DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1000, 1001, 1002, 1004, 1005, 1006, 1007, 1012, 1013,

1030, 1032, 1033, 1036, 1040, 1044, 1046, 1049, 1050, 1064, 1065,

1068, 1076, 1079, 1106, 1124, 1126, 1131, 1134, 1135, 1137, 1138

and 1139

DA-97-12

Milk in the New England and Other Marketing Areas; Decision on

Proposed Amendments to Marketing Agreements and to Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

_________________________________________________________________

7 CFR Part Marketing Area

_________________________________________________________________ 

1000 General Provisions of Federal Milk 

Marketing Orders

1001 New England

1002 New York-New Jersey

1004 Middle Atlantic

1005 Carolina

1006 Upper Florida 

1007 Southeast

1012 Tampa Bay

1013 Southeastern Florida

1030 Chicago Regional

1032 Southern Illinois-Eastern Missouri

1033 Ohio Valley

1036 Eastern Ohio-Western Pennsylvania

1040 Southern Michigan

1044 Michigan Upper Peninsula

1046 Louisville-Lexington-Evansville

1049 Indiana

1050 Central Illinois

1064 Greater Kansas City

1065 Nebraska-Western Iowa

1068 Upper Midwest

1076 Eastern South Dakota

1079 Iowa
1106 Southwest Plains

1124 Pacific Northwest

1126 Texas

1131 Central Arizona

1134 Western Colorado

1135 Southwestern Idaho-Eastern Oregon

1137 Eastern Colorado

1138 New Mexico-West Texas 

1139 Great Basin

________________________________________________________________

SUMMARY: This final decision consolidates the current 31 Federal

milk marketing orders into 11 orders. This consolidation complies

with the 1996 Farm Bill which mandates that the current Federal

milk orders be consolidated into between 10 to 14 orders. This

decision also conforms to the Omnibus Consolidated and Emergency

Supplemental Appropriations Bill, which requires that this

decision be issued between February 1 and April 4, 1999, and

extends the time for implementing Federal milk order reform

amendments to October 1, 1999. This decision sets forth a

replacement for the Class I price structure and replaces the basic

formula price with a multiple component pricing system. This

decision also establishes a new Class IV which would include milk

used to produce nonfat dry milk, butter, and other dry milk

powders; reclassifies eggnog; and addresses other minor

classification changes. Part 1000 is expanded to include sections

that are identical to all of the consolidated orders to assist in

simplifying and streamlining the orders. 

This decision does not provide for conducting referendums of

producers to determine if they approve of the issuance of the

consolidated orders. 

DATE: A notice to conduct a referendum on each of the

consolidated orders will be published separately at a future date.

FOR FURTHER INFORMATION CONTACT: John F. Borovies, Branch Chief,

USDA/AMS/Dairy Programs, Order Formulation Branch, Room 2971,

South Building, P.O. Box 96456, Washington, DC 20090-6456,

(202) 720-6274, e-mail address John_F_Borovies@usda.gov (after

April 19, 1999, the e-mail address will change to

John.Borovies@usda.gov).

For specific information on the Final Regulatory Impact Analysis

and the Civil Rights Impact Analysis contact: John R. Mengel,

Chief Economist, USDA/AMS/Dairy Programs, Office of Chief

Economist, Room 2753, South Building, P.O. Box 96456,

Washington, DC 20090-6456, (202) 720-4664, e-mail address
John_R_Mengel@usda.gov (after April 19, 1999, the e-mail address

will change to John.Mengel@usda.gov).

SUPPLEMENTARY INFORMATION:

Major changes from the proposed rule issued on January 21, 1998, 

are as follows:

1. Consolidation of marketing areas:

(a) The Western New York State order was removed from the

proposed Northeast marketing area.

(b) Six currently-unregulated counties were removed from the

consolidated Central marketing area. 

(c) The current Western Colorado order was moved from the

consolidated Western order to the consolidated Central marketing

area along with 7 currently-unregulated Colorado counties.

2. Basic formula price replacement:

(a) The proposed Class III and Class IV pricing formulas are

revised to adjust for product yields and make allowances that

result in lowering the Class III and IV prices.

(b) Barrel cheese prices (NASS survey) are included in the

Class III price formula.

(c) The basis for measuring the protein content in milk is

changed from a test for total nitrogen to a test for true protein.

(d) Advance pricing for Class I will continue to be provided,

but with a shorter time period (7 days vs. 25 days) prior to the

effective month. The proposed rule had suggested a 6-month

declining average mover. 

(e) Provides for advance pricing for skim milk in Class II

uses in the same manner as for Class I.

3. Class I price structure: Adopts a Class I price structure

that uses the generally higher differential levels as proposed in

Option 1A while retaining the pricing surface of the Department’s

preferred option.

4. Classification:

(a) Cream cheese is moved from Class II to Class III.

(b) Shrinkage calculations are revised. 

Table of Contents

I. Prior documents

II. Legislative and Background Requirements

Legislative Requirements

Background

Actions Completed During Developmental Phase 

Actions Completed During Rulemaking Phase

Public Interaction and Input
Executive Order 12988

Executive Order 12866

Civil Rights Analysis Executive Summary

The Regulatory Flexibility Act and the Effects on Small 

Businesses

Paperwork Reduction Act of 1995

Request for Public Input on Analyses

Preliminary Statement

III. Discussion of Material Issues and Proposed Amendments to the

Orders

Consolidation of marketing areas

Basic formula price replacement and other class price issues

Class I pricing structure

Classification of milk and related issues

Provisions applicable to all orders

Regional Issues:

Northeast Region

Southeast Region

Midwest Region

Western Region

Miscellaneous and Administrative

Consolidation of the marketing service, administrative 

expense, and producer-settlement funds

Consolidation of the transportation credit balancing 

funds

General findings

IV. Order Language

General provisions

Northeast order provisions

Appalachian order provisions

Florida order provisions

Southeast order provisions

Upper Midwest order provisions

Central order provisions

Mideast order provisions

Pacific Northwest order provisions

Southwest order provisions

Arizona-Las Vegas order provisions

Western order provisions

V. Appendix

A: Summary of Preliminary Suggested Order Consolidation 

Report

B: Summary of Pricing Options

C: Summary of Classification Report

D: Summary of Identical Provisions Report

E: Summary of Basic Formula Price Report

F: Summary of Revised Preliminary Suggested Order 
1Section 143(b)(2) requires that a proposed rule be published

by April 4, 1998, and Section 143(b)(3) provides that “in the

event that the Secretary is enjoined or otherwise restrained by a

court order from publishing or implementing the consolidation and

related reforms under subsection (a), the length of time for which

that injunction or other restraining order is effective shall be

added to the time limitations specified in paragraph (2) thereby

extending those time limitations by a period of time equal to the

period of time for which the injunction or other restraining order

is effective.”

2 Since this proceeding was initiated on May 2, 1996, the

Black Hills, South Dakota and the Tennessee Valley orders have

been terminated. Effective October 1, 1996, the operating

provisions of the Black Hills order were terminated (61 FR 47038),

and the remaining administrative provisions were terminated

effective December 31, 1996 (61 FR 67927). Effective October 1,

1997, the operating provisions of the Tennessee Valley order were

terminated (62 FR 47923). The remaining administrative provisions

of the Tennessee Valley order will be terminated before this

consolidation process is completed.

Consolidation Report

I. Prior Documents

Prior documents in this proceeding include:

Proposed Rule: Issued January 21, 1998; published January 30,

1998 (63 FR 4802).

Correction: Issued February 19, 1998; published February 25,

1998 (63 FR 9686).

Extension of Time: Issued March 10, 1998; published March

13,1998 (63 FR 12417).

II. Legislative And Background Requirements

Legislative Requirements

Section 143 of the Federal Agriculture Improvement and Reform

Act of 1996 (Farm Bill), 7 USC § 7253, required that by April 4,

19991, the current Federal milk marketing orders issued under the

Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C.

601-674), be consolidated into between 10 to 14 orders2. The

Secretary of Agriculture (Secretary) is also directed to designate

the State of California as a Federal milk order if California

dairy producers petition for and approve such an order. In

addition, the Farm Bill provided that the Secretary may address

related issues such as the use of utilization rates and multiple
3The Omnibus Consolidated and Emergency Supplemental

Appropriations Bill, passed in October 1998, extended the time

frame for implementing Federal milk order reform amendments from

April 4, 1999, to October 1, 1999. The extension specifies that

the final decision, defined as the final rule for purposes of this

legislation, will be issued between February 1 and April 4, 1999,

with the new amendments becoming effective on October 1, 1999. 

The legislation also provides that California has from the date of

issuance of the final decision until September 30, 1999, to become

a separate Federal milk marketing order. 

4 Copies of the Report to Congress can be obtained from Dairy

Programs at (202) 720-4392 or via the Internet at

http://www.ams.usda.gov/dairy/.

basing points for the pricing of fluid milk and the use of uniform

multiple component pricing when developing one or more basic

prices for manufacturing milk3. 

Besides designating a date for completion of the required

consolidation, the Farm Bill further required that no later than

April 1, 1997, the Secretary shall submit a report to Congress on

the progress of the Federal order reform process that included: a

description of the progress made toward implementation, a review

of the Federal order system in light of the reforms required, and

any recommendations considered appropriate for further

improvements and reforms. This report was submitted to Congress

on April 1, 19974. 

Finally, the 1996 Farm Bill specified that USDA use informal

rulemaking to implement these reforms.

Background 

The authorization of informal rulemaking to achieve the

mandated reforms of the Farm Bill has resulted in a rulemaking

process that is substantially different from the formal rulemaking

process required to promulgate or amend Federal orders. The

formal rulemaking process requires that decisions by USDA be based

solely on the evidentiary record of a public hearing held before

an Administrative Law Judge. Formal rulemaking involves the

presentation of sworn testimony, the cross-examination of

witnesses, the filing of briefs, the issuance of a recommended

decision, the filing of exceptions, the issuance of a final

decision that is voted on by affected producers, and upon approval

by producers, the issuance of a final order. 

The informal rulemaking process does not require these

procedures. Instead, informal rulemaking provides for the

issuance of a proposed rule by the Agricultural Marketing Service,
5As previously noted, this is also the time period in which

California can consider becoming a Federal order based on the

Omnibus Consolidated and Emergency Supplemental Appropriations

Bill provisions.

a period of time for the filing of comments by interested parties,

and the issuance of a final decision by the Secretary. 

Referendums will be conducted to determine approval of the final

decision by the requisite number of producers before the new

orders will become effective. 

Full participation by interested parties has been essential

in the reform of Federal milk orders. The issues are too

important and complex to be developed without significant input

from all facets of the dairy industry. The experience, knowledge,

and expertise of the industry and public have been integral to the

development of the rule. To ensure that maximum public input into

the process was received, USDA developed a plan of action and

projected time line. The plan of action developed consists of

three phases: developmental, rulemaking, and implementation. 

The first phase of the plan was the developmental phase. The

use of a developmental phase allowed USDA to interact freely with

the public to develop viable proposals that accomplished the Farm

Bill mandates, as well as related reforms. The USDA met with

interested parties to discuss the reform process, assisted in

developing ideas or provided data and analysis on various

possibilities, issued program announcements, and requested public

input on all aspects of the Federal order program. The

developmental phase began on April 4, 1996, and concluded with the

issuance of the proposed rule on January 21, 1998 (68 FR 4802). 

The second phase of the plan is the rulemaking phase. The

rulemaking phase began with the issuance and publication of the

proposed rule. The proposed rule provided the public 60 days to

submit written comments on the reform proposals to USDA. On March

10, 1998, (68 FR 12417) the comment period was extended for an

additional 30 days until April 30, 1998. In addition to requests

for written comments, four listening sessions were held to receive

verbal comments on the proposed rule. All comments were reviewed

and considered prior to the issuance of this rule. 

The third and final phase of the plan is the implementation

phase. The implementation phase begins after this rule is

published in the Federal Register. This phase consists of

informational meetings conducted by Market Administrator personnel

and referendums.5 The objective of the informational meetings is

to inform producers and handlers about the newly consolidated

orders and explain the projected effects on producers and handlers

in the new marketing order areas. After informational meetings
6Copies of these reports may be obtained by contacting Ms.

Wendy Barrett, Cornell University, ARME, 348 Warren Hall, Ithaca,

NY 14853-7801, (607) 255-1581,

7Copies of these reports may be obtained by contacting Dr.

Ronald Knutson, Agricultural and Food Policy Center, Dept. of Ag. 

Economics, Texas A&M University, College Station, TX 77843-2124,

(409) 845-5913.

are held, the referendums will be conducted. Upon approval of the

consolidated orders and related reforms by the required number of

producers in each marketing area, a final order implementing the

new orders will be issued and published in the Federal Register. 

Although all of the issues regarding Federal milk order

reform are interrelated, USDA established several committees to

address specific issues. The use of committees allowed the reform

process to be divided into more manageable tasks. The committees

worked throughout the developmental and rulemaking phases. The

committees established were: Price Structure, Basic Formula

Price, Identical Provisions, Classification, and Regional. The

Regional committee was divided into four sub-committees: Midwest,

Northeast, Southeast, and West. Committee membership consisted of

both field and headquarters Dairy Programs personnel. The

committees were given specific assignments related to their

designated issue and began meeting in May 1996.

In addition to utilizing USDA personnel, partnerships were

established with two university consortia to provide expert

analyses on the issues relating to price structure and basic

formula price options. Dr. Andrew Novakovic of Cornell University

led the analysis on price structure and published a staff paper

entitled "U.S. Dairy Sector Simulator: A Spatially Disaggregated

Model of the U.S. Dairy Industry" and a research bulletin entitled

"An Economic and Mathematical Description of the U.S. Dairy Sector

Simulator"6 Dr. Ronald Knutson of Texas A&M University led the

analysis on basic formula price options and published three

working papers entitled "An Economic Evaluation of Basic Formula

Price (BFP) Alternatives", "The Modified Product Value and Fresh

Milk Base Price Formulas as BFP Alternatives", and “Evaluation of

’Final’ Four Basic Formula Price Options”.7

Actions Completed During Developmental Phase

USDA maintained frequent contact with the industry regarding

the reform process. To begin, on May 2, 1996, the Agricultural

Marketing Service (AMS) Dairy Division issued a memorandum to

interested parties announcing the planned procedures for
8Copies of this announcement and all subsequent announcements

and reports can be obtained from Dairy Programs at (202) 720-4392,

any Market Administrator office, or via the Internet at

http://www.ams.usda.gov/dairy/.

implementing the Farm Bill8. In this memorandum, all interested

parties were requested to submit ideas on reforming Federal milk

orders, specifically as to the consolidation and pricing structure

of orders. Input was requested by July 1, 1996. 

On June 24, 1996, USDA issued a press release announcing that

a public forum would be held in Madison, Wisconsin, on July 29,

1996. The forum would address price discovery techniques for the

value of milk used in manufactured dairy products. Thirty-one

Senators, Congressmen, university professors, representatives of

processor and producer organizations, and dairy farmers made

presentations at the forum. 

On October 24, 1996, AMS Dairy Division issued a memorandum

to interested parties requesting input regarding all aspects of

Federal milk order reform and specifically as to its impact on

small businesses. USDA anticipated that the consolidation of

Federal orders would have an economic impact on handlers and

producers affected by the program, and USDA wanted to ensure that,

while accomplishing their intended purpose, the newly consolidated

Federal orders would not unduly inhibit the ability of small

businesses to compete. 

On December 3, 1996, AMS Dairy Division issued a memorandum

to interested parties announcing the release of the preliminary

report on Federal milk order consolidation. The report suggested

the consolidation of the then current 32 Federal milk orders into

ten orders. (See Appendix A for report summary.) The memorandum

requested input from all interested parties on the suggested

consolidated orders and on any other aspect of the milk marketing

order program by February 10, 1997.

On March 7, 1997, AMS Dairy Division issued a memorandum to

interested parties announcing the release of three reports that

addressed the Class I price structure, the classification of milk,

and the identical provisions contained in a Federal milk order. 

The price structure report consisted of a summary report and a

technical report and discussed several options for modifying the

Class I price structure. (See Appendix B for report summary.) 

The classification report recommended the reclassification of

certain dairy products, including the removal of Class III-A

pricing for nonfat dry milk. (See Appendix C for report summary.) 

The identical provisions report recommended simplifying,

modifying, and eliminating unnecessary differences in Federal

order provisions. (See Appendix D for report summary.) Comments
on the contents of these reports, as well as on any other aspect

of the program, were requested from interested parties by June 1,

1997.

On April 18, 1997, AMS Dairy Division issued a memorandum to

interested parties announcing the release of the preliminary

report on Alternatives to the Basic Formula Price (BFP). The

report contained suggestions, ideas, and initial findings for BFP

alternatives. Over eight categories of options were identified

with four options recommended for further review and discussion. 

(See Appendix E for report summary.) The memorandum requested

input from all interested parties on a BFP alternative and on any

other aspect of the milk marketing order program by June 1, 1997.

On May 20, 1997, AMS Dairy Division issued a memorandum to

interested parties announcing the release of a revised preliminary

report on Federal milk order consolidation. The revisions were

based on the input received from interested parties in response to

the initial preliminary report on order consolidation. (See

Appendix F for report summary.) Instead of suggesting 10

consolidated orders as in the first report, the revised report

suggested 11 consolidated orders and suggested the inclusion of

some currently unregulated territory. The memorandum requested

comments from all interested parties on the suggested consolidated

orders and on any other aspect of the milk marketing order program

by June 15, 1997.

To elicit further input on the role of the National Cheese

Exchange price in calculating the basic formula price, on

January 29, 1997, the Secretary issued a press release announcing

steps being taken by USDA to address concerns raised by dairy

producers about how milk prices are calculated. In the press

release, the Secretary requested further comments from interested

parties about the use of the National Cheese Exchange in the

determination of the basic formula price, which is the minimum

price that handlers must pay dairy farmers for milk used to

manufacture Class III products (butter and cheese) and the price

used to establish the Class I and Class II prices. These comments

were requested by March 31, 1997, and were useful in analyzing

alternatives to the basic formula price in context of the order

reform process.

Actions Completed During Rulemaking Phase

On January 21, 1998, USDA issued a proposed rule (68 FR 4802)

that recommended consolidating the current 31 orders into 11

orders, proposed two options for consideration as a replacement

for the Class I price structure, and recommended replacing the

basic formula price. The proposed rule also recommended

establishing a new Class IV which would include milk used to

produce nonfat dry milk, butter, and other dry milk powders;
9 Copies of this report can be obtained from Dairy Programs

at (202) 720-4392, or via the Internet at

http://www.ams.usda.gov/dairy/.

recommended reclassifying eggnog and cream cheese, addressing

other minor classification issues; and recommended expanding part

1000 to include sections that are identical to all of the

consolidated orders. A Preliminary Regulatory Impact Analysis

(PRIA) was also issued that evaluated the costs and benefits of

the proposed rule contents and alternatives. Comments were

requested on the proposed rule and the PRIA on or before March 31,

1998. An informational packet describing the contents of the

proposed rule was sent to interested parties.

On March 10, 1998, USDA issued a document that extended the

time for filing comments on the proposed rule an additional 30

days, until April 30, 1998. The document also announced that USDA

would conduct four listening sessions to assist interested parties

in submitting comments to USDA. The listening sessions were held

on March 30 in Atlanta, Georgia; Liverpool, New York; and Dallas,

Texas; and on March 31 in Green Bay, Wisconsin.

On April 15, 1998, AMS Dairy Programs announced the issuance

of a report entitled “Report on the Impacts of the Federal Order

Reform Proposals on Food and Nutrition Service Programs,

Participants, and Administering Institutions” by the Food and

Nutrition Service of USDA. The report analyzed the potential

impacts of the milk order reform pricing proposals contained in

the proposed rule on the Food Stamp Program, the Women, Infants,

and Children Program, and the National School Lunch and Breakfast

Programs.9 The report indicated that adoption of the proposed rule

with either Class I price structure would have minimal economic

impact on these programs. Comments on the report were requested

by April 30, 1998. No comments were received.

Public Interaction and Input

As a result of the developmental phase announcements and

forum, more than 1,600 individual comments were received by USDA. 

In addition to the individual comments, more than 2,000 form

letters were received. As a result of the rulemaking phase

proposed rule and listening sessions, nearly 4,500 additional

comments were received. A further breakdown of the rulemaking

comments by issue is as follows: 1,273 consolidation; 376 basic

formula price; 4,224 Class I price structure; 101 classification;

and 79 provisions applicable to all orders. 

The proposed rule provided interested parties an opportunity

to file comments until March 31, 1998. This period was later

extended to April 30, 1998. Over 205 comments were postmarked
after the April 30th deadline. Most of these comments did not

raise any issues that were not previously addressed by comments

timely submitted and considered in this rulemaking. 

All comments that were reviewed by USDA personnel were

available for public inspection at USDA. To assist the public in

accessing the comments, USDA contracted to have the comments

scanned and published on compact discs. The use of this

technology allowed interested parties throughout the United States

access to the information received by USDA. 

USDA also made all publications and requests for information

available on the Internet. A separate page under the Dairy

Programs section of the AMS Homepage was established to provide

information about the reform process. To assist in transmitting

correspondence to USDA, a special electronic mail account--

Milk_Order_Reform@usda.gov--was opened to receive input on Federal

milk order reforms. 

USDA personnel met frequently with interested parties from

May 1996 through the issuance of the proposed rule to gather

information and ideas on the consolidation and reform of Federal

milk orders. During this time period, USDA personnel addressed

over 250 groups comprised of more than 22,000 individuals on

various issues related to Federal order reform. 

USDA personnel also conducted in-person briefings for both

the Senate and House Agricultural Committees on the progress of

Federal milk order reforms. Since May 1996, nine briefings were

conducted for the committees. The briefings advised the

committees of the plan of action for implementing the Farm Bill

mandates; explained the preliminary report on the consolidation of

Federal milk orders; explained the contents of the reports

addressing Class I price structure, classification of milk,

identical provisions and basic formula price; discussed the

congressional report; and explained the proposed rule contents. 

To ensure the involvement of all interested parties,

particularly small businesses as defined in the Initial Regulatory

Flexibility Analysis (IRFA), in the process of Federal order

reform, three primary methods of contact were used: direct

written notification, publication of notices through various media

forms, and speaking and meeting with organizations and individuals

regarding the issue of Federal order reforms. In addition,

information has been made available to the public via the

Internet. USDA also made one written program announcement

specifically requesting information from small businesses. 

Comments were also specifically requested on the IRFA published in

the January 21, 1998, proposed rule. More than 1,000 comments

were received from interested parties that specifically stated or

documented they were small businesses. However, this number may

not be fully representative of the number of small businesses that
10Copies of these press releases may be obtained from Dairy

Programs at (202) 720-4392, or via the Internet at

http://www.ams.usda.gov/news/newsrel.htm.

actually submitted comments because a majority of commenters did

not indicate their size. A few comments specifically addressed

the IRFA, Executive Order 12866, and the paperwork reduction

analysis.

All announcements and an information packet summarizing the

proposed rule were mailed to over 20,000 interested parties, State

Governors, State Department of Agriculture Secretaries or

Commissioners, and the national and ten regional Small Business

Administration offices. In addition, most dairy producers under

the orders were notified through regular market service bulletins

published by Market Administrators on a monthly basis. Press

releases were issued by USDA for the May 2, 1996, December 3,

1996, January 29, 1997, March 7, 1997, and May 20, 1997,

announcements; for the July 31, 1996, public forum; for the

January 21, 1998, proposed rule; and for the March 30 and 31,

1998, listening sessions and extension of time for submitting

comments.10 These press releases were distributed to approximately

33 wire services and trade publications and to each State

Department of Agriculture Communications Officer. These methods

of notification helped to ensure that virtually all identified

small businesses were contacted.

Departmental personnel, both in the field and from

Washington, actively met with interested parties to gather input

and to clarify and refine ideas already submitted. Formal

presentations, round table discussions, and individually scheduled

meetings between industry representatives and Departmental

personnel were held. Over 250 organizations and more than 22,000

individuals were reached through this method. Of these

individuals, approximately 13,400 were identified as small

businesses.

Executive Order 12988

This final decision has been reviewed under Executive Order

12988, Civil Justice Reform. This rule is not intended to have a

retroactive effect. If adopted, this rule will not preempt any

state or local laws, regulations, or policies, unless they present

an irreconcilable conflict with the rule.

The Agricultural Marketing Agreement Act of 1937 (AMAA), as

amended, provides that administrative proceedings must be

exhausted before parties may file suit in court. Under

section 608c(15)(A) of the Act, any handler subject to an order

may request modification or exemption from such order by filing
with the Secretary a petition stating that the order, any

provision of the order, or any obligation imposed in connection

with the order is not in accordance with law. A handler is

afforded the opportunity for a hearing on the petition. After a

hearing, the Secretary would rule on the petition. The Act

provides that the district court of the United States in any

district in which the handler is an inhabitant, or has its

principal place of business, has jurisdiction in equity to review

the Secretary's ruling on the petition, provided a bill in equity

is filed not later than 20 days after the date of the entry of the

ruling.

Executive Order 12866

The Department is issuing the final decision in conformance

with Executive Order 12866. The final decision is determined to

be economically significant for the purposes of Executive Order

12866. When adopting regulations which are determined to be

economically significant, agencies are required, among other

things, to: assess the costs and benefits of available regulatory

alternatives; base regulatory decisions on the best

reasonably-obtainable technical, economic, and other information;

avoid duplicative regulations; and tailor regulations to impose

the least burden on society consistent with obtaining regulatory

objectives. Therefore, to assist in fulfilling the objectives of

Executive Order 12866, the Department prepared a final Regulatory

Impact Analysis (RIA) for this action. Information contained in

the RIA pertains to the costs and benefits of the revised

regulatory structure and is summarized in the following analysis.

Copies of the RIA can be obtained from Dairy Programs at (202)

720-4392, any Market Administrator office, or via the Internet

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

This regulatory action is in accordance with Section 143 of

the Federal Agriculture Improvement and Reform Act of 1996, 7

U.S.C. §7253, (the Farm Bill) which required the Secretary of

Agriculture (Secretary) to consolidate the existing 31 Federal

milk marketing orders, as authorized by the AMAA, into between 10

and 14 orders. The Farm Bill further provided that the Secretary

may address related issues such as the use of utilization rates

and multiple basing points for the pricing of fluid milk and the

use of uniform multiple component pricing when developing one or

more basic formula prices for manufacturing milk. The Secretary

was also directed to designate the State of California as a

Federal milk order if California dairy producers petition for and

approve such an order. Finally, the Farm Bill specified that the

Department of Agriculture use informal rulemaking to implement

these reforms. 

The Farm Bill required that a proposed rule be published by
April 4, 1998, and all reforms of the Federal milk order program

be completed by April 4, 1999. However, the Omnibus Consolidated

and Emergency Supplemental Appropriations Bill, passed in October

1998, extended the time frame for implementing Federal milk order

reform amendments from April 4, 1999, to October 1, 1999. The

extension specified that the final decision, defined as the final

rule for purposes of this legislation, be issued between February

1 and April 4, 1999, with the new amendments becoming effective on

October 1, 1999. The legislation also provides that California

has from the date of issuance of the final decision until

September 30, 1999, to become a separate Federal milk marketing

order. 

The final decision sets forth the consolidation of the

current 31 Federal milk orders into 11 orders. The marketing

areas are: Northeast, Mideast, Upper Midwest, Central,

Appalachian, Southeast, Florida, Southwest, Arizona-Las Vegas,

Western, and Pacific Northwest. Several issues related to the

consolidation of Federal milk orders are also addressed. The

final decision contains a replacement for the current Class I

price structure and the basic formula price (BFP). The final

decision adopts a Class I price structure that uses the proposed

Option 1B price surface as modified to provide for better

alignment of Class I prices and increases the differential level

by 40 cents. The current BFP is replaced with a multiple

component pricing system that derives component values from

surveyed prices of manufactured dairy products. These changes set

the stage for increasing efficiencies in supplying the milk needs

of Class I markets and address concerns that the BFP is no longer

a statistically significant measure of the value of manufacturing

milk.

The rule also classifies milk into four classes according to

the products made from such milk. Milk used to produce defined

fluid milk products is classified as Class I milk. Milk used to

produce defined soft manufactured products is classified as Class

II milk. Class III milk is milk used to produce cream cheese and

defined hard manufactured cheeses, and Class IV milk is milk used

to produce butter and all milk powders.

The minimum monthly price for milk classified as Class I is

equal to the Class I differential specified for each marketing

order plus the Class I price mover announced on or before the 23rd

day of the month preceding the month for which the price is being

announced. The Class I price mover is equal to the higher result

from the formulas used to establish Class III and Class IV prices

using weighted average prices for manufactured products as

published by the National Agricultural Statistics Service (NASS)

for the most recent two weeks preceding the 23rd of the month. 

Weekly prices are weighted by sales volumes reported by NASS. 
Finally, this rule expands Part 1000 to include provisions

that are identical within each consolidated order to assist in

simplifying the regulations. These provisions include the

definitions of route disposition, plant, distributing plant,

supply plant, nonpool plant, handler, other source milk, fluid

milk product, fluid cream product, cooperative association, and

commercial food processing establishment. In addition, the milk

classification section, pricing provisions, and most of the

provisions relating to payments have been included in the General

Provisions. These changes adhere with the efforts of the National

Performance Review - Regulatory Reform Initiative to simplify,

modify, and eliminate unnecessary repetition of regulations. 

Unique regional issues or marketing conditions have been

considered and included in each market’s order provisions. 

In the summary of the initial RIA for the January 21, 1998,

proposed rule, the economic impact of certain individual sections

of the regulations were discussed that were considered to be

economically significant. Not all of the changes contained in the

proposed rule were considered economically significant. The

sections individually addressed in the January 21st proposed rule

were marketing area consolidation, the BFP, the Class I pricing

structure and classification provisions. Since these are adopted

together in the final decision, this analysis reviews the impacts

of adopting all of the provisions simultaneously on the dairy

industry. The analysis also reviews the impacts of adopting the

provisions contained in the January 21st proposed rule with two

alternative Class I pricing structures.

The final RIA and the final decision explain in detail the

components adopted in the Federal order regulations and analyzed

by the model. A review of the projected economic impacts of the

final decision and the projected economic impacts of the

alternatives that were considered on dairy producers, processors,

consumers, and international trade follows. The projected impacts

are compared to the baseline projections over a 6-year period from

the years of 2000-2005. The baseline assumes that the Class III

price would be the BFP, the Class II price would be the BFP plus

30 cents, each region’s Class I price would be the BFP plus the

current Class I differential and the Class III-a price would

continue. The RIA details the impacts of the final decision and

the other options considered on each current order, the Federal

orders combined, the State of California, and the United States. 

The following table summarizes the impacts of adopting the

newly consolidated orders and their specific provisions, including

the Class I price structure adopted in this final decision. The

table also provides data detailing the projected impacts of the

consolidated orders and the specific provisions utilizing the two
alternative Class I price structures--Location-Specific

Differentials (Option 1A) and Relative-Value Specific

Differentials (Option 1B). Since adopting new Federal milk order

provisions affect both the regulated dairy industry and associated

producers, as well as the unregulated and State regulated dairy

industries, a comparison of the impacts both Federally and US-wide

are included where possible.

Comparisons of Certain Impacts of Consolidated Order Changes

Utilizing Three Price Structures on Federal Order (Fed) and U.S.

data: 6-year Averages (2000-2005)1

Change From Baseline:

Unit Baseline Final

Decision

Modified

Option

1B

Modified

Option

1A

Class I Diff. (Fed) $/cwt 2.56 -0.29 -0.69 0.04

Class I price (Fed) $/cwt 16.22 -0.19 -0.49 0.08

Class I price (U.S.) $/cwt 16.26 -0.14 -0.38 0.06

All-Milk Price (Fed) $/cwt 15.23 -0.02 -0.10 0.03

All-Milk Price (U.S.) $/cwt 14.73 0.00 -0.05 0.04

Milk Marketings (Fed)2 mil lbs 111,182.0 8.3 -130.8 149.0

Milk Marketings (U.S.) mil lbs 165,142.2 15.2 -90.9 128.7 

Class I use (Fed) mil lbs 46,955.7 42.0 106.7 -16.6

Class I use (U.S.) mil lbs 58,782.2 37.7 98.8 -14.9

Cash Receipts (Fed)3 mil $ 16,944.5 -2.5 -128.4 104.9

Cash Receipts (U.S.)4 mil $ 24,347.9 3.5 -89.9 77.0

Retail Price (Fed) $/gal -0.02 -0.04 0.01
Fluid Expend. (Fed) mil $ 7,617.8 -80.2 -215.4 36.4

Fluid Expend. (U.S.) mil $ 9,562.0 -79.1 -209.7 31.3

Manufac. Expend. (Fed)

mil $ 9,326.7 77.7 87.0 68.5

Manufac. Expend. (U.S.) mil $ 14,785.9 82.5 119.8 45.7

1 Includes the effects of the Class II, III, and IV pricing

formulas.

2 Changes in the Final Decision and Modified Option 1A marketings

do not include the additional milk from the Upper Midwest and

Chicago Regional orders that is expected to be pooled under these

options.

4 Cash receipts do not reflect the termination of the $0.15 per

hundredweight transportation credit in the New York-New Jersey

order and exclude the income from additional pooled milk in the

consolidated Upper Midwest order for the Final Decision and

Modified Option 1A.

5 Cash receipts do not reflect the termination of the $0.15 per

hundredweight transportation credit in the New York-New Jersey

order and exclude the income from additional pooled milk in the

consolidated Upper Midwest order for the Final Decision and

Modified Option 1A.

As is evidenced by the summary table, the economic impacts

resulting from the adoption of the final decision are minimal when

compared to the total values included in the Federal order system

and in the U.S. This is also true with the alternative options

that were considered. Changes in the all-milk price, milk

marketings, Class I use, and cash receipts all represent less than

one percent of the total baseline projections. Although the total

impacts are minimal from a national perspective, producers,

processors, and consumers may experience a greater impact on a

more localized level as is described in the RIA.

The consolidation of Federal milk orders into 11 orders with

the adopted price structure and all other provision modifications

of the final decision best adheres to the requirements of the Farm

Bill while fulfilling the objectives of the AMAA. The changes

adopted in the final decision enhance the efficiencies of fluid

milk markets while maintaining equity among processors of fluid

milk selling in marketing order areas and among dairy farmers

supplying the areas’ fluid demands. The final decision provisions

achieve this while having minor overall impacts on the Federal

order system and on the U.S. dairy industry. Although both of the

alternatives considered also have minimal impacts, the final
decision best achieves economic efficiencies, equity, and program

objectives.

Final Decision:

A brief review of the impacts that are projected to occur

with the implementation of the final decision are:

Producers. In general, producers in markets located in the

western, southwestern, and northeastern areas of the U.S. may not

fare as well as producers located in other parts of the country,

as measured by the all-milk price and cash receipts from milk

marketings. The average all-milk price for the combined Federal

order markets is expected to average $0.02 per hundredweight lower

than the baseline. The average all-milk price is projected to

increase in 13 current markets from $0.01 to $0.52 per

hundredweight and decrease in 19 markets from $0.01 to $0.50. One

market is estimated to average unchanged. The average all-milk

price throughout the entire U.S. is projected to remain unchanged. 

It is important to recognize that the all-milk price can be

impacted considerably by the change in the Class I utilization due

to consolidation and the necessary alignment of Class I prices

within consolidated areas. 

 Over the 2000-2005 period, gross cash receipts within the

Federal order system are expected to increase an estimated $222.3

million primarily because of changes in transportation payments

and the pooling of additional milk under the Federal order system. 

After adjusting for these changes, annual cash receipts are

projected to decline from the baseline an average of $2.5 million

during the 6-year period. With the baseline cash receipts

averaging $16,944.5 million this represents a very insignificant

reduction. Fifteen markets are projected to have increases with

18 markets projected to have decreases. 

Processors. Since the final decision is expected to have

little effect on where milk is produced, little impact is expected

on fluid milk processors or manufacturers of dairy products. 

Impacts on fluid milk processors will likely result from changes

in the minimum Class I and Class II prices that are the handler’s

obligation under the Federal order system. Fluid processors in 14

of the current Federal order markets will experience increased

differentials, while processors in 17 of the markets will see

decreases. Fluid processors in two markets will see no change. 

The estimated weighted average Class I differential for all

current Federal order markets would decrease $0.29 per

hundredweight. The all-market average Federal order Class I price

would decrease $0.19 per hundredweight when compared to the

baseline during the years of 2000-2005. The value of

manufacturing milk would be increased, on average, $82.5 million

per year during the six-year period. 

Consumers. Since adoption of the final decision is projected

to result in a slight decrease in the average Class I price for
the years of 2000-2005, it is expected that average retail prices

will decrease about $0.02 per gallon. On an individual order

basis, the changes in the average retail price per gallon may

range from an increase of $0.06 to a decrease of $0.09. Although

consumers will be spending less on fluid milk products,

consumption is projected to remain relatively unchanged.

International Trade. Adopting the final decision is not

expected to have a significant impact on domestic butter and

nonfat dry milk prices and therefore, little change in

international trade is expected. International trade of raw milk

and fluid milk products between the United States, Mexico, and

Canada should be unaffected. However, the increase in the Class

II price could negatively affect the Mexican market for those

products. 

Other Alternatives: 

Although implementation of the consolidated orders with

either the Option 1B or Option 1A price surface would still result

in less than a projected one percent change in overall Federal

order and U.S. prices, cash receipts, and marketings, these two

alternatives do not promote market efficiencies, equity or program

objectives as well as the provisions adopted and would not result

in the most preferable allocation of resources over time. A brief

review of the impacts that were projected to occur with the

implementation of these two alternatives are:

Producers. In general, Option 1B would have reduced producer

income in total and would have reduced the proportion of the Class

I value represented in Federal order pools. Mainly producers

located in the Upper Midwest and Florida areas would have

benefitted while producers throughout the rest of the U.S. would

have been negatively impacted. The all-milk price for all Federal

order markets combined was expected to average $0.10 per

hundredweight lower than the baseline during the years of 2000-

2005. The average all-milk price was projected to increase in 10

current markets from $0.06 to $0.42 per hundredweight and decrease

in 23 markets from $0.01 to $0.61 during this time period. This

would have resulted in changing the gross cash receipts on an

individual order basis during this period ranging from an annual

average decrease of $48.4 million to an increase of $38.5 million. 

Overall, gross cash receipts would have averaged $128.4 million

less than currently received.

Under Option 1A the all-milk price for all Federal order

markets combined was expected to average $0.03 per hundredweight

higher than the baseline during the years of 2000-2005. The

average all-milk price was projected to increase in 15 current

markets from $0.01 to $0.34 per hundredweight and decrease in 18

markets from $0.01 to $0.66. These changes would have resulted in

changing the gross cash receipts on an individual order basis

during this period ranging from an annual average decrease of
$10.3 million to an increase of $48.4 million. Overall, gross

cash receipts would have averaged $104.9 million higher than

currently received.

Processors. Since Option 1B would have lowered the Class I

differentials by a weighted average of $0.69 per hundredweight,

the all-market average Class I price charged to fluid handlers

would have declined by $0.49 per hundredweight when compared to

the baseline during the years of 2000-2005. Lower Class I prices

would have been expected to increase sales of fluid milk within

the Federal order system by an annual average of 106.7 million

pounds, representing less than a one percent increase. Similar

responses would have occurred throughout the U.S. Fluid

processors would have benefitted from lower fluid milk prices and

increased fluid milk sales.

Option 1A would have increased Class I differentials by a

weighted average of $0.04 per hundredweight resulting in the allmarket average Class I price charged to fluid handlers increasing

by $0.08 per hundredweight when compared to the baseline during

the years of 2000-2005. Since the impact of the increased Class I

prices would have resulted in an insignificant decrease in fluid

milk consumption within the Federal order system, a decrease of

16.6 million pounds, and within the U.S., a decrease of 14.9

million pounds, this option would have little expected overall

effect on processors or manufacturers of dairy products. 

Consumers. Since adoption of Option 1B was projected to

result in a decrease in the average Class I price for the period

2000-2005, it was expected that retail prices would decrease an

average of $0.04 per gallon. On an individual order basis the

changes in the average retail price per gallon would have ranged

from an increase of $0.03 to a decrease of $0.12. As a result of

the overall price decrease, consumers would have spent less on

fluid milk products while increasing consumption. The increase in

fluid consumption was estimated to be less than one percent. 

Since adoption of Option 1A was projected to result in an

increase in the average Class I price for the period of the years

2000-2005, it was expected to minimally increase retail prices an

average of $0.01 per gallon. On an individual order basis the

changes in the average retail price per gallon would have ranged

from an increase of $0.05 to a decrease of $0.01. As a result of

the price increase, consumers would have spent slightly more on

fluid milk products and purchased about the same amount of milk

for fluid use. 

International Trade. Options 1B or 1A were not expected to

have a significant impact on domestic butter and nonfat dry milk

prices and therefore, little change in international trade would

have resulted. International trade of raw milk and fluid milk

products between the United States, Mexico, and Canada would have
been unaffected. 

In response to the final decision, the Food and Nutrition

Service updated the analysis on the impacts of Federal Order

reform provisions on Food and Nutrition Service programs,

participants, and administering institutions. The updated report

analyzes the potential impacts of the milk order reform pricing

provisions contained in the final decision on the Food Stamp

Program, the Women, Infants, and Children Program, and the

National School Lunch and Breakfast Programs. The report also

analyzes impacts of adopting either of the alternative Class I

price structure options. The report indicates that adoption of

the final decision provisions, as well as either of the

alternatives considered, will have minimal economic impact on

these programs. This report is included in the final RIA

appendix.

The impacts of the provisions adopted in the final decision

or either of the alternatives considered are minimal when compared

to the total marketings and revenue generated in the dairy

industry both on a national and Federal order basis. However,

neither of the alternative options considered would appear to

improve market efficiencies or equity as well as adopting the

provisions contained in the final decision. Based on the analyses

completed, the final decision regulations have been tailored to

impose the least burden on society while meeting regulatory

objectives. In doing so, these regulations will replace current

regulations and will not duplicate any current regulations that

may exist.

Civil Rights Impact Analysis Executive Summary

Pursuant to Departmental Regulation (DR) 4300-4, a Civil

Rights Impact Analysis (CRIA) reviews the final decision regarding

reforms to the Federal Milk Marketing Order program to identify

any provisions within the final decision with actual or potential

adverse effects for minorities, women, and persons with

disabilities.

The CRIA includes descriptions of (1) the purpose of

performing a CRIA; (2) the civil rights policy of the U.S.

Department of Agriculture (USDA); and (3) basics of the Federal

milk marketing order program are provided for background

information. The civil rights impact analysis of Federal Order

Reform meets the requirements prescribed by DR 4300-4. As part of

the analysis, the extensive outreach efforts of USDA through the

entire reform process and after the final decision is published

are highlighted. Additionally, statistical detail is provided of

the characteristics of the dairy producer and general populations

located within the current and consolidated marketing areas.

The analysis discloses no potential for affecting dairy

farmers with specific characteristics differently than the general
population of dairy farmers. All producers, regardless of race,

national origin, or disability choosing to deliver milk to a

Federal order regulated handler will receive the minimum blend

price. 

Copies of the Civil Rights Impact Analysis can be obtained

from Dairy Programs at (202) 720-4392; any Market Administrator

office; or via the Internet at http://www.ams.usda.gov/dairy/.

The Regulatory Flexibility Act and the Effects on Small

Businesses.

Pursuant to the requirements set forth in the Regulatory

Flexibility Act (5 U.S.C. 601 et seq.), the Agricultural Marketing

Service (AMS) has considered the economic impact of the rule on

small entities and has prepared this final regulatory flexibility

analysis. The Regulatory Flexibility Act provides, in summary,

that when preparing such analysis an agency shall address: the

need for and objectives of the rule; summary of the significant

issues raised in public comments, agency assessment of the issues

raised, and changes made to the proposed rule based on these

issues; the kind and number of small entities affected; the

recordkeeping, reporting, and other requirements; and steps taken

to minimize the economic impact on small entities. 

This regulatory action is in accordance with Section 143 of

the Federal Agriculture Improvement and Reform Act of 1996, 7

U.S.C. §7253, (the Farm Bill) which required the Secretary of

Agriculture (Secretary) to consolidate the existing 31 Federal

milk marketing orders, as authorized by the Agricultural Marketing

Agreement Act of 1937 (AMAA), into between 10 and 14 orders. The

Farm Bill further provided that the Secretary may address related

issues such as the use of utilization rates and multiple basing

points for the pricing of fluid milk and the use of uniform

multiple component pricing when developing one or more basic

prices for manufacturing milk. The Secretary was also directed to

designate the State of California as a Federal milk order if

California dairy producers petition for and approve such an order. 

Finally, the Farm Bill specified that the Department of

Agriculture use informal rulemaking to implement these reforms. 

The Farm Bill required that a proposed rule be published by

April 4, 1998, and all reforms of the Federal milk order program

be completed by April 4, 1999. However, the Omnibus Consolidated

and Emergency Supplemental Appropriations Bill, passed in October

1998, extended the time frame for implementing Federal milk order

reform amendments from April 4, 1999, to October 1, 1999. The

extension specified that the final decision, defined as the final

rule for purposes of this legislation, be issued between February

1 and April 4, 1999, with the new amendments becoming effective on

October 1, 1999. The legislation also provides that California

has from the date of issuance of the final decision until
September 30, 1999, to become a separate Federal milk marketing

order. 

The final decision sets forth the consolidation of the

current 31 Federal milk orders into 11 orders. Several issues

related to the consolidation of Federal milk orders are also

addressed. The final decision contains a replacement for the

Class I price structure and the basic formula price. These

changes set the stage for increasing efficiencies in supplying the

milk needs of Class I markets and address concerns that the BFP is

no longer a statistically significant measure of the value of

manufacturing milk. The final decision also changes the

classification of milk by (1) establishing Class IV provisions

which would include milk used to produce nonfat dry milk, butter,

and other dry milk powders; (2) reclassifying eggnog; and (3)

making other minor classification changes. These changes

recognize the position of butter and milk powders as residual

products that balance the supply of milk with overall demand, and

equalize the cost of competing products. Finally, this final

decision expands Part 1000 to include provisions that are

identical within each consolidated order to assist in simplifying

the regulations. These provisions include the definitions of

route disposition, plant, distributing plant, supply plant,

nonpool plant, handler, other source milk, fluid milk product,

fluid cream product, cooperative association, and commercial food

processing establishment. In addition, the milk classification

section, pricing provisions, and some of the provisions relating

to payments have been included in the General Provisions. These

changes adhere with the efforts of the National Performance Review

- Regulatory Reform Initiative to simplify, modify, and eliminate

unnecessary repetition of regulations. Unique regional issues or

marketing conditions have been considered and included in each

market’s order provisions. 

The purpose of the Regulatory Flexibility Act is to fit

regulatory actions to the scale of business subject to the actions

in order that small businesses are not unduly or

disproportionately burdened. To accomplish this purpose, it first

is necessary to define a small business. According to the Small

Business Administration’s definition of a “small business,” a

dairy farm is a “small business” if it has an annual gross revenue

of less than $500,000 and a handler is a “small business” if it

has fewer than 500 employees. For the purposes of determining

which dairy farms are "small businesses," the $500,000 per year

criterion was used to establish a production guideline of 326,000

pounds per month. Although this guideline does not factor in

additional monies that may be received by dairy producers, it

should be an inclusive standard for most "small" dairy farmers. 

For purposes of determining a handler’s size, if the plant is part

of a larger company operating multiple plants that collectively
exceed the 500-employee limit, the plant will be considered a

large business even if the local plant has fewer than 500

employees. 

Based on 1996 data, USDA identified approximately 80,000 of

the 83,000 dairy producers (farmers) that had their milk pooled

under a Federal order as small businesses. Thus, small businesses

represent approximately 96 percent of the producers in the United

States. By 1997 the total number of dairy producers that had

their milk pooled under a Federal order had declined to about

79,000. It is estimated that nearly 76,000 are small businesses.

During 1997, 78,590 dairy farmers delivered over 105.2

billion pounds of milk to handlers regulated under the milk

orders. This volume represents 68 percent of all milk marketed in

the U.S. and 70 percent of the milk of bottling quality (Grade A)

sold in the country. The value of the milk delivered to Federal

milk order handlers at minimum order blend prices was nearly $14.0

billion. Producer deliveries of milk used in Class I products

(fluid milk products) totaled 44.9 billion pounds--42.7 percent of

total Federal order producer deliveries. More than 200 million

Americans reside in Federal order marketing areas--77 percent of

the total U.S. population. 

On the processing side, there are over 1,200 individual

plants associated with Federal orders, and of these plants,

approximately 700 qualify as "small businesses" representing about

55 percent of the total. During October 1997, there were more

than 485 fully regulated handlers (306 distributing plants of

which 111 were small businesses and nearly 180 supply plants of

which about 50 percent were small businesses), 51 partially

regulated handlers of which 28 were small businesses and 111

producer-handlers of which all were considered small businesses

for purposes of this final RFA, submitting reports under the

Federal milk marketing order program. 

The Federal milk order program is designed to set forth the

terms of trade between buyers and sellers of fluid milk. A

Federal order enforces the minimum price that processors

(handlers) in a given marketing area must pay producers for milk

according to how it is utilized. A Federal order further requires

that the payments for milk be pooled and paid to individual dairy

producers or cooperative associations on the basis of a uniform or

average price. It is important to note that a Federal milk order,

including the pricing and all other provisions, only becomes

effective after approval, through a referendum, by dairy producers

associated with the order.

Development of this final decision began with the premise

that no additional burdens should be placed on the industry as a

result of Federal order consolidation and reform. As a step in

accomplishing the goal of imposing no additional regulatory

burdens, a review of the current reporting requirements was
completed pursuant to the Paperwork Reduction Act of 1995 (44

U.S.C. Chapter 35). In light of this review, it was determined

that this final decision would have little impact on reporting,

recordkeeping, or other compliance requirements because these

would remain almost identical to the current Federal order

program. No new forms are required; however, some additional

reporting will be necessary in the orders that are adopting

multiple component pricing if the current orders do not contain

these provisions. Overall, there would be slight change in the

burdens placed on the dairy industry. 

There are two principal reporting forms for handlers to

complete each month that are needed to administer the Federal milk

marketing orders. The forms are used to establish the quantity of

milk used and received by handlers, the pooling status of the

handler, the class-use of the milk used by the handler, the

butterfat content and amounts of other components of the milk. 

This information is used to compute the monthly uniform price paid

to producers in each of the markets. Handlers in the marketing

areas adopting multiple component pricing will be required to

complete additional information regarding the components of the

milk and to assure that proper payments are made to producers. 

This information is necessary to establish the values of milk on

the basis of milk components and to assure that producers are paid

correctly. Many handlers already collect and report this

information. 

This rule does not involve additional information collection

that requires clearance by the Office of Management and Budget

beyond the currently approved information collection. The primary

sources of data used to complete the forms are routinely used in

most business transactions. Forms require only a minimal amount

of information which can be supplied without data processing

equipment or a trained statistical staff. Thus, the information

collection and reporting burden is relatively small. Requiring

the same reports for all handlers does not significantly

disadvantage any handler that is smaller than the industry

average. 

New territory, or pockets of unregulated territory within and

between current order areas has been included in the consolidated

marketing areas where such expansion will not have the effect of

fully regulating plants that are not now regulated. The addition

of these areas benefits regulated handlers by eliminating the

necessity of reporting sales outside the Federal order marketing

area for the purpose of determining pool qualification. Where

such areas can be added to a consolidated area without having the

effect of causing the regulation of any currently-unregulated

handler, they are added.

Handlers not currently fully regulated under Federal orders

may become regulated for two main reasons: first, in the process
of consolidating marketing areas, some handlers who currently are

partially regulated may become fully regulated because their sales

in the combined marketing areas meet the pooling standards of a

consolidated order area. Second, a previously unregulated area in

New York, Vermont, New Hampshire and Massachusetts was added on

the basis of supporting information. As a result, previously

unregulated handlers would become fully regulated. Because of

these two reasons, 11 additional plants are expected to become

fully regulated under the program. Of these 11 plants, it is

estimated that 5 are small businesses that would need to comply

with the reporting, recordkeeping, and compliance requirements. 

The completion of these reports will require a person

knowledgeable about the receipt and utilization of milk and milk

products handled at the plant. This most likely will be a person

already on the payroll of the business such as a bookkeeper,

controller or plant manager. The completion of the necessary

reporting, recordkeeping, and compliance requirements does not

require any highly specialized skills and should not require the

addition of personnel to complete. In fact, much of the

information that handlers report to the market administrator is

readily available from normally maintained business records, and

as such, the burden on handlers to complete these recordkeeping

and reporting requirements is minimal. In addition, assistance in

completing forms is readily available from market administrator

offices. A description of the forms and a complete Paperwork

Reduction Act analysis follows this section.

No other burdens are expected to fall upon the dairy industry

as a result of overlapping Federal rules. The regulations

contained in this final decision do not duplicate, overlap or

conflict with any existing Federal rules.

PUBLIC COMMENTS

More than 1,000 comments were received from interested

parties that specifically stated or documented they were small

businesses. However, this number may not be fully representative

of the number of small businesses that actually submitted comments

because a majority of commenters did not indicate their size. Of

the comments submitted, the majority were received from dairy

producers. The comments from the producers primarily addressed

the issues of Class I pricing and consolidation. 

A few comments were received that specifically addressed the

initial regulatory flexibility analysis (IRFA). These comments

also addressed the issues of Class I pricing and consolidation and

further addressed the issue of producer-handler regulation. The

Small Business Administration submitted views specifically

addressing exempt plant status and requesting further analysis of

the impact of consolidation on previously unregulated entities, if

possible. 

Nearly all of the 1,000 comments addressed Class I pricing
and discussed the impact of Option 1A or Option 1B on dairy

producers’ income. A majority of these comments supported Option

1A because it would maintain the revenue necessary to stay in

business. Many commenters opposing Option 1B argued that the

Class I differential decreases that would occur under this option

would result in financial losses that would force many dairy

farmers out of business. Comments filed by service providers such

as feed and implement stores that claimed to be small businesses

commented on the negative impact lower prices received by dairy

producers had on surrounding community businesses. One commenter

supporting Option 1A further stated that in order to comply with

the purposes and objectives of the Regulatory Flexibility Act, as

stated in the IRFA, a Class I price structure that avoids a

burdensome financial impact on dairy farmers must be adopted.

About 200 of the comments received from declared small

businesses addressed consolidation issues. These comments focused

on the impact of including or excluding currently-unregulated

areas. A majority of the comments focused on the Northeast order

and the inclusion or exclusion of the currently- unregulated

territories in New York, Pennsylvania, and Maryland. Comments

supporting the inclusion of currently-unregulated territory

discussed the need to include this territory to prevent

inequitable, unfair and disorderly marketing conditions. One

supporting commenter noted that the expansion into unregulated

areas would result in more small businesses becoming subject to

Federal order regulation but the commenter did not believe that it

would unduly impact their ability to compete. Commenters opposing

the inclusion of currently-unregulated Pennsylvania territory

argued that producer returns would decline if handlers in this

area were subject to Federal order regulations.

A few comments were received addressing the extent of

regulation applied to producer-handlers. One commenter, a small

business producer-handler, indicated that the combination of new

definitions and classification of milk provisions will result in

its regulation. The commenter argued that this effect is contrary

to the IRFA that stated “no additional regulatory burdens should

be placed on the industry” and to the intent of the proposed rule

that stated the changes were not intended to fully regulate any

producer-handler that is currently exempt from regulation. Other

commenters suggested that producer-handlers should not be exempt

from regulation if their route disposition of Class I products at

wholesale exceeds 500,000 pounds per month or if they have retail

sales other than at a retail establishment located on the premises

of the producer-handler’s plant. They argued that producerhandlers with route disposition above this limit cannot be

considered small businesses and should be subject to regulation.

After reviewing the public comments filed by small businesses

in combination with updated marketing data and information and
updated analyses, changes were made to the provisions contained in

the proposed rule. Not all of the changes requested by small

businesses were feasible but when changes were beneficial to small

businesses without affecting the objectives of the rule, they were

incorporated. The changes made to the proposed rule, based in

part on small business comments, are discussed below by issue.

Consolidation:

The proposed rule advanced 11 consolidated Federal milk

marketing orders. The marketing areas of these orders were

expanded to include currently-unregulated areas if this did not

result in the regulation of any currently-unregulated handlers or

was not an area in which handlers are subject to minimum Class I

pricing provisions under State regulations. After reviewing the

issue in light of the public comments and updating the initial

analysis based on more recent marketing data, 11 consolidated

orders are adopted in the final decision, the same number as

proposed in the January 21, 1998, rule, but with significant

modifications being made to the marketing areas of the proposed

Northeast and Western orders, and minor modifications to the

marketing areas of the proposed Southeast, Mideast, Upper Midwest

and Central orders. The final decision continues to omit

currently-unregulated areas specified in the January 21st proposed

rule and also omits currently-unregulated areas that comprise a

significant distribution area for currently-unregulated handlers,

some of which were proposed to be included in consolidated areas.

Numerous comments were received from small businesses

supporting the inclusion of currently-nonregulated areas in the

Northeast order. However, after considering the requirements of

the Farm Bill, the consolidation of the existing orders does not

necessitate expansion of the consolidated orders into unregulated

areas or areas in which handlers are subject to minimum Class I

pricing under State regulation, especially when the states’ Class

I prices exceed or equal those that would be established under

Federal milk order regulation. Such regulation could have the

effect of reducing returns to producers already included under

State regulation without significantly affecting prices paid by

handlers who compete with Federally-regulated handlers.

Two changes made to the prior proposed rule as a result of

comments submitted by small businesses related to the exclusion of

territory in the consolidated marketing areas. These changes

occurred in the Mideast and Central orders. The changes ensure

that two currently-unregulated handlers maintain this status. 

One change occurred in the Mideast order. Based on a

comment received from Toft Dairy, Incorporated (Toft Dairy), a

small business dairy processor, and Sandusky County Milk Producers

Association, a dairy cooperative representing dairy farmers

classified as small businesses, one partial and three entire

counties in north Central Ohio are excluded from the Mideast
marketing area. These areas are currently unregulated. The

proposed rule had suggested including this currently-unregulated

territory in the Mideast marketing area which would have resulted

in the regulation of Toft Dairy. Since the intent of the

consolidating marketing orders was not to cause the regulation of

any currently-unregulated handler, these areas have been removed

from the marketing area of the Mideast order. Toft Dairy will

remain an unregulated processor unless its sales area changes

significantly.

Another change occurred in the Central order. Based on a

comment received from Central Dairy, Incorporated (Central Dairy),

a small business dairy processor, six currently-unregulated

counties in northeast Missouri that were proposed to be included

in the Central order are excluded from the marketing area. These

areas are currently unregulated. Central Dairy opposed inclusion

of these six counties because the handler plans to expand its

distribution into this area. Again, since the intent of

consolidating marketing orders was not to cause the regulation of

any currently-unregulated handler these areas have been removed

from the marketing area of the Central order. 

Producer-Handlers:

Another change to the proposed rule resulting from public

comments involves producer-handlers. Since the intent of the

proposed rule was not to increase regulation to any currentlyunregulated producer-handlers, minor modifications have been made

to the classification of milk provisions applicable to all orders

and to the producer-handler definition in certain individual

orders. 

A comment submitted by Promised Land Dairy, a producerhandler defined as a small business, stated that the change in the

classification of milk provisions combined with other order

changes would result in their regulation. Promised Land Dairy

argues that the addition of the words “or acquired for

distribution” in §1000.44(a)(3)(iv) would force milk delivered by

a producer-handler to any store associated with a regulated

handler to be sold at no more than the Class III price because it

would be considered a receipt from a producer-handler. Promised

Land Dairy argued that this would force producer-handlers to

become fully regulated. In addition, they argued that changes

made to the Southwest order’s producer-handler definition are not

warranted and would further result in the regulation of Promised

Land Dairy.

The changes in the proposed rule were not intended to fully

regulate any producer-handler that is currently exempt from

regulation. Producer-handlers have been exempt from the pricing

and pooling provisions of the orders for several reasons. First,

the care and management of the dairy farm and other resources

necessary for own-farm production and the management and operation
of the processing are the personal enterprise and risk of the

owner. Second, typically producer-handlers are small businesses

that operate in a self-sufficient manner. Finally, producerhandlers do not have an advantage as either producers or handlers

so long as they are responsible for balancing their fluid milk

needs and cannot transfer balancing costs to other market

participants. 

While the provisions objected to by Promise Land Dairy would

not directly regulate this entity, they could have a very serious

negative economic impact on its continued operations as a

producer-handler. Because it is still the intent of the

Department to allow currently-unregulated producer-handlers to

maintain this status, changes have been made to §1000.44(a)(3)(iv)

in the general provisions by removing the words “or acquired for

distribution” and re-adding these words to §1124.44, and changes

have been made to the individual order definitions of producerhandlers. Hence, no changes are made in the final decision to

regulate a producer-handler that is currently exempt from

regulation.

Additional comments submitted by small businesses regarding

producer-handlers advocated implementing a limitation on the

exemption of producer-handlers based on size. The commenters

suggested that the producer-handler exemption should be limited to

those whose Class I route disposition is 500,000 pounds or less,

or whose entire Class I disposition of fluid milk is made as

retail sales from a retail establishment located on the premises

of the producer-handler’s processing plant. 

Since the intent of the final decision is not to regulate any

currently-unregulated producer-handlers, these requests have been

denied. A review of October 1997 producer-handler route

disposition data indicates that if a 500,000 pound Class I route

disposition limit were implemented, 20 producer-handlers out of

111 producer-handlers, would become regulated. The Department’s

reasons for exempting producer-handlers as discussed previously

have not changed and the intent of this rule is not to make

changes to regulate currently-unregulated producer-handlers

regardless of size. Consequently, these suggested changes have

not been included in the final decision.

Class I Price Structure:

Another change to the proposed rule, resulting in part from

the public comments received, involves the Class I price

structure. In the proposed rule the Department advanced two main

price options--1A and 1B. The Department indicated a preference

for Option 1B because it was more market-oriented. However, the

Department recognized in the proposed rule that Option 1B would

result in lower Class I prices and lower blend prices which would

have a significant economic impact on small businesses,

particularly producers. To lessen the impact, three phase-in
11 The U.S. Dairy Sector Simulator model is used to evaluate

the geographic or “spatial” value of milk and milk components

across the U.S. under the assumption of globally efficient

markets. A more detailed description of the model is contained in

the decision.

program options were proposed to be adopted in conjunction with

Option 1B. The objective of the phase-in programs was to provide

dairy producers and processors the opportunity to adjust marketing

practices to adapt to more market-determined Class I prices. 

A majority of the public comments received from small

businesses supported Option 1A. Many of the commenters opposing

Option 1B indicated that the price levels established under this

price structure would be significantly lower than present levels,

and as a result, they--primarily dairy producers--would be forced

out of business. Of the commenters supporting Option 1B, few

supported the adoption of a phase-in program. 

Option 1B was preferred by the Department because it would

move the dairy industry into a more market-determined pricing

system. Establishing a national Class I price structure based on

results from the U.S. Dairy Sector Simulator model11, developed and

administered by Cornell University, may increase market

efficiencies in the dairy industry and lowering the differentials

would allow marketing conditions to have a greater impact on

actual Class I prices paid to producers who service the Class I

market. The Department recognized that this would impact small

businesses, both producer and processors, because less of the

actual value of Class I milk would be regulated. In the proposed

rule the Department stated the following:

 “Smaller, less efficient producers would likely have a

greater responsibility to bargain with processors for overorder premiums that adequately cover their costs. With

processors less likely to face similar raw product costs,

less efficient small processors may have to negotiate and/or

sustain over-order price levels necessary to attract and

maintain a sufficient supply of milk. Large businesses, both

producers and processors, may be in a better competitive

position to do this.” (63 FR 4912)

After reviewing the public comments and updating marketing

data and analyses of Option 1A and Option 1B, the Department

adopted a Class I price structure that provides greater structural

efficiencies in the assembly and shipment of milk and dairy

products. The adopted Class I pricing structure establishes a

price surface that utilizes USDSS model results adjusted for all

known plant locations and establishes differential levels that

will result in prices that generate sufficient revenue to assure

an adequate supply of milk. The differential levels will better
12 Copies of the Regulatory Impact Analysis can be obtained

from Dairy Programs at (202) 720-4392, any Market Administrator

office, or via the Internet at http://www.ams.usda.gov/dairy. 

maintain equity by raising the level 40 cents per hundredweight

higher than the level proposed in Option 1B. The higher

differential level reduces the likelihood of class-price

inversions, where the Class I prices are below the manufacturing

milk prices for the month. Updated analysis conducted by the

Interagency Dairy Analysis Team in the final Regulatory Impact

Analysis12 indicates that increasing the differential level lessens

the economic impact of moving toward more market-orientation on

small businesses. 

Exempt Plant Limits:

The Office of the Chief Counsel for Advocacy (Office of

Advocacy) of the U.S. Small Business Administration submitted

views on the IRFA pursuant to its authority under the Regulatory

Flexibility Act, 5 U.S.C. §601, as amended by the Small Business

Regulatory Enforcement Fairness Act, Pub. L. No. 104-121, 110

Stat. 866 (1996). With regard to the impact of the order

consolidation and pricing formulae, the Office of Advocacy stated

that these issues should be left to the regulated community and

the Department. The Office of Advocacy did comment that a system

that “best resembles the free market and imposes the least burden

on the industry would be the best alternative.” 

The Office of Advocacy requested an explanation of how the

150,000 pound handler exemption was derived and a determination of

whether this exemption could be increased. They questioned

whether a greater number of small entities would benefit from an

increase in the limit. The Office of Advocacy further requested

additional analysis on the impact of the consolidation of orders

on previously unregulated entities, if possible.

The 150,000 pound handler exemption was determined after

reviewing provisions currently contained in the Federal milk

marketing orders. The 150,000 pound exemption was the highest

level currently utilized, with some orders containing no such

exemption. A review of the impact of this exemption level on

distributing plants that were fully regulated in October 1997

indicated that 15 plants, 14 of which are small businesses, would

become exempt from regulation based on this provision. In

addition, five partially-regulated plants, four of which are small

businesses, would also become exempt. No public comments were

received addressing this issue.

Federal milk order regulations must balance the interests of

small business dairy producers versus small business dairy

processors. Although only processors are regulated under Federal

milk orders, producers receive benefits from the regulations. 

Thus, whenever dairy processors are exempt from Federal order
regulations they are not required to pay dairy producers minimum

Federal order prices. Exempting processors from regulation

directly impacts dairy producers.

Based on October 1997 data, a review of the impacts of

increasing the exemption levels on processors was completed. As

expected, increasing the level would allow additional processors

to become exempt. In October 1997, 54 handlers had route

disposition equal to or less than 150,000 pounds. An additional

57 handlers had route disposition between 150,000 to 1,000,000

pounds and 327 handlers had route disposition greater than 1

million pounds. 

Although it may appear that increasing the exemption level

would not result in exempting many additional plants, these plants

receive milk from a significant number of producers, a majority of

whom are small businesses. In addition, contrary to the intent of

benefitting small businesses by increasing the exemption level,

more handlers that are considered large businesses could become

exempt from regulation. Implementing the 150,000 pound level

results in two large businesses currently regulated (one fullyregulated and one partially-regulated) becoming exempt plants. 

When more large businesses become exempt it not only impacts

producers, but also impacts other regulated handlers.

In an attempt to maintain a balance between the interests of

both small handlers and small dairy producers, the 150,000 pound

exemption is maintained. Based on previous experience, the

exemption of plants of this size poses no economic threat to the

order’s regulated handlers. 

MINIMIZATION OF SIGNIFICANT ECONOMIC IMPACTS ON SMALL BUSINESSES

The Department developed the final decision aware of the

impacts of its adoption on small businesses, both dairy producers

and processors. In the final decision, the Department has

minimized the significant economic impacts of these regulations on

small entities to the fullest extent reasonably possible while

adhering to the stated objectives. The Department reviewed the

regulatory and financial burdens resulting from these regulations

and determined, to the fullest extent possible, the impact on

small businesses’ abilities to compete in the market place. The

Department reviewed the regulations from both the small producer

and small processor perspectives attempting to maintain a balance

between these competing interests.

The Farm Bill mandated that the current 31 orders be

consolidated into between 10 to 14 orders. The Farm Bill also

specified that other issues could be addressed. Eleven orders are

adopted in the final decision as well as a new Class I price

structure, a basic formula price replacement, classification of

milk provisions, and the establishment of identical provisions in

all orders where possible. The objectives of the final decision

are (1) to comply with the requirements of the Farm Bill and (2)
to make other changes in order provisions consistent with the

goals and requirements of the AMAA. The focus of these changes is

to enhance the efficiencies of fluid milk markets while

maintaining equity among processors of fluid milk selling in

marketing order areas and among dairy producers supplying the

areas’ fluid demands. 

Federal milk order regulations do not disparately apply to

small and large businesses. If a handler is regulated under a

Federal milk order, the provisions of that order apply the same to

all handlers regardless of size. Likewise, if a producer’s milk

is associated with a Federal order pool, the same pricing and

payment provisions will be utilized for all producers regardless

of size. This final decision addresses several issues and adopts

provisions that will continue to apply equally to all businesses,

both large and small. The provisions adopted herein attempt to

reduce the economic impact of Federal milk order regulations on

small businesses to the most reasonable extent possible.

After reviewing submitted comments and updating marketing

data and analyses, changes were made to the provisions contained

in the proposed rule. The IRFA discussed the projected impacts of

the primary components of the proposed rule on small entities. 

These included consolidation, basic formula price, Class I price

structure, and classification. Because Federal order provisions

are interrelated, it was difficult to determine the overall impact

of each component on small entities because the proposed rule

contained two pricing options. To the fullest extent possible,

such estimations were set forth in the proposed rule.

Below is a description of the primary components contained in

the final decision that were discussed in the IRFA. For

comparison purposes, impacts resulting from each component are

briefly discussed. Because this rule establishes the specific

provisions to be contained in Federal milk marketing orders,

analysis of the impacts of the consolidated orders on small

businesses is provided. 

Consolidation:

The IRFA discussed three order consolidation options: (1) the

consolidated marketing areas suggested in the December 1996

Initial Preliminary Report on Order Consolidation; (2) the

consolidated marketing areas suggested in the May 1997 Revised

Preliminary Report on Order Consolidation; and (3) the

consolidated marketing areas suggested in the proposed rule. 

Determining the specific economic impacts of marketing area

consolidation on handlers, producers, and consumers is difficult. 

The IRFA detailed the assumptions utilized to quantify the

economic effects of consolidation. The IRFA included an analysis

of each of the three consolidation options on the weighted average

use value to determine the potential impacts of each option on

producers. The IRFA also included projections regarding the
number of handlers that would be regulated under the consolidation

options and the number of these handlers that are small

businesses. 

The consolidation of orders adopted in the final decision is

a result of the examination and analysis of more recent marketing

data in combination with the comments received on the proposed

rule. This resulted in modifying significantly from the proposed

rule the marketing areas of the Northeast and Western orders, and

in making minor modifications to the marketing areas of the

proposed Southeast, Mideast, Upper Midwest and Central orders. 

The consolidated orders adopted in the final decision are as

follows (* denotes changes made from the proposed rule):

*1. NORTHEAST - current marketing areas of the New England,

New York-New Jersey and Middle Atlantic Federal milk orders, with

the addition of: the contiguous unregulated areas of New

Hampshire, northern New York and Vermont; and the non-Federally

regulated portions of Massachusetts. *The Western New York State

order area (ten entire and 5 partial western New York counties)

proposed to be included in the expanded Northeast order area has

been omitted.

2. APPALACHIAN - Current marketing areas of the Carolina and

Louisville-Lexington-Evansville (minus Logan County, Kentucky)

Federal milk orders plus the marketing area of the former

Tennessee Valley order, with the addition of 21 currentlyunregulated counties in Indiana and Kentucky.

3. FLORIDA - current marketing areas of the Upper Florida,

Tampa Bay, and Southeastern Florida Federal milk orders.

*4. SOUTHEAST - current marketing area of the Southeast

Federal milk order, plus 1 county from the Louisville-LexingtonEvansville Federal milk order marketing area; plus 11 northwest

Arkansas counties and 22 entire Missouri counties that currently

are part of the Southwest Plains marketing area; plus 6 Missouri

counties that currently are part of the Southern Illinois-Eastern

Missouri marketing area; plus 16 currently unregulated southeast

Missouri counties (including 4 that were part of the former

Paducah marketing area); plus 20 currently-unregulated Kentucky

counties (including 5 from the former Paducah marketing area).

*A partial Missouri county that has been part of the Southwest

Plains marketing area will become completely unregulated.

*5. MIDEAST - current marketing areas of the Ohio Valley,

Eastern Ohio-Western Pennsylvania, Southern Michigan and Indiana

Federal milk orders, plus Zone 2 of the Michigan Upper Peninsula

Federal milk order, and most currently-unregulated counties in

Michigan, Indiana and Ohio. *One partial and 3 entire counties in

north central Ohio are left unregulated, as they represent the

distribution area of a currently-partially regulated distributing

plant (Toft Dairy in Sandusky, Ohio).

*6. UPPER MIDWEST - current marketing areas of the Chicago
Regional, Upper Midwest, Zones I and I(a) of the Michigan Upper

Peninsula Federal milk orders, and unregulated portions of

Wisconsin. *The Iowa Federal order marketing area portion of one

Illinois county is added to the consolidated Upper Midwest

marketing area and the Chicago Regional portion of another

Illinois county is removed and added to the consolidated Central

area.

*7. CENTRAL - current marketing areas of the Southern

Illinois-Eastern Missouri, Central Illinois, Greater Kansas City,

Southwest Plains, Eastern Colorado, Nebraska-Western Iowa, Eastern

South Dakota, Iowa (* less the portion of an Illinois county that

will become part of the consolidated Upper Midwest area) and

*Western Colorado Federal milk orders, * plus the portion of an

Illinois county currently in the Chicago Regional Federal order

area, minus 11 northwest Arkansas counties and 1 partial and 22

entire Missouri counties that are part of the current Southwest

Plains marketing area, minus 6 Missouri counties that are part of

the current Southern Illinois-Eastern Missouri marketing area,

plus 54 currently-unregulated counties in Kansas, Missouri,

Illinois, Iowa, Nebraska and Colorado, plus 8 counties in central

Missouri *(six fewer than in the proposed rule) that are not

considered to be part of the distribution area of an unregulated

handler in central Missouri, *plus 7 currently unregulated

Colorado counties located between the current Western and Eastern

Colorado order areas.

8. SOUTHWEST- current marketing areas of Texas and New

Mexico-West Texas Federal milk orders, with the addition of two

currently-unregulated northeast Texas counties and 47 currentlyunregulated counties in southwest Texas.

9. ARIZONA-LAS VEGAS - current marketing area of Central

Arizona, plus the Clark County, Nevada, portion of the current

Great Basin marketing area, plus eight currently-unregulated

Arizona counties.

*10. WESTERN - current marketing areas of the Southwestern

Idaho-Eastern Oregon and Great Basin Federal milk orders, minus

Clark County, Nevada. *The Western Colorado order area, proposed

to be included in the Western order area, is instead included in

the consolidated Central order. 

11. PACIFIC NORTHWEST - current marketing area of the

Pacific Northwest Federal milk order plus 1 currently-unregulated

county in Oregon. 

The consolidated orders presented herein reflect the most

appropriate boundaries for the purpose of implementing the

requirements of the Farm Bill. These orders attempt to avoid

extending regulation to handlers whose primary sales areas are

outside current Federal order marketing areas and who are not

subject to Federal order regulation. These orders also minimize

the regulatory burden placed on handlers.
Based on October 1997 data, it is projected that 306

distributing plants will be fully regulated and 32 distributing

plants will be exempt. The number of fully-regulated small

businesses will be 111. The number of fully-regulated small

businesses is down from 164, a 32 percent decline from the

proposed rule. This is mainly a result from either large business

acquisitions of these small businesses or because they have gone

out of business. Two small businesses that are currently

unregulated will become regulated and, as mentioned previously, 14

fully regulated and four partially-regulated small businesses will

become exempt.

Basic Formula Price:

The IRFA reviewed the basic formula price replacement options

considered. These options included pricing components based on

their value in manufactured products which was proposed and is

adopted in the final decision, economic formulas, futures markets,

cost of production, competitive pay pricing, and pricing

differentials only.

The rule closely follows the pricing plan described in the

proposed rule by replacing the current basic formula price (BFP)

with a multiple component pricing system that derives component

values from surveyed prices of manufactured dairy products. The

adopted pricing system determines butterfat prices for milk used

in Class II, Class III and Class IV products from a butter price;

protein and other solids prices for milk used in Class III

products from cheese and whey prices; and nonfat solids prices for

milk used in Class II and Class IV products from nonfat dry milk

product prices. The specific formulas used to calculate the

prices are described in complete detail in the final decision.

All market participants, both large and small, would be

affected by the BFP replacement in the same manner. There would

be no uneven impact on market participants on the basis of size. 

However, the existence of minimum order pricing serves to assure

that large handlers pay no less for their milk than smaller

entities, and that small producers receive at least the same

minimum uniform price for the milk or components of milk they

produce as large producers. Consumers can be assured that the

prices generally charged for dairy products are prices that

reflect, as closely as possible, the forces of supply and demand

in the market.

Impact of Multiple Component Pricing Provisions on Small Entities:

As set forth in the proposed rule, seven of the 11 orders

adopted in the final decision provide for milk to be paid for on

the basis of its components--multiple component pricing (MCP). 

Five of the seven MCP orders also provide for milk values to be

adjusted according to the somatic cell count of producer milk. 
The equipment needed for testing milk for its component content

can be very expensive to purchase, and requires highly-skilled

personnel to maintain and operate. The cost of infra-red

analyzers ranges from just under $100,000 to $200,000. The infrared machines that are used by most laboratories would test for

total solids and somatic cells at the same time the butterfat and

protein tests are done.

No new report forms are needed under multiple component

pricing; however, some additional reporting is necessary to enable

handlers’ values of milk to be determined on the basis of

components, and to assure that producers are paid correctly. For

the market administrators to compute the producer price

differential, handlers would need to supply additional information

on their currently-required monthly reports of receipts and

utilization. In addition to the product pounds and butterfat

currently reported, handlers would be required to report pounds of

protein, pounds of other solids, and, in 5 of the orders, somatic

cell information. This data would be required from each handler

for all producer receipts, including milk diverted by the handler,

receipts from cooperatives as 9(c) handlers (that is, the

cooperative acts as a handler); and, in some cases, receipts of

bulk milk received by transfer or diversion.

Since producers would be receiving payments based on the

component levels of their milk, the payroll reports that handlers

supply to producers must reflect the basis for such payment. 

Therefore the handler would be required to supply the producer not

only with the information currently supplied, but also, (a) the

pounds of butterfat, the pounds of protein, and the pounds of

other solids contained in the producer’s milk, as well as the

producer’s average somatic cell count, and (b) the minimum rates

that are required for payment for each pricing factor and, if a

different rate is paid, the effective rate also. Many handlers

already report this additional information. It should be noted

that handlers already are required to report information relative

to pounds of production, butterfat and rates of payment for

butterfat and hundredweight of milk to the appropriate Market

Administrator.

Of over 74,000 producers whose milk was pooled in December

1996 under 23 of the current orders that would be part of

consolidated orders providing for multiple component pricing, the

milk of 52,500 of these producers was pooled under 13 current

orders that have MCP. Handlers in these markets already have

incurred the initial costs of testing milk for its component

content, and have made the needed transition to reporting the

component contents of milk receipts on their handler reports to

the market administrators, and on their reports of what they have

paid producers.

Of the remaining 21,750 producers who would be affected by
MCP provisions under a Federal order (including an estimated

20,650 producers qualifying as small businesses), the milk of

approximately 13,000, or 60 percent, currently is received by

handlers who test or have the capability of testing for multiple

components and, in many cases, somatic cells. Many of these

handlers also report component results to the producers with their

payments. Almost all of the producers whose milk currently is not

being tested or paid for on the basis of components are located in

the New England and New York-New Jersey marketing areas, which

would be consolidated with the Middle Atlantic area into the

Northeast order.

Accommodation has been made to ameliorate handlers’ expenses

of testing producer milk for component content. As component

pricing plans have been adopted under a number of the present

Federal milk orders since 1988, the component testing needed to

implement these pricing plans has been performed by the market

administrators responsible for the administration of the orders

involved for handlers who have not been equipped to make all of

the determinations required under the amended orders. It has been

made clear in the decisions under which these plans have been

adopted that handlers who would find it unduly burdensome to

obtain the equipment and personnel needed to accomplish the

required testing may rely on the market administrators to verify

or establish the tests under which producers are paid. As noted

above, however, many handlers not now subject to MCP provisions

under Federal orders have nevertheless already undertaken multiple

component testing and payment programs.

Class I Price Structure:

The IRFA discussed two price structure options--locationspecific differentials (Option 1A) and relative-value specific

differentials (Option 1B). The IRFA set forth the projected

impacts that these two price structures would have on producers

and processors. 

The price structure adopted in this final decision resulted

from an examination and review of more recent marketing data in

combination with the comments received on the proposed rule. As

discussed previously, the Department adopted a Class I price

structure that provides greater structural efficiencies in the

assembly and shipment of milk and dairy products. The adopted

Class I pricing structure establishes a price surface that

utilizes USDSS model results adjusted for all known plant

locations and establishes differential levels that will result in

prices that generate sufficient revenue to assure an adequate

supply of milk. The differential levels will better maintain

equity by raising the level 40 cents per hundredweight higher than

the level proposed in Option 1B. The higher differential level

reduces the likelihood of class-price inversions, where the Class

I prices are below the manufacturing milk prices for the month. 
13 Copies of the Regulatory Impact Analysis can be obtained

from Dairy Programs at (202) 720-4392, any Market Administrator

office, or via the Internet at http://www.ams.usda.gov/dairy. 

Updated analysis conducted by the Interagency Dairy Analysis Team

in the final Regulatory Impact Analysis13 indicates that increasing

the differential level lessens the economic impact of moving

toward more market-orientation on small businesses. 

The adopted Class I price structure reduces Class I

differentials from current levels in 17 markets ranging from $0.04

per hundredweight in the Ohio Valley order to $1.18 per

hundredweight in the Eastern Colorado order. Option 1B would have

reduced differentials from current levels in 29 markets ranging

from $0.01 in Central Illinois order to $1.58 in the Eastern

Colorado order. The adopted Class I price structure will increase

Class I differentials in 14 markets ranging from $0.08 in the

Greater Kansas City order to $0.57 in the Southeastern Florida

order and leaves two orders unchanged. Option 1B would have

increased Class I differentials in only two markets--$0.15 in

Chicago Regional and $0.17 in Southeastern Florida--and would have

left two orders unchanged. Option 1A would have increased

differentials in 21 markets ranging from $0.01 per hundredweight

in New England, New York-New Jersey, and Unregulated New York and

New England to $0.50 in the Upper Midwest order, lowered

differentials in seven markets from $0.04 in Ohio Valley to $0.18

in Eastern Colorado, and left four markets unchanged.

Although the adopted Class I price structure will result in

price changes that affect both large and small entities, this

option best meets the objectives of the AMAA. The adopted Class I

price structure recognizes that there are limitations in the

extent that the marketplace can be relied upon to establish prices

to producers that are equitable and reasonable given marketing

conditions. Similarly, it recognizes that handlers will be

assured a higher degree of price equity. The adopted Class I price

structure best provides the incentives necessary for increased

efficiency in the organization and distribution of the milk supply

and dairy products.

Classification Provisions:

The IRFA discussed the classification of milk provisions

contained in the proposed rule. The IRFA concluded that the

classification of milk provisions would not have a significant

economic impact on a substantial number of small entities. With

two primary exceptions, these changes are adopted in the final

decision. The two exceptions are: (1) leaving cream cheese as a

Class III product as currently classified, and (2) leaving the

fluid milk product exclusion standard for products packaged in

“all-metal, hermetically-sealed containers” as currently

classified. In addition, other minor changes have been made
including revising the shrinkage provisions to more closely

resemble current provisions, re-adding the provision for milk that

is dumped or used for animal feed, and classifying inventory of

fluid milk products and fluid cream products in bulk form in Class

IV. One additional change, as previously discussed in the comment

section, was made to ensure that producer-handlers that are not

currently regulated by the Federal order program will maintain

this status. The provisions improve reporting and accounting

procedures for handlers and provide for greater market

efficiencies.

CONCLUSION

A review of the impacts on small entities of consolidating

the current Federal milk orders into 11 orders in conjunction with

the basic formula price replacement, classification provisions,

and the three different Class I price structure options, indicates

that the provisions set forth in the final decision adhere to the

mandates of the Farm Bill, and provides more market efficiencies

while minimizing the impact of these regulations on small

entities. Since the Federal order program serves to benefit dairy

producers by regulating dairy processors through classified

pricing, provisions must be established that maintain a balance

between the interests of small dairy producers and processors. 

The provisions contained in the final decision best maintain this

balance.

The adoption of the consolidated orders and the provisions

contained therein, including the adopted Class I price structure,

will affect some small entities. Producers located in the

western, southwestern, and northeastern areas may not fare as well

as producers in other parts of the country when comparing the allmilk prices and cash receipts from milk marketings to current

baseline projections. These producers represent approximately

one-third of the total producers associated with Federal orders. 

Of these producers, about 30 percent are considered small

businesses. When compared to the baseline, over a 6-year period

from the years of 2000-2005, the all-milk price for all Federal

orders is expected to decrease an average of $0.02 per

hundredweight. Changes in the all-market price on an individual

order basis is projected to range from a decrease of $0.50 per

hundredweight to an increase of $0.52 per hundredweight. Cash

receipts are expected to increase by an estimated $222.3 million

primarily because of changes in transportation payments and the

pooling of additional milk. After adjusting for these changes,

cash receipts are projected to decline from the baseline an

average of $2.5 million during the 6-year period. With the

baseline cash receipts averaging $16,944.5 million this represents

a very small reduction. 

Since the final decision is projected to have minor effects

on where milk is produced, little impact is expected on processors
or manufacturers of dairy products. A majority of the fullyregulated processors associated with Federal orders will benefit

from a decrease in Class I prices. About 209 processors, 74 of

which are small businesses, would experience decreases ranging

from $0.04 to $1.18 per hundredweight. About 69 processors, 22 of

which are small businesses, located primarily in the Midwest and

Florida areas, would experience Class I price increases ranging

from $0.08 to $0.57 per hundredweight. About 28 processors, 14 of

which are small businesses, would experience no change in Class I

prices. 

Implementing the consolidated orders with the modified Option

1B price structure would have a significant impact on many small

entities, both producers and processors. Producers located

everywhere except the Midwest and Florida regions would have been

negatively impacted. When compared to the baseline, over a 6-year

period from the years of 2000-2005, the all-milk price for all

Federal orders was projected to annually average $0.09 per

hundredweight lower, with individual order changes ranging from

-$0.61 per hundredweight to $0.42 per hundredweight. Cash

receipts were expected to annually average over $100 million less

than the baseline, a .01 percent decrease.

Most fully-regulated fluid processors would have benefitted

from the decrease in Class I differentials. Lower differentials

would have reduced Class I prices in 29 of the current markets

from between $0.01 to $1.58 per hundredweight. Two markets would

have had increases of $0.15 and $0.17 per hundredweight in Class I

prices. When compared to the baseline, the Class I price for all

Federal orders was projected to average $0.49 per hundredweight

lower over a 6-year period from the years of 2000-2005. Lower

Class I prices would have been expected to increase U.S. sales of

fluid milk by 98.8 million pounds annually. Most fluid processors

would have benefitted from the lower fluid milk prices and

increased fluid milk sales. 

Although most fluid processors would have benefitted from the

consolidation of orders with the modified Option 1B price surface,

only about one-third of the fully-regulated plants are small

businesses and these plants may have been negatively impacted. 

With less of the actual value of fluid milk represented by the

minimum prices established by Federal orders, more emphasis would

have been placed on processors’ and producers’ abilities to

negotiate and/or sustain over-order prices that might be necessary

to maintain an adequate supply of milk. This would have resulted

in less handler equity which could have placed small processors at

a disadvantage in competing for a supply of milk. 

Adoption of this option would have resulted in large fluid

processors benefitting from the regulations at the expense of more

than 50 percent of the total producers who would have experienced

price decreases. Additionally, small processors would not have
been assured equity in competing with large businesses for a milk

supply. Hence, the Department determined the impact of

consolidating orders with the modified Option 1B price structure

would have had a more burdensome financial impact on a significant

number of small businesses.

Implementing the consolidated orders with the Option 1A price

structure would have minimal overall impact on small businesses. 

When compared to the baseline, the all-milk price for all Federal

orders was projected to average $0.03 per hundredweight higher,

with individual order changes ranging from -$0.66 per

hundredweight to $0.34 per hundredweight over a 6-year period from

the years of 2000-2005. Cash receipts were expected to average

over $482.1 million more than the baseline, a .02 percent

increase. Nearly 50 percent of the producers would have

benefitted from this modest increase. 

Since this option is projected to have minor effects on where

milk is produced, little impact would have been expected on

processors or manufacturers of dairy products. Option 1A would

have increased Class I differentials by an average of $0.04 per

hundredweight resulting in the all-market average Class I price

charged to fluid handlers increasing by $0.08 per hundredweight

when compared to the baseline during the years of 2000-2005. 

Processors would have experienced a Class I price increase in 21

of the current orders ranging from $0.01 to $0.50 per

hundredweight, affecting nearly 190 fully-regulated processors of

which about one-third are small businesses. Since the impact of

the increased Class I prices would have resulted in an

insignificant decrease in fluid milk consumption within the

Federal order system, a decrease of 17.1 million pounds, and

within the U.S., a decrease of 14.9 million pounds, this option

would have little expected effect on processors or manufacturers

of dairy products. 

Implementing the consolidated orders with the Option 1A price

structure would likely have minimized the financial impact of

Federal milk orders on small entities. However, this option does

not facilitate the movement towards a more efficient system of

supplying fluid milk to meet market demands within the Federal

order regulatory program. Although this option minimizes the

impact of regulations on small businesses, it does not best meet

the desired outcomes and objectives of the final decision.

The provisions adopted in the final decision best fulfill the

requirements of the AMAA while minimizing the regulatory burdens

on small businesses. The consolidated orders, with the adopted

Class I price structure and other provisions, ensures that the

Federal order program will continue to establish and maintain

market stability and orderly marketing conditions for milk. The

adopted provisions will further provide that milk prices are

established at levels high enough to generate sufficient revenue
for producers to maintain adequate supplies of milk while

providing equity to handlers. The provisions contained in the

final decision do not unduly or disproportionately burden small

businesses.

Paperwork Reduction Act of 1995

The information collection requirements contained in this

decision previously were approved by the Office of Management and

Budget (OMB) pursuant to the Paperwork Reduction Act of 1995 (44

U.S.C. chapter 35) under OMB control number 0581-0032, through

September 30, 2001. 

The amendments set forth in the final decision do not contain

additional information collections that require clearance by the

OMB under the provisions of 44 U.S.C. Chapter 35. Following is a

general description of the reporting and recordkeeping

requirements, reasons for these requirements and an estimate of

the annual burden on the dairy industry. 

Title: Report Forms Under Federal Milk Orders (From Milk

Handlers and Milk Marketing Cooperatives)

OMB Control Number: 0581-0032.

Expiration Date of Approval: September 30, 2001.

Type of Request: Extension and revision of a currently

approved information collection.

Abstract: Federal Milk Marketing Order regulations authorized

under the Agricultural Marketing Agreement Act of 1937, as amended

(7 U.S.C. 601-674), require milk handlers to report in detail the

receipt and utilization of milk and milk products handled at each

of their plants that are regulated by a Federal Order. The data

are needed to administer the classified pricing system and related

requirements of each Federal Order.

Rulemaking amendments to the orders must be approved in

referenda conducted by the Secretary.

The terms of each of the current milk marketing orders are

found at 7 CFR Parts 1001-1199; the terms of each of the proposed

orders in this document are found at 7 CFR Parts 1001-1135. The

authority for requiring reports is found at 8c(5) and (7) and 8d

of the Act. The current authority for requiring records to be

kept is found in the general provisions at 7 CFR Part 1000.5. In

the final decision, this authority is found in the general

provisions at 7 CFR Part 1000.27. The Act also provides for milk

marketing agreements, but there are none in effect. 

A Federal milk marketing order is a regulation issued by the

Secretary of Agriculture that places certain requirements on the

handling of milk in the area it covers. It requires that handlers

of milk for a marketing area pay not less than certain minimum

class prices according to how the milk is used. These prices are

established under an order on the basis of evidence concerning the

supply and demand conditions for milk in the market. A milk order
requires that payments for milk be pooled and paid to individual

farmers or cooperative associations of farmers on the basis of a

uniform or average price. Thus, all eligible farmers (producers)

share in the market wide use-values of milk by regulated handlers.

The Report of Receipts and Utilization and the Producer

Payroll Report are completed by regulated milk handlers and milk

marketing cooperatives and are the principal reporting forms

needed to administer Federal milk marketing orders.

The orders also provide for the public dissemination of

market statistics and other information for the benefit of

producers, handlers, and consumers. Each milk order is

administered by a market administrator who is an agent of the

Secretary of Agriculture. Part of the market administrator’s

duties are to prescribe reports required of each handler, and to

assure that handlers properly account for milk and milk products,

and that such handlers pay producers and associations of producers

according to the provisions of the order. The market

administrator employs a staff that verifies handlers’ reports by

examining records to determine that the required payments are made

to producers. Most reports required from handlers are submitted

monthly to the market administrator. Confidentiality of

information collection is assured through Section 608(d) of the

Act, which imposes substantial penalties on anyone violating these

confidentiality requirements.

The forms used by the market administrators are required by

the respective milk orders that are authorized by the Act. The

forms are authorized either in the general provisions (Part 1000)

or in the sections of the respective orders. The forms are used

to establish the quantity of milk received by handlers, the

pooling status of handlers, the class-use of the milk used by the

handler and the butterfat content and amounts of other components

of the milk. 

The frequency of performing these recordkeeping and reporting

duties varies according to the form; the frequency ranges from “on

occasion” to “annually” but “monthly” is perhaps most common. In

general, most of the information that handlers report to the

market administrator is readily available from normally maintained

business records. Thus, the burden on handlers to complete these

recordkeeping and reporting requirements is expected to be

minimal. In addition, assistance in completing forms is readily

available from market administrator offices.

Regarding the use of improved information technology to

reduce the reporting and recordkeeping burden, the information

requested is the minimum necessary to carry out the program. 

Since the type of information required to be collected and the

certification and reporting of that information is required, no

other alternative to the mode of information collection has been

found. However, where possible, reported information is accepted
using computer tapes or diskettes as alternatives to submitting

the requested information on these report forms. Comments were

requested to help assess the number of handlers using computers,

word processors and other electronic equipment to create and store

documents, as well as the extent to which the Internet is used to

exchange information. 

We are confident that the information we collect does not

duplicate information already available. Dairy Programs has an

ongoing relationship with many organizations in the dairy industry

that also respond to other governmental agencies. Thus, we are

aware of the reports dairy industry organizations are submitting

to other government agencies. 

Information collection requirements have been reduced to the

minimum requirements of the orders, thus minimizing the burden on

all handlers--those considered to be small as well as large

entities. Forms require only a minimal amount of information

which can be supplied without data processing equipment or a

trained statistical staff. The primary source of data used to

complete the forms are routinely used in all business

transactions. Thus, the information collection and reporting

burden is relatively small. Requiring the same reporting

requirements for all handlers does not significantly disadvantage

any handler that is smaller than industry average.

If the collection of this information were conducted less

frequently, data needed to keep the Secretary informed concerning

industry operations would not be available. Timing and frequency

of the various reports are such to meet the needs of the industry

and yet minimize the burden of the reporting public.

The collection of the required information is conducted in a

manner consistent with guidelines in 5 CFR 1320.6. The orders

require that the market administrator compute monthly minimum

prices to producers based on monthly information. Without monthly

information, the market administrator, for example, would not have

the information to compute each monthly price, nor to know if

handlers were paying producers on dates prescribed in the order,

such as the partial payment for milk received the first 15 days of

the month and the final payment which is payable after the end of

the month. The Act imposes penalties for order violations, such

as the failure to pay producers not later than prescribed dates. 

The orders require payments to and from the producer-settlement

fund to be made monthly. Also, class prices are based on the

monthly Basic Formula price series.

Annual Reporting and Recordkeeping Burden:

Estimate of Burden: Public reporting burden for this collection

of information is estimated to average 0.87 hours per response.

Respondents: Milk Handlers and Milk Marketing Cooperatives.

Estimated Number of Respondents: 772.

Estimated Number of Responses per Respondent: 35.
Estimated Total Annual Burden on Respondents: 23,858 hours.

Estimated annual cost to respondents for report preparation: 

$276,514 (23,858 hours at $11.59 per hour). Although hourly rates

vary among handlers in various localities, the wage paid to

clerical workers engaged in report preparation is estimated to be

comparable to about a grade GS-7, step 1. 

It is important to note that the burden being reported is an

estimate of the amount of time that would be required of current

program participants.

It is expected that the final decision should have little

impact on the reporting and recordkeeping burden on handlers

regulated under the Federal milk marketing order program. In

fact, as a result of the consolidation of Federal orders from 31

to 11 as proposed, an overall reduction in reporting and

recordkeeping requirements may occur due to greater uniformity in

forms used and fewer “special” forms that currently apply to one

or a few orders. There should also be a reduction in the burden

on handlers that currently file reports for individual orders that

are being consolidated.

Non-substantial changes would be necessary on the required

reports and records to correctly identify the new Federal market

order (e.g. the current--and separate--reports for the Upper

Florida, Tampa Bay and Southeastern Florida marketing areas would

be combined into one report for the Florida marketing area).

Request for Public Input on Analyses

Comments on the Executive Order 12866 analysis, the initial

regulatory flexibility analysis, and the paperwork reduction

analysis were requested in the proposed rule, which was published

in the Federal Register on January 30, 1998. Specifically,

interested parties were invited to submit comments on the

regulatory and informational impacts of this proposed rule on

small businesses. More than 1,000 comments were received from

interested parties that specifically stated or documented they

were small businesses. However, this number may not be fully

representative of the number of small businesses that actually

submitted comments because a majority of commenters did not

indicate their size. A few comments specifically addressed the

initial regulatory flexibility analysis (IRFA), the Executive

Order 12866, and the Paperwork Reduction Analysis. These comments

have been considered and addressed above.

Preliminary Statement

The material issues in this rule relate to:

1. Consolidation of marketing areas.

2. Basic formula price replacement and other class price

issues.

3. Class I pricing structure.
4. Classification of milk and related issues.

5. Provisions applicable to all orders.

6. Regional issues:

a. Northeast Region.

b. Southeast Region.

c. Midwest Region.

d. Western Region.

7. Miscellaneous and administrative matters.

a. Consolidation of the marketing service,

 administrative expense, and producer-

 settlement funds.

b. Consolidation of the transportation credit 

 balancing funds.

c. General findings.