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______________________________________________________

1

BEFORE THE UNITED STATES DEPARTMENT

OF AGRICULTURE

AGRICULTURAL MARKETING SERVICE

IN RE: ) 7 CFR Parts 1005,

) 1006, and 1007

Milk in the Appalachian, )

Southeast, and Florida ) Docket No. 23-J-0019

Marketing Areas )

) AMS-DA-23-0003

RULEMAKING HEARING BEFORE

CHIEF PRESIDING ADMINISTRATIVE LAW JUDGE

CHANNING D. STROTHER, JUDGE

MARCH 1, 2023

Volume 3 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

...................254

WITNESS: ELVIN HOLLON (PART 1) PAGE

Cont'd Redirect examination by Mr. Beshore..........252

Recross examination by Ms. Taylor

Further redirect by Mr. Beshore.....................257

WITNESS: ELVIN HOLLON (PART 2) PAGE

Direct examination by Mr. Beshore...................262

Cross examination by Ms. Taylor.....................315

Cross examination by Mr. Tonak......................338

Redirect examination by Mr. Beshore.................345

WITNESS: EMMA DOWNING REYNOLDS PAGE

Direct examination by Mr. Beshore...................351

Cross examination by Ms. Taylor.....................360

Direct examination by Mr. Beshore...................364

Cross examination by Ms. Taylor.....................372

WITNESS: SARAH VANADIA PAGE

Redirect examination by Mr. Beshore.................376

Direct examination by Mr. Beshore...................378

Cross examination by Ms. Taylor.....................395

WITNESS: JASON SMITH PAGE

Cross examination by Mr. Tonak......................402

Direct examination by Mr. Beshore...................405

Cross examination by Ms. Taylor.....................423

WITNESS: CALVIN COVINGTON PAGE

Cross examination by Mr. Summers....................433

WITNESS: MIKE HERTING PAGE

Direct examination by Mr. Beshore...................436

Cross examination by Ms. Taylor.....................450
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LIST OF EXHIBITS

No.

......260

Description PAGE

10 (Description unknown/discussed on 2/28/23.......251

57 Table of Producer Milk Originating in FO 5

58 Table of Producer Milk Originating in FO 6......266

59 Table of Producer Milk Originating in FO 7......266

Milk production FO 6-May 2021...................268

61 Pool distributing plants Jan 2000, FO 5,6 & 7...270

62 Pool distributing plants Dec 2022, FO 5,6 & 7...270

63 Analysis of Assessment and Cost for DPDC FO 5

2020-2021.......................................270

64 Analysis of Assessment and Cost for DPDC FO 6

2020-2021.......................................283

Analysis of Assessment and Cost for DPDC FO 7

2020-2021.......................................283

66 List of VA Counties NOT in marketing area.......284

67 Map of proposed counties to be added to FO 5

for DPDC eligibility............................285

68 List of FL counties NOT in marketing area.......286

69 Proposed counties to be added to FO 6 for

DPDC eligibility................................286

Comparison landed cost packaged milk, selected

locations Southeastern Orders (5 pages).........289

71 Comparison of cost to farm to plant delivery

with and without DPDC...........................294

72 FO 5, 6 & 7

Distributing

73 Proposal No.

299

304

Proposal No. 3..................................

76 Proposal No. 4..................................304

77 Proposal No. 5..................................

78 Testimony of Emma Reynolds......................352

79 Testimony of Sarah Vanadia......................365

Testimony of Jason Smith........................379

81 Testimony of Calvin Covington...................405

82 Testimony of Mike Herting.......................435

In-area Producer Milk & Pool

Plants October 2022................297

1, proposed amendments to

Appalachian

market-wide

74 Proposal No.

Federal Milk marketing orderservice payments....................299

2..................................299

83 (ID ONLY) Testimony of Jeffrey Sims.............436

83A Testimony of Jeffrey Sims (redacted)............455
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(Whereupon, the following proceedings were

transcribed as follows. )

* * * * * *

THE COURT: This is continuation of the

formal rule-making hearing and Milk in the Appalachian

Southeast and Florida Marketing areas, docket number

23J00119, we're in Franklin, Tennessee at Franklin

Marriott, whatever the rest of it is, I don't think I

need to go on record with anything else. It is March

1st, welcome everybody. Any preliminary business?

Yes, Mr. Hill, for AMS.

MR. HILL: Yes, there is one preliminary

matter. Yesterday, there was an item marked for

identification as exhibit number 10, but it was not

entered into the record as evidence because AMS needed

to look over the numbers.

THE COURT: Yes

MR. HILL: AMS looked over those

numbers, they are correct, and there's no problem if

that needs to be moved into evidence at this point

THE COURT: Any objection to entering

exhibit 10 into evidence? Hearing none, exhibit 10 is

entered into the record.

(Whereupon, Exhibit No. 10 was marked for

evidence.)
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THE COURT: Any other preliminary

matter? Seeing none, we'll resume with Mr. Hollon.

Mr. Beshore, this is part 2, the second part of the

trip.

MR. BESHORE: Actually I have just two,

I'd like to ask Mr. Hollon to address two questions on

examination of part one that had been asked of him by

Ms. Taylor, if we could?

THE COURT: Any objection? Proceed Mr.

Beshore.

MR. BESHORE: Okay. Thank you.

CONTINUED REDIRECT EXAMINATION OF PART ONE

BY MR. BESHORE:

Q. So, Mr. Hollon, do you have exhibit 36?

A. I do.

Q. Okay. You were asked how the numbers, some of

the numbers on exhibit 36 were calculated, do you recall

that yesterday?

A. I do.

Q. Okay. Can you talk about that, please?

A. Yes. There are six boxes of calculations and

they're all done the same way. So I'll just use 2020

and Fed Order 5, so that'll be the top row. The 58.5 is

calculated by taking 00436 divided by 00745, for 58.5

percent. And in Fed Order 5, all of the credits were
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paid, they were not subject to proration, so that 58.5

percent times a hundred percent says that's what the

receiver would get of the credit calculation. And

again, those steps are in, the same in all the boxes.

Q. Okay. So that's comparing the current mileage

rate in the order with the MFR mileage freight rate

according to the DCMA proposal?

A. Yes.

Q. Okay. Thank you. And you were then, you were

also asked, with respect to exhibit 44, and some of

those numbers were generated, do you recall that?

A. I do.

Q. Okay. Can you address that, please?

A. Yes. The 0.00042 is incorrect, and the

calculation should be 3.67 plus .209, and then that sum

divided by 497 hundredweights, and that would give

00780.

Q. Okay. So the last number at the bottom of the

column of figures on exhibit 44 should be .00780?

A. Yes. And if you would move over to exhibit 46.

Q. Okay.

A. Calculation of mileage rate factor 2020 through

2022, and if you would run your finger across the

December 2021 row, you will see all of those steps with

the calculation and would come up in the mileage rate
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factor column of that number, 00780, and there would be

36 examples on this table.

Q. And that is exhibit --

A. 46 --

Q. -- 46?

A. Correct.

Q. Okay. Were there any other items that you were

asked to follow-up on that you have --

A. I don't think so, but we'll find out shortly.

Q. Those are the questions I have on redirect on

part one, Your Honor. And if there's any other cross,

we're done with any other cross on part one, we'd be

prepared to go, proceed with part II of Mr. Hollon's

testimony?

THE COURT: Any recross since there was

certain corrections made, AMS? By the way, I remind you

that you're still under oath. Mr. Hollon.

MR. HOLLON: I'm reminded, thank you.

RECROSS EXAMINATION OF PART I

BY MS. TAYLOR:

Q. Good morning, this is Erin Taylor from AMS. I

just had a few more questions, I just want to clarify

for the record; in your statement, you talked about,

particularly on page 20, I can paraphrase a little bit,

talked about how proponents would file for as much
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eligible Transportation Credits because there's

financial incentive to do that, I just wanted to -- how

do I phrase this question? But there is an option for

people to, is there not an option for people to choose

whether to file for Transportation Credits or they may

want to instead divert off of that milk?

A. Say that one more time.

Q. Let me rephrase. In the order system, as it's

set up with Transportation Credits now, you cannot get

Transportation Credits on milk -- you cannot divert off

milk that can receive Transportation Credit?

A. Correct.

Q. So there can be situations where a handler may

choose not to get a Transportation Credit on what would

be eligible milk because instead they want to divert off

that milk?

A. That is correct.

Q. Okay.

A. So some of the folks who will be testifying

shortly do that calculation and make that decision.

Q. Okay. And then I wanted to look at your exhibit

43, and I particularly want to talk about the 3.67,

which is what DCMA is proposing as the base haul rate?

A. Yes.

Q. This is your information on the survey you did?
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A. Yes.

Q. And so we went back and looked at the amount of

milk that received Transportation Credits in orders 5

and 7 during those two months of September and October,

and that information is on exhibit 7 that the market

administrator put together.

A. (Nodded affirmative.)

Q. And I rough estimated that that was about 317

million pounds for those two months combined, that's the

data on the exhibit 7. And if I do the calculation on

exhibit 43, on your number of loads times your average

load weight, I come up with about 146 million pounds, so

less than half of what actually received Transportation

Credit. I'm trying to understand if DCMA -- I'm trying

to understand why it's such a lower number than the say

80 percent of milk that DCMA represents is being pooled

on the Orders?

A. Okay. Well, I didn't have access to everybody's

data, we only had access to the members, and we asked

them during that during that time period to give us

their information, so that was, the rows of information

that we had that averaged out to 358 in one month and

361 in the other month, so I don't have anymore

information to share. I could say with some degree of

confidence that probably not every load that received a
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Transportation Credit was arranged or made or was made

from a member of co-op.

Q. So I'm just trying to figure out where the milk

is, so I guess then you're saying that a lot, DCMA only

controls about 50-percent of the milk, supplemental milk

that gets brought in?

A. I don't know.

MS. TAYLOR: I think that's it for this

part.

THE COURT: Mr. Beshore?

MR. BESHORE: If I could follow-up on

the last question.

FURTHER REDIRECT EXAMINATION

BY MR. BESHORE:

Q. Did you have the opportunity, Mr. Hollon to look

at the array of data that was assembled from DCA -- DCMA

members that's represented in exhibit 43 yesterday

afternoon?

A. Yes.

Q. Okay. And from your position as know as an

economist, did you have any observations about that

array of data in terms of whether it appears to be

representative of the costs during that period of time,

do you have any comments on that?

A. Yes. If you -- if you look in the middle box and
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you look at the average rate per mile for the September

period, it was 3.60, if you look at the median, half

above, half below, was 3.58, that tends to lead you to

think that there's not a wide variation in the numbers.

And if you look at the other column, 3.75 average, 3.61

median, same thing. And so certainly there were some

that were lower than others and some that were higher

than others, but in general, the range was reasonably

narrow.

Q. You don't have any -- because this data was

assembled on an anonymous, on a basis by the -- it was

assembled by the DCMA administrator?

A. Correct.

Q. By request of cooperatives?

A. Correct.

Q. In a manner that cooperatives were exchanging

information with each other, but just with the

administrator of DCMA correct?

A. Correct.

Q. Okay. And it was aggregated by you into the data

on exhibit 43, correct?

A. Correct.

Q. Okay. From your position as an economist and

observing, being experiences with these markets over

that period of time, assuming that it only represents
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about half of the total credit transactions during that

period of time as Ms. Taylor indicated, would it still

appear to you to be a representative cost, is it your

testimony that it's a representative cost for that

period of time?

A. That's correct.

MR. BESHORE: Okay, that as all I have.

THE COURT: I hate to ask any

re-recross? It feels dangerous to put this on the

record, but even though this is a formal rule-making, I

am not inclined to intervene unless there's an objection

to any stylistic questions as to leading questions or

beyond the scope or things like that, so I think -- I

will assume that it's in the interest of the record as

long as it's within the scope of the original notice as

the regulations tell me I should be cognisant of that I

think everybody's all right and I don't, without

objection, I'm not going to myself enforce rules as to

redirecting beyond the scope, so I'll trust Counsel to

handle that, for all I know, it may be in the interest

of the other side for certain things, I want the

decision-maker to have as complete record as possible.

Okay. So are we ready for part two of

this witness, Mr. Beshore?

MR. BESHORE: Yes, we are. Can I have,
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I have just a couple of preliminary notes before we go

into part two. We have made available, in the back of

the room, some additional sets of the exhibits. We were

short yesterday. There were a number of sets of

exhibits there, hopefully there's more available to

persons who may be here who are interested in following

that. I would also say that there are two, several

exhibits that are also available for distribution this

morning, which are -- represent correction -- corrected

exhibits that will be noted in part two of Mr. Hollon's

testimony. They include the regulatory, proposed

regulatory language for proposals 3, 4 and 5, there were

some very small tweaks, errors in that language that we

have changed with corrected exhibit that Mr. Hollon will

cover in his testimony. And there's also a latter,

single-page exhibit that -- that's been replaced because

it had some inaccuracies in it, that's also available in

the back.

(Whereupon, Exhibit No. 57 was marked for

evidence.)

Mr. Hollon, as we've numbered in advance,

starting with 57, the exhibits that he references in his

testimony, so I would ask that since we've used

consecutive numbers, starting with the one that's next

for exhibits, that is testimonial statement, that we not
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mark it as an exhibit until, not give it a number until

we're at the end so that it's chronological, it's

sequential, because I've already used 57 for other

exhibits. Would Your Honor --

THE COURT: I'm not sure I quite follow.

Mr. Hill has come to the platform.

MR. HILL: I thought that we already

numbered the second part of his statement as number 13,

did you not?

MR. BESHORE: We did

THE COURT: We did.

MR. BESHORE: My bad.

THE COURT: Doesn't mean we can't --

MR. BESHORE: Already 13.

THE COURT: I guess, as far as

convention for -- we've got two corrected exhibits, I

guess we had not identified the corrected exhibits at

all, right? We had identified the testimony of this

witness, part two, I mean, we could --

MR. BESHORE: They'll be substituted,

let's say.

THE COURT: Yes, we could substitute it

or we could make it exhibit 13A, for instance. I don't

know that there's a need for the, if all we're doing is

inserting exhibit numbers in the text of the pre-filed
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statement, right, Mr. Hill has again risen to help me

with this dilemma.

MR. HILL: I don't think since we

haven't read anything into the record on 13, it seems to

me that we can just substitute it.

THE COURT: Very well. Well, and I

think this is -- this is in the transcript, so we made a

record of what we're doing. So I would say that, I

don't know what we do, need to do from now on, but we'll

substitute out what was previously labeled for

identification exhibit 13, and will substitute the

similar statement, but with exhibit numbers filled in.

MR. BESHORE: Okay. All I had meant to

say was that the blanks in the exhibit 13, the numbers

were now known and he would read them as we proceed.

THE COURT: Appreciate that. Your

witness.

PART 2 OF ELVIN HOLLON

DIRECT EXAMINATION

BY MR. BESHORE:

Q. Are you ready to proceed with part 2 of your

testimony, Mr. Hollon?

A. I am.

Q. Please proceed.

A. "Distributing plant delivery credits. Our second
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set of proposals deal with establishing a Distributing

Plant Delivery Credit system, DPDC, very similar in

operation to the existing Transportation Credit

Balancing Fund that partially reimburses the cost of

transporting milk from farm to market where the farm,

with limited exceptions, is located in the marketing

area of the southeastern Orders and where the plant is a

pool distributing plant on the southeastern Orders. We

will provide more specific information about farm and

plant location later in our testimony. The DPDC is

proposed for all three southeastern Orders."

"Regulatory support for the distributing

plant delivery credit. Historically, the USDA, in

addressing the mission of generating sufficient revenue

to ensure an adequate supply of milk, has relied upon

the Class (inaudible/phone rings) differentials to

attract milk where needed. The Reform Decision provided

the following definition for the differential: The

adopted Class I pricing surface" -- sorry, start over,

"the adopted Class I pricing structure utilizes USDSS

model results adjusted for all known plant locations and

establishes differential levels that will generate

sufficient revenue to assure an adequate supply of milk

while maintaining equity among handlers in the minimum

prices they pay for milk bought from dairy farmers."
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There is a long Internet site that we'll

just say is on the page.

"In this hearing, we're not suggesting a

revision of the differential prices in the Orders. What

we are proposing is the establishment of a Distribution

Plant Delivery Credit system as an allowable market-wide

service program to assist in meeting the objectives of

assuring an adequate supply of milk."

"In the southeastern Orders, as we have

seen, USDA has long supported the use of

outside-of-the-area Transportation Credits to supplement

the Class I differential and inter-Order blend

differences in attracting milk to the Class I markets.

This market-wide service program assists the regulatory

goal of moving milk to the highest use classification,

hence the higher value. The Distributing Plant Delivery

Credit system, which we are proposing is specifically

authorized in the Act's market-wide service payment'

provisions, which allow order terms for the purpose of

transporting milk from one location to another for the

purpose of fulfilling requirements for milk of a higher

use classification. 7 U.S.C. 608c(5)(J)(iii). The

DPDC, as proposed, specifically targets payments

directly to the service provided, that of transporting

milk from one location to another. Since DPDCs are
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specifically limited to milk, which is delivered to pool

distributing plants, by definition, this is a movement

of milk to the highest use classification."

"We have demonstrated in earlier

testimony regarding the updating of the existing

Transportation Credit system that the southeastern

Orders draw significant volumes of milk from in-area

sources to meet pool distributing plant needs. Exhibits

28, 29 and 30 for Order 5, the in-area deliveries

account for 54-percent of needs; for Order 6, in-area

production meets 82-percent of needs; and for Order 7,

in-area production supplies 44-percent of needs.

Obviously, the converse percentage of these numbers is

drawn from other areas, negotiated for and partially

paid for with the assistance of the existing

Transportation Credit system."

"While the TCBF provisions have covered

some cost of supplemental milk, the Southeastern Orders,

which themselves cover a very broad geographic area with

sparser farms delivering to fewer distributing plants

have never provided transportation compensation for the

market-wide service of obtaining in-area milk for Class

I needs on a year-round basis. This year-round

transportation cost burden has fallen on the handlers

supplying the Class I needs to the market, predominantly
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the DCMA cooperatives and their members, through a

reduced price or higher hauling charge. It is time to

address this year-round market-wide service with order

provisions that compensate deliveries to distributing

plants in a fashion similar to this system, which has

compensated handlers for imports of supplemental milk."

"Exhibit 57, producer milk originated in

Federal Order 5 marketing area by pooling order."

(Whereupon, Exhibit No. 58 was marked for

evidence.)

"Exhibit 58, producer milk, originating

in Federal Order 6, marketing area by pooling order.

(Whereupon, Exhibit No. 59 was marked for

evidence.)

A. And "exhibit 59, producer milk, originating in

Federal Order 7 marketing area by pooling order,

demonstrate that the producers located in each of the

southeastern Orders, deliver nearly all of the local

milk to the local Order. For the Appalachian Order,

approximately 90-percent of local milk delivers to the

local Order. For the Florida order, the data shows the

nearly 95-percent of local milk deliveries to Order 6.

For the southeast Order, slightly less than 75-percent

of the local production delivers to an Order 7 plant.

Note, that in each situation in the three Orders, the
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second largest delivery Order is another southeastern

Order. DCMA proposes it is time that locally produced

milk be on at least equal footing to imported milk, if

not better footing. After all, locally produced milk

will travel fewer miles to milk plants than imported

milk, and as such, the lower travel miles are more

supportive of healthy environment. "

"DCMA proposes to address these cost

inequities through a program of Distributing Plant

Delivery Credits, DPDC, detailed in proposals 3, 4 and 5

at this hearing. The detailed view of the market

structure, particularly the number and location of

plants and data on milk production, substantiates the

timeliness and necessity of the Delivery Plant

Distribution Credit."

"Market structure supporting the

creation of a distributing plant delivery credit. The

milk supply in the southeastern Orders' marketing area

continues to constrict. Earlier testimony and exhibit

22, number of total farms and in-area farms,

Appalachians, Southeast and Florida Orders 2000 and 2015

o 2022, demonstrates this trend. In-area farms for the

period shown decline every year in all three Orders. In

only a single year comparison, 2021 versus 2022, the

in-area decrease for Order 5 was 1.8 percent, for Order
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6 was 10.9 percent, and Order 7 was 28.4 percent. This

trend is becoming a downward spiral where fewer local

farms mean less local milk, and less local milk is

available to support a local, viable processing system.

Without question, the most economical supply of milk for

the Southeast consumers and processors is milk produced

in the southeastern Orders' marketing areas.

Consequently, the trendline of losses of in-area farms

is undesirable and the DCMA proposal designed to help

curb the declining trend should be accepted."

THE COURT: We're off the record while

the reporter and the witness confer to make sure we have

the right exhibit numbers.

(Whereupon, Exhibit No. 59 was marked for

evidence.)

(Whereupon, Exhibit No. 60 was marked for

evidence.)

A. "Exhibit 60, milk production, Federal Order 6,

May 2021, provides a clear example of why the DCMA

proposed DPDC program is necessary to more efficiently

and effectively attract milk to distributing plants in

the southeast. As shown on the map, significant milk

production in Order 6 is located in the center of the

state with the primary market for this supply due south,

approximately 230 miles into the Miami Metropolitan
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year. This milk is differential friendly" -- sorry,

repeat. "This milk movement is differential friendly as

the Class I differential in the middle counties of Order

6 is $5.40 per hundredweight and that from Miami is

$6.00 per hundredweight. So the Order pricing provides

$0.60 of transportation assistance inadequate, but

better than no assistance in getting milk where it is

needed. But when total production exceeds total demand

from the Miami plants, there is no alternative but to

move the milk north where there is available demand, in

Orlando, 46 miles away, or Orange City, 76 miles away;

however, there is no transportation assistance from the

differential in shipments to these locations, as all are

in the same $5.40 per hundredweight zone, even though

there is a transportation cost to move milk to those

markets. The DPDC system would recognize this cost and

the need for the milk to these markets and provide

partial assistance to offset some of the transportation

cost.

"Compounding the transportation

situation in the southeast is the sharply declining

numbers of pool distributing plants. The following set

of maps and legends for January 2000 and December 2022

depict this picture in detail. Exhibit 61, four pages,

pool distributing plants, January 2000, FO 5, 6 and 7 is
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constructed as follows: The shaded areas in red is

Order 5; the shaded area in blue is Order 7; and the

shaded area in green is over 6. Each of the 14 states

are labeled. Each pool distributing plant is

represented by a number and a color pinhead shaped icon.

If the color is blue, the plant was in business the

entire period of January 2000 to December of 2022;

orange means the plant closed prior to December 2022,

and green means the plant was a pool distributing plant,

PDP, in January 2000, but not in December 2022."

"Exhibit 62, three pages, pool

distributing plants. December 2022, Federal Order 5, 6

and 7 is a similar depiction that only shows PDPs that

were in business in 2022. The blue icon has the same

meaning, business the entire period. And the orange

icon identifies the plant operating in 2022, which was

not in existence in 2000."

"There are 73 plants located on the map

for January 2020 --

MR. HILL: Mr. Hollon, could you hold on

one second for the court reporter?

(Whereupon, Exhibits No. 61, 62 and 63 were

marked for evidence.)

MR. HILL: Sorry for the interrupting.

A. "Exhibit 62, three pages, pool distributing
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plants in December 2022, Federal Order 5, 6 and 7 is a

similar depiction that only shows PDPs that were in

business in 2022. The blue icon has the same meaning,

in business the entire period; and the orange icon

identifies a plant operating in 2022, which was not in

existence in 2000."

"There are 73 plants noted on the

map/legend for January 2000 and 39 on the 2022 map, a

reduction of 47-percent. Of the 39, eight started up

some time in the period and 31 operated over the entire

span. In 2000, every state, but Missouri, had at least

two plants. Note that Missouri has more than two plants

in the state, but the others are pooled in the central

order. In 2022, only seven of the states have more than

two plants; four have one plant, and Alabama has no

plants. Assuming farms and their cooperative are

rational and would choose to deliver to their closest

plant, if possible, delivery miles and costs become

significantly greater as plant locations become more

distant. The reduction in farms and plants puts at risk

the long-held marketing relationships that have

supported the availability of fresh local milk to

consumers and school children everywhere in the

Southeastern United States. Both sets of exhibit, milk

production and plant numbers, solidly support the
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concept that the DPDC should be implemented to assist an

assuring adequate supply of milk to southeastern

consumers. The DPDC program allows for all handlers to

have similar benefits in meeting that objective."

"Marketing rational for distributing plant

delivery credit. Marketing factors, which support the

credit of the DPDC include, number one, the current

Class I differential structure is not sufficient to meet

day-to-day market situations in the southeastern Orders

and the DPDC will somewhat alleviate that problem due to

the shrinking number of farms and plants as just

reviewed, costs to serve the pool distributing plants

have increased and there is a need to meet those needs

differently through the Order system."

"The North/South only makeup of a locked-in

place differential surface does not work when milk moves

counter to or not in sync with the differential surface.

We have referred to one situation involving large milk

supplies in Central Florida where market needs move

South into Miami plants have the benefit of

differential, but similar needs to the north derive no

benefit from the Order. Similarly, one of the few

growing milk supplies in the southeast Orders is in

Southwest Georgia, but markets for that supply regularly

mover long distances, both south into Florida, as well
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as north into Atlanta, or northeast into South Carolina.

To the extent that milk moves into a lower-priced zone,

north and northeast, not only is the transport cost

large, but price revenues are lost from the regulated

price as milk is sold from a higher individual location

farm supply to a lower differential level plant

location."

"We're not proposing a change in the

differential structure. Differentials, by their very

nature, can only incentivize milk to move in one

direction. Fixed differentials not only are not

equipped to attract milk in multiple directions, they

can and do actually penalize efficient and necessary

movements of milk against the differential grain. Fixed

differentials do not have self-adjusted components like

the Transportation Credits and the DPDC we are

proposing. Our proposal results in a more modern system

with a combination of differential and Transportation

Credit to attract milk to where it is is needed and

compensate in part of the movement."

"In addition, substantial differential

changes may require a more-than-regional hearing

process. This circumstance prevents the opportunity to

focus only on changes for a unique regional situation.

Our proposal will allow for change without the national
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conversation being a factor."

"Many of the original milk sheds under

the undergirding the current differential structure have

generally declined and new ones have taken their place.

Population growth has increased and moved into --

scratch, start over -- "Population growth has increased

and moved more so into the southeast since the

differential structure was put into place. Both of

these developments point to the appropriateness of

addressing the issues on a regional basis. Our proposal

reflects those changes and provides some relief."

"The monies that constitute the order

blend price absorb all of the differential value and

offer no funds to specifically meet increased

transportation costs. The TCBF system, which operates

apart from the pool differential values, offers

specifically targeted funds to meet transportation

costs. Our proposal adopts the same principles for

in-area producers and their milk supply."

"The DPDC Transportation Credit system

has the following operational dynamics and advantages:

A, it provides the ability to target funds specifically

to the cost of transportation within the market.

B, it has self-adjusting features to allow for built-in

fine tuning of changing market situations such as rapid
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increases or decreases in fuel costs or plant closures.

C, it's cost reimbursement through the market order

system are transaction-based and easily and

confidentially verified by the Market Administrators.

D, it assures that the handlers get the reimbursements

only when they do the work.

E, it assures that all market participants pay identical

assessments and receive similarly calculated payments

for transporting milk.

F, it provides a transparent payment calculation that

will assist all market participants in making future

market plans of changing fuel costs.

G, it provides partial payment to counter differential

movements where the cost is not recognized by the

existing differential price surface, but nevertheless is

incurred.

It provides -- H, it provides a reimbursement system

superior to over-order prices, which are challenging to

maintain and even more challenging to increase. Having

a portion of transportation costs within the order

pricing system treats all suppliers and buyers

equitably. Handlers are generally more capable of

passing through to packaged fluid milk

wholesalers/retailers Class I prize changes, which are

specifically outlined on Federal Order price
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announcements."

"General function of our proposed

distributing plant delivery credit. Distributing Plant

Delivery Credits will function similarly to the current

and proposed to be amended Transportation Credits in

Orders 5 and 7. A new source of funds will be created

in each Order, and those funds will be used to

incentivize movements of farm milk to pool distributing

plants in each order. The source of DPDC funds will be

a new assessment on Class I producer milk."

"Adding a new flat Class I assessment

will not disturb the current Class I differential

surface in each Order, yet will provide additional funds

that will be strategically directed to those handlers

actually delivering milk to Class I plants. Since the

DPDC's are mileage-based, there's greater cost for

reimbursement the greater the distance that milk

moves."

"As with the existing Transportation

Credit Funds, TC, DPDC funds will be separate from the

producer pool funds there, and thus there will be no

impact on each Order's blend price, and no impact on the

quantity of reserve milk supplies that can be associated

with each Order."

"If monthly DPDC funds are insufficient
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to pay all DPDC claims, the payments will be prorated

like the current Order 5, Order 7 Transportation Credit

process."

"As with the existing transportation

assessment -- start other, "As with the existing

Transportation Credit assessment provisions, DPDC

language in each Order will contain a range of

permissible DPDC Class I assessment rates. The range of

rates will be specific to each Order, and the provisions

will provide guidance for the Market Administrator on

how to set the DPDC assessment rate within the allowable

range. The Market Administrator will also be able to

completely waive DPDC assessments for one or more

months, if deemed preferable to lowering assessment

rate. The payment calculation will be the same for all

three Orders."

"Net shipment provisions will be

utilized to assure that handlers do not pump milk in and

pump milk out on the same day and collect DPDC payments

on two volumes. Each Order will contain a provision

allowing the Market Administrator to disallow DPDC

claims if they determine that certain milk movements

were persistently and pervasively uneconomic. Handlers

will have an opportunity to explain why any suspect milk

movements occurred in advance of any disallowance of the
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DCDP claims by the Market Administrator. This action

will be similar in intent with the provisions of

1030(13)(f)(4) where the Market Administrator can

initiate an investigation on their own to review action

by handlers that might be considered unreasonable.

Also, the knowledge that a transaction might be

negatively viewed by the Market Administrator will

provide some level of oversight."

"Calculation of assessment, list

eligible counties that qualify for payment and the

allowance of pol supply plants to receive a payment.

Calculation of assessment: The provisions for the DPDC

are nearly identical for all three Orders, however,

three areas where they differ are in the level of

assessment for each Order reflecting market conditions

in each one, the definition of what producer milk

qualifies geographically for the payment of DCDP and in

Order 5 the inclusion of milk deliveries from pool

supply plants as qualified recipients."

"In order to determine assessment rates,

the cost to operate the DPDC system must be determined.

At the simplest point we would need Mileage Rate

Factors, MRF, and miles to apply it to. To determine

the MRF a base haul rate is needed as a constant of the

formula. We described a survey of DCMA members who
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planned for supplemental milk purchases and the cost to

do so in our testimony for Proposal 1. That testimony

is directly supported in exhibit 43. Supplemental milk

purchases are most typically single stop loads from

single farms and the payments are based directly on rate

per mile charges. Assembly costs are not a factor in

the negotiation. However, for inside the market milk

hauling, assembly costs are a function. There is a

range of plans in the Orders that define charges for

milk assembly. That may include stop charges, fixed

minimum charges, volume discounts, possibly a simple

flat weight per hundredweight, and likely other factors.

We concluded that accounting for these variations would

be difficult to impossible to do so in an acceptable

manner, so we decided to use the same MRF that would be

calculated each month by the Market Administrator or the

TCBF system. For our purposes, it would likely be less

than the inside the market rate, so it is a conservative

choice and completely transparent. This choice solved

the question of how to determine the MRF for use and

calculate an assessment value in a fair and reasonable

fashion."

"Since there is no existing program to

measure historical inside the market delivery activity,

we asked the Market Administrator to determine the miles
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traveled to deliver milk to processors each month. They

were able to aggregate the supply data to a county

level, and then associate each county level to supply

its actual plant destination and measure the miles

traveled."

"DCMA provided the mileage rate factor

to the cost calculation based on the updated process we

proposed for TCBF changes. We used $0.00754, the

two-year average for the period that we had survey data

for and a percentage of miles to make payment on,

85-percent. Our proposal language provides a bracket

range with a percentage mileage pay of 75 to 95-percent,

adjustable my Market Administrator discretion. The

choice of 85-percent for the initial assessment was

based on DCMA members sense of current market

conditions. The 85-percent of total miles incurred

instead of the actual total miles reflects traditional

Federal Order practice of regulated payments be targeted

to lesser than actual cost."

"Then using the 85-percentage of miles

paid, the same MRF as used for the TCBF calculation.

$0.00754 average, and the Market Administrator generated

miles, a total cost estimate was calculated for the

dollars of costs incurred by the DPDC dividing the cost

by the Class I pounds yielded an assessment estimate for
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the evaluation. Again, the DCMA members evaluated the

calculations and selected assessment levels from each

order reflecting that Orders marketing conditions. For

Order 5, our proposal suggests a maximum assessment of

$0.60 per hundredweight with the initial level set at

$0.55 cents per hundredweight for Order 6, the suggested

maximum is in $0.85 -- start over again, "For Order 6,

the suggested maximum is $0.85 per hundredweight with an

initial setting of $0.80 cents per hundredweight, and

for Order 7, a maximum setting of $0.50 cents per

hundredweight with an additional setting of $0.45 per

hundredweight.)

"Exhibit 63, analysis of assessment and

cost for the DPDC proposed Federal Order 5, 2020 through

2022 is a result of this process the Federal Order 5 and

initial assessment rate of $0.55 cents per

hundredweight. Note our proposal suggests a maximum

rate of $0.60. This initial request, based on the

calculations above, is designed to be a conservative,

but also reflect our goal in instituting the DPDC

system. There are provisions in each set of Order

language allowing for a review of market conditions and

the assessment rate and the possibility of adjustment by

the Market Administrator if conditions warrant after a

year of operation."
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Exhibit 63 is constructed as follows,

the operational month and year is the first column. The

second column is total dollars of the assessment, using

the Market Administrator generated miles, less

50-percent multiplied by the mileage rate factor. The

next column is the total pounds that could qualify for

the DPDC system followed by total value of the credits

at the two different MRF values. Final column is the

monthly difference between assessment and the total

value at the $0.00754 MRF, which is our focus. If the

final column is a positive number, the assessment

covered all the cost of the miles claimed, and if a

negative, there would be prorated payments. For Order

5, in 2020, assessments exceeded credits by $243,059,

were less than assessments by $2,158,885 in 2021, and

also less by $1,464,269 in 2022. Several factors will

impact our estimates on miles necessary to fill demands

and fuel costs. More miles and higher fuel costs will

result in shortfalls and monies to pay in prorated

payments. "

"Exhibit 64, analysis of assessment and

cost for the DPDC proposal Federal Order 6, 2020-2022,

is the result of this process for Federal Order 6 with

the initial proposed assessment rate of $0.80 per

hundredweight. For 2020, assessments exceeded credits
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by $1,890,199, and were less than assessments by

$126,928 in 2021 and again exceeded then by $1,045,997

in 2022."

(Whereupon, Exhibit No. 64 and No. 65 were

marked for evidence.)

A. "Exhibit 65, analysis of assessment and cost for

the DPDC proposed Federal Order 7, 2020 through 2022 is

the result of this process for Federal Order 7 and

initial assessment rate of $0.45 per hundredweight. For

2020, costs exceeded assessments by $4,805,090 and

assessments exceeded credits by $403,241 in 2021 and

again exceeded them by $1,503,386 in 2022."

THE COURT: Off the record.

(Pre-marking upcoming exhibits.)

A. I'd like to make a comment on these three tables

that are not in my written testimony, simply point out

that when the last column is a negative number, that

indicates there will be prorated payments in that month,

and the Market Administrator data as presented by

Mr. Herbert showed that, so we were satisfied with our

numbers and our ability without calculating all the way

down to a prorated percent. So we examined those

columns and felt comfortable with the assessment levels

that we had chosen.

"What producing milk qualifies for a
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DPDC payment? The definition of what producer milk

qualifies geographically for the payment DPDC is

obviously different for each Order. The DCMA members

recognize that with fewer farms and fewer pool

distributing plants, milk regularly crosses the state

and Federal Order borders to fill orders to the fewer

available plants in the most economical manner. So,

there was considerations given by to allowing milk from

one Order to qualify for payments from a delivery from

another Order."

"Provisions in Order 5 allow for milk

the receive the DPDC payment from milk produced on farms

located in the marketing area of Order 5 or Order 7.

Additionally selected counties in Virginia and West

Virginia that are not located in any Order boundary and

deliver to Order 5 pool distributing plants will be

allowed to receive DPDC payments. The out-of-any-order

counties must provide proof satisfactory to the Market

Administrator that the county is not a part of a milk

shed that regularly supplies milk to the Order."

(Whereupon, Exhibit No. 66 was marked for

evidence.)

MR. HILL: Mr. Hollon, I, I just want to

note that you used the words not in that sentence that

was, I don't believe in the sentence, so. I believe
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that you said "the county is not a part of a milk shed,"

and your written testimony is a part of the milk shed.

MR. BESHORE: Read that sentence again.

MR. HOLLON: Which sentence?

MR. BESHORE: "The out of order.

BY MR. HOLLON:

A. "The out-of-any-order counties must provide proof

satisfactory to the Market Administrator that the county

is part of, is not -- no. That is a part of a milk shed

that regularly supplies milk to the order." Okay, Thank

you.

"Exhibit 66, list of counties not in the

marketing area to include as eligible for distributing

plant delivery credit payment, Appalachian order,

exhibit 67.

(Whereupon, Exhibit No. 67 was marked for

evidence.)

A. "Exhibit 67 proposed counties to be added to

Federal Order 5 for DPDC eligibility is a map of the

proposed counties. Additional witnesses will discuss

the rational to satisfy the inclusion of these counties

based on historical marketing arrangements."

"Provisions in Order 7 allow for milk to

receive a DPDC payment for milk produced on farms

located in the marketing area of Order 7 or Order 5 and
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delivered to Order 7 pool distributing plants."

"Provisions in Order 6 allow for milk to

receive a DPDC payment for milk produced on farms

located in the marketing areas of Order 6 and selected

counties in Georgia that are located in Order 7 and

delivered to Order 6 pool distributing plants. The

counties selected had been part of a milk shed that has

historically delivered to Order 6 pool distributing

plants."

(Whereupon, Exhibits No. 68 and No. 69 were

marked for evidence.)

A. "Exhibit 68, List of counties not in the

marketing area to include as eligible for distributing

plant delivery credit payment, Florida Order, lists the

counties so noted for Order 6. Exhibit 69, Proposed

counties to be added to Federal Order 6 for DPDC

eligibility is a map of these counties. Additional

witnesses will discuss the rationale to satisfy the

inclusion of these counties including historical

marketing arrangements and somewhat new milk production

trends that clearly impact current and future supply

situations."

"Eligibility of deliveries from Order 5

pool supply plants for distributing plant delivery

credits. A witness for DCMA member Maryland and
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Virginia Milk Cooperative Association will discuss the

unique operation of a pool supply plant in Order 5 and

its supply to pool distributing plants."

"Analysis of competitive impact of DCMA

proposals. Competitive Pairs Analysis. As an important

part of our process, we review the impact of our

proposed increase in Transportation Credit Balancing

Fund and Distributing Plant Delivery Credit funds

assessments on the competitive position of pool

distributing plants in the southeastern Orders, knowing

that the cost of milk is the largest cost item of the

product mix in the pool distributing plant. Our

analysis involved a selection of plants in the

southeastern Orders and for each plant possible

competitive plants that may be located inside the Orders

or outside the Orders."

"DCMA members suggested the chosen

relationships to examine based on their ongoing market

knowledge. We examined the impact on 17 possible

competitive pairs for Order 5 plants, 10 pairs for Order

6, and 26 pairs for Order 7."

"While it might be possible to make

comparisons from every plant to every plant, the

selected pairs are a satisfactory representation of the

market. The pairs evaluated compare southeast Order
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plants for nearly ever state in the Orders and potential

competitor plants from outside of the region to the

Northeast, North, Northwest, West Northwest and West.

We made no attempt to individually analyze every

possible business transaction for the plants, such as,

for example, there might be limited backhaul

transactions, an extensive maintenance project at one

plant that might temporarily move products to another

plant for a short period of time or extraordinary

weather events. Also, it is of course not possible to

in anticipate new entrants in the marketplace for

packaged milk -- for packaged products, which might

establish new competitive relationships. However, where

some of these factors exist, such as back hauls, we

would expect the impact to be reflected in the

composition of the average line haul as reported by the

DAT work that will be explained by a later DCMA

witness."

"To make the comparison, we've constructed

the following equation: Plant A, located in a

southeastern Order has its milk cost, the value of its

Class I differential, plus the assessments for the

transportation and delivery credit funds. Plant B, if

located outside of the southeastern Orders has its Class

I differential plus transport cost to move packaged milk
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products to the market Plant A. Plant B has no

Transportation Credit fund assessments. If Plant B is

located in one of the southeastern Orders, its cost is

its transportation and delivery credit fund assessments,

plus its own Class I differential, plus the transport

cost to move packaged milk products to

Plant A as calculated by the DAT data."

"Exhibit 17 (sic)."

MR. HILL: What number

MR. HOLLON: 70.

the

did

market

you --

of

evidence.)

(Whereupon, Exhibit No. 70 was marked for

A. "Exhibit 72, two pages, comparison landed cost

packaged milk elected locations, southeastern Orders

details this calculation for 53 competitive pairs and is

constructed as follows: Each row, beginning with

Athens, Tennessee is, a set of pairs that we determined

to be significant choices to review. Columns 1 through

5 represent data for the destination plants in the

southeast Orders, showing city, state, order, assessment

and Class I differential. Column 6 through 10 are the

potential competitor plants showing city, state, order,

assessment and Class I differential. Columns 11 and 12

are transport data from the DAT analysis showing miles

between the locations and transport costs and dollars
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per hundredweight that would be a component of the cost

structure. Columns 13 through 15 are the summary values

of the analysis. Column 13 shows the sum of the

assessment, plus Class I differential for the southeast

Order plants, column 4 plus column 5. Column 14 is the

corresponding competitor plant's sum of the assessment,

if it is located in one of the southeastern Orders, plus

its Class I differential, plus the transport cost as

calculated by the DAT analysis. (Column 9 plus column

10 plus column 12.)"

"Column 15 is the result of subtracting

column 13 from column 14. A positive result in column

15 indicates the competitive plant did not have a cost

advantage at the DCMA proposed assessment level versus

the southeast Order plant."

"Note the assessment used for this

analysis is the sum of the two credit systems proposed

by DCMA, allowing us to review the results from the

position of maximum impact of the assessments. The

combined updated assessments plus the DPDC assessments,

are $0.90 per hundredweight for Order 5, 85 per

hundredweight for Order 6 and a $1.10 per hundredweight

for Order 7."

"The average cost advantage retained by

in-area plants across all 53 comparisons was $2.10 per
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hundredweight, $2.10 per hundredweight divided by the

number of gallons in a hundred pounds of milk equals

$0.189 per gallon spread. The smallest in-area plant

advantage was $0.44 per hundredweight for $0.379 per

gallon. Order 5 comparisons showed an average in-area

advantage of $1.69 per hundredweight. The average

advantage for Order 6 plants was $3.07, and for Order 7,

the average advantage was $2.18."

"Our analysis indicates that the

assessment levels proposed by DCMA do not result in

placing the in-area southeast Order pool distributing

plants at a competitive advantage to their competitors."

"Request for emergency hearing

procedures. Particularly because of the current

inflationary economic environment and since

transportation costs have not been updated for more than

15 years and the market structure has changed

dramatically due to plant closures the loss of dairy

farms, it is important that these requested order

amendments be effective on an expedited basis so that

this objective may be most effectively addressed.

EXAMINATION MR. BESHORE:

Q. Mr. Hollon, would you go back to the last

sentence on page 18 of exhibit 13 and re-read that, I

think it was read incorrectly?
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A. "Our analysis indicates that the assessment

levels proposed by DCMA do not result in placing the

in-area southeast Order pool distributing plants at a

competitive disadvantage to those competitors."

Q. "Disadvantage," not "advantage?"

A. Yes.

Q. Thank you. Now, I have just a couple of

questions about the testimony you've just read, and then

we have some additional testimony about other exhibits

that you can identify in this testimony. First of all,

if you go to page 11?

A. Yea.

Q. For reference, on the second line to section

"1030(13)(f)(4)," do you see that?

A. I do.

Q. Okay. I don't think you explained this in your

testimony, that -- what does that refer to? Does that

refer to another provision in another Federal Order?

A. There is a provision in Federal Order 30 that has

been there for a long time that deals with pooling

rules, if you will, and out-of-area milk, gives the

Market Administrator the authority on their own to

investigate if they think a pooling arrangement is being

made that's improper and uneconomic.

Q. Okay. So when you were saying "section 1030,"
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you meant that was "7CFR section 1030, "which is Federal

Marketing Order 30 from Chicago, regional, upper midwest

regional area, correct?

A. Correct.

Q. Okay. Also on page 11, the paragraph under

"calculation of assessments," the sentence refers to "In

Order 5 the inclusion of milk deliveries from pool

supply plants as qualified recipients," now we're going

to go into the Order language proposed, but is it

correct that what you're referring to there is that

Order 5 is the current situation where there's a pool

supply plant involved in it?

A. Yes.

Q. In the Orders?

A. Yes.

Q. Okay. Even though the language in our proposals

pool supply plants is present in all Orders, 5, 6 and 7?

A. Yes, that is correct.

Q. Okay. Let's go to your exhibits, which were not

addressed, exhibits in the exhibit packet, which were

not addressed in your testimony. And I call your --

let's, first discuss an exhibit that is titled

"Comparison of the Cost of Farm to Plant Delivery with

and Without the Distributing Plant Delivery Credit," do

you have that?
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A. Yes.

Q. Okay. And I would note for everyone, we have a

substituted exhibit for this, that is a packet that was

presented yesterday had some errors on this, some of the

numbers were in error on this, now that document's not

been admitted into evidence or anything, so we should

be, everyone should be referring to the document we had

in the back, and it's been distributed, re-distributed

today, which we would ask to be marked as exhibit 71.

(Whereupon, Exhibit No. 71 was marked for

evidence.)

Q. Mr. Hollon, you made sure that the court reporter

and Judge Strother and the Government folks and other

interested parties had the corrected exhibit, correct?

A. Correct. Yes.

Q. Okay. Let's talk about, talk about the exhibit

then. Can you just walk us through the exhibit and tell

us what it shows?

A. The general purpose of this exhibit is just to

demonstrate that the portion of cost covered by the

credit and the differential ends up at 85-percent, and

that was our target all along to pay on 85-percent of

the miles, and so it shows three different

characterizations, one is where the demand plant and the

supply plant are in the same location or location
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differential zone. It shows where the, where the demand

plant is less than the farm differential and where the

demand plant is greater than the farm differential.

So, in the first example, it's a look

into the plant in Dacula, Georgia, processing plant from

Oglethorpe County, Georgia, that mileage is 395 miles,

85-percent of that is what would receive the payment,

that's 336 miles, $0.00817 I think is the most current

mileage right factor that was published at the time I

put this together, and that multiplies out cost for a

500-weight load or 50,000-pound load of $1,614. The

potential credit would cover 85-percent of that cost,

1372, and that number would be derived by walking

through the payment calculation, and the two

differentials are the same, so there would be no

adjustment, up or down, by the differential. So you

would end up with a credit payable of 1372, and that

again is 85-percent of the cost. If you're in a

situation in the middle where the demand plant is in

Hammond, Louisiana, the milk supply is in Sandersville,

Georgia and that is 568 miles, and you have 85-percent

of the miles at 483, multiply by the mileage rate factor

and the per hundredweight, yea, per hundredweight of the

load, you end up with a cost of $2,320. The credit

calculation would come out to $1,972, and there would be
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no adjustment here for differentials because the farm

differential is higher than the plant differential, so

that subtract any positive difference language would

result in a zero adjustment and you would end up with

1972 or again 85-percent of the calculated costs.

Q. If I could just interrupt you there. That

example is similar to the Florida transaction that you

discussed in your testimony, correct?

A. It is. It is.

Q. Okay. Central Florida moves North to distribute

plants in a lower, same or lower costs?

A. Yes.

Q. Same or lower differential?

A. Correct.

Q. Okay. Thank you. And the third example then

Nashville to, Glascow to Nashville?

A. In that example, calculations work their way all

the way down, but noting that in this case the farm

differential is in the 260 zone, the plant differential

would be in 290 zone, so the differential would offer

$1.50 of compensation. The credit payable then would be

reduced because the differential carries some of the

value to again result in an 85-percent payment.

Q. Very good. Let's go then to exhibit 7, document

to be marked as exhibit 72, which is titled Federal
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Orders 5, 6 and 7, In-Area Producer Milk and Pool

Distributing plants October 2022."

(Whereupon, Exhibit No. 72 was marked for

evidence.)

Q. Actually is there a second page with a list of

plants associated with that exhibit?

A. This was created at DCMA's request by the Market

Administrator, it was included in Mr. Herbert's

presentation yesterday and the information, the

geography shaded in read or pink is Order 5; blue is

Order 7; green is the Florida Order. You can see

outlying counties in all of the geographies. You can

then see dots representing pool distributing plants, and

the colors of the dots. If the color of the dot is red

-- let me back up, and say then, that you have demand

points and supply points and miles between the two, and

so in the Market Administrator office, they did an

optimizer run and said how can we move all of the milk

to its closest demand point. And those demand points

could receive any amount of milk possible, they were not

constrained, the goal here was to have every, see what

the result would be if every farm moved to its closest

market. And so, if the dot is colored red, that says

that that plant, the resulting end of minimizing or

having every plant move to its closest market would only
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get 50-percent or less of the milk that it had demanded

during this month, it had received during this month.

If the red dot is yellow, the plant would receive

between 50 and 100-percent. If the dot is green --

well, blue, would be 100 to 200-percent of what their

actual receipts were. And if it's dark blue or black,

it would get more than 200. And so, as you look over

the map, you see a few, but some of each color. And

that would indicate that not every farm can go to its

closest plant, not every plant can get its closest milk

supply, so both of those are disorderly and that that

would be something that the order system is designed to

try to improve on and our proposal would also help to

offset some of that cost of the plants who did not get

anywhere close to their supply, and the farms who had

that cost.

Q. Would it be a fair observation to say that

because there are more red dots than any other color,

that within the southeastern states there is not a lot

of milk close to the majority of the pool distributing

plants?

A. Yes.

Q. Do you have any other thoughts on 72 that you'd

like to make?

A. I do not.
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MR. BESHORE: Okay. Now, at this point

I'd like to ask that the proposed regulatory language

for proposals 1 through 5 be marked as exhibits 73,

proposal one 74, proposal 2, 75 proposal 3, 76 for

proposal 4, and 77 for proposal 5.

(Whereupon, Exhibits No. 73 through No. 75 was

marked for evidence.)

THE COURT: Off the record.

Q. Mr. Hollon, let's look at exhibit 73, which was

proposal number 1 first.

A. Yes.

Q. Okay. This is the update proposed

amendments within it to the existing Transportation

Credit Balancing Fund program in Order 5, correct?

A. Correct.

Q. Okay. So can you just identify the changes in

proposed language represented by proposal number 1?

A. In section 81.

Q. Section 81 of Order 5.

A. Of Order 5.

Q. Yes.

A. The assessment, currently the assessment for the

Transportation Credit program is 15 cents, that's

striked (as stated) through and inserted is 30 cents,

which is the proposal from DCMA.
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Q. Okay. And that's the only change in section 81

81, correct?

A. That is --

Q. Only proposed change?

A. Yes.

Q. Okay. It section 82,(a)(1), is there a proposed

change?

A. There in the second sentence, the month of

February is striked (as state) through, so it would no

longer be a mandatory payment month, it could be an

options payment month.

Q. Okay. Going on second page of the exhibit 73,

what's the change to part 83(b)?

A. That defines the methodology if the industry

wants to institute a payment for February, so it

includes February, inserts February, like June is

inserted, and would follow the same procedure of asking

the Market Administrator to make a payment for February.

Q. Okay.

A. And then no other changes in paragraph B.

Q. How about paragraph D then, or subparagraph D,

"Transportation Credit shall be computed as follows,"

were there changes in section (iii) -- subpart (iii) and

(viii)?

A. In subpart (iii), instead of subtract 85 off the
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miles, it should read subtract 15-percent of the miles,

from the mileage so determined.

Q. Okay. And then subpart (viii) is there language

proposed to be added in that section?

A. Yes, this would be -- the entire section would be

added, and this allows for the Market Administrator to

make changes in the mileage rate factor, if a written --

if a written request is received, and it describes the

timing for that. It also, on the next page, says the

Market Administrator may increase the mileage adjustment

factor by as much as 10-percent up to 25-percent, so

there is a boundary around those, and also there's a

boundary of decrease, and that if the Market

Administrator is looking to change those, they have to

give notice to the industry. And I want to back up and

I did -- and when I was talking about (viii), I said

mileage rate factor, that should be mileage adjustment

factor.

Q. Thank you. So, going then to section 83, part 83

of Order 5, the mileage rate for the Transportation

Credit Balancing Fund. As you have testified, does

proposal 1 request updating of those numbers in parts 2,

3, 4 and 5 from the numbers that have been in place

since 2006 to the current numbers as described in your

testimony?
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A. So, the changes in paragraph A in subparagraph 2,

$1.42 is struck and insert $2.25. And subparagraph 3,

"5.5" is struck, insert "6.2." Paragraph 4, $1.91" is

struck, insert "$3.67." And in paragraph 5. Strike

4.80, insert "5.97."

Q. Okay.

A. That's all of the changes.

MS. TAYLOR: (Inaudible).

Q. Would you repeat what the change in part 5 should

be?

A. Part 5, strike 4.80, insert "$4.97."

Q. "$4.97," not "$5.97?"

A. Okay. Yes, that would be important.

Q. Thank you. Now, proposal 74 -- exhibit 74,

proposal number 2 are changes to, proposed changes to

Order 7, with respect to Transportation Credit Balancing

Fund provisions, are they identical to those proposed

for Order 5 with the exception of the rate involved?

A. That is correct. All the places where I mention

changes would be the same, and they would all be the

same changes except the rate would be different.

Q. The rate of assessment?

A. Rate of assessment, instead of 30 cents in

section 81(a), insert 60 cents.

Q. Okay. Let's move on then to the proposed
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language for the distributing plant delivery credits.

And these proposal three relates to that program in

Order 5, exhibit 75. Proposal 4, exhibit 76 relates to

that program in Order 6, and exhibit 77, proposal 5,

relates to that program in Order 7, is that correct?

A. That is correct.

Q. And let's then just walk through the language in

Order 5, exhibit 75, and it will then be, we can then go

76 and 77 and just point out the differences from Order

5 because they're quite similar in each Order, correct?

A. That is correct.

Q. Okay. So let's talk about the even exhibit 75,

proposal 3 for Order 5. The first two parts, sections

1005.30 and .32 are additional reporting requirements,

is that correct?

A. Yes.

Q. And that's just to require handlers to report to

the Market Administrator information regarding volumes

of milk on which they would have received on which

distributing plant delivery credits may be applicable

and/or assessments for that fine might be appropriate,

correct?

A. Correct.

Q. Okay. Let's go then to section 84 pages, which

is pages 2 through 5 of exhibit 75 this is new language
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DCMA proposes for its credit program, correct?

A. Correct.

Q. So not presently a section 84 in Order 5,

correct?

A. There is not.

(Whereupon, Exhibits No. 76 and No. 77 were

marked for evidence.)

Q. Okay. Let's go through the proposed language

then, sub A of 84, can you tell us what that, what that

is, Mr. Hollon?

A. Section establishes the new credit, gives it a

name, delivery plant --sorry distributing plant delivery

credit fund and it establishes that in the order

language.

Q. It says "Market Administrator shall" what? Make

that a separate fund and administer it separately from

the market what, pool, and separately from the

Transportation Credit Balancing Fund, correct?

A. That is correct.

Q. Okay. Subpart (b) then?

A. Subpart (b) describes payments that will be made

into the fund, so that would be the result of

assessments on Class I milk and it defines the

assessment rate of 55 cents per hundredweight and

thereafter not greater than 60 cents per hundredweight.
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And as the Market Administrator deems necessary to

remain a balance in the fund to equal the total

distributing plant delivery credit dispersed during the

prior year, so that indicates that there would be some

time period that the Market Administrator would examine

operations of the funds and possibly make changes.

Q. And that's intended to be identical to the type

of fund administration that presently is in the order of

Transportation Credit Balancing Fund?

A. Say the last part of your sentence again.

Q. It's intended that the Market Administrator have

the ability to administer the assessments and administer

that funds in the same manner that the current

Transportation Credit Balancing Fund is?

A. Yes, that is correct.

Q. Okay. Part C then, subpart C of 84 provides for

the announcement of the -- of the rate per hundredweight

each month, is that correct?

A. Correct.

Q. Okay. So part D relates to payments from the

distributing plant delivery credit fund?

A. Correct.

Q. Okay. Can you take us through that, please,

Mr. Hollon?

A. Payments from the fund, this is part D, section 1
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defines dates where payments have to be made, points out

that milk and director of producers farms were receipts

of bulk unconcentrated milk transferred from a supply

plant. Makes note that if the funds are insufficient to

pay all of the credit supply core, then there will be a

pro rata reduction, so everyone who applied for credits

would get the same reduction in their application as

anyone else.

Q. Same operation in concept and principle as with

the current Transportation Credit Balancing Fund?

A. Correct.

Q. Okay. How about (d)(2)?

A. (d)(2) and (d)(3) talk about review by the Market

Administrator of the credits and the amounts and the

calculations and the data and just makes note that there

would be a review after the initial funding and there

could be changes. So D says that, sorry, section 3

talks about a final verification, and so that's where

the Market Administrator may do a look-back after they

have access to all of the data.

Q. Make sure everything's right?

A. Make sure everything is right, correct.

Q. Okay. Part 4 then?

A. Specifies that a cooperative association can be

the party that receives the payment funds.
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Q. For which is the handler?

A. Yes.

Q. Okay. And part 5, (d)(5)?

A. D5, I'm gonna read that, "The Market

Administrator shall provide monthly to producers who are

not members of a qualified cooperative association a

statement of the amount per hundredweight of

distributing plant delivery credit, which the

distributing plant handler receiving the milk is

entitled to claim. So that specifies that in the case

of a producer who is not a member of a co-op that the

Market Administrator would make that producer aware of

what Transportation Credits were earned on shipment of

their milk.

Q. And what's the purpose of that provision?

A. To be a transparent situation so that the

knowledge is known about what happened.

Q. The non-member is provided that knowledge?

A. Yes.

Q. Okay. Go then to subpart E.

A. Subpart (e) defines which milk the credits would

apply to, and in this case in Order 5, within the

marketing areas of federal Orders 5 and 7, so milk

originated -- originating from the farm in 5 or 7. And

some additional counties, which I'll speak to in a
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moment, originates in areas 5 and 7, and delivers to

plants 5 and 7. Soit can move in either direction,

obviously you can't collect on both at the same time,

but you can, milk that starts at 5 could deliver the 5

plant, could deliver the 7 plant. If it originates the

7, it delivers to a 7 plant, could deliver to a 5 plant.

Q. So if this is provisions for Order 5, this just

says that Order 5 would pay for milk originating either

in Order 5 or Order 7 or the additional counties that

you discussed in your direct testimony that are in

presently not federally regulated, non-federal marketing

area Virginia or West Virginia?

A. That is correct. And the language specifies the

number of counties in place and then again the handler

on those counties, if requested by the Market

Administrator, would need to show some information, and

then if there's additional counties that would like to

be included, that's possible, but they would have to

again prove to the Market Administrator that they are a

regular supply of milk.

Q. Okay. Move on subparts 2 and 3 of E?

A. Part 2 describes the fact that on days where

claims were made, the Market Administrator would

investigate and make sure that the handler, if they've

made claims for milk deliveries to a plant, they did not
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ship milk out of that plant, and so that is the --

that's the purpose of two. And on the purpose of three

is that the Market Administrator should monitor and

evaluate requests for delivery plant credits and try to

make sure that there's not a non-economic movement of

milk and if they do find that, they would -- there's a

process for how to make that known to the handler

they're investigating and what might happen.

Q. So two and three, in both of those cases the

proposal is intended to provide the Market Administrator

with the authority to police any potential abuses, is

that fair?

A. That is correct. And just the fact that somebody

is looking, you know, would be one factor of how to

administer that the fact that if somebody knows you're

looking, then they'll be a better actor.

Q. Very good. Subparts F then defines how to

compute the delivery plant, distributing plant delivery

credits, would you just review that, please?

A. Okay. (F)(1), with respect to milk delivered

directly from farm to a plant. Step -- the next step is

then single I, "shortest hard surface highway miles from

the farm to the plant, multiply the miles by adjustment

rate of not great are than 95-percent," so it could be a

reduction of miles, "not greater than 95 or less than
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75-percent," and our initial proposal suggests using

85-percent as that initial adjustment; (ii), subtract

the Class I price in the county where the shipping farm

is so that establishes what that differential value is.

And also for the county where the plant is located.

Triple I, multiply the adjusted miles by the mileage

rate factor that is determined in section 84, (iv)

subtract any positive difference in Class I prices

computed in subparagraph (ii), so this makes a

subtraction, if it's a positive number, so you would --

you would reduce the payment by the monies offered in

this case by the differential. D, multiply the

remainder computed in (iv) by the hundredweight of milk

that's transported. And that then becomes the payment.

Q. And that's basically the calculation that you

showed and demonstrated in that exhibit 71?

A. Yes.

Q. Okay. Then part 2, is that the same calculation

methodology with respect to milk moving from a pool

supply plant to a distributing plant in Order 5?

A. It is.

Q. Okay. Then there are three more parts to section

84 (g), (h) and (i), can you tell us what those are?

A. This allows for us the ability to move the

mileage rate up and down is G.
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Q. Okay. That's between 75-percent and 95-percent

that you've described?

A. Yes.

Q. Okay. (H) then just sets the rate at the same

rate --

A. Yes.

Q. -- as transportation -- as applies to mileage

Transportation Credit Balancing Fund?

A. That's right, says use same mileage rate factor

as used in the other program.

Q. That was explained in your testimony?

A. Yes.

Q. Then (ii) or (i) provides for the announcement of

the mileage rate factor for the month, correct?

A. Correct.

Q. Okay. So that's Order 5, let's look at Order 6,

which is proposal 4, exhibit 76 and just, just talk

about what differences, if any, there are, from Order 5

in the proposed Order 6 language?

A. I think six sections 30 and 32 have no changes;

84(a) has no change; 84(b) has a different assessment

rate; initial rate at 80 cents and thereafter no greater

than 85. The remainder of the language would be the

same. C, no changes. D, no changes. Two, no. Changes

three, four and five -- well three and four, no changes.
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Five, we have a different set of counties, these are

counties located in the State of Georgia.

Q. You mean (e)(1)?

A. (E)(1), yes, that's right.

Q. Okay. So, 1 provides the locations from which

farm to plant deliveries for Order 6 would qualify?

A. That is correct.

Q. And this set of counties in Georgia was described

in detail in your testimony?

A. It was, well not in detail. More of the detail

is coming, but there was a list and there was a map.

Q. Okay. Now, are the remainder of the language

provisions for Orders 6, same as 4 and 5?

A. No, Order 6, when you get down to H --

Q. Okay.

A. -- it is until you get to H.

Q. Very good. It's the same until we get to H. And

H is different in Order 6, why is that?

A. Because there is no such language to modify in

Order 6. There is not a Transportation Credit Balancing

Fund program in Order 6, so in order to have the mileage

rate factors computed and the language for those, you

would need what's in paragraph two to be able to do

that.

Q. So, in order 6, because there's no Transport
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Credit Balancing Fund presently there, was have to add

the calculation of the MRF rate into the Order 6

language rather than just refer to it --

A. Right.

Q. -- in the other orders. Okay. Very good. Go to

proposal 5 then, which is 7, exhibit number 77. And if

you would just identify what differences, if any, there

are in the Order 7 language from the Order 5 language?

A. Section 85 (b) says, "this assessment rate of

initially $0.45 per hundredweight and not greater than

50.

Q. Okay. So, the rate of assessment, as you

testified, is established for each order individually?

A. That is correct.

Q. Section (e)(1).

A. (E)(1) indicates that a credit can be applied for

if the farm is located within the marketing area of

Orders 5 and 7 and then delivers to a pool distributing

plant, Order 7.

Q. So, if I can just summarize the difference

between the three Orders are basically the rate, rates

of assessment, which are specified for each of the

Orders, and the geographic locations of the farms from

which the deliveries would be eligible for the credit.

Those are specified individual for each of the orders
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correct?

A. That, and then the insertion in Order 6 of the

MRF.

Q. Detail, detail calculations -- okay. Very good.

With that, are there any other, any other exhibits or

items that you'd like to present in direct testimony?

A. There are no more exhibits and no more direct

testimony.

MR. BESHORE: And I have no further

questions for Mr. Hollon on direct at this time.

THE COURT: Okay. So we take 15-minute

break. Be back, Mr. Hill, did you want to be --

apparently not. Okay, well we be back 11:15 for

cross-examination of this witness.

MR. BESHORE: Thank you, Your Honor.

(Whereupon, a recess was taken.)

THE COURT: Mr. Beshore.

MR. BESHORE: Your Honor, with your

permission, I need to make, I would like to make one

correction to exhibit 71, one change we can do to 71, do

you have that Mr. Hollon?

A. I do.

Q. Okay. The first example from that says it's from

Dacula, Georgia and Oglethorpe, Georgia, we should just

cross out those locations. The arithmetic, the mileage
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example calculations, it's a correct example of a

transaction, but the transaction was not, the mileage

doesn't match the distances from Dacula, Georgia to

Oglethorpe to Dacula, correct?

A. Yes.

Q. So there's some other geography that that

represents, we're not sure what it is right now, but the

arithmetic is right as an example of how things would

work. So those locations should just be crossed out,

correct?

A. Yes.

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

have. Thank you, thank you for allowing me to fix that

before we go to cross.

THE COURT: Yes. Counsel.

CROSS EXAMINATION

BY MS. TAYLOR:

Q. Good morning.

A. Good morning.

Q. I think I'd like to start -- I think I want to

start with the red text first, some questions on that.

I'd like to start with exhibit 73, get some of the

technical stuff out of the way. On the bottom of the

second page that's on the mileage adjustment factor.

A. Page 2?
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Q. Yea, bottom of page 2 into page 3, highlighted

paragraph.

A. Okay, I think.

Q. Okay. So you have, right now we, as proposed,

adjust the miles at 15-percent, and then the Market

Administrator has the ability to adjust that factor, the

way it's written is that the mileage adjustment factor

may be increased by as much as 10-percent, up to

25-percent?

A. Hang on, I thought you were talking about the

testimony for proposal 2, let me catch up with where you

are.

Q. Yea, I'm in, I should be --

A. Is the language you're asking about proposal 1?

Q. Proposal 1, exhibit 73, I'm on the second page,

part of 1005.82,(d)(3)?

A. (D)(3)(iii)?

Q. All the way at the bottom, (viii), however you

want to say that. Okay. So yea, the way it's written

is you can increase the factor by as much as 10-percent

up to 25-percent, and then decreased by as much as

10-percent to a minimum of 5-percent. That could be

interpreted to say 10-percent to 15-percent, for

example, instead of what you think you might intend is

of 10-percent? Did you mean to say 10-percent of the
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15-percent or did you mean to say you could increase or

decrease for example by as much as 10 percentage points

so that the mileage rate would be, adjustment could be,

for example, 25-percent of the miles?

A. I think the intent is if there needs to be,

currently it's at 85, that's where we started at.

Q. Right.

A. Okay. And so -- well you can't go up 25 from 85.

I'll have to have a review.

Q. We can discuss this maybe after lunch once you

have a chance to talk.

A. Okay.

Q. Then moving on to exhibit 75, which is the start

of the Distributing Plant Delivery Credit.

A. All right.

Q. I think Mr. Beshore clarified this, but I was

trying to read some of the texts and I might have missed

it, but you indicated in your testimony that the

allowance for a credit to be for pool supply plants was

in Order 5, but the language is in here in all three

orders, so?

A. We're okay with all three orders, even though I

don't think Order 6 has supply plant, Order 7 does have

a plant there, sometimes a supply plant, sometimes not,

most of the time not. And then in Order 5, that supply
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plants, as Mr. Smith will talk about, gets lots of use.

Q. Okay. In 1005.84 paragraph (d)(5), it's on the

third page?

A. (D)(5), yes.

Q. That's a paragraph that the market administrator

should provide to producers who aren't co-op members the

amount that their handler gets for their credit, there's

no date of when that should be provided, so could you

elaborate maybe what your intentions are and how that

would be operated?

A. Well, as far as dates, I presume it would be when

prices are announced or when, when the final

verification might be done. If I remember right, the

handler has to apply with when they're making their pool

reports, they submit their, the credit information and

in this case, their delivery credit information, and

they would, and this would be a calculation and a

payment, seems like it would perhaps make sense that

that notification would be after the verified filing.

Q. That brings up another question, for these

Transportation Credits have to be requested, and it's

your intent that these delivery, distributing plant

delivery credits also need to be requested, they

wouldn't just be automatic for producers who are

eligible?
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A. Automatic sounds pretty good.

Q. If I -- if it's found that maybe an administering

a program, it might be easier that they were automatic?

A. Yes, that would certainly be true.

Q. Right. So would DCMA be amenable to that?

A. Can I ask you a question?

Q. Sure.

A. How are the assembly credits in order 30 done?

Are those automatic?

Q. I'll have to get back to you on that one, talk to

an Order 30 person.

A. Automatic sounds like the right way.

Q. Okay.

A. You've already supplied the information. You've

already sent it in, so yes.

Q. And that brings up another question, in Order 5

has unregulated counties that are currently Virginia and

West Virginia able to be, to qualify for shipments for

these delivery credits?

A. Yes.

Q. Is it possible that those shipments could be

eligible for both delivery plant distributing credits

and Transportation Credits theoretically, and is it your

intent that they be allowed to get both0?

A. It would not be the intent to give both, so on
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the same load of milk, so if you have two loads of milk

and one meets that requirement and one meets that

requirement, that could, that could certainly be

possible, but there's no intent for anyone to collect

twice on the same load.

Q. Okay. This is a very technical question and I'm

going to turn to page 5 of exhibit 75, paragraph G, it

references in the last sentence, paragraphs (f)(1) and

(f)(6), but there is no (f)(6)? There's (f)(1)

subparagraphs and there's an (f)(2) with subparagraphs.

We can come back after lunch if you guys want to look

into that, but?

A. We'll be back.

Q. Great. For Order 5 you listed out the counties,

we noticed a difference that there was more counties to

make it more contiguous in your exhibits, in your map,

kind of shaded all the counties, but we don't believe

all the counties are actually listed in the reg texts

that are in exhibit 66. So, if the Department found

that -- well, let me say this, is your intention that

all the counties listed in exhibit 66 are included as

eligible to receive distributing plant delivery credits

in the Appalachian Order?

A. All of the counties in exhibit 66?

Q. Yes.
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A. Yes.

Q. So if we found counties missing out of the red

text, your intention is to include those?

A. If you found counties --

Q. In exhibit 66 that were not in the regulatory

text, it's your intention to include those?

A. Yes. The test in that case, the testimony

prevails.

Q. Gotcha. I don't see it in the red text and I

don't think your testimony covered this, but when comes

to diversion, the current Transportation Credits system

as we talked this morning cannot give credit on milk

that you're diverting off of, is your intention for that

to apply also for delivering these new credits?

A. We've discussed that twice, and I'm not totally

prepared to give the answer, so give you an answer,

we're up to three now.

Q. Hope someone's keeping track. Okay. Let me turn

to --

A. Can I ask you a couple clarifying questions on

that?

Q. Sure.

A. Okay. So, for a diverted transaction, there is

the place that is diverted off of, but not delivered to,

and on the other end of that translation, it's diverted
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to and delivered to, and that's your question, right?

Which one of those ought to count?

Q. Yes. Okay. I'm going to turn to your part 2

statement, which was exhibit 13, I want to go through

that a little bit.

A. Part 2 statement?

Q. Exhibit 13, what you just read into the record.

A. Exhibit 13.

Q. Yes. It was marked yesterday as exhibit 13?

A. Oh, okay. All right. Part 2?

Q. Yea. That's part 2, correct. And I'm just going

to ask a few questions just to make sure the record's

clear and kind of close the loop on a few items. On

page 4, the last full paragraph, it says "DCMA proposes

to address these cost inequities to a program of

Distributes Plant Delivery Credits," could you just

summarize again what those are? I think that's what you

discussed in the previous paragraph, but I just want to

make sure that's clear.

A. The previous paragraph would be examples of where

there would be cost inequities that laid out the Florida

example that's pretty geographically clear, there's a

lot of milk here and it can go one direction and there's

transportation costs and benefit from the differential;

it goes the other direction, and there's transportation
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cost and no benefit, so that's the global, if you will,

goal, that's just one example. You would have another

example, if I understand right, in some of the marketing

witnesses who are going to come pretty soon, they're

going to I think give some examples like that, but in

Southwest Georgia we got milk that goes all directions,

northeast, north, northwest, west, and almost all of

those transactions incur costs, but no transportation

assistance, and we think that's a change that should be

made.

Q. On the bottom of page 6, the last full sentence,

and I'll read it, "The reductions in farms and plants

put at risk a long-held marketing relationships that

have supported the availability of fresh local milk to

consumers and school children everywhere in the

southeastern U.S." I just wanted to know if you could

elaborate, perhaps the marketing people later today are

the better people to ask about this, just talk about

long-held marketing relationships and what you mean by

that.

A. Well, I think I'm go to defer because they're

answer closer to the tool on that.

Q. Okay. On page 8, this is part of your list that

talks about the marketing rational for distributing

plant delivery credits.
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A. Yes.

Q. And your sentence talked about this unique

regional situation is why you're asking for it down here

in the southeastern part of the country.

A. Which paragraph?

Q. I'm sorry, that would be helpful, paragraph 3.

A. Paragraph 3, yes.

Q. Yea. I just want, I guess my question is, can

you just maybe contrast how it's different in the

southeast versus what makes the southeast unique from

other parts of the country? We talked a lot about

what's going on in southeast, and your data talks about

that, but just highlighting how it's different, how it's

different down here than it is in the rest of the

country that makes it unique down here to do these

unique provisions.

A. Well the paragraph starts out by talking about

discussion around differentials, and I guess one of the

things that's reasonably true is any time any region of

the country talks about differentials, other regions'

antennas go up, they want to know what's it doing, what

does it mean work, how does it work, what's going to

happen, and the opportunity to do the delivery credit

system would be the ability to address some of those

cost factors without adjusting the differentials, and
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then you wouldn't necessarily have participation or

interest from other parts of the country.

Q. Okay. Would you say based on your experience the

milk supply/demand situation down here is different than

other parts of country, that's part of the reason why it

makes it unique?

A. Well, that's certainly true, you spent a lot of

pages earlier yesterday talking about some of those

differences, and I don't know that there's any of the

other Orders where the supply and demand relationship

are as stark as in the southeast.

Q. Next page 9, in paragraph H?

A. Yes.

Q. It talks about the system is superior to

over-order prices, which are challenging to maintain,

wonder if you could expand on that?

A. Okay. Over a long history, I've seen marketing

premiums, if you will, over-order premiums go up, go

down, go up, go down, and it's not always the easiest to

maneuver them. There's a wide collection of buyers with

all different marketing plans. One example, I can

remember participating in a discussion in the Texas

market where half the customers wanted to have the same

price milk the whole year, the other half wanted to have

it moved with order pricing, and so you say, well, okay,
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how can we respond to that? What can we do with that?

And so, those are unusual. And then, you have

situations where there's maybe different parts of the

country that have different, different marketing

programs, and when you want to maybe identify costs that

you want to make some change in, you have three parts of

the process, you have the milk supply, processing

supply, and the ultimate retail consumer supply, and

where along that chain does that price get transmitted

and how much, how not much, you know, how is the

response a good one, a bad one? And it's becoming

increasingly clear that price transmission is

tremendously easier when it shows up on the Federal

Order price announcement. We're all here today, most

everybody here today is looking at justifying those, so

it's not like you make them up and put them in, you have

a longstanding process, but the fact that they're part

of the regulatory process does two things, makes pretty

sure you can pass them on, and secondly, that they get

audited and checked and collected, and that is another

scenario in the unregulated market, occasionally those

price changes don't get collected.

And I would say the last point is that

some of the cost pieces have a tremendous amount of

volatility, more so now than every before, we have
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another witness who's going to provide some history and

color around that, but it's not uncommon, at least in my

memory, to say that you establish a price, you made a

price change, but you couldn't put it in place for three

or four months down the road until you, you know, you've

got all this alignment. Again, this is, wouldn't have

to deal with those types of issues, so that's sort of

color, if you will, around that statement.

Q. Thank you. On page 10, in the middle, the big

paragraph in the middle talks about the assessment rates

and the Market Administrator can change the rates --

A. Yes.

Q. -- after investigations. I'm just asking, I

didn't ask in the text sort of long lines of questions

from yesterday, what do you all intend for the Market

Administrator to look at just over a certain periods of

time, the assessments are collecting too much money, you

should only carry so much of a balance and at that point

he should reduce the rate, for example?

A. That would be I think a good example. That also

gives you credibility, you know, in the marketplace, so

that would be one. Obviously, the other end, you know,

would be, ghee, every month this year you've had

prorated amount payments, so that says well maybe we

should look at changing some of the factors that we can
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change and increase, so I'm sure that the Market

Administrator gets lots of requests from others and to

them to do both of those, so those would be two really

good examples.

Q. Okay. And then is it your intention that the

Market Administrator also just lower the rate? I think

from the regulatory text, I might have to go back and

look, it talks about allowing them to waive the rate, if

they so choose, or increase the rate, but doesn't

necessarily speak to just lowering the rate for the new

distributing plant delivery credits?

A. Try that one more time.

Q. I'm not sure the red text, as proposed, for the

distributing plant delivery credits in the assessment

part specifies that the Market Administrator could lower

the rate, it talks about increasing the rate or waiving

the rate, but not necessarily lowering it, is it your

intention to include lowering in that --

A. Yes.

Q. And the next paragraph about the "Market

Administrator can disallow claims if they determine both

movements were persistently and pervasively uneconomic?"

A. Yes.

Q. Could you just expand on what, for the record,

what you're looking for there?
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A. Can I draw a question out of that sentence? I

think so, yes. First of all, this is a new program, so

not everything is going to be clear. There would be

things that perhaps we didn't anticipate. So I don't

know that we can say without a doubt there is this,

this, this, this. But again, the fact that somebody's

looking is perhaps the most prevailing thing. And then

if there's -- marketers in the dairy industry are known

for their creativity, and so to the extent that maybe

the creativity crosses a line, there's nothing wrong

with inquiring and saying, "Hey, I've noticed this is

going on, I don't think it's the right think, what do

you think," I think would probably have some impact, but

overall, just the fact that it's in the order and it's

required to look has got to have some weight.

Q. Moving on to page 12, in the middle, the large

paragraph in the middle, towards the bottom, the

85-percent, "the choice of 85-percent for the initial

setting was based on DCMA members of current market

conditions," can you expand on what that sentence

incorporates?

A. Some of it trails back to the transportation

credit and their 85-percent, that's where it originated,

and so that carried over. There was an active

discussion about at what level that should be, at what
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level, there always should be responsibility by the

seller of any commodity, you know, to have to bear some

of the cost of marketing, so where should that be at?

Should it be up here? Should if be down -- I guess you

can't do that. It should be high or it should be low,

and with discussion back and forth, it was felt like

that was an appropriate number to recognize some

responsibility by the seller.

Q. I had another question on the assessment, on page

13, the paragraph that starts exhibit 63, this is kind

of technical, but at the bottom of that very --

A. Which paragraph?

Q. It starts exhibit 63.

A. Okay. There's two numbers.

Q. The first one.

A. First one, okay.

Q. Talks about the MA can adjust the assessment if

conditions weren't after a year of operations, but I

don't think your regulatory texts says that, but is that

your intent?

A. I thought it did say that. I thought it said

they were supposed to establish based on, you know, a

period of time, if it was an equitable amount. You

wouldn't do it on a day -- that there would be a

periodic review of the assessment to set it at a level
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that would meet some goal in the prior period, prior

year, isn't there language like that?

Q. If I'm looking at your exhibit 75, second page,

paragraph (B), second paragraph B on that page,

"payments to distributing plant delivery credit fund," I

guess that's what you mean here in the middle of the

paragraph, "set the rate of $0.55 and thereafter not

greater than $0.60 as the market administrator deems

necessary to maintain a balance in the fund equal to the

distributing plant delivery --

(Court reporter asked for Ms. Taylor to slow

down reading the document.)

MS. TAYLOR: Sorry, my mom always told

me I talked too fast.

A. That's, that's, that's the paragraph that I was

Q. Okay. During the prior calendar year, so it's

your intent that the $0.55 stays $0.55 for a whole year,

and then after that we can adjust it, if necessary, for

example?

A. There's not a good answer to that question,

because early on there may be reason to change.

Q. Okay.

A. And so, and later on, there would be a desire to

say, okay, you got to at least look, so. I would say
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yes, we would go with the language here, but there is a

boundary then at the end of the year, there has to be

some. He can say "I looked and I'm not doing anything,"

or, "I looked and I want some information on this," just

like you would do a rule-to-comment type proposal, which

I think is what the industry envisions happening.

Q. And then going forward from there, would it be

something he should look at just once a year?

A. No.

Q. He or she?

A. They.

Q. They. I did want to turn to exhibit 63.

A. Exhibit?

Q. 63.

A. 63?

Q. Yes. I have to find it myself. This is analysis

of assessment and costs for DC proposal Federal Order 5,

2020 to 2022, and I'll -- I'm looking at that and I'm

looking at how you describe on page 13, as I was

following along, you said, in their texts, your

statement, the second column is the "total dollars of

assessment using market administrator generated miles,

less 15-percent, multiplied by the mileage rate factor,"

isn't that column just the assessment they collect on

Class I milk? It really doesn't make -- you don't
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really incorporate miles and mileage rate?

A. That's correct.

Q. So the second column is what's paid in based on

the --

A. Yes.

Q. Okay. And then the other things use the mileage

rate factor? I just want to make sure your statement

is --

A. Yes.

Q. Okay.

A. I guess I would want to point out again, that's

the last column is the punch line column,

(unintelligible) exhibit, we looked at that, we looked

at that assessment rate. We evaluated how it would

performed, we said this is the assessment rate we want

to ask for.

Q. Right. Back to statement on page 14 about what

producer, what qualifies for a credit.

A. Will you.

Q. Again, this is one of those just questions asking

just, the system give the market administrator, as

proposed, flexibilities to do many different things

requested by the industry, so just some clarity for the

record as what you want the market administrator to look

at when you talk about any out-of-order counties that
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want to be considered to be eligible to receive a credit

must provide proof satisfactory to the market

administrator, that the county is part of the milk shed

that regularly supplies milk to the Order?

A. Regularly supplies is kind of a good word, so

that has to be the bottom line, is that over an extended

period of time, over an entire year, I don't think you

can say 365 because you're going to have situations

where maybe you couldn't do it on a day, maybe there was

a quality problem, maybe it was Memorial Day weekend and

some load had to move to a balancing location, but

regular supply means it comes without question, most of

the time, the handler can produce, you know, manifest,

if asked, it can produce haul bills if asked, to show

that it's a regular supply.

Q. Okay.

A. Obviously, in the example that you read, be not a

federally regulated county, that particular one, that's

order -- no, I'm sorry.

Q. Well out-of-any-order counties?

A. Yes.

Q. And that goes so what about, for example, in

Order 6 where you have counties in Georgia that was the

eligible to receive their payment, but somehow the milk

shed changes, and instead of the county being in one of
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those (unintelligible) listed currently, it's somewhere

else, what happens in that situation?

A. Well, we made attempts to include a broad range

of counties, and the folks who market in that geography

were key in saying okay, here is the counties where we

absolutely have milk now and we know we have, and we

know who the producers are and we know the ones who

think they're going to expand in the ways, the ones that

say they're not and the ones that say I have an uncle or

a brother coming in the dairy business. We also note

there's milk in this county, there's milk in this

county, and here's a county here where there's not any,

so it would be logic to try to include as many of those

as you possibly could, and you know that the majority of

the ones you include will never (inaudible/trailed off)

a farm, you think, but it also allows you to give the

majority of those who would, because the worst possible

outcome is to have to come back to a hearing to include

one county that you didn't make allowances for.

Q. But as it -- that makes sense, but I just want to

be clear, if there's a county that is located in a

Federal Order that somehow, I don't know, 10, 15 years

from now there's milk there that isn't there now and

it's a regular supplier for Order 6, for example, they

couldn't petition the market administrator to be
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included?

A. Did you say they could or could not?

Q. Could not petition.

A. I would say that's correct.

Q. Okay. I had questions on the competitive pairs

analysis and I know you said there was witnesses that

were going to talk about the DAT information.

A. Uh-huh (affirmative).

Q. I'm thinking I might hold off on those questions

now and maybe they'll be answered later?

A. That would be right. If the witness needs help,

we'll provide it.

Q. Let me check my list real quick and one more. A

broader question, I think it's well documented that

Class I sales nationally are going down?

A. Correct.

Q. So can you speak on why it is appropriate at this

time, given that fact, to increase essentially prices on

Class I milk that the consumers will pay?

A. Fair question. In this particular situation, I

guess I would answer that question by saying the is to

try to keep as much local milk in the market producing

milk. And so, I think the three dairy farmer witnesses,

one of the things they spoke about was the number of

dairies that they knew of that were near their farm who
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were no longer there, and to the extent that we can help

the farm in the area grow or remain in business or maybe

even come into business is going to provide the most

economic milk supply for the processors in the

southeastern Orders and ultimately for consumers, that's

always a hard argument to follow all the way through the

chain, but it speaks to be true. So every farm that

goes out of business gets replaced by a supplemental

milk load that costs a whole lot more.

Q. For now, my final question is on your emergency

hearing request.

A. Correct.

Q. What's the consequence if USDA doesn't utilize

emergency procedures and why would you consider this an

emergency now that needs to be considered?

A. The biggest now situation is the transportation

situation. And all the way through, you heard folks

yesterday again who were at the forefront, you know, "my

hauler went out of business, my hauler told me they were

going to quit if I couldn't get more money, we can't get

another person in our area," and so that's not showing

any relenting. The volatility and the fuel arrangement,

we'll have witness to speak to that and will be

available for questions, but that volatility is not

going away, it's only going to get worse. And our
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abilities, as I mentioned before, to deal with those

factors in the current market are pretty hamstrung and

so, obviously, when you ask for emergency, you would

like it to show up and like it to happen that way. I

guess your question about what would happen is out of

business signs would probably be more and that would

again make it more costly to supply the local market

because the local milk is having a hard time. I would

say, we also seem to hit a sweet spot in the

capabilities of the Department to have the hearing and

reach a decision, so that would be of benefit.

Q. Yes, we try to be efficient these days.

A. Good job.

MS. TAYLOR: I think that's it for AMS

at the moment. Thank you.

MR. HOLLON: You're welcome.

THE COURT: Okay. Cross-examination by

anyone, other than the presenting party DCMA? Okay,

AMS, sir?

CROSS EXAMINATION

BY MR. TONAK:

Q. On your exhibit 13, page 3, middle paragraph?

A. Yes, sir.

Q. You indicate that in-area deliveries account for

54-percent of the pool distributing plant needs, Order
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5, so that would mean 46-percent comes from

out-of-the-area, is that correct?

A. Yes.

Q. And the same with Order 7, 44-percent of the

needs come from in the area, so 56-percent would come

from out-of-the-area?

A. Yes, sir.

Q. You also mention that the milk be partially paid

for, meaning the out-of-area milk with the existence of

the existing transportation credit system?

A. Yes, that's true.

Q. For the months of, if your proposal is accepted,

into February, is it eliminated at the Transportation

Credit month, so for the months of February, March,

April, May, June, this milk from out-of-the-area, except

for your designated counties in Virginia, West Virginia

and Georgia, this milk would be on their own, so to say,

no reimbursement of any cost to be delivered into the

market into the distributing plants of the marketing

area?

A. You talking about access to the transportation

credit?

Q. I'm talking about just in general, the

out-of-area milk?

A. The out-of-area milk then that's milk that
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qualifies for a Transportation Credit.

Q. From Order 5, I mean, for Order 5, not counting

Virginia and West Virginia counties, and Order 6, not

counting the Georgia counties, would not receive any

transportation assistance during February, March, April

May and June?

A. Again, I'm asking you would you distinguish

between the transportation credit and delivery credit

system?

Q. Well there is no Transportation Credit in

February, March, April, May and June.

A. Correct. So any --

Q. So they'd receive no transportation assistance?

A. Yes.

Q. In those months, right?

A. Yes. But if the distributing plant delivery

credits were in place, those in the suggested counties

or in the marketing order would, they would receive that

credit.

Q. But those producing, that are supplying the

market from Indiana, Illinois, and so on, would not

receive any transportation assistance?

A. Yes, you're correct.

Q. And since a number of those producers supply the

market on a year-around basis with over 50-percent of
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the milk in February, March, April, May and June months,

they would not be eligible for the Transportation Credit

either?

A. That's correct.

Q. So those producers would not receive any

assistance while producers in the market receive

transportation assistance and supplying about half of

the market needs?

A. That would be correct.

Q. Okay. I just wanted to make sure I understood

that. On your exhibit 72, and it shows the pool

distributing plants as of October 22nd, there's an

actual plant tn Shreveport Louisiana?

A. Again, please? 72?

Q. 72, does that show a pool distributing plant at

Shreveport, Louisiana?

A. It does not. I don't think there is one.

Q. Not anymore.

A. Well, that's true.

Q. But I also see on your exhibit, exhibit 70, I

believe, that Shreveport is listed three times --

A. Yes.

Q. -- (unintelligible)?

A. Yes.

Q. Kind of a calculation without any meaning as far
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as this proceeding is concerned?

A. No, I think the meaning there is that there's

possible customer location in Shreveport, what might be

the comparison to include, you know, which plant might

be able to supply that. You're right, there's no plant

there, hasn't been one there for a long, long time, so

but on that, the reason it's included in that list is

the potential for competitiveness for that market.

Q. But when we're looking at compared plant

comparison, a customer can be there, but there's no

plant to compare as such, Tyler or Little Rock and so

on?

A. Could compare Tyler to Shreveport and Little Rock

to Shreveport and see what the numbers say.

Q. So you say then what we're actually looking at is

the difference between what Tyler can do and what

Shreveport could carry what Little Rock could do and

we'd have to net those two numbers?

A. We'd have to examine them, haven't done anymore

than that, but that's why Shreveport is included there.

Q. Okay. Looking at the "competitor less inside"

milk, less inside, in column 15. Would that indicate

that if some of the transportation charges be the

transportation credit or the producer in the

distributing plant delivery credit were increased, they
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could perhaps be increased by $0.40 a hundred without

severely impacting the competitive nature?

A. So, are you looking at column 15?

Q. Column 15.

A. Yes. So, the numbers in column 15 would be with

the constraints, differential and assessment, if there

is one, differential assessment, if there is one, but

not too many of those, and transportation cost

comparison. So, line one, in Athens, Tennessee, with a

potential competitor in Indianapolis, the Indianapolis

competitor would be out of the money or would need to

somehow overcome $1.71 a hundredweight to be competitive

with the Athens plant, so is that the explanation that

you're asking for?

Q. And if we added the transportation credit or an

increase for a distributing plant delivery credit

increase Class I -- it would reduce those differences

depending on how much we added?

A. If you look at column 4 or column 9, those are

the assessments, the 90 cents is the combination of the

two programs we proposed, for example, in Order 5. So,

if you will, all the way over to column 15 says $1.71

un-competitive and that includes both of the

assessments, and so if the question, I think, if you

were to make that -- it would be $0.95 cents, then all
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way over column 15, it would be $1.65.

Q. Okay, that was my question. Thank you for

clarifying.

A. You're welcome.

THE COURT: Does that complete your

examination? I think so, anyone else? Redirect,

Mr. Beshore?

MR. BESHORE: May I suggest this would

be appropriate time to take a lunch break before

redirect with any further cross?

THE COURT: Any objection? Let's come

back at, can we say, let's say 1:30, I guess. Thank

you, off the record.

(Whereupon, a recess was taken for lunch.)