact Commission at

the above address or by telephone at

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

229–2028.

SUPPLEMENTARY INFORMATION: The

Compact Commission was established

under the authority of the Northeast

Interstate Dairy Compact (‘‘Compact’’).

The Compact was enacted into law by

each of the six participating New

England states as follows: Connecticut—

Pub. L. 93–320; Maine—Pub. L. 89–437,

as amended, Pub. L. 93–274;

Massachusetts—Pub. L. 93–370; New

Hampshire—Pub. L. 93–336; Rhode

Island—Pub. L. 93–106; Vermont—Pub.

L. 89–95, as amended, 93–57. Consistent

with Article I, Section 10 of the United

States Constitution, Congress consented

to the Compact in Pub. L. 104–127

(FAIR ACT), Section 147, codified at 7

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

States Secretary of Agriculture, pursuant

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

implementation of the Compact.

Article V, Section 13(a) of the

Compact provides that to ascertain

whether a price regulation established

by the Commission is approved by

producers the Commission shall

conduct a referendum among producers.

Section 13(b) provides further that a

price regulation shall be deemed

approved by producers if the

Commission determines that it is

approved by at least two-thirds of the

voting producers who, during a

representative period, have been

engaged in the production of milk

subject to Commission price regulation.

Section 13(c) directs the Commission to

consider the approval or disapproval of

any qualified cooperative association by

block vote as the approval or

disapproval of the producers who are

members or stockholders in the

cooperative association. Section 13(c)(4)

provides that producers who are

members of cooperatives may express

their approval or disapproval of the

order by ballot, contrary to the position

taken by their cooperative, and the

Commission shall then remove their

vote from the total certified by the

Cooperative.

By Final Rule, published in this

Federal Register, the Commission

adopted an extension of the over-order

price regulation through termination of

the Compact enabling legislation on

October 23, 1997. The Final Rule

includes specific findings of fact

required under Section 12(a)(1)–(4) of

the Compact. The following notice

provides certification of the finding

required under Section 12(a)(4),

specifically: ‘‘Whether the terms of the

proposed regional order or amendment

are approved by producers as provided

in section 13.’’

The Commission adopted the

following resolution for certifying a

referendum vote at its October 23, 1997

meeting:

Referendum Approval Certification

Procedure

The Compact Commission resolves and

adopts this procedure for certifying whether

the Price Regulation adopted on October 23

has been duly approved by producer

referendum in accordance with Article V,

§ 12 of the Northeast Interstate Dairy

Compact.

The Compact Commission further resolves

to designate and authorize a ‘‘Referendum

Agent’’ to administer this procedure. The

Referendum Agent shall:

1. Verify all ballots in accordance with

Commission’s requirements with respect to

timeliness, Cooperative identification,

producer eligibility, appearance of

authenticity and other steps taken to avoid

duplication of ballots. Ballots determined by

the referendum agent to be invalid shall be

marked ‘‘disqualified’’ with a notation of the

reason for the disqualification. Disqualified

ballots shall not be considered in

determining approval or disapproval of the

regulation. Verification of ballots shall

include those cast individually and by block

vote.

2. Certify the following:

a. The total number of ballots cast.

b. The total number of ballots disqualified.

c. The total number of verified ballots cast

in favor of the price.

d. The total number of verified ballots cast

in opposition to the price regulation.

e. Whether two-thirds of all verified ballots

were cast in the affirmative.

3. Report to the Executive Director of the

Compact Commission the certified

computations and results of the referendum

under Section 2, who shall publish such

results in the Federal Register.

4. At the completion of his or her work,

shall seal all ballots, including the

disqualified ballots, and shall submit a final

report to the Executive Director stating all

actions taken in connection with the

referendum. The final report shall include all

ballots cast and all other information

furnished to or compiled by the Referendum

Agent.

The ballots cast, the identity of any person

or cooperative, or the manner in which any

person or cooperative voted and all

information furnished to or compiled by the

Referendum Agent shall be regarded as

confidential.

The Commission hereby duly appoints

Mae Schmidle as the Referendum Agent to

act in accordance with the procedures

adopted by this Resolution.

The Commission appointed Ms. Mae

Schmidle, the Commission’s Vice Chair

as Referendum Agent. A referendum

was held during the period of October

24 through November 12, 1997. All

producers who were producing milk

pooled in Federal Order #1 or for

consumption in New England, during

August of 1997, the representative

period determined by the Commission

were deemed eligible to vote. The

mailing of ballots to eligible producers

was completed on October 30, 1997 by

the Federal Order #1 Market

Administrator. The ballots included an

official summary of the Commission’s

action. Producers were notified that, to

be counted, their ballots had to be

returned to the Commission offices by

5:00 PM on November 12, 1997.

Eleven Cooperative Associations were

notified of the procedures necessary to