This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

12216 

Vol. 77, No. 40 

Wednesday, February 29, 2012 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Part 205 

[Doc. No. AMS–NOP–11–0063; NOP–11– 

11PR] 

RIN 0581–AD18 

National Organic Program; Proposed 

Amendment to the National List of 

Allowed and Prohibited Substances 

(Livestock) 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule; correction. 

SUMMARY: This document contains a 

correction to the proposed rule which 

was published on February 6, 2012 (77 

FR 5717). The proposed rule relates to 

revising the U.S. Department of 

Agriculture’s (USDA) National List of 

Allowed and Prohibited Substances 

(National List) to reduce the maximum 

levels for synthetic methionine 

currently allowed in organic poultry 

production after October 1, 2012. This 

document will remove an incorrect 

reference to a date in the proposed 

modification to our regulation. 

FOR FURTHER INFORMATION CONTACT: 

Melissa Bailey, Ph.D., Director, 

Standards Division, Telephone: (202) 

720–3252; Fax: (202) 205–7808. 

SUPPLEMENTARY INFORMATION: 

Background 

On February 6, 2012, the Agricultural 

Marketing Service published a proposed 

rule (77 FR 5717) to reduce the 

maximum levels of synthetic 

methionine that may be provided to 

organic poultry after October 1, 2012. 

This action addressed the 

recommendation of the National 

Organic Standards Board to permit the 

use of synthetic methionine at the 

following maximum levels per ton of 

feed after October 1, 2012: laying and 

broiler chickens—2 pounds; turkeys and 

all other poultry—3 pounds. As 

published, the proposed modification to 

7 CFR § 205.603(d)(1) contains the date 

‘‘October 2, 1012.’’ This is an incorrect 

reference to a date and therefore should 

not be included in the proposed 

regulatory language. This document 

corrects the regulatory language of the 

proposed rule. 

1. On page 5721, in the second 

column, § 205.603 paragraph (d)(1) is 

corrected to read as follows: 

§ 205.603 Synthetic substances allowed 

for use in organic livestock production. 

* * * * * 

(d) * * * 

(1) DL-Methionine, DL-Methionine— 

hydroxy analog, and DL-Methionine— 

hydroxy analog calcium (CAS #’s 59– 

51–8, 583–91–5, 4857–44–7, and 922– 

50–9)—for use only in organic poultry 

production at the following maximum 

levels of synthetic methionine per ton of 

feed: laying and broiler chickens—2 

pounds; turkeys and all other poultry— 

3 pounds. 

Dated: February 16, 2012. 

Robert C. Keeney, 

Acting Administrator, Agricultural Marketing 

Service. 

[FR Doc. 2012–4755 Filed 2–28–12; 8:45 am] 

BILLING CODE 3410–02–P 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Part 1033 

[Docket No. AO–11–0333; AMS–DA–11– 

0067; DA–11–04] 

Milk in the Mideast Marketing Area; 

Recommended Decision and 

Opportunity To File Written Exceptions 

on Proposed Amendments to Tentative 

Marketing Agreement and Order 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule; recommended 

decision. 

SUMMARY: This decision recommends 

adoption of a proposal to amend the 

Pool Plant provisions of the Mideast 

Federal milk marketing order to reflect 

that distributing plants physically 

located within the marketing area with 

a Class I utilization of at least 30 

percent, and with combined route 

disposition and transfers of at least 50 

percent distributed into Federal milk 

marketing areas, would be regulated as 

a Pool Distributing Plant under the 

terms of the order. 

DATES: Comments must be submitted on 

or before April 30, 2012. 

ADDRESSES: All comments received will 

be posted without change, including 

any personal information provided. 

Comments (four copies) must be filed 

with the Hearing Clerk, United States 

Department of Agriculture, STOP 9200– 

Room 1031, 1400 Independence Avenue 

SW., Washington, DC 20250–1031. 

Comments may be submitted for public 

viewing using the electronic process 

available at the Federal eRulemaking 

portal: http://www.regulations.gov. 

Reference should be made to the title of 

the action and docket number. 

FOR FURTHER INFORMATION CONTACT: Erin 

C. Taylor, Order Formulation and 

Enforcement Division, USDA/AMS/ 

Dairy Programs, STOP 0231–Room 

2963, 1400 Independence Avenue SW., 

Washington, DC 20250–0231, (202) 720– 

7183, email address: 

erin.taylor@ams.usda.gov. 

SUPPLEMENTARY INFORMATION: This 

decision recommends adoption of 

amendments that will more adequately 

define the plants, and the producer milk 

associated with those plants, that serve 

the fluid needs of the Mideast market 

and therefore which producers should 

share in the additional revenue arising 

from fluid milk sales. 

This administrative action is governed 

by the provisions of sections 556 and 

557 of Title 5 of the United States Code 

and, therefore, is excluded from the 

requirements of Executive Order 12866. 

The amendments to the rules 

proposed herein have been reviewed 

under Executive Order 12988, Civil 

Justice Reform. They are not intended to 

have a retroactive effect. If adopted, the 

proposed amendments would not 

preempt any state or local laws, 

regulations, or policies, unless they 

present an irreconcilable conflict with 

this rule. 

The Agricultural Marketing 

Agreement Act of 1937, as amended (7 

U.S.C. 601–674) (the Act), provides that 

administrative proceedings must be 

exhausted before parties may file suit in 

court. Under section 608c(15)(A) of the 

Act, any handler subject to an order may 

request modification or exemption from 

such order by filing with USDA a 

petition stating that the order, any 

provision of the order, or any obligation 


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Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Proposed Rules 12217 

imposed in connection with the order is 

not in accordance with the law. A 

handler is afforded the opportunity for 

a hearing on the petition. After a 

hearing, the U.S. Department of 

Agriculture (USDA or Department) 

would rule on the petition. The Act 

provides that the district court of the 

United States in any district in which 

the handler is an inhabitant, or has its 

principal place of business, has 

jurisdiction in equity to review USDA’s 

ruling on the petition, provided a bill in 

equity is filed not later than 20 days 

after the date of the entry of the ruling. 

Regulatory Flexibility Act and 

Paperwork Reduction Act 

In accordance with the Regulatory 

Flexibility Act (5 U.S.C. 601–612), the 

Agricultural Marketing Service (AMS) 

has considered the economic impact of 

this action on small entities and has 

certified that this proposed rule will not 

have a significant economic impact on 

a substantial number of small entities. 

For the purpose of the Regulatory 

Flexibility Act, a dairy farm is 

considered a ‘‘small business’’ if it has 

an annual gross revenue of less than 

$750,000, and a dairy products 

manufacturer is a ‘‘small business’’ if it 

has fewer than 500 employees. For the 

purposes of determining which dairy 

farms are ‘‘small businesses,’’ the 

$750,000 per year criterion was used to 

establish a production guideline of 

500,000 pounds per month. Although 

this guideline does not factor in 

additional monies that may be received 

by dairy producers, it should be an 

inclusive standard for most ‘‘small’’ 

dairy farms. For purposes of 

determining a handler’s size, if the plant 

is part of a larger company operating 

multiple plants that collectively exceed 

the 500-employee limit, the plant will 

be considered a large business even if 

the local plant has fewer than 500 

employees. 

During October 2011, the time of the 

hearing, there were 6,651 dairy farms 

pooled on the Mideast order. Of these, 

approximately 6,169 dairy farms (or 

92.8 percent) were considered small 

businesses. 

During October 2011, there were 51 

handler operations associated with the 

Mideast order (25 fully regulated 

handlers, 8 partially regulated handlers, 

2 producer-handlers and 16 exempt 

handlers). Of these, approximately 38 

handlers (or 74.5 percent) were 

considered small businesses. 

The Pool Plant provisions of the 

Mideast order define which plants have 

an association with serving the fluid 

milk market demand of the Mideast 

marketing area, and therefore determine 

the producers and the producer milk 

that can participate in the marketwide 

pool and share in the Class I market 

revenues. The proposed amendments 

could fully regulate handlers that 

currently fall under partial regulation. 

As a result, these handlers would be 

required to account to the Mideast order 

marketwide pool. Consequently, all 

producers whose milk is pooled and 

priced under the terms of the Mideast 

order would benefit from the additional 

revenue contributed to the marketwide 

pool by the newly-regulated distributing 

plant. The Department anticipates that 

while these additional monies would be 

shared with all producers serving the 

market, the proposed amendments 

would not have a significant economic 

impact on a substantial number of small 

entities. 

AMS is committed to complying with 

the E-Government Act, to promote the 

use of the Internet and other 

information technologies to provide 

increased opportunities for citizen 

access to Government information and 

services, and for other purposes. 

A review of reporting requirements 

was completed under the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

chapter 35). It was determined that the 

proposed amendment would have no 

impact on reporting, recordkeeping, or 

other compliance requirements because 

it would remain identical to the current 

requirements. No new forms are 

proposed and no additional reporting 

requirements would be necessary. 

This recommended decision does not 

require additional information 

collection that requires clearance by the 

Office of Management and Budget 

(OMB) beyond currently approved 

information collection. The primary 

sources of data used to complete the 

approved forms are routinely used in 

most business transactions. The forms 

require only a minimal amount of 

information which can be supplied 

without data processing equipment or a 

trained statistical staff. Thus, the 

information collection and reporting 

burden is relatively small. Requiring the 

same reports for all handlers does not 

significantly disadvantage any handler 

that is smaller than the industry 

average. 

Interested parties are invited to 

submit comments on the probable 

regulatory and informational impact of 

this proposed rule on small entities. 

Prior Documents in This Proceeding 

Notice of Hearing: Issued September 

2, 2011; published September 8, 2011 

(76 FR 55608). 

Preliminary Statement 

Notice is hereby given of the filing 

with the Hearing Clerk of this 

recommended decision with respect to 

proposed amendments to the tentative 

marketing agreement and the order 

regulating the handling of milk in the 

Mideast marketing area. This notice is 

issued pursuant to the provisions of the 

Agricultural Marketing Agreement Act 

and the applicable rules of practice and 

procedure governing the formulation of 

marketing agreements and marketing 

orders (7 CFR part 900). 

Interested parties may file written 

exceptions to this decision with the 

Hearing Clerk, U.S. Department of 

Agriculture, STOP 9200–Room 1031, 

1400 Independence Avenue SW., 

Washington, DC 20250–9200, by April 

30, 2012. Four copies of the exceptions 

should be filed. All written submissions 

made pursuant to this notice will be 

made available for public inspection at 

the Office of the Hearing Clerk during 

regular business hours (7 CFR 1.27(b)). 

The hearing notice specifically invited 

interested persons to present evidence 

concerning the probable regulatory and 

informational impact of the proposals 

on small businesses. Some evidence was 

received that specifically addressed 

these issues and some of the evidence 

encompassed entities of various sizes. 

A public hearing was held upon 

proposed amendments to the marketing 

agreement and the order regulating the 

handling of milk in the Mideast 

marketing area. The hearing was held 

pursuant to the provisions of the 

Agricultural Marketing Agreement Act 

of 1937 (AMAA), as amended (7 U.S.C. 

601–674), and the applicable rules of 

practice and procedure governing the 

formulation of marketing agreements 

and marketing orders (7 CFR part 900). 

The proposed amendments set forth 

below are based on the record of a 

public hearing held in Cincinnati, Ohio 

pursuant to a notice of hearing issued 

September 2, 2011. At the hearing, 

evidence was also gathered to determine 

whether market conditions exist to 

warrant consideration of the proposal 

on an emergency basis. 

The material issues on the record of 

hearing relate to: 

1. Amendment of the Pool Plant 

Definition 

Findings and Conclusions 

This decision recommends adoption 

of a proposal, published in the Notice of 

Hearing as Proposal 1, with two 

modifications: one proposed at the 

hearing and one conforming change 

made by AMS. Proposal 1, as published, 

would amend the Pool Plant provisions 


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12218 Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Proposed Rules 

of the Mideast order so that any plant 

physically located within the marketing 

area would be fully regulated by the 

Mideast order if 50 percent of the 

plant’s total combined route disposition 

and transfers falls within Federal milk 

marketing area boundaries and not more 

than 25 percent of the plant’s route 

disposition is within any single Federal 

marketing area. This decision 

recommends striking the 25 percent inarea route disposition qualifier from the 

initial proposal, as proposed by 

Superior Dairy, Inc. (Superior Dairy) 

during the hearing. As such, any 

distributing plant physically located in 

the Mideast milk marketing area with 

combined total route distribution and 

transfers of 50 percent or more into 

Federal milk marketing areas would be 

regulated by the terms of the Mideast 

order. (As discussed below, a plant 

meeting this new standard could still 

become pooled by another order if it has 

total route distribution of at least 50 

percent into one Federal marketing area 

for 3 consecutive months (as provided 

for in § 1033.7(h)(3)).) Additionally, the 

regulatory text recommended in this 

decision has been modified by AMS to 

add clarifying text to ensure consistency 

with current order provisions. 

The Pool Plant provisions of the 

Mideast order define how plants 

demonstrate an adequate association 

with the fluid market, and therefore the 

milk associated with those plants that is 

pooled and priced under the terms of 

the order. The Pool Distributing Plant 

standard of the Mideast order first 

requires a plant to meet a minimum 

Class I utilization, which is the 

percentage of fluid milk physically 

received at the plant that is distributed 

or transferred as Class I (fluid) products. 

The Class I utilization standard for the 

Mideast Federal Milk Marketing Order 

(FMMO) is 30 percent. The plant must 

also show a reasonable association with 

the order’s Class I market; that 

association is determined by the 

percentage of the plant’s total Class I 

route disposition that is distributed or 

transferred within the marketing area, or 

‘‘in-area’’ route disposition. In the 

Mideast order, 25 percent of the plant’s 

Class I route disposition must be to 

outlets within the Mideast marketing 

area. If a plant meets both the 30 percent 

Class I utilization and the 25 percent 

‘‘in-area’’ route disposition standard the 

plant will be a fully regulated 

distributing plant. Once fully regulated, 

a distributing plant must account to the 

marketwide pool at classified use values 

and pay its producers at least the order’s 

minimum blend price. 

A witness appeared on behalf of the 

proponents of Proposal 1, Dairy Farmers 

of America, Inc., Continental Dairy 

Products, Inc., Dairylea Cooperative 

Inc., Erie Cooperative Association, 

Foremost Farms USA Cooperative, Inc., 

Michigan Milk Producers Association, 

Inc., National Farmers Organization, 

Inc., Prairie Farms Dairy, Inc., and 

White Eagle Cooperative Association 

(collectively referred to as DFA et al.), 

in support of modifying the Pool Plant 

provisions of the Mideast milk 

marketing order. The witness stated that 

DFA et al. are all member-owned 

Capper Volstead cooperatives that 

collectively market the majority of the 

milk in the Mideast milk marketing 

area. 

The DFA et al. witness estimated that 

more than 85 percent of the nearly 6,974 

producers whose milk is pooled on the 

Mideast order are small businesses. The 

witness was of the opinion that the 

disorderly marketing conditions 

resulting from what they consider to be 

inadequate Pool Plant provisions are 

harming these small businesses and that 

failing to address these issues would be 

detrimental to their dairy farmer 

members. 

The DFA et al. witness testified that 

the intent of FMMOs are to create and 

preserve orderly marketing conditions 

by, among other things, maintaining 

classified pricing and a marketwide 

pooling system in which all handlers 

pay uniform minimum classified prices 

based on their milk utilization and 

producers receive a minimum uniform 

blend price. The witness testified that 

when marketwide pooling and classified 

pricing are jeopardized, FMMOs should 

be amended to maintain order in the 

market. 

The DFA et al. witness explained why 

they proposed a change to the Pool 

Plant provisions of the Mideast order. 

The witness testified that a large fluid 

milk bottling plant owned by Superior 

Dairy, located in Canton, Ohio, which 

had previously been fully regulated by 

either the Mideast or Northeast Federal 

milk orders, was able to become 

partially regulated under the current 

provisions of both orders. The witness 

testified that Superior Dairy’s Canton 

plant was able to avoid full regulation 

by transferring packaged product 

ultimately bound for distribution in the 

Northeast marketing area through a 

smaller sister plant located in Wauseon, 

Ohio, thereby reducing the route 

disposition from its Canton plant below 

the 25 percent in-area route disposition 

requirement. 

The DFA et al. witness was of the 

opinion that the Pool Plant provisions of 

the Mideast order allow Superior Dairy 

to avoid full regulation and 

consequently cause disorder in the 

market in two primary ways: (1) 

Producers who incur the additional 

costs of servicing the order’s Class I 

market are not guaranteed a uniform 

blend price, and (2) similarly situated 

handlers are not assured the same raw 

milk costs. The witness reviewed the 

producer payment options available to 

partially regulated plants and explained 

how the ability of plants like Superior 

Dairy’s plant to avoid full regulation 

causes disorder. The witness elaborated 

that one of the producer payment 

options, commonly known as the 

‘‘Wichita Option,’’ for partially 

regulated plants requires plants to pay 

its producer suppliers, in aggregate, 

minimum Federal order classified 

values. The witness noted that while a 

Partially Regulated Distributing Plant 

(PRDP) has to pay aggregated classified 

values to it producers, it is not required 

to pay its producers uniformly on an 

individual basis. The witness said that 

if a plant demonstrates to the Market 

Administrator that this aggregate value 

requirement is met, then no additional 

payment into the order’s producer 

settlement fund (PSF) is necessary. The 

witness testified that when partially 

regulated plants opt to pay their 

producer suppliers the minimum 

Federal order classified values, in 

aggregate, the plant can include overorder premiums in that calculation, 

whereas a fully regulated handler 

cannot. In orders such as the Mideast 

order, where significant over-order 

premiums are necessary to obtain a milk 

supply, the witness noted, this cost 

savings could be significant for a plant. 

The witness said that this savings could 

be used by the plant to increase market 

share for fluid milk sales, or procure 

additional milk supplies to gain a 

competitive advantage with similarly 

situated, fully regulated pool handlers 

who are required to pay classified milk 

use values to the PSF (not including 

over-order premiums) and minimum 

blend prices to dairy farmers. 

The DFA et al. witness attempted to 

estimate the amount of money that 

Superior Dairy was able to retain from 

January of 2010 to July of 2011 by 

avoiding full regulation on the Mideast 

order. The witness was of the opinion 

that Superior Dairy was able to retain 

approximately $0.93 per hundredweight 

(cwt) on average, the potential 

‘‘advantage’’ over fully regulated 

handlers, equal to a cumulative monthly 

total savings averaging just under 

$289,000 (based on an assumed monthly 

plant volume of 30 million pounds). 

The witness added that a similarly 

situated fully regulated handler would 

have paid this money into the order’s 


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Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Proposed Rules 12219 

1 64 FR 16025. 

PSF to be shared with all producers 

servicing the market. However, Superior 

Dairy’s partially regulated status 

allowed it to retain the money and, as 

a result, minimum blend prices to all 

the Mideast order’s pool producers were 

reduced. 

The DFA et al. witness asserted that, 

over the years, Federal orders have been 

amended to reduce the disorder 

resulting from plants being regulated in 

areas different from the area in which 

they procure milk. The witness referred 

to a 1988 decision, ‘‘Milk in the Ohio 

Valley and Louisville-LexingtonEvansville Marketing Areas’’ (53 FR 

14804), that amended Pool Distributing 

Plant standards to correct a disorderly 

marketing condition which caused 

similarly situated plants within the 

same competitive area to have different 

raw milk costs. In this case, a plant that 

was located in the Louisville-LexingtonEvansville marketing area, but had most 

of its route disposition in another 

marketing area, was regulated by the 

Louisville-Lexington-Evansville 

marketing order. This change was 

premised on the idea that a plant should 

be regulated in the marketing area in 

which there is a reasonable assurance 

that it will have available an adequate 

supply of producer milk, which 

therefore promotes uniformity of prices 

to producers within the procurement 

area of the plant. The witness stated that 

the market disorder created by Superior 

Dairy’s partially regulated status is 

similar to the issues addressed in the 

referenced 1988 Decision, and again 

urged the Department to recommend the 

adoption of Proposal 1 as an appropriate 

solution. 

The DFA et al. witness concluded by 

requesting that the Department consider 

this proposal on an emergency basis. 

The witness said that DFA et al. 

supplies milk to both Superior Dairy 

and other fully regulated plants. 

According to the witness, the difference 

in regulatory status between its buyers 

causes disorderly marketing conditions 

that directly impact its members. 

Additionally, Superior Dairy’s 

competitive advantage due to its 

partially regulated status lowers the 

value of the order’s marketwide pool, 

thereby reducing the minimum blend 

price to all the order’s producers each 

month that Superior Dairy is not fully 

regulated. 

A second witness appeared on behalf 

of DFA et al. in support of Proposal 1. 

The witness reiterated the testimony of 

an earlier witness concerning the 

disorderly marketing conditions 

resulting from the Superior Dairy 

Canton plant becoming partially 

regulated. The witness said that the 

Department had taken steps in the past 

to restore order within the markets 

when there was evidence of plants 

engaging in uneconomic milk shipments 

and other business practices solely to 

avoid becoming fully regulated. The 

witness referenced regulatory changes 

made as a part of Federal order reform 

that closed loopholes that could be used 

to avoid regulation. Specifically, the 

witness highlighted amendments that 

prevented plants from using diverted 

milk volumes as part of the calculation 

used to determine eligibility for 

pooling.1 The witness implied that the 

Department addressed this loophole to 

help maintain an orderly market. 

A witness representing Dairy Farmers 

of America (DFA) appeared in support 

of Proposal 1. The witness purported to 

have first-hand knowledge of the 

Wauseon, Ohio, plant before it was 

purchased by Superior Dairy. The 

witness testified that the plant had been 

closed by two prior owners who found 

the facility to be inefficient and 

economically nonviable. The witness 

claimed that the facility was the 

smallest in the region and that no other 

plants of similar size and/or logistical 

constraints existed in the area. The 

witness described in detail what they 

perceived to be logistical complications 

resulting from the limited size of the 

Wauseon plant. These complications, 

the witness asserted, were evidence that 

the plant was being used by Superior 

Dairy to facilitate the uneconomic 

movement of milk in an attempt to 

avoid regulation. The witness 

acknowledged that they had not entered 

into the Wauseon plant since Superior 

Dairy’s acquisition of the facility and 

had no knowledge of Superior Dairy’s 

internal business processes. 

A witness appeared on behalf of 

Michigan Milk Producers Association, 

Inc. (MMPA) in support of Proposal 1. 

MMPA is a member-owned Capper 

Volstead cooperative which pools the 

majority of its producer milk on the 

Mideast order. The witness stated that 

MMPA was a supporter of Federal 

orders in that they provide equality for 

producers and an orderly market for 

handlers. 

The MMPA witness stated that the 

change in regulatory status of Superior 

Dairy’s Canton plant was a concern that 

raised questions of competitive equity 

between similarly situated handlers. 

The witness also referenced an earlier 

witness’ testimony that included an 

analysis revealing a possible 

competitive advantage that a partially 

regulated plant could capture in 

addition to examining the degree of 

inequity that could exist amongst 

similarly situated plants. 

The MMPA witness was of the 

opinion that Superior Dairy’s purchase 

of a smaller distributing plant 

approximately 200 miles away in 

Wauseon, Ohio, was a business decision 

made to avoid full regulation under 

Federal orders by transferring packaged 

product from the larger Canton plant 

northwest to the smaller Wauseon plant 

and later transporting this product back 

east to its final destination. The witness 

stated that this uneconomic movement 

of product was an attempt to avoid full 

regulation of the larger distributing 

plant. 

A witness from the Southern 

Marketing Agency (SMA) spoke in 

support of Proposal 1. SMA is a CapperVolstead marketing agency comprised of 

seven cooperative members operating in 

the southern United States. The witness 

explained that Superior Dairy was 

unique from other handlers due to its 

broad distribution footprint which 

spanned the Northeast, Appalachian, 

Florida, Southeast, Central, and Mideast 

milk marketing areas. The witness 

opined that few other handlers of 

conventional fluid milk products had 

such expansive route disposition. The 

witness asserted that Superior Dairy was 

in direct competition with other 

Mideast fully regulated handlers for 

farm milk supplies. 

The SMA witness testified that recent 

shifts in the manner of Federal order 

regulation of Superior Dairy has created 

market disorder. The witness testified 

that when a large bottling plant is able 

to escape full regulation by the order 

from which its raw milk supply is 

procured and utilized at the plant, dairy 

farmers and cooperative associations 

face difficulties in raw milk 

procurement planning. The witness 

explained how seasonal changes in 

demand for Class I milk products create 

the need for each plant to maintain a 

reserve supply to ensure that their Class 

I needs are always met. The witness said 

that cooperatives routinely schedule 

milk deliveries into certain plants to 

ensure that reserve requirements are met 

and producers remain qualified to 

participate in the order’s marketwide 

pool. The witness described how the 

pooling of necessary reserve milk 

supplies is complicated when a large 

plant such as Superior Dairy changes its 

regulatory status, or regulated by a 

Federal order distant from its milk 

procurement areas. The witness further 

explained that because pooling 

requirements vary between orders, a 

situation can arise where a plant 

switches the order it is regulated on, but 

producers who normally supply and are 


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12220 Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Proposed Rules 

pooled by the plant are not 

automatically qualified to be pooled on 

the new order. The witness explained 

how this misallocation of reserve 

supplies to handlers could 

unintentionally leave producers who 

regularly bear the cost of supplying the 

Class I market excluded from the order’s 

marketwide pool. 

The SMA witness testified that the 

pooling of a plant in an order distant 

from the plant’s physical location 

creates market disorder. The witness 

explained how the Department uses 

‘‘lock-in’’ type provisions to address the 

wide route disposition patterns of 

extended shelf life (ESL) products. The 

witness testified that Federal orders 

regulate plants that manufacture ESL 

products in the order that the plant is 

located, regardless of where the majority 

of milk is sold. The witness testified 

that the pooling of ESL manufacturers in 

this manner prevents market disorder 

that would result from the plant 

switching regulation between orders. 

The witness opined that similar 

regulation of plants similar to Superior 

Dairy would prevent disorderly 

marketing conditions. 

The SMA witness asserted that 

Superior Dairy has a clear advantage 

over its fully regulated competitors 

since it is able to avoid payments into 

any PSF under partial regulation. The 

witness testified that the uneconomic 

movement of milk from Superior’s 

Canton facility west to its Wauseon 

facility for subsequent distribution in 

the Northeast order was designed to 

limit the route disposition of Superior’s 

Canton plant into any marketing area, 

thereby avoiding full regulation. The 

witness testified that this practice 

should be prohibited to prevent the 

potential for further disorderly 

marketing conditions. 

A witness testifying on behalf of 

Superior Dairy, Inc. spoke in opposition 

to Proposal 1. According to the witness, 

Superior Dairy is a handler of Class I 

fluid milk products processing about 40 

million pounds of milk per month at its 

two facilities. The witness argued that 

the change in regulatory status of 

Superior Dairy between the Northeast 

and Mideast FMMOs and between 

partial and full regulation does not 

disrupt marketing conditions in 

sufficient measure to warrant regulatory 

change. 

The Superior Dairy witness said the 

majority of milk processed by the 

company is supplied by DFA. The 

witness testified that DFA charged 

PRDPs such as Superior Dairy classified 

prices plus an over-order premium 

based on the plant’s raw milk 

utilization, as per industry practice. The 

witness noted that the company had an 

82 percent Class I utilization and 

approximately 90 percent of its route 

distribution was in Federal milk 

marketing areas. The witness testified 

that Superior Dairy was regulated by the 

Mideast order until March 2010, the 

Northeast order from April 2010 to 

February 2011, and partially regulated 

on both orders since March 2011. 

The Superior Dairy witness testified 

that the company was able to increase 

sales in recent years by implementing 

new packaging technology. The witness 

testified that the new packaging 

technology allowed the company to gain 

large clients whose distribution 

networks were substantially larger than 

that of traditional buyers. The witness 

noted that the result of that growth was 

increased sales into, and subsequent 

regulation by, the Northeast milk 

marketing order in April 2010. The 

witness explained that Class I sales to 

outlets within the boundaries of the 

Northeast marketing area increased to 

28 percent of total Class I volume sold, 

which decreased the percentage of its 

Class I sales within then Mideast 

marketing area to around 20 percent. 

The witness testified that regulation on 

the Northeast marketing order required 

that Superior Dairy pay into the 

Northeast PSF, rather than the Mideast 

PSF, which in turn required a larger 

monthly pool obligation to the plant. 

The witness elaborated that the change 

in regulation from the Mideast order to 

the Northeast order harmed Superior 

Dairy’s producers since the Northeast 

blend price, when adjusted to their 

location in Canton, Ohio, was $0.13 per 

cwt lower than the Mideast blend price. 

The witness said that this required 

Superior Dairy to increase the over 

order premiums paid to its Mideast raw 

milk suppliers to remain competitive 

while also paying into the Northeast 

PSF, thus increasing its total raw milk 

procurement costs. The witness noted 

that Superior Dairy preferred to be 

regulated by the Mideast order, rather 

than the Northeast, but was unable to 

expand their route distribution 

sufficiently in the Mideast marketing 

area to remain regulated by that order. 

The Superior Dairy witness explained 

how the Canton plant came to be 

partially regulated as opposed to being 

fully regulated on the Northeast or 

Mideast order. The witness testified that 

the company purchased a small plant in 

Wauseon, Ohio in early 2011. The 

witness affirmed that the addition of 

this facility allowed Superior Dairy to 

decrease route distribution from its 

Canton plant to below 25 percent in 

both the Northeast and the Mideast 

marketing areas, allowing it to become 

partially regulated on both orders. The 

witness also added that the new facility 

was of interest to the company in that 

it allowed them to expand its 

procurement area for raw milk into 

Western Ohio and Southern Michigan 

without adding administrative 

personnel. 

The Superior Dairy witness testified 

that one of the Federal order provisions 

available to handlers with limited route 

disposition into Federal order areas, 

sometimes referred to as the ‘‘Wichita 

Option,’’ requires handlers to pay dairy 

farmers, in aggregate, the Federal order 

minimum classified values. The witness 

argued that the partial regulation of 

Superior Dairy does not provide any 

competitive sales advantage over its 

fully regulated competitors. However, 

the witness said that Federal order 

provisions for PRDP do not promote 

equity amongst dairy farmers since the 

price received by dairy farmers for raw 

milk sold to a partially regulated plant 

can differ from the price of milk sold to 

a fully regulated plant. The witness 

testified that if a handler is partially 

regulated under the ‘‘Wichita Option,’’ 

they essentially operate as an individual 

handler pool. The witness explained 

how producers who ship milk to a PRDP 

with a higher than market average Class 

I utilization can receive a higher price 

than producers who ship milk to a fully 

regulated plant and are in turn paid the 

order’s minimum blend price. The 

witness testified that Superior Dairy’s 

producer suppliers are, in fact, paid an 

‘‘in-plant’’ blend price that is higher 

than the Mideast blend price. The 

witness further added that producers are 

in fact not harmed when a partially 

regulated plant is supplied by a 

cooperative (as is the case with Superior 

Dairy), as the cooperative (and its 

producer-members) then receive the 

higher in-plant blend price. The witness 

also said that these blend price 

differences have not caused market 

disorder since other Mideast fully 

regulated distributing plants have 

continued to receive an adequate supply 

of milk. 

The Superior Dairy witness explained 

how adoption of Proposal 1 would harm 

its own independent producer 

suppliers. The witness testified that 

Superior Dairy purchases raw milk from 

approximately 120 independent 

producers, most of which are small 

businesses. Those producers, noted 

Superior Dairy’s witness, receive an inplant blend price for their raw milk 

greater than the Mideast order blend 

price. The witness asserted that the 

price the independent producers receive 

for their raw milk would decrease 

should the Superior Canton facility be 


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fully regulated because the Superior 

Canton plant would be required to 

account to the PSF for its Class I sales 

and that additional revenue would then 

be shared with all producers servicing 

the market, not just Superior Dairy’s 

independent producer suppliers. 

The Superior Dairy witness testified 

that Proposal 1 should not be adopted 

and its Canton, Ohio, plant should 

remain partially regulated. However, the 

witness said, should the Department 

decide to fully regulate either the 

Canton or Wauseon plant, it would 

prefer that both plants be regulated on 

the Mideast order. The witness noted 

that provisions exist in certain orders 

allowing plants producing ESL products 

to be locked into regulation on an order 

by virtue of geographic location rather 

than route distribution. The witness 

stated that since the route disposition 

patterns of Superior Dairy are similar to 

plants producing ESL products, it is 

reasonable to regulate Superior Dairy 

based on geographical location, not 

route disposition. 

Accordingly, the Superior Dairy 

witness offered two separate 

modifications to Proposal 1 that the 

witness believed would lock Superior 

Dairy’s Canton plant into regulation on 

the Mideast order. The witness 

suggested that Proposal 1 be modified 

by removing the 25 percent in-area route 

disposition qualifier so that plants 

physically located in the Mideast order 

with route disposition and transfers of 

at least 50 percent into Federal 

marketing areas would be regulated on 

the Mideast order. Alternatively, the 

witness suggested modifying Proposal 1 

so that plants located in the Mideast 

order that have route disposition and 

transfers of at least 50 percent into any 

Federal market orders and sales into at 

least four separate marketing areas 

would be regulated on the Mideast 

order. 

The Superior Dairy witness disputed 

multiple times the data assembled and 

analyzed by the DFA et al. witness. The 

Superior Dairy witness explained that 

the data used by DFA et al. in its 

analysis did not, among other things, 

address over-order premiums paid by 

Superior Dairy to their producer 

suppliers. 

The witness from Superior Dairy was 

of the opinion that there was no need 

for the Department to consider this 

measure under emergency rulemaking 

procedures. 

A post-hearing brief was submitted on 

behalf of DFA et al. reiterating their 

testimony that inadequate Pool Plant 

provisions in the Mideast order are 

causing disorderly marketing conditions 

and that a large fluid milk bottling plant 

should not be able to avoid full 

regulation by transferring fluid milk 

products between plants. The brief 

claimed that when using the analysis 

introduced in their testimony, the cost 

advantage to a hypothetical PRDP of 

similar size to Superior Dairy (a 

monthly plant volume of 40 million 

pounds) averaged $373,000 per month 

from January 2010 to July 2011. The 

brief reiterated that because Superior 

Dairy can include over-order premiums 

in its theoretical pool obligation 

calculation, this can amount to a large 

cost advantage to the plant. The brief 

explained that by Superior Dairy 

avoiding payments into the PSF, 

producer price differentials, on average, 

were reduced by approximately $0.028 

per cwt in the Mideast order or $0.018 

per cwt in the Northeast order, 

depending on how the plant was 

regulated. The brief also reinforced the 

SMA witness’ testimony regarding the 

disorder created in the pooling of 

reserve supplies by a plant changing 

regulatory status from one order to 

another. The brief also emphasized the 

importance of market-wide pooling and 

uniform producer and handler values 

and stated that these fundamentals are 

undermined if major participants in the 

market can avoid regulation. 

In brief, DFA et al. wrote that they 

were in support of the first alternate 

proposal offered at the hearing by 

Superior Dairy. The brief stated that the 

alternate proposal would resolve the 

market disorder that was the catalyst for 

the hearing request and that DFA et al. 

considers this the best option for 

producers supplying the fluid milk 

needs of the Superior Dairy Canton 

facility and Mideast marketing area as a 

whole. The brief stated that while 

typically a plant is regulated according 

to its route distribution, there have been 

exceptions made in order to regulate 

plants based on their procurement area. 

In these instances, DFA et al. wrote, 

milk procurement area and producer 

price equity became the integral, more 

important factor because of the need to 

stabilize the milk supply for plants with 

route distribution in multiple marketing 

areas. As a whole, DFA et al. viewed the 

first alternate proposal as the best 

amendment to resolve the issue and, if 

the Department did not recommend 

Superior Dairy’s alternative proposal, 

suggested that Proposal 1 as originally 

noticed be adopted. 

A post-hearing brief was filed on 

behalf of Land O’Lakes, Inc., Agri-Mark, 

Inc., Maryland and Virginia Milk 

Producers Cooperative Association, Inc., 

and St. Alban’s Cooperative Creamery, 

Inc., (Northeastern Cooperatives), in 

support of Proposal 1. The Northeastern 

Cooperatives are member-owned Capper 

Volstead cooperatives that pool their 

producer’s milk on numerous FMMOs. 

The brief reiterated the testimony of 

witnesses in support of Proposal 1 as 

originally noticed and reviewed current 

order provisions that distinguish where 

a plant is regulated based off of the 

plant’s route disposition instead of the 

geographical location of the plant. The 

brief reasserted the testimony of a 

Superior Dairy witness who said that 28 

percent of its route distribution was in 

the Northeast marketing area in 

comparison to 20 percent in the Mideast 

marketing area. 

The Northeastern Cooperatives brief 

opposed the alternate proposals offered 

by Superior Dairy at the hearing. The 

brief stated that alternate proposals 

should have been offered when the 

initial request for additional proposals 

was made so they could be included in 

the Notice of Hearing. The brief 

emphasized the Northeastern 

Cooperatives’ opinion that the alternate 

proposals would lock-in Superior Dairy 

to regulation by the Mideast order, even 

if its route distribution was 25 percent 

or more into another Federal marketing 

area. The brief stressed that 

implementation of a supposed lock-in 

provision would be of economic benefit 

to Superior Dairy, not producers. 

The Northeastern Cooperatives brief 

also stressed that the alternative 

Superior Dairy proposal would not 

require a plant to meet the 25 percent 

in-area route disposition standard, even 

though the plant would become 

regulated by the Mideast order. The 

brief emphasized that it is important to 

always consider route disposition as a 

factor when determining the FMMO in 

which a plant should be regulated. 

SMA filed a post hearing brief 

reiterating that disorderly marketing 

conditions are occurring as a result of 

inadequate Pool Plant provisions. SMA, 

in brief, offered their support to the 

modifications of Proposal 1 advanced by 

Superior Dairy during the hearing as a 

method for alleviating the disorderly 

marketing conditions. The brief noted 

that the disorder results from the 

disruption of uniform pricing, the 

switching of the regulatory status of 

plants from one order to another, the 

improper pooling assignment of reserve 

supplies, and the uneconomic 

movements of milk. SMA, in testimony 

and in written brief, urged the 

Department to consider the matter 

under emergency procedures, asserting 

that confidence in the Federal milk 

marketing order pricing system could 

otherwise be compromised. 

A post-hearing brief submitted on 

behalf of Superior Dairy reiterated many 


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12222 Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Proposed Rules 

2 7 CFR 1033.7. 

3 7 CFR 1033.7(a). 

of the points made at the hearing and 

recommended adoption of the first 

modification it had offered at the 

hearing. Superior Dairy asserted that 

their modified proposal would lock-in 

the Superior Dairy Canton plant as a 

Mideast pool plant by virtue of its 

geographic location notwithstanding its 

failure to meet the 25 percent in-area 

route distribution qualification. The 

brief stated that the purpose of the 

amendment was to regulate Superior 

Dairy as a pool plant under the terms of 

the Mideast order regardless of whether 

or not it also qualified as a pool plant 

in any other order. The brief 

summarized that the modified proposal 

sets as qualification standards (1) 

distribution and transfers of 50 percent 

or greater of a plant’s fluid milk 

products into Federal milk marketing 

areas, and (2) plant location within the 

Mideast marketing area. Superior Dairy 

wrote that adoption of modified 

Proposal 1 would ensure the 

marketwide pooling of revenue for all 

producers and give Superior Dairy 

regulatory stability. 

In brief, Superior Dairy acknowledged 

that shifts in plant regulation create 

disruption and challenges in producer 

pooling and milk supply coordination. 

The brief also acknowledged that 

partially regulated plants such as 

Superior Dairy enjoyed certain 

advantages over fully regulated plants as 

they had price advantages in the 

procurement of raw milk. The brief 

explained that because distributing 

plants have a high Class I utilization, 

producers supplying the PRDP will 

always receive a higher price than those 

serving fully regulated distributing 

plants, who in turn receive the order’s 

minimum blend price. Consequently, 

the brief noted, producers serving the 

PRDP do not equitably share in the 

burden of balancing the market’s milk 

supplies. 

Superior Dairy’s brief continued to 

refute the information provided by the 

DFA et al. witness regarding pricing 

assumptions and Superior Dairy’s 

purported raw milk cost advantage. 

Superior Dairy stated that a price 

advantage did exist to them from being 

partially regulated; however, the 

calculation of that advantage as 

provided by DFA et al. was overstated. 

Discussion and Findings 

At issue in this proceeding is the 

consideration of proposed amendments 

to the Mideast FMMO Pool Plant 

provisions to more adequately define 

the plants that should be fully regulated 

by the terms of the Mideast order. This 

decision recommends that the Pool 

Plant provisions be amended to reflect 

that distributing plants located within 

the marketing area with a Class I 

utilization of at least 30 percent and 

with combined route disposition and 

transfers of at least 50 percent into 

Federal milk marketing areas would be 

regulated as a pool distributing plant 

under the terms of the Mideast 

marketing order (not withstanding other 

order provisions as discussed below). 

The Pool Plant provisions of the 

Mideast order 2 define how plants 

demonstrate an adequate association 

with the fluid market, and subsequently 

how the milk associated with those 

plants is pooled and priced under the 

terms of the order. There are several 

types of plants defined in the Pool Plant 

provisions. This decision recommends a 

change to the definition of a Pool 

Distributing Plant (a plant that processes 

milk for fluid uses). 

The Pool Distributing Plant standard 3

of the Mideast order first requires a 

plant to demonstrate an adequate 

association with the fluid market by 

meeting a minimum Class I utilization. 

This is determined by the percentage of 

fluid milk physically received at the 

plant that is distributed or transferred as 

Class I (fluid) products. The Class I 

utilization standard for the Mideast 

FMMO is 30 percent. The plant must 

also show a reasonable association with 

the order’s Class I market; that 

association is determined by the 

percentage of the plant’s total Class I 

route disposition that is distributed or 

transferred within the marketing area, or 

‘‘in-area’’ route disposition. In the 

Mideast order, a plant is fully regulated 

if at least 25 percent of its Class I route 

disposition and transfers are within the 

Mideast marketing area. If a plant meets 

both the 30 percent Class I utilization 

standard and the 25 percent in-area 

route distribution standard (termed the 

‘‘30/25 percent standard’’), the plant is 

fully regulated as a distributing plant 

under the terms of the Mideast order. 

Once fully regulated, a pool distributing 

plant must account to the marketwide 

pool at classified use values and is 

required to pay its producers at least the 

order’s minimum blend price. This 

process ensures that similarly situated 

handlers have the same minimum raw 

milk costs and that the dairy farmers 

supplying the market share in the 

revenue generated from all fluid milk 

sales within the marketing area. 

FMMOs rely on the tools of classified 

pricing and marketwide pooling to 

assure an adequate supply of milk to 

meet the market’s fluid needs and to 

provide for the equitable sharing of the 

revenues arising from the classified 

pricing of milk. Classified pricing 

assigns a value to milk according to how 

the milk is used; Class I (fluid) generally 

being the highest, followed by Class II 

(soft products), Class III (cheese), and 

Class IV (butter and nonfat dry milk). 

Regulated handlers who buy milk from 

dairy farmers account to the order’s 

marketwide pool at classified prices 

according to how they use the milk. 

Dairy farmers are then paid a weighted 

average or ‘‘blend’’ price. The blend 

price is derived through the marketwide 

pooling of all class uses of milk in a 

marketing area, thus each producer 

receives an equal share of each use class 

of milk and is indifferent as to what 

class their milk is used. Since it is 

primarily the higher-valued Class I use 

of milk that adds additional revenue to 

the marketwide pool, it is reasonable to 

expect that the producers who 

consistently bear the costs of supplying 

the market’s fluid needs should be the 

ones to share in the returns arising from 

higher-valued Class I sales. 

FMMOs have unique provisions for 

handlers that have route distribution 

into a marketing area but do not meet 

the standards for full regulation under 

the terms of the order. A handler that 

does not meet the minimum standard 

for full regulation under a specific 

FMMO (30/25 percent in the Mideast 

FMMO) but has route disposition within 

that marketing area and therefore 

competes with other fully regulated 

handlers for their Class I sales is known 

as a Partially Regulated Distributing 

Plant (PRDP). USDA has determined 

that some minimum regulation of 

PRDPs is necessary to maintain orderly 

marketing conditions and ensure that 

the order’s classified pricing and 

marketwide pooling provisions are not 

undermined. 

There are three regulatory schemes, 

which may require a PRDP to account 

for route disposition into a marketing 

area: (1) A PRDP may pay into an 

order’s PSF the difference between the 

Class I price and the market’s blend 

price on its route disposition within the 

marketing area; (2) The PRDP pool 

obligation is calculated as if the plant 

were fully regulated and this obligation 

is compared to what the PRDP actually 

paid its milk suppliers in aggregate. If 

the obligation is greater than what it 

actually paid, the PRDP must pay the 

difference to the order’s PSF. If the pool 

obligation is less than what the PRDP 

actually paid to its milk suppliers, then 

no additional payment to the order’s 

PSF is necessary. This is often referred 

to as the ‘‘Wichita Option’’; or (3) If a 

PRDP is subject to a State order with 

classified pricing and marketwide 


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pooling, then it must pay into the 

order’s PSF the difference between what 

it was required to pay into the State 

order and the applicable Class I price at 

the PRDP’s location. An administrative 

assessment is collected by the Market 

Administrator regardless of which 

payment scheme the PRDP falls under 

and whether or not a payment into the 

PSF is required. 

The proponents of Proposal 1 

requested this rulemaking proceeding 

based on their opinion that the current 

Pool Plant provisions of the Mideast 

FMMO have allowed a plant with 

significant route distribution throughout 

the Mideast and other Federal marketing 

areas to become a PRDP, which in turn 

has resulted in disorderly marketing 

conditions. The proponents described, 

in their hearing testimony and posthearing brief, a situation where Superior 

Dairy, which had previously been fully 

regulated by either the Northeast or 

Mideast orders, was able to circumvent 

full regulation by either order. 

The proponents provided great detail 

as to how a loophole in the Pool Plant 

provisions has allowed a large plant 

with significant fluid milk sales into 

Federally regulated areas to avoid full 

regulation on any Federal order and 

outlined the market disorder this has 

created: (1) Similarly situated handlers 

who compete for fluid milk sales within 

the marketing area are no longer assured 

that they pay the same minimum prices 

for raw milk; and (2) Producers who 

service the order’s Class I market are no 

longer sharing in all the proceeds from 

the order’s Class I sales. The proponents 

argued that if this loophole is not 

closed, other handlers with more than 

one distributing plant could set up 

similar distribution patterns between 

their plants to also avoid full regulation. 

Along the same line, the SMA witness 

described a third disorderly marketing 

condition, the improper pooling of 

reserve milk supplies. This witness 

described a situation where reserve 

supplies associated with a plant can 

lose association with the order’s 

marketwide pool as a result of a plant 

being able to change regulation between 

orders with different pooling standards. 

The Superior Dairy witness testified 

at the hearing that newly-patented 

filling and packaging technologies used 

at their bottling facilities have given 

them a competitive advantage in the 

marketplace and as a result, the ability 

to expand their distribution into 

numerous Federal marketing areas. 

According to the Superior Dairy 

witness, after expanding their route 

disposition into the Northeast marketing 

area in April 2010, they became a fully 

regulated handler in the Northeast 

order. Superior claims that they quickly 

found regulation on the Northeast order 

to be financially difficult to sustain 

because the Northeast order blend price 

payable to producers at the Canton 

location was lower than the Mideast 

order blend price at the same location 

by an average of $0.13 per cwt. The 

Superior Dairy witness testified that in 

early 2011 it purchased a small 

distributing plant in Wauseon, Ohio 

which allowed it to adjust its 

distribution patterns between the two 

plants so that the Canton plant was no 

longer regulated by any Federal order. 

At the hearing, Superior Dairy offered 

two alternate modifications to Proposal 

1. In their post-hearing brief, Superior 

Dairy supported adoption of their first 

modification which would fully regulate 

any distributing plant physically located 

within the geographic boundary of the 

Mideast marketing area if its total fluid 

route disposition into all Federal orders 

was greater than 50 percent. This 

modification would eliminate the 

stipulation, contained in Proposal 1 as 

originally noticed, that a plant’s sales 

within any individual marketing area 

had to be less than 25 percent of its total 

route distribution. 

The pooling standards of a FMMO are 

represented in the Pool Plant, Producer, 

and the Producer Milk provisions. 

Performance based pooling standards 

provide the only viable method to 

identify the milk of those producers 

who service the Class I needs of the 

market and therefore determine those 

eligible to share in the marketwide pool. 

If a pooling provision does not 

reasonably accomplish this end, the 

proceeds that accrue to the PSF from the 

market’s fluid milk sales are not 

equitably shared with the appropriate 

producers. The result is the 

unwarranted lowering of returns to 

those producers who actually incur the 

costs of servicing and supplying the 

needs of the fluid milk market and the 

reserve supplies that are necessary to 

ensure that fluid demands are met. 

The hearing record reflects, and this 

decision finds, that the current Mideast 

Pool Plant provisions (7 CFR 1033.7) do 

not adequately define the plants and the 

producer milk associated with those 

plants, which serve the needs of the 

fluid milk market and should therefore 

share in the additional revenue arising 

from fluid milk sales. The hearing 

record reflects that disorderly marketing 

conditions arise when a handler that has 

significant route distribution into 

Federally regulated areas is able to 

avoid regulation by altering its 

distribution patterns. FMMOs, through 

the fundamental tools of classified 

pricing and marketwide pooling, serve 

to minimize disorderly marketing 

conditions like the ones presented in 

this proceeding. A plant’s ability to 

avoid regulation by altering its 

distribution pattern undermines the 

classified pricing and marketwide 

pooling fundamentals that are essential 

in maintaining orderly marketing. 

FMMOs require that distributing 

plants meeting the Class I utilization 

and in-area route distribution standards 

be fully regulated under the terms of the 

appropriate order. Along the same line, 

plants with minimal sales into a 

regulated area and therefore minimal 

impact on the market fall under partial, 

not full, regulation. The record reflects 

that prior to March 2011 Superior Dairy 

was fully regulated by either the 

Mideast or Northeast order. Superior 

Dairy revealed at the hearing that it was 

the purchase of the Wauseon, Ohio, 

distributing plant and the subsequent 

change in distribution patterns between 

the two plants that enabled the Canton, 

Ohio, plant to become a PRDP, not 

because its overall milk sales decreased 

to a volume where it no longer had an 

association with the fluid market. In 

fact, the record shows that Superior 

Dairy’s Class I utilization has remained 

around 80 percent regardless of its 

regulatory status and 90 percent of its 

sales are into regulated Federal milk 

marketing areas. 

The Ohio region where Superior 

Dairy’s plants are located is in relative 

proximity to five other Federal milk 

marketing area boundaries. This unique 

location lends opportunity to adjust 

route disposition to avoid meeting the 

in-area route standard of any one 

Federal order. 

The record reflects that Superior 

Dairy utilizes the ‘‘Wichita Option’’ to 

account for its Class I sales into 

regulated areas. This choice allows the 

Canton plant to operate as an individual 

handler pool. Superior Dairy’s operation 

as an individual handler pool, after 

having been regulated continuously for 

decades as a fully regulated distributing 

plant with a significant volume and an 

overwhelming majority of its Class I 

sales into Federally regulated areas, 

undermines the order’s classified 

pricing and marketwide pooling 

system—essential principles for orderly 

marketing and competitive equity. 

Additionally, handler equity, which the 

FMMO system strives to maintain, can 

be evaluated on two fronts: where 

handlers compete in route distribution 

and where handlers compete in milk 

procurement. Both factors are 

important. However, when the balance 

of competition is disrupted through 

uneconomic movements of milk, one 

factor may become more important in 


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4 7 CFR 10ll.7(b). 

order to restore competitive equity 

amongst competing handlers. 

The classified pricing system ensures 

regulated handlers that their 

competitors are paying uniform 

minimum raw milk costs. In this way, 

no competitor has an advantage or 

disadvantage in its raw milk costs 

because of its regulatory status. While a 

fully regulated handler must account to 

the pool for its classified use value and 

pay its producers the market’s blend 

price, a PRDP using the ‘‘Wichita 

Option’’—as in the case of Superior 

Dairy—must only show that it paid its 

producer suppliers, in aggregate, the 

classified use values of its raw milk 

supply. A PRDP operating essentially as 

an individual handler pool that has a 

higher in-plant Class I utilization than 

the market has a competitive advantage 

when it comes to raw milk procurement 

over a regulated competitor since it is 

able to pay its suppliers a higher inplant blend price. At the hearing, a 

Superior Dairy witness testified that 

their Class I utilization was 

approximately 82 percent. The Class I 

utilization for the Mideast order in 

October 2011 (the month the hearing 

was held) was 38.1 percent. Superior 

Dairy’s raw milk cost advantage due to 

its partially regulated status is equal to 

the difference between the in-plant 

blend price and the market’s blend 

price. This is revenue that a fully 

regulated handler would have been 

required to pay into the order’s PSF to 

be shared with all the market’s 

producers, but which Superior has 

available to pay directly to its producers 

because of its partially regulated status. 

Additionally, because Superior Dairy 

can include over-order premiums as 

part of the calculation relied on to prove 

to the Market Administrator under the 

‘‘Wichita Option’’ that minimum 

classified prices are being paid, 

similarly situated handlers are not 

guaranteed the same raw milk costs. The 

record reflects that the payment of overorder premiums is prevalent in the 

Mideast marketing area. While a 

regulated handler must pay the order’s 

minimum blend price plus any overorder premium they have negotiated 

with its suppliers, a PRDP is able to use 

the over-order premium to offset its 

regulatory PSF payment obligation to its 

suppliers. For example, assume a 

prevailing over-order premium of $2.00 

per cwt on all Class I milk is charged by 

cooperatives servicing distributing 

plants and the order’s Class I price for 

the month is $19.00 per cwt. A fully 

regulated handler would account to the 

PSF at $19.00 per cwt for any Class I 

milk utilized, and pay the additional 

over-order premium of $2.00 per cwt 

directly to the cooperative—meaning 

that they are actually paying $21.00 per 

cwt for Class I milk. A PRDP can 

include the $2.00 per cwt over-order 

premium paid directly to its suppliers 

when calculating whether it has an 

additional pool obligation under the 

‘‘Wichita Option.’’ In effect, the PRDP 

pays $19.00 per cwt while the fully 

regulated plant must pay $21.00 per 

cwt. This theoretical $2.00 per cwt 

advantage can be used by the plant in 

any way it deems fit: to procure 

additional milk suppliers, to pass the 

money on to its suppliers, to create a 

sales advantage over its competitors, or 

to simply keep as company profit. 

This decision also finds that 

marketwide pooling principles are 

undermined because of Superior Dairy’s 

PRDP status. It is clear that Superior is 

able to retain monies that it otherwise 

would pay into the PSF if it were fully 

regulated. The hearing record reflects 

attempts by proponents to estimate 

Superior Dairy’s cost advantage, and 

taken a step further, monies that would 

otherwise be paid into the marketwide 

pool. In its post-hearing brief, Superior 

Dairy refutes some of the proponents’ 

assumptions and argues that its cost 

advantage is lower. Estimating the exact 

amount of Superior Dairy’s purported 

cost advantage gained by avoiding full 

regulation is difficult without disclosing 

confidential business information; 

furthermore, determining the exact level 

of that advantage is not necessary to 

demonstrate its existence and 

consequent market disorder. What is 

important is that money is not being 

equitably shared with all producers 

supplying the Class I market. Even if 

Superior Dairy was sharing that money 

with all its producer-suppliers, it is 

money that should be shared with all 

producers servicing the market. 

Consequently, producers serving the 

market are receiving a lower blend price 

than they otherwise would if Superior 

Dairy were fully regulated. 

This decision recommends the 

adoption of Proposal 1 as modified by 

Superior Dairy as an appropriate 

solution to the current market disorder. 

While FMMOs typically regulate (pool) 

plants based on where their fluid milk 

sales occur, the hearing record reflects 

that it is not unprecedented for a plant 

to be regulated based on competing milk 

procurement areas. A 1988 decision (53 

FR 14804), for example, regulated a 

plant into the then LouisvilleLexington-Evansville FMMO, despite 

the plant having greater route 

disposition into another FMMO. This 

finding was based on the fact that 

despite having greater sales into another 

FMMO, the raw milk procurement area 

of the plant was the same as other 

handlers who were regulated by the 

Louisville-Lexington-Evansville FMMO. 

Additionally, all Federal orders 

contain provisions to regulate plants 

that primarily process ultra-high 

temperature or ESL milk products in the 

Federal order where the plant is 

physically located. Plants producing 

longer shelf-life products are regulated 

by the order where they are physically 

located 4 primarily because the wide 

and ever changing geographic 

distribution patterns of their products 

can lead to regulation under multiple 

orders over time. This is not unlike 

Superior Dairy, who distributes product 

into seven marketing areas. 

The record reflects that Superior 

Dairy’s Canton, Ohio plant is located in 

the middle of the Mideast marketing 

area and competes for a raw milk supply 

with other pool distributing plants that 

are regulated by the Mideast order. 

Furthermore, the record reflects that 

while Superior Dairy has been able to 

stay below the 25 percent in-area route 

distribution standard in other marketing 

areas, its route distribution into some 

Federal marketing areas exceeds 20 

percent. Given that the plant has route 

distribution into 7 marketing areas, a 25 

percent route distribution threshold 

could cause future market disorder if 

the plant shifts regulation from one 

order to another. Therefore, this 

decision finds it appropriate under the 

facts presented at this hearing to more 

heavily rely on milk procurement area, 

not route disposition, as the 

fundamental determinant in 

recommending changes to the Pool 

Plant provisions of the Mideast FMMO. 

Consequently, this decision 

recommends that distributing plants 

physically located in the Mideast 

marketing area who do not meet the 25 

percent in-area route distribution 

standard (the current pooling standard 

for distributing plants to be regulated by 

the Mideast order), but do have a 

majority (50 percent or more) of their 

fluid milk sales into Federally regulated 

areas, be regulated by the Mideast order. 

In their post-hearing brief, Superior 

Dairy reiterated its opinion that a 

modified Proposal 1 would ‘‘lock-in’’ 

the Superior Canton plant into 

regulation under the Mideast order, 

regardless of future route distribution 

patterns. However, FMMO’s contain a 

provision in each order (§ 1033.7(h)(3) 

in the Mideast order) which specifies 

that if a pool plant has route disposition 

greater than 50 percent into another 

Federal order for at least 3 consecutive 

months then that plant will become 


tkelley on DSK3SPTVN1PROD with PROPOSALS
Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Proposed Rules 12225 

regulated by that Federal order. This 

decision does not amend that provision. 

If at any time a pool plant regulated by 

the Mideast order has route disposition 

of greater than 50 percent into another 

Federal order for 3 or more consecutive 

months, that plant would then become 

regulated by the order where it has a 

majority of its sales. 

Superior Dairy argued in their posthearing brief that a different provision 

contained in each order, (§ 1033.7(h)(5) 

in the Mideast order) could be relied 

upon to ‘‘lock-in’’ Superior Dairy to the 

Mideast order. This provision allows the 

Mideast order to regulate a pool plant 

even if it meets the pooling standards of 

another order—essentially it allows the 

Mideast regulations to trump another 

order’s regulations if the plant is 

‘‘required’’ to be pooled by the Mideast 

order. Although this decision 

recommends changes to the Pool Plant 

provisions of the Mideast order based 

on clear evidence of disorderly 

marketing conditions resulting from the 

partial regulation of Superior Dairy and 

relies heavily on milk procurement area 

as one of the reasons behind this 

change, this decision does not ‘‘lock-in’’ 

or require Superior Dairy, or any other 

handler, to be regulated by the Mideast 

FMMO. This decision simply modifies 

the Pool Plant provisions so that any 

plant located in the Mideast marketing 

area that does not meet the in-area route 

distribution standard, but has at least 50 

percent of its total route distribution 

into Federal marketing areas, becomes 

regulated under the Mideast order. To 

be clear, a situation could arise where 

a plant physically located in the 

Mideast marketing area meets the inarea route distribution standard of 

another order but is still regulated on 

the Mideast order. However, as current 

regulations already provide for, any 

plant located in the Mideast marketing 

area that has more than 50 percent of its 

route distribution into another Federal 

order for 3 consecutive months would 

still become regulated by that other 

Federal order. 

Lastly, in their post-hearing brief the 

Northeast Cooperatives took exception 

to the two modified proposal options 

offered by Superior Dairy. The 

Northeast Cooperatives were of the 

opinion that the two modified proposals 

presented at the hearing were not 

properly noticed and that interested 

parties did not have the opportunity to 

offer evidence regarding the 

modifications. This decision finds that 

the modifications offered by Superior 

Dairy at the hearing were in fact 

reasonable given the scope of the initial 

hearing request and that all interested 

parties in all Federal orders were given 

notice and had ample opportunity to 

offer evidence at the hearing and 

comment in a post-hearing brief. 

Proponents and supporters of the 

originally noticed Proposal 1 requested 

that the Department consider this 

proceeding on an emergency basis 

because of the ongoing market disorder. 

The Department finds that issuing a 

decision on an emergency basis is not 

warranted. This decision recommends 

adoption of Proposal 1 as was modified 

at the hearing. It is appropriate to give 

all interested parties the opportunity to 

consider the Department’s findings and 

file written comments and exceptions to 

this decision before requesting 

producers to vote on the order, as 

amended. Additionally, this rulemaking 

will adhere to the Supplemental Rules 

of Practice that were issued as a result 

of the Food, Conservation and Energy 

Act of 2008 (as contained in 7 CFR part 

900.20–.33). These newly established 

rules provide specific timeframes that 

the Department must adhere to when 

amending Federal milk marketing 

agreements and orders. Therefore, there 

is insufficient justification for issuing 

this decision on an emergency basis as 

the market disorder can still be 

addressed in a timely manner while 

allowing for maximum public input 

before any regulatory changes are made. 

AMS has made a conforming change 

to the regulatory text as offered by 

Superior Dairy and as recommended for 

adoption in this decision. The reference 

to the 30 percent Class I utilization 

standard that is already contained in the 

Pool Distributing plant definition has 

been added to the proposed 

amendment. This addition clarifies that 

a pool plant physically located in the 

Mideast marketing area that meets the 

50 percent route disposition into 

Federally regulated marketing areas 

must still meet the 30 percent Class I 

utilization standard in order to be 

regulated on the Mideast order. 

Rulings on Proposed Findings and 

Conclusions 

Briefs and proposed findings and 

conclusions were filed on behalf of 

certain interested parties. These briefs, 

proposed findings, and conclusions and 

the evidence in the record were 

considered in making the findings and 

conclusions set forth above. To the 

extent that the suggested findings and 

conclusions filed by interested parties 

are inconsistent with the findings and 

conclusions set forth herein, the 

requests to make such findings or reach 

such conclusions are denied for the 

reasons previously stated in this 

decision. 

General Findings 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the Mideast order 

was first issued and when it was 

amended. The previous findings and 

determinations are hereby ratified and 

confirmed, except where they may 

conflict with those set forth herein. 

(a) The tentative marketing agreement 

and the order, as hereby proposed to be 

amended, and all of the terms and 

conditions thereof, will tend to 

effectuate the declared policy of the Act; 

(b) The parity prices of milk as 

determined pursuant to section 2 of the 

Act are not reasonable in view of the 

price of feeds, available supplies of 

feeds, and other economic conditions 

which affect market supply and demand 

for the milk in the marketing area, and 

the minimum prices specified in the 

tentative marketing agreement and the 

order, as hereby proposed to be 

amended, are such prices as will reflect 

the aforesaid factors, insure a sufficient 

quantity of pure and wholesome milk, 

and be in the public interest; and 

(c) The tentative marketing agreement 

and the order, as hereby proposed to be 

amended, will regulate the handling of 

milk in the same manner as, and will be 

applicable only to persons in the 

respective classes of industrial and 

commercial activity specified in, the 

marketing agreement upon which a 

hearing has been held. 

(d) All milk and milk products 

handled by handlers, as defined in the 

tentative marketing agreements and the 

orders as hereby proposed to be 

amended, are in the current of interstate 

commerce or directly burden, obstruct, 

or affect interstate commerce in milk or 

its products. 

Recommended Marketing Agreement 

and Order Amending the Order 

The recommended marketing 

agreement is not included in this 

decision because the regulatory 

provisions thereof would be the same as 

those contained in the order, as hereby 

proposed to be amended. The following 

order amending the order, as amended, 

regulating the handling of milk in the 

Mideast marketing area is recommended 

as the detailed and appropriate means 

by which the foregoing conclusions may 

be carried out. 

List of Subjects in 7 CFR Part 1033 

Milk marketing orders. 

For the reasons set forth in the 

preamble, 7 CFR part 1033, is proposed 

to be amended as follows: 

1. The authority citation for 7 CFR 

part 1033 continues to read as follows: 


tkelley on DSK3SPTVN1PROD with PROPOSALS
12226 Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Proposed Rules 

Authority: 7 U.S.C. 601–674, and 7253. 

PART 1033—MILK IN THE MIDEAST 

MARKETING AREA 

2. Amend § 1033.7 by revising 

paragraph (a) to read as follows: 

§ 1033.7 Pool Plant. 

* * * * * 

(a) A distributing plant, other than a 

plant qualified as a pool plant pursuant 

to paragraph (b) of this section or 

§ ll.7(b) of any other Federal milk 

order, from which during the month 30 

percent or more of the total quantity of 

fluid milk products physically received 

at the plant (excluding concentrated 

milk received from another plant by 

agreement for other than class I use) are 

disposed of as route disposition or are 

transferred in the form of packaged fluid 

milk products to other distributing 

plants. At least 25 percent of such route 

disposition and transfers must be to 

outlets in the marketing area. Plants 

located within the marketing area that 

meet the 30 percent route disposition 

standard contained above, and have 

combined route disposition and 

transfers of at least 50 percent into 

Federal order marketing areas will be 

regulated as a distributing plant in this 

order. 

* * * * * 

Dated: February 24, 2012. 

Robert C. Keeney, 

Acting Administrator, Agricultural Marketing 

Service. 

[FR Doc. 2012–4827 Filed 2–28–12; 8:45 am] 

BILLING CODE 3410–02–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Food and Drug Administration 

21 CFR Part 579 

[Docket No. FDA–2012–F–0178] 

Sadex Corp.; Filing of Food Additive 

Petition (Animal Use); Electron Beam 

and X-Ray Sources for Irradiation of 

Poultry Feed and Poultry Feed 

Ingredients 

AGENCY: Food and Drug Administration, 

HHS. 

ACTION: Notice of petition. 

SUMMARY: The Food and Drug 

Administration (FDA) is announcing 

that Sadex Corp. has filed a petition 

proposing that the food additive 

regulations be amended to provide for 

the safe use of electron beam and x-ray 

sources for irradiation of poultry feed 

and poultry feed ingredients. 

DATES: Submit either electronic or 

written comments on the petitioner’s 

environmental assessment by March 30, 

2012. 

ADDRESSES: Submit electronic 

comments to: http:// 

www.regulations.gov. Submit written 

comments to the Division of Dockets 

Management (HFA–305), Food and Drug 

Administration, 5630 Fishers Lane, rm. 

1061, Rockville, MD 20852. 

FOR FURTHER INFORMATION CONTACT: 

Isabel W. Pocurull, Center for Veterinary 

Medicine (HFV–226), Food and Drug 

Administration, 7519 Standish Pl., 

Rockville, MD 20855, 240–453–6853, 

email: isabel.pocurull@fda.hhs.gov. 

SUPPLEMENTARY INFORMATION: Under the 

Federal Food, Drug, and Cosmetic Act 

(section 409(b)(5) (21 U.S.C. 348(b)(5)), 

notice is given that a food additive 

petition (FAP 2272) has been filed by 

Sadex Corp., 2650 Murray St., Sioux 

City, IA 51111. The petition proposes to 

amend Title 21 of the Code of Federal 

Regulations (CFR) in part 579 

Irradiation in the Production, 

Processing, and Handling of Animal 

Feed and Pet Food (21 CFR part 579) to 

provide for the safe use of electron beam 

and x-ray sources for irradiation of 

poultry feed and poultry feed 

ingredients. 

The potential environmental impact 

of this action is being reviewed. To 

encourage public participation 

consistent with regulations issued under 

the National Environmental Policy Act 

(40 CFR 1501.4(b)), the Agency is 

placing the environmental assessment 

submitted with the petition that is the 

subject of this notice on public display 

at the Division of Dockets Management 

(see DATES and ADDRESSES) for public 

review and comment. 

Interested persons may submit to the 

Division of Dockets Management (see 

ADDRESSES) either electronic or written 

comments regarding this document. It is 

only necessary to send one set of 

comments. Identify comments with the 

docket number found in brackets in the 

heading of this document. Received 

comments may be seen in the Division 

of Dockets Management between 9 a.m. 

and 4 p.m., Monday through Friday. 

FDA will also place on public display 

any amendments to, or comments on, 

the petitioner’s environmental 

assessment without further 

announcement in the Federal Register. 

If, based on its review, the Agency finds 

that an environmental impact statement 

is not required and this petition results 

in a regulation, the notice of availability 

of the Agency’s finding of no significant 

impact and the evidence supporting that 

finding will be published with the 

regulation in the Federal Register in 

accordance with 21 CFR 25.51(b). 

Dated: February 24, 2012. 

Bernadette Dunham, 

Director, Center for Veterinary Medicine. 

[FR Doc. 2012–4810 Filed 2–28–12; 8:45 am] 

BILLING CODE 4160–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–133223–08] 

RIN 1545–BI19 

Indian Tribal Government Plans; 

Correction 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of public hearing on an 

advance notice of proposed rulemaking; 

correction. 

SUMMARY: This document corrects a 

notice of public hearing on an advance 

proposed rulemaking (REG–133233–08) 

that was published in the Federal 

Register on Friday, February 3, 2012 (77 

FR 5442) relating to Indian tribal 

government plans. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Pamela Kinard at (202) 622–6060, and 

regarding the submission of public 

comments and the public hearing, Ms 

Oluwafunmilayo (Funmi) Taylor, at 

(202) 622–7180 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

The notice of public hearing on an 

advance notice proposed rulemaking 

(REG–133233–08) that is the subject of 

this correction is under section 414(d) of 

the Internal Revenue Code. 

Need for Correction 

As published, REG–133223–08, 

contains errors that may prove to be 

misleading and are in need of 

clarification. 

Correction of Publication 

Accordingly, the publication of the 

notice of public hearing on an advance 

proposed rulemaking (REG–133233–08) 

which was the subject of FR Doc. 2012– 

2502, is corrected as follows: 

1. On page 5442, column 3, in the 

preamble, under the caption DATES:, line 

four, the language ‘‘Building. The IRS 

must receive outlines’’ is corrected to 

read ‘‘Building. Written or electronic 

comments must be received by June 18, 

2012. The IRS must receive outlines’’ 


tkelley on DSK3SPTVN1PROD with PROPOSALS