[Federal Register Volume 63, Number 139 (Tuesday, July 21, 1998)]
[Proposed Rules]
[Pages 39039-39044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19390]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1005, 1007, and 1046

[Docket No. AO-338-A9, et al.; DA-96-08]


Milk in the Carolina and Certain Other Marketing Areas; Final 
Decision and Order To Terminate Proceeding on Proposed Amendments to 
Marketing Agreements and Orders

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    7 CFR part          Marketing area                Docket No.        
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1005.............  Carolina................  AO-388-A9.                 
1007.............  Southeast...............  AO-366-A38.                
1046.............  Louisville-Lexington-     AO-123-A67.                
                    Evansville.                                         
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AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final decision and termination of proceeding.

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SUMMARY: This document denies proposed amendments to 3 Federal milk 
orders in the Southeastern United States and terminates the rulemaking 
proceeding. The proposals involve deductions from the minimum uniform 
price to producers and the definition of ``producer'' specified in each 
of the orders. The decision to deny the proposals is based upon 2 
public hearings, and upon comments and exceptions filed in response to 
a subsequent recommended decision issued by the Department.

FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist, 
USDA/AMS/Dairy Division, Order Formulation Branch, Room 2971, South 
Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1932, e-
mail address: Nicholas__M<a href="/cdn-cgi/l/email-protection#67020a080b0e271214030649000811"><span class="__cf_email__" data-cfemail="5b3e363437321b2e283f3a753c342d">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 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.
    This partial final decision denies the proposed amendments to the 
Carolina, Southeast, and Louisville-Lexington-Evansville Federal milk 
orders,<SUP>1</SUP> and terminates this rulemaking proceeding.
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    \1\ The Tennessee Valley Federal milk order, an order involved 
in this rulemaking proceeding, was terminated as of October 1, 1997.
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Small Business Consideration

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.), the Agricultural Marketing Service has considered the economic 
impact of this action on small entities. The Act seeks to ensure that, 
within the statutory authority of a program, the regulatory and 
informational requirements are tailored to the size and nature of small 
businesses. 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 $500,000, 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 $500,000 
per year criterion was used to establish a production guideline of 
326,000 pounds per month. Although this guideline does not factor in 
additional monies that may be received by dairy producers, it should be 
an inclusive standard for most ``small'' dairy farmers. For purposes of 
determining a handler's size, if the plant is part of a larger company 
operating multiple plants that collectively exceed the 500-employee 
limit, the plant will be considered a large business even if the local 
plant has fewer than 500 employees.
    The milk of approximately 7,600 producers is pooled on the 
Carolina, Southeast, and Louisville-Lexington-Evansville milk orders. 
Of these producers, 97 percent produce below the 326,000-pound 
production guideline and are considered to be small businesses.
    There are 48 handlers operating pool plants under the 3 orders. Of 
these handlers, 22 have fewer than 500 employees and qualify as small 
businesses.
    The Agricultural Marketing Service has determined, as set forth in 
the recommended decision, that neither the denial, nor the adoption, of 
proposed amendments involving deductions from the minimum payments to 
producers will have a significant economic impact on a substantial 
number of small entities under current marketing conditions. Dairy 
farmers are presently receiving the minimum order prices and should 
continue to do so given the current level of over-order premiums now in 
effect. Similarly, neither adoption nor denial of the proposed 
amendments will have any effect on handlers' costs under the orders 
because, currently, handlers are voluntarily paying producer prices in 
excess of the minimum prices specified in the orders. Furthermore, for 
the long term, the issue of deductions from minimum payments will be 
considered as part of the Federal order reform in connection with the 
Federal Agriculture Improvement and Reform Act of 1996 which requires 
an examination of the Federal milk order system. The concerns of small 
businesses will be addressed throughout the review process.
    Additionally, neither the denial nor the adoption of the proposal 
to modify the definition of ``producer'' under the 3 orders will have a 
significant economic impact on a substantial number of small entities. 
Standards already exist in the 3 orders to assure an adequate 
association by producers in meeting the fluid milk needs of the 
markets. The denial of the proposal to incorporate additional producer 
qualification standards maintains the existing regulatory burden, and 
will not place any additional responsibilities on handlers operating 
under the orders.

Prior Documents in This Proceeding

    Notice of Hearing: Issued May 1, 1996; published May 3, 1996 (61 FR 
19861).
    Tentative Partial Final Decision: Issued July 12, 1996; published 
July 18, 1996 (61 FR 37628).
    Interim Amendment of Orders: Issued August 2, 1996; published 
August 9, 1996 (61 FR 41488).
    Extension of Time for Filing Comments to the Tentative Decision: 
Issued August 16, 1996; published August 23, 1996 (61 FR 43474).
    Extension of Time for Filing Comments to the Tentative Decision: 
Issued October 18, 1996; published October 25, 1996 (61 FR 55229).
    Notice of Reopened Hearing: Issued November 19, 1996; published 
November 25, 1996 (61 FR 59843).

[[Page 39040]]

    Partial Final Decision: Issued May 12, 1997; published May 20, 1997 
(62 FR 27525).
    Order Amending the Orders: Issued July 17, 1997; published July 23, 
1997 (62 FR 39738).
    Partial Recommended Decision: Issued July 17, 1997; published July 
23, 1997 (62 FR 39470).

Preliminary Statement

    Public hearings were held upon proposed amendments to the marketing 
agreements and the orders regulating the handling of milk in the 
aforesaid marketing areas. The hearings were held, pursuant to the 
provisions of the Agricultural Marketing Agreement Act of 1937, as 
amended (7 U.S.C. 601-674), and the applicable rules of practice (7 CFR 
Part 900), in Charlotte, North Carolina, on May 15-16, 1996, and in 
Atlanta, Georgia, on December 17-18, 1996. Notice of the initial 
hearing was issued on May 1, 1996, and published May 3, 1996 (61 FR 
19861).
    The material issues on the record of the hearings relate to:
    1. Transportation credits for supplemental bulk milk received for 
Class I use.
    2. Deductions from the minimum uniform price to producers.
    3. Whether emergency marketing conditions in the 4 regulated 
marketing areas warrant the omission of a recommended decision with 
respect to Issue No. 1 and the opportunity to file written exceptions 
thereto.
    4. The definition of producer.
    An interim order amending the orders with regard to transportation 
credits was issued on August 2, 1996, and published August 9, 1996 (61 
FR 41488). The interim amendments became effective on August 10, 1996.
    The Department reopened the hearing to hear additional evidence 
regarding the transportation credit issue and also to hear a related 
``producer'' definition proposal. This hearing was held on December 17-
18, 1996, in Atlanta, Georgia, following the notice of such reopened 
hearing issued on November 19, 1996, and published in the Federal 
Register on November 25, 1996 (61 FR 59843).
    Interested parties were given until June 17, 1996, to file post-
hearing briefs regarding the deductions from the minimum price proposal 
as published in the Federal Register and as modified at the hearing. 
Regarding the additional proposal concerning the definition of a 
``producer'' heard at the reopened hearing, interested parties were 
given until February 7, 1997, to file post-hearing briefs.
    A partial recommended decision involving minimum payments to 
producers and the ``producer'' definition was issued on July 17, 1997, 
and published in the Federal Register on July 23, 1997 (62 FR 39470).
    Issue 1 was discussed in a separate partial final decision issued 
on May 12, 1997 (62 FR 27525). Issue 3 was discussed in the tentative 
partial final decision, and is now moot.
    Following the final decision issued on May 12, 1997, producers were 
polled in each of the 4 markets involved in this proceeding to 
ascertain whether producers approved of the orders, as amended. An 
insufficient vote was obtained for the Tennessee Valley order, as 
amended. Consequently, that order was terminated effective October 1, 
1997.

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:

Material Issue # 2--Deductions From the Minimum Uniform Price to 
Producers

    A proposal by Hunter Farms and Milkco, Inc., which seeks to clarify 
the minimum payment to producers for Federal milk marketing orders 
1005, 1007, and 1046, should be denied. Under the proposal, a handler 
(except a cooperative acting in its capacity as a handler pursuant to 
paragraph 9(b) or 9(c)) may not reduce its obligations to producers or 
cooperatives by permitting producers or cooperatives to provide 
services which are the responsibility of the handler. According to the 
proposal, such services include: (1) Preparation of producer payroll; 
(2) conduct of screening tests of tanker loads of milk required by duly 
constituted regulatory authorities before milk may be transferred to 
the plant's holding tanks and any other tanker load tests required to 
establish the quantity and quality of milk received; and (3) any 
services for processing or marketing of raw milk or marketing of 
packaged milk by the handler.

A Brief Summary of Testimony and Briefs Resulting From the May 15-16, 
1996 Hearing

    The Vice President of Hunter Farms (Hunter), which operates plants 
regulated under Order 5 at High Point and Charlotte, North Carolina, 
testified that Hunter purchases milk from Piedmont Milk Sales, 
Carolina-Virginia Milk Producers Association (CVMPA), Mid-America 
Dairymen, Inc. (Mid-Am), <SUP>2</SUP> and Cooperative Milk Producers 
Association. The witness explained that CVMPA and Mid-Am are 
cooperative associations, while Piedmont Milk Sales is a marketing 
agent handling the milk of independent producers. Due to competitive 
marketing conditions in the Southeast in late 1994 and early 1995, 
handlers were able to purchase milk supplies at Federal order minimum 
prices without any over-order premiums being charged. As a result of 
the absence of over-order premiums, Hunter received underpayment 
notices from the market administrator on milk that it had received from 
Piedmont Milk Sales. The underlying question was who must pay for 
certain services associated with the receipt of milk at regulated 
plants. Hunter argued that during the period of December 1994 through 
September 1995, competing handlers who received milk from cooperative 
associations at the minimum order price did not fully compensate the 
cooperatives for similar services that were provided.
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    \2\ Mid-America Dairymen, Inc., Western Dairymen Cooperative, 
Milk Marketing Inc., and Associated Milk Producers, Inc., Southern 
Region, merged to form ``Dairy Farmers of America'' effective 
January 1, 1998.
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    Despite the fact that over-order premiums returned to the Carolina 
market, Hunter contends, the problem of what constitutes a minimum 
payment to producers should be clarified in the event that premiums may 
be reduced or disappear entirely in the future. For this reason, 
according to the proponent, it is important to resolve this issue.
    In the event that this situation is not rectified, according to 
Hunter, a loss of milk sales and lower prices to producers will be 
evident. Hunter stated that current policy is discriminatory and 
unfair. Furthermore, Hunter stated that all would benefit from a 
clarification of the rules defining Federal order minimum prices.
    Milkco Inc. (Milkco), a fluid milk processing plant located in 
Asheville, North Carolina, regulated under Order 5, receives milk from 
cooperative associations as well as independent producers marketing 
their milk through Piedmont Milk Sales. Milkco supported Hunter's 
position and stated that Milkco also received underpayment notices from 
the market administrator for the December 1994 through October 1995 
period on milk received from independent dairy farmers, but did not 
receive underpayment notices on milk received under the same or similar 
conditions from cooperative associations.

[[Page 39041]]

    A witness representing Hunter and Milkco described the categories 
that should be defined as a handler responsibility, including 
preparation of a producer payroll, the testing of incoming tanker loads 
of milk, and any costs associated with processing raw milk or marketing 
milk in bulk or packaged form. The witness stressed that the thrust of 
the proposal is to ensure equality in the cost of milk among regulated 
handlers. According to the witness, current administrative practice in 
this area requires handlers receiving milk from independent producers 
to absorb the cost of a variety of services which are provided at no 
extra charge to handlers receiving milk from cooperative associations 
and result in an inequitable situation.
    The General Manager of Carolina-Virginia Milk Producers Association 
or CVMPA offered qualified support for the Hunter-Milkco proposal. He 
said that from a philosophical point of view CVMPA would agree that if 
producers provide the services specified by the proponents--plus any 
additional services that are provided to a handler by a cooperative 
association--handlers should be charged the costs associated with these 
services. He said that, with these modifications, CVMPA could support 
the proposal. Additionally, CVMPA suggested expanding the proposed list 
of handlers' responsibilities to include tanker washing and tagging, 
supplying milk to handlers on an irregular delivery schedule, field 
work, disposing of surplus milk during months when the supply is above 
local needs, and importing supplemental milk for Class I use during 
periods of short production.
    Additional testimony was also offered by a representative of Mid-
America Dairymen, Inc. (Mid-Am) involving Hunter's proposal. Mid-Am 
objected to hearing the proposal and also to the narrowness of Hunter-
Milkco's proposal. Mid-Am argued that the issue of minimum payments to 
producers is national in scope and should not be limited to the orders 
involved in this proceeding. It suggested that the issue be addressed 
by the Secretary within the context of the Federal order reform as 
required by the 1996 Farm Bill on a national basis. In addition, the 
Mid-Am representative objected to the proposal on grounds of lack of 
notice to interested parties.
    The administrative law judge presiding over the hearing overruled 
Mid-Am's objection to hearing the proposal, noting that the Secretary 
had given interested parties the minimum 3-day notice requirement 
specified in 7 CFR 900.4(a). He also indicated that this proposal was 
being considered on a non-emergency basis and that, accordingly, 
interested parties had more than adequate time to brief it, discuss it, 
and consider it.
    Briefs were submitted by interested parties both in support of and 
in opposition to this proposal. Proponents, Hunter and Milkco, 
submitted a brief in support of their proposal, emphasizing the points 
made on the hearing record. Hunter and Milkco maintain that uniform 
applicability in the treatment of handlers is essential, and any lack 
of uniformity is in violation of the Agricultural Marketing Agreement 
Act, as amended. According to the proponents, issuance of underpayment 
notices only on that milk which was received from independent producers 
who contracted with a specific marketing agency does not promote 
uniformity and is discriminatory.
    Hunter and Milkco's brief also addresses the objections made by 
Mid-Am to this proposal. The proponents maintain that Mid-Am's 
objection to their proposal based on grounds of lack of notice is 
unfounded because the notice given was adequate. In addition, Hunter 
and Milkco argue that the suggestion by Mid-Am that this proposal be 
considered on a national basis is unjustified. Proponents maintain that 
the problem which has prompted this proposal is specific to the Federal 
order under consideration, and no evidence was presented to show that 
this problem exists in other regions of the United States.
    Fleming Companies, Inc. (Fleming),<SUP>3</SUP> also filed a brief 
in support of this proposal. Fleming states that ``* * * To the extent 
such services primarily benefit producers, it is appropriate that 
producers be authorized to contract for such services, and to allow a 
deduction for the reasonable value of such services.'' Fleming also 
expressed concern that without the clarification offered by the 
proposal, equity among member producers and non-member producers may be 
jeopardized and price uniformity may not be maintained if cooperative 
associations are able to assume the cost of producer-oriented services, 
while handlers receiving independent milk are not permitted to make a 
deduction for these services even if authorized by the producer.
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    \3\ During summer 1997, the dairy operations of Fleming was 
acquired by Suiza Foods. The fluid milk processing business of 
Fleming has been reorganized and is now Country Delite Farms, Inc.
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    A brief filed by Mid-America Dairymen, Inc., reiterated the 
cooperative's strong opposition to the proposal and its position that 
this issue should be addressed on a national basis in the context of 
Federal order reform. Furthermore, Mid-Am states that it is clear that 
the costs for butterfat testing are borne by all producers, and the 
costs of testing milk in tankers for antibiotics are borne by all 
handlers regardless of their source of supply. According to Mid-Am, no 
confusion exists as to who is responsible for these tests and, 
therefore, they should not be included in the proposed amendments.
    The Kroger Co. states in its brief that proposal 2 is worthy of 
study and should be considered by the Secretary for all Federal milk 
marketing orders within the context of Federal milk order reform.

Summary of the Partial Recommended Decision Issued July 17, 1997

    The Department issued a partial recommended decision on July 17, 
1997 (62 FR 39470), which recommended denial of Hunter/Milkco's 
proposal to amend the 4 southeastern milk orders. On the basis of the 
testimony heard and the briefs filed, the Department determined that 
the issue should be addressed in the context of Federal order reform.
    Under orders, the Department explained, payment for milk received 
from producers may not be less than the uniform price as announced each 
month by the market administrator, except to producers who receive 
payment from their cooperative association. The Department stated a 
cooperative association under the authorizing legislation may blend the 
net proceeds of its sales of milk for payment to its member producers. 
However, payments to a producer by a handler, the Department asserted, 
can be reduced to reflect ``proper deductions authorized in writing by 
the producer.'' Historically, it noted, such deductions from minimum 
milk prices of only two basic types have been permitted.
    The Department indicated that the two types of deductions permitted 
are (1) payments that are made by a handler on behalf of the producer 
to creditors of the producer, and (2) payments that are obligations of 
the producer in the production of milk and the transportation costs for 
delivery to the handler's plant. Accordingly, the Department stated, 
handlers are not required to make payments to creditors on behalf of 
producers but are permitted to do so if the deductions are proper and 
authorized. It stated such permission recognizes that handlers 
frequently make payments to producers' creditors as a service to the 
producers. Thus, the Department concluded, the term ``proper'' is 
included to prevent

[[Page 39042]]

unwarranted deductions from minimum prices for milk.
    The Department went on to state that the authorization by a 
producer of a certain deduction may not be proper and thus disallowed 
by the market administrator. Additionally, it indicated, producers 
cannot give up their rights to receive the uniform price by a deduction 
that is not of the two types described above.
    The Department concluded that there were extensive conceptual 
differences among market participants concerning what constitutes 
minimum prices to producers. The decision stated that the lack of 
evidence and conflicting opinions made it extremely difficult to 
delineate in Federal milk orders those services which are the 
responsibility of handlers and those which lie within the domain of 
producers. Furthermore, even if a decision could be reached on this 
point it would be very difficult to establish uniform rates for the 
services suggested by the various parties on the basis of the record 
before the Department. The Department, therefore, concluded that the 
proposal should be denied and the matter considered in the Federal 
order reform proceeding where nationwide input and a more extensive 
evidentiary record could be obtained.
    The decision stated that the underpayment problem which Milkco and 
Hunter experienced has been rendered moot with the return of over-order 
premiums. Although these premiums could again disappear, bringing the 
uniform pricing issue to the fore once again, the Department 
anticipates this is not likely to happen in the near future. 
Nevertheless, the decision stated, if this should happen, proponents 
could request relief through other means pending final resolution of 
this matter.

Exceptions to the Partial Recommended Decision

    Hunter and Milkco, Inc., filed an exception to the Department's 
partial recommended decision and urged adoption of their proposal. 
These handlers stated that their proposal would specify the 
responsibility of all handlers with respect to producer milk and 
thereby rectify any inconsistency that may currently exist in order 
language concerning this issue.
    Hunter and Milkco also stated that any disagreement within the 
industry concerning which services are the responsibility of the 
handler is secondary to the issue under review and does not warrant the 
denial of their proposal. The handlers contend that the central 
principle surrounding this issue is uniformity in the treatment of 
handlers purchasing milk supplies from cooperatives or independent 
producers. The precise list of services is of secondary importance, 
they state, and industry disagreement concerning these services should 
not prevent the Department from embracing the central thrust of their 
proposal.

Conclusion

    The Milkco/Hunter's minimum payment proposal should be denied. It 
is the Department's determination that the Hunter/Milkco proposal would 
not have solved the handler equity problem but instead would have 
created a host of additional problems.
    Proponents would have us specify that certain services, are a 
handler's responsibilities and, therefore, should be at handler's 
expense. Thus, if a cooperative association were providing one of these 
services for a handler, the cooperative association would be required 
to bill the handler for this service. However, the Department cannot 
adopt order provisions without substantial record evidence. The record 
contains little evidence as to which specific services should be 
included and even that evidence is conflicting. Furthermore, neither 
proponents, nor any other participant, provided guidance in the record 
concerning the cost of these services, which, we suspect, vary 
considerably from organization to organization.
    In addition, the Department is engaged in congresionally regulated 
order consolidation <SUP>4</SUP> in which greater uniformity in order 
provisions is a stated goal. The record in this proceeding demonstrates 
no basis why the minimum payments provisions should be different in 
just these three orders. Instead, it appears that the provisions should 
be based upon the same considerations, and should not differ from one 
order to another. This issue regarding minimum payments to producers 
should, therefore, be considered as part of the Federal order reform. 
Thus, for the reasons stated above, the record evidence of the public 
hearing and the comments and exceptions received in response to the 
partial recommended decision do not support adoption of the Milkco/
Hunter proposal.
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    \4\ The 1996 Farm Bill requires the Secretary of Agriculture to 
merge the existing 33 Federal milk orders (currently 31 orders) into 
no more than 14, and no less than 10, milk orders by April 1, 1999. 
A proposed rule was issued on January 23, 1998, and published in the 
Federal Register on January 30, 1998 (63 FR 4802). Interested 
parties had until April 30, 1998, to file comments. A discussion of 
minimum payments to producers is included in the proposed rule (63 
FR 4942).
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Material Issue #4--Definition of Producer

    A proposal to modify the definition of producer for Federal milk 
orders 5, 7, and 46 should also be denied on the basis of the testimony 
and evidence received at the reopened hearing. Mid-America Dairymen, 
Inc. (Mid-Am), Carolina-Virginia Milk Producers Association (CVMPA), 
and Maryland-Virginia Milk Producers Association, proponents of the 
proposal, stated that the objective of the proposal is to further 
define producer qualification to minimize the pooling of milk not 
historically associated with these 3 southeastern markets.

A Brief Summary of Testimony and Briefs Resulting From the December 17-
18, 1996 Hearing

    A spokesman for the proponents offered testimony explaining that 
base-excess plans (included in each of the orders at the time of the 
reopened hearing, but terminated from each order effective January 1, 
1997, as a result of the expiration of legislative authority to include 
such plans in Federal milk orders) have substantially removed the 
incentive for a dairy farmer who was associated with another market 
during the base-building months to become a producer under one of these 
orders during the base-paying months. He expressed concern that with 
the elimination of such plans, no provisions would exist to prevent a 
dairy farmer from pooling any milk diverted or delivered within limits 
to pool plants under the orders during the former base-paying months.
    The witness stated that the proposed provisions for the orders will 
exclude from the producer definition, during the flush production 
months of February through May, any dairy farmer who delivered more 
than 40 percent of his or her milk to plants as other than ``producer 
milk'' during the months of August through November. The proposed 
provisions, according to the witness, are designed to restrict those 
producers not normally associated with such orders from pooling their 
milk during the flush production months when it is not needed to supply 
fluid needs if they have not pooled such milk during the prior short 
months when supplies were needed.
    In addition, the spokesman stated that for the purpose of 
determining the percentage of a producer's milk that was pooled during 
the prior August through November period, deliveries to plants as 
producer milk under the orders should be considered deliveries under 
the applicable order. He testified that this

[[Page 39043]]

proviso is necessary to accommodate: (1) The historical shifting of 
producers between the orders; (2) the shifting of pool distributing 
plants; and (3) the shifting of producer milk due to the opening and 
closing of pool plants in the orders' area.
    The witness also testified that the proposal, as found in the 
notice of hearing, should be modified to define the classification of 
the milk received and specify the pricing of the milk as classified in 
each of the orders. According to the spokesman, the changes to the 
order language would require the receiving handler to pay into the pool 
the difference between the Class I price and the Class III price.
    Regarding the administrative costs associated with the relevant 
proposal, the witness contended that there should be no noticeable 
difference between costs associated with the producer qualification 
proposal and costs associated with the base-excess plan. In conclusion, 
the spokesman testified that the adoption of such proposal is necessary 
to foster orderly marketing in the area and protect producer pools of 
the southeastern orders involved in this proceeding.
    A representative of CVMPA testified that CVMPA fully supports the 
producer qualification proposal to make sure that high Class I 
utilization markets in the Southeast do not carry surplus from other 
surrounding markets resulting in low Class I utilization rates during 
the flush months of production. He maintained that the proposal 
benefits producers, processors, and consumers by maintaining fluid 
supplies, while encouraging the survival of local producers.
    A representative from Associated Milk Producers, Inc. (AMPI), 
Southern Region, a cooperative association representing over 2,500 
dairy farmers in the South and Southwest, testified in opposition to 
Mid-Am's proposal to modify the producer definition of the orders. The 
witness also maintained that such proposal is not related to the issue 
of transportation credits, and should, therefore, not be included in 
the reopened hearing.
    According to the spokesman, the current producer pooling 
requirements under Order 7 are more restrictive than the proposed 
producer qualification requirements; thus, the proposal actually 
constructs an additional layer of unnecessary pooling requirements. The 
witness claimed that no handlers are currently abusing the order by 
diverting the maximum amount allowable under the provisions of Order 7; 
otherwise, he argued, such a high percentage of Class I utilization 
would not be maintained.
    AMPI's witness also testified that it is apparent that the 
proponents intend to replace the base-excess plans in the orders 
involved in this proceeding. However, such an alternative is not 
viable, he argued, because sufficient protection for local producers 
already exists. While acknowledging the existence of such ``dairy 
farmers for other market'' provisions in other Federal orders, the 
spokesman testified that the Southeast markets will not benefit from 
such a provision. If the proposal is nevertheless adopted, he said, 
AMPI recommends a modification to the proposal such that milk imported 
from outside the marketing area that is received at a fully or ly 
regulated plant during any month of the year must be allocated to Class 
I and the handler of origin must be compensated at the receiving 
plant's Class I price.
    Another AMPI representative testified that administration of Mid-
Am's proposal would create additional costs and place a more serious 
burden on the cooperative. According to the witness, additional time 
and resources would be necessary to adapt AMPI's procedures to the new 
provision, including greater technical and manual assistance.
    A representative of Piedmont Milk Sales testified that Piedmont 
supports the concept that a producer must make his milk available to 
the Class I market when it is needed in the fall or short period in 
order to be allowed to pool his milk in the same market during the 
spring or flush months. He contended that such a limitation assures 
that the producer who receives the blend price enhanced by the Class I 
value in those markets has actually earned it.
    A spokesman for Fleming Dairy, which operates pool distributing 
plants in Nashville, Tennessee, and Baker, Louisiana, testified in 
support of Mid-Am's proposal, but suggested that the producer 
qualification period should be July through November, rather than 
August through November.
    Additionally, a representative of Barber Pure Milk Co., a pool 
plant operator in Birmingham, Alabama, and Dairy Fresh Corporation, a 
pool plant operator in Greensboro, Alabama, testified in support of 
Mid-Am's producer qualification proposal. He suggested that any milk 
which is delivered directly from the farm and is received at a pool 
plant should qualify as producer milk, but any milk which is diverted 
should not.
    Select Milk Producers submitted a brief in opposition to the 
proposed changes in the producer definition. According to Select, a 
similar proposal was introduced during the Southeast merger proceedings 
and was subsequently denied due to the lack of justification for such a 
provision. Select's brief indicated that the pooling standards and 
diversion limitations provided in the orders give the market 
administrator enough flexibility to prevent distant milk from being 
associated with the markets; therefore, a ``dairy farmer for other 
markets'' provision is not needed in these orders.
    A brief filed on behalf of AMPI argued that the ``dairy farmer for 
other markets'' proposal submitted by Mid-Am and CVMPA and heard at the 
reopened hearing was in violation of the rules of practice and 
procedure governing the proceedings of marketing agreements and orders. 
AMPI maintains that this proposal does not qualify as an issue related 
to transportation credits, and therefore, should not have been 
discussed at the reopened hearing. Additionally, AMPI argued that the 
hearing record lacks the necessary evidence that would support adoption 
of such proposal. While reiterating its opposition to the additional 
work associated with implementation of the proposal as testified to at 
the reopened hearing, AMPI's brief also opposed the notion that in Mid-
Am and CVMPA's proposal determination of a producer's eligibility would 
not only be dependent upon the amount of milk pooled under the order in 
which the producer is seeking producer status, but also upon the volume 
of milk pooled by that producer for the subject months in all of the 
orders involved in this proceeding. According to AMPI, there is no 
justification or evidence which supports the proposed ``dairy farmer 
for other markets'' provision.
    CVMPA, one of the proponents of the producer qualification 
proposal, filed a brief in support of its proposal reiterating the 
arguments presented during the reopened hearing. In its brief, CVMPA 
pointed out that its proposal would not create a barrier to entry into 
these markets as was testified to by a representative of AMPI. CVMPA 
argued that such a proposal would actually encourage milk to be pooled 
when local supplies are inadequate to meet Class I needs. While 
acknowledging that diversion limitations and producer touch-base 
provisions currently in effect under the subject orders do provide 
limited Class I utilization protection for the markets, CVMPA argued 
that these limitations are insufficient to protect producers who have 
pooled their milk during the fall months from being displaced by 
producers entering those markets during the spring flush months in 
order to take advantage of the high

[[Page 39044]]

Class I utilization percentages reflected in the high blend prices of 
these southeastern markets.
    CVMPA also addressed the argument made by AMPI that the proposal 
would create an additional administrative burden for both the market 
administrators' offices and reporting handlers. According to CVMPA, no 
additional work would be created by the proposal, and the 
administration of the proposed provision would be easier than that 
associated with the former base-paying plans. CVMPA also expanded the 
proposal to allow a producer to qualify as a producer in the spring if 
his/her farm had not delivered Grade A milk from such farm during the 
previous August through November period. Furthermore, CVMPA stated that 
the producer's eligibility should be based upon the proportion of Grade 
A milk delivered from the farm in the previous fall in order to prevent 
a producer who is converting from Grade B to Grade A or a producer who 
lost his/her Grade A permit from being penalized.
    A brief was also filed by Mid-Am in support of the proposal to 
modify the producer definition. In addition to reiterating the 
arguments testified to during the reopened hearing, Mid-Am's brief 
stated that the proposed producer qualification provisions are 
necessary to foster orderly marketing in the area and also to protect 
the producer pools of the orders involved in this proceeding. In its 
brief, Mid-Am also contends that the only opposition to the proposal 
testified to during the hearing was made by AMPI, which would be 
prevented from rotating their producers' milk in order to receive 
transportation credits. Mid-Am requests that the proposed provisions be 
implemented at the earliest possible date. No exceptions were received 
in response to the partial recommended decision.

Conclusion

    The record of the reopened hearing does not clearly demonstrate the 
need to amend the producer definition of Orders 5, 7, and 46. Current 
safeguards exist to ensure that sufficient supplies of milk are made 
available for fluid use without the unwarranted pooling of additional 
supplies of milk that are not associated with serving the fluid market.
    Proponents of this proposal believe that the termination of 
seasonal base plans will create disorderly marketing conditions in the 
3 orders. However, the testimony and evidence received at the December 
17-18, 1996, hearing do not sufficiently support this argument. 
According to the proponents, the termination of seasonal base plans, 
effective January 1, 1997, removes the incentive for producers to pool 
their milk during the short months when milk is needed in the Southeast 
because they will no longer receive the higher base prices for their 
milk during the following flush months. While it is feared by the 
proponents that the termination will open up the 3 Southeast markets to 
those producers not normally associated with such markets, but who seek 
to take advantage of the high Class I utilization rates, the record was 
unconvincing in its need for modification of the producer definition 
for this reason.
    It is apparent that the proposal was initiated in response to the 
elimination of seasonal base plans in Federal milk orders. In other 
words, the proposed modification of the producer definition is intended 
to fill the void left by the removal of the base-excess plans. However, 
changing the producer definition should not be compared to the 
incorporation of base plans in the orders. Base plans are instituted in 
order to level out production throughout the year so that adequate milk 
supplies are ensured during the short production months, while 
discouraging surplus supplies in the flush production months. The base 
plans also did have the effect of preventing producers not normally 
associated with a market from entering such market during the flush 
production months because they would have received the low, excess 
price for their milk. Nevertheless, the removal of base plans does not 
by itself necessitate amending the orders.
    The orders currently have strict pooling requirements. For example, 
as was testified to at the reopened hearing by AMPI's spokesman, the 
pooling requirements for Order 7 specify that a producer's milk must be 
received at least 4 days at a pool plant to be eligible to be pooled 
during the months of December through June. Additionally, there is a 50 
percent diversion limitation in Order 7 to nonpool plants for those 
same months. The Carolina order has diversion limitations for 
cooperative associations during most months of 25 percent of the total 
quantity of producer milk. The order also maintains pooling 
requirements specifying how many days a month producer milk must be 
received at pool plants. The Louisville-Lexington-Evansville order 
specifies a diversion limitation based upon the number of days that a 
producer's milk is diverted during a month. The evidence in this 
proceeding is insufficient to conclude that the current pooling 
standards will not recognize the seasonally varying needs for milk for 
fluid use. The creation of additional producer pooling standards is 
unnecessary and unwarranted on the basis of the record herein and, 
therefore, the proposal should be denied.
    To the extent that the suggested findings and conclusions filed by 
interested parties on either issue 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.

Rulings on Exceptions

    In arriving at the findings and conclusions, and the regulatory 
provisions of this decision, each of the exceptions received was 
carefully and fully considered in conjunction with the record evidence. 
To the extent that the findings and conclusions and the regulatory 
provisions of this decision are at variance with any of the exceptions, 
such exceptions are hereby overruled for the reasons previously stated 
in this decision.

Determination

    The findings and conclusions of this partial final decision do not 
require any changes in the regulatory provisions of the three 
respective orders regulating the handling of milk in the Carolina, 
Southeast, and Louisville-Lexington-Evansville marketing areas.

Termination Order

    In view of the foregoing, it is hereby determined that the 
proceeding with respect to proposed amendments to the three specified 
marketing orders should be and is hereby terminated.

List of Subjects in 7 CFR Parts 1005, 1007, and 1046

    Milk marketing orders.

    The authority citation for 7 CFR Parts 1005, 1007, and 1046 of 
Title 7, chapter X continues to read as follows:

    Authority: 7 U.S.C. 601-674.

    Dated: July 16, 1998.
Michael V. Dunn,
Assistant Secretary, Marketing & Regulatory Programs.
[FR Doc. 98-19390 Filed 7-20-98; 8:45 am]
BILLING CODE 3410-02-P


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