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______________________________________________________

BEFORE THE UNITED STATE DEPARTMENT

OF AGRICULTURE

AGRICULTURAL MARKETING SERVICE

IN RE: ) 7 CFR Parts 1005,

1006, and 1007

Docket No. 23-J-0019

AMS-DA-23-0003

)

Milk in the Appalachian, )

Southeast, and Florida )

Marketing Areas )

)

RULEMAKING HEARING BEFORE

CHIEF PRESIDING ADMINISTRATIVE LAW JUDGE

CHANNING D. STROTHER, JUDGE

MARCH 2, 2023

Volume 5 of 6 Volumes

LISA FINCH, LCR #539

STONE & GEORGE COURT REPORTING

2020 Fieldstone Parkway

Ste. 900-PMB 234

Franklin, TN 37069

(615)268-1244
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APPEARANCES:

For the Dairy Corporation Marketing Association:

JOHNSON, DUFFIE, STEWART & WEIDNER

Marvin, Beshore, Esq.

Attorney at Law

301 Market Street

P.O. Box

Lemoyne, Pennsylvania 170453

For Select Milk Producers:

MILTNER REED, LLC

Ryan Miltner, Esq.

Attorney at Law

2-1 East Auglaize Street, Ste. 1

Wapakoneta, OH 54895

For the USDA - AMS - Dairy Program:

OFFICE OF THE GENERAL COUNSEL

MARKETING, REGULATORY & FOOD SAFETY

Brian Hill, Esq.

Senior Counsel, USDA

Michelle McMurtray, Esq.

Attorney Advisor, USDA

Lauren Becker, Esq.

Dairy Marketing Specialist

Erin Taylor, Director

Order Formulation & Enforcement Division

Rebecca Dickerson

Dairy Marketing Specialist

1400 Independence Avenue Southwest

Washington D.C. 20250

Also Present:

Dennis Tonak, Esq.

Prairie Farms

**Reporter's Note: All names are spelled phonetically

unless otherwise provided to the Reporter by the

parties.
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TABLE OF CONTENTS

WITNESS: MIKE HERTING (CONT'D) PAGE

Redirect examination by Mr. Beshore.................461

Cross examination by Mr. Tonak......................486

Redirect examination by Mr. Beshore.................490

WITNESS: DENNIS TONAK PAGE

Direct testimony....................................521

Cross examination by Ms. Taylor.....................535

Cross examination by Mr. Beshore....................538

Recross examination by Ms. Taylor...................559

Recross examination by Mr. Beshore..................563

Further recross by Ms. Taylor.......................572

WITNESS: MICHAEL SUMNERS PAGE

Direct examination by Mr. Miltner...................574

Cross examination by Mr. Beshore....................586

WITNESS: SALLY KEEFE PAGE

Direct testimony....................................592

Cross examination by Ms. Taylor.....................594

Cross examination by Mr. Tonak......................600
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List of Exhibits

No. Description Page

84 Testimony of Dennis Tonak.................

85 1997 Per Capita Milk Production.........

86 2021 Per Capita Milk Production......

87 FO 7, Exhibit C...................

88 FO 6, Eexhibit D..........

89 FO 5, Exhibit E..........

90 FO 7, Exhibit F.............

91 FO 7, Exhibit G...............

92 Selected City to City Mileage & Class I

Differential Exhibit H...........................

93 FO 7, Example Spreadsheet TCBF Farm Milk,

January 2023 (Exhibit I)........................

94 "Maximizing Transportation Credits-Milk from

Illinois to Kosciusko, MS (Exhibit J)........

95 "Maximizing Transportation Credits - TX to

Lafayette, LA (Exhibit K)...................

96 "Prairie Farms Exhibits A-K" listing........

97 "Comments concerning the proposed DPDC

Dennis Tonak for Prairie Farms........

98 FO5 Producer Milk Originating from Adjacent

states outside FO 5 Marketing areas delivered

to FO 5 pool distributing plants".................

99 FO6 Producer Milk Originating from Adjacent

states outside FO 6 Marketing areas delivered

to FO 6 pool distributing plants".............

100 FO 7 Producer Milk Originating from Adjacent

states outside FO 7 Marketing areas delivered

to FO 7 pool distributing plants".............

101 Testimony of Sally Keefe..................
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458

(Whereupon, the following proceedings, Volume 5,

were transcribed as follows and commenced at 9:00 a.m.)

* * * * * *

THE COURT: Good morning, Everyone, it's

March 2nd, we're in Franklin, Tennessee, this is In re:

Milk in the Appalachian, Florida and Southeast Areas,

docket number 23-J-0019, in the Marriott -- Franklin

Marriott, whatever the rest of the name is. Who wants

to start? We had the issue, I understand it, of Mr.

Herting's adoption of things that were in a prepared

statement by Mr. Sims. Mr. Beshore.

MR. BESHORE: Thank you. Good morning,

Your Honor. Subsequent to our colloquy at the end of

the hearing yesterday, we prepared a document that I'd

like to have marked as exhibit 83A, with Your Honor's

approval, which is the testimony of Jeff Sims that was

marked as exhibit 83, with portions excised or manually

crossed out so that we would propose to have Mr. Herting

testify to the portions of 83A, which are not crossed

out, and I would be prepared to examine him in a voir

dire manner preliminarily to document and establish his

ability to testify firsthand to the materials in 83A,

and also to establish some context of his, what was in

his testimony versus what was originally in Mr. Sims.

THE COURT: Yes, that makes sense to me.
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459

Before we get to that, may I ask, I don't know whether

this is a question that goes to AMS or goes to the

hearing reporter, I guess to you, Mr. Beshore, my, I

think what I would recommend is that we don't withdraw

the original exhibit 83 so that somebody down the line

who may want to reconsider, perhaps at AMS's suggestion,

introduction of this testimony will have the original

exhibit, this is what I'm tentatively thinking anyway,

but it certainly will not be admitted into evidence and

I -- things that are, exhibits that are rejected would

normally not appear on the website or in the record or

would they? I mean, what do we do about this in

general? I would think that if someone had an objection

to the exhibit being rejected, in a brief they should

have said oh, that shouldn't have been rejected," let's

the appellate people upstream or downstream of me,

whichever way you want to think about it, want to

reconsider this, how would they have a way to look at

what anyone's talking about?

MR. BESHORE: I have no objection to it

and I think it would be fine to have original 83 be part

of the record, although not accepted, it tantamount to

an offer of proof, I guess, that in the rules that say

if something's rejected, you can make an offer of proof.

It can be there --
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460

THE COURT: I don't think it is an offer

of proof. Just to be clear, it's on the records, you're

not presenting the entirety of the testimony as an offer

of proof, if marked, you're satisfied with what's in it,

right?

MR. BESHORE: I think the rules do say

that rejected materials do follow, stay in there so the

administrator can do something with them, but I'm not

positive.

MR. HILL: That's a good question, I'm

going to have to look into that myself, as you know, I'm

going to object to the introduction of this evidence and

at that time I will, you know, make an argument.

THE COURT: Okay, that doesn't answer my

question.

MR. HILL: I'm aware of that.

THE COURT: All right. I mean, the

record will certainly be clear. We're going, subject to

further check, we're going to keep the original exhibit

marked 83, which was the testimony of Jeffrey Sims in

this matter, I'd like to have that available to those

who review my work here, those who write the decision

and those further up from that, but it is not -- it's

not admitted into the record. It's not part of the

formal record of this proceeding in that it is not
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evidence in this case, but I have not ruled. I'm not

sure whether I should rule that it's rejected, but it's

I guess that the offer is it withdrawn, but we do want

the document to stay in the case, just not a part of the

record, so far, unless someone decides somehow that it

should be, which I doubt because Mr. Beshore has

modified.

MR. HILL: Yes, I will say that, in

other cases I've had, not rule-making hearings, when

we've had documents that were identified and not part of

the evidentiary record, they were not in the packet, so

I would assume that those documents would not be on the

website, but I will look into that further.

THE COURT: That's a question to whether

this will be on the website. It won't be a part of the

formal record, but it should somehow be available to

those who look at the formal record. I'm being told

that it can be marked as such, that's it not marked as

the formal record and put on the website as such.

THE COURT: Identified, marked, but not

received into evidence.

(Whereupon, Exhibit No. 83A was marked for

evidence.)

THE COURT: Mr. Beshore, think you're

up, do we need a witness?
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462

MR. BESHORE: With that, I would call

Mr. Herting back to the stand.

THE COURT: Mr. Herting, I'd remind that

you you're still under oath. Your witness, Mr. Beshore.

MR. BESHORE: Okay, thank you.

REDIRECT EXAMINATION

BY MR. BESHORE:

Q. Mr. Herting, would you first explain a little bit

how your testimony and Mr. Sims' were prepared and other

witnesses' were prepared for this hearing and what role

you had and Mr. Sims had and how they fit together?

A. Sure, certainly. As in the planning of who was

going to talk to which parts of our proposals, it was

decided I was going to focus on the allowance of the

Georgia milk into the different areas, and then Jeff

would be clean up and handle milk coming in from the

West. Okay. So we kind of subdivided and he was going

to handle that part and I would handle, you know,

Georgia, but I could just as easily have handled talking

about the milk coming from the West as I deal with that

everyday.

Q. Okay. So, that's how that, the geographic

testimony that's in exhibit 83A came to be part of

Mr. Sims' testimony as opposed to yours?

A. Correct.
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463

Q. Okay. Now were you involved last evening after

the hearing when 83A was created by crossing out

portions of 83 so that you could testify to --

A. I did that personally.

Q. You did that personally. Are you prepared now to

read the portions of 83, read 83A, and does it represent

information and testimony which you can attest to of

your own personal knowledge here today?

A. Very much, yes, I'm prepared to and, yes, I can

take it as being my own.

Q. Okay.

A. As this was my first hearing, you know, I don't

know the guidelines of writing stuff up, if I had known

better, I would have had Jeff write my testimony for me.

Q. Okay. Could you please proceed then with the

testimony, your additional testimony that's now in 83A?

THE COURT: Well, I do think we do need

to give AMS a chance to gone on the record with an

objection. Also, I would ask the, you know, the

original exhibit 83 was framed I think in terms of being

on behalf of Lone Star, but Lone Star is a member of

DCMA, is that right?

A. Yes.

THE COURT: It was the thought that that

testimony was being submitted in support of DCMA.
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A. In support of DCMA, for DCMA, yes.

THE COURT: Your testimony today, since

you're not, Mr. Sims is I think an officer, secretary

chief market analysis, now it says Officer of Lone Star

Milk Products, Inc., but your testimony today is you're,

not on behalf of Lone Star, but on behalf of DCMA,

correct?

A. Correct.

THE COURT: Thank you. First, I guess I

should say a little something; the rules basically

provide that if -- I think the rules say, I should be

reading from them rather than by memory, but if evidence

is either rejected or accepted and someone has an

objection to whatever took place there, they're to go on

the record with an objection, and then they can argue

later on to other folks, I'm not going to write this

decision, the decision was wrong, of course I have not

made a ruling yet, but I will, and so Mr. Hill is going

to state his objection. The rules also provide that I

should not entertain argument on this to go into the

record, I'm not sure what that means, but I'm going to

leave it up to Mr. Hill to say whatever he wants to say,

and it is my intent to preserve AMS's arguments in full

on this.

MR. HILL: And we thank you for that.
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465

So, first I want to start off in that yesterday at the

end of the hearing, Your Honor did point out the reasons

for Mr. Sims not being able to come to this hearing due

to an exposure to COVID, and from the perspective of

AMS, of course we applaud that decision, it's a selfless

decision, conscientious decision and our position to

object to that is not meant as punishment in any way, so

I wanted to get that out of the way first. And from my

perspective, I have gone to several dairy hearings and I

can say that AMS (unintelligible) obsessed even, in its

pursuit to hear from industry member of all types. I've

been at dairy hearings in which we were on the record at

nine, ten o'clock at night because we were trying to get

farmers to be heard. I've been at hearings in which

dairy programs was up all night fulfilling dairy data

requests, six weeks into a nine-week dairy hearing. So,

I say all that to say that Dairy Programs is not a group

which seeks to exclude industry from having their voices

heard, but we are still constrained by the good book,

and no, not that good book, but the good book of second

CFR part 900. And so, I'm going to read again, as I

spoke yesterday, off the record, 900.8(a) states in

part, "that the hearing shall be held at the time and

place fixed in the notice of hearing." I would say that

that time is now and that place is here, 900.8(b)(1)
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7CFR 900.8(b)(1) "requires that any interested person,"

make sure I say it correctly, "any interested person who

desires to be heard, any person at any hearing under

these rules shall perform proceeding to testify, state

his name and address and occupation, 900.8(b)(3) states

that, and I quote, "failure to appear, if any interested

person fails to appear at the hearing, he shall be

deemed to have waived the right to be heard in the

proceedings." And finally, 900.8(d)(1)(i), "requires

that," and I'll read it verbatim, "every witness shall,

before proceeding to testify, be sworn or make

affirmation, cross-examination shall be permitted to the

extent required for a full and true disclosure of the

facts." I do want to point out one other issue as an

aside, for this hearing, to my knowledge, there were

several other witnesses who wanted to testify in the way

that Mr. Sims is now testifying through another witness,

by handing over a document to be read on the record,

those requests were denied, so.

THE COURT: Maybe, as, I hate to

interrupt your argument, statement, your objection, but

just to be clear, I perceive this not as any longer, I

mean, testimony of Mr. Sims was identified as an

exhibit, but was never discussed or offered into

evidence, I perceive this now as being the mark-up
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version of that as being the testimony of Mr. Herting,

no longer, and in a way never was, the testimony of

Mr. Sims, as you say, he wasn't here. The rules do

provide that witnesses are to appear in person or at

least interested parties are. I understand you're being

careful about that. I am -- as I said yesterday,

there's a case, GH Dairy 71 agg decisions at 1, starting

at 1, 2012 Judicial officer decision talks about, this

basically says "milk hearings or rule-makings of this

sort, the witness is to appear in person," as you say,

"and be subject to cross-examination." And "in person"

means in person. Even in 2012, we had telephones, I

guess, so you have to be here. But -- and I don't -- if

you've got a response to that, I want you to be able to

make it, that's part of the reason why I'm raising this,

but I see this now as Mr. Herting's testimony, if he

brought this in in the morning, which I think we can

waive the timing, and said "I want to present this as

part of my testimony," then we would have let him, just

like the federal registered notice of the hearing,

provides, and probably in the rule someplace, so anyway,

that is the way I see it. And he has provided in voir

dire, he has provided that he has the expertise, the

knowledge. He has also has stated that he had a hand in

the preparation of the testimony, I guess since
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Mr. Sims was, you know, really preparing it, Mr. Herting

can't say it was prepared at Mr. Herting's direction,

but like I said before, I don't hear in these cases, but

other in agency litigation I've been involved in, the

question is often to the expert witness with pre-filed

testimony that you prepared, testimony prepared at your

direction. So, anyway, you can continue, I just want to

give you a chance to address that.

A. Sure.

THE COURT: This seems to me it's the

testimony of Mr. Herting now and a basis has been laid.

And my job here, as I said before, I think, that I'm

supposed to exclude immaterial, irrelevant evidence, I

think this is neither of those. I don't think it's

unduly repetitious. I think what I've heard so far it's

the type of evidence reasonable persons rely upon.

Again, I applaud you going directly to regs and pointing

exact text, but I think that's what I am supposed to

exclude, and I would exclude testimony proffered on

behalf of a person who's not here, but I don't see it as

proffered on behalf of the person that's not here.

MR. HILL: So, to address -- oh, I'm

sorry, did I cut you off?

THE COURT: No, go ahead.

MR. HILL: So to address that, while
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normally would be right if someone came in and offered

testimony, we would just allow it, assuming that was

their testimony, that would be the assumption. Of

course we know in this case from an exhibit that has

been marked as 83, that it is in fact the testimony that

was created by Jeffrey Sims, so to that extent, we know

from the get-go that this is not something that

Mr. Herting put together. Although he might be aware of

some of these things, this was not something put

together by Mr. Herting. So I will just say this, I'll

keep this short, I'll keep this brief; these rules are

here to help assure these formal rule-making hearings

proceed smoothly and that the record is not awash with

unverified and un-vetted testimony in which AMS cannot

rely because it has not been, as the regulations say, it

hasn't, cross-examination has not been done to the

extent required for a full and true disclosure of the

facts. And in this situation, because Mr. Sims is not

here to actually talk about his own personal

experiences, from his perspective, I don't think that

that can happen, and instead, what's going to happen is,

in future cases possibly, AMS is going to end up in a

position where we have a lot of information on the

record that they end up having to pour through that they

cannot rely on to get to the portion that they can rely
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on that have been vetted properly. So opening up the

hearing in this matter may signal others in the future

that this is kind of a new day, a new dawn, a new

frontier of how we can go about testifying, and that

they will avail themselves in that manner of testimony.

And this will ultimately, in our opinion, to a bit of

chaos at hearings, because this hearing is a smaller

hearing, there are not that many issues that we're

discussing here, it's very limited in scope. It's --

we're in day three right now, we may be done today in

day three, we may be done in day four, I've been in a

lot longer hearings with Dairy and other hearings will

be more contentious, more parties, people who don't get

along as well as we do in this room right now, and in

those situations we may find yourself in a chaotic

situation and reaping the world with, not just from

arguments at hearing, but as I said before, with AMS, at

the end of the hearing pouring over voluminous

documentation, voluminous documentation, trying to find

the nuggets that they feel that they can rely upon,

that's not just not in the best interest of AMS, but

it's not in the best interest of the industry.

THE COURT: Thank you, Mr. Hill,

Mr. Beshore.

MR. BESHORE: Just very briefly, I'd
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like to state that, as Your Honor has stated, this is

the testimony of Mr. Herting now. He's prepared to

present it, be fully cross-examined with respect to his

knowledge and the basis for that testimony just like any

other witness in this hearing. And I will also say

without, you know, speaking out at school or disclosing

any state secrets that in these proceedings with

pre-prepared statements, it's fair to say that every

witness has not written and composed every sentence that

they have testified to. And to the extent that there's

a concern that Mr. Hill has expressed that the words in

exhibit 83A were not composed by Mr. Herting, that's not

anything that's necessarily new or different in these

proceedings.

THE COURT: No, I don't think that's

quite the test -- I do -- are you finished?

MR. BESHORE: Yes.

THE COURT: I am going to allow the

revised exhibit, it's 83A be identified after -- I don't

think, I guess now we'll see how cross-examination goes

perhaps (unintelligible) suggest that if there's issues

with what this witness knows, whether this witness is

knowledgeable about the testimony, whatever else, if

there's not a basis for the testimony from this witness'

pre-filed statement in this witness's testimony, then of
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course the challenge, challenge that, but I do think

these are extraordinary circumstances, I agree with

Mr. Hill that this should not be the dawning of a new

age. The better procedure would be that folks -- well

we did have extraordinary circumstance here, so I can't

say that it wouldn't happen again, if say -- if a

witness passed away, do not have to worry about bringing

them in virtually or anything for that purpose, but the

better process would be to work together to prepare

testimony in advance and have it come in cleanly as the

testimony of the witness that's going on the stand. And

Mr. Beshore is right, we would not know really what went

on behind that, but I do think the exposure to COVID is

extraordinary circumstance and will allow this here. I

would not expect to allow a flood of prepared testimony

that's Federal Expressed in and another witness is asked

to take over that testimony, I don't think that -- I

understand the flood of testimony or not, but also it

makes for discussions like this, which, in the best case

scenario, say it's kind of a unique situation, I might

spend it with time, but I think it will gump (sic) up

the proceeding and thus will not be in the interest of

justice will not be in the public interest. So, with

that, I think we've met requirements of the rules for

when there's an objection to certain evidence I guess
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473

being admitted. Like I say, I have admitted it, but I

find it's proper material to be presented by this

witness in his statement.

MR. BESHORE: May Mr. Herting proceed?

THE COURT: Yes.

A. My name is Mike Herting, M-I-K-E, H-E-R-T-I-N-G.

My work address is 1405 North 98th Street, Kansas City,

Kansas. And I'll be reading this testimony today as

mine as I feel expert in the field and able to answer

any questions that the evidence will bring.

"As has been adroitly demonstrated in

DCMAs min proponent testimony, farm milk production

inside the Order 7 marketing area is on a severe

downward trend, a trend which is unlikely to

substantively reverse any time soon. Class I milk

pooled on Order 7 has likewise been declining, but at a

slower pace than the in-area milk production decline.

"This condition has resulted in more and

more milk being delivered to Order 7 distributing plants

from outside the marketing area to supply the Class I

needs of the Order 7 marketing area, each year the

distance milk must move to supply the area increases as

Order 7 becomes shorter and shorter in its relationship

of supply to demand."

"Also as demonstrated in DCMA's primary
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testimony, the cost of milk hauling has increased

markedly over the last several years and most assuredly

has increased in the decade and a half since the Order

5, 6 and 7 Class I differentials were last updated."

"A boots on the ground view of the

supply of supplemental milk for the Order 7 area shows a

preference for the geographic source of the supplemental

milk supplies which varies based on the location of the

plants the supplemental milk serves, as one would

expect. Distances milk moves, and practical limits on

those distances determine, for the most part, where

supplemental milk moves from and moves to. Distributing

plants in the north-central portion of the Order 7

marketing area, Nashville and Murfreesboro, Tennessee

represent something of a pivot point for the preferred

and most practical sources of supplemental supplies.

The Nashville and Murfreesboro plants can effectively be

supplied with supplemental milk from both the North and

the West. Order 7 plants located in the Atlanta,

Georgia area can generally best be served from the

North, likely from milk produced within the Mid-east

number 33, mid-east Order number 33, but milk can on

occasion move to these plants from the central order

number 32 area or from the Southwest Order area, number

126 area. More rarely, but not completely without
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precedent, these most northern and eastern Order 7

plants can receive milk produced within the Order one

marketing area. Experience has taught us that there is

something of a practical limit from moving milk from the

West to plants East of a general North/South line, which

follows the Alabama-Georgia state line, and extends

northward from there. For plants West of Nashville and

West of Georgia, by far, the most practical sources of

supplemental supply would be from the Southwest Order or

the Central Order area. This is not to say that milk

never moves from the Southwest Order or Central Order

areas to the Atlanta area or even to plants further East

on the Order 5 marketing area, but the general

preference is to supply these eastern plants from the

north when the milk is available from there."

"Excepting the Nashville and

Murfreesboro plants, the general preference to supply

milk plants located west of the imaginary line we

described would be from the west, more specifically the

Texas panhandle portion of Order 126 or the southwest

Kansas portion of Order 32. Also, when supplemental

milk is needed, there is a general preference for the

Texas milk to move into the plants located in the

southwest corner of the Order 7 area, that is, the

Louisiana and Mississippi plants, and a preference for
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the southwest Kansas milk to supply the supplemental

needs of the plants in the northwest corner of Order 7,

that is the Missouri, Arkansas and Memphis, Tennessee

plants. "

"Currently there are 15 pool

distributing plants regulated on the Southeast Order, 13

of which likely receive substantive quantities of

supplemental milk. Of these 13 plants, 11 are located

west of the imaginary separation line we described, and

2 of the 11 are the Nashville and Murfreesboro plants.

The remaining nine plants, even though geographically

closer to the western areas of reserve supply than the

other Order 7 plants, the distances the supplemental

milk moves to these plants is considerable. The

distance from Hereford, Texas to Hammond, Louisiana is

approximately 870 miles. And the distance from

Cimarron, Kansas to Little Rock, Arkansas is

approximately 615 miles. These represent two reasonable

examples of the common lanes used for the delivery of

supplemental milk to plants on the western side of Order

7."

"These large distances milk must move to

meet the Order 7 handlers' need for supplemental milk to

create a tremendous cost to the suppliers of the needed

supplemental milk. At current diesel fuel cost,
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marketers must expect to pay a rate for hauling milk

roughly 4.85 per loaded mile to $5.10 per loaded mile.

From Hereford to Hammond lane, on a per hundredweight

basis, the cost of hauling at the low end of the range

at mileage rates stated is approximately $8.50, the

difference in the Class I differential between Hereford

and Dallas, Texas, which is Order 126 base pricing zone

is $0.60, and the difference in the Order 7 and Order

126 base zone blend prices as announced at 3.5 percent

butter fat content, averaged about $3.20 during 2022,

exclusive of the additional loss incurred from buying

milk on Orders 126 protein, butter fat and other solids

prices, and selling the milk on Order 7 skim and butter

fat prices. So, after considering the impact of the

blend price gain moving from Order 126 to Order 7, and

the location value impact, the blend price gain is about

$3.08 per hundredweight. The nominal blend price gain

covers about 45-percent of the cost of hauling, if we

can obtain hauling at the most favorable rates

available."

"Over the course of the currently

defined eight-month Transportation Credit period, using

the most recent period's mileage rate factor, the

expected Order 7 Transportation Credit payment proration

rates, and the now existing 85-mile adjustment, we would
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expect to recoup, on average, roughly a $1.38 per

hundredweight from the transportation credit balancing

fund for milk movements from the Texas panhandle to

South Louisiana. All in, this leaves about $3.30 per

hundredweight of the haul cost uncovered by blend price

gains, considering only the 3.5 percent butter fat

prices and the transportation credit balancing fund

payments. The expected transportation credit balancing

fund payments represent about 16-percent of the real

cost of hauling, making up $3.30 of uncovered hauling

cost is bad enough, but absent the transportation credit

balancing fund payments, the picture is profoundly

bleak. Even though seriously insufficient, the

existence of transportation credit balancing funds

payments carry one benefit that cannot be overlooked.

As long as there's a Federal Order transportation credit

balancing fund payment, we know we're going to collect

it. Such payment reliability is not so sure when it

comes to over-order charges. The gap between the cost

of hauling and the potential gain in price from moving

milk from the reserve supply areas that the demand areas

must be paid by someone. Milk haulers can be a

benevolent bunch, but they tend to balk at the idea of

hauling milk across half a continent for no pay. The

current Order 7 transportation credit provisions cover
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some of the loss, but in no manner do the Transportation

Credits pay all of it. Any remaining costs of hauling

must then be made up either from over-order prices

charged to the receiving plants or the uncovered costs

that must come out of the pockets of the dairy farmers

who ship the supplemental milk. Unfortunately the

over-order prices rarely -- are rarely sufficient to

cover these large differences, and dairy farmers are

left to pick up the tab on the remaining. The further

the distance the milk must move, the more out of the bed

the order blend price gains are in comparison to the

real hauling cost. "

"When reserve milk suppliers are

deciding whether to sell supplemental milk to plants in

the southeastern U.S., the availability of

Transportation Credits is a very important factor in

that decision, and while currently we are out of touch

with the reality of milk hauling costs and do not fill

the gap between the cost of hauling and any blend price

gains. They do offer some level of help in making the

delivery of supplemental milk something of a more

feasible proposition. Absent Federal Order

transportation credit payments, there are two likely

outcomes, one, the supplemental suppliers of milk would

have to charge additional over-order prices in order to
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cover more of the real cost of hauling or supplemental

suppliers would simply choose to keep their milk at home

rather than incur a lost on shipping the milk to the

southeast, neither of these outcomes is a good thing.

Even if it could be obtained and history has shown it to

be a formidable challenge, garnering additional service

charges in excess of the order-regulated prices will not

necessarily be born proportionately or equally by all

handlers of Class I milk. The location of the

respective receiving plants and the distance the milk is

to a viable supplemental milk source, plants' relative

access to local supplies and their net need for

supplemental milk will drive how much additional cost

each plant might bear. Differing sources of milk,

differing distances the milk moves and the proportion of

a plant's total milk supply represented by supplemental

milk will create plant specific costs of milk, which

likely would be very different plant to plant. Unequal

costs of milk is a recognized source of market

disorder."

"Alternatively, running the southeast

short of milk is definitely an undesirable result and

flies in the face of the basic purpose of Federal

Orders. A perpetually milk-starved southeast will lead

to inevitable loss to milk processing plants and will
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have the unhappy impact of increasing the distances milk

must move within the southeast to supply whatever

processing plants remain. Choking off the supply of

supplemental to the southeast by removing or allowing

the continued degradation of the effectiveness of the

transportation credit program's financial incentives to

move milk to the southeast will have a tangible impact

on net returns to milk producers located within the

southeast Order areas."

"An additional factor making the supply

of milk challenging to the southeast is simply the loss

of hauling capacity. Supply chain disruptions have made

the replacement and upgrade of rolling stock difficult

both for trucks and trailers. The loss of truck drivers

to more 9:00 to 5:00 hauling routes and lanes is

seriously crimping the supply of milk truck drivers,

combined with U.S.'s general shortage of drivers, rules

on allowable hours for trucks to run each day have

stretched bulk milk hauling supply chain to the breaking

point. None of these structural and regulatory changes

impacting milk hauling are the Federal Orders' doing,

and no one can expect the Orders to remedy them.

However, the Order program must recognize that these

very real logistical challenges exist, must recognize

that the costs they create are equally real, and adapt
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the regulated pricing, cost recognition and partial cost

reimbursement features of the Orders in this light."

"It may also inform the record of this

hearing with a comment about the current state of

supplemental milk agreements. Mr. Hollon's testimony

mentioned that some seasonal supplemental milk

agreements may include a non-receipt charge, whereby the

buyer can decline some of the contracted quantities of

milk and pay for what is colloquially known as a go-away

fee. These go-away fees still exist in supplemental

milk contracts, but the desire is that these provision

be less frequently employed than in the past. In order

to secure sufficient hauling capacity for long distance

movements of milk, often today, the contracting party

for the supplemental milk hauling must guarantee the

hauler that a fixed number of loads per day will

actually be hauled during the contract period, and

guarantee features the specific originations and

destination points for those supplemental milk loads.

Logistically, it is difficult to adjust on a daily basis

how many loads move when milk is moving very long

distances. Haulers establish a truck and driver

rotation over the milk movement period, and any

substantive variation from that schedule results in

missed or late loads. As an example, when milk must
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move 850 miles, that represents 13 to 15 hours of actual

on-the-road time, and combined with the required driver

rest breaks, refueling, stops, meal breaks, unloading

time and the like, that means a two-day trip each way.

So for a supplemental milk agreement of five loads of

milk per day everyday, there are 10 loaded trucks per

day headed towards the destination and 10 empty trucks

per day headed back to the supplemental milk origin

point to get another load. When accounting for the

required driver rest days between driving assignments

display five loads of milk per day requires at bear

minimum of 20 trucks and likely at least 25 drivers.

Even the smallest variation in the daily delivery

schedule can disrupt logistics for several days."

"However, even though there is desire to

make perhaps milk sale contracts call for shipments on

equal number of loads per day, disruptions will

invariably occur. A farm may have a production hiccup

that causes the interrupted flow of milk or there are

weather events that necessitates changes in hauling

routes, a plant has a break down or there is a national

holiday which slows plant receiving. These can be

unforeseen issues, but nonetheless disruptive to the

flow of milk. No matter how hard we try and how much we

plan and how wonderful it is to see the same number of
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loads of milk leave for their destination everyday,

there must be additional milk a available to serve as a

buffer supplies, the reserve supplies for when these

interruptions occur. This is even more true from milk

produced within the southeast, since virtually the

entire reserves for these supplies reside outside the

marketing areas. The Orders diversion privilege is a

necessary element in the obtaining a sufficient supply

of milk so that the needed reserve supplies are

available when called on."

"The federal Orders need Transportation

Credits to facilitate the ready and orderly flow of

supplemental milk into Orders 5 and Order 7 marketing

area. The Secretary must update the Orders' current

transportation credit provisions to better reflect the

real cost of shipping distant milk into those marketing

areas, and the Secretary must increase the

transportation credit assessments to fund these needed

higher transportation credit payments. Proposals 1 and

2 will be exactly that, and maintain the structured and

overly regulated pricing of milk between competing

handlers. Consumers of milk will benefit from the

unimpeded and orderly flow of milk into the region and

regulated processors of Class I milk will benefit from

the continued surety of milk supply and orderly pricing
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of milk. Absent a properly functioning Federal Order

transportation credit system, the supply of milk to the

region is unquestionably threatened. The conditions we

have described surpass emergency; the marketing areas

are in a milk supply crisis. "

"As had been demonstrated for milk

moving into the southeast from areas outside the

marketing areas, likewise, the Class I differential

structure is woefully inadequate to compensate dairy

farmers from moving their milk within the Orders 5, 6

and 7 marketing areas. The Class I differential service

within the three southeastern marketing areas has been

updated once since Order Reform in the year 2000. While

the rest of the country languishes under a differential

price structure that is based on hauling costs a quarter

of a century old. Even though slightly more recently

updated, the differential surface in the southeast in no

way represents the real cost moving milk within the

marketing areas. DCMA's proposals 3, 4 and 5 address

this urgent need and will provide needed financial

incentives to move producer milk produced within the

marketing areas or produced nearby to pool distributing

plants in the three Orders. Just as the supply of

supplemental milk from outside the marketing areas is

threatened if additional regulated funds are not made
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available to encourage movements, dairy farmers inside

the marketing area will cease to be willing to supply

distant plants if there's financially return for that

needed service, a service of market-wide benefit, fails

to compensate them fairly. Thank you for the

opportunity to testify today."

Q. Mr. Herting, just to be clear, the testimony that

you have just given, you did not originally compose,

correct?

A. Correct.

Q. But you are, have given it your -- it represents

personal knowledge, expertise, experience you have in

marketing milk in this region?

A. Very much so.

Q. And this region, entire region you've discussed

here is within your area of everyday responsibility,

correct?

A. It is.

Q. Okay. And you're prepared to answer any

questions with respect to this testimony?

A. Yes, I am.

MR. BESHORE: Thank you. No further

questions on direct, Your Honor.

THE COURT: AMS cross?

CROSS EXAMINATION
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BY MS. TAYLOR:

Q. Good morning.

A. Good morning.

Q. I don't have too many questions since we answered

a lot of them yesterday, but on page 3, going to into 4,

you talked a lot about where supplemental milk comes

from to supply certain plants in the Southeast and

Appalachian Regions, and you discussed in general, the

term you used, practical limits and the preferential

supply stores, just want to ask to you elaborate on what

those practical limits are?

A. How far the haulers can go and still be able to

turn around and get back and get more loads that we're

needing everyday. So, going beyond the two days out and

two days back, creating a three-day trip going one way,

then makes it six days, then puts a limit on now we need

to try to find more trucks and more drivers to get the

same milk into plants that are a little bit closer.

Q. So it's not just distance is what --

A. Well, the distance creates the practical limits

on drivers and the number of trucks and trailers are

available to get the volume of milk in, so there's many

fewer loads that will go beyond those limits because

we'll need the milk, you know, within a closer range.

Q. Towards the end of your testimony on page 10, and
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so I just wanted this clear for the record, the last

sentence of the paragraph in the middle says "Even the

smallest variation in the daily delivery schedule can

disrupt logistics for several days," and who bears the

cost of that disruption?

A. The dairy farmers.

Q. That's not recouped?

A. Correct.

Q. I don't think I asked this question of you

yesterday, but since you're back with us this morning,

I'll ask it, from the other side of the coin, and I

understand all of the discussion that we've had about

the cost of moving milk and who bears those costs, but

from the consumer side of the perspective, which is part

of the stool that we at AMS have to consider when we

make these decisions or the Secretary considers, is it

appropriate at this time given the decline in Class I

sales as been put on the record here that we're raising

essentially prices and they'll have to bear for fluid

milk?

A. I think there's a fine line where we have to look

at the needed revenue to the farms to keep them in

business because the more of them that go out of

business then raises the cost of bringing in more milk

to replace those local farms going out of business. If
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we don't address that issue, it's going to raise the

cost and then push away consumers as that cost increases

without raising it to give more revenue to the farmers

to aid.

MS. TAYLOR: Okay. Thank you. That's

all I have.

THE COURT: Cross-examination from any

other participant?

CROSS EXAMINATION

BY MR. TONAK:

Q. Dennis Tonak, Prairie Farms. On the bottom of

page 6 of your testimony, you referenced a couple of

numbers that I'd like to follow-up on, one of those

being that you estimated that there be a $1.38 per

hundredweight transportation credit in moving milk from

the Northwest Texas, Texas panhandle area to Southern

Louisiana, and I want to make sure those are the two

points we're talking about?

A. Correct.

Q. Okay. And you also referenced the $3.30 left in

uncovered costs, that's your estimate of the costs, the

difference in the blend prices and that $1.38

transportation, correct?

A. Correct.

Q. Now in periods when transportation credit does
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not exist, would it be correct to add $3.30 and the

$1.38?

A. Yes.

Q. Together and come up with a $4.68 cost?

A. And cover all the cost.

Q. To cover the full cost without Transportation

Credits during the springtime, summertime, whenever

Transportation Credits are not in place, to move milk

from the Texas panhandle to Louisiana?

A. Correct.

Q. Okay. Then on page 4 of your testimony, you

discuss that the Texas panhandle portion of order 126 is

under general preference for Texas milk to move into the

plants in the southwest corner of the Order 7 area. Is

there milk closer to that southwest corner of the Order

7 area in Texas that could feasibly move to those

southwest Order 7 plants?

A. There is, but I believe it's already calculated

to Texas Class I deliveries and the Dallas marketplace,

and then in some cases some of that may go down to

Houston.

Q. So, in effect, to a certain extent, some of that

milk is crossing each other with the Texas panhandle,

moving through Texas in a southeasternly (sic) direction

and the Central Texas, Eastern Texas moving back towards
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Dallas or possibly down to the Houston markets, would

that be correct?

A. That's correct.

Q. Okay.

MR. TONAK: Thank you.

THE COURT: Is there cross by any other

participant? Seeing none, redirect Mr. Beshore?

REDIRECT EXAMINATION

BY MR. BESHORE:

Q. I just have two questions, Mr. Herting, on

redirect. With respect to practical limits, Ms. Taylor

asked you about that, to certain milk movements, are

weight limits that vary from state to state a practical

constraint on milk movements sometimes?

A. Can be.

Q. Can be? Yea. Now, talk about balancing the cost

to consumers, the returns to the dairy farmers and

minimum prices for milk, is it not the case that the

least expensive, most cost-effective milk for consumers

is local milk?

A. That's certainly correct.

Q. Okay. And that being the case, balancing cost to

consumers, minimum prices cost to dairy farmers,

wouldn't it make some sense to be favoring in some

respects local milk with respect to incentives to
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produce and make available additional milk?

A. Yes, it does, and our proposals 3, 4 and 5 do

exactly that.

Q. Okay. Because they're limited to essentially

limited to in-area milk and providing --

A. Local supplies and the milk sheds.

Q. Additional compensation for that milk, which is

ultimately the most cost-effective milk for consumers as

well?

A. Correct.

MR. BESHORE: Thank you, that's all.

THE COURT: Okay, I think that completes

this witness's testimony.

MR. BESHORE: I move for the admission

of exhibit 83A and acceptance of course of the testimony

that's been presented and Mr. Herting is (inaudible).

THE COURT: Of course reserve your

objections, Mr. Hill?

MR. HILL: Yes, we continue our

objection on the basis previously stated.

THE COURT: I think we can rely on what

was previously said in the transcript. Good to be Judge

because I get to refine what I say, but I had a couple

of other thoughts, one, I do, 83A is identified as

admitted into the record. This admission of course does
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not go to the weight of this evidence that later

decision-makers will make a determination of that, I'm

not expressing any opinion or I have no authority to

make any determination in that regard.

I would also note that as, and I think I

explained my rational for this previously, these are

extraordinary circumstances, this is not opening a flood

gate to switching around a whole bunch of witnesses at

the last minute and having to go through the process

here in deciding you know who is able to testify as to

what, who prepared what, that doesn't seem disruptive to

the proceedings, that's not public interest and not fair

to the parties.

I do note that the solution provided in

the rules, I will cite some rules now, 7CFR 900.8(d)(6)

provides "for offers of proof or evidence excluded and

the solution errs to proffer evidence in a succinct

manner, and the Secretary determines that the Judge

erred in excluding evidence and the error was

substantial, the hearing shall be reopened to permit the

taking of such evidence." There's been testimony in

this case that an expedited decision is in the public

interest. I think the delay, if I erred in excluding

the evidence, which I still stand by my determination to

let the evidence in, that would be hard to square with
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the public interest as well.

I also note that reference the GH Dairy

case, a judicial officer decision at 71 agg decisions 1,

makes an interesting determination, in that case, Judge

Clifton had excluded a written statement by a witness

who said could not travel because of a heart condition,

his physician would not let him travel, and Judge, among

other things, Judge Jensen, a fine judicial officer,

Jensen determined that the issue of whether the Judge

erred in excluding that testimony was mooted, because

there was -- because the evidence proffer was not

necessary to the decision. It's my role here,

decision-makers down the line, my rulings have little

precedential value because I've been thinking about it,

I offered my -- I offered that thought, I'm not saying

that should be determined, I of course do not know what

the decision would be and I do not know -- I can't

possibly know what all is in the record, but I wanted to

make a note of that. So, with that, Mr. Herting, thank

you, you're dismissed.

MR. BESHORE: That concludes DCMA's

presentation. Our case is for proposals 1 through 5.

THE COURT: I don't actually have a

witness list, even though I said I had one. Is AMS the

keeper of the witness list?
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MR. HILL: I believe Prairie Farms is

going to be testifying next?

THE COURT: I will make a couple of

notes. I understand there's a large gathering next

door, if there's a problem with the noise, we'll have to

deal with that when it comes to it, but I do think we

should try to break a bit before noon to avoid the rush

that potentially happens with 200-something people next

door. Okay, with that, Prairie Farms is up.

PRAIRIE FARMS PROOF

THE COURT: I suppose, unless you want

to take a morning break, I don't need one myself. There

is no objection.

Whereupon,

DENNIS TONAK,

having been first duly sworn, was

examined and testified as follows:

THE COURT: Mr. Tonak, I take it you do

not have a representative like an attorney, you are in

fact to conduct examination of yourself. So, with that.

MR. TONAK: "My name is Dennis,

D-E-N-N-I-S, Tonak, T-O-N-A-K. I am the Senior Director

of Federal Order Markets for Prairie Farms Dairy, Inc.,
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3744 Staunton Road, Edwardsville, IL, 62025, Prior to my

employment with Prairie Farms, I was the CEO and General

Manager of Mid-West Dairyman's Company, Rockford,

Illinois. Previous employment experience includes

various management and marketing positions with Southern

Milk Sales, San Antonio, Texas, National Farmers

Association, Ames, IA. I have a Bachelor of Science

degree in Dairy Science from South Dakota State

University, Brookings, South Dakota. I have appeared as

a witness at various Federal Order hearings in the

past."

"Prairie Farms Dairy, Inc., is a

qualified Capper-Volstead cooperative. Prairie Farms

dairy producer member-owners are located in Illinois,

Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri,

Ohio and Wisconsin. Most prairie farms dairy producer

member-owners meet the definition of a small business.

Prairie Farms pools the milk of our producer owners on

Federal Orders 5, 7, 30, 32 and 33. Prairie Farms also

markets the milk for a group of non-cooperative members

(independence), in Texas. This includes making sure the

milk is pooled and performing producer payroll. The

independent milk is pooled on Federal Order 7, Federal

Order 126. Prairie Farms also operates fluid plants,

Class II plants and cheese plants throughout the Central
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U.S. The plants operate as Prairie Farms Dairy, wholly

owned subsidiaries Eastside Jersey Dairy and Ice Cream

Specialities, and majority owned subsidiary Hiland

Dairy. The Prairie Farms dairy producer member-owners,

other cooperatives and independent suppliers supply the

raw milk needs of these plants. There are nine Prairie

Farms Dairy, Eastside Jersey Dairy and Hiland Dairy pool

distributing plants regulated under Federal Orders 5 and

7."

"The southeastern United States milk

supply has been decreasing for many years, while at the

same time the population has been increasing. There has

been an ongoing need to import milk from outside the

area. Some of the earlier efforts provide for reliable

supply of additional milk go back 50 years or more.

These were primarily voluntary efforts among

cooperatives, Transportation Credits institutionalized

in 1996 helped to more uniformly share the cost of

importing milk to southeast region. The short supply

situation has continued to worsen and have moved from a

short supply in the Fall and Winter only to a

year-around short fall."

" Prairie Farms developed five

principles to guide the development of the proposals

submitted for this hearing. Credits for transportation
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and delivery to distributing plants should promote

efficient milk movement. This will help save fuel,

reduce costs, and benefit the environment.

Additional principle, producer milk

delivering to distributing plants should receive

compensation over and above that producer milk pooled on

the order, but not delivering to distributing plants.

Producer milk supplied to distributing plants, no matter

if the milk originates in the marketing area or outside

the marketing area, should receive fair and equitable

treatment."

"Additional principle, Equitable

treatment means the same regulation should apply to

producers in the marketing area and outside the

marketing area as long as the milk is delivering to

distributing plants."

"Additional principle, assembly

performance credits for producer milk delivered to pool

distributing plants are a preferred approach for

recognizing and rewarding the deliveries to pool

distributing plants."

"These five principles are woven into

the Prairie Farms' proposals. There is one other

principle we also try to follow, K.I.S.S. (keep it

simple.) Proposals with deep layers of complexity may
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improve the proposals and make them more effective for

today. As the supply and demand situation changes, the

complexity make the regulations less flexible and less

able to adapt for the future. The existing

transportation credit program highlights this lack of

flexibility."

I do have a question, Your Honor, is

this exhibit -- or is this testimony going to be marked

as a exhibit?

THE COURT: I was going to say, I think

now would be a good time maybe we can mark all the

materials in your packet with the exhibit number, since

we don't have a lawyer, AMS can backstop me here on next

number, next number I have is 84.

MR. HILL: That is correct.

THE COURT: So I would mark, for

identification, the testimony of Dennis Tonak, Prairie

Farms Dairy, Inc., as to the Court proposes 6, 7, 8, 9

and 10 as exhibit 84. Maybe the easiest way is to list

in the packet that Mr. Tonak distributed, top of page,

says "Prairie Farms exhibits," I think we can -- I guess

it'd be my suggestion to get each of those entries a

separate exhibit number. Does that make sense to you,

Mr. Tonak?

MR. TONAK: Yes, that would be what I
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would expect.

THE COURT: Okay, so convenience of a

hearing reporter, so 1997 per capita milk production 11

selected states would be 85. 2021 Per capita milk

production, 11 selected states, exhibit 86. 87, is

Federal Order 7 --

MR. HILL: Your Honor?

THE COURT: Yes?

MR. HILL: Could we slow down just a

little bit for our court reporter?

MR. TONAK: I need to add that exhibit

86, 2021 per capita milk production, 11 selected states.

In the packet delivered, in error, only had one table on

it. There was a supplemental page that had two tables

on it that was also passed out.

MR. HILL: Can we go off the record for

a moment?

THE COURT: Yes, for this housekeeping

matter, yes, let's go off the record.

(Whereupon, a housekeeping/organizational

recess was observed.)

(Whereupon, Exhibits No. 84 through No. 87

were marked for evidence.)

THE COURT: Are you ready, Mr. Tonak?

MR. TONAK: Yes.
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THE COURT: We're marking exhibits for

identification, I think I left off with 86, which is

now, each of these exhibits that I'm going to talk about

at this point in the hearing is a single sheet. 86 now

is, has two tables on it. 87, Order 7 selected

information; 88 Order 6, selected information; 89.

Order 5, selected information; exhibit 90 is Order 7

daily Class I market utilization by month, 2020 to 2022.

Exhibit 91, Order 7, daily Class I, market utilization

comparison, selected months.

(Whereupon, Exhibits No. 86 through No. 91

were marked for evidence.)

THE COURT: Okay. I think the next one,

exhibit 92, marked for identification, selected city to

city, mileage and Class I differential. Exhibit 93 for

identification, Order 7 transportation for

transportation credit work sheet; exhibit 94, example

milk movement to maximize Transportation Credits with

current 1007.(c)(2)(i), milk from Illinois to, however

you pronounce that, Mississippi.

"Exhibit 95, example of milk movement to

maximize Transportation Credits with current

1007.82(c)(2)(i) milk from Texas to Lafayette,

Louisiana." I also have a document entitled, stapled

document with multiple pages called "Comments concerning
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502

the proposed distributing plant," I think we're going to

mark those pages with exhibit numbers when we get to

next witnesses.

(Whereupon, Exhibits No. 92 through No. 95

was marked for evidence.)

THE COURT: So, with that, you may

continue with your prepared statement, if you're ready?

MR. TONAK: I'm ready for a few pages

"The southeastern United States is short of milk every

month of the year. The fluid needs of the region

require imported milk from the areas of southeast year

around."

"The available supply in the southeast

region continues to shrink, especially when compared to

the Region's population growth. Exhibit 85 shows the

per capita milk production for 11 southeastern states

Alabama, Arkansas, Florida, Georgia, Kentucky,

Louisiana, Mississippi, North Carolina, South Carolina,

Tennessee, and Virginia in 1997. Per capita milk

production is method of easily understanding the

population and milk production relationship. The 1997

per capita production of 206.2 pounds is slightly above

the 201 pounds per capita fluid consumption for that

year. Since that time, per capita production in the

southeastern states has been shrinking faster than the
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per capita production.

"Exhibit 86 shows the 2021 population

and milk production for the same 11 southeastern states.

The population estimate is from economic research

service report using U.S. Census Data updated on June

2nd, 2022. The milk production information is from the

National Agricultural Statistic Service (NASS) February

2022 milk production released February 23, 2022."

"For the 11 southeastern states, the

2021 per capita milk production was 98.2 annually or 8.2

pounds per month. The United States 2021 annual per

capita fluid milk consumption was a 134 pounds or 11.2

pounds. We can draw few conclusions from this

information: One, the 11 southeastern states only

produce 73.3-percent of their fluid milk needs. By

necessity, the remaining 26.7-percent came from other

states. This leaves no reserve supply variation in

daily, weekly and monthly needs from the pool

distributing plans. There is no milk available for

Class II products or any other non-fluid products."

"Exhibit 86 also shows the removal of

Virginia from the 11 states. Without Virginia, the per

capita production of the remaining 10 states drops 90

pounds or 7.5 pounds per month. This leaves the 10

states producing only 67.2 percent of their remaining
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504

with the remaining 32.8 percent source from outlying

areas."

"The origination location of the milk

delivered to Eastside Jersey Dairy, Hammond, Louisiana

for the five-day period from, May 2nd through 6th, 2022,

and another five-day period from August 3rd to 7th,

2022, was established. For the May period, 60-percent

of the milk came from the Eastern and Central Texas area

and 40-percent of the milk came from Kansas, New Mexico

and the Texas panhandle. The Order 7 marketing area did

not supply any of the Hammond milk during the May 2nd

through May 6th, 2022 period. For the October period,

45-percent of the milk came from the Eastern and Central

Texas area, 39-percent came from Kansas, New Mexico n

Texas panhandle, and 16-percent came from the Order 7

marketing area. It is understandable that the High

Plains area provides milk to Hammond in October when

milk is high demand. In May, milk would not move from

the areas of East and Central Texas and Texas panhandle

and incurred significant added mileage and hauling costs

unless absolutely necessary -- unless absolutely needed

to meet the milk supply demand for the region."

"March, April and May are no longer

months of adequate supply. Exhibit 87 shows just how

short region's milk supply actually is in March, April
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505

and May. There were 335,813,596 pounds of producer milk

pooled on Order 7 in March of '22, according to the

market administrator's Order 7 website. 296,832,200

pounds of producer milk delivered to pool plants.

Exhibit 9, page 9, there were 141,328,307 pounds of milk

pooled on Order 7 that originated in states or portions

of states that were immediately adjacent to the market

area. Removing these adjacent area pounds from the pool

pounds would leave 194,485,280 pounds of pooled milk

that's showed on the exhibit 87 in the third line from

the bottom. The difference between the remaining

194,485,289 pounds of producer milk and the deliveries

to pool plants of 296,832,200 pounds is a shortfall of

102,346,911 pounds. This shortfall is not unique to

March. There was a shortfall in all three months of

March, April, and May 2022. The same calculations,

using the Class I market utilization, also resulted in a

shortfall of producer pounds. In March, the Class I

market utilization for Order 7 was 281,092,014 pounds,

resulting in a shortfall when excluding the out-of-area

milk from the designated areas. The adjacent area was

86,606,725 pounds, when compared with the pool producer

milk of 194,485,289 pounds, again, after removing the

adjacent area milk. These calculations done for April

and May. And this exhibit 87 also shows a shortfall,
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506

the same methodology was used for Order 6, exhibit 88,

and Order 5, exhibit 89. These exhibits dramatically

show just how short the milk is in the Southeast U.S. is

during the Spring. If a handler pulls too much of a

producers milk on Order 5 or 7 during March, April and

May, that handler is not able to claim Transportation

Credits on that producers milk in the Fall, even though

the market had a need for the milk in the Spring."

"Exhibit 90 is a table showing the Order

7 monthly Class I market utilization on a daily basis.

Daily utilization is not equal among the months,

although some months is both the spring and fall do not

have the variability exhibits when comparing winter and

summer months. The statistics are from the Market

Administrator website in the Statistical Summary

section. Exhibit 91, compares the daily average market

utilization for April and September for 2020, 2021 and

2022, both April and September contain a holiday

weekend, Easter and Labor Day, that could influence milk

sales, especially sales of school milk. In 2020 and

2022, the daily average was higher in April by 50,274

pounds in 2020 and 137,732 pounds in '22, than it was in

September, indicating that more milk was needed in Class

I in April converting the pounds to tanker loads, there

were about 82 more tankers needed in April to meet the
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507

Class I needs than in September 2022. In 2021, the

reverse was true. September 2021 was higher than April,

2021 by 26,069 pounds on a daily average."

"As an industry, we must take action to

help ameliorate this drastic supply/demand in balance.

There are choices among the proposals that this area

that will provide the necessary distance.

(Whereupon, the Court Reporter asked

Mr. Tonak to please speak up and into the microphone.)

MR. TONAK: "Proposals 9 and 10 would

apply to Order 5 and 7 respectfully. The proposals, if

adopted, would delete a portion of section 1005.82,

payments from the transportation credit balancing fund

and the corresponding portion of section 1007.82.

Payments from the transportation credit balancing fund."

"This section from Order 5 is included

here, I will highlight the section we want deleted."

"Section 1005.82, payment from the

transportation credit balancing fund.

(c) Transportation credit shall apply to the following

milk:

(1) bulk milk received at pool distributing plants from

a plant regulated under another Federal Order, except

Federal Order 107 (as stated); and

(2) bulk milk received directly from the farms of dairy
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508

farmers at pool distributing plants," by then, the

deletion starts, "subject to the following conditions:

The dairy farmer was not a producer under this order for

more than 45 days during the immediately preceding

months of March through May for not more than 50-percent

of the production of the dairy farmer during those three

months, in aggregate, was received as producer milk

under this order during those three months, and

(iii) (as stated), The farm in which the milk was

produced is not located within specified marketing area

of the order in this part or the marketing area of

Federal Order 7." (iii), The Market Administrator may

increase or decrease the milk production standards

specified in paragraph (c)(2)(i) of this section if the

Market Administrator finds that such revision is

necessary to assure orderly marketing and efficient

handling of milk in the marketing area. Before making

such a finding, the Market Administrator shall

investigate the need for the revision either on the

market administrator's own initiative or at the request

of interested persons. If the investigation shows that

a revision might be appropriate, the Market

Administrator shall issue a notice stating that the

revision would be considered and inviting written data

used in arguments. Any decision to revise the
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509

applicable percentage must be issued in writing at least

one day before the effective date." So we're proposing

deleting a significant portion of that section.

"I will specifically reference Order 7

in the following examples in exhibits, although the same

principles apply to Order 5. The deletion of (c)(2)(i)

will make the producer milk outside the marketing area

that was pooled on Order 7 during the March through May

period, and that is other wise ineligible for

Transportation Credits for the appropriate subsequent

period during the late summer and winter months. This

proposal does not change any of the months that the

Transportation Credits would be in effect or any of the

other transportation credit provisions."

"Exhibit 92 shows the miles between

selected cities in Illinois and Iowa and Kosciusko

Mississippi. Kosciusko is the last Order 7 distributing

plant in Mississippi, at least to my knowledge. The

locations in Illinois and Iowa were selected because of

milk production and relationship to distributing plant

of other orders. Carlyle, Illinois is the county seat

McClean County, IL. McClean County, IL, one of the

largest milk producing counties in Illinois and

relatively close to distributing plants in the St. Louis

market that are regulated by Order 32. Bloomington,
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510

Illinois is the county seat of McClean County, Illinois.

McClean County, though not a large milk-producing

county, is home to a few producers who ship tanker load

quantities of milk everyday. Dubuque, Iowa is the

county seat of Dubuque County, Iowa. This area of

Northeast Iowa and Southwest Wisconsin is an area of

relatively concentrated milk production. Dubuque is

home to an Order 32 pool distributing plant."

"Exhibit 92 also shows the miles between

selected cities in Texas and Lafayette, Louisiana.

Lafayette is the most southwest of any Order 7

distributing plant. It is one of the distributing

plants closest to the Texas border. Texas, particularly

East Texas has served as a reserve supply for Louisiana

distributing plants for 50 years, give or take a few

years. Sulphur Springs, Texas is the county seat of

Hopkins County, Texas. At one time Hopkins County was

largest milk producing county in Texas. Even though the

milk supply in Hopkins County has dwindled since those

days, it is still a reliable source of milk for the

southeast. Stephenville, Texas is the county seat of

Erath County, Texas. Erath County became the largest

milk-producing county in Texas, as Hopkins County

production moved lower. Dalhart, Texas is the county

seat of Dallam County, Texas, the most northwestern
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511

county in Texas. Part of the Dalhart city limits are in

Hartley County. Hartley County is now the largest

milk-producing county in Texas. Ballinger, Texas is the

county seat of Runnels County, Texas. Runnel County is

a rural county with limited milk production, but it can

originate at least an every other day load of milk.

Milk produced in Runnels County is about 200 miles from

any milk plant."

"Exhibit 93 is a worksheet from the

Order 7 market administrator's website. To estimate the

applicable transportation credit, the mileage and zone

information from exhibit 92, the January 2023 Market

Administrator announced fuel price in 48,500 pound load

size was used."

"Exhibit 94 shows how handlers may

change milk origination and delivery locations to

minimize hauling in the spring and maximize

Transportation Credits in the fall. In spring, the

Carlyle, Illinois milk shed will supply milk needs at

Kosciusko, Mississippi. The distance from Carlyle,

Illinois to Kosciusko is 450 miles. Milk from the

Bloomington area will deliver to O'Fallon. The total

miles to deliver one load of milk to Kosciusko and one

load to O'Fallon in this manner is 607 miles. In the

fall, as illustrated, estimations change. Carlyle,
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Illinois goes to O'Fallon, a distance of 31 miles, and

Bloomington, Illinois goes to Kosciusko, Mississippi,

distance of 597 miles. The total miles now traveled are

628 miles, an increase of 21 miles over the spring

total. The big difference is not in the increased

miles, but in the transportation credit. If the

Carlyle, Illinois milk could continue to deliver to

Kosciusko in the fall and receive the transportation

credit, now prevented by (c)(2)(i), the estimated

transportation credit would be $290.03. Since the

Carlyle milk will not receive Transportation Credits in

the fall, the Bloomington milk will go to Kosciusko with

estimated transportation credit of $563.76. Under this

scenario, the miles traveled increased by 21 miles, but

the transportation credit increased by $273.73. The

$273.73 increased transportation credit divided by the

21, by the added 21 miles, yields an increment return of

$13.03 on one-way mileage or $6.515 per round trip mile.

Dubuque, Iowa and Carlyle, Illinois are the same type of

comparison, total miles increase from 607 miles in the

springtime of exhibit 94, 628 miles in the fall, a

21-mile increase. The transportation credit was $685.79

higher than it would be if (c)(2)(i) was not in place.

This calculates to a $34.29 incremental returns on the

one-way mileage for $17.145 per round trip mile."
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"Exhibit 95 shows the same type of

information for the Texas milk delivering to Lafayette,

Louisiana."

"The type of milk movements illustrated

in exhibits 94 and 95 are available to handlers in both

Order 5 and Order 7 milk movement to maximize

Transportation Credits are inefficient due to the

increased miles traveled, though often profitable, and

cost handlers money. The efficient outcome is to reduce

miles wherever possible and still supply the needed milk

to plants in the southeast. Fall Transportation Credits

will efficiently supplement the cost of hauling in the

fall when (c)(2)(i) is removed from the regulations."

"The deletion of section (c)(2)(ii) will

allow producer milk located in the marketing area to be

eligible for Transportation Credits using the same

calculation mechanism producer milk from outside the

marketing area. This should enhance the stair-stepping

milk using both the in-area and out-of-area milk from

North to South and West to East in the most efficient

possible manner. The Transportation Credits are in

place during the period when milk is in the shortest

supply situation, and as result, milk will still need to

travel long distances. "

"Transportation credits that are only
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514

available on milk produced outside Order 5 and 7

marketing areas will not contribute to efficient in-area

movement. Rather than continually redirect the in-area

milk through stair-stepping to the needed areas, the

in-area milk will move to the nearby local distributing

plant. The out-of-area milk will need to move greater

distances past the local milk supply to supply the needs

of the distributing plants. There is no incentive to

gradually stair-step to the in-area and out-of-area milk

in the efficient combination since at this time the

in-area milk does not receive transportation credits."

"Prairie Farms has Order 5 pool

distributing plants in Holland, Indiana and Somerset,

Kentucky. A group of producers is located south of

Holland in the Evansville, Indiana area. There are

approximately 48 miles from Evansville to Holland.

Since this milk is in the Order 5 marketing area, it is

ineligible to participate in transportation credits and

delivers to Holland throughout the year. From

Evansville to Somerset is a distance of 226 miles. From

Bloomington to Holland is 235 miles, and from

Bloomington to Somerset is 411 miles. If (c)(2)(ii) was

removed from Order language, the Bloomington load could

go to Holland and the Evansville milk could go to

Somerset, combined mileage of 462 miles. By comparison,
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combined mileage of Evansville to Holland and

Bloomington to Somerset is 459 miles. The

transportation credit on the stair-step movement would

be an estimated $200.20, again, with (c)(2)(ii)

eliminated, compared to the current transportation

credit, Bloomington, Illinois to Somerset, Kentucky,

$288.67. There would be no mileage savings, but there

would be a transportation credit savings of $88.47 for

each load."

"It is not fair and equitable for

out-0of-area milk to be eligible for Transportation

Credits while in-area milk is not eligible. As the milk

supply shrinks and the population increases in the

southeast, it is more important than ever that all milk

receives uniform application of Transportation Credit."

"The elimination of (c)(2)(i) and

(c)(2)(ii) should incentivize the most efficient

movement of producer milk to the distributing plants

where needed. The (c)(2)(iii) section is then redundant

and not needed when the (c)(2)(i) and (c)(2)(ii) are

eliminated."

"Proposals 6, 7 and 8 would introduce

Assembly Performance Credits in Orders 5, 6 and 7

respectively. Assembly Performance Credits would

reimburse handlers for part of the cost for assembly,
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516

dispatch, delivery incurred on producer milk received at

distributing plants regulated by the Order. As proposed

there would be a $0.50 assessment on all Class I milk

delivered to pool distributing plant. The $0.50

Assembly Performance Credit assessment can be adjusted

by the Market Administrator without an Order Hearing.

The funds are distributed on a pro rata basis to all

producer milk delivered to those same distributing

plants. The Assembly Performance Credit will operate on

a year-around basis."

"As the number of producers and the milk

volume produced in the southeastern United States has

decreased, milk haulers have to travel more miles to

pick up the milk. Additionally, the number of

distributing plants in the region have also decreased.

Not only does the hauler travel more miles picking up

the milk at the farm, the hauler has to travel more

miles to deliver the milk to the distributor. This

leaves either the producer paying more for hauling

and/or the hauler absorbing part of the increased cost

and/or the handler absorbing part of the cost. The

increased costs that the producer, hauler or handler are

paying and absorbing are not necessarily uniform among

all producers, handlers and haulers in the region. The

Assembly Performance Credit would generate a credit that
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would partially cover these increasing costs in a

uniform manner for all without regard for producer

location, distributing plant utilization, distributing

plant receiving the producer milk or handler or

cooperative generating the milk deliveries. The APC is

fair and equitable for both handlers and producers since

a uniform assessment rate is applied for the Class I

milk, and a uniform credit is received on the producer

milk delivered to the distributing plants."

"The classified pricing in the Federal

Order system mandates that all regulated plants in the

same Class I differential zone pay the same Class I

price. The plants would have same Class II, Class III

Class IV prices also. However, the actual regulated

cost paid by the individual regulated plants could very

widely depending on the individual plants utilization

milk in the various product classes. If the Assembly

Performance Credit was applied to the Class I milk and

then distributed on only the Class I milk, there would

be much variability in the credit among the regulated

plants. This is not the fair and equitable quote

"outcome" demanded by Prairie Farms principles."

"The APC will help a handler partially

recover the costs of assembling and delivering a load of

milk to a pool plant. Costs of assembly include
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determining which producers are on a load, matching the

hauler and the hauler's equipment with the load, et

cetera. Prairie Farms case, producers have the same

hauler and pay a hauling rate to a particular delivery

destination. Prairie Farms pays the hauler additional

amounts, if appropriate, if the load goes to alternative

locations. Other cooperatives and companies may operate

differently, but there are always some costs to oversee

the efficient assembly of producer milk at the farm into

movable loads."

"The dispatch of the milk is another

cost area. The milk demands from the distributing

plants and other plants in the region determine which

loads should deliver to which plants in order to meet

the plant's producer milk needs at the time required.

This is further complicated since a plant's milk needs

may vary widely day -- to-day and week-to-week. Many

plants do not have enough silo storage capacity to take

a uniform milk delivery every day of the week. Often

the weekends are the days when plants have the least raw

milk storage capacity, requiring extra milk deliveries

in the middle of the week. There are times when an

allocation process is performed since there simply is

not enough milk available for all plants to receive the

milk deliveries as they requested. This all becomes
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part of the dispatch cost. Delivery costs are the final

piece to be partially born by the APC. Milk delivery

costs for individual plants vary widely. Abundant local

milk supplies delivered to a nearby plant provide that

plant with lower delivery costs than a plant whose milk

supplies come from a greater distance, the most

efficient regional milk deliveries are likely to

increase the delivery costs at some distributing plants

and reduce the delivery costs at other distributing

plants, with a net savings result. A uniform APC

distribution will not fully recover all costs associated

with assembling, dispatching and delivering milk to the

distributing plants regulated by the Marketing Order.

Since the APC distribution is uniform across all

producer milk delivered to distributing plants, overall

efficient milk movement results.

"The Assembly Performance Credit does

not have a mileage-based component. Thus, there is no

incentive to maximize mileage-based credits by moving

milk among different milk supply locations and delivery

locations. The incentive with the APC is to move milk

efficiently, utilizing both the in-area and out-of-area

milk."

"The language proposed for the Assembly

Credits did not include possible changes required in
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other sections of Orders 5, 6 and 7, especially in 30

and 32."

"The combination of Assembly Performance

Credits on a year-around basis and Transportation

Credits on a seasonal basis applied to all in-area and

out-of-area milk will promote the most efficient

producer milk deliveries. This concludes my testimony."

THE COURT: Okay. What, are we moving

to your comments concerning the proposed distributing

plant delivery costs?

MR. TONAK: Those comments particularly

relate to proposals 3, 4 and 5, and I would prefer to

complete this testimony and questioning on this

testimony before we proceed to that.

THE COURT: I understand. Any objection

to that?

MR. HILL: No objection.

THE COURT: Mr. Beshore.

MR. BESHORE: I actually think it would

be better to hear all of Mr. Tonak's testimony before

going to cross. I mean, he's already commented about

the distributing plant credits 3, 4 and 5 in part, and

in his statement and this would just elaborate on it a

bit and make it all one, that's just my thought.

THE COURT: I'm not sure. Mr. Tonak,
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why do you prefer to take up this?

MR. TONAK: I think because they're two

separate issues. Mr. Beshore said I commented to the

producer delivery plant credit in my testimony, and I'm

not aware that I directly testified to anything about

the producer or the delivery -- distributing plant

delivery credit, but, you know.

THE COURT: That's all right, so you

have your hands full over there, Mr. Beshore, did you

hear witnesses response to that? You indicated he

addressed certain issues that are also addressed in the

comments indicates that he did --

MR. BESHORE: I mean, he commented that

uniform assembly credit was much, was preferable to

mileage-based credits within the Order, which are the 3,

4 and 5, and so the argument was made that his assembly

credits are superior to 3, 4 and 5 already, the comments

further elaborate on there, so to me, it goes together,

but I'm not going to, you know, if there's two to one

--

THE COURT: We're -- fairly, I'm not

going to, I doubt that I would restrict

cross-examination, need to go back, witness seemed more

comfortable going ahead and having cross on exhibits 84

through 96, actually I haven't marked 96, so let's see
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how it goes. If the witness' preference is to go with

his testimony now, I don't want to restrict any of the

cross-examination context that makes sense. I will say,

I think I neglected to mark a sheet entitled "Prairie

Farms exhibits," which is simply a list of the

witnesses, exhibits 85 through 95, I'd like to mark that

96.

(Whereupon, Exhibit No. 96 was marked for

evidence.)

THE COURT: Okay. So, let's go ahead

with cross-examination of the witness's testimony, so

far, AMS, you're up.

CROSS EXAMINATION

BY MS. TAYLOR:

Q. Good morning.

A. Good morning ing.

Q. Thanks for coming to testify today. I have some

questions and then maybe I'll try to digest a little bit

more over lunch as well. First off, how many

member-owners does Prairie Farms have?

A. Our last count when I did the reports for January

was 682.

Q. Thank you. In your testimony you talk about how

the Transportation Credit program that's currently in

place is inflexible, and I'm paraphrasing, to react to
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future changes, can you just elaborate a little bit more

on why it's inflexible.

A. What I see as inflexible in it is that there is

no good way of making changes to it outside of a Federal

Order hearing such as this, and that goes to the

proponent's proposals for 1 and 2. Now, the other part

of it is the restrictions on out-of-area milk are not

easily, in my view, overcome, though we have not gone to

the Market Administrator about, and followed the

procedures outlined in (c)(2)(iii).

Q. Okay. I'm going to have to look up that Order

language.

A. That's the one that allows you to request, Market

Administrator can review the limitations preventing milk

pooled on the order in March, April, and May to receive

Transportation Credits in the fall, and he has the

ability on his own or after the request to make an

adjustment in those limits.

Q. Okay. If I'm looking at the bottom of

essentially page 2 of your statement, and this is just

going to get a little technical, you reference numbers

that are on your exhibits, in exhibit 85 and 86, but

then you also reference, for example, in the third

paragraph from the bottom, "201 pounds per capita fluid

milk consumption for that year, year being 1997," I
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didn't see that number on your exhibit, so I'm just

trying to find the source of that, perhaps it's in the

record somewhere?

A. It is not in the exhibit. It is found in table

labeled "Dairy Products Per Capita Consumption, United

States, pounds per person." And it quotes that the

source, USDA's economic research service calculations

using data from USDA National Agg Statistical Service,

USDA Farm Service Agency, USDA Farm Agg Service, USDA

Agricultural Marketing Service, US Department of

Commerce, Bureau of Consensus and the California

Department of Food and Agriculture, last updated accept

30th of 2022. I do not have the online website address

for this.

Q. From the looks of it, if I may interrupt, is that

exhibit ten that you entered earlier into the record?

A. No.

Q. That's a different table?

A. That's a different table.

Q. Okay.

A. And both per capita include milk consumption been

quoted in press and everything else.

Q. Okay.

A. Find the reference for the material.

Q. That's okay, I just like to have a record of
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where that number comes from, if it's government

statistics, AMS can look that up later, I think you

referenced the page, if that's okay with the Judge?

THE COURT: Yes, I mean, it's okay with

me. If he's fine, come back and have further discussion

on the record.

MS. TAYLOR: Okay.

Q. Then going on to the third page, again, I know

this is technical, but I like to make sure the record is

clear. Number one at the top, "and the 11 southeastern

states only produced 73.3 percent of their fluid milk

needs," again I didn't see that number on an exhibit.

A. That number was derived from exhibit 86.

Q. I see the numerator, I wasn't sure where the

denominator would have come from.

A. I apparently overlooked putting that into the

information, but the -- the specific number for 2021 is

134 pounds per capita, and again, that comes from that

ERS dairy products per capita consumption data.

Q. Okay. Thank you. Later down on that same page,

you talk about supplying your East Side Jersey Dairy

plant in Hammond, Louisiana, and how, if I'm reading

this correctly, in May, no milk, no in-area Order 7 milk

supplied that plant?

A. That is correct.
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Q. But in October, 16-percent of that milk came from

Order 7 that supplied that plant?

A. That is correct.

Q. So, I'm not milk marketer, so I don't understand,

maybe you can help me out, what happened, how come that

milk -- let me rephrase. My layman's understanding

would think that that Order 7 milk that went to that

plant in the fall was more local, so that might be

incorrect, my assumption would then be, why wouldn't I

supply that plant in May as well and where would it have

gone instead?

A. Well my layman's view matches yours. The

specifics of the situation appear to be that one of the

cooperatives supplying that plant has a hauler that

delivers milk to that plant, and is back-hauling product

from the general geographic area, back to the West --

back to the East, excuse me.

Q. So that brings me just to another operational

question for Prairie Farms is, how much of your plant

supplied is supplied by Prairie Farms members generally

approximation, how much do you need to get elsewhere -

A. In total or Hammond?

Q. Yes.

A. In total?

Q. In total, the amount. I know this will be a
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rough estimate.

A. I would, without doing a little work, but if you

include all of the plants, the East Side Jersey plants,

the Prairie Farms plants and the Hiland Dairy plants,

it's under half.

Q. Okay.

A. And some of those plant groups, we buy a

significant portion from outside supplies.

Q. Later on in your statement you reviewed a lot of

data in exhibit 94, which I'll study later, and

basically showing how milk can be moved to maximize

transportation credits, according to your statement, and

then later, on the next page, should be the third page

from the end, towards the top, you say "milk movement to

maximize transportation credits are inefficient due to

increased miles traveled though often profitable and

cost handlers money." So I just need you to explain

that a little bit more how on one hand it could be

profitable but on the other hand it could cost money.

And it might be because it's profitable for one party

and not the other, but if you could elaborate on that?

A. In speaking of handlers, in that particular

situation, it's more referencing the milk supply handler

rather than distributing the plant handler. And so, on

an incremental basis, those movements are very
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profitable. In some of those cases, when you look at 21

added miles and $34.29 cent incremental return for 20,

for the added 21 miles, something like $685.79, but the

reason it costs handlers, speaking of milk supply,

handler's money, is because the Transportation Credit

had not been sufficient, the Transportation Credit fund

has not been sufficient to pay a hundred percent of the

claims, so in an individual load basis, the incremental

miles can be profitable, but an overall basis, everybody

receives less than a hundred percent of their submitted

claim.

Q. Okay. So get a little more money, but it still

costs you in the end?

A. It still costs you.

Q. Okay. Okay. And later down in the paragraph, in

the page, excuse me, that starts, the paragraph starts

"Transportation Credits that are only available to milk

produced outside of Federal Order 5 and 7 will not

contribute to efficient in-area milk." And then you say

later on, "The out-of-area milk will need to move

greater distances past the local milk supply -- past the

local milk to supply the needs for distributing plants,"

but I think, you say "it will need," but I think your

whole statement is that's what's happening now, it's not

something in the future, it's not --
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A. It's what's happening now and will continue to

happen. As an example, Sulphur Springs, Texas area

milk, let's say goes to Hammond, Louisiana, that's some

of the closest Texas supplemental milk to Hammond, and

that happens in the Spring of the year. In the fall of

year, that East Texas milk goes to Dallas and gets

replaced with milk from West Texas, and the trucks

almost, not quite, but almost meet each other coming

from West Texas to Hammond or Lafayette, and with the

milk going from East Texas to Dallas, that's the point I

was trying to make.

Q. Okay. And later on that page, you talk about how

milk from your producers in Evansville, Indiana is

ineligible to get a Transportation Credit it's

ineligible now is it true it'll be ineligible under the

changes to the proposals 1 through 5?

A. With the changes in proposals 1 through 5, it

would still be ineligible because it is milk within the

marketing area of Order 5. So it would be eligible for

distributing plant delivery credit. We would need to

adjust that delivery location and probably leave it

right there delivering to Holland, Indiana and bring the

milk from Bloomington, Illinois to Somerset, Kentucky,

and that milk then would receive a Transportation Credit

and net dollars is going to be greater than if we could
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accomplish the stair-step movement.

Q. Okay. You're proposing a $0.50 assessment for

your assembly credits?

A. Yes.

Q. How did you determine that number?

A. I'll start by saying that our internal marketing

cost information in Prairie Farms is not as robust as we

would like it to be, and so we had to do some estimating

of how cost are applied, but that is from our internal

costing of milk being used to supply Order 5, Order 7

and order 32 distributing plants in Southern Illinois.

Q. And that's for your cost for your assembly

dispatch delivery?

A. Yes, added costs.

Q. Okay. And if I'm understanding your proposal,

the payout would be on all milk delivered to a pool

distribution plant, it's not just Class I portion?

A. That is correct of all milk.

Q. So your Assembly Credit is for, Assembly

Performance Credit Assembly dispatch and delivery, and

at the same time you propose to amend, but keep some

form of Transportation Credit wouldn't the delivery cost

be considered part of what's already reimbursed through

the Transportation Credit, is that getting double

reimbursement on the same thing?
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A. It could be in some cases. First off, there are

three components, assembly, dispatch and delivery, and

it's difficult to separate those components out

entirely. Now I will compare, if there's a family with

a few children and the children get a $10 a week

allowance and one of the children goes to the father and

said "There's something I want to buy, can I get my

allowance, "and he's given $10, says "Thank you." Then

he goes to his mother and says "There's something I'd

like to buy, can I get my $10 allowance," and she gives

it to him. He has $20 of a $10 allowance at that point,

now that's double-dipping, no doubt --

Q. Sounds like my kids.

A. No doubt about it. The division between the --

or among the Assembly Credit and Transportation Credit

isn't quite that clear, but we do understand that there

may be a reason to look at modifications to eliminate

any concerns.

Q. I think I only have one more technical, questions

then I have more some bigger picture questions. So I'm

going to talk about diversions, but try not to get

everybody confused. So currently, if milk receives

Transportation Credit, that milk is reduced from the

handler's base from which they can defer it on, that's

how system is set up?
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A. That is correct.

Q. Okay. Under your proposal, essentially almost

all milk under Assembly Credit proposal, and I

understand your change is to the Transportation Credit

proposal, pretty much all milk going to Class I plants

would be able to get some form of Transportation Credit?

A. They would receive the Transportation Credit as

such during the fall months, and Assembly Credit over

the other months or the rest of the months. Now to the

extent that there are diversions in the fall months when

the Transportation Credit is in place, the

Transportation Credits would be offset, just as they are

now.

Q. So the handlers still have the choice, you can

either get Transportation Credit on the milk or that can

be part of your base from which to divert on?

A. That would be our view, yes.

Q. Okay. Great. Moving on to kind of some big

picture things. There's been a lot of testimony about

the costs incurred for supplying the southeast market

and the impacts that that's had on various cooperative

members and the co-op operations themselves, so

regardless of what changes the Department might choose

to put forth, can you speak to just the impact that

these costs have had on your members and on you
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cooperative?

A. As a cooperative, we pay the Federal Order blend

price, be it 5, 6 -- I mean, 5 or 7 or 32 or whatever,

to our producers. What happens with these costs, and

the costs not being recovered, is that it reduces the

cooperative's earnings, and we're proud of the amount of

dollars that we have paid back to our members in

patronage over the years, not only to our individual

dairy farmer producer farmers, but also to the

cooperatives that supply our Prairie farmers plants,

such as Dairy Farmers of America, Foremost Farms,

Associated Milk Producers, and so on, so to the extent

that we have unrecovered costs in supplying the milk to

these various plants, it reduces the patronage paid to

these various member producers and cooperatives, and

reduces their areas, and so bottom line is, it hits them

in the pocketbook.

Q. And have you experienced, as a cooperative,

experience some of your farms, previous farms going out

of business?

A. We've had a number of farms going out of

business. I don't specifically remember the number

we've lost in the last year, but we have sustained

losses of membership.

Q. Can you talk a little bit about the Co-op's
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efforts to recoup some additional costs through the

marketplace whether they've been successful or not?

A. It is very difficult to recover some of the costs

through the marketplace. Now specifically the school

milk, a number of our school milk contracts are based on

Federal Order pricing. It's visible, no questions

asked, USDA says this is what it is, and as that price

changes, our price the schools and so on change

accordingly. When you come to over-order pricing, there

is that lack of visibility and clarity, not only

schools, but some individual grocery store chains think

that the over-order premiums are an attempt, for lack of

a better word, to rob them. So, again, it's very

difficult to, especially over the last few years, to

increase premiums enough to recover the added cost.

Q. And on -- so, your supplemental milk that you

need to bring in to fill your plant needs and customer

needs, what happens if you aren't able to get that?

A. The plants end up a little short, and unfortunate

because I'm not in the sales side of our plant business,

so I don't receive the calls saying "Where is my milk?"

I mean, you have upset customers to put it mildly.

Q. Would that impact your ability to keep accounts?

A. It depends on the alternatives they have of where

to find an alternative source of product.
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Q. So, under your proposal for the Transportation

Credit changes, it would essentially allow more milk to

receive Transportation Credit?

A. Yes.

Q. And the record I think is full of evidence that

say, especially in Order 7, there's not enough money as

it is to pay out Transportation Credits on the milk that

claims them. So what's your opinion on the assessment

level as it stands, would you support increasing that?

A. It would seem there's a need to increase the

assessment level. If I had my druthers (sic), we'd go

back to 1997 when there's adequate milk during the

spring and summer months and Transportation Credit would

only be used through the fall months, but that is not

going to happen. And the supply situation in the

southeastern states is only going to worsen, and I think

we need to find solutions that will allow the most

efficient movement of milk from out of the area into the

marketing area to supply those needed supplies.

Q. So if increasing assessment was needed to

accomplish that goal, you would be supportive?

A. I think we would support that.

THE COURT: Ms. Taylor, we talked about

trying to find a break, is this a good stopping point?

MS. TAYLOR: Yea, I have a couple more
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questions, but they can wait until afterwards.

THE COURT: Okay, well, I mean, let's

reconvene at 1:15.

(Whereupon, a lunch recess was taken.)

THE COURT: Any preliminary business we

need to take care of before we go back to witness Tonak?

Hearing none, we continue the cross-examination by AMS,

Ms. Taylor.

CONT'D CROSS EXAMINATION

BY MS. TAYLOR:

Q. Good afternoon again.

A. Good afternoon.

Q. I just have a couple questions left, let me, one

of them we thought about at lunch, let me pull up what I

wrote. You talked a lot in your exhibit about

stair-stepping of milk.

A. Yes.

Q. And probably most of us in this room understand

what that means, but to make the record clear, can you

just explain what you mean by that?

A. It's a process by which you take the milk from

the northern areas or the western areas and move it

gradually to a nearby plant and then move that milk

close to the nearby plant further to another plant, and

you continue that process until the furthest milk in
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effect is stair-stepped through changing delivery

locations to the plant that needs the milk.

Q. So if I looked at, say you drew that out on map,

it would look like stair-steps basically?

A. Basically.

Q. Yes. Thank you. I only got a couple of

remaining questions at the moment. Both your Prairie

Farms' proposal and proposals by DCMA are being looked

at as market-wide service needs, the authorization for

that in the Act talks about allowing these payments to

handlers for services of market-wide benefit. So when

it comes to your Assembly Performance Credit, can you

explain how those services of which that credit would be

reimbursing for our services of market-wide benefit and

at what point are those maybe just individual business

decisions and not necessarily a market-wide benefit for

everyone?

A. Well, our view is that from market-wide benefit

perspective, it provides assistance in moving milk from

where it originates to a destination, and in particular,

in the southeastern area, if you look at the milk being

closest to the distributing plant receiving the same

benefit as milk that's further away, number one, it

should increase the returns to that nearby producer and

encourage them to stay in business or even to expand
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538

their business such that they would have more income.

Secondly, the more distance milk, in all likelihood,

would receive a benefit of the Class I price or the

Federal Order uniform price at the zone of the producer

location versus the zone of the delivery location. So,

in effect, there's two market-wide benefits, one to the

local producers to encourage them to increase milk

production; and secondly, along with the potential

differences in uniform price or Class I price, to

encourage those producers to maintain milk production

and move it to the plant where it is needed.

Q. And so just to close the loop on that, the

ability for producers, local producers to stay in

business and possibly grow, if they can, their milk

production locally, is a service to the market?

A. Yes, because you don't have to bring in as much

milk from outside.

Q. My last question is regards to the emergency

request, the initial request to have this hearing

through DCMA requested it to be considered on an

emergency basis, does Prairie Farms have an opinion on

that emergency request?

A. The -- we view the situation in the southeast to

be an emergency in getting milk for the plants that need

it for many of the reasons we've covered, the various
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testimony has covered. Now, of course it's more of

emergency if USDA decides to adopt our proposals, and it

adopt somebody else's, but.

Q. I appreciate your candor. Okay. So you think it

would be appropriate, if market conditions are such that

it is an emergency that the department move as

expeditiously as possible?

A. Yes, I do.

MS. TAYLOR: That's all my questions for

now. Thank you.

THE COURT: Cross examination by any

other participant? I see none. I'm sorry, I see

Mr. Beshore.

MR. TONAK: I didn't see him either,

Your Honor.

CROSS EXAMINATION

BY MR. BESHORE:

Q. Good afternoon, Dennis?

A. Good afternoon.

Q. How long have you been the Senior Director of

Federal Order Markets for Prairie Farms?

A. Since May of 2020.

Q. Were you with Mid-West prior to that?

A. Yes.

Q. How long were you with Mid-West?
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A. Approximately 25 years.

Q. So, while you were at Mid-West, you didn't have

any involvement with marketing itself, southeastern

orders, correct?

A. That would be correct.

Q. Now, with the Prairie Farms you say 682 members,

how many of those members are located in the

southeastern marketing areas, Southeastern Order

marketing areas 5, 6 or 7?

A. It's a relatively small number.

Q. Single digits?

A. I don't know the exact count, but it's a

relatively small number.

Q. Well, single digits?

A. Well, it would be more than 9, you know, since

single digits, but part of the thing is that we've got

milk that is located in the Order 32 area that is

closely associated with Orders 5 and 7, if I understand

your question correctly?

Q. Well, my question was, how many farms are in the

southeast market areas 5 or 7?

A. Right. And so those farms in Order 32 would be

excluded from the answer.

Q. Right. Now let's talk about your plants in

southeast, you have nine, nine plants, full distributing
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plants under Orders 5 and 7, according to your

testimony, correct?

A. Yes.

Q. Okay. Can you -- can you tell us, name those

nine plants?

A. There is a Prairie Farms plant that's in Somerset

Kentucky, a Prairie Farms plant in Holland, Indiana;

East Side Jersey Dairy Plant in Kosciusko, Mississippi,

and in some of the reports, it's Prairie Farms plant,

there is an East Side Jersey plant at Hammond,

Louisiana. There are Hiland Dairy plants located at

Memphis, Tennessee, Little Rock, Arkansas, Fort Smith,

Arkansas, Fayetteville, Arkansas, and Springfield,

Missouri.

Q. So, let's take East Side Jersey plants first,

what portion of the supply at East Side Jersey plant in

Mississippi is from Prairie Farms member farms?

A. It varies. It would be probably anywhere from 15

to 30-percent, depending on the day, the week, the

month, so on.

Q. And how about the East Side Jersey plant in

Hammond, Louisiana, what portion of that supply comes

from Prairie Farms member farms?

A. I would estimate that that is over, no, let me

back up, on East Side Jersey, Hammond?
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542

Q. Yes.

A. None of the milk at that plant comes from Prairie

Farms members. That milk is primarily supplied or at

least the majority supplied by milk from the independent

producers that we market and payroll in Texas.

Q. Now, going into the Hiland plants, Hiland in

Little Rock, Arkansas, what portion of that supply comes

from Prairie Farms member farms?

A. All of that supply comes from an outside

cooperative that we have a supply arrangement with.

Q. Is that the co-owner of one of the minority owner

of Hiland?

A. It is a minority owner of Hiland.

Q. So, there's no, no Prairie Farms deliveries,

member farm deliveries to Little Rock?

A. I would not say no, there have perhaps been a

relatively minor amount due to a special occasion, but

during the normal course of business, there would not be

any.

Q. Okay. How about the (phonetic) plant in

Fayetteville, Arkansas?

A. Same as the Little Rock plant.

Q. How about Fort Smith, Arkansas?

A. Same as the Little Rock plant.

Q. And the Hiland plant in Memphis?
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A. Prairie Farms supplies a portion of the milk into

that plant. It currently is probably less than

10-percent.

Q. Finally, Hiland plant in Springfield?

A. Same as Little Rock plant.

Q. All non-Prairie Farms?

A. All non-Prairie Farms.

Q. And the plant in Somerset Kentucky, Prairie Farms

plant in Somerset, Kentucky, what portion of that is

from Prairie Farms member farms?

A. That varies, again, but it would be, on the high

side, maybe 80-percent, maybe on the low side,

50-percent.

Q. Finally, Prairie Farms plant in Holland, Indiana,

what portion of the supply there is from Prairie Farms

member farms?

A. I'm going to estimate the same percentages I gave

you for Somerset. I think I may have misspoken, Holland

would be 50 to 80 percent, Somerset is slightly less

than that.

Q. Okay. So, when, of the nine plants -- let's see,

1, 2, 3, 4, 5 had zero supply by my notes, make sure I'm

correct, five have no supply from Prairie Farms member

farms. One has less than 10-percent from Prairie Farms

member farms; one has a max of 30-percent, 15 at
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30-percent, and two have something less than 80-percent,

40 --

A. I would say that, you know, off the top, I don't

have the exact numbers, but I'd say that's approximately

correct.

Q. Okay. So that when you previously testified in

response to questions from Ms. Taylor that something

less than 50-percent of the Prairie Farms supply of milk

to your southeast plants was from your own farms and

that was well, well under 50-percent, in aggregate?

A. In aggregate, it's probably somewhat under

50-percent.

Q. Well way under 50-percent, isn't it, Dennis?

Five of them have nothing, nothing for Prairie Farms,

six has less than 10-percent, and seven is less than

30-percent?

A. Yes, it probably is.

Q. Okay. So, let's talk about your page 2, and I

numbered the pages to 84, which I didn't see numbers on

them anywhere, but I'm on the second page. Yes, I'm on

the second page. In terms of the -- terms of your

principles, the first one includes benefitting the

environment, would you -- would you agree with me that

supplying plants with local milk is the milk supply that

provides the maximum benefit to the environment in terms
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545

of sustainability and carpet footprint and the like?

A. Yes.

Q. Okay. So, let's go to the language on page 4,

language 4, your changes to the Transportation Credit

Balancing Fund, as you want to eliminate by the

cross-outs the three subparts to two I, double I, triple

I, so that there are no qualifications for receiving

Transportation Credit Balancing Fund payments, other

than delivery during the applicable months, correct?

A. That would be correct.

Q. Now, double -- triple I, and the language that

you've crossed out here on triple I, as you referenced,

I think, if I understood you correctly in response to

Ms. Taylor, under the existing language, you had the

opportunity to request the Market Administrator without

a hearing to discretion to in essence accomplish what

your proposal accomplishes, isn't that correct?

A. That is correct to in regards to I.

Q. Single I, subpart?

A. Single I, subpart, yes.

Q. But you did not make any such request, is that

correct?

A. Not to this point.

Q. Okay. Is there any reason for that, if you can

accomplish what one of your major objectives through,
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546

without a hearing, through the Market Administrator,

wouldn't that be prudent option to take?

A. Well, as we've been reviewing options, we were

looking at that, then the opportunity to present a

proposal at this hearing came up and so we have not

pursued it for the fall.

Q. Have you -- so your proposal with respect to

credit, Transportation Credit Balancing Fund would

expand the universe of eligible transactions that would

receive payments from that fund, correct?

A. Yes.

Q. Are you making any proposal or supporting any

proposal with respect to enhancing the funds available

in the Transportation Credit Balancing Funds?

A. We would not object to the proposal put forward

by proponents of 1 and 2.

Q. Well, are you supporting it or just not

objecting?

A. Our Board has taken no position on 1 or 2, but

they are not objecting to it.

Q. Okay. When you expand -- so, your expansion of

the universe of payments here by eliminating single I

and eliminating double I would mean that those payments

would be payable both to all milk coming from outside

the order and all milk inside the order in the
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applicable months, correct?

A. Yes.

Q. Have you done any analysis, asked the Market

Administrator to make any calculations with respect to

what that would mean in terms of proration of the

payments available?

A. No.

Q. Do you have anything to offer for the hearing

record in terms of what it would mean in terms of

payments available proration?

A. No, I do not, but we feel that the proponents did

a good job when it comes to the current transportation

program, and there are a number of alternatives to our

proposal or the proponents' proposals that need to be

considered, but due to the number of combinations that

it would be potentially available, we did not do an

analysis.

Q. So on this hearing record, if the Department were

to adopt your proposal, there'd be no way of knowing

what financial impact it would have?

A. That would be correct. I would add that, if

Prairie Farms was to make some of the movements

suggested in exhibits 94 and 95, increasing the amount

eligible for Transportation Credits, that there is no

way of exactly predicting what the results of that would
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be either.

Q. So, are you saying that Prairie Farms has the

ability to make -- to make deliveries that would qualify

for Transportation Credits, but does not now make those

deliveries?

A. We have not made those deliveries in the past.

Q. Okay.

A. But the benefits that could accrue to some of our

producers, member-based, means that we have to strongly

consider doing those things as much as we dislike doing

it in the future.

Q. I want to talk about your proposed Assembly,

Assembly Credit a bit. First of all, assembly of milk

takes place at the farm level, would you agree with me

on that?

A. Yes.

Q. Okay. And when we're looking at -- and basically

that's the process of the truck stopping and pumping the

milk in and out of the bulk tank, if it's a bulk tank

load, farmer has a bulk tank or if it's a direct load

farm, the milk being loaded into the -- into the tanker

at the farm, that's the assembly process, correct?

A. Yes, it goes a little bit beyond that, as I

testified to, because it's making sure the loads are

matched with the buying milk and the individual produces
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farms, and with the hauler's equipment and so on, but

basically that's correct.

Q. The hauler has a function of properly

ascertaining volume of milk he's picking up and that

it's identified with the farm and their permit and those

things, getting the manifest filled out, that sort of

thing, correct?

A. Yes.

Q. Okay. Now, once that milk's assembled on that

truck, it can go anywhere, right?

A. It could go anywhere within the ability of the

hauler and his drivers to make the delivery.

Q. Right. So, the function of assembling the milk

is not directly linked to getting it to a distributing

plant, pool supply plant, cheese plant, an ice cream

plant or any other plant, wouldn't that be correct?

A. That could be correct, but without the assembly

function and the miles involved in assembling that.

Now, there is no milk to deliver to a pool distributing

plant, a non-pool plant or any other plant.

Q. Okay. But to be eligible for market-wide service

credits, under the Act, the function must be one that is

necessarily a market-wide service, wouldn't you agree

with that?

A. I think there can be a broadened definition of
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what components go into assembling and delivering a load

of milk under the market-wide services.

Q. Okay. Now your Assembly Credit would be paid out

to, on all milk delivered to the pool distributing

plants, correct?

A. That is as it is currently written, yes.

Q. Okay. On a uniform basis?

A. On a uniform basis.

Q. So that the, the grit of receipts by producers in

the milk shed would be the same grid as for all blend

price payments under the order essentially?

A. Basically, yes.

Q. Okay. And isn't one of the dysfunctions in the

southeast presently, in terms of supply and demand, that

the supply and demand for milk in no way conform to the

Class I differential grid in the region?

A. Yes, that is true, except that I would say that

the, taking Class I function a little bit further, it is

evolved into a uniform price, and that uniform price is

actually what the producer sees and the uniform

distribution of the Assembly Credit -- Assembly

Performance Credit would also end up being part of a

uniform distribution either to a handler or to a

cooperative supplier and hopefully back to the

individual producer.
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Q. Right. But the uniform, the grid of uniform

receipts would remain the same as it is now, it's not

affected in any way because you're distributing your

Assembly Credits on a uniform market-wide basis?

A. Yes.

Q. So, if you -- if I could call your attention to

Mr. Herting's testimony yesterday, and my copy doesn't

have a number marked on it, the last page, do you

remember -- do you remember that exhibit that he

presented, last page, which showed DFA Georgia milk

production by county, all deliveries 2022?

A. No, I was not fortunate enough to receive a copy

of that testimony, so I haven't seen it.

Q. 82, exhibit 82, last page. Let me give you mine,

my copy.

A. Thank you.

Q. Exhibit 82, let me apologize for apparently not

having enough copies available for you yesterday. Now,

if you look at the last page we of exhibit 82, the red

counties are the supply counties -- I mean, the blue

counties are the supply counties. The red dots are the

demand points, the plants to which milk from the supply

counties were delivered in the southeast. Okay. Since

you didn't get a chance to look at it yesterday, I want

to give you the chance to figure it out.
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A. Okay.

Q. Okay. Now, the movements of milk shown on

exhibit 82, the last page, from the supply areas to the

demand points are in every direction, north, south, east

and west, correct?

A. Yes.

Q. And therefore they are in no way in conformity

with the blend price grid in the Southeastern Orders,

correct?

A. It would appear that they would not be.

Q. In fact, we've heard lots of testimony in this

hearing, and you've been here for the entire hearing,

correct?

A. Yes.

Q. Lots of testimony about how milk has to move from

south to north, it loses location value, it has to move

from, in flat areas, you know, west to east or east to

west where there was no location value under the order.

You've heard all that testimony, correct?

A. Yes.

Q. So, in the southeast, if we're trying to fashion

some order provisions where we're generating some new

revenue and trying to make it fit the market and address

some of the market issues, spreading that revenue

equally over the order as your proposed Assembly Credit
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does, would not address all these, the market conditions

in the southeast reflected in exhibit 82, now isn't that

fair?

A. That would be true. And I'm not sure the Orders

are designed or intended to address all deliveries for

all reasons, as part of my testimony indicated and I see

a red dot there, Hammond, Indiana, this is for 2022, in

the May time period, there was no milk delivered to

Hammond, Indiana, but for whatever reasons that one of

our cooperative suppliers chose, they delivered milk

there in the October time period, and I assume that part

of these deliveries are as a necessity to supply

commitments made to various handlers and part of these

deliveries are a factor of balancing the marketplace

when milk was not needed further south.

Q. Well, I mean, this just reflects distributing

plant demand points, so milk that's going to

distributing plants is needed for distributing plants

needs, correct, and that's not surplus milk?

A. No, I didn't say it was surplus milk. I'm saying

it moved to somebody's distributing plant delivery

points because it was not needed in the more traditional

further south, higher uniform price plants.

Q. But it was needed in the plants --

A. But there was a need at some plants and the
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decision was made to use milk from Georgia rather than

milk from someplace else.

Q. Okay. By the way, going back to the

Transportation Credit, it's presently in the order and

your proposals 1 and 2 of DCMA, and your proposal, do

you agree with the DCMA proposals that the current

reimbursement factors in the MRF and in the

Transportation Credit system is way out of date in terms

of the cost?

A. You're putting me in a difficult position because

the Prairie Farms Board has taken no position. If I

depart from being a Prairie Farm representative, I would

be easier able to answer in the affirmative, even though

that is not Prairie Farms' official position.

Q. Well, that's interesting because I'm not able to

cross-examine the Prairie Farms Board, and I think

you're saying that you've been sent by a mess -- you're

a messenger sent by someone who's not here to be

cross-examined to say what they want you to say?

A. No, I'm just saying the Prairie Farms Board did

not take a position on proposals 1 and 2.

Q. And therefore--

A. They did not oppose it.

Q. But therefore you're not able to testify as to

whether those costs are out-of-date?
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A. Based on our internal knowledge, those costs do

not accurately represent the cost that are in place

today.

MR. BESHORE: Thank you. May I have

just a minute, Your Honor?

THE COURT: You may.

MR. BESHORE: Confer with my client.

THE COURT: Let me ask a quick question

I'm looking at the last page, exhibit 82, witness

referenced a plant in Indiana, I don't see Indiana on my

map, that's last page of exhibit 82, looking at same

page.

MR. TONAK: No. I don't see Indiana on

this.

THE COURT: Maybe I misheard it,

nevermind.

MR. BESHORE: I think I have just one

other question in follow-up to the Judge's question.

Q. You were talking about the plant in Hammond,

Louisiana, correct?

A. Yes.

Q. And I think you referred to May of 2022, I mean,

this is --

A. 2022.

Q. The exhibit.
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A. October of 2022, the exhibit I understand is for

all of 2022, I was just referencing those two time

periods that were in my testimony where one of them no

milk came to Hammond from any area of the southeast, and

then the other October time period, there was. I am not

disputing the delivery plant locations on the map in one

way or just that that milk may have not have moved to

Hammond, Louisiana out of Georgia on an ongoing basis.

Q. Okay. I just wanted to make clear that there was

no misunderstanding about the time period covered by the

exhibit, it's not just May, it covers the entire year of

2022. That's all the questions I have at this time.

Thank you, Dennis.

THE COURT: Any cross-examination by any

other participant? You're your own lawyer here,

Mr. Tonak, is there anything you'd like to add to the

record to further explain anything that came up on your

cross-examination?

MR. TONAK: No, I will not add anything.

I think the record is fairly complete and it's obvious

there's a couple of differences of opinion of what the

best way forward is.

THE COURT: I am not surprised. All

right. Should we move on to the -- we could have these

exhibits moved into the record now or we can just take
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everything up at once. Why don't we just take

everything up at once? You have a set of one, two,

three, four-page, including a cover sheet, entitled

"Comments concerning the proposed distributing plant

delivery credits, Dennis Tonak, from Prairie Farms." Is

this part of the statement you wish to make the next --

MR. TONAK: Yes, and I would propose, if

the Judge is agreeable, that the comment page be

numbered 97, I think that's the next one in the series.

THE COURT: That's what I have.

(Whereupon, Exhibit No. 97 was marked for

evidence.)

MR. TONAK: Then the three remaining

pages numbered 98 and 99.

(Whereupon, Exhibits No. 98 and No. 99 were

marked for evidence.)

THE COURT: Mr. Tonak, just a

continuation of your testimony, you're still under oath,

of course, I don't think you need to identify yourself

or anything like that. If you had a lawyer here, you

might ask whether there's anything you wish to add. As

I understand exhibit 97 and the next exhibit is 98

through 100, pre-filed statement, we'll read that into

the record, is there anything you'd like to add to that

before you get started?
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(Whereupon, Exhibit No. 100 was marked for

evidence.)

MR. TONAK: I would just add that the

comments, these comments are specifically concerning and

related to proposals 3, 4 and 5?

THE COURT: Mr. Tonak, the witness is

yourself.

MR. TONAK: "Comments concerning the

proposed distributing plant delivery credits. As

proposed, the distributing plant delivery credits

alleviates a portion of the delivery cost when supplying

in-area milk and milk from a privileged few out-of-area

counties to pool distributing plants. The relief

granted to the specified areas will be welcomed. Our

particular concern is that not all out of area milk

receives the same privilege as the milk from a few

counties in Georgia, Virginia, and West Virginia. This

treatment of these privileged counties is not fair and

equitable, especially when considering the volume of

milk necessary to meet the needs of the Order 5, 6, and

7 distributing plants as shown in exhibit 8, page 9, for

Order 5, and page 10 for Order 6 and page 11 for Order

7."

The producer milk originating from

states and parts of states that are adjacent to the
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marketing area and that delivered to pool distributing

plants is shown in exhibit 9, page 1 for Order 5, page 3

for Order 6, and page 5 for Order 7. As an example, in

Order 7 for March 2022, there were 3,823,107 pounds from

Kentucky that was not part of the Order 7 marketing

area. There was 58,432,326 pounds from Texas and

64,409,180 pounds from the restricted states. The sum

of these pounds is 126,664,613 pounds. The sum is found

in exhibit 100. Also incorporated into these exhibits

97, 98 -- excuse me, 98, 99, then under would be 97 is

milk receipts at pool plants, and that comes from

exhibit 9, page 7 for Order 5, page 8 for Order 6, and

page 9 for Order 7. The last column in exhibit 100 is

the percent of deliveries to pool plants that came from

the defined areas adjacent to the Order 7 marketing

area. There were 296,832,200 pounds received at Order 7

pool plants in March 2022. The outside milk from the

specified areas accounted for 42.7 percent of the pool

plant deliveries. Similar information is compiled for

Order 5, exhibit 98; and Order 6, exhibit 99."

"If the proposed distributing plant

delivery credits were expanded to include the additional

areas listed on exhibits 98, 99 and 100, and also

eliminate the possibility that milk receiving

Distributing Plant Delivery Credits could also receive
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Transportation Credits, the result would be a fair and

equitable solution for all."

Now we much prefer the Assembly Credit

and the Transportation Credits allowing, especially

out-of-area milk, to receive full Transportation Credits

in the fall even though that milk delivered to pool

distributing plants during the March, April and May

period. Our second choice then, if that would not

happen, would be to expand the distributing plant

delivery credit area and make sure we restrict

Transportation Credits so that producer milk receiving

delivery plant -- distributing plant delivery credits

could not also receive Transportation Credits. We would

also think that the diversion limitations for in-area

milk should be the same as the diversion limitations in

the Transportation Credit program. That concludes my

statement.

THE COURT: Any cross by AMS?

RECROSS EXAMINATION

BY MS. TAYLOR:

Q. Good afternoon. That's a lot for me to process

in like two minutes, Dennis. So, hold on --

A. Would it be helpful if I walk through one of the

line items on exhibit 100?

Q. Yes. Let's start with the -- that's a good idea
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because if I, just to be clear, exhibit 98 and 99 were

prepared by the Market Administrator 5, 6 and 7, so

those and they look similar to what our copies of what

was entered into the record previously by John Herbert?

A. Yes. Now, the base portion, and I can identify

the columns that was prepared by the Market

Administrator, the year, month, and this is specifically

referencing exhibit 100, the year, month, the Kentucky,

the Texas and the restricted states volume were all

prepared by the Market Administrator and included in the

exhibit 9 package.

Q. Uh-huh (affirmative).

A. The total was a sum of the preceding three

columns, which was basically a spreadsheet edition. The

Federal Order 7 Producer Milk concedes that pool plants

came from the exhibit 9 prepared by the Market

Administrator. And then the percentage is another math

calculation. So, in fact, if we go to March, which was

used in the testimony shows $3,823,107 Kentucky area

outside of --

Q. Sorry, what line are you on?

A. It'd be the March.

Q. Of what year?

A. 2022. And there's were the Kentucky pounds of

$3,823,107 pounds. The next column, and that's now
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outside the Order 7 area in Kentucky, that was delivered

to Order 7 pool distributing plants. The next column is

Texas milk delivered to Order 7 pool distributing plants

$58,432,326 pounds. The next column is the milk from

the restricted states, which would be milk from

Illinois, Kansas, North Carolina, outside the Order 7

area, the pool Order 7, Oklahoma, South Carolina,

outside the Order 7 area, pooled on Order 7, and

Florida. Georgia milk from outside the Order 7 area,

pooled on Order 7. Milk from Missouri outside of the

Order 7 area and pooled on Order 7. Excuse me, I've

been saying pooled, it's actually delivered to Order 7,

pooled to distributing plants. And Tennessee counties

not in the Federal Order 7 marketing area. And so the

sum of those three columns is the 126,664,613 delivered

to pool distributing plants. The total receipts,

producer receipts at Federal Order 7 producer or at

Federal Order 7 pool plants was 296,832 pounds by

divided that number by $126,664,613, we arrive at 32.7

percent calculation. Meaning that, in these defined

areas on this exhibit, supplied 42.7 percent of the

Order 7 pool plant needs.

Q. Okay. So at the bottom of your statement on

exhibit 97 talk about those "delivery credits were

expanded to include the additional areas listed in
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exhibit 98, 99 and 100," and go on about something else,

"it would be a fair and equitable solution, so I take

that to mean that you want to include all of the states,

you're expanding that to include all of the states in

that footnote that you just read, as well as Kentucky

and Indiana and those places, counties outside of the

marketing area?

A. Yes, it would include milk from those areas that

are outside of the marketing area.

Q. But in your view, regular suppliers of the

market?

A. But regular suppliers to the pool plants.

Q. Okay.

A. Or the distributing plants actually. And again,

that is our second choice. Our first choice is still

the Assembly Credit and building it to expand

Transportation Credits to at least eliminate the

(c)(2)(i) provision.

Q. Okay. And your second choice is to expand the

delivery credits as proposed by DCMA, plus these

additional areas that we just discussed, as well as

restrict the credit so that the same milk can't get two

credits basically?

A. Yes.

Q. You get delivery credit, you can't get
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Transportation Credit?

A. That is correct.

Q. And at that point your second choice is not to

also include the Assembly Credit?

A. Our second choice would not include the Assembly

Credit. I mean the Assembly Credit is our preferred

first choice.

Q. Okay.

A. But we're -- but we're proposing this as a second

option for the Department to consider.

MS. TAYLOR: Okay, I think for the

moment that's all my questions.

THE COURT: Any other cross of this

witness, Mr. Beshore?

RECROSS EXAMINATION

BY MR. BESHORE:

Q. Dennis, I want to make sure I understand your

first and second choices, configurations of those

options. So, on your first choice, you would change the

Transportation Credit Balancing Fund so that it had no

limitations as to location of producers or other time of

year or marketing by the other, yea, no limitations on

location of the producers or their ability to qualify

for the credit?

A. There would be no limitation on the producer's
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ability to qualify for the Transportation Credit. The

Transportation Credit would exist only in the months of

July through now February or January of the proposal to

make February an option.

Q. So it's still say in the, it would only be in the

generally shorter months?

A. Yes.

Q. But it would apply to both out-of-area and the

in-area producers.

A. Yes. And to try to put a fine point on it, there

are producers, let's say in Texas, there's Southern

Illinois that regularly supply Order 7 distributing

plants, and under our proposal, the fact that they

supplied to distributing plants in March, April and May

would not disqualify them from receiving Transportation

Credits in the fall and winter months.

Q. Right. I understand that. But now I'd

interested in how that, on your preferred system, how

that payment program for the Transportation Credit

Balancing Fund interacts with your Assembly Credits.

The Assembly Credits are year-around to all producers

supplying milk to distributing plants, correct?

A. Yes.

Q. So that during the payout months of

Transportation Credit Balancing Fund, producers would
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get both credits?

A. Yes, because we see the credit, those credits as

two different items. We would expect that the

Transportation Credit would be limited, not limited, but

prorated and the application of the prorated

Transportation Credit and the Assembly Credit would more

nearly cover the costs during those fall months.

Q. Okay. So during the 7 or 8 months, they get both

credits, the other months they only get Assembly

Credits. Producer supply distributing plants get both

credits during the 7 or 8 months, but only the Assembly

Credits during the spring months basically?

A. During the months that the Transportation Credit

is not in place.

Q. Okay. And your second alternative then is,

second choice is to expand the distributing plant

delivery credits proposed by DCMA to any producer

supplying the market?

A. That'd be fine. The way we're viewing it is the

defined areas in the exhibit, in Order 5, as an example,

I believe there's milk from Maryland, Pennsylvania

possibly Ohio that delivered to the Order 5 area in the

spring months or year-around and those areas are not

immediately adjacent to the marketing area.

Q. But on 97 you say "proposed distributing plant
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567

delivery credits were expanded to include the additional

areas listed in the exhibits 98 to 100, which if I

understood it correctly includes all sources?

A. No, there's --

Q. Kentucky, Texas most restricted states on 100.

A. Kentucky, Texas and the restricted states, those

are all areas that are immediately adjacent to the, in

the case of exhibit 100, the Order 7 marketing area.

That is an example, Kansas, Texas, Oklahoma are all

immediately adjacent bordering on the Order 7 marketing

area. Missouri borders on the Order 7 marketing area.

Illinois borders on the Order 7 marketing area.

Q. So you would exclude, exclude Pennsylvania?

A. Pennsylvania is excluded and for Order 7 purposes

--

Q. Michigan gets excluded?

A. Michigan is excluded. Indiana is excluded/-D.

Q. For Order 7?

A. For Order 7.

Q. But not Order 5?

A. For Order 5, Indiana. Illinois would be

included. Missouri is not included. The rest of

Kentucky would be included, that is not in the Order 5

area, but there is a break from, in the Order 5 area,

between some counties in Kentucky that are not in the
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Order 5 area, and Ohio, so Ohio would not be included.

The intent here is to make sure or try to make sure that

those areas immediately adjacent to the marketing area

and the areas that are likely and have exhibited a

finite to the marketing area in supplying pool

distributing plants are included, but those areas that

occasionally deliver to pool distributing plants, let's

say Michigan or Ohio under Order 5, are not included.

Q. Each if they delivered year-around?

A. Even if they deliver year-around, the way that

this is presented. Now it's fine with us to include the

other areas. It's just as we were looking at the

numbers, and as we were requesting information from the

marketing administrator, this is the manner in which we

requested it, and I don't have any knowledge of how

much, as an example, Ohio or Michigan milk consistently

delivers to Order 5 or --

Q. Okay. So the limiting principle for your

alternative is whatever happened to be included or not

to be included on this?

A. On this list, because it's adjacent, it's areas

adjacent to the marketing area.

Q. Okay. Now, you go on to say that anyone that

"eliminated the possibility of milk receiving

distributing plant delivery credits could also receive
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569

Transportation Credits." So would there still be a

Transportation Credit Balancing Fund under your

alternative 2?

A. Well, there could be because let's say milk out

of Michigan.

Q. So the fund would only, so there'd probably be no

prorations that'd support a hundred percent of the cost

of bringing milk out from Michigan or Pennsylvania, New

York, Wisconsin or whatever, under that alternative?

A. The other part of it is theoretically a handler

could say "I don't want to participate in the

distributing plant delivery credit."

Q. Handler choice?

A. Handler choice, during these fall months because

in my estimates and estimation, I'm better off with the

--

Q. Transportation?

A. Transportation.

Q. Non-prorated Transportation Credit fund?

A. Yes.

Q. At the higher reimbursement rates that have been

proposed?

A. Yea. And you know all of this tends to fly a

little bit against one of our principles of keep it

simple and all of that, but we're trying to present some
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570

alternatives to USDA that may be better than any of the

individual proposals themselves.

Q. Now, you also talked about diversions, if I

understood you correctly if in-area milk were to be

eligible for delivery credits and/or Transportation

Credit Balancing Fund payments that you would not be

able to divert milk or you'd have to divert volumes,

against your delivered volumes, is that correct?

A. Yes. We see the -- we see the diversion

limitations in the Transportation Credit program as it

currently exists as a preferred option. And if the

distributing plant delivery credits, when we look at

them, we feel it would be appropriate to remove those

diversion limits from that program or conversely allow

diversions on both programs. We just think that the way

diversions are treated should be similar between both

programs.

Q. Okay. Well I know you're not marketing much

around in the area, but you've heard testimony from the

marketers in the area that the only time milk is

diverted in the area is when there's absolutely a

shutdown at a plant or, you know, one of these

extraordinary holiday weekends and such, you've heard

that testimony, right?

A. Yes.
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Q. Why would you penalize those transactions?

A. The easiest answer to that is our Southern

Illinois milk delivers to Kosciusko, both Kosciusko and

Memphis. Recently Kosciusko had to back off some milk

because of weekend constraints and too much milk coming

in from some of our other suppliers, and we put that

milk that normally delivers into Kosciusko into our

Carbondale non-pool plant, that milk was not pooled, so

therefore it did not affect our ability to fill out

Transportation Credits, and that was a choice we made to

maximize our Transportation Credits. We have milk in

Southeast Missouri that would qualify for the

distributing plant delivery credits. Now, if that milk

goes through the same situation as our milk in Southern

Illinois, they're allowed to gain diversions if your

distribute plants plant credits are in place with no

penalty, but we just don't think that's fair, we think

it should be the same on both sides.

Q. You just basically draw the line at adjacent

states rather than in-area in the marketing area?

Adjacent, beyond adjacent states, they're going to have

the same rules as the, I mean, states beyond the

adjacent states under your program would have the rules

that apply to everybody now, you just want to move the

line out a little bit?
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A. Well, if USDA saw fit to include those states in

the program, we would not object, as I said. The

adjacent states has a method because of our data request

from the Market Administrator to obtain numbers that we

could work with and view, and if we would have

(unintelligible) different states, obviously we would

have implemented those states.

Q. One final question, Dennis, would you agree with

me that with new money being proposed to be raised in

these Southeastern Orders under Prairie Farms program or

DCMA program, either way, there's new money in effect

being raised from charges of Class I handlers. DCMA

proposals would focus and place more of that new money

to the in-area producers than the Prairie Farms

proposals which would place more of that new money to

the out-of-area producers? I mean that's the way it

would. Work?

A. Beyond the delivery credit program, I'm more

uniform distribution of the new money to all of those

who are supplying the distributing plants of the order.

Q. More of the new money would go outside the market

area under the Prairie Farms proposal than under the

DCMA proposal, correct? It's arithmetic, Dennis.

A. I'm never good at arithmetic. I will take your

statement at face value.
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Q. Okay. Thank you.

THE COURT: Any additional cross

statements?

MS. TAYLOR: I just have one question.

I wan to make sure the record is clear, there's a lot of

back and forth on the additional areas.

FURTHER RECROSS EXAMINATION

BY MS. TAYLOR:

Q. Prairie Farm is requesting, your second choice

would be to expand the delivery credits to the adjacent

state areas, because in your view, am I summarizing this

correct, because in your view, those are regular

suppliers of the Southeastern Federal Orders?

A. Yes.

MS. TAYLOR: Thank you.

THE COURT: Anyone else have an

examination for this witness? Do you have anything else

you'd like to say? If you had a lawyer, you might have

some questions on direct, do you have anything you'd

like to say?

MR. TONAK: I do not have anything

additional I wish to say.

THE COURT: I assume that you'd like to

move into evidence?

MR. TONAK: Yes, I'd like to move these
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exhibits through 100 and starting with what was it 84, I

believe, that's what I had.

MR. TONAK: Into evidence.

THE COURT: Any objections?

MR. HILL: No objection.

(Whereupon, Exhibits No. 84 through No. 100 were

entered into evidence.)

THE COURT: Exhibit 84 through 100

marked for identification and entered into the record.

Mr. Tonak, thank you, you may step down. We have

another witness, I was given a piece of paper, testimony

of Sally Keefe, is that our next witness?

MS. TAYLOR: Your Honor, we have one

more proposal to go over and it is proposed by a dairy

farmer who's been here with us this whole time. I'm

wondering if Ms. Keefe would defer and let him present?

MS. KEEFE: I'm happy to have

Mr. Sumners go, either way.

MS. TAYLOR: He's been waiting very

patiently, if we could let him go first, if he would

like.

THE COURT: It is 3:30, maybe we could

take a break or we could press on. Do we have, looks

like this hearing is going to wrap soon, do we have

proposed dates for transcript corrections, objections
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thereto, briefing dates?

MS. TAYLOR: Don't think we have yet,

maybe we can take a quick afternoon break and that can

be discussed, then brought on the record when we get

back.

THE COURT: Want to try to take a break

now or do you want to postpone the break? Hope that we

get through these witnesses.

MS. TAYLOR: I think Mr. Sumners wants a

quick break, maybe 10 minutes?

THE COURT: Sure. Come back at 2:45.

(Whereupon, a recess was observed.)