6a. NORTHEAST REGION 

The Northeast Marketing Area

The recommended consolidated Northeast order differs

significantly from other consolidated orders. In addition to

merging three existing Federal milk orders, the Northeast order

also calls for expansion in the northern region of New York state,

and all currently unregulated areas of the New England states

(except Maine).

While the current New England (Order 1) and Middle Atlantic

(Order 4) orders have similar provisions for adjusting producer

blend prices in a manner identical to plant price adjustments for

location, the current New York-New Jersey (Order 2) order employs

a “farm-point” pricing method. This decision adopts a plant-point

pricing methodology in the consolidated Northeast order. This

method is used in every other current marketing area and in every

consolidated marketing area. This represents a considerable

change in how milk will be priced for those handlers and producers

whose milk currently is priced under the provisions of the New

York-New Jersey order.

In addition to the different pricing provisions of the three

existing orders, other important differences and related

provisions need to be addressed in the Northeast regional order

that will accomplish the goals of the AMAA. These include what is

commonly referred to in the New-York-New Jersey order as the “pass

through” provision; the need for providing marketwide service

payments in the form of cooperative service payments and balancing

payments that currently exist in the New York-New Jersey order and

do not exist in either the current New England or Middle Atlantic

orders. Additionally, the three current northeast orders also

provide for seasonal adjustments to the Class III and IIIA price.

It is fair to observe that the current order most affected by

the consolidation is the New York-New Jersey order. In addition

to the differences already described, certain terms and provisions

of the Northeast order are also different in how they are

described and presented but are nevertheless consistent with

existing provisions that accomplish the goals of the AMAA. This

is less of an issue for those entities that are accustomed to the

terminology of provisions used in the New England and Middle

Atlantic orders. The following presents a discussion of the

recommended order provisions and issues that are unique to the

consolidated Northeast order.

Plant

The plant definition for the consolidated Northeast order

should differ from that of the other consolidated orders by

allowing stationary storage tanks to be used as reload points. 

This exception to the plant definition is warranted for the
consolidated Northeast order due to certain unique conditions that

affect the ability of handlers and haulers to assemble milk in an

efficient manner and subsequently transport it to a plant that

actually processes milk into finished dairy products, including

fluid milk products. This exception would not consider the reload

point or facility as a point from which to price producer milk. 

Rather, milk once assembled would be shipped to a processing plant

where it would be priced.

A portion of the Northeast milk supply is derived from some

200 small dairy farms located in Maine. Because much of this

state is serviced by secondary and rural winding roads, the

current New England order has provided for reload points as a

workable solution to the inherent hauling difficulties in

transporting relatively small loads of milk from the countryside

to reload points and facilities with stationary storage tanks that

do not serve as a pricing point. This should continue to be

provided for in the consolidated Northeast order. Not to provide

this accommodation would adversely affect a substantial number of

small producers and the milk haulers that service them.

Pool plant

The pool distributing and pool supply plant definitions of

the consolidated Northeast order use the standard order language

format used in other orders, combined with performance standards

that are adapted to marketing conditions in the Northeast.

The pool distributing plant definition specifies that a pool

distributing plant must have 25 percent or more of its total

physical receipts of fluid milk distributed as route disposition

and that at least 25 percent of route disposition be within the

marketing area. The 25 percent level of total receipts

distributed on routes is reasonably high enough to establish a

distributing plant’s association with the fluid milk market. The

in-area route distribution performance standard level of 25

percent is adopted because it tends to minimize changing the

regulatory status of handlers from their current regulatory status

by the Federal order program that may result from the

consolidation of existing orders. The 25 percent in-area sales

standard is also a reasonable measure for identifying a level at

which a distributing plant is sufficiently associated with the

marketing area.

As already discussed, the consolidated Northeast order and

other nearby consolidated marketing orders do not call for 

expansion to include certain currently unregulated areas. This

includes areas in the states of New York, Pennsylvania, Virginia,

and the entire state of Maine. Some distributing plants in these

areas are not currently regulated, or are only partially regulated

to the extent they have some Class I sales in regulated areas. A

25 percent in-area route distribution level will serve to ensure
or minimize any changes in their current regulatory status under

the Federal program that result from consolidation of the three

northeast marketing areas into a single new order.

Unit pooling, wherein two or more plants operated by the same

handler located in the marketing area can qualify for pooling as a

unit by meeting the total and in-area route distribution

requirements of a pool distributing plant, is included in the

consolidated Northeast order. Providing for unit pooling provides

a degree of regulatory flexibility for handlers by recognizing

specialization of plant operations.

Due primarily to positions offered by many of the major

Northeast dairy cooperatives and their recommendations on

appropriate pool supply plant performance requirements, the

consolidated Northeast order supply plant performance requirements

initially should be set to require that in the months of August

and December, at least 10 percent of the total quantity of bulk

milk that is received at a supply plant be shipped to distributing

plants. For the months of September through November, such

shipments by pool supply plants should be at least 20 percent. To

the extent that a supply plant has met these performance

requirements, no performance requirement is recommended for the

months of January through July. However, a supply plant that has

not met these performance requirements will need to meet a 10

percent performance requirement in each of the months of January

through July in order to qualify as a pool supply plant.

This decision also provides for a system of supply plants for

the consolidated Northeast order. This provision allows two or

more supply plants operated by the same handler, or by one or more

cooperative associations to be qualified for pool plant status by

meeting the shipping standards in the same manner as a single

supply plant subject to certain conditions. These conditions

include written notification to the market administrator of the

plants that will be included in the system, how pool status of

plants will be affected if individual plants are removed from the

system, and provisions for adding plants to the system.

Producer-handler

The producer-handler definition for the consolidated

Northeast order limits receipts to no more than 150,000 pounds of

fluid milk products from handlers fully regulated under any

Federal order. While the proposed rule addressed significant

limitations on producer-handlers with respect to how it

distributes their milk, this decision removes such limitations. 

The intent of providing an appropriate producer-handler definition

was to cause no change in the regulatory status of any known

producer-handler currently in operation in the Northeast order

region. However, the three orders being consolidated have

significant differences in the extent of control a producer-
handler must retain over its distribution practices. The current

Middle Atlantic region does not limit the distribution facilities

that may be used by a producer-handler. Thus, any limitation with

respect to distribution could either cause a current producerhandler to loose such status, or may cause the need for a

producer-handler to modify its business practices. Therefore, the

producer-handler definition adopted herein removes any

restrictions on how it distributes its products.

Also removed from the producer-handler definition is the

provision that a producer-handler would not include any producer

who also operates a distributing plant if it is requested that

their dairy farm and plant be operated as separate entities. 

Removing this component of the producer-handler definition tends

to strengthen the principle that producer-handlers rely primarily

on their own farm production to bear the burden of balancing their

fluid sales and to find outlets for their surplus production. 

Producer

The producer definition of the consolidated Northeast order 

defines and describes those dairy farmers who are properly

associated with the Northeast marketing area and who will share in

the benefits that accrue from the marketwide pooling of milk under

the order.

The producer definition establishes seasonal limitations for

determining if a dairy farmer is considered to be a producer under

the order. Basically, the order prohibits a dairy farmer from

being a producer under the order during the flush production

period if the dairy farmer did not supply the market during the

months of relatively short production when milk supplies are

needed most to meet fluid demands. Accordingly, the producer

definition does not include dairy farmers whose milk during any

month of December through June is received at a pool plant or by a

cooperative association handler if the operator of the pool plant

or the cooperative association caused the milk from such

producer’s farm to be delivered to any plant as other than

producer milk as defined in the producer milk provision of the

Northeast order, or any other Federal milk order during the same

month, in either of the two preceding months, or during any of the

months of July through November.

Similarly, a dairy farmer would not be considered a producer

under the order for any month of July through November if any milk

of the dairy farmer is received at a pool plant or by a

cooperative association handler if the pool plant operator or the

cooperative association caused the dairy farmer’s milk to be

delivered to any plant as other than producer milk, as defined in

this proposed order, or in any other Federal milk order during the

same month.

Producer milk
The producer milk definition of the consolidated Northeast

order follows the general structure and format of other

consolidated orders. It differs from other consolidated orders in

that it requires cooperative handlers to organize reports of

producer receipts that originate outside of the states included in

the marketing area, or the states of Maine or West Virginia, into

reporting units with each unit separately reporting receipts.

No diversion limits are established as they are in other

consolidated orders. However, diversions are limited in

functional terms. The maximum quantity of milk that a supply

plant would be able to divert and still maintain pool plant status

would be 100 percent minus the applicable shipping standard. This

should provide for a maximum amount of flexibility in marketing

milk in the most efficient manner to balance fluid milk needs.

Component Pricing

The consolidated Northeast order will employ a component

pricing plan in the classified pricing of milk under the order as

previously discussed in the BFP section of this decision. This is

consistent with positions taken and proposals offered by major

cooperative groups in the Northeast who supply a large percentage

of the milk needs of the market. However, on the basis of public

comments, the consolidated Northeast order will not contain a

somatic-cell adjustor.

In response to the proposed rule, one major association

representing primarily milk processors and dairy product

manufacturers in New York expressed opposition to employing a

multiple component pricing plan in the Northeast order. Their

objection to its adoption is that it will be burdensome for

handlers. This was expressed primarily as burdens associated with

changing from farm-point pricing to plant-point pricing of milk

and changes that handlers would need to make for producer pay-roll

purposes and in the accounting software that they contend would

entail considerable cost outlays. Also expressed in opposition to

its adoption was that multiple component pricing does not favor

fluid milk handlers, that it is designed primarily for high-solids

producers and manufacturers, that it may result in manufacturers

having to pay premiums to attract high-solids milk, and that it

rewards some producers while reducing pay prices to others.

These objections are unpersuasive. Multiple component

pricing is a method for determining, among other things, how

producer milk will be priced under the order on a basis beyond

just skim milk and butterfat. Components of milk have values that

are recognized by the marketplace and producers have expressed the

desire for having their pay prices adjusted according to such

values. Nevertheless, it does not affect the total per

hundredweight value of milk. Additionally, multiple component

pricing does not either favor or disfavor fluid milk handlers as
the multiple component pricing plan adopted for the Northeast

order will continue to price Class I milk on the basis of skim

milk and butterfat.

It should be noted that there are many multiple component

pricing plans operated by many handlers in the northeast region. 

The existence of such plans provides evidence that it is

appropriate and reasonable to formalize a multiple component

pricing plan for the consolidated Northeast marketing order,

especially when there is strong support for it by producers. To

the extent that there are so many similar plans, it should not be

particularly burdensome for a one-time change by handlers in their

accounting systems for determining producer payroll. 

Farm-point vs. plant point pricing

At issue in merging the three northeast marketing areas is

the use of two distinct pricing methods for milk. The Middle

Atlantic and New England marketing areas employ a system of plantpoint pricing. This pricing method is also employed in every

other marketing area in the Federal order system. Only the New

York-New Jersey marketing area uses what is called “farm-point”

pricing. This decision adopts plant-point pricing as the pricing

method for the consolidated Northeast order.

Plant-point pricing of milk that is pooled under an order

prices milk f.o.b. the plant of first receipt. The cost of

hauling from the farm to the plant is the responsibility of the

producer. When the receiving handler is also the hauler, orders

permit the handlers in making payments to each producer to deduct

hauling costs up to the full amount authorized in writing by the

producer.

As originally employed in the New York-New Jersey order

(Order 2), farm-point pricing establishes the price for milk by

the zone (distance from market computed from the nearer of the

basing points) of the township in which a producer’s milkhouse is

located. While termed “farm-point,” farms are grouped by their

township location because this is the nearest practicable proxy

for actual farm location. In functional terms, when a handler

picks up milk at a producer’s farm, the handler takes title of the

milk at the time and point of pickup. Accordingly, there were no

adjustments in payments to producers to cover any part of the cost

of pickup or hauling in moving milk to the handler’s plant. Farmpoint pricing fundamentally shifts the cost of transporting milk

from the producer to the handler. Farm-point pricing has been in

effect in Order 2 since 1961. While the fundamental concept of

farm-point pricing has been retained with respect to its overall

structure of mileage zones, other order provisions were adopted

subsequent to its establishment and modified over time so that

farm-point pricing could remain viable while allowing handlers to

charge some of the cost of hauling producers’ milk to the plant of
first receipt.

In the decision that established farm-point pricing (25 FR

8610, Sept. 7, 1960), prevailing marketing conditions served to

warrant this type of pricing system. At that time, the emergence

of bulk-tank milk began to take on a degree of prominence in the

milk supply of Order 2. Prior to the adoption of farm-point

pricing (1959), about 8 percent of the producers had bulk tanks,

accounting for at least 14 percent of the volume of milk

associated with the market. About 92 percent of producers

delivered their milk at their own expense directly to plants in 40

quart cans. Most of the milk can-delivered was from farms within

a radius of not more than 15 miles from the plant. The milk of

producers who had converted to bulk tanks, in some instances, was

hauled more than 200 miles from farm to city plants, but the

majority of bulk tank milk was moved much shorter distances to

country receiving plants. The decision cited that in October,

1959, milk was received from 49,719 producers at 691 plants.

When milk was delivered in cans to a handler’s plant, the

plant was the location at which milk was weighed, sampled for

butterfat and quality, and where cans were washed. It was at the

plant that milk was accepted or rejected. It was the place where

milk was cooled and co-mingled with other individual producer’s

milk. More importantly, it was the place where control of the

milk passed from producer to the plant operator or from which the

milk was moved by the plant to other plants for fluid or

manufacturing uses. Minimum prices required by the order to be

paid by handlers were adjusted for the location of the plant at

which milk was received from dairy farmers.

Bulk tank milk brought a set of new factors. When milk was

transferred from a producer’s bulk tank to the hauler, the point

of transfer was also the point where several functions are

performed. Milk in a producer’s bulk tank has already been

cooled, and therefore is not subject to the early delivery

deadlines. The weight of milk was determined at the bulk tank,

and samples were taken for butterfat and quality. It was also

here that the individual producer’s milk was rejected or accepted

and lost its identity by being co-mingled with other milk.

Numerous problems arose in regulating the handling of bulk

tank milk in an order where pooling depended upon direct delivery

from the farm to a pool plant and under which minimum class prices

and the uniform prices to be paid to producers was reflective of

the location of the plant where delivery was made:

1. Administrative problems associated with bulk tank

handling arose, particularly where and when milk was regarded to

have been received. Bulk tank milk provided the opportunity to

deliver milk to different plants, some pool and some nonpool. 

Where a given tank load of milk was unloaded if it went to two or
more plants of the same or different handlers on the same day was

difficult to determine.

2. The incentive arose (because of the administrative

difficulty of determining when and where milk was received) for

handlers to behave in a way that would result in the maximum

exclusion of milk from the pool for fluid use outside the

marketing area.

3. The incentive arose for the maximum inclusion in the pool

of milk in fluid and manufacturing uses.

4. The incentive and opportunity arose for handlers to

select one of several plants for receipt of bulk tank milk, with

or without manipulation of hauling charges. This distorted and

impinged upon the effectiveness of the minimum price provisions of

the order, especially in the case of relatively long hauls of bulk

tank milk.

The 1961 decision that established farm-point pricing

provided eight scenarios that demonstrated how handlers behaved so

as to minimize their pricing obligations to producers. Most of

the scenarios arose from the inability to determine when milk was

received at a plant. In order to mitigate such circumstances,

several things were done. Foremost was the establishment of farmpoint pricing on the basis of bulk tank units and the designation

of each bulk tank unit as either a pool or nonpool unit and

defining the circumstances under which such designations could be

changed.

The pricing of milk at the farm eliminated the incentive for

handlers to attempt to make it appear that the plant of receipt

was other than the plant where milk is actually received and

handled. It was made crystal clear that delivery and receipt of

bulk milk takes place at the farm. Once acquired by the handler,

the plant or plants to which the milk may be delivered depended on

decision of the handler, not the producer. Under these

circumstances, where the milk was actually used was not a factor

to be reflected in the minimum producer price. The operator of

the bulk tank unit was defined as the handler and the point of

receipt of milk. This entity was responsible for establishing the

unit, and it held the responsibility for reporting, accounting,

pooling and paying producers. Additionally, the decision

concluded that the price at which the farm bulk tank is accounted

for to the pool should be the minimum class price adjusted for

location of the farm, and that payments by handlers directly to

producers be adjusted to reflect all location differentials based

on where farms are located and where bulk tank milk was received.

A proposal that would have allowed a tank truck service

charge authorized by the producer but not in excess of 20 cents

per hundredweight (cwt.), and establish that payments to

cooperatives which serve as handlers operating a bulk tank unit
should be at the price reflecting transportation and (the then

existing) direct delivery differential applicable at the handler’s

plant where milk is delivered by the cooperative was not

incorporated into the order. At that time, it was found that

plant hauling charges averaged nearly 20 cents per cwt. This was

offered as rationale for a negotiable 20 cent per cwt. charge by

handlers for hauling. Arguments not withstanding, the underlying

concepts embodied in farm-point pricing caused the Department to

not allow for any hauling deduction by handlers.

Shortly after the implementation of farm-point pricing, the

need to amend the order to keep farm-point pricing viable arose. 

The first occurrence was in 1963. In the 1963 decision (28 FR

11956, Oct. 31, 1963), it was noted that there had been

significant changes in marketing conditions that arose from

establishing farm-point pricing in 1961. These included the

reduction in premiums to bulk tank producers in general; the

reluctance of proprietary handlers to receive bulk tank milk from

individual producers because of the hauling costs they would

incur; the differences in pricing can and bulk tank milk; and a

slowdown in the trend of conversion from can milk to bulk tank

milk. The 1963 decision, in acknowledgment of changing marketing

conditions, incorporated an authorized 10-cent per cwt. charge for

hauling under the Order, provided that producers authorized this

maximum level in writing.

In the 1963 decision, the Secretary found that allowing for a

limited authorized service charge for hauling bulk tank milk at a

maximum rate of 10 cents per cwt. was sufficient. This was

largely based on the fact that handlers were not then charging for

bulk tank pickup and hauling, but rather were paying premiums for

bulk tank milk. Additionally, can-milk direct delivered by

producers to plants was still very much the norm. While bulk tank

milk was growing, it had not yet accounted for a majority of milk

pooled on the order.

This decision raised, for the first time with respect to

farm-point pricing, the maintenance of orderly conditions and

uniform pricing to handlers on all milk priced and pooled under

the order. Because bulk tank milk is priced by township zone,

(the best proxy for a farm’s location) all farms in any particular

township have the same value assigned to their milk. However, the

decision found it necessary to reflect appropriate uniform pricing

of bulk tank milk because it has differing values dependent on the

accessibility and relative location of individual farms within the

township. With this finding, it was determined that

responsibility for hauling to the township pricing point should be

borne by the producer with appropriate safeguards to protect the

producer. Therefore, a maximum negotiable hauling charge from

handlers of 10 cents per cwt. was brought under the order.
By 1970, marketing conditions in the New York-New Jersey

market had changed to the point where handlers were authorized to

receive a full 10-cent hauling credit for each cwt. of bulk tank

milk which was disposed of for manufacturing uses. Additionally,

the negotiable 10-cent hauling charge to producers for a handler’s

cost offset established by the 1963 decision was retained. 

However, the 10-cent negotiable limit was limited to manufacturing

milk. Can-milk at this time represented about 25 percent of the

total amount of milk pooled in Order 2, with the balance being

bulk tank milk.

Proponents supporting this change to the order claimed, and

the decision affirmed, that the manufacturing price for milk in

Order 2 was not properly aligned with manufacturing class prices

in adjacent Federal orders. In this decision (35 FR 15927, Oct.

9, 1970) the Secretary found that to the extent that Order 2

handlers had borne the transportation costs associated with the

pickup and movement of bulk tank milk used in manufacturing from

the farm to the plant, Order 2 handler costs exceeded the price

which handlers in adjacent order markets were required to pay for

milk used in manufacturing. By adopting this transportation

credit for handlers, there was no need to adopt other proposals

that would have lowered the manufacturing price for milk under the

other northeastern orders or lower the Class I price for milk in

Order 2 as had been proposed.

By 1977, some 16 years after the adoption of farm-point

pricing, marketing conditions had changed again and the issue of

providing for more equitable competition among handlers both

within the Order 2 market and between other orders took on primary

importance. By this time, can-milk was about 3 percent of the

market, with the balance represented by bulk tank milk, the near

inverse of the marketing conditions prevailing in 1961. The

transportation credit that had been established for handlers in

the 1970 decision for manufacturing milk was now extended to all

milk received by handlers. The transportation credit was

increased to 15 cents per cwt., plus an additional 15-cent maximum

negotiable credit above the “automatic” 15 cents because total

average transportation costs were found to be about 30 cents per

cwt. For reasons nearly identical to the 1963 and 1970 decisions,

“formalizing” the negotiable hauling charge was not adopted

because of needed flexibility in accounting for milk movements

from the farm to the township pricing point (42 FR 41582, Aug. 17,

1977). In that decision the Secretary also raised the direct

delivery differential from 5 cents to 15 cents per cwt. in the 1-

70 mile zone for can-milk delivered by farmers to plants within

this zone, and changed the transportation adjustment rate from 1.2

cents per cwt. for each 10 miles to 1.5 cents per cwt. for each

10-mile zone beyond the 201-210 zone, and 1.8 cents per cwt. for
each 10-mile zone within the 201-210 mile zone.

Cooperatives were of the strong opinion that the cost of milk

assembly and transportation are the marketing costs of the handler

and not producers. However, they also indicated that changes were

warranted in the order because of the failure of neighboring

markets to adopt farm-point pricing.

Comparative examples of handler price inequities with respect

to their cost of milk was amply demonstrated for both intra and

inter market situations. With respect to inappropriate price

alignment between orders, the competitive relationships between

Order 2 and Order 4 were closely examined. On intra-order

movements of milk, it was shown that Class I handlers in New York

City had a significantly lower procurement cost for direct-ship

over bulk tank milk because bulk tank milk from “distant” supply

plants had higher transfer and over-the-road hauling costs. 

Supply plant milk at the city represented about 80 percent of milk

receipts at city plants. The inter-market situation demonstrated

that handlers in Philadelphia accounted for milk at prices lower

than New York handlers. Order 4 handlers were in a position to

establish lower resale prices for fluid milk than their

competitors in the New York market because the burden of increased

hauling costs fell largely on Order 2 handlers. As in 1970, other

proposals were denied in light of adopting the 15-cent hauling

credit for handlers. These other proposals included lowering

Class I and the manufacturing price for milk in the order by 15

cents per cwt.

By 1981, bulk tank milk accounted for nearly the entire milk

supply pooled on Order 2 -- about 99.6 percent. As the result of

a hearing held in June 1980, in the final decision (FR 46 33008,

June 25, 1981) the Secretary again amended the transportation

credit provisions of the order. The 15 cents per cwt credit for

handlers was retained; however, the 15-cent negotiable

transportation service charge was modified to allow handlers to

negotiate with producers for any farm-to-first plant hauling cost

in excess of the 15-cent transportation credit, plus “the amount

that the class use value of the milk at the location of the plant

of first receipt was in excess of its class use value at the

location where milk was received in the bulk tank unit from which

the milk was transferred.” According to the 1981 decision, this

amendment would adjust hauling allowances for handlers to more

closely relate the location value of milk to the costs incurred in

transporting milk from farms and country plants to distributing

plants in the major consumption areas of the market. Additionally,

the decision indicated that this change was necessary to reflect

current marketing conditions and permit a more equitable

competitive situation for regulated handlers, both on an intra

market and inter market basis. The decision also applied a 15-
cent direct delivery differential for bulk tank milk received at

plants within 70 miles of New York City on the basis that a direct

delivery differential is applicable to milk received in cans at a

plant in the 1-70 mile zone.

In the 1981 decision, the Secretary found that the majority

of milk moved to distributing plants in 1979 from the 1-70 mile

zone moved directly from farms. This accounted for about 58

percent of the milk in this zone with 48 percent being reloaded. 

Moreover, the decision found that Order 2 plants located in

northern New Jersey received direct shipped milk as did handlers

located in Order 4. Thus, inter market price alignment needed to

be structured primarily on the basis of handlers obtaining direct

shipped milk.

A federation of cooperative associations representing Order 4

producers proposed that Order 2 be amended to return to plantpoint pricing, with the direct delivery differential being reduced

to 10 cents per cwt, and that the Class I differential at the base

zone of Order 2 be increased from the $2.25 level then in effect,

to $2.40. This federation of cooperatives believed that this

“package” of order modifications would provide for proper price

alignment between Order 2 and Order 4. While the decision did

apply different transportation rates at a rate of 1.8 cents per

cwt. outside the base zone of the Order (201-210) and a rate of

2.2 cents per cwt. inside the base zone, it did not provide for a

return to plant-point pricing.

While the decision did not adopt plant point pricing, the

decision did acknowledge that the amendments adopted tended to

establish plant pricing with respect to the classified prices to

handlers. However, farm-point pricing was retained with respect

to how producers were paid. With this being the case, the basic

substantive difference between the amendments and plant pricing is

the impact on the movement of milk to higher-priced zones for

manufacturing use. Under plant pricing, the minimum uniform price

payable to producers applies at the location of the plant of first

receipt and handlers receive a credit from the producer settlement

fund at such uniform price. The decision also concluded that

plant-point pricing for producers would provide a greater

incentive to haul direct-shipped milk to city plants for

manufacturing uses, since there would be a credit from the pool

for the full amount by which the uniform price transportation

differential at the city plant exceeds the transportation

differential for the zone of the bulk tank unit. Adopting plantpoint pricing for producers would have had the effect of

encouraging milk to move long distances to city plants for

manufacturing uses when transportation savings could be realized

if such milk stayed nearer to manufacturing plants generally

located in the milkshed.
Farm-point pricing has undergone many evolutionary changes

from its inception in 1961. The original rationale for farm-point

pricing, free hauling and the administrative difficulty of

determining when milk from bulk tank units was received seems far

removed from present-day marketing conditions and the rationale

for continuing it. There were a number of years that hearings

were necessary to first recognize that the burden of

transportation costs rested with handlers. This resulted in

handlers being able to successfully argue that with this burden, 

it became much more difficult for the order to establish and

maintain uniform prices to handlers as required by § 608(5)(c) of

the AMAA. This is evidenced by the nature of the decisions of

1963, 1970, 1977, and 1981. Much “repair” to other order

provisions were also needed to retain farm-point pricing. 

Few comments were received in response to the recommended

adoption of plant-point pricing by current Order 2 entities. One

New Jersey entity thought that its elimination would eventually

lead to increased hauling costs borne by producers. Another

comment received from a trade organization representing fluid milk

processors and dairy product manufacturers, thought that too much

emphasis was placed on the “free-hauling” to the detriment of

other desirable features embodied in farm-point pricing. Most

important was this entity’s view that farm-point pricing provides

for increased flexibility and in providing for automatic

incentives for the most efficient hauls of milk for/by handlers in

assembling and moving milk while not affecting the price paid to

dairy farmers.

The arguments for retaining farm-point pricing are not

persuasive in light of the detailed discussion on the entire lifecycle of its history discussed above. This is not to discount the

importance of the certain desirable features of farm-point pricing

that led to its adoption and that have been articulated over the

years for its retention in the New York-New Jersey marketing area. 

Nevertheless, farm-point pricing has outlived its intended purpose

and the Secretary determines that it will not be retained in a

consolidated Northeast order. 

The need for a producer-price mechanism

As discussed above, farm-point pricing for producers did

provide some rational pricing incentives to promote efficiency

within the Order 2 marketing area. This can reasonably be summed

up by concluding that farm-point pricing would not provide, as

plant-point pricing would, incentives to haul direct-shipped milk

to city plants for manufacturing uses, since there would not be a

credit from the pool for the full amount by which a uniform price

transportation differential at the city plant exceeds the

transportation differential for the zone of the bulk tank unit. 

Adopting plant pricing would have had the effect of encouraging
milk to move long distances to city plants for manufacturing uses

when transportation savings could be realized if such milk stayed

nearer to manufacturing plants generally located in the milkshed.

In an effort to address the dairy industry structures that

have evolved over the past four decades in the three current

northeast marketing areas, efforts were undertaken by a major

group of dairy farmer cooperatives in the northeast to address

what the pricing implications are to producers and handlers as the

region moves to a unified plant-point pricing method. This has

resulted in a proposal by the Association of Dairy Cooperatives in

the Northeast (ADCNE) that include St. Albans Cooperative

Creamery, Inc., Land O’Lakes, Upstate Farms Cooperative, Inc.,

Agri-Mark, Inc., Dairy Farmers of America, Inc., Dairylea

Cooperative Inc., and Maryland & Virginia Milk Producers

Cooperative Association Inc. These dairy farmer cooperatives

account for well over half of the milk that would be pooled and

priced under the proposed consolidated Northeast order. Their

proposal calls for establishing a producer differential structure

that would “overlay” the Class I differential structure that would

apply in the consolidated Northeast order.

The structure proposed is a county-based plant-point price

structure, providing for 14 zones that accommodate the need to

reflect existing and longstanding competitive price relationships

among plants, while integrating the farm and plant point pricing

systems currently used in Orders 1, 2, and 4 and with currently

state-regulated areas that fall outside of the proposed marketing

area. Further, the ADCNE proposed prices at the major cities in

the Northeast, including Boston, New York City, Philadelphia,

Baltimore, and Washington, D.C., included specific Class I

differential levels that are somewhat different from those

presented in the Option 1A Class I price surface. For example,

the recommended decision recommended a New York City Class I

differential of $3.15, while ADCNE proposed $3.20. In general,

the ADCNE proposal assumed that the Class I differential structure

that would be adopted was Option 1A, which is the Class I pricing

option they strongly support, and also is the Class I pricing

option overwhelmingly supported in public comments received from

interested parties from the northeast.

With respect to a producer differential surface, the ADCNE

proposed that a debit of 5 cents per cwt. be made to the blend

price applicable at non-distributing plants in certain zones. The

need for the debit, according to the ADCNE proposal, is to make

deliveries to distributing plants somewhat more attractive to

producers, while decreasing the amount by which manufacturing

plants draw on the marketwide pool for transportation values,

offering also that such a debit is economically justified and

authorized by the AMAA. According to ADCNE, it is distributing
plants that provide the revenue -- in the form of Class I values -

- which form the blend price paid to producers. Deliveries to

manufacturing plants do not contribute to increasing the value to

the marketwide pool. The debit, according to ADCNE, is a

reflection in part of the Order 2 system, which has priced some 50

percent of the milk in the northeast region, and which does not

provide location-based transportation payments for movements from

farms to manufacturing plants. The ADCNE proposal provides that

deliveries to Class I plants are rewarded under this system with

an additional 5-cent payment from the pool for the marketwide

benefit conferred by a distributing plant’s utilization.

For the Western New York State order area, ADCNE also

proposed a broad area in which a producer differential of $2.40

per cwt. to producers would be payable on deliveries of producer

milk at all plant locations in this area. This portion of the

price surface proposed by ADCNE purports to be reflective of the

major historical movements of milk from east to west in the region

which returned the eastern farm point price to dairy farmers under

Order 2's farm-point price system, and that the Western New York

State order has not had any location differentials, thereby

establishing a “flat” price surface in the area. If those plants,

for producer pricing purposes, were zoned lower in value

reflecting the westerly and northerly distance from New York City

or Philadelphia, ADCNE is of the view that the ability of both

distributing and supply plants to attract an adequate supply of

milk could be in jeopardy. Furthermore, the expectation that

Class I utilization of the proposed Mideast order will be nearly

10 percent higher than the Class I utilization in the Northeast

order was also offered in support of the ADCNE-proposed producer

differential level in this area.

The ADCNE proposal also recommended producer differential

levels in areas that they believed should be included in either

the consolidated Northeast order or the Mideast order. 

Additionally, the ADCNE proposal also addressed producer

differential levels at other locations outside of the Northeast

region.

Additional supporting and amplifying comments were also

provided by Dairylea. These comments supported the major themes

offered in the ADCNE proposal for a producer differential overlay

to Class I differential levels. Dairylea stated that moving

directly to a plant-point pricing method would accentuate

“existing inequities and market dysfunctions.” Dairylea further

commented that a plant-point differential schedule would maintain

current inter-plant price differences in the current New England

and Middle Atlantic orders, but would worsen them for New York

manufacturing plants, many of which are cooperatively owned. 

Their view of the ADCNE pricing proposal was that it maintains
economic incentives for milk to move to Class I distributing

plants, would provide for more balanced procurement equity among

competing manufacturing plants, maintains equitable producer

pricing when milk is marketed by transporting it from a higher

priced zone to a lower priced zone, and provides a structure that

allows for adequate blend price levels in all areas of the

Northeast milkshed.

Dairylea further commented that under plant-point pricing,

existing “near-in” manufacturing plants (plants located in a

relatively high differential location) would enjoy a procurement

advantage relative to their competitors that are located in a

lower-priced location. Dairylea recommended narrowing the price

differences between manufacturing plants that compete for producer

milk. To do this, Dairylea supported lowering producer

differentials for manufacturing plants that are located in highvalued locations and increasing those differentials at

manufacturing plants in areas that have lower location values. 

Dairylea advocated the ADCNE proposal for a producer differential

that is 5 cents lower than those of Class I plants when such

plants are located in the same pricing zones. Dairylea’s view of

this design results in maintaining, or slightly increasing,

producer differentials applicable at Class I plants and reducing

those applicable at “near-in” manufacturing plants. At the same

time, this would provide for increasing producer differentials at

manufacturing plants in central, western, and northern New York. 

According to Dairylea, this producer pricing surface would present

a more equitable marketing environment than strict plant-point

pricing currently employed in Orders 1 and 4, while at the same

time not threatening the viability of manufacturing plants in

those areas of a consolidated Northeast marketing area.

A major theme of Dairylea was its view that Federal milk

orders and their provisions should foster an environment under

which manufacturing plants are provided equal cost and procurement

ability, and not disfavor such manufacturing plants located in

high milk production areas where Class I differentials are lower. 

Dairylea also stated that the final rule of 1991 that realigned

intra-order prices in Order 2 resulted in harm to producers in

northern and western New York. While it is not appropriate to

specifically revisit this issue and decision here, official notice

is taken of the final decision (55 FR 50934, December 11, 1990)

that realigned Class I differentials in the three existing

northeast marketing areas.

Comments supporting the ADCNE proposal for a producer pricing

surface were also offered by Upstate Farms Cooperative, Inc. The

Upstate Farms views served to reiterate the major themes developed

in the ADCNE proposal.

Agri-Mark, a part of ADCNE, filed separate and dissenting
views on the ADCNE proposal. Conceptually, Agri-Mark noted that

plant and farm-point pricing are different, but noted further that

the differences are not always unfavorable. Agri-Mark submitted

that under plant-point pricing, all producers shipping to the same

plant receive the same minimum order blend price regardless of

where their farm is located. Under farm-point pricing, farmers

shipping to the same plant receive different prices under the

order depending on where their farm is located. Farms closer to

New York City, Agri-Mark noted, receive a higher price than farms

farther from the city, even though their milk ends up in the same

place.

Agri-Mark noted that most manufacturing plants, especially

cheese plants, were built in the northeast prior to the adoption

of farm-point pricing and not in response to it. Rather, says

Agri-Mark, these plants were built at their present locations

because of their proximity to abundant milk supplies. The

procurement problems for manufacturing plants that Order 2

entities alert us to did not arise in New England manufacturing

plants under plant-point pricing even though these plants were

located as far north as possible within the milkshed for New

England.

Simply put, Agri-Mark believes that rather than decreasing

the differential between manufacturing plants and city

distributing plants, an increase is justified. They are also of

the opinion that manufacturing plants located far from higherpriced zones will maintain an advantage even with the adoption of

strict plant-point pricing because this milk does not need to

travel long distances to reach manufacturing plants. Agri-Mark

indicates that the ADCNE proposal would cause Agri-Mark producers

to receive lower prices that competitive price relationships do

not warrant.

The Agri-Mark view of Federal milk marketing orders differed

substantially from the views expressed by Dairylea. Agri-Mark

stated that the role of Federal milk marketing orders is to treat

all producers equitably relative to how their milk is used and not

to weaken price integrity by causing destructive competition among

producers for sale to Class I outlets. This is best accomplished,

according to Agri-Mark, with appropriate pooling requirements and

Class I differentials to satisfy the Class I demands of the

market. Agri-Mark fears that if the regulatory pricing plan gives

a distributing plant an advantage over a cooperative

manufacturing/balancing plant in the same zone, that plant can use

this advantage for itself instead of passing it along to farmers

to offset transporting their milk to market.

Lastly, in their opposition to the ADCNE proposal, Agri-Mark

noted that no manufacturing plant has been built in any city zone

for decades, noting that the only significant plants in such areas
for the northeast are older plants producing nonfat dry milk and

butter and which serve to balance the Class I needs of city

markets, concluding that such plants are there for common sense

and efficiency reasons. In support of this observation, Agri-Mark

noted that existing Class I differentials have not been adjusted

to more fully account for increases in hauling costs. 

A producer pricing differential structure that differs from a

Class I differential is denied. The issue before the Department

is to minimize the impact of the change from farm-point to plantpoint pricing on producers as part of adopting plant-point pricing

for the new consolidated order. The change to plant-point pricing

will affect approximately one-half of the producers in the

consolidated marketing area and is a significant departure from

historical methods of distributing the revenue that accrues from

classified pricing to producers whose milk is pooled under the

current New York-New Jersey order. Plants, however, will not

experience significant change since plants currently regulated

under Order 2 already account to the marketwide pool at the Class

I location differential value. The issue then, tends to focus on

how to pool and distribute the revenue as equitably as possible to

producers. Of the few public comments that were received on this

issue in response to the January 30, 1998, proposed rule, it was

requested that this issue be reconsidered. However, no new or

persuasive arguments were advanced that would cause a change in

denying this proposal.

Competitive equity between manufacturing plants is already

ensured by the classified prices applicable to handlers who

operate such plants. In fact, this decision adopts uniform Class

III and Class IV prices that are applicable for all locations. 

The more appropriate issue this proposal seems to address is that

manufacturing plants are often cooperatively owned. All entities,

including cooperatives in their capacity as handlers, account to

the marketwide pool at the manufacturing price for milk received

at their plants. The price paid to producers is the blend price

for all milk pooled on the market that was priced according to its

use. Cooperatively owned manufacturing plants located in higher

priced areas will pay a higher blend price to producers who

deliver milk to that location provided they meet the performance

requirements for being pooled, thereby demonstrating the

appropriate degree of association with the market. In this

regard, it is worthy to note that not all manufacturing plants in

the high-valued zones in the New York marketing area are pool

plants. Blend prices are adjusted everywhere according to the

location value of the plant. Adjusting producer blend prices on

the basis of whether or not milk was delivered to a distributing

plant or to a manufacturing plant seems to create a form of

producer price discrimination that classified pricing and the
mechanism of marketwide pooling and its related provisions attempt

to mitigate. Such marketwide pooling provisions provide a degree

of equity to producers in the form of a uniform blend price

adjusted only for the location value on all milk pooled on the

market. Classified pricing and marketwide pooling have served

well to mitigate the price competition between producers seeking

preferred higher-valued outlets for their milk, while at the same

time ensuring handlers uniform prices, adjusted only for location,

in the prices they pay for milk.

Marketwide service payments

Cooperative Service Payments — Cooperative service payments,

as part of a marketwide service payment provision for the

consolidated Northeast order, should not be included in a

consolidated Northeast order. As originally proposed by ADCNE, a

2-cent per cwt. payment would be made out of the marketwide pool

to cooperatives and non-cooperative entities for funding

information-gathering and services related to amending Federal

milk marketing order provisions that would be of marketwide

benefit. Cooperative service payments of this sort currently are

provided for under terms of the New York-New Jersey order, but are

not provided for in either the New England or Middle Atlantic

orders. However, under the New York-New Jersey order, cooperative

service payments are made only to qualified cooperatives that meet

the conditions specified under the order and does not provide for

such payments to non-cooperative entities. In comments provided

in response to the proposed rule published on January 30, 1998,

the ADCNE withdrew this component of their marketwide service

payment proposal.

Rationale offered in support of a cooperative service type

payment to cooperatives and non-cooperative entities was based on

recognizing that in a regulatory pool structure, private parties

provide important services that are of benefit to everyone

involved in the marketwide pool, including the promulgation,

amendments to, and administration of the order. Not to provide a

mechanism for the recovery of a portion of the expense involved in

providing such services would disadvantage those incurring these

expenses while everyone in the market benefits as a result of

these services.

Qualification criteria presented for entities eligible to

receive this payment included a demonstration to the market

administrator that it provides information with respect to market

order prices and marketing conditions, that it has retained legal

and economic staff or consulting personnel available to

participate in marketing order amendatory proceedings, to consult

with the market administrator with respect to marketing order

issues, and that the entity pool at least 2.5 percent of the

order’s total milk volume.
There is not a compelling reason to adopt this sort of

compensatory plan to reimburse those entities that incur these

costs. Market administrators and their staffs make themselves

available to meet with, discuss, and aid in formulating positions

that reflect marketing conditions as a normal part of their

duties. Additionally, there are numerous provisions in the order

that require as a matter of course the issuance of reports,

prices, and other information that affect all marketing order

participants and that provide a service to the entities affected

by the regulatory plan of the order. Finally, no other current or

consolidated order provides for such cost compensation. 

Cooperative and proprietary handlers in the New England and Middle

Atlantic marketing areas included in the consolidated Northeast

order, as well as entities in all other marketing areas have not

experienced or have demonstrated any of the harm or “disadvantage”

that arises, or may arise, if such costs are not shared by the

entire pool of producers in the marketing area. This decision can

only assume that industry participants that have an interest in

developing the promulgation and amendments to marketing orders

would be willing to do so at their own expense. The positions and

arguments offered are largely issues of the self-interest of

entities. As such, self-interest may or may not be of marketwide

benefit.

Balancing Payments — A marketwide service payment plan which

would compensate qualified handlers that perform market balancing

should not be included in the consolidated Northeast order at this

time.

The original proposal for providing balancing payments from

the marketwide pool was intended to reflect the additional costs

that handlers incur in balancing the Class I needs of the market

and clearing the market of temporary milk surpluses. According to

the proponents, these balancing costs are not fully recoverable

from Class I handlers; however, the benefit that results from this

service being provided is a benefit of all producers in the

market.

Handlers that incur the costs would be those handlers that

would receive partial cost reimbursement of 4 cents per cwt. 

Cooperatives would be eligible to form common marketing agencies

or federations for purposes of qualifying for balancing payments. 

Such handlers would include those who: 1) demonstrate ownership or

operation of a balancing plant with the capacity to process a

million pounds of milk per day into storable products such as

cheese, butter, and nonfat dry milk and who also represent at

least 2.5 percent of the total volume of milk pooled under the

order; 2) have under contract, and the obligation to pool on a

year-round basis, at least 8 percent of the market’s milk volume;

3) own a balancing plant that must be made available to other
handlers or cooperatives at the request of the market

administrator; 4) qualify to provide pool producers with a

temporary market for their milk for up to 30 days at the request

of the market administrator; and 5) demonstrate to the market

administrator that their utilization of milk in Class I uses is

greater than the minimum shipments required for pool plant

qualification under the order.

ADCNE modified the above described original proposal for

balancing payments. The modified proposal calls for a balancing

payment of 6 cents per cwt. and revised criteria for those

entities eligible to receive balancing payments from the

marketwide pool. As with their original proposal, they are of

the opinion that a system of reimbursement is necessary to offset

costs associated with absorbing, or balancing, the daily, weekly,

and seasonal fluctuation in Class I demand in the market. 

Balancing payments would be made on qualifying pounds of pooled

milk delivered to manufacturing milk plants. Additionally, this

milk would be subject to a “call” by the market administrator

during times when there is additional need for milk by

distributing plants in the market. 

The modified proposal would provide balancing payments to any

handler in any month in which the handler’s deliveries of milk to

distributing plants are greater than 20 percent but less than 65

percent of its total pooled milk volume. According to ADCNE, the

lower percentage requires handlers to maintain a constant,

significant association with the Class I market and is higher than

the level required by other handlers for pooling qualification. 

Additionally, the 65 percent, says ADCNE, serves to limit

participation to handlers with substantial quantities of reserve

milk not dedicated to the Class I market. Qualifying deliveries

would be determined on a “net shipment” basis to prevent the

reshipment of milk deliveries that would otherwise qualify for

balancing payments. Payment would be made on the reserve volumes

of milk. In the event that the market administrator issues a

“call” for additional milk deliveries to distributing plants, the

volume of milk delivered to non-distributing plants in the prior

month by handlers subject to the call would be used as a basis for

requiring handlers to make additional shipments to distributing

plants on a pro-rata basis. For example, if participating

handlers in the prior month had delivered 100 million pounds of

milk to non-distributing plants and the market needed 10 million

pounds of milk delivered to distributing plants, each handler

subject to the call would be obligated to deliver an additional

volume of milk to distributing plants equal to 10 percent of its

deliveries to non-distributing plants in the prior month. ADCNE

viewed their balancing payment provision as establishing a

“standby pool” of milk among qualifying handlers who elect to
participate. Participation in the pool would entitle the

qualified handler to a payment of 6 cents per hundredweight,

determined monthly, on the handler’s deliveries to manufacturing

plants, but would also obligate the handler to deliver additional

quantities in the event of a “call” for up to one year after a

balancing payment has been received. 

According to ADCNE, the costs involved with matching the

demands of the Class I market with the total production of milk

are costs which marketing handlers, proprietary and cooperative

alike, must absorb. These costs are neither fully reflected in

Class I prices, nor in over-order handling charges and are not

uniformly shared throughout the market, while the Class I value is

shared equally within the marketwide pool, says ADCNE. The unique

structural characteristics of the northeast’s markets and the

preponderance of producers delivering directly to proprietary

Class I handlers on a regular basis, says ADCNE, prevents

supplying handlers from recovering these costs from Class I

handlers.

According to the ADCNE, the proposed Northeast marketing area

will comprise the largest Class I market in the Federal order

system and also represent the largest pool in the country in terms

of producer milk. According to ADCNE, monthly Class I sales will

be approximately 900 million pounds and will be more than 65

percent greater than the next largest consolidated order’s Class I

pool. ADCNE says this huge Class I market presents significant

challenges to its suppliers with respect to balancing daily,

weekly and seasonal needs and sets the Northeast order apart from

other orders.

The ADCNE offers additional justification for balancing

payments, in part, by drawing on the example of other orders

providing for marketwide service payments for offsetting the

additional costs of moving milk from assembly areas and for plantto-plant movements of milk. ADCNE notes that such payments from

the marketwide pool are provided for in recognition of the

marketwide benefit that accrues to all market participants when

the costs of milk assembly and the movement of milk are shared by

all producers.

Other public comments similarly articulated the uniqueness of

the current New York market and its role as part of the

consolidated Northeast marketing area. One commenter observed

that the Northeast marketing area, and New York in particular, is

unique in terms of the mix of producers who are represented by

cooperative membership and those that are not. According to this

commenter, about 65 percent of the producers in New York are

represented by cooperatives, while the remaining 35 percent are

independent producers to the market. Further, noted this

commenter, it has been cooperatives that have, since the 1960's,
taken over the role of balancing the Class I needs of the market

by moving milk around on a daily basis between distributing and

manufacturing plants. According to this commenter, such was and

should continue to be an important factor to consider for the

larger consolidated market that expects to need about two thirds

of its milk supply balanced between an expected 45 percent Class I

and about 20 percent Class II utilization. This commenter was of

the opinion that markets characterized by very high cooperative

membership already spread the costs of balancing uniformly over a

large pool of producers.

All other public comments supported inclusion of balancing

payments in the consolidated Northeast order. These comments

similarly called attention to the unique structure of the

Northeast marketing area, primarily in terms of the number of

producers represented by cooperatives and the relatively high

number of independent milk producers and the unequal costs that

would be incurred by producers who incur the additional costs of

balancing the fluid needs of the market. While there was specific

recognition of the important role that cooperatives play in

balancing the market, it was generally thought that if balancing

payments would be provided for in the consolidated order, they

should be made available to cooperative and proprietary handlers

alike. 

The consolidated Northeast marketing area is expected to

retain a unique feature of the existing New York-New Jersey

marketing area -- a relatively high percentage of producers who

are not members of cooperatives. As of December 1997, the current

New York-New Jersey market had about 68 percent of its milk and

about 69 percent of its producers represented by cooperatives. In

the consolidated Northeast marketing area, the expected amount of

milk represented by cooperatives will increase to about 76 percent

with about 75 percent of the number of producer represented by

cooperatives. While the percent of milk volume and number of

producers represented by cooperatives is growing, the volume of

milk and number of independent producers remains significant. 

This is especially important given the role of cooperatives who

operate manufacturing plants and who provide and incur the costs

associated with balancing the Class I needs of the market. 

Without providing for some cost offset for balancing, about 26

percent of the milk and about 25 percent of the producers would

not be sharing in the burden of balancing the market.

The revised criteria presented by the ADCNE seem reasonable

in determining which handlers would be eligible to receive

balancing payments from the marketwide pool. The qualification

standards for receiving balancing payments (to any handler that

ships at least 20 percent, but less than 65 percent of the total

volume of milk pooled on the market to distributing plants) also
seems reasonable in light of the order’s pooling standards. 

Further, determining qualifying shipments on a “net shipment”

basis is similarly a prudent safeguard to reasonably assure that

milk is delivered into, and not shipped back out of distributing

plants and supply plants for the sole purpose of qualifying for

balancing payments. It also provides for ensuring a temporary

market (up to 31 days) to any producers who would have lost their

normal market outlet as a condition for eligibility in receiving

balancing payments.

However, the revised proposal would have payments made only

on milk used in manufacturing products. In practice this would

mean that handlers with the greatest volume of milk going to

manufacturing plants would receive a larger share of balancing

payments while at the same time would be required to provide the

least additional Class I milk to the market. Observed another

way, the less commitment a handler has to the Class I market, the

larger the balancing payments. Additionally, basing balancing

payments criteria on only manufacturing milk seems to provide a

disincentive to handlers in serving the Class I market needs

because handlers that would provide additional Class I milk would

lose 6 cents per cwt. Lastly, basing balancing payments on just

manufacturing milk seems to provide an unwarranted monetary

incentive to cause additional milk to associate with the

marketwide pool for the sole purpose of receiving an additional 6

cents per cwt.

In addition to the above concern on limiting balancing

payments to manufacturing milk, the reasons for not recommending

balancing payments for the consolidated Northeast order

articulated in the proposed rule were not all sufficiently

addressed. The proposed Northeast order consolidates two current

orders, New England and the Middle Atlantic, that do not currently

provide for balancing cost offsets to handlers for such purposes. 

These markets have not experienced any undue harm or disadvantage

by not providing for this sort of cost offset. To the extent that

further analysis on the need for balancing payments can rest upon

the high percentage of independent milk that is expected to be

represented in the consolidated Northeast order, such analysis

does provide a legitimate and important factor in further

considering the appropriateness of a balancing payment provision.

The proposed rule also indicated that balancing payments

should not be adopted because an appropriate class price has been

provided for market clearing purposes -- the Class IIIA price. It

is a price that is applicable in all current northeast orders, and

is continued in this decision as the Class IV price. While these

two class prices are not the same, (as explained in the BFP

section of this decision) they are conceptually similar in that

handlers have been provided with a market clearing price and
further compensation beyond this does not appear to be warranted.

Lastly, the proposed rule indicated that the original 4-cent

per cwt. balancing payment level was unexplained with respect to

how adequately it tends to offset balancing costs. The same is

also observed for the modified payment level of 6 cents per cwt. 

Subsequent to the publication of the proposed rule, public

comments received in letters and from public forums and “listening

sessions” did result in being able to extrapolate a single

cooperative entity’s cost for balancing, however, this measure may

or may not be appropriate for characterizing or determining the

proposed payment level. 

The “pass-through” provision

Currently, the New York order provides for what is commonly

referred to as the “pass-through” provision. The intent of this

provision is to provide for a degree of competitive equity for

handlers that must pay at least the order’s Class I price for milk

so that they can compete with handlers in unregulated areas that

do not. This provision has been in place in the New York order

since 1957 and is a part of how the order allocates and classifies

milk. In functional terms, the pass-through provision removes the

amount of milk distributed outside of the marketing area from the

full Class I allocation provisions of the order, thereby providing

a degree of price relief to handlers who compete with other

handlers who are not held to the pricing provisions of the order

in unregulated areas. Regulated New York handlers currently

compete with unregulated handlers in the unregulated areas of

Pennsylvania and other areas in the northeast region.

The current provisions of the New England and Middle Atlantic

orders do not have this provision although they too adjoin similar

non-Federally regulated areas. Handlers regulated by these two

orders also compete with these same unregulated handlers for Class

I sales. The merging and expansion of these three northeast

orders continue to result in areas that adjoin the recommended

Northeast order that would not be regulated.

While there were proposals both for and against retaining a

pass-through provision in the consolidated order, the need for it

was expressed on the basis of the extent to which the Northeast

consolidated order would be expanded to include currently

unregulated areas. Generally, handlers support continuing to

provide for a pass-through provision, and this position can only

be considered reinforced given the limited degree of expansion of

the consolidated Northeast order. If the entire Northeast region

would fall under Federal milk order regulation, the need for the

pass-through would be moot. These observations remain valid in

light of the public comments received in response to the proposed

rule published on January 30, 1998.

The pass-through provision, notwithstanding the limited
extent of marketing area expansion, or in light of few public

comments supporting its continuation, is not included in the

consolidated Northeast order for the same compelling reasons

articulated in the proposed rule published on January 30, 1998. 

Class I prices charged to handlers that compete within the

marketing area for fluid sales are determined by the location

value of milk delivered to their plants. The Class I differential

structure adopted in this decision recognizes the location value

of milk for Class I uses and is designed to cause milk to be

delivered to bottling plants to satisfy fluid demands. 

Accordingly, handlers located in high-valued pricing areas will be

charged for the location value of Class I milk at their plant

locations regardless of whether or not they compete with other

handlers for fluid sales in areas where the location value of

Class I milk at these plant locations are lower. This location

value pricing principle is extended to handlers competing for

sales with handlers who do not pay the same price for Class I milk

in unregulated areas.

Seasonal adjustments to the Class III and Class IV prices 

The three northeast orders to be consolidated into a single

Northeast order currently provide for a seasonal adjustor on Class

III and Class IIIA milk prices. These provisions have been a part

of these three orders for more than 30 years. Prior to the

adoption of the Minnesota-Wisconsin (M-W) price series in the mid1970's, these markets established the equivalent of the modern

Class III price on the basis of what was known as the U.S. Average

Manufacturing Grade Milk Price Series (U.S. Average Price Series).

The U.S. Average Price Series was a competitive pay price

series, but differed from the M-W in that it recorded price

averages consistently below the M-W that was rapidly being adopted

elsewhere in the country as the appropriate price for surplus uses

of milk and used as a price mover for higher-valued class prices. 

Given the national marketplace in which surplus dairy products

compete for sales, a mechanism was needed to align these two

differing price series. Accordingly, seasonal adjustments to the

Class III price were developed and made a part of these orders. 

These seasonal adjustors were found not only to be warranted for

better price coordination between these two price series, but also

served to encourage handlers to dispose of the maximum amount of

milk in Class I uses.

By the mid-1970's, the M-W was adopted to replace the U.S.

Average Price Series and the seasonal adjustors were retained. 

The reason for retaining these adjustments were to encourage

handlers to make more milk readily available for fluid use in the

short production months and to facilitate the orderly disposition

of excess reserve milk supplies in flush production months. 

Although some regional price disparity was acknowledged to result
from retaining these adjustments, they were nevertheless retained

because there was no evidence that providing for such adjustment

had led to any interregional problems in the marketing of the

reserve milk supply.

Agri-Mark, a major cooperative in the northeast, proposed

that seasonal adjustments continue in the consolidated Northeast

order. The main thrust of their proposal was that markets with

relatively high Class I use create a burden on the manufacturing

sector in their areas. They view seasonal adjustments as also

assisting in sending the proper economic signal to manufacturers. 

This is important, according to Agri-Mark, because the seasonal

adjustment provides an economic “disincentive” for Class III and

Class IV manufacturers to use milk in the fall when less producer

milk is available and additional supplies are needed for Class I

uses.

Seasonal adjustors to the Class III and Class IV prices are

not incorporated into the provisions of the consolidated Northeast

order. This decision provides a much more permanent replacement

for the current BFP. Because Class III and Class IV product price

formulas are incorporated in all consolidated orders, there is no

compelling reason offered to contemplate continuing seasonal

adjustments to Class III and Class IV prices. They are also not

provided in orders that are expected to have Class I utilizations

similar to that anticipated in the consolidated Northeast order

and who similarly have important manufacturing activity.
6b. SOUTHEAST REGION

 The 3 proposed orders for the Southeastern United States--

Florida, Southeast, and Appalachian--are faced with a different

set of marketing conditions than other orders. The Southeastern

United States is one of the fastest growing areas of the country

in terms of population growth and is the most deficit area in

terms of milk production per capita. From 1988 to 1997, the

population of the 12 Southeastern states rose from 57.9 million to

65.1 million.

While population has been increasing in the Southeast, milk

production in the 12 Southeast States (i.e., Alabama, Arkansas,

Florida, Georgia, Kentucky, Louisiana, Mississippi, North

Carolina, South Carolina, Tennessee, Virginia, and West Virginia)

has been decreasing--from 15.4 billion pounds in 1988 to 13.6

billion pounds in 1997. The net result of these opposite trends

is a widening gap between the local supply of milk for fluid use

and the demand for such milk. This is evident by the drop in per

capita milk production for these 12 states, from 265 pounds per

capita in 1988 to 210 pounds per capita in 1997.

Unlike other parts of the country, the Southeast has few

facilities for handling surplus milk. Consequently, surplus

production during the months of January through June must, in some

cases, be shipped hundreds of miles for processing at

manufacturing plants generally to the north. For this reason, the

provisions in these orders must be aimed at the twin goals of

encouraging supplemental milk to move to these markets during the

short production months--generally July through December--and they

must also discourage supplemental milk from moving to these

markets when it is not needed in the flush production months--

generally January through June--because such milk would simply

displace local milk and increase the cost of disposing of such

milk for surplus use.

Very few comments were received with respect to the order

provisions proposed for the Appalachian, Florida, and Southeast

orders. Most of the comments that were received endorsed the

proposed provisions. A few comment letters stated that seasonal

pricing provisions should be included in the Southeast orders and

a few comment letters suggested that the Class I price mover for

the Southeast should be a 12-month moving average rather than the

proposed 6-month moving average. These comments are discussed in

the pricing sections of this final decision. Other comments

received are discussed below.

Transportation credits. As a result of the need to import

milk to the Southeast from many areas outside the Southeast during

certain months of the year, transportation credit provisions were

incorporated in the Carolina, Southeast, Tennessee Valley, and

Louisville-Lexington-Evansville orders in August 1996. These
provisions provide credits to handlers who incur additional costs

to import supplemental milk for fluid use for markets during the

short production months of July through December. The provisions

restrict the use of credits by handlers to milk received from

producers and plants located outside of the marketing areas. The

credits are also restricted to milk received from producers who

supply the markets only during the short season and are not

applicable to milk of producers who supply the market throughout

the year.

Following the initial implementation of transportation

credits in August 1996, the provisions were modified in a final

decision issued on May 12, 1997. The amendments became effective

on August 1, 1997. 

Transportation credit provisions are retained in the new

Southeast and Appalachian orders but have not been included in the

Florida order. 

Only a few comments filed in response to the proposed rule

specifically addressed the issue of transportation credits. Two

producers requested that transportation credits be removed from

the orders because they have not performed as expected. A handler

who supported transportation credits for the Southeast and

Appalachian orders suggested that the provisions also be included

in the Florida order. 

In the past 5 years, dairy cooperatives representing the

large majority of producers in the Southeast have strongly

supported transportation credit provisions for the Southeast and

Appalachian orders because the provisions have been helpful in

obtaining supplemental supplies of milk for fluid use and in

sharing the costs associated with those supplemental supplies more

equitably among all handlers in the market. They have not,

however, been supported by the 2 cooperative associations which

supply the Florida market and there is no indication that such

provisions are needed to more equitably share the costs of

supplying that market with supplemental milk. There was no

indication from the public comments that were received that these

cooperative positions have changed.

With the addition of northwest Arkansas and southern Missouri

to the Southeast marketing area, milk from these 2 areas will be

ineligible for transportation credits under the Southeast and

Appalachian orders. This change in the application of the credits

is consistent with the logic for incorporating these 2 areas in

the Southeast marketing area. Specifically, northwest Arkansas

and southern Missouri are regular sources of supply for handlers

in the Southeast marketing area and, in addition, include plants

that compete for sales with handlers regulated under the Southeast

order. Accordingly, the producers in these 2 areas will share in

the pool proceeds of the Southeast market. Of course, since
transportation credits are designed to attract supplemental milk

to the market for fluid use from producers who are not regularly

associated with the market, transportation credits should not

apply to a farm or a plant in northwest Arkansas or that portion

of southern Missouri that is to be included in the Southeast

marketing area.

Two other changes have been made in the transportation credit

provisions of Orders 5 and 7. First, at the present time, if a

dairy farmer is a producer under the order for more than 2 months

of the January through June period and more than 50 percent of the

dairy farmer’s milk is received as producer milk under the order

during those 2 months, the dairy farmer’s milk is ineligible for

transportation credits during the following months of July through

December. This rule should be modified.

Experience with the transportation credit provision in the

Southeast indicates that the months of January and June are

transition months. In some years, supplemental milk is needed

during those months, but in other years it is not. Indeed, it is

for this reason that the market administrator has been given the

authority to extend transportation credits to these months upon

finding that the extension is necessary to assure the market of an

adequate supply of milk for fluid use. When the market

administrator makes a finding that January or June should be

included in the transportation credit period, these months are

excluded from the restriction of the orders, as described above. 

Sometimes, however, in these 2 months it is not apparent that

supplemental milk will be needed until after the month begins. In

this case, it is too late for the market administrator to include

these months in the transportation credit period, but it is not

too late for a cooperative association or handler needing

supplemental milk from arranging for such milk to be brought into

the market. The problem in doing so, however, is that without

being very careful it is easy to disqualify a dairy farmer’s milk

for transportation credits by receiving producer milk from the

dairy farmer for more than 2 months or by exceeding the 50 percent

limit.

In view of this problem, the months during which a dairy

farmer may not be a producer have been changed from January

through June to February through May. This will provide greater

flexibility to receive supplemental milk when needed without

disqualifying a dairy farmer’s milk from transportation credits.

The other change that has been made to the transportation

credit provisions has to do with the computation of the credit

with respect to milk shipped directly from producers’ farms. At

present, the market administrator must determine an origination

point for this milk and once the point is determined ascertain

what the Class I differential, adjusted for location, would be at
that point. If the origination point is within a Federal order

marketing area, the applicable Class I differential is the one

that would apply at the origination point under the order

regulating that area. However, if the origination point is in an

unregulated county, a Class I differential, adjusted for location,

is computed based upon the provisions of the order receiving the

milk (i.e., at present Order 5, 7, or 46).

The different methods now used to compute the Class I

differential at the origination point for a load of milk

occasionally leads to very different transportation credits for a

load of milk originating within a Federal order marketing area

compared to another load of milk that originates from a point just

outside of that marketing area. At the time when the

transportation credit provisions were adopted, there was not a

better way of determining the Class I differential at an

origination point outside of a marketing area because there was no

single Class I pricing surface. Consequently, with 31 different

orders, there were probably 31 different Class I differentials

that would have applied in that unregulated county based on the

location adjustments provided in the 31 different orders. Under

the circumstances, it appeared to be most reasonable to use the

Class I differential that would apply under the order receiving

the milk.

With the national Class I price surface adopted in this final

decision, there is a single Class I differential for every county

in the 48 states. Consequently, § 1005.82(d)(3)(v) and

§ 1007.82(d)(3)(v) have been changed to use the Class I

differential specified in § 1000.52 for purposes of determining

the price to be used at the origination point of a load of milk

shipped directly from producers’ farms. This change will remove

the large disparities that can now exist in computing

transportation credits for similarly-located milk.

One final change has been made in paragraph (d)(3)(i) of

§§ 1005.82 and 1007.82. At the present time, 2 methods are

provided for determining the origination point for a load of

supplemental milk directly from producers’ farms. The origination

point may be the city nearest to the farm of the last producer

whose milk is on a tank truck. Alternatively, the hauler may stop

at an independently-operated truck stop and obtain a weight

certificate indicating the weight of the truck and its contents,

the date and time of weighing, and the location of the truck stop.

The latter option has never been used to establish an

origination point during the life of this provision, perhaps

because it is not cost effective to stop and weigh a load of milk. 

For this reason, it should be removed from the order. 

 Pooling standards. Several comment letters from producers

and producer organizations expressed support for the pooling
provisions recommended in the proposed rule for the proposed

southeast orders. The comments emphasized the necessity to

incorporate strict performance standards in these orders. 

Commentors argued that such standards would ensure that the

markets are adequately supplied throughout the year in an orderly

manner and prevent opportunistic pooling which, they contend,

would lower the blend prices to producers serving these markets

throughout the year, thereby decreasing production in these

already-deficit markets and forcing handlers to pay higher prices

to obtain supplementary milk.

The comments leading to the proposed rule and those submitted

in response to it endorsed pooling standards at levels that are as

strict or stricter than current regulations and emphasized that

the southeastern milk marketing orders should provide pooling

standards that reflect the deficit nature of these markets. These

comments are embodied in the standards adopted for these orders.

The pool plant provisions adopted for the Appalachian,

Florida, and Southeast orders closely follow the provisions now

contained in the southeast orders. These provisions are

appropriate for the needs of these seasonally-deficit markets.

Section 7(a) of each Federal milk order describes the pooling

standards for a distributing plant. To qualify for pooling under

each of the 3 orders, a distributing plant must have route

disposition equal to at least 50 percent of the total fluid milk

products physically received at the plant. In addition, at least

25 percent of the plant's receipts must be disposed of as route

disposition in the marketing area. These standards will ensure

that a distributing plant meeting them is closely associated with

the fluid market and, therefore, should be part of the marketwide

pool.

At the present time, the Carolina order has a 15 percent

in-area route disposition standard, while the Southeast, Upper

Florida, Tampa Bay, Southeastern Florida, and LouisvilleLexington-Evansville orders have a 10 percent standard. This

level is raised to 25 percent under the merged orders. The reason

for raising this standard to 25 percent is to better identify

those plants which should be fully regulated under the larger,

merged orders. With 11 large markets, instead of 31 smaller

markets, the higher 25 percent standard, which is uniform for all

11 markets, will better maintain the regulatory status of plants

throughout the country. It will leave unregulated, or partially

regulated, those plants which have only a small amount of their

sales within a Federal order marketing area. 

Paragraph (b) of Section 7 will accommodate the pooling of

plants that specialize in extended shelf-life fluid milk products

(i.e., 60-90 days) requiring refrigeration. There are at least 3

such plants in the southeast markets: the Ryan Foods Company
plants in Jacksonville, Florida, and Murray, Kentucky, and the

Dasi Products plant in Decatur, Alabama.

Unlike a typical distributing plant, a plant specializing in

extended shelf-life products may have a more erratic processing

schedule, reflecting the longer shelf life of the products

packaged at the plant. Consequently, a plant's Class I

utilization may vary considerably from month to month. In the

past, such variability has resulted in shifting pool status for

some of these plants from one order to another. In some months,

the plant may have been partially regulated, even though all of

the milk received at the plant was priced under the order. This

type of regulatory instability is not conducive to orderly

marketing. To provide greater regulatory stability for these

plants, they should be fully regulated pool plants if they are

located in the marketing area, have route disposition in the

marketing area during the month, and process a majority of their

milk receipts into fluid milk products. This provision will not

guarantee that a plant qualifies as a fully-regulated pool plant

every month; some months a plant may fail to process a “majority”

of its milk receipts into fluid milk products. Nevertheless, the

provision will guarantee that when a plant qualifies for pool

plant status, it will be qualified under the same order all the

time unless it fails to have any route disposition in the

marketing area in which it is located.

One change in Section 7(a) and (b) of each order will help to

stabilize the pool status of an extended shelf-life plant. At the

present time in most orders, when packaged fluid milk products

that are transferred from one plant to another plant are

ultimately delivered from the 2nd plant to a retail or wholesale

outlet, these sales are considered to be the route disposition of

the 2nd plant. However, as adopted in this final decision, such

transfers will be treated as route disposition from the 1st plant

for the purpose of determining its pool status. Since some plants

specializing in extended shelf-life products transfer such

products between plants, this change will make it more likely that

such plants will have route disposition in the marketing area.

Almost all of the dairy product manufacturing plants in the

Southeast are “balancing plants” operated by cooperative

associations. These "balancing plants" qualify for pooling based

upon the performance of the cooperative association, not upon

shipments from the plant alone.

A balancing plant may qualify for pool plant status based

upon shipments directly from producers' farms as well as shipments

from the plant. To qualify as a balancing plant, the plant must

be located within the order's marketing area. This requirement

ensures that milk pooled through the balancing plant is

economically available to processors of fluid milk if needed. 
However, in the case of the Appalachian order only, a balancing

plant also may be located in the State of Virginia. This

provision has been in the Carolina order and should be continued

in the Appalachian order. The performance standards for a

balancing plant require that 60 percent of a cooperative’s

producer receipts be delivered to pool distributing plants every

month of the year. This provision is identical under the 3

southeast orders. 

Each of the 3 orders also contains pooling standards for a

supply plant. For the Appalachian and Southeast orders, a supply

plant must ship at least 50 percent of the milk received during

the month from dairy farmers and cooperative bulk tank handlers. 

The plant’s receipts include milk that is diverted from the plant

as well as milk physically received at the plant. In the case of

the Florida order, the shipping percentage is slightly higher at

60 percent.

Unlike supply plant provisions in other orders, the supply

plant provisions in the 3 southeast orders do not recognize

shipments directly from producers' farms as qualifying shipments

for a supply plant. At the present time, there are no plants

qualifying as “pool supply plants” under any of the southeast

orders.

Kraft Foods, Inc., submitted a comment in opposition to the

supply plant provision proposed for the Southeast order, arguing

that it should be permitted to pool its Bentonville, Arkansas,

cheese plant based on milk diverted from this plant directly from

producers’ farms to pool distributing plants. Kraft argues that

the proposed pool supply plant provision of Order 7 would require

it to physically receive milk at its plant, reload it onto a

truck, and ship it to pool distributing plants in order for the

Bentonville plant to meet the supply plant shipping standards of

Order 7.

Currently, there are no pool supply plants on the Southeast,

Appalachian, or Florida orders. When supplemental milk is needed

for these markets, most of the milk comes directly from producers’

farms, some of which can fill an over-the-road tank truck several

times a day. With farms of this size, there is obviously no need

to aggregate the milk from several farms at a supply plant.

A primary mission of most cooperatives supplying the

Southeast is to provide milk to handlers for fluid use and to

dispose of milk when not needed for fluid use efficiently. The

order provisions should accommodate and encourage efficient milk

handling practices.

The cooperative balancing plant provision is intended to

allow cooperatives to supply the fluid market in the most

efficient manner possible and also to process milk efficiently

when such milk is not needed for fluid use. In the Southeast
region, the dominant cooperative operates butter-powder plants in

Kentucky and Louisiana and one cheese plant in Tennessee. 

Oftentimes during the year, these plants are completely idle when

all available milk is needed for Class I and II use. 

In the Southeast, where fluid handlers are subject to

relatively high Class I prices, order provisions should aid them

in procuring milk supplies by providing stringent pooling

standards. This will help to ensure that the Class I prices

applicable to these handlers will serve their purpose in

generating uniform prices that will attract milk for fluid use. 

The supply plant provisions proposed by Kraft are neither needed

nor supported by the vast majority of participants in these

markets and therefore are not adopted. 

It is not necessary to seasonally adjust the supply plant and

balancing plant shipping requirements for the 3 southeast orders

because the standards proposed are flexible enough to accommodate

the disposal of surplus milk during the flush production season. 

In addition, each of the 3 orders contains a provision to allow

the market administrator to increase or decrease shipping

requirements and other pooling standards by up to 10 percentage

points. This provision also is included in the producer milk

section of all 3 orders with respect to the percentage of milk

that may be diverted and in the number of days that a producer's

milk must be received at a pool plant. 

In addition to the provisions described above, each of the

southeast orders contains a provision to allow unit pooling of

distributing plants operated by the same handler. This provision

has been in the Southeast order since 1995.

Some distributing plants may meet the pooling standards of

more than one order. Consequently, it is necessary to specify the

rules for determining where a plant will be regulated. Under the

southeast orders, if a plant meets the pooling standards of the

order and is located in the order's respective marketing area, the

plant will be regulated under that order even if it has greater

sales in some other order's marketing area. This provision has

evolved as a result of several price alignment problems in the

Southeast involving a plant located in one marketing area but

regulated under another order. In every such case, a plant's

supply of milk was put in jeopardy as a result of a lower blend

price under the order in which it became regulated based on its

sales. Notwithstanding the merging of several of the smaller

markets in the Southeast, this provision should be retained for

the southeast orders to preclude a repetition of this problem. 

There was widespread support in comment letters for retention of

this provision.

In the case of a distributing plant that is not located

within any order's marketing area, a different standard should
apply. Since, in this case, it cannot be presumed with certainty

that a plant is most closely associated with the market in which

it is located, its association with a market should be determined

based upon where it has the most sales. 

Producer-handler. The producer-handler provision for the 3

southeast orders is very similar to the current provisions. There

were no comments received in opposition to this provision.

To qualify as a producer-handler, a dairy farmer would have

to have route disposition in excess of 150,000 pounds per month;

otherwise, the producer's plant would be exempt from regulation

pursuant to a provision that has been uniformly adopted for all

orders. In addition, a dairy farmer may receive no fluid milk

products from sources other than his or her farm. Finally, the

dairy farmer must provide proof satisfactory to the market

administrator that the care and management of the dairy animals

and other resources necessary to produce all Class I milk handled,

and the processing and packaging operations, are his/her own

enterprise and are operated at his/her own risk.

At the present time, there are fewer than 5 producer-handlers

operating in the southeast markets. The status of these handlers

occasionally fluctuates between being fully regulated plants in

some months and producer-handlers in other months. None of these

operations would lose their status as producer-handlers under the

provision adopted for the new southeast orders.

Producer/Producer milk. The producer and producer milk

definitions adopted for the 3 southeast orders are nearly

identical to the provisions now in the individual orders. These

provisions define which dairy farmers are eligible to share in the

proceeds of the marketwide pool.

A producer is defined as a dairy farmer whose milk is

received at a pool plant, diverted to a nonpool plant, or received

by a cooperative association acting as a bulk tank handler. It

excludes a producer-handler, a dairy farmer whose milk is

delivered to an exempt plant, or a dairy farmer whose milk is

reported as diverted milk under the provisions of another Federal

order. 

The diversion limits that are specified in the producer milk

section of the new orders are slightly different among the 3

southeast orders. To qualify for diversion to a nonpool plant, a

minimum amount of a producer’s milk must be received at a pool

plant during the month (i.e., this is called a “touch-base”

requirement). Under the Appalachian order, 6 days’ production

must be received at a pool plant during each of the months of July

through December, and 2 days’ production must be received at a

pool plant during each of the other months of the year. Under the

Southeast order, 10 days’ production is required to be delivered

to a pool plant during each of the months of July through December
to qualify a producer’s milk for diversion to a nonpool plant. 

During the months of January through June, 4 days’ production is

be required to be delivered to a pool plant.

Under the proposed Florida order, which will have a higher

Class I utilization and less need to divert milk, a producer is

required to deliver at least 10 days’ production to a pool plant

during every month of the year in order to be eligible for

diversion to a nonpool plant. These proposed standards are

comparable to those required under the separate Florida orders.

The total quantity of milk which may be diverted by a pool

plant operator or cooperative association during the month also

varies by market as well as by month. Under the Appalachian

order, a pool plant operator or cooperative association is

permitted to divert 25 percent of its producer milk during the

months of July through November, January and February. During the

months of December and March through June, the total diversion

limit increases to 40 percent of producer milk receipts. In the

Southeast order, a total diversion limit of 33 percent is provided

during the months of July through December, and 50 percent during

the other months. The diversion limits under the Florida order

are 20 percent during the months of July through November, 25

percent during the months of December through February, and 40

percent during all other months.

The “touch base” requirements and gross diversion limits

described above are adjustable by the market administrator to

assure orderly marketing and/or efficient handling of milk in the

marketing area. This procedure is described in §§ 1005.13(d)(7),

1006.13(d)(6), and 1007.13(d)(7).

Although a “dairy farmer for other markets” provision was

requested for the new orders by some producer organizations, it

was opposed by others. This provision is not included in the 3

southeast orders at this time. Such a provision could restrict

the free movement of milk as needed among markets. The proposed

diversion limits and touch-base requirements in the southeast

orders should preclude the association of milk with these markets

when such milk is not needed at pool plants.

Reports of receipts and utilization. To accommodate the

payment schedule desired for the 3 southeast orders, the handler’s

report of receipts and utilization must be in the market

administrator’s office no later than the 7th day of the month. The

producer payroll report will be required by the 20th day of the

month. The information to be included in these proposed reports

is essentially identical to the current order provisions.

Payments for milk. The southeast orders provide uniform

payment schedules for payments to and from the producer-settlement

fund. Payment to the producer-settlement fund must be made by the

12th day of the month and payment from the producer-settlement fund
must be made one day later.

In the case of payments to producers and cooperative

associations, the merged Florida order will maintain the

longstanding 3-payment schedule that has been part of the present

Florida orders for many years. The partial payments to producers

under the new Florida order must be made on the 20th day of the

month for milk received during the first 15 days of the month and

on the 5th day of the following month for milk received during the

remainder of the month. The rate of payment will be at not less

than 85 percent of the preceding month’s uniform price, adjusted

for plant location and for proper deductions authorized in writing

by the producer. The final payment for milk received during the

previous month must be made on or before the 15th day of the month. 

The Appalachian and Southeast orders adopted here have

identical payment schedules. The partial payment for milk

received during the first 15 days of the month must be made on the

26th day of the month, and the rate of payment must be 90 percent

of the preceding month’s uniform price. The final payment must be

received by the producer on or before the 14th day of the following

month. The rate of final payment for all 3 orders is the

preceding month’s uniform price adjusted for butterfat, plant

location, partial payments, marketing services, and proper

deductions authorized in writing by the producer.

Each order will require payment to a cooperative association to be

made one day earlier than the payment to an individual producer. 

It should be noted that the payment dates described above may

be delayed if the payment is due on a Saturday, Sunday, or

national holiday. In such case, the payment will be due on the

next day that the market administrator’s office is open for

business. This new rule is provided in § 1000.90.
6c. MIDWEST REGION

Upper Midwest Order

Pool Plant

The pool distributing and pool supply plant definitions of

the consolidated Upper Midwest order should use the standard order

language used in other orders, adapted to marketing conditions in

the Upper Midwest.

The pool distributing plant definition specifies that for a

plant to be a pool distributing plant, it must have 15 percent or

more of its total receipts of fluid milk distributed as route

disposition. This percentage is considerably lower than the

percentage used in the Chicago Regional order, which varies from

30 percent to 45 percent depending on the month. However, the

current Upper Midwest order uses a percentage based on the

marketwide Class I percentage for the same month of the previous

year. During "normal" months this percentage is approximately 15

percent. When some milk is held off the pool for economic reasons

(primarily unusual price differences between classes), the

percentage may vary considerably, ranging from the "normal" 15

percent to over 50 percent.

In addition to specifying the route disposition percentage at

15 percent, the percentage would be calculated on the basis of the

total receipts of fluid milk products physically received at the

distributing plant. Currently both the Chicago Regional and Upper

Midwest orders include milk diverted from the distributing plant

in the total bulk receipts used to compute the route disposition

percentage. Use of a constant percentage at approximately the

market Class I percentage, and removing diverted milk from a

distributing plant’s receipts in determining its regulatory

status, will reduce the current opportunities available to

distributing plants to become partially regulated by manipulating

their reported receipts and diversions of milk. In addition, the

language adopted should eliminate month-to-month uncertainty

caused by basing handlers’ regulatory status on the market’s

fluctuating utilization percentage.

The Identical Provisions Committee recommended that the inarea distribution criteria for pool distributing plants be 15

percent of total route disposition, and that percentage was

included in the proposed rule. However, it was determined that a

25-percent standard for in-area sales would be appropriate for all

markets to assure that handlers not already regulated would not

become regulated solely because of order consolidation. The

Committee explained that use of total route disposition rather

than bulk receipts as the denominator would reduce opportunities

for handlers to manipulate the manner in which they may report

their operations to avoid regulation. Currently in the Chicago
Regional and Upper Midwest orders the in-area route disposition

standard (10 percent in Chicago Regional and 15 percent in Upper

Midwest) is computed using the same basis (bulk receipts,

including diversions) as is used to determine whether a plant

meets the definition of a pool distributing plant. 

Provision is made for a single handler to form a unit of

distributing plants and manufacturing plants, all of which must be

located within the marketing area. The unit would have to meet

the requirements for a pool distributing plant and at least one of

the plants in the unit must meet the pool distributing plant

requirements as a separate plant. Plants not meeting the pool

distributing plant definition will be required to have disposition

of packaged fluid milk products, packaged fluid cream products, or

cottage cheese and other soft manufactured products of at least

half of their receipts of Grade A bulk fluid milk products,

including milk diverted by the plant operator. 

Manufacturing plants traditionally have been included in

units with distributing plants because the manufacturing plants

produced products such as packaged fluid cream, sour cream, and

cottage cheese that are marketed in conjunction with bottled fluid

milk products. In addition, some of these plants produce a

limited quantity of fluid milk products. Handlers have argued

that the operator of a free-standing manufacturing plant that

manufactures these complementary products should be able to pool

its milk supply for both (or for several) plants as if all of the

products were made in the bottling plant. 

Both the Chicago Regional and Upper Midwest orders contain a

provision for a distributing plant unit. Although the current

Chicago Regional order does not specify the types of products that

may be manufactured at plants in the unit, the Upper Midwest order

does. It is reasonable to place restrictions on the types of

products that are disposed of from the manufacturing plants in the

unit, since these plants will receive the benefits reserved for

pool distributing plants and shipments from supply plants to the

plants in the unit will be considered in determining pool supply

plant qualifications. 

A pool supply plant operator should ship as qualifying

shipments at least 10 percent of the plant’s receipts of milk from

producers, including milk diverted by the handler, each month. As

in the current Chicago Regional order, such shipments may be made

to pool distributing plants, pool distributing plant units, plants

of producer-handlers, partially regulated distributing plants, or

distributing plants fully regulated by other Federal milk orders. 

The extent of shipments to partially regulated distributing plants

to be used for qualification would be limited to the quantity

classified as Class I. Qualifying shipments to distributing

plants regulated by other Federal milk orders should be limited to
the quantity shipped to pool distributing plants, and may not be

agreed-upon Class II, Class III or Class IV utilization. 

Shipments directly from farms to pool distributing plants and to

plants contained in pool distributing plant units should be

included as shipments that help to meet the percentage

qualification standard. 

The 10 percent shipping requirement adopted in this decision

is approximately 5 percentage points less than the anticipated

Class I percentage for the consolidated Upper Midwest order. The

10 percent shipping standard is greater than the current

individual supply plant shipping standard and equal to the maximum

shipping percentage required of pool units during the qualifying

period in the current Chicago Regional order. The standard under

the current Upper Midwest order, which uses the Class I use

percentage of the same month in the previous year as the supply

plant shipping percentage, would exceed the adopted percentage. 

Also under the current Upper Midwest order, a reserve supply plant

must ship 10 percent of its receipts to pool distributing plants

during January through June, and the marketwide Class I percentage

for the same months of the preceding year for the months of July

through December.

Several handlers, including a large cooperative association,

a cheesemakers’ organization, and a fluid milk handler, filed

comments stating that the 10 percent shipping standard for supply

plants is too high for this market with a Class I utilization

percentage that rarely would exceed 20 percent.

The 10-percent shipping percentage is below the estimated

Class I percentage for the consolidated Upper Midwest order and

should be appropriate, even in view of the fact that many

distributing plants have a supply of milk from their own

producers. In September 1997, approximately 27 percent of the

milk pooled or received at distributing plants in the Chicago

Regional order was pooled as producer milk with the distributing

plant operators as the handlers, rather than as producer milk

pooled by cooperatives and other handlers. The milk pooled by

distributing plant handlers accounted for approximately 12 percent

of the total milk pooled in September 1997 (or approximately 5

percent of the total milk that would have been pooled if all of

the milk eligible to be pooled in September 1997 had been pooled). 

Approximately 7 percent of the Class I producer milk, or

approximately 2 percent of the total producer milk, pooled under

the Upper Midwest order is pooled by distributing plant operators. 

The combination of the supply plant shipping percentage and the

percentage of milk pooled directly by distributing plant handlers

would appear sufficient to meet anticipated Class I needs in the

consolidated Upper Midwest order. The 10 percent supply plant

shipping percentage also should be appropriate to avoid
unnecessary and uneconomic shipments.

It should be remembered that the provisions adopted in this

decision will allow the market administrator to increase or

decrease the required shipping percentage on a marketwide or

selected area basis if deemed necessary to assure an adequate

supply of milk to pool distributing plants or to prevent

uneconomic shipments of milk. If the shipping percentage is

increased by the market administrator, shipments made for the

purpose of meeting the increased percentage may be made only to

pool distributing plants or plants contained in pool distributing

plant units.

A comment filed by a cheesemakers’ organization expressed

concern about the potential competitive inequities of a provision

enabling the market administrator to change the shipping

percentage for a selected portion of the marketing area. This

provision has existed in the current Upper Midwest order for some

time without resulting in any controversy. The provision probably

will be more useful with the considerable enlargement of the

marketing area through consolidation. It may be more inequitable

to require increased shipments from plants in, for instance, Grand

Forks, North Dakota, to supply deficits in the Chicago area (700

miles distant) than it currently would be to require those plants

to increase qualifying shipments so that distributing plants in

the Twin Cities area (300 miles away) will be able to obtain

needed supplies. It should be remembered that there are plentiful

supplies of milk produced within 100-200 miles of any part of this

marketing area. Certainly care will be taken to assure that

handlers are not placed at significant competitive disadvantage.

Groups of two or more supply plants will be allowed to form

systems of supply plants for the purpose of meeting the shipping

requirements, by shipping the same percentage as that required for

individual pool supply plants that are not part of such a system. 

These pool supply plant systems may consist of plants of the same

handler or more than one handler, and may contain both proprietary

and cooperative handlers. The only requirement affecting an

individual plant within the unit is that the plant must be

physically located within the marketing area. This restriction is

necessary to prevent distant plants from receiving the benefits of

participating in the marketwide pool without having an actual

association with the market. 

Several plants located outside the boundaries of the

consolidated marketing area currently are included in supply plant

units by a "grandfather clause" in the Upper Midwest order. The

order will provide that these plants may continue to be included

in a supply plant system if they so desire as long as they

maintain continuous pool plant status. 

Handlers may form supply plant systems by filing a written
request by July 15, listing the plants to be in the system. Such

a system will remain in effect from August 1 through July 31 of

the following year. These dates deviate from those provided for

other orders because of the difference in seasonal production

variations between this and other orders. The handler or handlers

establishing the system may also delete a plant from the system or

dissolve the system by submitting a written request to the market

administrator. Any plant deleted from a system, or plants that

were part of a system that was discontinued, may not be part of a

system until the following August. 

Provisions that allow handlers to add plants to a system

under certain circumstances and to allow systems to reorganize in

the event a plant changes ownership or in the event of a business

failure by a handler are also incorporated in the order. A system

failing to meet pooling standards will be allowed to drop plants

from the system until the system does qualify. The handler

responsible for assuring that the system qualifies must notify the

market administrator of which plants are to be deleted from the

system. If the handler does not notify the market administrator,

the market administrator will exclude plants from the system

beginning with the plant at the bottom of the list of plants

submitted by the handler responsible for qualifying the system,

and continuing up the list until the system qualifies.

The provisions for supply plant systems are very similar to

the provisions currently contained in both the Chicago Regional

and Upper Midwest orders. Unlike the Chicago Regional and the

Upper Midwest orders, however, this order does not contain a

specific shipping requirement for individual plants within a

supply plant system. In the current Chicago Regional order, pool

supply plant systems have twice the percentage shipping standard

of individual supply plants, with individual plants within the

systems required to ship 47,000 pounds or three percent of their

producer receipts, whichever is less, in five of the six months of

August through January. The current Upper Midwest order requires

handlers with supply plants in a supply plant system to ship five

percent of each handler’s Grade A receipts, including milk

diverted by the handler to nonpool plants, during one of the

months of August through December.

This decision does not provide for the category of supply

plants referred to as reserve supply plants. Reserve supply

plants ceased to be included in the Chicago Regional order in

1987, while the Upper Midwest continues to provide for them. With

year-round shipping requirements, the unlimited ability of the

market administrator to change shipping percentages both in level

and in area, and the ability of supply plants to form systems,

there is no compelling reason to have two categories of supply

plants. 
A provision to allow plants to remain qualified for up to two

consecutive months due to unavoidable circumstances, such as a

natural disaster, fire, breakdown of equipment, or work stoppage

is included in this decision. The provision is contained in the

Chicago Regional order and has worked quite well in giving

handlers some administrative relief in the face of certain

unavoidable circumstances.

Comments filed by a cooperative association and a fluid milk

handler urged that the unit reporting, accounting and allocation

provisions of the Chicago Regional order be retained in the

consolidated order. This issue is considered and addressed in the

Classification section of this decision. 

Producer Milk

The definition of producer milk determines which milk will be

eligible to participate in the Federal order pool. This decision

provides that milk received at a pool plant directly from

producers or from a cooperative association acting as a handler

should be eligible to be producer milk. Milk for which the

operator of a pool plant is the handler that is delivered directly

from the farm to another pool plant should also be considered

producer milk. Under certain circumstances, milk delivered to a

nonpool plant may also be considered producer milk. Milk

delivered directly from a farm to a nonpool plant may be

considered producer milk if at least one day’s production is

received at a pool plant during the dairy farmer’s first month as

a producer.

In order to qualify as producer milk the milk pooled by a

cooperative association acting as a handler described in

§ 1030.9(c), the cooperative must deliver at least 10 percent of

the milk for which it is the handler pursuant to § 1030.9(c) to

pool distributing plants, units of pool distributing plants,

plants of producer-handlers, or partially regulated distributing

plants. The shipments to partially regulated distributing plants

are limited to the quantity classified as Class I. These are the

same performance requirements that apply to supply plants, with

the exception of the treatment of milk shipped direct from farms

to distributing plants regulated under other orders. If such milk

is allocated to Class I under the other order, it will become

producer milk under that order. The same performance requirements

that apply to supply plants apply to cooperative associations

acting as handlers if the market administrator adjusts the

shipping percentages. 

No significant differences in the treatment of milk received

at pool plants are provided under this decision than under the

current Chicago Regional or Upper Midwest orders. There are,

however, several differences relating to diverted milk. This

decision allows the operator of a pool plant to divert, or ship
milk directly from the farm to another pool plant, the milk of

producers for which it is the handler, and account for the milk as

producer milk at the shipping plant. Allowing either a

proprietary pool plant or a cooperative pool plant to divert milk

to another pool plant is consistent with the Chicago Regional

order. In the Upper Midwest order, milk that is received at a

pool plant and for which a cooperative association is the handler

is considered producer milk at the receiving plant. The Upper

Midwest order specifies that a proprietary handler may divert milk

to another pool plant and that such milk will be considered

producer milk of the diverting proprietary handler. The language

adopted under this decision leaves to the discretion of the

cooperative association the option of diverting milk to another

pool plant from its own pool plant or delivering the milk to the

pool plant in its capacity as a handler of producer milk pursuant

to § 1030.9(c). 

The consolidated Upper Midwest order requires that a new

producer or a producer who has broken association with the market

have at least one day’s production received at a pool plant during

the first month in which the producer's milk is reported as

producer milk. Currently the Chicago Regional order requires a

new producer on the market or a producer who has broken

association with the market to have at least one day’s production

received at the pool plant at which the milk is reported during

the first month in which the producer's milk is considered to be

producer milk eligible for diversion to a nonpool plant. In

addition, at least one day’s production of a producer's milk must

be received at a pool plant in each of the months of August

through January to be eligible for diversion to a nonpool plant. 

The current Upper Midwest order requires that a new producer or a

producer who has broken association with the market be received at

a pool plant prior to the milk being diverted to a nonpool plant. 

There is little or no justification for forcing producer milk

to be received at a pool plant to maintain or prove association

with the market. Supply plants and cooperatives will be required

to ship a fixed percentage of their total milk supply, not just

that portion received at their plants, to the fluid market. Since

both cooperatives and proprietary handlers can move milk directly

from the farm to the fluid market there is little reason to force

milk into a pool plant solely for regulatory purposes. Certainly

the extra cost to the handler of moving milk for regulatory

purposes does not enhance economic efficiency or milk quality and

in fact decreases economic efficiency and milk quality to the

detriment of the entire market.

This decision provides that producer milk be priced in the

month in which it is delivered to the plant of first receipt,

although the proposed rule would have priced milk in the month in
which it is picked up at the farm. Some orders have allowed milk

picked up on the last day of a month but delivered to a plant in

the next month to be priced in the month in which it was picked

up. A comment filed by Wisconsin Cheesemakers favored

continuation of this regulatory treatment. For purposes of

uniformity between the consolidated orders (which apply to many

handlers, cooperative and proprietary, who operate in more than

one order area) and clarity of plant accounting for milk received

and used during each month all orders now will provide that

producer milk is not received until it actually enters a plant.

Under the consolidated order, as in the proposed rule,

producer milk will be priced at the location of the plant at which

the milk is physically unloaded into processing facilities or a

storage tank. In the current Chicago Regional order milk is

priced where milk is pumped within the confines of a plant. The

adopted order language will eliminate the pricing of milk where it

is pumped from truck to truck and price the milk where it is

eventually unloaded into processing facilities or a storage tank. 

Location Adjustments and Transportation Credits

To help move milk to the fluid market a transportation credit

and an assembly/procurement credit for Class I milk are contained

in the Upper Midwest order. The transportation credit will be

computed by multiplying the hundredweight of milk contained in

transfers of bulk fluid milk from pool plants to pool distributing

plants and used in Class I by the value obtained by multiplying

.0028 times the number of miles between the transferor plant and

transferee plants with an offset for a positive difference between

the Class I prices at the transferee and transferor plants. The

transportation credit should be paid to the receiving handler, as

the milk will be pooled at the location from which it is shipped

and the credit will, to some extent, duplicate the function of the

location adjustment in helping to cover the cost of moving it from

supply plants to fluid milk handlers.

The transportation credit is similar to the transportation

credit currently contained in the Chicago Regional order. Both

the transportation credit adopted in this decision and the current

credit, which uses the same .0028 rate, are applied to Class I

milk only. However, in the current Chicago Regional order the

credit is based on 110 percent of the Class I milk received at the

pool distributing plant. The proposed rule would have provided

that the transportation credit be paid to the shipping handler on

the basis of Class I milk transferred to fluid milk plants.

Several interested persons commented on the use of

transportation credits and assembly credits in this consolidated

order, with most favoring such provisions but disagreeing to some

extent with their proposed application. There was disagreement

between the comments on whether the credit should apply to the
shipping or the receiving handler and whether it should apply to

all Class I milk, both direct-shipped and from plants, or just to

milk transferred from plants and used in Class I. One commenter

also stated that the proposed rate did not cover enough of the

actual cost of moving milk.

In the case of milk received at a distributing plant from a

supply plant operated by a cooperative association, the order

provides that a distributing plant pay the supply plant from which

it receives milk at not less than the price applicable at the

distributing plant. The shipping plant must account to the

marketwide pool at the price applicable at the shipping plant,

where the milk was first received. Payment of the distributing

plant’s Class I price for milk in Class I uses will assure that

cooperative associations are being paid the order minimum price

for such milk. The distributing plant, then, is responsible for

the cost of getting the milk from the supply plant location to its

own, with some assistance from the transportation credit to the

extent that the calculated cost exceeds the difference in the

Class I prices between the shipping and receiving plants.

There must be some contribution from consumers to the cost of

moving milk to deficit locations. However, incorporating the

entire cost of hauling milk in the transportation credit could

have the effect of encouraging handlers to procure milk from

greater distances than necessary. If milk is moved from a

higher-priced zone to a lower-priced zone (which may be necessary

to obtain needed supplies of milk at outlying distributing

plants), there will be no offset for differences in Class I prices

between the shipping and receiving plants.

Unlike the transportation credit, which is based on mileage

and paid only on transfers of bulk milk to pool distributing

plants, the assembly/procurement credit is paid at the rate of 8

cents per hundredweight of Class I milk transferred or diverted by

a pool plant to a pool distributing plant. An assembly/

procurement credit also will be applied to milk received from

producers and from cooperative associations acting as handlers

pursuant to § 1030.9(c) based on the pro rata share of producer

milk delivered to a pool distributing plant and allocated to

Class I.

A comment filed by a cooperative association stated that

assembly credits should not apply to distributing plants’ own milk

supplies, but only to milk obtained from supply plants or

cooperatives. If such a change were made, distributing plant

operators who have arranged for their own milk supplies would have

an 8-cent disadvantage in procuring milk in comparison with their

competitors who obtain milk only from supply plants and

cooperatives.

A transportation credit and procurement credit are
incorporated in the order to assist handlers in supplying the

Class I market. These transportation and procurement credits, to

be paid on Class I milk only in combination with the Class I price

surface discussed elsewhere in this final decision, will help

handlers move milk to the fluid market by distributing the cost of

supplying the fluid market to all market participants who share in

the marketwide pool. Handlers and producers who supply the

Class I market on a regular basis should not be expected to bear

the entire cost of supplying the Class I market while handlers and

producers who meet only the minimum requirements derive the

benefits of marketwide pooling. Incorporation of a transportation

credit and procurement credit on Class I milk in the marketwide

pool will assure that at least some of the cost of supplying the

Class I market is shared among all market participants. 

Reporting and Payment Dates

Comments filed by two handlers opposed changing the reporting

dates for the consolidated order from the 10th to the 9th of the

month following receipt and use of the milk. It should be

apparent, especially to the cooperative association that filed

this comment, that payment to producers cannot be determined until

the marketwide pooling process is completed and minimum producer

pay prices calculated. The earlier the pooling process can begin,

the sooner producers can be paid. The reporting date of the 9th,

adopted in this decision, is the latest date for filing handler

reports in any of the consolidated orders. Two other orders

specify the 9th, with one order requiring reporting on the 8th and

the other seven orders specifying that handler reports be filed on

or before the 7th of the following month. Because reporting should

be somewhat more uniform among the Upper Midwest handlers after

consolidation of the orders, their reporting burdens should be

reduced accordingly. Further, technology certainly has improved

the ability of all businesses to keep records and organize data

for reporting purposes since the current reporting dates were

established (over 35 years ago).

Wisconsin Cheesemakers’ comment opposed reducing the time lag

between when producers deliver milk to handlers and when they are

paid for that milk. The current dates for paying producers for

the milk delivered in the first half of each month (the 3rd and 4th

of the following month) under these two orders are among the

latest, if not the latest, in the entire Federal milk order

system. The date adopted in this decision, the 26th of the same

month, is the same as in three other consolidated orders, later

than in five of the other orders, and earlier than in two of the

orders (none of which is later than the last day of the month). 

The date specified for final payment to producers ranks similarly. 

Producers need to be paid for the milk they’ve delivered several

weeks before on as timely a basis as possible. The adopted
provisions will accomplish that goal.

Central Order.

Many of the provisions of the consolidated Central order are

explained in the “Identical Provisions” portion of this decision,

and need not be addressed here. The provisions that deviate

somewhat from those adopted for other order areas are the

provisions dealing with standards for determining the pool status

of producers and handlers. An effort is made to explain

significant differences between the pooling provisions of the 9 

individual orders included in this consolidation and those of the

consolidated order.

Pool Plant

The Central pool distributing plant definition follows

closely the provisions contained in most of the other consolidated

orders. The provisions adopted would make no difference in the

pool status of distributing plants currently pooled under the

individual orders.

Specifically, the percentage of a handler’s total route

disposition distributed within the marketing area that will result

in the handler being fully regulated under the Central order is

the same 25-percent standard adopted for all of the other 10

orders. The minimum percentage of a pool distributing plant’s

actual physical receipts of fluid milk products that would have to

be distributed on routes is 25. Currently most of the orders

included in the consolidated Central order include milk diverted

from the distributing plant in the total bulk receipts used to

compute the route disposition percentages.

The consolidated Central order provides that a single handler

be allowed to form a unit of distributing plants and Class II

manufacturing plants, all of which must be located within the

marketing area. The unit must meet the requirements for a pool

distributing plant, and at least one of the plants in the unit is

required to meet the pool distributing plant requirements as a

separate plant. Plants in the unit that do not meet the pool

distributing plant definition are required to have disposition of

packaged fluid milk products, packaged fluid cream products, or

cottage cheese and other Class II products of at least half of

their receipts of Grade A bulk fluid milk products, including milk

diverted by the plant operator.

Class II manufacturing plants are included in units with

distributing plants because the manufacturing plants produce

products such as packaged fluid cream, sour cream, and cottage

cheese that are marketed in conjunction with bottled fluid milk

products. In addition, some of these plants produce a limited

quantity of fluid milk products. Handlers have argued that the

operator of a free-standing manufacturing plant that manufactures
these complementary products should be able to pool its milk

supply for both (or for several) plants as if all of the products

were made in the bottling plant.

The pool supply plant definition of the consolidated Central

order contains provisions that assure continued pool qualification

for any handlers or milk currently associated with the markets

included in the consolidated Central market. The Iowa order

contains no limit on the amount of direct-shipped milk that can be

used to qualify a supply plant, and several of the other orders

allow such deliveries to make up a portion of qualifying

shipments. The consolidated order allows direct-shipped milk to

be counted as pool qualifying shipments without limit.

The Greater Kansas City, Nebraska-Western Iowa, Southern

Illinois-Eastern Missouri, and Southwest Plains orders contain

cooperative balancing plant provisions, allowing cooperativeoperated plants to be pooled if the cooperative delivers a given

percentage of the milk for which it is the handler to pool

distributing plants. The consolidated Central order also contains

such a provision, including in the pool plant definition a plant

operated by a cooperative association that supplies at least 35

percent of the milk for which it is the handler to pool

distributing plants, either during the current month or for the

immediately preceding 12-month period. The deliveries to pool

distributing plants may include deliveries directly from the farms

of producers for whom the co-op is the handler, as well as

transfers from the cooperative’s plant.

Cooperative association “balancing plants” serve the market

as the outlet of last resort. When surplus milk has no other

place to go on weekends, holidays, or during months of surplus

production, it moves to cooperative association “balancing plants”

where it is manufactured into storable products. When production

decreases, these plants operate at minimal capacity or may be shut

down completely. Cooperative members assume the burden and cost

of processing surplus milk through such plants.

Most of the Central orders allow a period during which supply

plants do not have to meet shipping percentages if they have done

so for the months during which milk production levels are low and

demand for fluid milk is high. The Iowa order has reduced

shipping standards for such months. The order provisions adopted

with this decision include a period during which supply plants

that have served the needs of the market when milk supplies are

tight are not required to meet shipping standards, but it is

reduced from the 5-7 month period existing in the current orders

to a 3-month period from May through July.

The percentage of receipts as qualifying shipments to

distributing plants currently ranges from 30 to 50 percent for

these orders, with the Iowa percentage reduced to 20 for the
months of December through August. The adopted shipping standards

for pool supply plants under the consolidated Central order are 35

percent for the months of September through November and January

and 25 percent for all other months, with plants meeting the

percentage standard for the months of August through April being

allowed to retain their pool status for the immediately following

months of May through July.

Groups of two or more supply plants are allowed to form

systems of supply plants for the purpose of meeting the shipping

requirements by shipping the same percentage as that required for

individual pool supply plants that are not part of such a system. 

These pool supply plant systems may consist of plants of the same

handler or more than one handler, and may contain both proprietary

and cooperative handlers. The only requirement affecting each

plant within the system is that the plant must be physically

located within the marketing area. This restriction is necessary

to prevent distant plants from receiving the benefits of

participating in the marketwide pool without having an actual

association with the market.

As in the other consolidated orders, the market administrator

will have the authority to increase or reduce the required

shipping percentage as marketing conditions change for the purpose

of assuring that an adequate supply of milk will be available for

fluid use, or to assure that the order does not require handlers

to undertake uneconomic movements of milk to maintain the pool

status of their plants.

In addition, as in the consolidated Upper Midwest order, the

provisions adopted in this decision will allow the market

administrator to increase or decrease the required shipping

percentage on a selected area basis, as well as a marketwide

basis, if deemed necessary to reflect needed milk movements within

this geographically extensive marketing area. This provision has

existed in the current Upper Midwest order for some time without

resulting in any controversy, and is expected to be useful in view

of the considerable enlargement of the marketing area through

consolidation. Care in using the provision must be exercised to

avoid placing handlers in areas in which shipping percentages are

temporarily increased or decreased at a competitive disadvantage

or advantage to handlers in areas that have not been so affected. 

However, it would be more inequitable to require increased

shipments from plants in, for instance, Eastern Colorado, to ship

milk to plants in eastern Illinois to supply deficits in that

portion of the marketing area.

Producer Milk

The producer and producer milk provisions of the orders

consolidated in the Central order are quite similar to each other

and differ little from those to be incorporated in the other
consolidated orders. The principal difference between some of the

individual orders and the consolidated order is the limit on the

percentage of a handler’s pooled producer milk that may be

diverted to nonpool plants. The percentage of a handler's milk

that may be diverted to nonpool plants varies under the individual

orders from 20 percent of milk received at pool plants during some

months under the Eastern Colorado order to 70 percent for some

months under the Nebraska-Western Iowa and Iowa orders. Most of

the orders require each producer's milk to be received at a pool

plant at least once each month. The consolidated Central order

requires that a new producer or a producer who has broken

association with the market have at least one day’s production

physically received as producer milk at a pool plant before the

producer’s milk is eligible to be diverted to nonpool plants.

In order to assure that all of the milk that has been pooled

under these orders continues to qualify for pooling, the diversion

limit adopted for the Central order is 65 percent for the months

of September through November and January, and 75 percent for the

months of February through April and December. Allowable

diversions for the months of May through July are unlimited. 

There is no requirement that each producer's milk be received at

pool plants for a minimum number of days per month. At the same

time, the market administrator is authorized to increase or reduce

the diversion limit as needed to maintain orderly marketing and

efficient handling of milk in the marketing area.

Multiple Component Pricing

The reporting and payment provisions of the consolidated

Central order include those common to other orders with multiple

component pricing. These markets have a significant amount of

milk used in manufactured products, and component pricing will

enable producers to be paid according to the valuable components

of their milk.

Mideast Order

Many of the provisions of the order for the consolidated

Mideast marketing area are explained in the “Identical Provisions”

portion of this final decision, and need not be addressed here. 

The provisions that deviate somewhat from those provided for other

order areas are the provisions dealing with standards for

determining the pool status of producers and handlers. A

significant change from the proposed rule is that the uniform

multiple component pricing plan provided for the six other orders

that use multiple component pricing is also incorporated into the

Mideast order, in place of the proposed pricing plan that differed

slightly from the one common to the other orders with multiple

component pricing provisions. This change is discussed more fully

later in this section of this decision.
For the most part, pooling provisions have less effect on the

current Michigan Upper Peninsula market than on the 4 other

markets included in this consolidated order because Michigan Upper

Peninsula is the only remaining individual handler pool in the

current Federal order system. Therefore, pooling provisions are

discussed in relation to the 4 principal markets included in the

consolidated Mideast order.

Pool Plant

The Mideast pool distributing plant definition, in which the

in-area route disposition qualification was proposed to exceed

that contained in most of the other proposed orders (30 percent

instead of 15 percent) to make less likely the full Federal

regulation of three State-regulated plants, will instead use the

same 25-percent standard of in-area route dispositions of receipts

that is being provided in all of the other orders.

Several comments opposed use of an in-area standard higher

than 15 percent, arguing that the standard in the Mideast area

should not be higher than in other areas, and that handlers

outside the market should be held to the “current” 15-percent

standard. The adoption of a uniform 25-percent standard of inarea sales as a percentage of total route dispositions for all

orders is discussed in the section of this decision dealing with

Provisions Common to all Orders.

As in the other consolidated orders, the total route

disposition percentage will be calculated on the basis of the

total receipts of fluid milk products physically received at the

distributing plant. Currently all four of the larger orders to be

included in the consolidated Mideast order include milk diverted

from the distributing plant in the total receipts used to compute

the total route disposition percentage.

One comment urged that a pass-through provision similar to

that in the current New York-New Jersey order (Order 2) be

incorporated in the consolidated order to deal with the in-area

route dispositions of handlers who do not meet the order’s pooling

requirements. Continuation of such a provision in Order 2 was

considered and rejected in this decision, in the regional

discussion of the Northeast order. There would be no valid basis

for adopting such a provision in the Mideast order when it has

been found not appropriate for use in the Northeast.

To assure continued pool qualification for all of the

handlers who currently are associated with the Mideast markets,

the pool supply plant definition of the consolidated Mideast order

provides for all of the types of supply plants that currently

qualify for pooling under the 4 principal orders. The Eastern

Ohio-Western Pennsylvania pool plant provision includes a plant

operated by a cooperative if the cooperative association delivers

to distributing plants at least 35 percent of the milk for which
it is the handler during the current month or over the preceding

12 months. The Southern Michigan order (Order 40) includes as

pool supply plants: (a) a plant that has been a pool plant for 12

consecutive months and has a marketing agreement with a

cooperative association, and (b) a system of supply plants

operated by one or more handlers. Order 40 also includes some

shipments to other Federal order plants and partially regulated

distributing plants, in addition to pool distributing plants, as

qualifying shipments by supply plants.

The percentage of receipts as qualifying shipments to

distributing plants currently ranges from 30 to 40 percent for

these orders, with direct deliveries from farms rather than plant

transfers limited to half of the required deliveries under three

of the orders. All four of the orders require performance of

pooling standards by supply plants for the months of September

through February, followed by a “free ride” period during which

shipping percentages need not be met by supply plants that met the

shipping standards during the required period. The Indiana order

contains a provision allowing the continued pooling of a plant

that fails to meet pooling standards because of circumstances

beyond the handler’s control.

The shipping standards adopted under this decision for pool

supply plants are 30 percent for all months, with plants meeting

the standard for the months of September through February being

allowed to retain their pool status for the immediately following

months of March through August. For the purpose of making the 30

percent level of shipping standard less burdensome, up to 90

percent of required shipments are allowed to be made directly from

farms to distributing plants. The cooperative association plant

defined as a pool plant in the Eastern Ohio-Western Pennsylvania

order is retained, as are the supply plant provisions peculiar to

the Southern Michigan order. These provisions reflect marketing

conditions specific to these current areas, and will assure that

plants currently qualified for pooling will retain such status.

Producer Milk

The producer and producer milk provisions of the orders

consolidated in the Mideast order are quite similar to and differ

little from those incorporated in the other consolidated orders. 

The principal difference between some of the individual orders and

the consolidated order would be the limit on the percentage of a

handler’s pooled producer milk that may be diverted to nonpool

plants. The Ohio Valley, Indiana and Eastern Ohio-Western

Pennsylvania orders all contain 50 percent diversion limits for

the months of September through November, January and February and

a 60 percent limit for the month of December, with no diversion

limit for the months of March through August. The Southern

Michigan order contains a 60-percent diversion limit for the
months of September through February, with no limit for the months

of March through August. In order to assure that all of the milk

that has been pooled under these orders continues to qualify for

pooling, the diversion limit adopted for the Mideast order is 60

percent for the months of September through February, with no

limit for the March through August period. At the same time, the

market administrator is authorized to increase or reduce the

diversion limit as needed to maintain orderly marketing and

efficient handling of milk in the marketing area.

Multiple Component Pricing

In a change from the proposed rule, the reporting and payment

provisions of the consolidated Mideast order adopted in this

decision now conform to those of the other consolidated orders

that provide for multiple component pricing (MCP). The proposed

rule would have incorporated a pricing plan similar to the current

Southern Michigan MCP plan in the consolidated order instead of

the MCP plan proposed for the other consolidated orders. The

Southern Michigan MCP plan differs from that included in the other

current MCP orders only by pricing “fluid carrier” instead of

“other solids.”

The Farm Bill authorizes adoption of a “uniform” multiple

component pricing plan. As a result, the component pricing plan

has been modified to be the same as the plan contained in other

MCP orders. The differences between the adopted MCP plan and that

originally proposed for the consolidated Mideast order are not

significant. The same prices would be used to compute component

values, the same protein and butterfat prices would be used, and

the proposed “fluid carrier” price was derived directly from the

“other solids” price. The Mideast order language is changed

accordingly, and will result in very little difference in total

payments, either by handlers or to producers whose milk is pooled

under the differing provisions.

Somatic Cell Adjustment.

Michigan Milk Producers Association (MMPA), a large

cooperative association in Michigan, opposed changing the present

Southern Michigan (Order 40) somatic cell count (SCC) adjustment

schedule to the adjustment schedule proposed uniformly for all of

the MCP orders with SCC adjustments. Changing the current

Michigan SCC adjustment schedule to the uniform schedule included

in the proposed rule would have the effect of reducing (from the

current Order 40 level) the positive value adjustments on milk

containing less than 200,000 SCCs and reducing the negative value

adjustments on milk containing more than 700,000 SCCs. 

Incorporating the proposed adjustment in all of the consolidated

orders that have somatic cell adjustments will make for a more

uniform system of pricing and may better reflect measurable

differences in value.
Reporting and Payment Dates.

MMPA proposed that handler reports be submitted one day

earlier (on the 6th instead of the 7th day after the end of each

month) so that producers can be paid a day earlier. The

cooperative also advocated that producers be paid with two partial

payments instead of one (on the 21st day of the month for the first

15 days’ production and the 6th of the next month for the second

half of the month’s production instead of one partial payment on

the 26th day of the month for the first 15 days’ production, as

proposed). Final payment for each month’s milk would then be made

no later than the 16th of the following month, instead of the 17th. 

The cooperative stated that reducing the time lag between

delivering milk and being paid for it would better accommodate the

cash flow requirements of modern larger dairy farms.

The Southern Michigan order currently requires that handler

reports be filed no later than the 5th of the next month, and that

nonmember producers be paid on the 15th. These dates are very

early compared to most other Federal orders. Two of the orders

included in the consolidated Mideast order currently have a

reporting date of the 8th and payment dates of the 18th.

The dates included in the proposed rule and adopted in this

decision represent an effort to find a middle ground between

significant differences in the orders to be consolidated. The

desire to accelerate payment to producers, both by increasing the

number of partial payments and advancing the final payment date,

is understandable. However, other interested parties in the

consolidated area had no opportunity to indicate agreement with or

opposition to such changes. These proposals would more properly

be addressed in a formal rulemaking proceeding after this

proceeding is completed.
6d. WESTERN REGION

This final decision adopts four Federal milk orders (i.e.,

Southwest, Arizona-Las Vegas, Western, and Pacific Northwest

orders) for the western region. A number of comments were

received in response to the proposed rule. These comments are

addressed below under the applicable order discussion. 

A number of changes have been made to the consolidated orders

since the proposed rule. The significant changes that have been

made to all or most of the consolidated orders are explained at

the end of this regional discussion, whereas, those modifications

that are unique to an individual order are discussed under the

applicable order. 

Southwest Order

The consolidated Southwest marketing area is comprised

principally of the current Texas and New Mexico-West Texas

marketing areas. With regard to milk production and population

(consumption), these areas are both in the process of change, but

in different ways. Texas has one of the fastest-growing

populations in the U.S., and until recently has been able to

maintain milk production on a per capita basis. After a

significant increase in milk production during the 1988-1994

period, Texas milk production has been declining somewhat,

accompanied by the exit of approximately 29 percent of the State’s

Grade A dairy farmers. If the current trend continues, the Texas

market could come to resemble more closely those of the Southeast

portion of the U.S., relying significantly on more distant milk

supplies to meet the market’s Class I and II needs. This

situation currently exists for the southern parts of Texas.

The State of New Mexico has experienced relatively slow

population growth, but dramatic increases in milk production --

from 1.099 billion pounds in 1988 to an estimated 4.020 billion

pounds in 1997. With the declining production in Texas, the New

Mexico milk-shed will be drawn upon more often to supply Class I

and II needs in the Texas demand centers, 500-600 miles distant. 

Procurement costs would be expected to increase dramatically. In

light of these circumstances, provisions in the Southwest order

must provide flexibility to cooperatives and handlers supplying

the market to prevent inefficient movements of milk and

unnecessary costs of operation incurred for the purpose of

participating in the market-wide pool.

Prior to enactment of the 1996 Farm Bill, cooperatives

operating in the southwestern markets had determined that the two

milk orders in the region were being operated as one and should be

merged. Much discussion took place, and proposed order provisions

were developed by the principal cooperatives involved. These

comments, with numerous others, were considered in the development
of this final decision for the Southwest marketing area. 
Pooling standards.

Most of the pooling standards in the Texas and New MexicoWest Texas orders have been suspended for some time. The rapid

expansion of milk production in the region during the late 1980's

created a situation in which cooperatives and handlers operating

in the region could not meet the provisions of the orders while

pooling all of their milk supplies. For this reason, the pooling

standards for the Southwest order have been relaxed.

As adopted in this final decision, the pooling standards for

a distributing plant require the plant to have route disposition

equal to at least 25 percent of its fluid milk receipts at the

plant during the month. In addition, at least 25 percent of the

plant’s route disposition must be in the marketing area. 

One partially regulated plant located in the Texas marketing

area will become fully regulated under this provision. The plant

has been partially regulated under the Texas order and,

periodically, fully regulated under the Chicago Regional order. 

The lowering from 50 percent to 25 percent of total route

disposition for a pool distributing plant by the Southwest order

will cause this plant to become fully regulated under the

Southwest order and, thereby, alleviate the disorderly conditions

caused by its shifts in regulation. There should be no change in

the plant’s costs, since their supply of milk comes from Southwest

pool sources.

The pool plant provisions of the Southwest order have been

revised in this final decision. The modification provides for the

pooling of plants that specialize in ultra-pasteurized or

aseptically-processed fluid milk products. A detailed explanation

of the changes is located at the end of the western regional

discussion.

 There are no pool supply plants regulated under the present

Texas and New Mexico-West Texas orders. Nevertheless, as

recommended in the proposed rule and adopted in this final

decision, provision is made for such an operation under the

Southwest order. As proposed, to qualify as a pool plant, a

supply plant must ship 50 percent or more of the total quantity of

milk that is physically received during the month from dairy

farmers and handlers described in § 1000.9(c) to pool distributing

plants. The supply plant provisions have been modified in this

final decision to include milk that is diverted to other plants as

well as milk physically received at the plant to allow for more

efficient movement of milk to distributing plants when needed. 

A provision for the pooling of cooperative association

balancing plants is also included in the consolidated order. A

plant located within the marketing area that is operated by a

cooperative association would qualify as a pool plant if pool

plant status is requested for such plant by the cooperative
association and during the month at least 30 percent of the

producer milk of members of such cooperative association is

delivered directly from farms to pool distributing plants or is

transferred to such plants as a fluid milk product from the

cooperative's plant. The requirement that the plant be located in

the marketing area ensures that milk pooled through the balancing

plant is economically available to processors of fluid milk if

needed. 

One comment was received regarding the proposed pooling

standards for supply plants. Kraft Foods, Inc. (Kraft), stated

that the Southwest order should adopt all the options and pooling

efficiencies contained in Section 7 of the proposed Central

marketing order. Kraft asserts that the two markets have

virtually identical populations (21 million) and Class I

utilization (48 percent - 49 percent). In addition, the handler

contends that the pool supply plant provisions of the Southwest

order provide intra-market inequity among handlers in the

Southwest market. Kraft indicated that a proprietary supply plant

could qualify for pooling only by transferring 50 percent of milk

physically received at the plant and noted that no farm to plant

shipments are permitted to count towards qualifying. However, the

handler stated, a plant in the marketing area operated by a

cooperative association may make qualifying shipments directly

from farms. The performance level, Kraft indicates, is 30 percent

of all milk pooled by the cooperative.

A primary mission of most cooperatives supplying the

Southwest market is to provide milk to handlers for fluid use and

to dispose of milk efficiently when not needed for fluid use. The

order provisions should accommodate and encourage efficient milk

handling practices. The cooperative balancing plant provision is

intended to allow cooperatives to supply the fluid market in the

most efficient manner possible and also to process milk

efficiently when such milk is not needed for fluid use. Almost

all of the dairy product manufacturing plants in the current Texas

and New Mexico-West Texas marketing orders are operated by

cooperatives.

As stated in the proposed rule, the pooling provisions for

the Southwest order are similar to the provisions in the present

Texas and New Mexico-West Texas orders. The pool supply plant

standards are consistent with and reflect the current marketing

conditions of the consolidated Southwest order. The standards

should ensure that milk of producers servicing the Class I needs

of the market will be pooled. The provisions for a supply plant

in this final decision does not recognize shipments directly from

producers’ farms as qualifying shipments for a supply plant. 

However, there currently are no supply plants regulated under the

Texas or New Mexico-West Texas orders. Accordingly, the
provisions should not place proprietary handlers at a competitive

disadvantage and are appropriate to meet the needs of the market.

 It is not necessary to seasonally adjust the supply plant and

balancing plant shipping requirements for the Southwest order

because the standards proposed are flexible enough to accommodate

the disposal of surplus milk during the flush production season. 

Also, this order, like the other new consolidated orders, contains

a provision to allow the market administrator to increase or

decrease these shipping requirements. 

In addition to the provisions described above, the Southwest

order contains a provision to allow unit pooling of distributing

plants operated by the same handler.

Producer-handler.

The producer-handler provisions that were proposed have been

revised in this final decision to be very similar to the

provisions in the current Texas and New Mexico-West Texas orders.

The revisions should assure that the status of current producerhandlers will be unchanged.

Producer milk.

The current Texas and New Mexico-West Texas orders have

provisions that require a producer’s milk to be received at a pool

plant, or touch base, before milk of the producer is eligible to

be diverted. The proposed rule indicated that milk produced by

producers located in the marketing area should be eligible for

pooling without a particular percentage or number of days’

production being required to be received at a pool plant. For

producers located outside the marketing area the touch base

provision of the proposed rule required that at least 15 percent

of the production of producers be delivered to pool plants during

the month in order to be eligible for pooling. Based on comments

and a review of the different touch base requirements for

producers both in and out of the area, the provision in the final

decision has been changed. The provision in the final decision

will allow diversion of producer milk of a new producer, provided 

there is a delivery of at least 40,000 pounds or one day’s milk

production, which ever is less, to a pool plant during the month

(rather than before diversions are allowed). This dual “touch

base” standard has been developed to accommodate a market that is

characterized by substantial differences in size among dairy

farmers. The requirement that one day’s production be delivered

to a pool plant, is appropriate for many producers but is

unreasonable for those who produce as much as seven tanker loads a

day.

The current Texas order allows an amount equal to one-third

of the milk delivered to pool plants to be diverted (this

provision is currently suspended), while the (currently suspended)

New Mexico-West Texas provision allows 50 percent of a handler’s
total milk supply to be diverted. In addition, the current Texas

order provisions base allowable diversions on deliveries to

individual pool plants, greatly exacerbating the time and effort

required to keep track of milk movements. In the proposed rule

the provision set the limit on diversions of producer milk on the

basis of at least 50 percent of the milk pooled by a handler being

received at pool plants for the handler’s entire milk supply to be

pooled. The diversion limit in this final decision is continued

at 50 percent of a handler’s total milk supply. The total

performance standard will allow handlers to meet diversion limits

more easily with more efficient movements of milk. In addition,

the increased percentage of allowable diversions will assure that

all of the producers whose milk would qualify for pooling under

either of the two orders being consolidated will continue to meet

pooling qualifications. A provision to allow the market

administrator to make adjustments is included in the producer milk

section of the order with respect to the percentage of milk that

may be diverted.

Multiple component pricing.

The reporting and payment provisions of the consolidated

Southwest order in the final decision include those common to

other orders with multiple component pricing. The multiple

component pricing plan does include a somatic cell adjustment for

milk used in Classes II, III, and IV. The current Texas and New

Mexico-West Texas orders do not provide multiple component

pricing. However, the proposed provisions that were developed by

the cooperatives involved in discussions to merge the current

orders did include a multiple component pricing plan. As stated

above, those comments were considered in the development of this

final decision. 

A comment was received from Leprino Foods Company (Leprino)

regarding the inclusion of multiple component pricing in the

consolidated Southwest order. Leprino strongly supports multiple

component pricing for both handlers and producers and states that

it has a direct interest in the consolidated Southwest order. 

Thus, there is support on both the producer, as represented by

cooperative associations, and handler side of the Southwest dairy

industry.

Transportation credits for surplus milk.

The Texas order currently has a market-wide service payment

provision that gives credits for hauling surplus milk located in

certain zones in Texas to nonpool plants outside the State for use

in manufactured products. The provision has not been included in

the consolidated Southwest order language because of declining

production and increasing balancing plant capacity in the affected

areas of Texas.

Payment provision.
The Texas order is one of only a few marketing orders that

requires handlers to remit the full classified value during the

month to the Market Administrator. In turn, the Market

Administrator acts as a clearing house and forwards these proceeds

on to the respective organizations. Interested persons have

expressed an interest in retaining these provisions, not only for

the proposed Southwest order, but for all other orders.

The current Texas payment provision was found necessary

because of problems encountered in assuring timely payments by

pooled handlers. The provision has been in the Texas order since

1979, and the earlier payment problems have been remedied. Such a

provision involves a rather large degree of regulatory

intervention between milk processors and their suppliers that

should be shown to be necessary to correct existing problems. 

There is no indication that such problems currently exist, or

would exist in the absence of the provision. Nearly all of the

milk that will be pooled under the consolidated Southwest order is

produced by cooperative members and pooled by the cooperatives. 

These large, business-oriented organizations should be able to

assure that they receive full payment for their members’ milk in a

timely manner. In addition, there are provisions in the General

provisions (Part 1000) that provide for enforcement of late or

under-payment charges at one percent per month of the amount due.

Arizona-Las Vegas Order

Many of the provisions of the consolidated Arizona-Las Vegas

order are explained in the “Identical Provisions” portion of this

final decision and need not be addressed here. Those provisions

that deviate to some extent from the “Identical Provisions” are

addressed in this discussion.

Pool plant.

The pool distributing plant definition is similar to that

contained in most of the other consolidated orders. The minimum

percentage of a pool distributing plant’s physical receipts of

bulk fluid milk products that are disposed of as route disposition

is 25 percent. The percentage of a handler’s total route

disposition into the marketing area that would result in a

distributing plant becoming fully regulated under the Arizona-Las

Vegas order is also 25 percent. While this definition differs

slightly from the current order language, it provides uniformity

with other consolidated orders and should result in no additional

distributing plants being pooled under the Arizona-Las Vegas order

or any change in the pool status of distributing plants currently

pooled. 

The pool plant provisions of the Arizona-Las Vegas order have

been revised in this final decision. The modification provides

for the pooling of plants that specialize in ultra-pasteurized or
aseptically-processed fluid milk products. A detailed explanation

of the changes is located at the end of the western regional

discussion.

 The proposed pool supply plant definition would have required

a supply plant to ship at least 50 percent of its physical

receipts of milk from dairy farmers to pool distributing plants

during the month in order to be a pool supply plant. In the

proposed rule it was indicated that this definition would provide

for easy, effective order administration and would result in no

additional handlers being regulated under the order. The supply

plant definition has been modified in this final decision to

include milk that is diverted from the plant as well as milk

physically received at the plant. There are currently no pool

supply plants in the proposed marketing area.

The current Central Arizona order permits a manufacturing

plant located in the marketing area that is operated by a

cooperative association to be a pool plant, provided that the

cooperative ships at least 50 percent of its member milk to pool

plants of other handlers during the current month or the previous

12-month period ending with the current month. This percentage

requirement is currently suspended. The proposed order suggested

reducing this percentage to 35 percent and authorizing the market

administrator to increase or reduce the percentage in response to

market conditions. The 35 percent and the authorization to make

adjustments in the level is contained in this final decision. The

reduced performance standard should enable the continued pooling

of producer milk that currently is pooled without resulting in

uneconomic handling or disorderly marketing. The Arizona-Las

Vegas order provides that a single handler be allowed to form a

unit of distributing plants and Class II manufacturing plants

provided each plant is located within the marketing area. The

unit in total would be required to meet the requirements for a

pool distributing plant and at least one of the plants in the unit

would be required to meet the pool distributing plant definition

individually. This provision would provide uniformity with other

federal orders and would not change the status of any plants

currently pooled. Class II manufacturing plants are included for

unit pooling with distributing plants operated by the same handler

because such plants produce products that are marketed in

conjunction with fluid milk products. 

A provision permitting the market administrator to adjust the

percentages specified in the pool plant definition will provide

the flexibility to respond in a timely manner to changing

marketing conditions without the need for a formal hearing

process.

Producer-handler.

The producer-handler provisions that were proposed have been
revised in this final decision to be very similar to the

provisions in the current Arizona order. The revisions should

assure that the status of current producers-handlers will be

unchanged.

Producer.

The consolidated order contains a dairy farmer for other

markets definition. A producer could not be pooled under the

Arizona-Las Vegas order unless all of the milk from the same farm

was pooled under this or some other federal order or unless such

non-pooled milk went to a plant with only Class III or Class IV

utilization. This differs slightly from the current definition in

the Central Arizona order. Such a provision is needed in the

consolidated order to prevent dairy farms whose milk is regularly

used for fluid disposition in other markets from pooling the

surplus portion of their production under the Arizona-Las Vegas

order. 

Producer milk. 

The percentage of a handler’s pooled milk that may be

diverted to nonpool plants is 50 percent in any month. The

proposed rule recommended a diversion limit of 20 percent in any

month. Currently, diversions under the Central Arizona order are

limited to eight days’ production of a producer during four months

of the year, with unlimited diversions the remainder of the year. 

The recommended 20 percent diversion limit was suggested because

it was thought that this would have resulted in the amount of milk

eligible for diversion being approximately equivalent to eight

days’ production and would have been easier to administer than the

current order provisions. In addition, the proposed rule stated

that the 20 percent limit year round would have assured that

pooled milk will have a close association with the market’s fluid

processing plants.

Security Milk Producers Association (SMPA) expressed concern

regarding the recommended 20 percent limit on the volume of a

handler’s pooled milk that may be diverted during any month. SMPA

states that diversion requirements set at anything less than 50

percent would be financially detrimental to its producers. The

cooperative requests that a limit be implemented that will not

detract from the orderly flow of milk.

Based on the comments received by SMPA and an reevaluation of

the marketing conditions in the consolidated Arizona-Las Vegas

order, and noting that eight days production is about 40 percent,

this final decision adopts for the Arizona-Las Vegas order a

diversion limit of 50 percent for each month of the year. The 50

percent diversion limit year round is more flexible than the

current order and the 20 percent limit recommended in the proposed

rule and it would be easy to administer. In addition, the 50

percent diversion limit is consistent with the diversion limit
included in the Southwest order, which is adjacent to the ArizonaLas Vegas Order. Thus, the 50 percent diversion limit each month

should allow the Class I needs of the market to be met while

ensuring the orderly disposition of milk. In addition, the market

administrator will have the authority to adjust the diversion

percentage. 

Multiple component pricing.

The Arizona-Las Vegas order does not provide for multiple

component pricing (MCP). There are six plants that are expected

to be regulated under the consolidated order: five proprietary

distributing plants, and one manufacturing plant operated by a

cooperative association. The Class I utilization for the order is

expected to be less than 50 percent, a level that would, in some

other orders, be an indication that component pricing would be

appropriate. However, the Class I utilization at the five

distributing plants is more than 80 percent. With the exception

of the one cooperative balancing plant, the handlers to be

regulated constitute predominantly a Class I market. 

Prior to the issuance of the proposed rule, there were no

comments received in support of MCP for the Arizona-Las Vegas

order. However, Schreiber Foods, Inc. (Schreiber), Leprino, and

SMPA have indicated support for MCP in the consolidated order. 

Schreiber agrees with National Milk Producers Federation that MCP

is important in some but not all orders, and the rule to adopt

such a plan and quality adjustments to minimum prices should be

based on the dairy industry’s preference in each area. The

handler asserts that its Class III utilization of over 50 percent

of the milk from the Arizona-Las Vegas market is a strong

indication for the need of MCP in the order.

Leprino indicates that less than half of the milk in the

proposed Arizona-Las Vegas order is used for Class I purposes. The

handler argues that competitive inequities due to differences

between fat-skim and MCP across manufacturers operating in

different orders will become more significant as the manufacturing

sector grows. It claims that the lack of MCP in the order will

stimulate some disorderly marketing conditions as low component

milk from New Mexico seeks higher revenue that will be available

through the fat-skim pricing to the west. Additionally, SMPA

strongly suggests that a system that prices the butterfat and

protein components be incorporated in the order because it is in

the best interest of producers. 

This final decision does not adopt MCP for the consolidated

Arizona-Las Vegas order. The current Central Arizona order does

not contain a multiple component pricing plan. The handlers

proposed to be regulated under the consolidated order are

currently all, with one exception, regulated under the current

Central Arizona order. The manufacturing of milk in the
consolidated order is anticipated to be done primarily by

Schreiber, at a non-pool plant. Schreiber is almost totally

supplied by United Dairymen of Arizona (UDA). Due to these

marketing situations (i.e., one buyer and one seller), the

implementation of MCP in the consolidated Arizona-Las Vegas order

would only benefit some of the producers of the order. All of the

producers in the marketing area would not share equitably. As

stated in the proposed rule and explained above, the fluid nature

of much of the market and the current marketing situations do not

warrant MCP at this time. 

Payment obligation of a partially regulated distributing plant.

SMPA recommended a proposal designed to equalize Class I

costs between California distributing plants and handlers fully

regulated under the proposed Arizona-Las Vegas order. SMPA

explained that the proposal is essentially a modification of the

“Wichita Option,” which represents a reasonable method for

computing a partially regulated distributing plant’s obligation to

the producer-settlement fund. 

The “Wichita Option” compares the amounts paid to producers

for milk received by a nonpool distributing plant with the full

class-use value of milk that would have applied if the plant were

fully regulated under the order. To equalize the competitive

positions of both fully regulated plants and those plants not

regulated under an order, any amount by which the class-use value

exceeds the value paid to producers is due to the producersettlement fund or can be paid to the producers who supplied the

handler. However, this option does not function appropriately to

handle milk from plants regulated under a State order that

provides for market-wide pooling. Thus, the modified “Wichita

Option” includes payment provisions for any plant regulated under

such a State-operated program.

The current Great Basin order provides payment provisions for

any handler operating a State-regulated distributing plant having

route disposition in the Great Basin order. This provision has

been incorporated in Section 76 of the General provisions in this

final decision and is applicable to all orders.

Western Order

Many of the provisions of the consolidated Western order are

explained in the “Identical Provisions” portion of this final

decision and need not be addressed here. Those provisions that

differ from those explained in the “Identical Provisions,” or

those currently contained in the orders to be consolidated, are

discussed below.

Pool plant.

The pool distributing plant definition is similar to that

contained in most of the other orders. The minimum percentage of
a pool distributing plant’s physical receipts of bulk fluid milk

products that are disposed of as route disposition is 25 percent. 

The percentage of a handler’s total route disposition distributed

into the marketing area that would result in a distributing plant

becoming fully regulated under the Western order is also 25

percent. While this definition differs slightly from the current

language of the orders included in this consolidated Western

order, it provides uniformity with other consolidated orders and

should result in no additional distributing plants being pooled

under the order or any change in the pool status of distributing

plants currently pooled. 

The pool plant provisions of the Western order have been

revised in this final decision. The modification to the pool

plant definition provides for the pooling of plants that

specialize in ultra-pasteurized or aseptically-processed fluid

milk products. A detailed explanation of the changes is located

at the end of the western regional discussion.

 The proposed pool supply plant definition would have required

a supply plant operator to ship at least 35 percent of the milk

pooled at the supply plant, either by transfer or diversion, to

pool distributing plants during the month in order to qualify for

pooling. The 35 percent level is included in the final decision. 

The percentage is slightly higher than that contained in the

current Southwest Idaho-Eastern Oregon order and slightly lower

than that contained in the current Great Basin order. This change

should result in no milk that is currently associated with either

of the two orders losing such association.

The pool supply plant definition in the final decision

includes provision for a March through August period during which

a supply plant that has met the order’s shipping percentages for

the preceding months of September through February to be able to

continue to be a pool plant without meeting the shipping

standards. As with other consolidated orders, the market

administrator will have the authority to increase or decrease the

order’s supply plant pooling standards as marketing conditions

change.

The Western order final decision contains a provision that

would permit a manufacturing plant operated by a cooperative

association and located in the marketing area to be a pool plant

if 35 percent of the milk for which the cooperative is the handler

is received at pool distributing plants during the month or during

the immediately preceding 12-month period. This provision is

similar to one currently contained in the Great Basin order and in

some of the other consolidated orders. 

Although the two current orders that have been consolidated

do not contain such a provision, the Western order would provide

that a single handler be allowed to form a unit of distributing
plants and Class II manufacturing plants provided each plant is

located within the marketing area, as suggested by the Identical

Provisions committee. The unit in total would be required to meet

the requirements for a pool distributing plant and at least one of

the plants in the unit would be required to meet the pool

distributing plant definition individually. This provision would

provide uniformity with other federal orders and would not change

the status of any plants currently pooled. Class II manufacturing

plants are proposed to be included for unit pooling with

distributing plants operated by the same handler because such

plants produce products that are marketed in conjunction with

fluid milk products.

Proprietary bulk tank handler.

The consolidated Western order final decision retains the

bulk tank handler provision that is currently in the Southwestern

Idaho-Eastern Oregon order, permitting a handler other than a

cooperative association to divert milk to nonpool plants for the

handler’s account based on shipments of milk to pool plants of

other handlers.

Producer-handler.

The producer-handler provisions that were proposed have been

revised in this final decision to be very similar to the

provisions in the current Great Basin and Southwestern IdahoEastern Oregon orders. The revisions should assure that the status

of current producers-handlers will be unchanged.

Producer.

The Western order contains a dairy farmer for other markets

definition. A producer would not qualify for pooling under the

Western order unless all of the milk from the same farm was pooled

under this or some other federal order or unless such non-pooled

milk went to a plant with only Class III or Class IV utilization. 

This differs slightly from the current definition in the Great

Basin order. Such a provision is contained in the Western order

to prevent dairy farmers whose milk is regularly used for fluid

disposition in other markets from pooling the surplus portion of

their production on the consolidated order. Security Milk

Producers Association supports this provision and states that it

is needed to prevent the pooling of surplus milk from farms whose

milk is regularly associated with other markets.

Producer milk.

The percentage of a handler’s pooled milk for the Western

order final decision that may be diverted to non-pool plants is 90

percent in any month. The proposed rule recommended a limit of 80

percent, which is identical to the percentage currently included

in the Southwestern Idaho-Eastern Oregon order and is only

slightly higher than that for the present Great Basin order (i.e.,

75 percent for cooperatives and 70 percent for proprietary
handlers). 

Avonmore West Inc. (Avonmore), a handler in the Southwestern

Idaho-Eastern Oregon order in Twin Falls, Idaho, favors the more

liberal qualification rules proposed for the Western Order whereby

only one day’s production of producer milk has to be received at a

pool plant. However, the handler opposed the 80 percent standard

of a handler’s pooled milk that may be diverted to non-pool plants

as recommended in the proposed rule. Avonmore indicated that the

80 percent diversion limitation is identical to the one currently

in the Southwestern Idaho-Eastern Oregon Federal order and stated

that this standard was suspended indefinitely in December 1989. 

The handler contends that the argument that the 80 percent

diversion limitation caused uneconomic movements of milk is still

valid today.

In 1997, Avonmore notes, an average of 217 million pounds of

producer milk was diverted to nonpool plants each month. 

Accordingly, Avonmore argues that the reintroduction of the 80

percent diversion limitation would allow only 80 million pounds of

producer milk to be diverted to nonpool plants. The handler

contends this would preclude many dairy producers in Idaho from

having their milk associated with the Western order, which could

cause significant price disparities between producers and create

disorderly marketing conditions that Federal orders are intended

to prevent.

Utah Farm Bureau Federation filed a comment regarding the

consolidation of the Great Basin and Southwestern Idaho-Eastern

Oregon orders into the Western order. In their comments the

federation states that the pooling provisions of the current Great

Basin order must be maintained to prohibit opportunistic entry of

outside milk into the Utah Class I pool. 

As adopted in this final decision, the 90 percent diversion

limitation is the same as that adopted in the consolidated Upper

Midwest order. The 90 percent limitation on movements of pooled

milk to nonpool plants should permit all milk associated with the

market that is not needed at pool plants during the month to be

pooled and priced under the order. The 90 percent standard

provides handlers more flexibility to efficiently move milk. 

Although unlimited diversions are not incorporated in the

consolidated order, the 90 percent standard should not preclude

most producers associated with the current individual orders from

having their milk pooled under the consolidated Western order. 

The 90 percent standard is an appropriate level for the

consolidated order given the provisions contained in the current

individual orders and should not create any disorderly marketing

conditions. The recommended standard also should ensure that

additional amounts of unneeded milk would not be pooled. In

addition, as contained in other consolidated orders the market
administrator will have the authority to adjust the diversion

percentage.

The order language allowing two or more cooperative

associations to jointly met the diversion limits was

inadvertently excluded from the proposed rule. Order language

to allow this to occur has been included in this final decision. 

Darigold Farms opposes the touch-base requirement that was

recommended in the proposed rule. The cooperative contends that

the exclusion of this provision may present an opportunity to

obtain unified support for a provision that would prevent or

reduce opportunistic pooling.

The current Southwestern Idaho-Eastern Oregon and Great Basin

orders contain such a touch-base provision. The provision ensure

that a producer whose milk is pooled on the order is indeed

servicing the Class I needs of the market. Accordingly, the

touch-base provision recommended in the proposed rule is adopted

in this final decision. The provision provides that during the

month at least one day’s milk production of a dairy farmer new to

the order must be physically received at a pool plant so that milk

of such producer is eligible for diversion. 

Reports of receipts and utilization and payroll reports.

The Western order requires pool handlers to file a “report of

receipts and utilization” on or before the seventh day after the

end of the month. This is identical to the current reporting date

in the Great Basin order but two days earlier than the same

provision in the Southwestern Idaho-Eastern Oregon order. Almost

all handlers currently file reports by FAX or some other form of

electronic data transfer, which eliminates delays due to mail

handling. A seven-day reporting period should allow adequate time

for handlers to prepare reports and will allow the computation and

release of producer price information to occur on or before the

12th day after the end of the month.

The date on which the report of payments to producers is due

to the market administrator under the Western order is on or

before the 21st day after the end of the month. This is the same

date as that under the Great Basin order, but one day earlier than

under the Southwestern Idaho-Eastern Oregon order. The earlier

reporting date and announcement of producer prices should assure

that an earlier payroll reporting date would not be burdensome.

Multiple component pricing.

Both the Great Basin order and the Southwestern Idaho-Eastern

Oregon order currently have multiple component pricing based on

protein without a somatic cell adjustment. The multiple component

pricing provisions of the consolidated Western order should be the

same as those for other proposed orders that provide for multiple

component pricing based on protein but without a somatic cell
adjustment. The Western order has a significant amount of milk

used in manufactured products, especially cheese, and component

pricing will enable producers to be paid according to the value of

the components of their milk. However, the somatic cell

adjustment included in some of the consolidated orders for which

component pricing is proposed is not warranted by marketing

conditions under the Western order, and such an adjustment is not

included in the final decision.

Avonmore expressed support for the use of multiple component

pricing in the Western Order and strongly recommended the

inclusion of a somatic cell count price adjuster. Avonmore states

the SCC adjuster is necessary because the manufacture of cheese is

the predominant use of milk in the Western Order. Avonmore notes

that it has been documented that elevated levels of SCC impact

cheese yield. In addition, the handler contends that dairy

products (i.e., cheese, NFDM, butter, whey products) exported to

the European Union must be made with milk containing less than

400,000 SCC.

Darigold Farms, a cooperative that will have milk on the

order has expressed the opinion that an adjustment for somatic

cells is a quality issue that may be better dealt with between the

buyer and seller. In addition, the nearby Pacific Northwest order

will not have a somatic cell adjustment. The somatic cell count

of milk produced in the western U.S. is at an average level of

250,000. This level is significantly lower than the 350,000

level, which provides no adjustment in the consolidated orders

that adjust for somatic cell count. For the reasons stated above

and due to the high quality of milk produced in the consolidated

Western marketing area, a quality adjustment is unnecessary and

need not be included in the order. 

Payments to and from the producer settlement fund.

Payments to the producer settlement fund under the

consolidated order are due on or before the 14th day after the end

of the month. This is two days after the announcement of uniform

producer prices, which is an identical time period to that which

exists in the two current orders that are being consolidated.

Payments from the producer settlement fund under the

consolidated order would be due on or before the 15th day after the

end of the month. This is the same date as under the current

Great Basin order and three days earlier than under the

Southwestern Idaho-Eastern Oregon order. This payment date should

be practicable, given the use of current banking and transmission

techniques.

Payments to producers and cooperative associations.

Under the Western order, partial payments would be due from

handlers to producers who are not members of cooperative

associations on or before the 25th day of the month in an amount
not less than 1.2 times the lowest class price for the preceding

month multiplied by the hundredweight of milk received from such

producers during the first 15 days of the month. Final payments

would be due on or before the 17th day after the end of the month.

Partial payments to cooperative associations would be due on

or before the 24th day of the month at the same rate as above, with

final payments due on or before the 16th day after the end of the

month. These final payment dates represent very little or no

change from the orders’ present payment dates. The partial

payment dates are earlier than those required under the current

orders, but are very close to those suggested by the Identical

Provisions committee, and compliance should present no hardship to

handlers who would already have had the use of the producers’ milk

for 9 to 23 days.

Pacific Northwest Order

Many of the provisions of the Pacific Northwest order are

explained in the “Identical Provisions” portion of this final

decision, and need not be addressed here. The provisions that

deviate somewhat from those incorporated in other order areas

are the provisions dealing with standards for determining the

pool status of producers and handlers, the definition of

producer-handlers, the factors upon which payments to producers

are calculated, and reporting and payment dates. Because this

order is not proposed to be consolidated with any other orders,

there is little reason for changing the substance of many of the

provisions that are not included in the General Provisions. 

Pool distributing plant.

The pool distributing plant provisions of the proposed

Pacific Northwest Order are changed from the current definition

to one that more closely resembles the definition suggested in

the identical provisions report. Rather than basing the

identification of a pool distributing plant on only 10 percent

of the plant’s receipts as in-area route dispositions, the order

should specify that such a plant have at least 25 percent of its

physical receipts distributed as route disposition, and at least

25 percent of its route disposition distributed within the

marketing area.

It is expected that the modified pooling standard will not

affect the pool status of any plant that currently does or does

not meet the pooling standard of the Pacific Northwest order. 

In addition, it would remedy a provision that could result in

fully regulating a plant that has minimal association with the

marketing area.

The pool plant provisions of the Pacific Northwest order have

been revised in this final decision. One modification provides

for the pooling of plants that specialize in ultra-pasteurized or

aseptically-processed fluid milk products. A detailed explanation

of the changes is located at the end of the western regional
discussion.

Pool supply plant.

For the most part, the current pool supply plant definition

of the Pacific Northwest order and the performance standard of

shipping 20 percent of the milk is appropriate to the marketing

conditions in the area. However, the provision that currently

requires a handler to include producer milk moved directly to

pool distributing plants in the shipments on which pool plant

performance is calculated is changed to allow the handler to

include such movements if the handler wants to qualify its plant

for pooling. A plant operator who receives milk at a plant only

for manufacturing use also will be able to supply producer milk

directly to distributing plants without a requirement that the

manufacturing plant be a supply plant.

In the Pacific Northwest order the current March through

August period during which supply plants do not have to ship the

minimum percentage to distributing plants if they have done so

during the previous September through February period is

included in the pool supply plant definition.

As in the other consolidated orders, the market

administrator will have the authority to increase or decrease

the order’s pooling provisions as marketing conditions change

for the purpose of assuring that an adequate supply of milk will

be available for fluid use, or to assure that the order does not

require handlers to undertake uneconomic movements of milk to

maintain: (1) the pool status of their plants, or (2) the

pooling of producers who have historically been associated with

the market and who help serve Class I needs.

Nonpool plant.

The current definition and exemption for milk produced and

processed by state institutions, as contained in the present

order’s producer-handler definition, is expanded and moved to be

included in the “Nonpool plant” definition contained in the

General Provisions. Such entities, along with colleges and

universities and charitable organizations, will not be subject

to the orders’ pricing and pooling provisions as long as they

have no sales in commercial channels.

The present Pacific Northwest order provisions allow a

state institution to avoid any regulation on the portion of its

milk that is used only within the institution, and apply some

pricing regulation to that portion that is distributed in

commercial channels. In some respects, this arrangement is

similar to the situation of partially regulated distributing

plants. However, partially regulated distributing plant

operators, to avoid obligations under Federal orders, must show

that they pay the dairy farmers who ship milk to them at a rate

at least commensurate with that paid to producers whose milk is

pooled under the order. In any case, they must procure a milk

supply in the competitive market. State institutions may have

any number of cost advantages over regulated handlers in the
production and processing of milk, such as not having to pay a

minimum wage and not having to pay property taxes. It would be

unjust to allow such institutions to compete with fully

regulated handlers in regular commercial channels as if the

playing field were level. Therefore, state and other

institutions that compete with regulated handlers in regular

commercial channels, such as bids for school milk programs,

would be regulated on those sales.

Producer-handler.

The current Pacific Northwest producer-handler provisions

remain essentially untouched. Some of the “Identical

Provisions” features of the producer-handler definition, such as

the 150,000-pound thresholds for route dispositions, own farm

production, and receipts from pool plants are adopted in this

final decision. The rest of the current producer-handler

provisions remain in effect for administrative purposes.

Producer-handlers represent a much larger portion of the

Class I dispositions in the Pacific Northwest marketing area

than in most other Federal order areas. In many marketing

areas, producer-handlers supply one percent or less of the Class

I sales. In the Pacific Northwest area, however, they furnish

almost 10 percent of the market’s Class I dispositions. The

larger average size of the dairy farms in the western United

States makes more likely the existence of a producer-handler

that is a significant factor in the market.

The current order’s producer-handler provisions are based

on the history of producer-handler operations in the marketing

area, reflecting difficulties encountered in order

administration, attempts to circumvent order provisions, and

court challenges.

In addition to the current order provisions, the producerhandler definition contains language clarifying that milk

received by the producer-handler at a location other than the

producer-handler’s processing plant for distribution on routes

will be included as a receipt from another handler. 

Reserve supply unit.

The Pacific Northwest order will continue to provide for a

cooperative reserve supply unit. The existing provision has

many similarities to a reserve supply plant, which is not

provided in this order but which is included in several of the

consolidated orders.

Under the terms of the present provision, the cooperative

members of the reserve supply unit must be located near a pool

distributing plant, as a reserve supply plant must be located in

the marketing area. Both the reserve supply unit and the

reserve supply plant provisions require that the plant or unit

operator request prior approval of the market administrator to

initiate and cancel their status, both require long-term

association with the market, and both provide substantial

penalties for failing to meet all required conditions. Although
the cooperative unit does not have monthly qualification

requirements, it is subject to a call by the market

administrator after the market administrator’s investigation of

the need for supplemental supplies of milk. Because of the

current existence of this provision, based on the need shown at

a public hearing, and its similarities to a pooling mechanism

suggested for other orders, provision for the cooperative

reserve supply unit will continue to be included in the Pacific

Northwest order.

The order language regarding the exemption from diversion

limits for a cooperative reserve supply unit was inadvertently

excluded from the proposed rule. The order language for this

exemption has been included in this final decision. 

The order language allowing two or more cooperative

associations to jointly met the diversion limits was also

inadvertently excluded from the proposed rule. Order language

to allow this to occur has been included in this final decision. 

Producer and producer milk.

The consolidated Pacific Northwest order would contain a

“dairy farmer for other markets” provision for each month of the

year. The large volume of milk production in California and

California’s quota system give dairy farmers an incentive to

pool production in a volume equal to their quota pounds on the

California order, and then attempt to share in the Pacific

Northwest Class I market with their over-quota production, for

which returns under the California order are much less. At the

same time, none of the California Class I returns would be

shared with Pacific Northwest producers. Similarly, producers

subject to other state programs should not be allowed to pool

the reserve supplies from the State-regulated markets and share

in returns from the Pacific Northwest pool while enjoying the

benefits of the State orders’ Class I returns.

The current provisions of the Pacific Northwest order do

not require that a producer’s milk be received at pool plants

for the producer’s first pooled delivery on the market or for

any specified period. If a handler meets its overall

performance requirements for supplying milk to the market, it

should make no difference which individual producer’s milk is

actually delivered to pool plants as long as the milk of each

producer participating in the pool is Grade A and available to

the market if and when needed. It is expensive, inefficient,

and unnecessary to move milk from areas close to nonpool

manufacturing plants to bottling plants in the city markets when

that milk is not needed for bottling. For the above reasons and

furthermore because there are often great distances and

mountainous terrain between plants and farms in the more

sparsely populated West, no “touch base” requirements should be

included. As stated previously, Darigold Farms supports the

exclusion of “touch base” requirements. The cooperative states

that the exclusion may present an opportunity to obtain unified
support for a provision that would prevent or reduce

opportunistic pooling. 

This order and other western orders have allowed producers

to pool milk on more than one order during the same month. 

Because of the locations of a number of dairy farmers, their

milk may be used by pool plants regulated under more than one

order in a single month. These producers also represent a

reserve supply for more than one market. Large, multi-market

handlers should be given the flexibility to market and transport

their milk to fulfill the needs of their customers in the most

efficient way possible.

The small changes in the final decision from the current

pooling provisions of the Pacific Northwest order result in very

little change in the order’s diversion limits. The limit of 80

percent of the handler’s supply of producer milk remains

unchanged, with the months during which the percentage is

effective changed from September through April to September

through February. These months will correspond to the months

during which supply plants must ship 20 percent of their

receipts to pool distributing plants. 

In the current order there is no limit on diversions during

May through August. In this final decision there will be a

limit of 99 percent on diversions of producer milk for the

months of March through August. The current delivery standards

have not been overly restrictive nor associated unneeded

supplies with the market and should be allowed to continue

basically unchanged. However, the change from without limit to a

percentage amount will allow the market administrator, as

provided for in other orders the authority to adjust the

percentage of milk that may be diverted. 

Payments to producers and cooperative associations.

Although the current Pacific Northwest order contains a

multiple component pricing plan very like that proposed to be

standard for the consolidated orders, it does not now and would

not under this reform process contain a somatic cell adjustment

provision. The level of somatic cells in the western U.S. is

generally lower than in the east, with an overall average of

approximately 250,000 instead of 350,000. This lower somatic

cell count would seem to reduce the need for such a provision. 

Historically, the principal argument for a somatic cell adjuster

has been the negative effect of somatic cells on the cheese

yields. Although cheese manufacturing in the Northwest is

increasing, most cheese manufacturing is done by cooperative

associations who have expressed the opinion that an adjustment

for somatic cells is a quality issue best dealt with internally. 

The somatic cell adjustments in the consolidated orders of the

final decision are not incorporated in the Pacific Northwest

order.

Announcement of producer prices.

The dates on which handler reports, market administrator’s
announcement of producer prices, and payment to producers would

remain unchanged from those of the current order.

General comment related to orders.

Darigold Farms suggests that the new orders provide some

performance requirements attached to each individual market, but

recommends that a producer, once qualified, should be locked into

the pool for a minimum of four months. This recommendation has

not been incorporated in the final decision for any of the western

orders. The provisions adopted in each order should ensure that

the Class I needs of the markets are met.

Major changes to orders from the proposed rule.

The pool plant provisions of the orders in the western region

have been revised. Paragraph (b) of Section 7 will accommodate

the pooling of plants that specialize in ultra-pasteurized or

aseptically-processed fluid milk products (i.e., fluid milk

products with a shelf life of at least 60-90 days without

refrigeration.) At the present time, there are no plants

processing this type of product in the Southwest, Arizona-Las

Vegas, or Pacific Northwest marketing areas. However, there is

one plant in the Western order market area. 

Unlike a typical distributing plant, a plant specializing in

extended shelf-life products may have a more erratic processing

schedule, reflecting the longer shelf life of the products

packaged at the plant. Consequently, a plant's Class I

utilization may vary considerably from month to month. In certain

areas of the country, such variability has resulted in shifting

pool status for this type of plant from one order to another. 

Such regulatory instability is not conducive to orderly marketing. 

To provide greater regulatory stability for these plants, they

should be fully regulated pool plants if they are located in the

marketing area and process at least 25 percent of their fluid milk

product receipts during the month into ultra-pasteurized or

aseptically-processed fluid milk products. This provision will

not guarantee that a plant qualifies as a fully-regulated pool

plant every month; some months a plant may fail to process 25

percent of its milk receipts into ultra-pasteurized or

aseptically-processed fluid milk products. Nevertheless, the

provision will guarantee that if a plant meets the 25 percent

standard described above, it will be qualified under the same

order all the time.