25014 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

1The changes to this section include an updated

map of the marketing area and an updated Table 1.

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1007

[Docket Nos. AO–366–A36, et al.; DA–93–

21]

Milk in the Georgia and Certain Other

Marketing Areas; Decision on

Proposed Amendments to Marketing

Agreements and to Orders

7 CFR

part Marketing area Docket No.

1007 ..... Georgia ............... AO–366–A36

1093 ..... Alabama-West

Florida.

AO–386–A14

1094 ..... New Orleans-Mississippi.AO–103–A56

1096 ..... Greater Louisiana AO–257–A43

1099 ..... Paducah, Kentucky.AO–183–A45

1108 ..... Central Arkansas AO–243–A46

AGENCY: Agricultural Marketing Service,

USDA.

ACTION: Proposed rule.

SUMMARY: This decision combines five

Federal milk order marketing areas with

unregulated counties in Arkansas,

Georgia, Mississippi, and Tennessee to

form the Southeast marketing area. The

decision is based on industry proposals

to merge the individual marketing areas

so as to more equitably divide the

markets’ proceeds in what essentially

has become a single, large market with

significantly overlapping sales and

procurement areas.

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.

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.

The Regulatory Flexibility Act (5

U.S.C. 601–612) requires the Agency to

examine the impact of a proposed rule

on small entities. Pursuant to 5 U.S.C.

605(b), the Administrator of the

Agricultural Marketing Service has

certified that this rule will not have a

significant economic impact on a

substantial number of small entities.

The amendments will promote orderly

marketing of milk by producers and

regulated handlers.

The proposed amendments have been

reviewed under Executive Order 12778,

Civil Justice Reform. They are not

intended to have a retroactive effect. If

adopted, the proposed rule will 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), 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

file with the Secretary a petition stating

that the order, any provision of the

order, or any obligation imposed in

connection with the order is not in

accordance with the law and requesting

a modification of an order or to be

exempted from the order. A handler is

afforded the opportunity for a hearing

on the petition. After a hearing, the

Secretary would rule on the petition.

The Act provides that the district court

of the United States in any district in

which the handler is an inhabitant, or

has its principal place of business, has

jurisdiction in equity to review the

Secretary’s ruling on the petition,

provided a bill in equity is filed not

later than 20 days after the entry of the

ruling.

Prior Documents in This Proceeding

Notice of Hearing: Issued September

3, 1993; published September 10, 1993

(58 FR 47653).

Supplemental Notice of Hearing:

Issued October 13, 1993; published

October 15, 1993 (58 FR 53436).

Extension of Time for Filing Briefs:

Issued January 24, 1994; published

February 3, 1994 (59 FR 5132).

Recommended Decision: Issued

November 21, 1994; published

November 29, 1994 (59 FR 61070).

Extension of Time for Filing

Exceptions: Issued December 27, 1994;

published January 3, 1995 (60 FR 65).

Preliminary Statement

A public hearing was held to consider

proposed amendments to the marketing

agreements and the orders regulating the

handling of milk in the aforesaid

marketing areas. The hearing was 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 Atlanta, Georgia, on

November 1–5, 1993. Notice of such

hearing was issued on September 3,

1993, and published September 10,

1993 (58 FR 47653) and a supplemental

notice of hearing was issued October 13,

1993, and published October 15, 1993

(58 FR 53436).

Upon the basis of the evidence

introduced at the hearing and the record

thereof, the Administrator, on

November 21, 1994, issued a

recommended decision containing

notice of the opportunity to file written

exceptions thereto.

The material issues, findings and

conclusions, rulings, and general

findings of the recommended decision

are hereby approved and adopted and

are set forth in full herein, subject to the

modifications contained in this final

decision. Certain sections of this final

decision differ from the recommended

decision only by discussing comments

that were received, correcting obvious

typographical errors, or adding

footnotes to reflect new information,

such as a cooperative merger. These

sections include marketing area, unit

pooling, producer, producer-handler,

balancing plants, and seasonal

adjustment to Class III and III–A prices.

Other sections have been revised

substantially and/or contain actual

changes in order provisions. Sections

which fall into this category include

producer milk, product prices, Class III

price, Class II price, plant location

adjustments, and base-excess plan. In

addition to these changes, the Map of

the Southeast marketing area and the

Map Guide (i.e., Table No. 1) have been

revised to reflect the new pricing zones,

a clarifying paragraph has been added at

the end of the discussion of lock-in

provision, and a discussion has been

added at the end of the findings and

conclusions regarding Motions to

Reopen the Hearing.

Findings and Conclusions

The following findings and

conclusions on the material issues are

based on evidence presented at the

hearing and the record thereof:

1. Interstate commerce, merger of

marketing areas under one order, and

expansion of the marketing area.1 The

handling of milk in the proposed

merged and expanded marketing area is

in the current of interstate commerce

and directly burdens or obstructs

interstate commerce in milk and milk

products. Interstate commerce is

involved in both the procurement and

sales of fluid milk and dairy products by

handlers operating plants in the

proposed marketing area.

The record evidence clearly shows the

movement of bulk milk from Georgia to

Alabama and Tennessee; from Alabama

to Georgia, Mississippi, Louisiana, and

Tennessee; from Louisiana to Texas,

Mississippi, and Alabama; from Texas

to Arkansas, Louisiana and Mississippi;

from Tennessee to Georgia, Alabama,
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Kentucky, and Mississippi; from

Kentucky to Alabama, Mississippi, and

Tennessee; and from Arkansas to

Georgia, Tennessee, and Mississippi. In

addition, the record indicates that

packaged fluid milk products regularly

move across States into each of the

separate marketing areas involved in

this proceeding.

The proposed merged and expanded

marketing area, designated as the

‘‘Southeast’’ marketing area, is shown

on the map entitled ‘‘Southeast

Marketing Area.’’ The map has been

modified to reflect changes in pricing

zones that are discussed under ‘‘plant

location adjustments.’’ Table No. 1 is a

map guide for the plants that

corresponds to the numbers shown on

the map. The table has been modified to

delete four plants: McClendon Cheese

(Zone 4), Meadow Gold, Gadsden (Zone

5), Flav-O-Rich, Montgomery (Zone 8),

and Meadow Gold, Nashville (Zone 2).

In addition, one new plant has been

added to the table: Publix Supermarkets,

Zone 7, which is scheduled to

commence operations this spring.

The proposed Southeast marketing

area includes the present adjacent

marketing areas of Orders 7, 93, 94, and

96; the Central Arkansas (Order 108)

marketing area; the northeastern Georgia

county of Rabun; the northwestern

Mississippi counties of Canola, De Soto,

Lafayette, Marshall, Tate, and Tunica;

all of the territory within the State of

Tennessee that is not included within

the Tennessee Valley Federal marketing

area; and all of the presently

unregulated counties in the State of

Arkansas. The proposed merged order

would use the part number for the

present Georgia order, part 1007. The

amended Part 1007, upon issuance,

would supersede Parts 1093, 1094,

1096, and 1108.

Although the present five orders

would no longer exist upon effectuation

of the Southeast order, this merger

action is not intended to preclude the

completion of those procedures that

would otherwise have existed under the

separate orders with respect to milk

handled prior to the effective date of the

merger. Such procedures, which would

need to be carried out after the merger

date, include the announcement of

certain class prices, submission of

reports, computation of uniform prices,

payment of obligations and verification

activities. The provisions of the merged

order would apply only to that milk

handled after the effective date of the

merger.

BILLING CODE 3410–02–P
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BILLING CODE 3410–02–C
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25017

2Effective March 1, 1994, September 1, 1994, and

February 1, 1995, respectively, Gulf Dairy

Association, Dairymen, Inc., and Southern Milk

Sales became part of Mid-America Dairymen, Inc.

(Mid-Am).

3Official notice is taken of the termination of the

former Memphis, Tennessee (Part 1097), and

Nashville, Tennessee (Part 1098) Federal milk

marketing orders effective July 31, 1993. The

marketing areas of these former orders may be

found in §§ 1097.2 and 1098.2 of 7 CFR, revised as

of January 1, 1992 and 1993, respectively.

TABLE NO. 1.—MAP GUIDE FOR THE SOUTHEAST MARKETING AREA

No. Plant name Location Zone

1 ................... Foremost Dairy, Inc ........................................................... Shreveport, LA .................................................................. 8

2 ................... Borden, Inc ........................................................................ Monroe, LA ........................................................................ 8

3 ................... Borden, Inc ........................................................................ Lafayette, LA ..................................................................... 12

4 ................... Borden, Inc ........................................................................ Baton Rouge, LA ............................................................... 12

5 ................... Dairy Fresh of LA .............................................................. Baker, LA .......................................................................... 12

6 ................... Kleinpeter Farms Dairy ..................................................... Baton Rouge, LA ............................................................... 12

7 ................... Mid-America Dairymen, Inc ............................................... Kentwood, LA .................................................................... 11

8 ................... Mid-America Dairymen, Inc ............................................... Franklinton, LA .................................................................. 11

9 ................... Superbrand Dairy Products ............................................... Hammond, LA ................................................................... 11

10 ................. Barbe’s Dairy ..................................................................... Westwego, LA ................................................................... 12

11 ................. Schepps-Foremost ............................................................ New Orleans, LA ............................................................... 12

12 ................. Avent’s Dairy, Inc .............................................................. Oxford, MS ........................................................................ 5

13 ................. Barber Pure Milk Company ............................................... Tupelo, MS ........................................................................ 5

14 ................. Brookshire Dairy Products ................................................ Columbus, MS ................................................................... 7

15 ................. LuVel Dairy Products, Inc ................................................. Kosciusko, MS .................................................................. 7

16 ................. Flav-O-Rich ....................................................................... Canton, MS ....................................................................... 8

17 ................. Borden, Inc ........................................................................ Jackson, MS ...................................................................... 9

18 ................. Dairy Fresh Corporation .................................................... Hattiesburg, MS ................................................................ 10

19 ................. Shoals Cheese .................................................................. Florence, AL ...................................................................... 5

20 ................. Dasi Products, Inc ............................................................. Decatur, AL ....................................................................... 5

21 ................. Meadow Gold Dairies, Inc ................................................. Huntsville, AL .................................................................... 5

22 ................. Barber Pure Milk Company ............................................... Oxford, AL ......................................................................... 7

23 ................. Baker and Sons Dairy ....................................................... Birmingham, AL ................................................................. 7

24 ................. Barber Pure Milk Company ............................................... Birmingham, AL ................................................................. 7

25 ................. Barber Ice Cream .............................................................. Birmingham, AL ................................................................. 7

26 ................. Flav-O-Rich Ice Cream ..................................................... Sylacauga, AL ................................................................... 7

27 ................. Dairy Fresh Ice Cream ...................................................... Greensboro, AL ................................................................. 8

28 ................. McClendon Cheese ........................................................... Uniontown, AL ................................................................... 7

29 ................. Superbrand Dairy Products ............................................... Montgomery, AL ................................................................ 9

30 ................. Barber Pure Milk Company ............................................... Montgomery, AL ................................................................ 9

31 ................. Dairy Fresh Corporation .................................................... Cowarts, AL ....................................................................... 10

32 ................. Barber Pure Milk Company ............................................... Mobile, AL ......................................................................... 12

33 ................. Dairy Fresh Corporation .................................................... Prichard, AL ...................................................................... 12

34 ................. Southern Ice Cream .......................................................... Marrietta, GA ..................................................................... 7

35 ................. Kraft General Foods .......................................................... Atlanta, GA ........................................................................ 7

36 ................. Peeler Jersey Farms ......................................................... Athens, GA ........................................................................ 7

37 ................. New Atlanta Dairies, Inc ................................................... Atlanta, GA ........................................................................ 7

38 ................. Publix Supermarkets, Inc .................................................. Atlanta, GA ........................................................................ 7

39 ................. Borden, Inc ........................................................................ Macon, GA ........................................................................ 8

40 ................. Kinnett Dairies, Inc ............................................................ Columbus, GA ................................................................... 8

41 ................. Kinnett Ice Cream ............................................................. Columbus, GA ................................................................... 8

42 ................. Hershey Chocolate, USA .................................................. Savannah, GA ................................................................... 10

43 ................. Fleming Companies, Inc ................................................... Nashville, TN ..................................................................... 1

44 ................. Purity Dairies, Inc .............................................................. Nashville, TN ..................................................................... 1

45 ................. Cumberland Creamery, Inc ............................................... Antioch, TN ....................................................................... 1

46 ................. Heritage Farms Dairy ........................................................ Murfreesboro, TN .............................................................. 2

47 ................. Mid-America Dairymen, Inc ............................................... Lewisburg, TN ................................................................... 2

48 ................. Turner Dairies ................................................................... Covington, TN ................................................................... 3

49 ................. Forest Hill Dairy ................................................................ Memphis, TN ..................................................................... 4

50 ................. Harbin Mix ......................................................................... Memphis, TN ..................................................................... 4

51 ................. Borden, Inc ........................................................................ Little Rock, AR .................................................................. 4

52 ................. Coleman Dairy .................................................................. Little Rock, AR .................................................................. 4

53 ................. Gold Star Dairy, Inc .......................................................... Little Rock, AR .................................................................. 4

54 ................. Humphrey’s Dairy .............................................................. Hot Springs, AR ................................................................ 4

The marketing area proposed herein is

a combination of several of the

proposals presented at the hearing. A

group of four cooperative associations,

comprised of Dairymen, Inc., Gulf Dairy

Association, Inc.,2 Southern Milk Sales,

Inc., and Carolina Virginia Milk

Producers Association, Inc., proposed

the merger of the marketing areas of

Orders 7, 93, 94, 96, together with the

former Nashville, Tennessee (Order 98),

marketing area,3 and the four

unregulated Tennessee counties of

Franklin, Lincoln, Moore, and Van

Buren. In this decision, these

cooperatives will be referred to as the

‘‘cooperative coalition,’’ and their

proposal will be referred to as Proposal

No. 1. At the time of the hearing, these

groups represented approximately 54

percent of the producers and 55 percent

of the milk pooled under Orders 7, 93,

94, and 96.

Malone & Hyde Dairy (aka Fleming

Dairy), Nashville, Tennessee, proposed

expanding the area proposed by the

cooperative coalition by including the

one remaining unregulated county in
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Georgia (i.e., Rabun County), the six

unregulated counties between the

Tennessee Valley marketing area and

the former Nashville marketing area

(four of which were also included in

Proposal No. 1), the former Memphis,

Tennessee (Order 97), marketing area,

and the remaining unregulated

Tennessee counties that are bordered on

the east by former Order 98, on the west

by former Order 97, on the north by

Order 99, and on the south by Order 94.

Malone & Hyde Dairy hereinafter will be

referred to as ‘‘Fleming Dairy,’’ and their

proposal will be referred to as Proposal

No. 9.

Arkansas Dairy Cooperative

Association, Inc., which also will be

referred to as ‘‘ADCA,’’ proposed

including the Central Arkansas

marketing area and the former Memphis

marketing area in the merged order

proposed by the cooperative coalition.

Their proposal will be referred to as

Proposal No. 2.

Finally, Associated Milk Producers,

Inc., or ‘‘AMPI,’’ proposed and testified

in support of a proposal (i.e., Proposal

No. 13) to merge the former Memphis

marketing area with the Paducah,

Kentucky, and Central Arkansas

marketing areas to form a ‘‘Mid-South’’

marketing area. Under this proposal, the

marketing area also would include all

presently unregulated counties in

Arkansas, the unregulated Missouri

county of Dunklin, and the two

unregulated Texas counties of Bowie

and Cass.

Testimony in support of Proposal No.

1. The Vice President of Dairymen, Inc.,

testified on behalf of the cooperative

coalition in support of Proposal No. 1.

The thrust of his testimony was that

fluid milk processors in the proposed

merged marketing area had increasingly

expanded their distribution to serve

larger geographic areas and, as a result,

a larger order is now needed to maintain

market stability, to insure that

producers in the proposed marketing

area would be able to share pro rata in

the classified uses of their milk, and to

provide assurance to handlers that their

competitors were paying at least the

order’s minimum prices regardless of

where their milk supply originated.

He also stated that a merged order was

in the public’s interest because it would

establish orderly marketing conditions

for producers and handlers in the

marketing area and assure a continuing,

adequate supply of high-quality milk.

The Chairman of the Louisiana Dairy

Advisory Committee of the Louisiana

Farm Bureau Federation testified that

the proposal was significant because it

could eliminate price disparities among

producers in the Southeast, facilitate the

movement of milk to where it is needed,

and provide a more equitable sharing

among producers of higher-valued fluid

milk sales.

The division manager for milk

procurement for The Kroger Company

testified that Heritage Farms Dairy, a

Kroger Company plant located in

Murfreesboro, Tennessee, also

expressed qualified support for the

merger of milk orders in the Southeast,

but said that Proposal No. 1 fell short of

addressing all the problems or

answering all the questions facing

Federal milk marketing orders in the

Southeast. He said that markets not

contained in this proceeding present

challenges that need to be addressed at

a future hearing.

Testimony in opposition to Proposal

No. 1. A consultant for Barber Pure Milk

Company and Dairy Fresh Corporation

testified that Barber Pure Milk

Company, a handler under Orders 7, 93,

and 94, and Dairy Fresh Corporation, a

handler under Orders 7, 93, 94, and 96,

opposed Proposal No. 1 because it did

not include Orders 5 (Carolina) and 11

(Tennessee Valley). He stated that, in

May 1993, 52 percent of all Class I sales

in the Order 7 marketing area were

made by plants pooled on other orders,

with 26.4 percent and 11.6 percent from

Orders 5 and 11, respectively.

With respect to raw milk

procurement, the Barber/Dairy Fresh

spokesman testified that Order 7 and 93

handlers competed with Order 5 and 11

handlers for their milk supply. Because

of the intermingling of producers among

these orders, the milk of some producers

is shipped alternatively between Orders

7 and 5 handlers, he said, and

differences in utilization in these

markets result in different pay prices for

milk of neighboring producers, creating

instability in the milk supply. Further,

to create a large marketing area

including most of five or six states with

small orders nearby could lead to

undesirable pooling practices, he added.

A representative for Kinnett Dairies

(Kinnett) in Columbus, Georgia, testified

that Kinnett purchased raw milk from a

group of independent producers located

in Georgia, Alabama, and Tennessee and

also purchased a portion of its raw milk

needs from Carolina-Virginia Milk

Producers Association, Charlotte, North

Carolina. He stated that while Kinnett

generally supported the concept of

merging Federal Orders 7, 93, 94, and

96, with the area covered by the

terminated Nashville order, it was

opposed to Proposal No. 1 because it

did not include the Tennessee Valley

and Carolina orders (Orders 11 and 5,

respectively). He explained that in

August 1993—after the Kroger plant at

Murfreesboro, Tennessee, and the

Fleming Dairy plant at Nashville,

Tennessee, became regulated under

Order 7—35.4 percent of the Class I

disposition on Order 7 was marketed by

other order distributing plants. He

pointed out that this was a higher

percentage of other order Class I sales

than that accounted for by any of the

other orders involved in the merger

proceeding.

Testimony in support of Proposal No.

9. The assistant operations manager for

Fleming Dairy, Nashville, Tennessee,

testified in support of Proposal No. 9.

He explained that the Fleming Company

operated two distributing plants: One

plant located in Nashville, Tennessee,

and a second plant located in Baker,

Louisiana, which is jointly owned with

Dairy Fresh of Alabama.

The Fleming spokesman testified that

Fleming’s Nashville plant distributed

approximately 25 million pounds of

Class I and Class II dairy products per

month in the former Nashville and

Memphis Federal order marketing areas,

as well as in the marketing areas of

Order 46 (Louisville-LexingtonEvansville), Order 99 (Paducah), Order

108 (Central Arkansas), Order 106

(Southwest Plains), Order 94 (New

Orleans-Mississippi), Order 93

(Alabama-West Florida), Order 6 (Upper

Florida), Order 7 (Georgia), Order 5

(Carolina), and Order 11 (Tennessee

Valley). He stated that Fleming procured

most of its raw milk supply from dairy

farmers located in central Tennessee

and south central Kentucky, with

approximately 55 percent of Fleming’s

raw milk supply purchased from

Kentucky dairy farmers and 45 percent

purchased from Tennessee dairy

farmers. In addition to purchasing milk

from independent producers, Fleming

purchases raw milk from CarolinaVirginia Milk Producers and other dairy

cooperatives and proprietary handlers,

he added.

The witness testified that a southeast

merger which does not include the

Chattanooga area will result in blend

price differences between the Tennessee

Valley order and the new Southeast

order which will cause problems where

the two orders’ procurement areas

overlap. He said the Department should

address this potential problem of blend

price differences by considering the

merger of the Louisville order with the

Tennessee Valley order and possibly the

Carolina order in the very near future

and that the implementation of such a

merger should coincide with the merger

of other Federal orders in the Southeast.

The Fleming spokesman stated that

the former Memphis marketing area

should be included in the merged order
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because Fleming Dairy has significant

sales in that area. However, the merged

order should not include several

Kentucky counties in former Order 98,

he said, because those counties do not

have a significant level of milk sales

from Nashville distributing plants. He

stated there were no distributing plants

in that area, but there was a cheese plant

there that could attach unnecessary milk

to the market if that plant were in the

marketing area.

Testimony in support of Proposal No.

2 and in opposition to Proposal 13. The

general manager of the Arkansas Dairy

Cooperative Association, Incorporated,

testified that ADCA, which has 113

dairy farmer members located within

the State of Arkansas, was formed in

1991 by its members to provide an

alternative to Associated Milk

Producers, Inc. (AMPI), the only outlet

then available for their milk. He

indicated that ADCA sold its milk to the

Borden, Incorporated, plant in Little

Rock, the Turner Dairies plants in

Memphis and Covington, Tennessee,

and the Turner Dairy plant in Fulton,

Kentucky.

The witness stated that ADCA

supported the merger of Orders 7, 93,

94, 96, 97, 98, and 108, and that ADCA

also supported the inclusion of

presently unregulated counties south

and west of the present Central

Arkansas marketing area, as well as two

unregulated Arkansas counties

(Mississippi and Crittenden) on the

eastern edge of the Central Arkansas

marketing area. He said that the sales of

Little Rock plants in the former

Memphis area and the overlap of

procurement areas for the two markets

supported the adoption of ADCA’s

proposal.

The ADCA spokesman indicated that

a larger merged market would provide

market and regulatory stability for

ADCA in the future. He emphasized that

since ADCA’s formation, AMPI had

successfully terminated the Memphis

order, attempted to terminate the

Paducah order, terminated the baseexcess plan on Order 108, and now was

attempting to establish a new Mid-South

order which it could dominate.

The witness stated that with AMPI’s

proposed Mid-South order, ADCA

would be at the whim of AMPI

management with respect to whether

there would be an order at all, or for

how long there would be an order. He

said that situation would be intolerable

for ADCA and would create highly

disorderly marketing conditions. He

concluded that a seven-market (i.e.,

including former Orders 97 and 98)

merged order would eliminate this

problem.

A dairy farmer from Guy, Arkansas,

who farms 300 acres and milks 200

cows, also testified in support of the

inclusion of Central Arkansas in the

merged southeastern order and in

opposition the AMPI’s proposal to form

a Mid-South order. The witness, who is

the immediate past president of the

Board of Directors of Arkansas Dairy

Cooperative Association, Inc., stated

that he was speaking on behalf of

himself, the ADCA Board of Directors,

and the 113 members of ADCA.

Testimony in support of Proposal No.

13. A spokesman representing the

Associated Milk Producers,

Incorporated, Southern Region,

Arlington, Texas, stated that his

testimony in support of Proposal No. 13

was on behalf of the Southern Region of

AMPI, Mid-America Dairymen, Inc.

(Mid-Am), and Dairymen, Inc. (DI), coproponents of Proposals 13, 14, and 15.

The AMPI spokesman testified that in

September 1993 AMPI pooled 18.4

million pounds of milk in the Central

Arkansas market, a quantity which

represented 50.1 percent of the milk

pooled on the order during that month.

He said the 387 AMPI members who

produced that milk represented about

69 percent of the total number of dairy

farmers on the market during

September.

According to the witness, AMPI

supplied the Turner Dairy Covington

plant, which, since the termination of

Order 97, had been a partially regulated

distributing plant. He said that in

September 1993 AMPI supplied about

3.2 million pounds of milk to the

Covington plant but could not divert the

milk of any producer from the plant

because it was not a fully regulated

facility.

The witness also testified that AMPI

provided supplemental milk to the

Turner plant in Fulton, Kentucky,

jointly with D.I. and Mid-Am. During

September 1993, he said the three

cooperatives supplied about 5.2 million

pounds of the milk required by Turner

to operate the Fulton facility.

The AMPI representative said that the

supply situation at the Fulton facility

had changed significantly in recent

years. He noted that through 1982 the

plant was completely supplied and

balanced by cooperative milk and that

beginning in 1983 a total of 4.41 percent

of the milk came from independent

producers. The percentage of supply to

the Fulton facility increased every year

since then, he said, except for 1986. For

the first 10 months of 1993, the

percentage of independent supply was

almost 47 percent of the handlers’

needs, he added. He stressed that

although the Turner plant had changed

its source of supply over the last 10

years, the facility continued to rely on

cooperative associations to balance its

supply.

The AMPI witness pointed out that

throughout 1993 most of the Fulton

supply originated from Kentucky,

Missouri, and Tennessee. In September

1993, he noted, 93.5 percent of the

Fulton supply came from these areas.

The spokesman also observed that

Exhibits 5 and 31, which contain data

introduced by the market administrators

of the respective orders, indicate a

significant overlap in procurement

among the areas proposed for merger.

He noted that in May 1993, for instance,

8.2 million pounds of the 22.1 million

pounds of producer milk pooled on the

Memphis order came from Arkansas

producers (just over 37 percent) and that

another 30 percent came from nearby

Tennessee counties from which 6.6

million pounds of milk were pooled on

the Central Arkansas order.

With respect to the Central Arkansas

order, the witness testified that in May

1993 about 6.5 percent of the producer

milk originated in nearby counties in

Kentucky and Tennessee while 69.1

percent of the producer milk pooled on

the order originated in Arkansas. Most

of the remainder of the milk originated

in Missouri and Texas, he said.

The AMPI spokesman testified that

route disposition in the Memphis area

has generally consisted of fluid milk

products from about ten handlers under

other Federal orders. He said that

handlers regulated under Orders 99 and

108 consistently distribute fluid milk

products on routes in the Memphis area.

In Central Arkansas, route disposition

from handlers regulated under other

Federal orders, including Memphis and

Paducah, has ranged from 28.7 percent

in January 1990 to 49.6 percent in

March 1993, according to the witness.

He noted that specific percentages for

route disposition by Order 97 and 99

handlers cannot be included because

less than three handlers are involved.

With respect to the Paducah order, the

witness said that at the current time the

order operates as an individual-handler

pool and that, as such, the order

promotes instability among similarly

situated producers because blend prices

under the Paducah order exceed

significantly those of surrounding

orders. Surrounding markets must carry

the burden of balancing the supply of

the single plant operator under that

order, he said.

The witness testified that blend prices

generated under the Paducah order are

unreasonable given the significant

overlap of supply and distribution

patterns that exists today. He said the
25020 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

situation was very similar to that of the

Milwaukee individual handler pool

prior to its inclusion in the Chicago

Regional pool in 1968 and referenced

the final decision (33 FR 7516) in that

proceeding.

The AMPI spokesman testified that a

situation similar to that described in the

1968 decision is currently at play in the

Paducah milk market. He said that

under the proposed Mid-South order,

however, producers will share pro rata

in the returns from the sale of milk

utilized in all classes; all producers will

carry their fair share of lower prices of

reserve milk not needed at any

particular time for fluid purposes.

The witness indicated that the fluid

sector of the dairy industry has evolved

to fewer but larger handlers who

distribute their products over an

increasingly larger territory. He

predicted that this trend will likely

continue in the future. He concluded

that whenever consolidation of areas is

considered, the Department must look at

the area where the significant majority

of the overlap occurs in sources and in

distribution to delineate merged

marketing areas.

Testimony in opposition to Proposal

No. 13. Two dairy farmers from Martin,

Tennessee (Weakley County), testified

in opposition to the merger of Order 99

with any other order. Both of these

witnesses indicated that they were

independent dairy farmers delivering

their milk to the Turner plant in Fulton,

Kentucky. They stated that they were

opposed to making any change to Order

99 because it would lower the price to

dairy farmers delivering milk to the

Fulton plant.

Testimony in support of other merger

combinations. A consultant appearing

on behalf of Southern Foods Group, Inc.

(SFG), testified that SFG supported the

widest possible merger of orders under

consideration. He said the proposed

marketing area should include not only

the area covered by Proposal 1, but also

the marketing area proposed for

inclusion by both Proposals 2 and 9. He

stated that there was ample evidence of

milk handlers from those additional

areas (i.e., former Order 97 and Order

108) competing with handlers in the

marketing area encompassed by

Proposal 1 to support the inclusion of

those areas in the merged order.

This witness testified that SFG owns

and operates six fluid processing plants

in Texas and Louisiana. The plants

owned by SFG in Louisiana are the

Foremost operation in Shreveport

(regulated under Order 96) and the

Brown’s Velvet plant in New Orleans,

which is regulated by Order 94.

The witness introduced a table

showing the ratio of other order and

partially regulated plants to pool

distributing plants. He pointed out that

the table showed that the ratio is greater

than 2:1 for all of the present orders

under consideration at this hearing,

except for Greater Louisiana. The

Georgia order had a better than 6:1 ratio,

he said, while Memphis and Central

Arkansas had 5:1 and 3:1 ratios,

respectively.

The SFG spokesman stated that there

was ample justification for a single large

order based solely on the existing interorder handler competition, the ratio of

nonpool to pool plants in the separate

orders, and the volume of out-of-area

shipments of packaged products as

shown in hearing exhibits. He said the

Department should not create a new

merged order without including all

areas which are logically part of it,

particularly if that would leave small

orders right on the border of the new

large order.

The witness also focused on the

ability of the market administrator to

collect and disseminate meaningful

statistical data as a basis for supporting

a merger of orders. He pointed out that

confidentiality rules do not permit the

market administrator to publish data for

a zone or an order if less than three

regulated handlers are included in that

zone or order. More meaningful data

and less cumbersome data can be

released for a merged marketing area, he

concluded.

The witness remarked that while SFG

did not contest the idea of including

Shreveport, Lake Charles, and the rest of

western Louisiana in the new merged

marketing area, it was important to note

that handlers in Shreveport and Lake

Charles sell significant quantities of

milk into east Texas in competition with

east Texas handlers and that east Texas

handlers sell significant quantities of

milk into western Louisiana.

He also pointed out that the record

data showed that significant quantities

of bulk milk from Texas were received

at Louisiana plants and that the surplus

Texas milk was available for reserve use

in Louisiana. The existence of that

reserve supply, he said, is a factor in the

analysis of proper pricing in the new

proposed order.

A spokesman testifying on behalf of

Gold Star Dairy, Little Rock, Arkansas,

stated that Gold Star supported the

merger of the Federal orders based on

the proposals before the Secretary. He

emphasized that the proposed mergers

in this hearing ‘‘were not big enough for

Gold Star,’’ commenting that Gold Star’s

flexibility would be limited if it were

not included in a much larger order.

Goldstar’s representative said that

based upon September marketings, Gold

Star would be pooled under the Texas

order in the event of a five-order merger

and would be regulated under the

proposed Gulf States order in the event

of a seven-market merger. It would not

be pooled under the proposed MidSouth order based upon sales, he added.

He cautioned, however, that much of

Gold Star’s sales are to wholesalers so

that the loss of one customer could

determine under which order the plant

is regulated.

The witness stated that Gold Star has

a manufacturing plant in Clovis, New

Mexico, in addition to its bottling plant

in Little Rock. He said that the company

also has a bottling agreement with the

Flav-O-Rich Company to distribute

products out of their Atlanta, Georgia,

facility.

The witness indicated that Gold Star

did not wish to be a high-utilization

plant regulated and pooled in a lowutilization order because eventually it

would be required to pay more for its

milk. He added that Gold Star does not

wish to be part of an order with a baseexcess plan because it would limit Gold

Star’s flexibility in obtaining

supplemental supplies during the baseexcess months. He said that the

proposed base-excess plan, coupled

with the proposed ‘‘dairy farmer for

other markets’’ provision, potentially

builds barriers to the movement of milk.

Gold Star’s unique location outside the

marketing area makes it vulnerable to

those barriers, he said. He remarked that

the fact that such provisions are needed

to protect year-round supplies from pool

riders indicates that the merger is too

small.

The record supports a Southeast

Federal milk marketing order. The

evidence in this record clearly indicates

the need to merge all but one of the

separate orders in this proceeding into

a ‘‘Southeast’’ order that will encompass

all of the existing marketing areas of

these orders as well as the presently

unregulated territory specified at the

outset of this discussion. The basis for

reaching this conclusion is threefold: (a)

There is a clear overlap in milk

production areas—not between every

order with every other order, but

significant enough to link the orders

together; (b) there is a clear overlap in

the distribution of packaged fluid milk

products by handlers regulated under

the individual orders; and (c) there is an

obvious need to insure marketing

stability for all producers within the

proposed marketing area. Since there

was overwhelming support for the

merger of Orders 7, 93, 94, 96, and

former Order 98, and a clear unanimity
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25021

of opinion expressed with regard to the

overlap of milk production and sales in

those areas, this discussion will focus

primarily on the need to combine

Proposals 1, 2, 9, and 13 to form one

order comprised of existing orders 7, 93,

94, 96, and 108, the two orders

terminated in 1993 (Orders 97 and 98),

and the unregulated territory in Georgia,

Tennessee, and Arkansas.

a. Overlap in Milk Production Areas

The overlap in milk production areas

among two or more orders often results

in producer unrest and market

instability when blend prices differ to

any extent between the orders. This

happens because producers are

generally aware of the prices being

received by their neighbors and seek to

find the most lucrative market for

themselves. Sometimes, this may result

in a producer leaving the cooperative

association with which he or she has

been associated or switching from one

proprietary handler to another. It may

also result in producers entering into

business relationships with handlers of

questionable financial stability, which

could lead to the problem of handler

defaults described on the hearing

record.

The difference in two orders’ blend

prices at a particular location may be

caused by a variety of factors, including

order provisions, institutional factors,

and the location of surplus

manufacturing facilities, as well as

obvious differences in class prices.

In the States of Louisiana,

Mississippi, Alabama, and Georgia, the

blend prices are greatly influenced by

the presence of DI’s butter-powder

manufacturing plant at Franklinton,

Louisiana, and Mid-America Dairymen

Association’s cheese plant at Kentwood,

Louisiana, both of which are Order 94

pool plants that process surplus milk

into lower-valued Class III and III-A

products. The influence of these plants

on blend prices in this region is evident

when comparing the difference in Class

I utilization between Order 94 and its

neighbors: Orders 7, 96, and 93. As can

be seen from Table 2, in 1991 the

average Class I utilization for Order 94

was 69.7 percent, compared to 74.6

percent for Order 7, 80.4 percent for

Order 96, and 79.7 percent for Order 93.

A similar comparison of the utilization

percentages contained in Table 2 shows

that this pattern continued in 1992 and

during the first seven months of 1993.

TABLE 2.—PERCENT CLASS I UTILIZATION OF PRODUCER MILK BY FEDERAL ORDER, 1991–93

Order 7 Order 93 Order 94 Order 96 Order 97 Order 98 Order 99 Order 108

1991 .................................. 74.6 79.7 69.7 80.4 73.7 80.2 78.6 73.3

1992 .................................. 76.5 76.9 68.2 78.9 69.2 80.8 82.6 63.9

1993 1 ................................ 80.4 76.1 59.1 69.9 59.8 80.4 87.4 58.7

1 January–July.

The extremely high utilization of the

Paducah market (Order 99), which

increased from 78.6 percent in 1991 to

87.4 percent during the first nine

months of 1993, can be attributed to the

fact that there is only one handler,

Turner Dairy, with a pool plant under

that order and to the institutional

changes that have occurred in that

market, particularly the growth of a nonmember milk supply and a

corresponding reduction in cooperative

association milk. Consequently, the

single plant operator in that market has

an incentive to keep the utilization as

high as possible so as to generate a high

blend price for its non-member

producers. From a different perspective,

it means keeping any reserve supplies

associated with the plant to a minimum.

This situation is far different from a

market with manufacturing facilities,

such as Order 94, which is handling a

disproportionate share of the region’s

reserve supplies. It is noteworthy that as

the Class I utilization of the Paducah

order increased by 19 points from 1991

to 1993, the Class I utilizations of the

neighboring Central Arkansas and

Memphis orders dropped by 14 points.

The differences in blend prices

resulting from these utilizations can be

seen in Table 3, which compares

average blend prices for 1991, 1992, and

the first 7 months of 1993. With respect

to Orders 97, 99, and 108, it should be

noted that the higher Class I utilization

for the Paducah order more than offset

the fact that its Class I price was 38

cents lower than the Class I price for

Orders 108 and 97.

TABLE 3.—BLEND PRICES BY FEDERAL ORDER 1991–93

[In dollars]

Order 7 Order 93 Order 94 Order 96 Order 97 Order 98 Order 99 Order 108

1991 .................................. 1 13.35 1 13.71 13.51 1 $13.84 12.88 12.75 12.67 12.90

1992 .................................. 1 14.64 1 14.83 14.63 1 15.01 13.94 13.99 14.02 13.86

1993 2 ................................ 1 14.37 1 14.52 14.05 1 14.32 13.31 14.03 13.62 13.32

1Order 7 price adjusted to southern zone, Order 93 price adjusted to Zone IV, and Order 96 price adjusted to Zone III to be comparable to

Order 94, which is reported for the highest-priced, southernmost zone. 2 January–July.

The blend prices shown in Table 3 for

Orders 7, 93, and 96 were adjusted to

the highest-priced, southernmost zone,

to be comparable with the Order 94

blend price, which is reported in that

way. The lower utilization of Order 94

is evidenced by its blend price, which

is far below that of Order 93 on the east

or Order 96 on the west.

When price differences are related to

location, there may be adequate grounds

for justifying such differences. When

they occur within a common production

area, however, they cause market

instability. Data in this record show

many common production areas which

are subject to significantly different

blend prices.

Production data in the record shows

a heavy production area in southern

Mississippi and in the ‘‘Florida

parishes’’ of Louisiana north of New

Orleans. Milk from this area moves to

Orders 96, 94, and 93. The record also

indicates there is a very pronounced

overlap in production areas between

Orders 7 and 93 throughout northern
25022 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

Georgia. The production area for the

Georgia market also overlaps the

procurement area for the former

Nashville market in southeastern

Tennessee. In addition, the counties

throughout central Tennessee provide a

significant share of the milk supply for

Order 93 as well as former Order 98.

Table 4 shows the number of counties

in various States from which producer

milk was supplied to various

combinations of orders. The table

shows, for example, that in May 1993

there were 14 Arkansas counties from

which producer milk was supplied to

Orders 97 and 108; that the Memphis

and Paducah orders shared a common

supply area in four Tennessee counties,

four Kentucky counties, three Arkansas

counties, and four counties in south

central Missouri; and that, in aggregate,

the production area for Orders 93 and

98 overlapped in 38 counties in four

different States. Order combinations

that were left out of the table—for

example, 108/96—had no production

counties in common.

In each of the overlapping production

areas referenced above, a pricing

disparity problem either presently exists

or potentially could exist as a result of

the difference in the blend prices

prevailing in those areas. A single

merged marketing area will largely

eliminate this problem, but it will, of

course, persist to some extent wherever

the merged marketing area abuts a

neighboring marketing area (i.e., the

Texas order, the Southwest Plains order,

the Louisville-Lexington-Evansville

order, the Tennessee Valley order, the

Carolina order, and the Upper Florida

order).

TABLE 4: NUMBER OF COUNTIES IN DESIGNATED STATES PROVIDING MILK TO SPECIFIED FEDERAL ORDER MARKETS IN

MAY 1993

State 97/108 97/98 97/99 97/94 108/94 108/99 7/93 93/94 94/96 93/98 7/98

Arizona ......................... 14 ............. 3 3 3 3 ............. ............. ............. ............. .............

Missouri ....................... 8 ............. 4 4 5 4 ............. ............. ............. ............. .............

Tennessee ................... ............. 1 4 2 ............. ............. ............. 1 ............. 26 5

Kentucky ...................... ............. ............. 4 2 ............. ............. ............. ............. ............. 2 .............

Massachusetts ............. ............. ............. ............. 2 ............. ............. ............. 20 7 ............. .............

Georgia ........................ ............. ............. ............. ............. ............. ............. 33 ............. ............. 6 14

Alabama ....................... ............. ............. ............. ............. ............. ............. ............. 2 ............. 4 .............

Florida .......................... ............. ............. ............. ............. ............. ............. ............. 1 ............. ............. .............

Louisana ...................... ............. ............. ............. ............. ............. ............. ............. 1 19 ............. .............

Texas ........................... ............. ............. ............. ............. ............. ............. ............. ............. 1 ............. .............

Total ......................... 22 1 15 13 8 7 33 25 27 38 19

b. Overlap in Sales Distribution Areas

Market instability may occur when

handlers in one marketing area have

significant distribution in another

order’s marketing area. Problems may

arise because of Class I price

misalignment between orders resulting

in an undue price advantage for a

handler in another market. Problems

also arise when a handler in one

marketing area has enough sales in

another order’s marketing area to

become regulated under such other

order. If the blend prices differ

significantly at the plant’s location, the

handler may be forced to pay over-order

charges to maintain its local milk

supply, which, in turn, could put it at

a competitive disadvantage vis-a-vis its

competitors in the marketing area where

it is located.

Data in the record indicate a

significant overlap in distribution areas

within the proposed Southeast

marketing area.

In August 1993, 37.5 percent of the

route disposition in Order 108 came

from plants regulated under Orders 7,

49 (Indiana), 99, 106, and 126. These

sales came from the following plants:

Plant/location Federal

order

Fleming Dairy, Nashville, Tennessee.7.

Plant/location Federal

order

Heritage Farms, Murfreesboro,

Tennessee.

7.

Gold Star Dairy, Little Rock, Arkansas.126.

Turner Dairies, Fulton, Kentucky . 99.

Others .......................................... 106, 126,

49.

In July 1993, during the last month of

the Memphis order, the percentage of

route disposition represented by other

order plants was 30 percent of the total

route disposition in the marketing area.

These sales came from the following

plants:

Plant/location Federal

order

Fleming Dairy, Nashville, Tennessee.98.

Heritage Farms, Murfreesboro,

Tennessee.

98.

Gold Star Dairy, Little Rock, Arkansas.126.

Turner Dairies, Fulton, Kentucky . 99.

Avents Dairy, Oxford, Mississippi 94.

Borden, Inc., Little Rock, Arkansas.108.

Others .......................................... 106, 126,

49.

The Paducah market also has an

extremely high ratio of Class I sales

represented by other order and partially

regulated plants. In July 1993, 67

percent of the Class I sales in the

Paducah marketing area originated from

other order and partially regulated

plants. These sales came from the

following plants:

Plant/location Federal

order

Fleming Dairy, Nashville, Tennessee.98.

Heritage Farms, Murfreesboro,

Tennessee.

98.

Purity Dairies, Nashville, Tennessee.98.

Others .......................................... 32, 46,

49.

In the Georgia marketing area, other

order and partially regulated

distributing plants accounted for nearly

34 million pounds of Class I sales in

August 1993. These sales, which

represented roughly 28 percent of the

total Class I sales that month, came from

the following plants:

Plant/location Federal

order

Baker and Sons Dairy, Inc., Birmingham, AL.93.

Barber Pure Milk Company, Birmingham, AL.93.

Barber Pure Milk Company, Mobile, AL.93.
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25023

4 Official notice is taken of the suspension of

certain provisions of the Greater Louisiana order

effective November 1, 1993, (58 FR 63031) to keep

a Lake Charles, Louisiana, plant from becoming

regulated under the Texas order, under which the

plant would have experienced a sharp reduction in

its blend price.

Plant/location Federal

order

Dairy Fresh Corporation,

Cowarts, AL.

93.

Flav-O-Rich, Inc., Montgomery,

AL.

93.

Meadow Gold Dairies, Inc., Gadsden, AL.93.

Superbrand Dairy Products,

Montgomery, AL.

93.

Gold Star Dairy, Inc., Little Rock,

AR.

126.

Others .......................................... 2, 5, 6,

11, 13,

49,

131.

In the Alabama-West Florida market,

Class I sales accounted for by other

order and partially regulated plants in

August 1993 totaled 15.4 million

pounds or 17 percent of total Class I

sales that month. These sales came from

the following plants:

Plant/location Federal

order

Borden, Inc., Macon, Georgia ...... 7.

Flav-O-Rich, Inc., Atlanta, GA ..... 7.

Fleming Companies, Inc., Nashville, TN.7.

Heritage Farms Dairy,

Murfreesboro, TN.

7.

Flav-O-Rich, Inc., Atlanta, GA ..... 7.

Kinnett Dairies, Inc., Columbus,

GA.

7.

Superbrand Dairy Products, Inc.,

Greenville, SC.

7.

Avent’s Dairy, Inc., Oxford, MS ... 94.

Barber Pure Milk Company, Tupelo, MS.94.

Borden, Inc., Jackson, MS ........... 94.

Turner Dairies, Fulton, Kentucky . 99.

Gold Star Dairy, Inc., Little Rock,

AR.

126.

Others .......................................... 11, 46,

49,

131.

Class I sales by other order and

partially regulated distributing plants in

August 1993 accounted for 12 million

pounds of Class I sales in the New

Orleans-Mississippi marketing area or

roughly 22 percent of the total Class I

sales that month. These sales came from

the following plants:

Plant/location Federal

order

Fleming Companies, Inc., Nashville, TN.7.

Heritage Farms Dairy, Inc.,

Murfreesboro, TN.

7.

Barber Pure Milk Company, Mobile, AL.93.

Brookshire Dairy Products Co.,

Columbus, MS.

93.

Dairy Fresh Corporation,

Prichard, AL.

93.

Flav-O-Rich, Montgomery, AL ..... 93.

Plant/location Federal

order

Meadow Gold Dairies, Inc.,

Huntsville, AL.

93.

Superbrand Dairy Products,

Montgomery, AL.

93.

Borden, Inc., Lafayette, Louisiana 96.

Dairy Fresh of LA, Baker, LA ...... 96.

Kleinpeter Farms Dairy, Baton

Rouge, LA.

96.

Turner Dairies, Fulton, KY ........... 99.

Forest Hill Dairy, Memphis, TN ... 108.

Gold Star Dairy, Inc., Little Rock,

AR.

126.

Others .......................................... 13, 49,

139.

Finally, in August 1993, other order

and partially regulated distributing

plants accounted for 16.3 million

pounds of Class I sales in the Greater

Louisiana marketing area or roughly 40

percent of the total Class I sales that

month. These sales came from the

following plants:

Plant/location Federal

order

Borden, Inc., Baton Rouge, LA .... 94.

Borden, Inc., Jackson, MS ........... 94.

Brown’s Velvet Dairy Prod., Inc.,

New Orleans, LA.

94.

Dairy Fresh Corp., Hattiesburg,

MS.

94.

Superbrand Dairy Products, Inc.,

Hammond, LA.

94.

Borden, Inc., Conroe, TX ............. 126.

Borden, Inc., Tyler, TX ................. 126.

Gold Star Dairy, Inc., Little Rock,

AR.

126.

Southwest Dairy, Tyler, TX .......... 126.

Vandervoorts Dairy, Fort Worth,

TX.

126.

The Class I sales data discussed above

indicate clearly that each of the markets

involved in this proceeding is closely

integrated with neighboring Federal

order markets. However, it still leaves

open the question of how best to

combine these orders because sales data

alone do not provide sufficient guidance

to answer this question.

c. Market Stability

The third factor that must be

considered in determining the

appropriate marketing area is the need

to insure market stability, a prime

objective of the Agricultural Marketing

Agreement Act.

The record testimony paints a picture

of a rapidly evolving industry. The

marketing of milk products continues to

change with ever-wider distribution

areas, centralized operations, interhandler marketing agreements, two-way

containers, back-hauling arrangements,

plant closings, and changes in

ownership, among others. As handlers

widen their distribution patterns, blend

prices are buffeted by the changing

Class I utilization that a large plant can

cause in a marketwide pool. The

shifting of a plant from one order to

another can, and does, result in

handlers being placed in a position

where they can no longer hold on to

their milk supply. Most of these changes

were described in the record; some were

not. Official notice is taken of the

closing of Guth Dairy in Lake Charles,

Louisiana; Acadia Dairy in Thibodaux,

Louisiana; and Walker Resources in

Metairie, Louisiana; and the minority

financial interest acquired by MidAmerica Dairymen, Inc., in Southern

Foods Group effective February 17,

1994.

On the producer side, there have also

been significant changes in marketing

arrangements. Producers have left their

cooperative associations, formed new

cooperative associations, and merged

existing cooperatives. Official notice

was previously taken of the merger of

Gulf Dairy Cooperative Association and

Mid-America Dairymen, Inc., effective

March 1, 1994.

The record evidence in this

proceeding—specifically, the overlap of

procurement and sales areas, together

with the need for stability in a rapidly

changing marketing environment—lead

us to conclude that orderly marketing

will best be served by a market that is

large enough to equitably share the

region’s reserve supplies, to provide

regulatory stability for the plants in this

area, and to provide producers with the

freedom to market their milk in

whatever manner and to whomever they

wish.

Although there are many instances of

plants that are located in one market,

but regulated in another market, there

are also many price alignment problems

that result from these situations.4 It is

best, if possible, to avoid them. The

Gold Star plant would enjoy a more

stable marketing environment if it were

located in the Southeast marketing area,

instead of the Mid-South marketing area

proposed by AMPI.

The larger Southeast market will give

producers in the Central Arkansas and

former Memphis markets more choices

in marketing their milk. At present,

there are a limited number of

distributing plants available to

producers in those markets and those

that are available are primarily supplied
25024 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

by AMPI. Under the merged order,

however, producers will have a choice

of many different handlers and

cooperatives through which to market

their milk. With a uniform set of

regulations applicable to the larger

market, it will be easier for producers to

supply different handlers at different

times of the year without fear of being

shut out of the market because of

separate base and excess plans that are

now, or have in the past, been

applicable to several of the individual

orders involved in the merger.

As indicated in the record, the

Paducah market is, for all intents and

purposes, an individual handler pool.

Producers that are fortunate enough to

have a market with Turner Dairies enjoy

extremely high blend prices and a stable

marketing environment. Their

neighbors, on the other hand, who are

not part of Turner Dairies’ nonmember

supply but instead belong to cooperative

associations such as AMPI, Mid-Am, or

ADCA, must move their milk to

whatever market is available to them

and, according to the testimony of

Turner producers who have compared

milk checks, receive less money for

their milk. This is not the essence of a

marketwide pool: To preserve a market

for one group of producers, while their

neighbors, who balance the Class I

needs of the market, must ship their

milk hundreds of miles away and

receive lower prices for it. In fact, the

fluid market and the reserve market

should be shared equally among all

producers in a marketwide pool.

The Paducah market is not equitably

distributing returns to producers

supplying that market and should be

considered for incorporation within a

larger market, but it should not be

incorporated in the proposed Southeast

market. An analysis of the Federal order

exhibits entered into the record

indicates that in August 1993 there were

11.5 million pounds of milk pooled

under Order 99, of which 88.4 percent

was Class I. Since Turner Dairies’

Fulton, Kentucky, plant was the only

pool plant that month, its Class I sales

were approximately 10.2 million

pounds (i.e., .884 × 11.5). The exhibits

also show that there were 2.0 million

pounds of Class I sales in the marketing

area from the Fulton plant, leaving

about 8.2 million which were

distributed in other marketing areas.

Although the exact distribution of these

8.2 million pounds was not shown in

the record, it is known from the exhibits

that there was distribution from this

plant into the Central Arkansas,

Memphis, New Orleans-Mississippi,

and Alabama-West Florida marketing

areas. If this pattern of distribution were

to continue under the proposed

Southeast order, the Fulton, Kentucky,

plant would become regulated under

that order.

According to the data in the hearing

record, in July 1993—the most recent

month in which separate data for the

Nashville market was available—33

percent of the Class I sales in the

Paducah marketing area were made by

Turner Dairies, Fulton, Kentucky; 22

percent of the sales were made by

handlers regulated under Order 32; 18

percent of the Class I sales were made

by Nashville area plants; and the

remaining 27 percent of Class I sales

were made by plants that were regulated

under Orders 46 or 49 (Indiana), or by

handlers that were partially regulated or

unregulated. With this distribution

pattern, the Paducah marketing area

may fit more appropriately with one of

these other orders than it does with the

proposed Southeast marketing area.

The Memphis market in July 1993, its

last month of operation, resembled the

Paducah market in having only Turner

Dairies plants. In addition to its

Memphis plant, Turner Dairies also

operated a plant at Covington,

Tennessee, 36 miles northeast of

Memphis. Unlike the Paducah market, a

majority of the other order sales in the

Memphis market are from handlers that

would be regulated under the proposed

Southeast order. Also, there is a

significant overlap in procurement areas

between the Memphis order and the

Central Arkansas and New OrleansMississippi orders. There is clearly

sufficient evidence in the record to

warrant regulation of the Memphis area

as part of the Southeast marketing area.

In August 1993, the Central Arkansas

market had four fully regulated

distributing plants: The Borden, Inc.,

plant in Little Rock; the Forest Hill

Dairy Plant (i.e., Turner Dairies) that

was regulated under the Memphis order

in July 1993; Coleman Dairy, Inc., in

Little Rock; and Humphrey’s Dairy in

Hot Springs, 55 miles southwest of

Little Rock.

Before it shifted to the Texas order in

January 1993, the Gold Star plant also

was regulated under the Central

Arkansas order. During December, its

last month under Order 108, there were

49.1 million pounds of producer milk

pooled under that order; in January the

pounds of producer milk dropped to

24.9 million pounds. There was a

similar drop in Class I producer milk,

from 30.2 million pounds in December

1992 to 15.4 million pounds in January

1993.

In August 1993, there were 38.4

million pounds of producer milk pooled

under the Central Arkansas order,

including the producer milk of Forest

Hill Dairy (i.e., Turner Dairies), which

had been pooled under Order 97.

Combining this amount with the 11.5

million pounds of producer milk pooled

under the Paducah market that month

yields a combined total of

approximately 50 million pounds,

which would have made it one of the

smallest Federal order markets that

month.

The point of this comparison is to

show that, if the AMPI proposal had

been adopted, it would have created a

market that would not have provided

the marketing stability that is needed in

this area. In fact, it is very likely that the

proposed Mid-South market would have

been the subject of another lengthy

merger proceeding within the near

future.

AMPI and Mid-Am filed exceptions

objecting to the denial of the proposal

for a Mid-South marketing area. MidAm stated that there is very little

overlap of distribution and procurement

between the proposed Mid-South

marketing area and the other areas

included in the Southeast marketing

area. In addition, Mid-Am argues that

the minimal overlap in distribution

between Central Arkansas and the rest

of the Southeast marketing area is from

two plants: the Gold Star plant in Little

Rock that distributes into the Greater

Louisiana and New Orleans-Mississippi

marketing areas and the Fleming Dairies

plant in Nashville that distributes into

the Central Arkansas and former

Memphis marketing areas.

The findings in this decision

specifically note that the Gold Star plant

has distribution in the Georgia

marketing area and the Alabama-West

Florida marketing area, in addition to

the Greater Louisiana and New OrleansMississippi marketing areas. The former

Memphis market not only receives

distribution from the Fleming Dairies

plant at Nashville, but also from the

Heritage Farms plant at Murfreesboro,

Tennessee (Order 7), and Avents Dairy

at Oxford, Mississippi (Order 94).

Finally, the Heritage plant and the

Fleming plant distribute fluid milk

products into the Central Arkansas

marketing area.

The overlap in procurement between

Orders 7, 93, 94, and 96 with Orders

108, 97, and 99 is not as great as it is

among other marketing areas being

merged. Nevertheless, there is an

overlap in procurement between Order

94 and former Order 97 (13 counties in

May 1993) and between Orders 94 and

108 (8 counties in May 1993). Moreover,

the need to merge these marketing areas

is justified by a combination of factors

(distribution, procurement, and
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25025

5The findings and conclusions in this section are

identical to those of the recommended decision,

except for ‘‘lock-in provision,’’ ‘‘unit pooling,’’

‘‘supply plants,’’ ‘‘producer-handler,’’ ‘‘producer,’’

and ‘‘producer milk.’’

marketing stability) that justifies the

inclusion of Central Arkansas and

Memphis in the Southeast marketing

area.

The Southeast marketing area adopted

in this decision encompasses all of the

areas involved in this proceeding, with

the exception of the Kentucky portion of

the former Nashville, Tennessee, order,

the Texas counties of Cass and Bowie,

the Missouri county of Dunklin, and the

Paducah marketing area. This excluded

area (other than the already discussed

Paducah area), and the previously

unregulated area in Tennessee, Georgia,

and Arkansas that has been included are

discussed below.

Kentucky portion of former Nashville

marketing area. The Kentucky counties

of Allen, Barren, Metcalf, Monroe,

Simpson, and Warren, and the Fort

Campbell military reservation should

not be included in the Southeast

marketing area.

Proponents of Proposal No. 1

indicated that they had included these

counties in their proposal because they

had been in the previously regulated

Nashville marketing area.

There are no plants in these counties,

except the Glasgow Cheese Plant,

which, according to the record, is not

capable of supplying the market because

it does not have a Grade A receiving

facility.

These counties are surrounded on

three sides by the Louisville-LexingtonEvansville order. There are no

distributing plants in these counties,

and there are no significant population

centers, other than Bowling Green

(population: 42,017) and Fort Campbell.

According to the witness for Fleming

Dairy in Nashville, there are no

significant sales in these counties from

Nashville distributing plants.

In view of their northernmost location

and their proximity to the Order 46

marketing area, the Fort Campbell

Military Reservation and the six

Kentucky counties that were part of the

Nashville marketing area should not be

included in the Southeast marketing

area, but instead should be left

unregulated at this time. There are no

plants that would be unregulated by

their exclusion from the marketing area.

The Georgia county of Rabun. This

county, in the extreme northeast portion

of the State of Georgia within the

Chattahoochee National Forest, is

surrounded on the west and south by

the Georgia marketing area and on the

east and north by the Carolina

marketing area. There are no milk plants

located within the county and no

change in the regulatory status of any

plant would occur as a result of its

inclusion in the Southeast marketing

area. It should be included in the

marketing area for administrative

convenience.

The Tennessee counties of Van Buren,

Bledsoe, Grundy, Franklin, Lincoln, and

Moore. These previously unregulated

counties are located between the

Tennessee Valley marketing area on the

east, the terminated Nashville marketing

area on the west, and the Alabama-West

Florida marketing area on the south.

This is a sparsely populated area from

which milk is produced for the

Nashville and Alabama-West Florida

markets. There are no milk plants in

these counties and no currentlyunregulated plants outside of these

counties would be regulated by the

inclusion of these counties in the

marketing area. This area should also be

included in the proposed marketing

area.

The Tennessee counties of Henry,

Carroll, Benton, Decatur, Henderson,

Chester, and McNairy. These seven

counties, bordered on all sides by the

proposed Southeast marketing area,

should also be part of the marketing

area. There are no milk plants in this

area, nor are there any plants that would

become regulated as a result of their

addition to the marketing area. Since

they would be bordered on all sides by

other parts of the marketing area, no

useful purpose would be served in

leaving them out of the marketing area.

The unregulated Arkansas counties.

These counties, which were proposed

by AMPI for inclusion in the Mid-South

marketing area, should be included in

the Southeast marketing area. There are

no distributing plants in these counties,

and no new plants will become

regulated as a result of the inclusion of

these counties in the marketing area.

The unregulated Texas counties of

Bowie and Cass. The Texas counties of

Bowie and Cass should not be included

in the Southeast marketing area. The

apparent reason for including these

counties in the proposed Mid-South

marketing area was for administrative

convenience since these two

unregulated Texas counties would have

been surrounded by regulated area. This

is a good reason to include these two

counties, but they may, in fact, be more

closely associated with the Texas

market. Rather than introduce the State

of Texas into the Southeast marketing

area for the sake of two counties that do

not include any distributing plants, the

counties of Bowie and Cass should be

left unregulated for possible inclusion

in the Texas marketing area when the

opportunity presents itself.

Similarly, since the Paducah

marketing area has not been included in

the Southeast marketing area, there is no

point in adding one Missouri county to

the marketing area for the sake of mapdrawing convenience. Therefore,

Dunklin County, Missouri, should not

be part of the Southeast marketing area.

2(a). Milk to be priced and pooled.5 It

is necessary to designate what milk and

which persons would be subject to the

merged order. This is accomplished by

providing definitions to describe the

persons, plants, and milk to which the

applicable provisions of the order relate.

The definitions included in the order

serve to identify the specific types of

milk and milk products to be subject to

regulation and the persons and facilities

involved with the handling of such milk

and milk products. Definitions relating

to handling and facilities are ‘‘route

disposition,’’ ‘‘plant,’’ ‘‘distributing

plant,’’ ‘‘supply plant,’’ ‘‘pool plant,’’

and ‘‘nonpool plant.’’ Definitions of

persons include ‘‘handler,’’ ‘‘producerhandler,’’ ‘‘producer,’’ and ‘‘cooperative

association.’’ Definitions relating to milk

and milk products include ‘‘producer

milk,’’ ‘‘other source milk,’’ ‘‘fluid milk

product,’’ ‘‘fluid cream product,’’ and

‘‘filled milk.’’

Several of these definitions were of

particular issue at the hearing: i.e.,

‘‘route disposition,’’ ‘‘pool plant,’’

‘‘producer-handler,’’ and ‘‘producer.’’

All of the remaining definitions are

patterned after those contained in one or

more of the orders involved in this

proceeding. Official notice of the final

decisions setting forth the need and

basis of such provisions was taken at the

hearing. A discussion of those

definitions that were of particular issue

at the hearing, as well as those that

involve substantive modifications, is set

forth below.

Route disposition: § 1007.3. The route

disposition definition sets forth the type

of deliveries that are considered in

determining whether a distributing

plant qualifies for pooling under the

order.

As proposed in Proposal No. 1, route

disposition means any delivery to a

retail or wholesale outlet (except to a

plant) either direct or through any

distribution facility (including

disposition from a plant store, vendor or

vending machine) of a fluid milk

product classified as Class I milk. This

definition should be modified slightly to

include, for the limited purpose of

determining pool plant qualification,

packaged fluid milk products that are

transferred from a plant with route

disposition in the marketing area to a
25026 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

6Official notice is taken of the suspension of

certain provisions of the Southwest Plains order

effective February 1, 1994 (59 FR 11180).

distributing plant if such transfers are

classified as Class I milk.

This language, which is also included

in the Eastern Colorado Federal milk

order (See § 1137.3) is necessary to

preclude a plant from becoming

partially regulated because it ships

significant quantities of packaged fluid

milk products to another distributing

plant, which then distributes those fluid

milk products to retail and wholesale

outlets. This precise situation has

occurred in the neighboring Southwest

Plains order, where a previously fully

regulated plant failed to qualify as a

pool plant because it shipped more than

50 percent of its packaged fluid milk

products to a distributing plant which it

operated in another city.6 As a partially

regulated plant with a Class I utilization

higher than the market average, the

handler was in a position to pay its

producers a price in excess of the

order’s blend price. In addition, during

one month AMPI was required to

depool milk that it had diverted from

the plant in order to insure that the

plant qualified as a pool plant. This

resulted in financial loss to the

cooperative.

To prevent this situation from

occurring in the Southeast marketing

area, the route disposition definition

should include, for the limited purpose

of determining pool plant qualification,

packaged fluid milk products that are

transferred from a plant with route

disposition in the marketing area to a

distributing plant if such transfers are

classified as Class I milk.

As a general application of the order,

packaged fluid milk products that are

transferred from one handler to another

will be treated as an interhandler

transfer. Thus, each transaction should

be properly identified and specifically

reported as such to the market

administrator. This will facilitate

orderly operations and eliminate

ambiguous or dual reports.

The modified route disposition

definition adopted herein will not

change this treatment. It merely

provides that such transfers, which are

classified as Class I and emanate from

a plant with route disposition in the

marketing area, shall be considered as

route disposition from the transferor

plant, rather than the transferee plant,

for the single purpose of qualifying the

transferor plant as a pool distributing

plant under § 1007.7(a).

Plant: § 1007.4. A plant definition

should be included in the merged order

to remove any uncertainty with respect

to what constitutes a plant and what

constitutes a reload point.

The cooperative coalition’s proposed

plant definition is identical to the

definition now found in Order 93. Order

96 contains a slightly different plant

definition, while Orders 7, 94, and 108

do not define this term.

The cooperatives’ proposed definition

should be adopted for the merged order.

The proposal defines plant as the land,

buildings, facilities, and equipment

constituting a single operating unit or

establishment at which milk or milk

products, including filled milk, are

received, processed, or packaged.

Separate facilities without stationary

storage tanks and used only as reload

points for transferring bulk milk from

one tank truck to another or separate

facilities used only as distribution

points for storing packaged fluid milk

products in transit for route disposition

would not be plants under this

definition.

There was no opposition to this

proposal at the hearing or in the briefs

that were filed. This definition is widely

used in other Federal orders and is

familiar to the industry. It should be

included in the merged order.

Pool plants: § 1007.7. Essential to the

operation of a marketwide pool is the

establishment of minimum performance

standards to distinguish between those

plants substantially engaged in serving

the fluid needs of the regulated market

and those plants that do not serve the

market in a way or to a degree that

warrants their sharing in the Class I

utilization of the market. The pooling

standards that are contained in the

attached order would carry out this

concept under present marketing

conditions.

Distributing plants: § 1007.7(a). To be

pooled under the merged order, a

distributing plant’s total route

disposition each month must be equal to

50 percent or more of the fluid milk

products physically received at the

plant or diverted from the plant during

the month. In addition, the plant’s daily

average route disposition in the

marketing area must be equal to at least

1,500 pounds per day or 10 percent of

the plant’s receipts of fluid milk

products, except filled milk, physically

received at the plant or diverted from it

during the month.

Citing an expected Class I utilization

under the merged order that is likely to

exceed 68 percent during all months of

the year, the cooperative coalition

proposed a total route disposition

requirement of 50 percent each month

of the year and an in-area route

disposition requirement of 10 percent.

These requirements are similar to those

of the five existing markets, except for

the Georgia market, which has a 15

percent in-area requirement. These

standards are reasonable and should be

adopted for the merged order.

Lock-in provision: § 1007.7(d). With a

10 percent in-area route disposition

requirement, it is possible that a

distributing plant may meet the pooling

standards of more than one order. A

question then arises concerning under

which order the plant should be

regulated. Under Proposal No. 1, a

distributing plant that met the order’s

pooling standards would be regulated

under the Southeast order if the plant is

located in the Southeast marketing area.

This is a sensible provision to have in

this area and should be adopted.

Testifying in support of the lock-in

provision, the spokesman for the

cooperative coalition stated that this

provision differs slightly from the

traditional Federal order method of

determining where a distributing plant

should be regulated when the plant

qualifies for pooling under more than

one order. He explained that the

traditional method provides that a plant

should be pooled under the order in

which it has the most sales. The

principle behind that rule, he added,

was to insure that all handlers having

sales in an order area were subject to the

same price and other regulatory

provisions as their competition.

The coalition’s witness stated that

with the advent of processing plants

with sales distribution over wide

geographic areas, the traditional method

of pooling distributing plants is

outdated. He said that another, and

equally important, reason for adopting a

lock-in provision is to minimize any

inequities which may occur between

producers located within the same

geographic supply area. These

inequities are created when a

distributing plant is located within one

marketing area and obtains its milk

supply within that marketing area, but

is regulated by another Federal order.

The witness referred to an exhibit

which compared blend prices under the

Greater Louisiana and the adjacent

Texas orders. He noted that the Greater

Louisiana order blend prices, f.o.b. Lake

Charles and Shreveport, Louisiana, have

been substantially above the Texas order

prices at similar locations. He said that

the 73 to 77 cents per hundredweight

average difference in blend prices

between the two orders, considering the

overlap of supply for both plants, would

create unstable and disruptive

marketing conditions in the proposed

merged order supply area and that these

differences in producer pay prices

would create difficulties in maintaining
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25027

sales and attracting adequate supplies of

milk for handlers under the merged

order.

In its brief, Southern Foods Group

urged the Secretary to reject any lock-in

provisions, arguing that it was

philosophically opposed to a lock-in

provision unless the provision is

designed to avoid switching the

regulation of a plant from one market to

another on a frequent basis. It stated that

‘‘in general, a plant should be regulated

where it has a plurality of its milk

distribution since that is where it is

competing the most against other

regulated handlers.’’ The brief also

stated that the problem experienced by

Guth Dairy, Lake Charles, Louisiana, is

irrelevant because that plant has gone

out of business. Finally, focusing on

Gold Star Dairy in Little Rock, SFG

argued that if that plant has greater sales

in the Texas marketing area than in the

Southeast marketing area it should be

regulated under the Texas order.

The question of where to regulate a

plant that meets the standards of more

than one order may actually depend

upon the circumstances involved. While

SFG holds that the plant should be

regulated in the market in which it

mostly competes for sales, problems that

have surfaced in the past year in the

Greater Louisiana, Tennessee Valley,

and Louisville-Lexington-Evansville

orders would indicate that a handler’s

procurement area may be more

important than its distribution area in

determining where the plant should be

regulated.

Given proper Class I price alignment

between two orders (i.e., the same Class

I price at a given location regardless of

which order a plant is regulated under),

a plant which meets the pooling

standards of more than one order will be

in a better position to procure a milk

supply by being regulated in the

marketing area in which it is located

unless it is shipping milk into a market

which is generating a higher blend price

at the plant’s location. Even with the

higher blend price under the other

order, however, it may still not be

appropriate to regulate the plant under

the higher-priced market if, in doing so,

it causes disorderly marketing

conditions in the market where the

plant is located.

With the exception of the Upper

Florida market, the Southeast marketing

area is surrounded by markets with

equal or lower prices. In addition, it is

expected that the Class I utilization of

the Southeast market will exceed the

utilization of these surrounding markets

with the exception of the Upper Florida

market. Consequently, the blend price at

any location within the Southeast

marketing area is likely to be higher

than the blend price at that location

under any of the surrounding orders.

As indicated, the sole exception to

this statement is in southern Georgia or

southern Alabama, where there are no

plants at the present time that would

qualify for pool status in the Upper

Florida market. In view of this, the lockin provision proposed for the Southeast

market is a prudent measure that will

avoid the disorderly marketing

conditions that result when a plant

becomes regulated in a lower blend

price market or switches back and forth

between two orders.

Under the proposed Southeast order,

a plant that qualifies as a pool

distributing plant and which is located

within the marketing area will be

regulated under this order even if it has

greater sales in another order’s

marketing area. The adjacent Texas,

Southwest Plains, Paducah, LouisvilleLexington-Evansville, and Upper

Florida orders contain provisions

(§§ 1126.7(f)(4), 1106.7(f)(2),

1099.7(c)(3), 1046.7(e)(3), and

1006.7(d)(3), respectively) that will

conform to this provision by yielding

regulation of the plant to the Southeast

order. However, §§ 1005.7(d)(3) and

1011.7(d)(3) of the Carolina and

Tennessee Valley orders, respectively,

do not contain this type of provision,

setting up a potential conflict with

§ 1007.7(d), which will only release a

plant that has more sales in another

marketing area if the plant is not located

in the Southeast marketing area.

At the present time, there is no

distributing plant in the Southeast

marketing area that has, or is likely to

have, more sales in the Carolina or

Tennessee Valley marketing areas than

in the Southeast marketing area. Should

this situation change, however, and a

plant located in the Southeast marketing

area does develop more route

disposition under Order 5 or 11 than

under Order 7, the plant should remain

regulated under Order 7

notwithstanding the provisions of

Orders 5 and 11.

The Southeast order should also

contain a provision releasing a plant

from regulation if the other order

contains a provision that requires

regulation of the plant because of its

location within that order’s marketing

area. For example, the LouisvilleLexington-Evansville order, in

§ 1046.7(e)(2)(ii), requires regulation of a

distributing plant if the plant meets the

pooling standards of § 1046.7(a), is

located in the marketing area, and is

subject to a Class I price under Order 46

that is not less than the Class I price

under another order in which it also

qualifies as a pool plant and in which

marketing area it has more route

disposition. Accordingly, a paragraph is

included in the proposed Southeast

order, § 1007.7(e)(4), which recognizes

the jurisdiction of Order 46 to regulate

such a plant.

A new paragraph—§ 1007.7(d)—has

been added to the pool plant rules in

this final decision to clarify the

application of the lock-in provision.

Although the order language would

clearly regulate such a plant by not

releasing it to another order in either

§ 1007.7(g) (3) or (4), the inclusion of the

new paragraph (d) leaves no doubt

about the matter.

Multiple order pooling. At the

hearing, Gold Star suggested another

way of handling a plant with sales in

more than one market. It suggested

prorating the plant’s sales among the

markets in which it qualifies for pooling

and in which it has at least 25 percent

of its sales. Producers supplying the

plant would receive a weighted average

price based upon the blend prices of the

various markets in which the plant so

qualifies.

This proposal should not be adopted.

It would result in paying producers

different prices in a common supply

area—one of the problems cited for

merging these orders—and it would be

cumbersome to administer. With this

merger and perhaps others to follow, the

regulatory problems experienced with

large plants distributing over wide areas

should be significantly diminished.

Unit pooling: § 1007.7(e). Barber Pure

Milk Company (Barber) and Dairy Fresh

Corporation (Dairy Fresh) proposed the

‘‘unit pooling’’ of a distributing plant

and one or more other plants. Under

their proposal, a unit consisting of one

distributing plant and one or more

additional plants of a handler at which

Class I and/or Class II products only are

processed and packaged would be

considered as one plant for the purpose

of meeting the pool distributing plant

requirements if all of the plants in the

unit were located within the marketing

area, and if, prior to the first of the

month, the handler operating such

plants filed a written request for unit

pooling with the market administrator.

The proposal would permit only one

unit per handler, require that all plants

in a unit be located in the marketing

area, and exclude plants producing

frozen desserts from being part of a unit.

Barber’s spokesman testified that

Barber Pure Milk Company operates two

non-pool plants that process and

package Class II products, one located in

Montgomery, Alabama, and the other

located in Oxford, Alabama. The

Montgomery plant processes dessert and
25028 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

ice cream mix and buttermilk for baking

and currently receives about 700,000

pounds of milk from producers per

month. The Oxford plant processes and

packages cottage cheese, sour cream,

and sour cream dip and receives about

400,000 pounds of milk from producers

each month.

The witness stated that, up until early

1992, Barber operated four plants on the

Alabama-West Florida order, located at

Birmingham, Mobile, Montgomery, and

Oxford, Alabama, which is 60 miles east

of Birmingham. Each of the four plants

engaged in the manufacture of Class II

products in varying degrees. He said

that, for efficiency purposes, the Class I

processing and packaging at the

Montgomery and Oxford plants was

moved to the Birmingham and Mobile

plants, while the Class II processing and

packaging at the Birmingham and

Mobile plants was moved to the

Montgomery and Oxford plants.

The Barber witness stated that to

accommodate this economical

specialization of plant operations and

not create any chaos in the marketplace,

it was necessary to make some changes

in the order. If the unit pooling proposal

is not adopted, he said, it will become

necessary to incur unnecessary costs of

moving milk to pool distributing plants,

unloading the milk, reloading the milk,

and transporting it back to the Class II

specialty plants. He noted that the

diversion provisions will accommodate

the movement of some of the needed

milk directly from the farm to the Class

II plants, but not all of the milk

required.

The Barber witness testified that the

milk supply for the Oxford plant comes

from six producers located in the

Alabama counties of Calhoun, Etowah,

and Talladega who produce

approximately 500,000 pounds of milk

per month or about 80 percent of the

plant’s requirements. He said that

without the unit pooling provision,

about two-thirds of this milk could be

diverted to the Oxford plant, but the

remaining third would have to be

delivered to the Birmingham pool plant,

unloaded at the plant, reloaded, and

hauled the 60 miles back to Oxford. The

additional cost involved in this, he

estimated, was approximately 47 cents

per hundredweight or $225 per load.

This witness also testified that milk to

supply the Montgomery plant of

approximately 700,000 pounds per

month is located in northern Alabama

and Tennessee and must be transported

through the city of Birmingham on its

way to Montgomery. There is no

additional hauling cost if the milk is

received at Birmingham; however, the

cost of receiving the milk, washing the

truck, and reloading the milk adds an

additional .20 cents per hundredweight

to the cost of the milk at Montgomery

or an additional $95 for each load of

milk received at Birmingham and then

transferred to Montgomery.

The witness stated that unit pooling

should not be rejected because of

concerns about attracting additional

supplies of milk to the market for Class

II products. He said that the production

of Class II products was demand driven

and that no additional quantity beyond

the demand would be produced by the

specialized plants. Nevertheless, to allay

any concerns that these plants would be

used for surplus disposal, he said the

proposal restricts unit pooling to plants

which produce Class I and II products

only, excluding ice cream.

In its proposal concerning the

proposed Mid-South marketing area,

AMPI also proposed the unit pooling of

plants that are located within the

marketing area. Unlike the Barber/Dairy

Fresh proposal, the AMPI proposal did

not exclude plants making ice cream

from the unit.

In its post-hearing brief, the Fleming

Companies urged that unit pooling be

rejected. It stated that pool performance

standards should be fixed so that each

producer, each plant, and each supply

organization demonstrate a close

association with the Class I

requirements of the market.

The unit pooling proposals make

economic sense and should be adopted

for the merged marketing area, but with

certain restrictions.

The order’s pooling standards insure

that each distributing plant and each

unit of plants consisting of at least one

distributing plant perform at the same

minimum level to be eligible for pool

plant status. The total route disposition

requirement—50 percent each month of

the year—recognizes that not all of the

plant’s receipts will be needed for Class

I use. That standard permits up to 50

percent of the plant’s receipts to be used

in Class II, III, or III-A products.

If Handler A chooses to operate one

large distributing plant in which 40

percent of the plant’s receipts are used

in Class II products, while Handler B

chooses to operate a distributing plant

exclusively for fluid use and another

plant exclusively for Class II products

and the Class I utilization of both plants

added together is 60 percent, it makes

no sense to preclude Handler B from

separating the operations. Both handlers

are performing at precisely the same

levels; they simply differ in their modes

of operation. They should be permitted

to operate in whatever manner they

deem most efficient.

As proposed by Barber and Dairy

Fresh, a unit should be restricted to

plants located in the marketing area that

make only Class I or Class II products.

If a handler wishes to add or remove

plants from the unit, the handler would

have to file a request with the market

administrator before the first day of the

month in which the change is to be

effective.

The provision adopted here deviates

from the Barber/Dairy Fresh proposal by

permitting plants that make frozen

desserts to be included in a unit. No

convincing rationale was given for

excluding ice cream or other frozen

dessert plants from a unit. This

restriction would be unfair to a handler

who makes ice cream in a separate

plant, as compared to another handler

who bottles milk and makes ice cream

in the same plant. It also would require

a set of standards to determine what is

a frozen dessert plant and what is not.

For example, if 50 percent of a

manufacturing plant’s milk was used to

make cottage cheese and 50 percent was

used to make ice cream, one would have

to determine whether this plant was a

cottage cheese plant or a frozen dessert

plant. There is no basis for

distinguishing frozen desserts from

other Class II products for the purpose

of unit pooling. Accordingly, this part of

the Barber/Dairy Fresh proposal is not

adopted.

One additional restriction should be

added to the proposal, however. It

would be inappropriate to permit a

Class II operation in a higher-priced

zone to unit pool with a distributing

plant in a lower-priced zone. An

example will illustrate the point.

If a handler with a plant in

Montgomery, Alabama, processed 6

million pounds into Class I products

and 4 million pounds into Class II

products, it would pay into the pool—

based on prices proposed in this

decision—a Class I location adjustment

of $12,000 (i.e., 6 million pounds x $.20

per cwt.), but in paying producers

supplying the plant, the handler would

draw out of the pool a location

adjustment value of $20,000 (i.e., 10

million pounds x $.20 per cwt.). In

effect, the handler would take out of the

pool in location value $8,000 more than

it contributed.

It is universally true that a handler in

a higher-priced zone will draw out of

the pool more location value in the

blend price to its producers than it

contributes on the basis of its location

adjustment for Class I milk. This is

because the pooling standards do not

require a handler to use all its milk in

Class I. Because the market for Class II

products is more of a regional market,
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25029

location value has not been added to

Class II products. The pool, in effect,

absorbs a certain amount of

transportation cost to provide a handler

with milk for Class II use. When both

the Class I and II products are processed

at the same plant, this subsidization is

limited by the amount of milk that may

be used in Class II at that location.

Under the unit pooling proposal of

Barber and Dairy Fresh, it would be

possible to unit pool a Class I

distributing plant in a lower-priced zone

(e.g., Montgomery, Alabama) with a

Class II operation in a higher-priced

zone (e.g., Franklinton, Louisiana).

Assuming that in this unit, the

Montgomery plant processed 6 million

pounds of Class I milk, while the

Franklinton plant processed 4 million

pounds of Class II milk, the handler

would contribute $12,000 to the pool in

location value on Class I milk, but it

would draw out of the pool $32,000

(i.e., 6 million pounds x $.20 in

Montgomery plus 4 million pounds x

$.50 cents in Franklinton). In other

words, it would take out of the pool

$20,000 more than it contributed in

location value.

It would not be fair to expect all of the

market’s producers to subsidize the

delivery of milk for Class II use in the

Montgomery/Franklinton unit example

described above. As previously noted, a

certain amount of subsidization will

always occur to the extent that Class I

route disposition requirements are less

than 100 percent and no location value

is attached to the Class II price.

However, the opportunity to take

advantage of this situation is equally

available to all of the market’s handlers.

On the other hand, under the Barber/

Dairy Fresh unit pooling proposal large

handlers with multiple plants would be

able to take a disproportionate share of

location value out of the pool if their

Class II operation were located in a

higher-priced zone than their Class I

operation.

To correct this inequity, the

composition of units should be further

restricted. Specifically, in a unit

consisting of two or more plants, any

plant that, by itself, would not qualify

as a pool plant must be located in a

pricing zone providing the same or a

lower Class I price than the price

applicable at the unit distributing plant

that would, by itself, qualify as a pool

plant. Thus, for example, a Class II

operation in Nashville may unit pool

with a Class I operation in Atlanta, but

a Class II operation in Atlanta may not

unit pool with a Class I operation in

Nashville.

This additional restriction on unit

pooling will insure a degree of fairness

to all of the market’s handlers in

processing Class II products and to all

of the market’s producers in the

distribution of pool funds. It also will

tend to encourage milk in lower-priced

areas to be used in lower-valued

products while encouraging milk to

move to the market’s higher-priced areas

for use in Class I.

In their exceptions, Barber Pure Milk

Company (Birmingham, Alabama) and

Dairy Fresh Corporation (Greensboro,

Alabama) objected to the additional unit

pooling restriction. They contend that

any handler can accomplish the same

result—i.e., pool milk at a higher-priced

location—by diverting milk to a Class II

plant located in the higher-priced zone.

They argue that it is more efficient to

permit unit pooling for Class II plants

located in higher-priced zones than the

pricing zone of the qualifying

distributing plant and urge that the

restriction be removed.

First of all, it is not possible to

accomplish the exact same result by

diverting milk to a Class II plant in a

higher-priced zone. The Barber witness

testified that some milk could be pooled

in this manner, but not all of the milk

that might be required. Before a handler

can divert milk, the milk to be diverted

must become eligible for diversion. This

is accomplished by delivering the milk

to a pool plant for a minimum number

of days. Under the Southeast order, at

least 10 days’ production (4 days’

production during January through

June) must be received at a pool plant

during the months of July through

December.

Because of this requirement, there is

a practical limit on where milk will be

diverted in relation to the pool plant

from which diverted. For example, it is

unlikely that a handler in Nashville will

divert milk to a nonpool plant in

Hattiesburg. With unit pooling,

however, milk going to a Class II

operation may have no association with

a Class I operation that is hundreds of

miles away.

There is no indication of how the

removal of this restriction would

promote greater efficiencies. However,

the decision clearly sets forth the

reasons for the restriction: to promote a

degree of fairness to all market handlers,

whether their Class I and Class II uses

are in the same or separate facilities,

and to the market’s producers in the

distribution of pool funds.

Supply plants: § 1007.7(b). A supply

plant should be defined as a plant that

is approved by a duly constituted

regulatory agency for the handling of

Grade A milk and from which fluid milk

products are transferred during the

month to a pool distributing plant. This

is the definition now included in Orders

93 and 108 and proposed by the

cooperative coalition for the merged

order.

To qualify as a pool plant, a supply

plant should be required to transfer a

certain portion of its receipts each

month to a pool distributing plant. In

that way, it will be contributing to the

fluid needs of the market.

As proposed by the cooperative

coalition, a supply plant would have to

transfer 60 percent of its receipts to pool

distributing plants during each of the

months of July through November and

40 percent during each of the months of

December through June. The supply

plant’s ‘‘receipts’’ would include milk

that is diverted from the plant as

‘‘producer milk,’’ but would exclude

milk that is diverted to the supply plant

from another pool plant. In addition,

receipts would include not only the

milk received from individual dairy

farmers, but also the milk received from

a cooperative association acting as a

handler on milk delivered directly from

producer-members’ farms (i.e., pursuant

to § 1007.9(c) of the order).

At the hearing, a spokesman for Kraft

Foods testified that a pool supply plant

should be allowed to use the most

efficient form of milk movement to meet

supply plant shipping requirements. He

said that in addition to including

transfers from the plant, diversions to

pool distributing plants directly from

producers’ farms also should be counted

in meeting those pooling requirements.

In its Proposal No. 9, the Fleming

Companies also proposed that

diversions be used to meet a supply

plant’s shipping requirement.

The record indicates that distributing

plants in the Southeast marketing area

are supplied with milk that comes

directly from producers’ farms. Pool

supply plants, as defined in Section 7(b)

of the individual orders, have not been

a factor in this area for many years. To

the extent that any plant milk is

transferred to distributing plants, such

milk generally comes from cooperative

association ‘‘balancing plants,’’ which

qualify as pool plants based on the

cooperatives’ total deliveries of milk to

pool distributing plants, as opposed to

individual plant performance. Such

deliveries may include transfers of plant

milk but, as a general rule, the milk

comes directly from producers’ farms

without being first delivered to the

cooperative’s plant.

Despite the fact that this market may

have little need for true supply plants,

the merged order should continue to

accommodate the possible pooling of

such plants in case plant milk from a

distant location is needed to
25030 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

supplement locally-produced milk.

However, there is no reason to facilitate

the pooling of manufacturing plants as

‘‘pool supply plants’’ by allowing such

plants to qualify on the basis of direct

deliveries from the farm when the very

fact that such deliveries can be

economically made belies the need for

the ‘‘supply plant’’ in the first place. For

this reason, the Kraft and Fleming

proposals to permit diversions to be

used as qualifying shipments for a

supply plant should not be adopted.

Balancing plants: § 1007.7(c). While

the term ‘‘balancing plant’’ is not

actually used in the order, as described

in § 1007.7(c) of the proposed Southeast

order it means a plant located in the

marketing area and operated by a

cooperative association which delivers

60 percent of the producer milk of its

members to pool distributing plants

during each of the months of July

through November and 40 percent

during each of the months of December

through June. The deliveries to pool

distributing plants may include

deliveries directly from the farms of

producer members of the association as

well as transfers from the cooperative’s

plant.

To be eligible for pool status, the

plant must not qualify as a pool

distributing plant or a pool supply plant

under the Southeast order or any other

Federal order. Also, the plant must be

approved to handle Grade A milk by a

duly constituted regulatory agency.

This provision is essentially the same

as the proposal of the cooperative

coalition, except that it requires a plant

that qualifies under this paragraph to be

located within the Southeast marketing

area. The plants that are likely to

become cooperative balancing plants

under the Southeast order are DI’s

plants in Franklinton, Louisiana, and

Lewisburg, Tennessee, and MidAmerica Dairymen’s plant in Kentwood,

Louisiana. Therefore, the in-area

location requirement should not affect

the regulatory status of any plant that is

expected to be pooled as a balancing

plant under this order.

Unlike a supply plant, which must

incur the cost of shipping milk to the

market, a balancing plant could be

located in New Mexico, Arizona, or

some other distant location and not

incur the cost of shipping milk from

those locations to the market. Such a

plant could qualify based on the direct

deliveries of locally-produced milk. For

this reason, it would be imprudent not

to require a balancing plant to have

some association with the Southeast

marketing area, as urged by the Fleming

Companies, Barber, and Dairy Fresh in

their briefs.

In its joint brief, Barber and Dairy

Fresh urged the Secretary to not only

require a balancing plant to be located

in the marketing area, but also to require

the plant to transfer 10 percent of the

plant’s receipts to pool distributing

plants each month. The Fleming

Companies made a similar plea in its

brief.

These handlers provided no

convincing reason why any shipments

from a balancing plant that is located

within the marketing area are needed.

Such plants, in fact, provide a service to

the market in balancing its reserve

supplies. The performance standards

applicable to the cooperatives which

operate these plants assure that milk

will be made available to meet the Class

I needs of the market. Therefore, in the

absence of a compelling reason for

adopting these seemingly unnecessary

milk handling and transportation

requirements, the request for specific

performance from such a plant is

denied.

The Fleming Companies, Kraft

General Foods, and Southern Foods

Group urged that consideration be given

to establishing pooling provisions for

proprietary handlers that are the same

as those for cooperatives. They contend

that the cooperatives are able to attach

milk supplies to the market which are

devoted exclusively for manufacturing

use, but that proprietary manufacturing

plants and fluid milk handlers are

prohibited from doing the same thing.

Specifically, they stated that cooperative

association ‘‘balancing’’ plants are

allowed to pool based on the

organizational performance of the

cooperative, an option that obviously is

not available to proprietary handlers.

Instead, proprietary handlers would

have to rely on supply plants that are

required to receive, unload, reload, and

transfer producer milk to distributing

plants in order to qualify as pool supply

plants. The issue, they argue, is not one

of ‘‘need’’ for supply plant milk to

supply the fluid market, but whether the

order should permit the dominant

cooperative to service the market

efficiently while requiring noncooperative sources of milk to be

encumbered with great inefficiency.

It is questionable how the ability of

proprietary handlers to attach additional

supplies of milk for manufacturing use

with the market promotes inefficiencies

in supplying the fluid milk needs of the

market. The primary objective of

pooling provisions is to provide the

incentive to supply the fluid milk needs

of the market and to accommodate the

pooling of the reserve supplies of milk

that are available and are necessary to

serve or balance the fluid milk needs.

To the extent that supply plants are

necessary, the pooling standards are the

same for cooperatives and proprietary

handlers. The shipping standards are set

at a level to ensure a sufficient

association with the fluid market to

warrant a share in the Class I use of the

market.

Cooperative association ‘‘balancing

plants’’ serve a different role. These

plants are the outlets of last resort.

When surplus milk has no other place

to go on weekends or during the spring

and summer months, it is manufactured

into storable products at Mid-Am’s

manufacturing plants in Franklinton

and Kentwood, Louisiana, and

Lewisburg, Tennessee. When

production decreases, these plants may

shut down completely or operate at

minimal capacity. There has to be some

place for surplus milk to go and dairy

farmers, through their cooperative

associations, have assumed the burden

of processing this surplus milk. At the

same time, the overall pooling standards

ensure that milk is supplied for fluid

use, which is a primary objective of the

cooperative associations supplying the

market.

A proprietary cheese plant operates

on a different premise. The primary

objective of a proprietary cheese plant

operator is to produce as much cheese

as possible as efficiently as possible.

Ideally, such plants prefer to operate at

full operating capacity all the time. To

give up any more milk than is

absolutely necessary is to forgo profits.

There is no basis for incorporating

order provisions in this market that

would encourage additional cheese

production by making it easier to pool

cheese plants. In an area such as the

Southeast marketing area that has a high

Class I price to assure an adequate

supply of milk for fluid use, the

adoption of provisions to facilitate the

proliferation of cheese plants is

unwarranted. There is no shortage of

milk for cheese in the United States, and

there is no reason to encourage

additional milk production for cheese

plants in the Southeast. Fluid milk

processors in the Southeast pay

relatively high Class I prices to assure

an adequate supply of milk for fluid use,

and the blend prices resulting from

those Class I prices should not be

reduced by encouraging additional

production destined for Class III use.

Revisions of pooling standards:

§ 1007.7(f). Kraft Foods proposed that

the market administrator be given the

authority to adjust pool supply plant

shipping standards. The Kraft witness

stated that this will afford the

Department more flexibility in meeting

the changing needs of the market. The
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25031

witness cited the lengthy delays that are

now frequently incurred in suspending

regulations when market conditions

change. He also noted that while some

orders permit the Director of the Dairy

Division to issue revisions of shipping

standards, this process is also a lengthy

procedure.

The Kraft proposal should be adopted,

but it should be modified to include the

distributing plant route disposition

standards in § 1007.7(a), the supply

plant shipping standards in § 1007.7(b),

the cooperative ‘‘balancing plant’’

performance standards in § 1007.7(c),

the ‘‘touch base’’ standards in

§ 1007.13(d) (1) and (2), and the

diversion limitations in § 1007.13(d) (3)

and (4). The authority to increase or

decrease a percentage performance level

should be restricted to not more than 10

percentage points above or below the

levels established in the order. The

authority to increase or decrease the

producer ‘‘touch base’’ standards in

§ 1007.13(d) (1) and (2) should be

restricted to 50 percent of the standard

specified in the order.

Most milk order actions involve

temporary adjustments to pooling

standards to recognize changes in

supply and demand conditions. These

adjustments are accomplished in most

orders by ‘‘suspending’’ certain

language from a provision of the order

so as to reduce the regulatory burden on

handlers and assure the continued

pooling of milk that has been

historically associated with a market

without the need for making costly and

inefficient movements of milk. A large

percentage of these suspensions could

be avoided by permitting the order’s

pooling standards to be adjusted slightly

at the direction of the market

administrator, who is the person

delegated by the Secretary to administer

the order.

Suspension actions only provide a

means for reducing pooling standards.

These actions cannot be used to increase

pooling standards in the event that

additional supplies of milk are needed.

A few orders provide authorization for

the Director of the Dairy Division to

either increase or decrease pooling

standards as a result of changes in

supply and demand conditions. This

authority is intended to provide a

greater degree of flexibility to adjust

performance standards to the varying

needs of the market. However, the

process for implementing the changes

has made it extremely difficult to

respond as expeditiously as is necessary

to reflect frequent and rapid changes in

marketing conditions.

As proposed herein, the authority to

modify pooling standards and diversion

limitations would be restricted to not

more than 10 percentage points up or

down. Following a written request to

make such an adjustment, the market

administrator will notify all parties in

the market who would have an interest

in the request. This would include, at a

minimum, every handler and every

cooperative association representing

producers in the market. In addition, the

market administrator will notify the

Director of the Dairy Division,

Agricultural Marketing Service, of the

request. The market administrator will

provide at least seven days for the

submission of written comments, which

may be faxed or mailed, before making

a decision concerning the request. Prior

to making such a decision, the market

administrator will confer with the

Director of the Dairy Division.

The flexibility accorded in the order

by this provision should be helpful in

meeting any fluctuating needs of the

market in a timely manner.

Nonpool plant: § 1007.8. The nonpool

plant definition proposed for the

merged order should be adopted. The

plants defined as nonpool plants

include other order plants, plants of

producer-handlers, partially regulated

distributing plants, unregulated supply

plants, and exempt plants. With the

exception of the exempt plant

definition, these terms are standard

among the separate markets involved in

this proceeding.

The exempt plant definition proposed

by the cooperative coalition includes, in

addition to a plant operated by a

governmental agency, a plant with

monthly route disposition of less than

100,000 pounds.

At the hearing, the cooperative

coalition spokesman indicated that if

the two small producer-handlers now in

the Georgia market—Etowah Maid

Dairies, Inc., at Canton, Georgia, and

Sheppard Brothers Dairy Farm at Stone

Mountain, Georgia—were not exempt

from regulation under the producerhandler provisions proposed for the

merged order, they would be under the

proposed exempt plant definition.

Although neither producer-handler

testified at the hearing or filed a posthearing brief, it is not certain that they

would, in fact, be exempt from

regulation under the proposed exempt

plant definition.

According to the cooperatives’

witness, the purpose of the 100,000-

pound exemption ‘‘is to exempt from

pricing and pooling those producerhandlers who are fairly small in size,

whether or not they might otherwise

qualify as a producer-handler.’’ As

written and as explained at the hearing,

however, this provision would apply to

any plant with monthly route

disposition under 100,000 pounds,

whether or not the handler otherwise

meets the criteria for being a producerhandler.

The proposed exemption from

regulation based on monthly route

disposition should be adopted. As a

practical matter, the exemption of plants

of this size would pose no threat to the

order’s regulated handlers. In addition,

the regulatory burden on a handler of

this size is much greater than it is on an

average size handler. Although it is not

certain that the two producer-handlers

in this market would be exempt under

this provision, it should nevertheless be

included in the order to preclude the

regulation of any small handler who

may distribute fluid milk products in

the Southeast marketing area.

Handler: § 1007.9. The impact of

regulation under a Federal order is

primarily on handlers. A handler

definition is therefore necessary to

identify those persons from whom the

market administrator must receive

reports, or who have a financial

responsibility for payment for milk in

accordance with its classified use value.

This will assure that all information

necessary to determine a person’s status

under the order can be readily

determined by the market administrator.

As proposed by the cooperative

coalition, the handler definition should

include the operator of a pool plant, a

cooperative association that diverts milk

to nonpool plants or delivers milk to

pool plants for its account, a producerhandler, and any person who operates a

partially regulated distributing plant,

an-other order plant, an unregulated

supply plant, or an exempt plant.

With the exception of the operator of

an exempt plant, these terms are

standard definitions, which are

included in virtually all Federal milk

orders. The inclusion of the operator of

an exempt plant in the handler

definition is somewhat unusual.

Although most of the individual orders,

except Order 108, exempt government

plants from regulation, none of them

include the exemption for a plant based

on minimum route disposition. Because

of this additional basis for exemption,

the operator of an exempt plant should

be included in the handler definition.

Although the operator of an exempt

plant is, as the name implies, exempt

from full regulation under the order, the

plant operator must still file reports

with the market administrator so that

the basis for exemption can be

determined and milk handled by the

plant can be properly classified. For this

reason, it is logical to include an exempt

plant operator in the handler definition.
25032 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

Producer-handler: § 1007.10. The

merged order should exempt a

producer-handler from regulation if the

producer-handler meets certain

specified requirements. The only two

producer-handlers now operating in the

proposed marketing area have been

subject to the provisions of the Georgia

order. Since this provision is short,

simple, easily understood and virtually

identical to the producer-handler

provisions contained in the separate

orders, it should be adopted for the

merged order.

The cooperative coalition’s proposed

producer-handler provision defines a

producer-handler as a person who is

engaged in the production of milk and

also operates a plant from which during

the month fluid milk products are

disposed of directly to consumers

through home delivery retail routes or

through a retail store located on the

same property as the plant. A person

meeting all of the other requirements for

a producer-handler, but who disposes of

fluid milk products through wholesale

outlets, jobbers, independent route

distributors, or retail outlets other than

a plant store would not qualify as a

producer-handler.

As described by the cooperatives’

spokesman, the retail-wholesale

distinction is designed to address the

point at which the pricing advantage

granted to producer-handlers

contributes to disorderly marketing. The

witness testified that a producer of

medium farm size who bottles his or her

own product and sells to his/her

neighbors is not a serious threat to

orderly marketing. While such a person

still has the same buying advantage,

such savings are less than the additional

cost inherent with small size.

The cooperatives’ spokesman also

stated that even a producer-handler of

substantial size who develops homedelivery routes will probably not pose a

serious threat to orderly marketing

under current economic circumstances.

He noted that where such distribution

does exist, it is far less price sensitive

than sales from supermarket shelves.

Although the producer-handler would

have a cost advantage by exemption

from pricing and pooling, this advantage

would be eroded through the cost

associated with the manner of

distribution, according to the witness.

The witness also testified that a

producer-handler who distributes fluid

milk products through a plant store does

not pose a serious threat to orderly

marketing since the consumer must

come to the producer-handler’s place of

operation. Moreover, the product is not

in the regular price-sensitive channels

of distribution.

The witness said that most fluid milk

product disposition now takes place

through wholesale distribution to

multiple store outlets. These wholesale

accounts are generally high volume in

nature and highly sensitive to price

differentials, he added, and those

handlers who engage in trade through

wholesale channels should not be

exempt from pricing and pooling, even

if such handler deals exclusively with

its own raw milk production.

The spokesman argued that the

purpose of Federal orders is to insure an

adequate amount of pure and

wholesome milk for consumers by

establishing a regulatory scheme that

insures equitable treatment of all

handlers and producers. Unless there is

a very good reason to exempt a plant

from regulation under an order, each

handler should be subject to the same

pricing and pooling provisions to insure

the integrity of the regulatory scheme,

he said.

The witness also claimed that while

Congress intended to exempt small

family production/distribution units

from regulation under an order, it did

not envision the large, multi-million

pound units that now compete in the

wholesale milk trade in many parts of

the country. For this reason, he said, the

cooperatives’ proposed language was

designed to insure that any single

person, partnership, or corporation that

establishes a production/distribution

unit of this magnitude and which

competes in the wholesale market

would come under full regulation.

Experience in the markets involved in

this proceeding indicates that effective

regulation can be achieved without

adopting the type of overly restrictive

producer-handler provision proposed by

the cooperative coalition. In particular,

there is no basis for absolutely

precluding a producer-handler from

having wholesale customers.

As adopted in this decision, a

producer-handler is any person who

operates a dairy farm and a distributing

plant which has route disposition of

more than 100,000 pounds per month

and who receives no Class I milk from

sources other than his/her own farm

production and pool plants. The

producer-handler must provide proof

satisfactory to the market administrator

that the care and management of the

dairy animals and other resources

necessary to produce all Class I milk

handled and the operation of the

processing and packaging business are

his/her personal enterprise and risk.

In conjunction with their proposal to

revise the producer-handler definition,

the cooperative coalition proposed that

the administrative assessment that is

applied to other handlers also apply to

producer-handlers. The coalition

spokesman testified that the market

administrator must audit producerhandlers and may do so for no other

reason than to determine that the

handler is, in fact, eligible under the

provisions of the order to be exempt

from pricing and pooling. He said that

if producer-handlers do not pay their

pro-rata share of administrative

expenses, the total cost would unjustly

fall on the remaining handlers under the

order.

Currently, under each of the separate

orders, the administrative assessment is

applied to handlers on their receipts of

producer milk and on other receipts on

which there is a pool obligation.

Producer-handlers, on the other hand,

who have no receipts of producer milk

or any pool obligation, are not subject to

an administrative assessment.

To the extent that administrative costs

are incurred in administering the

producer-handler provisions, fully and

partially regulated handlers who bear

the administrative costs associated with

this activity are assured that producerhandlers continue to operate in the

manner provided under the order. This

insures that producer-handlers are not

able to transfer the costs and risks of

their operation to others and,

consequently, are not able to gain an

advantage relative to other producers or

handlers. Despite proponents’

testimony, there is no basis for the

payment of administrative assessments

by producer-handlers and, therefore,

must deny the proposal.

Mid-Am filed an exception to the

producer-handler provisions contending

that there was no basis for denying its

producer-handler proposal. It reiterated

its arguments that effective regulation of

producer-handlers cannot be achieved

without the adoption of its proposal and

that producer-handlers should have to

pay the administrative assessment that

is applied to other handlers.

Mid-Am’s arguments do not provide a

basis for altering the findings and

conclusions on this issue. There is no

indication in the record that producerhandlers are causing marketing

problems in the proposed marketing

area. This demonstrates that effective

regulation of producer-handlers can be

achieved without the unduly restrictive

regulations proposed by Mid-Am. Also,

there is not a sufficient basis to

conclude that there is a need for

producer-handlers to pay an

administrative assessment.

Producer: § 1007.12. The term

producer defines those dairy farmers

who constitute the regular source of

supply for the order. Under the
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25033

7As explained in the last two paragraphs at the

end of this section, the diversion limits applicable

to pool plant units which are qualified pursuant to

§ 1007.7(e) have been changed from those contained

in the recommended decision.

Southeast order, producer status should

be provided for any dairy farmer who

produces milk approved by a duly

constituted regulatory agency for fluid

consumption as Grade A milk and

whose milk is received at a pool plant

directly from the producer’s farm or is

picked up at the farm by a cooperative

as a bulk tank milk handler for delivery

to a pool plant.

Producer status should also be

accorded to a dairy farmer who has an

established association with the market

and whose milk is diverted from a pool

plant to a nonpool plant by a

cooperative association or a pool plant

operator. To establish an association

with the market, a dairy farmer’s milk

must be delivered to a pool plant each

month to be eligible to be diverted to a

nonpool plant as ‘‘producer milk.’’

These delivery requirements will be

explained further under the discussion

of producer milk.

Since producer-handlers and exempt

plants are not subject to the order’s

pricing and pooling provisions, milk

which is in excess of the needs of such

operators will not be treated as producer

milk when it is moved directly from the

farms of such operations to a pool plant.

Any such milk delivered to a pool plant

would be ‘‘other source milk.’’

A dairy farmer should not be a

producer under two Federal orders with

respect to the same milk. The producer

definition should exclude a dairy farmer

with respect to milk which is received

at a pool plant under the Southeast

order by diversion from a pool plant

under another Federal order if the dairy

farmer is a producer under the other

order with respect to the milk and the

milk is allocated to Class II or Class III

use under the Southeast order. Also, as

proposed by the cooperative coalition,

the producer definition would exclude

a dairy farmer with respect to milk

which is diverted to a pool plant under

another Federal order if any portion of

such person’s milk is assigned to Class

I milk under the other Federal order.

In its proposed producer definition,

the cooperative coalition included a

paragraph dealing with a ‘‘dairy farmer

for other markets.’’ This provision

would exclude from the producer

definition during the flush production

months a dairy farmer who delivered

more than one-fifth of his/her milk to

plants as other than producer milk

during the short season. Specifically, if

during the immediately preceding

months of August through December

more than one-fifth of the milk from the

same farm was caused to be delivered to

plants as other than producer milk, then

no milk of such a dairy farmer would be

considered to be producer milk during

the following months of January through

July.

The cooperative coalition’s

spokesman explained that this provision

was designed to prevent producers of

other Federal order markets from

pooling their milk on the merged order

during the flush spring months [perhaps

because the blend price was more

attractive] when such milk was not

pooled on the merged order during the

fall months [when the milk may have

been needed]. This provision was

supported by Barber Pure Milk

Company, Dairy Fresh Corporation, and

the Arkansas Dairy Cooperative

Association. It was opposed by

Southern Foods Group and Gold Star

Dairy.

In its post-hearing brief, Southern

Foods Group stated that it strongly

opposed this provision because it would

make it impossible for milk from nearby

areas to be pooled on the Southeast

order except in extraordinary

circumstances. SFG acknowledged that

it had brought Texas milk into the

Greater Louisiana market to provide an

independent milk supply from nearby

areas. It stated that the flexibility to

deliver a producer’s milk to different

plants during the month avoids

uneconomic shipments of milk and has

permitted SFG flexibility in providing

milk to a deficit market.

The dairy farmer for other markets

provision was also opposed by Gold

Star Dairy, which characterized the

provision as a ‘‘trade barrier.’’ Gold Star

stated that it will interfere with the

seamless movement of milk between the

new order and neighboring orders and

noted that it was inappropriate to

penalize a producer for not delivering

milk to the market when it was not

needed.

The ‘‘dairy farmer for other markets’’

provision should not be adopted for the

merged order. As discussed later in this

decision, the proposed order contains a

base-excess plan which will

substantially remove the incentive for a

dairy farmer who has been associated

with another market during the basebuilding months to become a producer

under the Southeast market during the

base-paying months. In addition, this

order has stringent pool plant

performance standards and fairly tight

diversion limitations. In order to be

eligible for diversion during the months

of July through November (December

through June), 10 days’ (4 days’)

production of a producer’s milk must be

received at a pool plant. This ‘‘touchbase’’ requirement will help to keep

distant milk from associating with this

market when the milk is not really

needed at a pool distributing plant.

Finally, with the flexibility accorded the

market administrator in this order, the

pooling standards and diversion

limitations can be adjusted quickly to

forestall any abuse of the order should

it occur. For these reasons, there is no

need to adopt the dairy farmer for other

markets provision in this market.

Mid-Am filed an exception to the

denial of a ‘‘dairy farmer for other

markets’’ provision. Mid-Am contends

that even though the proposed

Southeast order contains a base-excess

plan, ‘‘this does not substantially

remove the incentive for a dairy farmer

who has been associated with another

market during the base-forming months

to become a producer under the

Southeast market during other months

of the year.’’

The record does not support the

adoption of a ‘‘dairy farmer for other

markets’’ provision. As indicated, there

was considerable opposition to this

provision both at the hearing and in

post-hearing briefs. Those opposed to

the provision argued that it was a barrier

that would remove a handler’s

flexibility to shift milk economically

between plants.

The amount of milk that may be

pooled under the Southeast order is

dictated by the order’s pooling

standards and diversion limits. The

market cannot be flooded with outside

milk during the months of January

through July because four days’

production of a producer’s milk must be

received at a pool plant during the

month, and during the months of

December through June only 50 percent

of the producer milk physically received

at a plant may be diverted to nonpool

plants.

The need for marketing flexibility

outweighs the concerns of Mid-Am

regarding the possibility of surplus milk

pooling on the Southeast market. The

‘‘dairy farmer for other markets’’

provision should not be adopted.

Producer Milk: 7 § 1007.13. The

producer milk definition of the

proposed Southeast order defines the

milk that will be priced and pooled

under the order. The provisions

proposed by the cooperative coalition,

and adopted, with some modifications,

in this decision, would require that each

individual producer deliver at least 4

days’ production to a pool plant in each

of the months of December through June

and 10 days’ production in each of the

months of July through November. This

requirement will insure that each
25034 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

producer has a direct association with a

pool plant each month of the year.

Without a ‘‘touch base’’ requirement

of this nature, milk of a producer could

be pooled without ever having to come

to a pool plant. With the provision,

however, there is certainty that the milk

of that producer is at least partially

associated with a pool plant of the order

every month.

So long as the touch-base requirement

has been met during the month, all of

the other milk of a producer that is not

needed at a pool plant may be diverted

directly from the farm to a nonpool

plant if it is not needed at the pool

plant. In aggregate, however, the total

quantity of milk of all producers so

diverted should be restricted to 50

percent during the months of December

through June and 33 percent during the

months of July through November.

Ten days’ production is a reasonable

minimum number of days for

associating an individual producer’s

milk with this market during the short

production months. Based on data in

the record, the Class I utilization in this

market is expected to exceed 80 percent

during the months of July through

November and should range from 65 to

75 percent during the months of

December through June. These

projections support a 10-day delivery

requirement for the short production

season. If at least 10 days’ production of

a producer’s milk is not delivered to a

pool plant during the summer and fall

months, the milk cannot be considered

to be a part of the regular source of

supply for the fluid milk market and

should not share fully in the Class I

utilization of the marketwide pool.

In addition to performance by an

individual producer, the producer milk

section of the order also sets specific

limits on the total amount of producer

milk which may be diverted by the

operator of a pool plant or a cooperative

association to nonpool plants during the

month. As proposed and adopted here,

diversions to nonpool plants by a pool

plant operator would be limited to 33

percent during the months of July

through November, and 50 percent

during the months of December through

June, of the producer milk that is

physically received at pool plants as

producer milk of such handler during

the month. In the case of a cooperative

association, these percentages would be

based on the producer milk that the

cooperative association caused to be

delivered to, and physically received at,

pool plants during the month.

For efficiency in the delivery of

producer milk to pool plants, the

proposed order provides for the

diversion of producer milk from one

pool plant to another pool plant. There

is no limit on this type of diversion.

The proposed order also provides a

procedure to be followed for

determining the pool status of milk if a

pool plant operator or a cooperative

association diverts milk in excess of the

percentage allowances specified in the

order. In this case, the excess quantity

of milk would not qualify as producer

milk and would not be priced under the

order. The diverting handler would be

required to designate the dairy farmer

deliveries that should not be considered

producer milk. Absent such a

designation, no milk diverted by the

handler will be producer milk.

A parallel situation occurs when a

cooperative association’s diversions

from a pool plant to nonpool plants

would cause the pool plant to lose its

pool status. In such a case, the

cooperative will be responsible for

identifying which dairy farmers’ milk

will not be producer milk. If the

cooperative fails to designate the dairy

farmers’ deliveries that are to be

excluded as producer milk, then no

milk diverted by the cooperative to

nonpool plants will be considered

producer milk.

Milk that is diverted from a pool plant

to a nonpool plant should be priced at

the location of the nonpool plant where

the milk is physically received. Diverted

milk is presently priced under the

individual orders in this manner and

should continue to be so priced under

the merged order.

As discussed above (with reference to

pool plants), the market administrator,

upon request of a handler in the market

and following the submission of data,

views, and arguments, should be

permitted limited flexibility to adjust

pooling standards and diversion

limitations. With respect to diversion

limitations, the market administrator

should be permitted to increase or

decrease diversion limitations by 10

percentage points. For example, the 33

percent limitation could be decreased to

23 percent or increased to 43 percent. In

the case of the touch-base requirement,

the market administrator should be

permitted to increase or decrease these

requirements by up to 50 percent.

Accordingly, the requirement that each

producer deliver 10 days’ production of

milk to a pool plant before being eligible

for diversion to a nonpool plant may be

increased to 15 days or decreased to five

days. During the months of December

through June, when a four day touchbase requirement applies, the touch base

requirement could be increased to six

days or decreased to two days. This

flexibility will allow the market

administrator to respond quickly to

changing market conditions.

In their exceptions, Barber Pure Milk

Company and Dairy Fresh Corporation

(Greensboro, Alabama) reiterated the

request initially made in their hearing

proposal to be permitted to combine all

of the milk physically received at all of

their pool plants in determining their

diversion limits rather than compute

diversion limits based on each plant’s

receipts.

This modification should be adopted

for handlers that unit pool their plants.

Like unit pooling, unit diverting also

will allow handlers to operate their

plants in a more efficient manner.

Rather than having to juggle milk

between two pool plants to meet touchbase requirements, handlers will be able

to divert milk from the plant that

normally receives it. This provision, in

conjunction with unit pooling, will

provide handlers great flexibility in the

operation of their plants.

Other Source Milk: § 1007.14. The

other source milk definition has been a

standard definition included in all milk

orders since 1974, when a uniform

classification plan was instituted for all

milk orders. The definition included in

the proposed Southeast order is

identical to those included in the

individual orders.

In addition to milk received from

producers, a regulated pool plant may

receive milk or milk products from

sources other than producers. The other

source milk definition identifies those

other sources.

Specifically, ‘‘other source milk’’

means all skim milk and butterfat in a

handler’s receipts of fluid milk products

or bulk fluid cream products from any

source other than producers,

cooperative association handlers, or

pool plants. It also includes a handler’s

receipts of fluid cream products in

packaged form from other plants. In

addition, any milk products (other than

fluid milk products, fluid cream

products, and products produced at the

plant in the same month) from any

source which are reprocessed, converted

into, or combined with another product

in a handler’s plant during the month

would be considered a receipt of other

source milk. Finally, receipts of milk

products (other than fluid milk products

or fluid cream products) for which a

handler fails to establish a disposition

would also be included under the other

source milk definition.

Unlike packaged fluid cream

products, which are Class II products

and therefore not included in the fluid

milk product definition, bulk fluid

cream products are treated in the same

manner as fluid milk products for the
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25035

8 Several changes in pricing have been made in

this final decision. Changes in Class II and III prices

are the result of national decisions amending all

Continued

purpose of applying the other source

milk definition. This facilitates the

application of the other provisions of

the order. Accordingly, receipts of fluid

cream products in packaged form from

other plants are considered other source

milk.

Although no handler obligation is

involved with these receipts, it is

desirable for accounting purposes that

such receipts be defined as other source

milk. This accounting technique

precludes the record-keeping difficulties

that might otherwise be experienced in

accounting separately for inventories

and sales of Class II products processed

in the handler’s plant versus those

received at the plant in packaged form

from other plants. Such receipts are

allocated directly to the handler’s Class

II utilization.

Manufactured products from any

source that are reprocessed, converted

into, or combined with another product

in the plant also are considered as other

source milk. Such products include dry

curd cottage cheese received at a pool

plant to which cream is added before

distribution. Such receipts are allocated

to a handler’s Class II or III utilization,

depending upon the use of the product.

No handler obligation is applicable.

Products manufactured in a pool

plant during the month and then

reprocessed, converted into, or

combined with another product in the

same plant during the same month are

not other source milk. Under this

situation, producer milk is considered

as having been used to produce the final

product.

Disappearance of manufactured milk

products for which the handler fails to

establish a disposition is considered as

other source milk. Each handler is

required to account for all milk and

milk products received or processed at

the handler’s plant. Otherwise, a

handler may have an opportunity to

gain a competitive advantage over

competitors. Treating the unexplained

disappearance of manufactured milk

products as other source milk

contributes to a uniform application of

the provisions to all handlers.

Fluid Milk Product/Fluid Cream

Product: §§ 1007.15 and 1007.16. The

terms fluid milk product and fluid

cream product are standard definitions

in all milk orders and were proposed for

inclusion in the merged order. There

was little discussion at the hearing

concerning these definitions and no

opposition to their inclusion in the

merged order.

The fluid milk product and fluid

cream product definitions were most

recently revised in a national decision

involving all Federal milk orders that

was issued on February 5, 1993 (58 FR

12634), and which became effective on

July 1, 1993. Official notice is taken of

that decision, including the reasons set

forth for the standards adopted in these

definitions. They are incorporated by

reference in this decision.

Filled Milk: § 1007.17. The term filled

milk also is identical in all milk orders

and was proposed for inclusion in the

merged order. There was no opposition

to this provision.

Filled milk is defined as any

combination of nonmilk fat (or oil) with

skim milk (whether fresh, cultured,

reconstituted, or modified by the

addition of nonfat milk solids), with or

without butterfat, so that the product

(including stabilizers, emulsifiers, or

flavoring) resembles milk or any other

fluid milk product, and contains less

than six (6) percent nonmilk fat (or oil).

In determining the classification of

filled products, the same competitive

criteria should apply to these products

as to fluid milk products.

The filled milk definition stems from

the Assistant Secretary’s decision for all

Federal orders issued October 13, 1969

(34 FR 16881). That decision is

incorporated by reference in this

decision.

Commercial food processing

establishment: § 1007.19. A standard

definition for commercial food

processing establishment was added to

all orders on July 1, 1993. The definition

contained in the Assistant Secretary’s

February 5, 1993, decision (58 FR

12675) is just as appropriate for the

merged Southeast order as it is for the

individual orders of which it is

comprised.

Product prices: § 1007.20. A final

decision amending the Class II price

under all Federal orders was issued

January 27, 1995, and published

February 2, 1995 (60 FR 6606). The

decision changed the computation of

the Class II price in a manner that

removed the need for a section dealing

with ‘‘product prices.’’ Since the

amended language of the Class II

decision is applicable to the merged

order proposed in this proceeding,

§ 1007.20 has been removed.

2(b). Classification of Milk:

§§ 1007.40 through 1007.45. Under a

Federal milk order, milk is priced

according to the form or manner in

which it is used. Section 40 of the

proposed order discusses the four

classes of utilization under the order.

Section 41 discusses how to classify

‘‘shrinkage,’’ the disappearance of skim

and butterfat that occurs through

handling, transporting, and processing

milk. Section 42 sets forth rules for

classifying skim milk and butterfat that

is transferred or diverted between

plants. Section 43 contains general rules

pertaining to the classification of

producer milk, and Section 1007.44,

‘‘classification of producer milk,’’

describes how to classify producer milk

by allocating a handler’s receipts of

skim milk and butterfat to the handler’s

utilization of such receipts. Finally,

§ 1007.45 describes the market

administrator’s reports and

announcements concerning

classification.

The classification scheme proposed

for the Southeast order is identical to

the uniform classification plan now in

use in the five individual orders and in

most other Federal order markets. A

detailed explanation of the purpose and

application of these provisions is

contained in the Department’s final

decisions that were issued February 19,

1974 (39 FR 9012), July 17, 1975 (40 FR

30119), and February 5, 1993 (58 FR

12634). Because these provisions deal

with inter-order, as well as intra-order,

movements of milk, they should be

essentially uniform with the

surrounding orders and adopted, with

only a slight modification, for the

merged order.

Under the present Georgia order, the

application of § 1007.42(c) has been

unclear with respect to the transfer or

diversion of bulk fluid milk products to

an exempt governmental agency plant.

At present, if bulk milk is transferred to

an exempt plant, it is automatically

classified as Class I, based on the

presumption that the transferred milk is

needed only to supplement the ownfarm production of the exempt handler.

However, where the exempt handler has

no own-farm production, this

presumption has resulted in a Class I

classification for milk that, in fact, was

used in a Class II product. Therefore,

this paragraph should be modified to

provide an automatic Class I

classification for transfers or diversions

of fluid milk products to a producerhandler. It should also provide for a

Class I classification for a packaged

fluid milk product transferred to an

exempt governmental agency plant

defined in § 1007.8(e). However, in the

case of bulk fluid milk products or fluid

cream products transferred or diverted

to an exempt plant, the classification

should be based on the exempt plant’s

utilization as determined by the market

administrator.

2(c). Pricing of Milk: 8 §§ 1007.50–

1007.54. Milk pooled under most
25036 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

Federal order Class II and III prices. In addition,

plant location adjustments have been changed as a

result of the comments received.

Federal orders is now priced in four use

classifications: Class I, Class II, Class III,

and Class III–A. Class I milk, which is

generally milk consumed as a beverage,

competes for sales on a local or regional

basis; Class II milk products, which

include soft dairy products such as

cottage cheese, ice cream, and dips,

compete on a regional basis, and Class

III milk products (hard cheese and

butter) and Class III–A products (nonfat

dry milk) are products which can be

stored for extended periods of time and

compete for sales on a national basis.

There are several issues to be

discussed in connection with the

pricing of milk: Class III and III–A

prices, the Class II price, the seasonal

adjustment proposed for the Class III

and III–A prices, the Class I price level,

and the location adjustments that are

needed for the new order.

The Class III–A price: § 1007.50(d).

The present Class III–A price that is

applicable to each of the individual

orders should be continued for the

Southeast marketing area. This price is

based on a product formula, specified in

§ 1007.50(d), that is defined as the

average Central States nonfat dry milk

price for the month, as reported by the

Department, less 12.5 cents, times an

amount computed by subtracting from 9

an amount calculated by dividing 0.4 by

such nonfat dry milk price, plus the

butterfat differential value per

hundredweight of 3.5 percent milk and

rounded to the nearest cent.

Class III–A pricing was added to the

individual orders on December 1, 1993.

The reasons for moving nonfat dry milk

from Class III to Class III–A and for

adopting the product formula described

above were thoroughly explained in a

final decision issued October 20, 1993,

and published in the Federal Register

on October 29, 1993 (58 FR 58112). The

findings and conclusions of that

decision are incorporated by reference

in this decision. There was no

opposition to a continuation of this

price under the merged order.

The Class III price: § 1007.50(c). The

Class III price for the Southeast order

should be the ‘‘basic formula price,’’ as

defined in § 1007.51(a) and as adopted

for all Federal milk orders in a final

decision issued January 27, 1995, and

published on February 7, 1995 (60 FR

7290). The basic formula price is the

preceding month’s average pay price for

manufacturing grade milk in Minnesota

and Wisconsin using the ‘‘base month’’

series, as reported by the Department for

the month, adjusted to a 3.5 percent

butterfat basis using the butterfat

differential for the preceding month

computed pursuant to § 1007.74 and

rounded to the nearest cent, plus or

minus the change in gross value yield

by the butter-nonfat dry milk and

Cheddar cheese product price. This

price will be used in each of the

individual orders involved in this

proceeding and in every other Federal

order. It reflects the value of

manufacturing grade milk used to

produce hard cheese and butter and is

equally appropriate for the Southeast

marketing area.

Seasonal Adjustment to Class III and

III–A Prices. The cooperative coalition

proposal to seasonally adjust the Class

III and III–A prices should not be

adopted.

The proposal would reduce Class III

and III–A prices by 10 cents during the

months of December, January, and

February and by 30 cents during the

months of March, April, and May; it

would increase these prices by 10 cents

in June, 20 cents in July, 25 cents in

August through October, and 15 cents in

November.

The cooperative coalition’s

spokesman testified that there is

considerable cost involved in balancing

the seasonal excess supply of the

proposed marketing area. The

cooperative coalition proposal, he

testified, is designed to relieve the

handlers of some of the cost involved in

assuming this role.

This proposal was opposed by a

handler and a regional cooperative

association in post-hearing briefs. Baker

& Sons Dairy stated in its brief that

while the simple average of the

proposed seasonal adjustments would

be mathematically neutral, they are far

from neutral on a weighted average

basis and would substantially reduce

the blend price and producer income

during the months of December through

May. The handler also argued that this

proposal undermines the principle of

pricing Class III and III-A products on

a national and international basis, and

instead would give one area of the

country an advantage over other areas.

Milk Marketing, Inc., a cooperative

with dairy farmer members in eight

states, also submitted a brief opposing

any seasonal adjustment to the Class III

and III–A prices. MMI wrote that plants

utilizing milk in Class III and III–A

during the months of March, April, and

May would have a 30-cent per

hundredweight advantage over plants

regulated under other orders. It stated

that this translates to a price advantage

of 3 to 4 cents per pound for nonfat dry

milk powder.

The proposal to seasonally adjust

Class III and III–A prices cannot be

justified on the basis of this hearing

record. It is apparent from reviewing the

market administrator’s price

announcements from December 1993

through March 1994 that much of the

seasonally surplus milk in the proposed

Southeast marketing area is

manufactured into nonfat dry milk at

the Mid-America Dairymen, Inc., plants

in Lewisburg, Tennessee, and

Franklinton, Louisiana. As a result of

the institution of Class III–A pricing in

December 1993, the cooperative has

already obtained substantial relief in the

pricing of Class III–A milk. For the four

months from December 1993 through

March 1994, the Class III–A price

averaged $2.15 below the Class III price.

This reduction in price for Class III–A

milk would have reduced the blend

price by approximately nine cents per

hundredweight in the proposed market

for these months if the merged order

had been in effect.

Producers in this marketing area have

already contributed to those

organizations that are balancing the

reserve supplies of the market, and no

compelling reason exists on the basis of

this record to increase this contribution

by further reducing the Class III and III–

A prices with the proposed seasonal

adjustments. The proposal is therefore

denied.

In its exception to the recommended

decision, Mid-Am repeated its request

for a seasonal adjustment of Class III

and III–A prices. While conceding that

Class III–A pricing does provide ‘‘some

relief’’ to those handlers manufacturing

nonfat dry milk, Mid-Am argued that

‘‘Class III–A pricing does not provide

relief from the costs associated with the

seasonal variability of the supply of

milk utilized to produce nonfat dry milk

powder.’’

Mid-Am’s claims for adopting

seasonal pricing of Class III and III–A

milk are insufficient in view of the

reasons set forth for denying seasonal

pricing.

Class II price: § 1007.50(b). A final

order amending Class II pricing under

all Federal milk orders was issued on

January 27, 1995, and published on

February 2, 1995 (60 FR 6606). As

amended, the Class II price is the basic

formula price for the second preceding

month, plus 30 cents. This price is

adopted for the Southeast order for all

of the reasons set forth in the final

decision (i.e., See 59 FR 64524)

pertaining to that issue. There was no

opposition to the adoption of this price

at the hearing, in briefs that were filed,

or in the exceptions that were received.
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25037

Class I Pricing. The Class I price

under the proposed Southeast order

should be determined by adding a Class

I differential to the basic formula price

for the second preceding month. This is

the method for determining Class I

prices under all Federal orders and the

method proposed for the merged order.

There was no opposition to this

proposal.

As proposed by the cooperative

coalition, the Class I differential

applicable to the base zone, which

includes Birmingham, Alabama, and

Atlanta, Georgia, should be $3.08 per

hundredweight, the differential that is

now applicable to those locations under

the Georgia and Alabama-West Florida

orders.

In establishing the Class I price level,

a primary consideration must be to

attract an adequate supply of Grade A

milk for fluid use, taking into

consideration production within the

marketing area relative to the demand

for fluid milk by handlers regulated

under the order and the cost of

transporting bulk milk from surplus

producing areas to supplement local

production. However, an equally

important consideration is to establish a

Class I price that will provide proper

alignment with Class I prices in

neighboring markets. A Class I price that

is too high could result in excessive

milk production within the market and

a retail price advantage for handlers

regulated under lower-priced orders

distributing packaged products in the

marketing area. Therefore, the Class I

price should not exceed the Class I price

in the closest surplus-producing region

plus the cost of transporting bulk milk

from that area to this market.

Based on the current cost of

transporting milk, which the

cooperative coalition’s spokesman

indicated was in excess of 3.9 cents per

hundredweight per 10 miles distance,

the $3.08 Class I differential proposed

for the base zone of the merged order

should be high enough to ensure an

adequate supply of milk but not too

high so as to provide a pricing

advantage for handlers in lower-priced

markets to the north of the Southeast

marketing area.

Plant location adjustments: § 1007.52.

This final decision, like the

recommended decision, provides for 12

pricing zones. However, unlike the

recommended decision, which provided

for a base zone, five minus zones, and

six plus zones, this final decision

contains a base zone, six minus zones,

and five plus zones. These zones, and

the Class I differential adjusted for

location for each zone, are shown on the

map of the marketing area included in

this decision. Table 1 identifies the

plants designated by the numbers on the

map.

Several changes in location

adjustments have been made from those

set forth in the recommended decision.

Zone 1 has been expanded to include 5

counties that were part of Zone 2; a new

zone, designated as Zone 3 on the map,

has been added; several Arkansas

counties, including the Little Rock area,

have been added to the zone that

encompasses the Memphis area (i.e.,

Zone 4); the changes to Zone 4 have

resulted in a slight and non-significant

reconfiguration of the Arkansas counties

that are contained in Zones 5 and 6;

Zones 9 and 10 have been combined

into one zone with a $3.40 price; some

of Zone 12 has been moved to Zone 11;

and the Zone 12 price has been changed

to $3.65. In addition, because of the

addition of the new Zone 3, the

recommended Zones 3–8 are now Zones

4–9. As a result of these modifications,

Class I prices were reduced from those

in the recommended decision by 5 cents

at Nashville; 7 cents at Little Rock; 8

cents at Hattiesburg, Mississippi, and

Cowarts, Alabama; 10 cents at

Hammond, Louisiana; and 3 cents at

Baton Rouge, New Orleans, and Mobile.

Although there is, in reality, one Class

I price that will apply to the Southeast

marketing area, when this price is

adjusted for location, it results in a

unique Class I price for each of the 12

zones of the marketing area. The Class

I price that will be shown for the market

will be the price applicable to Zone 7,

the base zone (Zone 6 in the

recommended decision). This zone

includes Atlanta, Georgia, and

Birmingham, Alabama, two of the

market’s key population centers.

In arriving at the appropriate location

adjustments for the Southeast marketing

area, several factors were taken into

consideration. In addition to

considering the prices that are now

applicable in each of the separate areas

and those embodied in the proposals

submitted, it was necessary to consider

other factors such as the prices in

marketing areas contiguous to the

Southeast marketing area, whether the

prices in the individual marketing areas

lined up properly on an east-to-west

axis in the merged marketing area, the

fluid needs throughout the marketing

area, the supply of milk locally available

to each plant within the marketing area,

the competitive relationship among

handlers in the marketing area, and the

exceptions received in response to the

recommended decision.

The zones in this decision were

carefully drawn to provide proper

alignment with the Carolina order to the

east, the Upper Florida order to the

south, the Texas and Southwest Plains

orders on the west, and the LouisvilleLexington-Evansville, Paducah, and

Tennessee Valley orders on the north;

they were drawn so as to minimize price

changes from one zone to the next zone;

as much as possible, the zones were

drawn so as to include in the same zone

all plants located in close proximity to

one another; and they were drawn in a

way that will provide an incentive for

milk to move from surplus production

areas to metropolitan areas where

distributing plants are located.

Zone 7. The base zone, Zone 7 (Zone

6 in the recommended decision),

includes a band of counties extending

from South Carolina on the east to Texas

on the west. The $3.08 Class I

differential applicable to this zone

borders a $3.08 zone in the Carolina

order and a $3.16 zone in the Texas

order and a $3.00 zone in the Southwest

Plains order. Included within this zone

are three distributing plants in Georgia,

three in Alabama, and two in

Mississippi. The $3.08 adopted for the

Georgia and Alabama plants is the same

price that is now applicable to these

plants and that was proposed by the

cooperative coalition and Fleming

Dairy.

The Mississippi portion of Zone 7

includes the Brookshire (Dairy Fresh)

Dairy Products, Inc., plant in Columbus

(Lowndes County) and LuVel Dairy

Products, Inc., in Kosciusko (Attala

County). At the present time, the price

at the Columbus plant is $3.10, while

the price in Kosciusko is $3.20. Proposal

number 1 would have maintained these

prices, while the Fleming Dairy

proposal would have included the

Columbus plant in its $3.08 zone and

the Kosciusko plant in its $3.18 zone.

Lowndes and Attala Counties should

be added to Zone 7 of the proposed

Southeast marketing area with a Class I

differential of $3.08. This price ties in

well with prices to the east and west

and will be 10 cents below the Class I

price applicable to LuVel’s closest

competitor, Flav-O-Rich in Canton,

which is about 50 miles southeast of

Kosciusko.

The $3.08 price in Zone 7 extends

into 6 counties in southern Arkansas,

which are currently not regulated by

any order. There are presently no

distributing plants in this area. Seven

counties in southern Arkansas, which

contain no distributing plants and are

not now regulated, have been removed

from the base zone and placed in Zone

6. This change, and a similar

conforming change to Zone 5, was made

to maintain an orderly price surface in

southern Arkansas following the
25038 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

transfer of several counties in the Little

Rock area to Zone 4.

One exception to the base zone price

of $3.08 was filed on behalf of Barber

(Birmingham) and Dairy Fresh

(Greensboro). This exception is

addressed after the discussion of Zone

9.

Zone 8. Zone 8 (Zone 7 in the

recommended decision) should have a

Class I differential adjusted for location

of $3.18 (i.e., a plus location adjustment

of 10 cents). This zone borders a $3.23

zone under the Carolina order on its

easternmost edge and a $3.16 zone

under the Texas order on its western

border. There are five distributing plants

in this zone: Foremost Dairies in

Shreveport, Louisiana; the Borden

Company in Monroe, Louisiana; Flav-ORich in Canton, Mississippi; Kinnett

Dairy in Columbus, Georgia; and the

Borden Company in Macon, Georgia.

The Shreveport and Monroe plants are

now in a $3.28 zone under Order 96, the

Flav-O-Rich plant is in a $3.35 zone

under Order 94, and the Columbus and

Macon, Georgia, plants are in a $3.18

zone under Order 7.

Testimony at the hearing indicated

that handlers in northwestern Louisiana

compete with handlers in east Texas

who are subject to a $3.16 price. It was

also pointed out in testimony and in a

brief that Dallas, Texas, which is

roughly the same latitude as Shreveport,

had the same price as Shreveport from

1985 through 1991, after which the

Dallas price was reduced from $3.28 to

$3.16.

Data and testimony in the record also

indicated that there are abundant

supplies of milk available to the

Shreveport and Monroe handlers in

nearby De Soto Parish and in Hopkins

County, Texas, which produced 74

million pounds of milk in December

1992.

The $3.28 price that presently applies

at Shreveport and Monroe and which

was proposed for this area by the

cooperative coalition is too high in

relation to the $3.16 Class I differential

under the Texas order. In the absence of

any testimony indicating that the

Shreveport/Monroe area is a deficit area

needing an unusually high price to

attract a supply of milk, the price in that

area should be reduced to $3.18.

The price at the Flav-O-Rich plant in

Canton should be reduced by 17 cents

to provide proper alignment with areas

to the east and west of Canton. Although

the competitive relationship will be

changed between Flav-O-Rich, Canton,

and its nearest competitor, the Borden

plant in Jackson, Mississippi (Zone 9),

the 10-cent difference in price is not

unreasonably wide in view of the

roughly 25 miles from Canton to Jackson

and is necessary to provide a proper

price relationship with areas to the east

and west of Canton.

Zone 9. Zone 9 (formerly Zone 8 in

the recommended decision) of the

proposed marketing area includes no

plants in Louisiana or Georgia, but does

encompass one plant in Mississippi and

two plants in Alabama.

The Mississippi plant in Zone 9 is the

Borden plant in Jackson, while the two

Alabama plants are the Superbrand and

Barber Pure Milk Company plants in

Montgomery. Under Order 94, the

Jackson plant now has a Class I

differential adjusted for location of

$3.35. As proposed by the cooperative

coalition and Fleming Dairy, that would

also be the price under the merged

order. The two Montgomery plants also

now have a Class I differential adjusted

for location of $3.35, which was also the

price proposed for those two areas.

The price in Jackson, Mississippi, and

Montgomery, Alabama, should be

reduced from $3.35 to $3.28. These

plants are on nearly the same east-west

plane as Dallas, Shreveport, and

Monroe, which would be subject to a

$3.18 price. There was no indication of

a problem attracting a milk supply in

this area, and there are no plants in the

immediate area that would be negatively

impacted by this modest reduction in

price. Accordingly, the pricing in the

four separate marketing areas should be

integrated by the creation of this $3.28

zone.

Fleming and Purity took exception to

the recommended 7-cent price

reduction at Jackson, Mississippi, and

Montgomery, Alabama. They argued

that this change was not proposed or

supported and is untested by the

realities of supply and demand. Finally,

they were concerned that the milk

supply of handlers in Jackson and

Montgomery might be jeopardized by

the price reduction.

Neither the supplier of the Jackson

and Montgomery plants nor the

handlers themselves filed comments

suggesting a problem with the proposed

price of $3.28. In terms of inter and

intra-order alignment, a price of $3.28

appears to line up well with prices to

the north, south, east and west. It is 170

miles from Mobile to Montgomery. If the

transportation cost were computed from

Mobile, the price at Montgomery would

be $3.23 (i.e., $3.65 ¥ [17 × .025]). If

transportation cost were added to the

price at Birmingham, the price would be

about $3.33 (i.e., $3.08 + [10 × .025]).

Based on prices to the east and west of

the marketing area, $3.28 is the correct

price for this area.

Barber and Dairy Fresh also objected

to the lower Class I price at LuVel Dairy

Products, Inc., Kosciusko, Mississippi,

from $3.20 to $3.08. They stated that

there was no support in the record to

make this change.

As explained in the recommended

decision, the prices at Kosciusko,

Canton, and Jackson were too high in

relation to the prices east and west of

those locations. To maintain the existing

prices at those locations while reducing

the prices in northern Louisiana and

northern Mississippi would have put

those handlers at a competitive

disadvantage. Neither Flav-O-Rich nor

Borden nor LuVel excepted to this price

reduction on grounds that it would

jeopardize their milk supply. In fact, the

blend price under the merged order at

those locations is likely to offset the

price reduction so that the lower Class

I price should have no impact on their

ability to attract a supply of milk.

Zone 10. Zone 10 in this final

decision is a combination of Zones 9

and 10 as contained in the

recommended decision. The new Zone

10 runs from the Atlantic Ocean on the

east to a $3.34 zone under the Texas

order on the west. The differential price

adjusted for location in Zone 10 should

be $3.40. There are no distributing

plants within this zone in Louisiana, but

there is one nonpool plant operated by

Hershey Foods in Savannah, Georgia, a

pool distributing plant operated by

Dairy Fresh Corporation at Cowarts,

Alabama, and another Dairy Fresh plant

at Hattiesburg, Mississippi. The Hershey

plant in Savannah is now subject to a

$3.38 price under Order 7; the Cowarts

plant is subject to a $3.38 price under

Order 93; and the Hattiesburg plant has

a price of $3.45 under Order 94. Both

the cooperative coalition and Fleming

Dairy proposed a continuation of

current prices for this area.

A price of $3.48 was recommended

for the Cowarts and Hattiesburg plants

in recommended Zone 10 and a price of

$3.38 for the Savannah plant in

recommended Zone 9. This price

structure would have resulted in a 10-

cent price increase for the Cowarts

plant, a 3-cent price increase for the

Hattiesburg plant, and no change in

price for the Savannah plant. After

reviewing the comments submitted and

further analyzing the market structure in

this area, Zones 9 and 10 should be

combined with a price of $3.40

providing for a smoother pricing

transition between Zones 9 and 11.

Barber (Birmingham) and Dairy Fresh

(Greensboro) excepted to the price

reduction of 17 cents at the Flav-O-Rich

plant at Canton, Mississippi, and the 7-

cent price reduction at the Borden plant
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25039

at Jackson, Mississippi, in relation to the

3-cent increase in price at the Dairy

Fresh plant at Hattiesburg. The

exception noted that the price at

Hattiesburg would be increased by three

cents to $3.48 while the price at New

Orleans would be lowered 17 cents to

$3.68. This would lower the difference

between the Hattiesburg and New

Orleans Class I prices to 20 cents from

its present 40-cent level. These handlers

asked: ‘‘What kind of equity is this

when price zones are set up so that the

price at the plant in Hattiesburg is 30

cents higher than for a plant located in

Canton 105 miles north of Hattiesburg

and only 20 cents lower for plants

located in New Orleans 105 miles south

of Hattiesburg?’’

Finally, Dairy Fresh Corporation, on

behalf of its plant in Cowarts, Alabama,

excepted to the price proposed for its

plant at Cowarts. It argues that there was

no proposal to change this price and no

record evidence to support the proposed

price. The price should be returned to

its present $3.38 level, it concludes.

The price change at Hattiesburg, from

$3.48 in the recommended decision to

$3.40 in this final decision, will reduce

the Hattiesburg price by five cents from

its present $3.45 level under Order 94.

This plant is in a heavy production area

so the lowering of its price should not

affect the plant’s milk supply. From the

standpoint of Class I price alignment,

the lower price at Hattiesburg will not

disrupt price alignment with nearby

competitors. Hattiesburg, for example, is

109 miles to New Orleans and 98 miles

to Mobile. Based on a transportation

allowance of 2.5 cents per 10 miles, the

price at Hattiesburg in relation to New

Orleans should be no lower than $3.37

[i.e., $3.65 ¥ (11 × .025)], while the

price at Hattiesburg in relation to

Mobile should be no lower than $3.40

[i.e., $3.65 ¥ (10 × .025)].

With these price changes, there will

be a 12-cent difference in price between

Hattiesburg and Jackson (i.e., $3.40 ¥

$3.28). This is two cents greater than the

difference that now exists between these

two locations and provides no Class I

price advantage to the Borden plant in

Jackson. The 105-mile distance between

Jackson and Hattiesburg would support

a price difference of 28 cents (i.e., 11 ×

.025) between these locations. There is

no reason to expect handlers to pay any

more than is necessary to obtain an

adequate supply of milk for fluid use.

The prices at Jackson and Canton are

appropriate using this standard.

A $3.40 price in the new Zone 10 will

increase the Cowarts plant’s price by 2

cents in comparison to its present $3.38

level under Order 93, but it will be

lowered by 8 cents in comparison to the

$3.48 price for this area in the

recommended decision. Southern

Alabama is a deficit area and milk is

transported to plants in this area from

as far away as central Tennessee. A

price of $3.48 for Cowarts was proposed

in the recommended decision to ensure

that the Dairy Fresh plant would be

adequately supplied under the merged

order, as well as to provide a smooth

transition in price from southern

Alabama and Georgia into the $3.58

price zone of the Upper Florida

marketing area. Like the plants in

Mobile, the Cowarts plant now enjoys

the relatively high utilization of the

Alabama-West Florida order. Under the

merged order, the uniform price will

probably be lower at Cowarts and the

plant may have difficulty attracting a

supply of milk. Nevertheless, in view of

the strong opposition of Dairy Fresh to

any price increase at Cowarts, the price

should be lowered to $3.40. Cowarts is

more than 190 miles from Mobile, so the

25-cent price difference between

Cowarts and Mobile is far below the cost

of shipping milk from Cowarts to

Mobile. Therefore, the reduction in

price at Cowarts will cause no

disruption in Class I price alignment

with Mobile.

The Hershey plant at Savannah,

Georgia, will experience a two-cent

higher Class I price as a result of this

change. This minimal price change

should have little impact on this plant,

which has a relatively high Class II

utilization.

Zone 11. Zone 11 of the Southeast

marketing area borders the Upper

Florida order on the east, where the

Class I differential price is $3.58, and

the Texas order on the west, where the

price is $3.34. The price in Zone 11

should be $3.58.

Zone 11, which has been modified by

the addition of several parishes and

counties from Zone 12, now includes

only one county that is split between

two zones. The portion of Mobile

County, Alabama, that is within 20

miles of the Mobile City Hall is in Zone

12, while the remainder of Mobile

County is in Zone 11.

With these modifications, there is

now one distributing plant in Zone 11

at Hammond, Louisiana, operated by

Superbrand Dairy Products, Inc., and

there are two Mid-Am manufacturing

plants in the Louisiana parishes of

Tangipahoa and Washington. In

Tangipahoa Parish, Mid-Am operates a

cheese plant in Kentwood. In

Washington Parish, which is to the east

of Tangipahoa Parish, it operates a

butter-powder manufacturing plant in

Franklinton.

At the present time, the Class I

differential price at Hammond,

Kentwood, and Franklinton is $3.65

under Order 94. The cooperative

coalition proposed a continuation of

this price level under the merged order,

as did Fleming Dairy, Dairy Fresh,

Acadia Dairy, Barber Dairy, Brown’s

Velvet Dairy, Guth Dairy, Kleinpeter

Dairy, and Walker Resources.

In August 1993, Tangipahoa Parish

produced 23 million pounds of milk, far

more than any other parish in

Louisiana. Washington Parish was the

next highest production parish that

month, producing 14.6 million pounds.

Directly north of Tangipahoa and

Washington Parishes are the Mississippi

counties of Pike and Walthall, which are

the two highest production counties in

Mississippi, producing 6.9 and 7.0

million pounds, respectively, in August

1993.

Because of the substantial milk

production in this area of southern

Mississippi and southeastern Louisiana,

this area serves as a reserve supply area

for much of the Southeast. In August

1993, for example, more milk was

supplied to the Alabama-West Florida

market from Washington Parish than

any other county or parish in the

Southeast.

A $3.58 price level for Zone 11 will

align properly with the Upper Florida

marketing area and will provide a

smooth transition to Zone 12, which

based upon this decision should be

priced 7 cents above Zone 11. Milk is

not needed in Zone 11, but it is needed

in Zone 12. Therefore, the price in Zone

11 needs to be high enough to provide

proper alignment with lower prices

north of this area and higher prices

south of the area, but it does not have

to be kept at its present level,

particularly since the price in Zone 12

is being reduced.

Although Zones 11 and 10 ($3.58 and

$3.40, respectively) of the Southeast

order abut a $3.34 zone under the Texas

order, there are no distributing plants in

the Texas county of Newton, which

borders these zones. Due to the

extremely large zones in the Texas

marketing area, it is not possible to

gradually increase prices on a north to

south axis in Louisiana while

simultaneously matching up perfectly

with the zone prices of the Texas

marketing area. Because there are no

plants in this area, however, this is not

a serious problem at the present time.

Zone 12. Zone 12 contains several of

the large population centers in this

marketing area, including Baton Rouge,

New Orleans, and Mobile. It extends

from Mobile, Alabama, on the east to the

Texas border on the west. The Class I
25040 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

differential adjusted for location for

Zone 12 should be $3.65 or three cents

below the recommended decision’s

price of $3.68.

At present, the prices at Baton Rouge,

New Orleans, and Mobile are $3.78,

$3.85, and $3.65, respectively. Under

the cooperative coalition proposal, these

prices would stay at their present levels.

Under the Fleming Dairy proposal, and

under Proposal No. 3, which was jointly

submitted by Dairy Fresh, Barber Dairy,

Brown’s Velvet Dairy, and Kleinpeter

Dairy, the price at Baton Rouge would

be reduced to $3.65 and the price at

New Orleans would be reduced to

$3.72. Fleming Dairy also proposed a

price of $3.65 for Mobile.

A spokesman representing Dairy

Fresh of Louisiana (i.e., part of the

Fleming Companies), which operates a

distributing plant in Baker, Louisiana

(about five miles north of Baton Rouge),

testified that the Class I prices in

southern Louisiana should be adjusted

for three reasons. First, he said that the

current Class I price for southern

Louisiana which was established by

Congressional mandate in 1985 has put

this area significantly out of alignment

with the price grid of other locations in

the South. The Congressionallymandated Class I pricing in southern

Louisiana, he said, was not justified in

the 1985 legislative history and cannot

be justified now, particularly since the

area north of Lake Pontchartrain and

Lake Maurepas contains one of the

greatest concentrations of milk cows of

the deep South.

The witness testified that in the

Federal order system higher Class I

prices at one location compared to

another suggest a need to attract milk

from distant supply areas. But southern

Louisiana, he pointed out, is not more

deficit in milk production than Florida.

In fact, he added, southern Louisiana

milk supply is regularly transferred,

primarily by Dairymen, Incorporated, to

Florida during short production months

to supplement Florida’s raw milk

requirements. He said that Louisiana

shipments to Florida totaled 17 million

pounds in 1989, 4 million pounds in

1990, 5 million pounds in 1991, 2.5

million pounds in 1992, and in August

1993 seven loads containing 330,000

pounds.

The second reason why southern

Louisiana prices should be lowered,

according to the witness, was that in

September of 1990 a new Superbrand

plant commenced operation in

Hammond, Louisiana, which is about 40

miles due east of Baton Rouge and 55

miles north of New Orleans. He said the

Superbrand plant was 25 miles closer to

New Orleans than Baton Rouge, yet the

Hammond plant enjoyed a Class I price

of $3.65, which is 13 cents lower than

the Baton Rouge price of $3.78.

The witness testified that the mileage

allowance between Hammond and New

Orleans is 3.6 cents per hundredweight

per ten miles while the mileage

allowance between Baton Rouge and

New Orleans is 0.8 cents per

hundredweight per ten miles. He stated

that the Hammond allowance clearly

exceeds the prevailing rate of about 2.0

cents to 2.5 cents per hundredweight

per 10 miles that prevails elsewhere in

the Southeast.

The Dairy Fresh witness stated that

the third reason why southern Louisiana

prices should be lowered is that in 1991

the Department lowered the Texas Class

I differential by 12 cents per

hundredweight. As a result, he said,

milk processors in Texas immediately

received a relative 12-cent advantage in

their ability to compete with Louisiana

processors. Prior to this decision, he

testified, handlers in the HoustonBeaumont zone of the Texas market

paid 4 cents per hundredweight more

for their Class I milk than processors in

the Baton Rouge area. After the change,

however, these processors paid 8 cents

less than the Baton Rouge processors, he

added. The witness said that the Texas

plants with regular distribution in

Louisiana include two plants in Tyler,

one in Conroe, and one plant in Fort

Worth. One of the Tyler plants, he

estimated, distributed 4 million pounds

of Class I milk per month to retail stores

in Louisiana.

The witness also testified that gross

margins on Louisiana wholesale milk

prices have tightened up since the

Department lowered the Texas prices.

He said it was time to address and

correct the problem of competitive

inequity and price misalignments

without further delay and urged the

Department to address the southern

Louisiana pricing problems by partial

recommended and final decisions

without waiting for analysis and

resolution of other merger issues.

A spokesman for the Southern Foods

Group (SFG) testified that SFG agreed

with Fleming Dairy that the price in

southeastern Louisiana was too high

relative to other areas. He also stated

that the price surface that exists there

today is solely the result of the 1985

Farm Bill, which established statutory

minimums for Class I differentials in

New Orleans and Shreveport. He added

that there is no longer a reason to

maintain the existing price structure in

southern Louisiana because the

Congressional mandate to increase

prices was not binding after April 30,

1988.

The SFG witness testified that the

largest population center for the

Southeast order is Zone 8 of Proposal

No. 1 (i.e., the Atlanta area) with a

population of 3.3 million. He said the

next most populous area is the

Birmingham, Alabama, area with

1,717,455 people, followed by the Baton

Rouge-West Louisiana and southern

Georgia areas with 1.3 million each, and

then New Orleans with 1.2 million.

Using data on nearby milk supplies

and per capita consumption of fluid

milk, the witness asserted that there is

more production in relation to

population in southern Louisiana than

in any other population center of the

marketing area. He said that nearby milk

supplies in southern Louisiana for

December 1992 exceeded 53.5 million

pounds while all of the milk production

located in Zone 8 of Proposal No. 1 was

44.2 million pounds. In contrast, he

pointed out, the population of Zone 8

exceeded southern Louisiana by 2.4

million people. Therefore, he

concluded, the milk price in Baton

Rouge and New Orleans is higher than

is warranted.

In its post-hearing brief, SFG stated

that there should be no difference in

price between Baton Rouge and New

Orleans. The brief pointed out that prior

to the 1985 Farm Bill, the Class I price

at Baton Rouge and New Orleans was

the same. It also emphasized that the

distance from the large pool of milk in

Tangipahoa Parish is roughly the same

to New Orleans as to Baton Rouge

because of the causeway over Lake

Pontchartrain.

A witness appearing on behalf of the

Louisiana Farm Bureau Federation

stated that processors in Louisiana are

losing fluid milk sales and producers

are also losing their market. He testified

that it was important that the pricing

structure be aligned appropriately, not

only within the consolidated area, but

also with the adjacent market areas. He

asked the Department to objectively

evaluate the pricing structures in the

proposed consolidated area. Louisiana

processors cannot be competitive, he

noted, if they are subject to

unreasonably high prices relative to

their competition.

The witness testified that current

Federal order price alignment within,

and adjacent to, Louisiana markets has

resulted in prices that are jeopardizing

the economic well-being of the State’s

dairy industry. Just as important, he

added, it is contributing to a decline in

the critical mass of services essential to

a healthy dairy industry (e.g., milk

hauling, veterinary services, feed

milling, etc.).
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25041

The Louisiana Farm Bureau witness

indicated that ‘‘the decline of our local

markets and loss of our processing

industry, can be directly linked to

imports from adjacent areas.’’ He said

that the present price structure has

resulted in the importation of unneeded

milk from Texas which, in turn, has

caused the unnecessary movement of

milk at the expense of Louisiana

dairymen.

It is concluded from the testimony in

this record that a reduction in price is

absolutely necessary in the Baton Rouge

and New Orleans areas and that there is

no reason for Hammond to be priced 13

cents below Baton Rouge or for Baton

Rouge to be priced seven cents below

New Orleans. Baton Rouge and New

Orleans should be in the same zone

with the same price, and Hammond

should be priced 7 cents lower.

The available supplies of milk in the

New Orleans/Baton Rouge area do not

justify a continuation of the present

price structure. From December 1983 to

December 1992, the milk supply in the

two Louisiana parishes of Tangipahoa

and Washington grew by more than 29

percent, from 39,492,177 pounds of

milk per month to 51,125,921 pounds of

milk per month. In December 1992,

more than 33 million pounds of milk

produced in Tangipahoa Parish were

pooled on Orders 94 and 96. There is

another 15.9 million pounds of milk

available in Washington Parish and in

excess of 4.6 million pounds for

December 1992 from St. Tammany and

St. Helena Parishes. In total, there were

55 million pounds of milk in parishes

close to the New Orleans/Baton Rouge

area.

The Class I differential adjusted for

location for Zone 12 should be $3.65,

which is 13 cents below the present

price in Baton Rouge and 20 cents

below the present price in New Orleans.

It is also five cents below the adjacent

Zone 8 price of Order 126.

In this southernmost part of the

Southeast marketing area, there is

obviously no reason to provide higher

prices to preserve alignment with more

southerly areas because there is nothing

but water south of New Orleans. The

question that must be asked then is

whether or not a higher price is needed

to attract a supply of milk to this area.

The testimony and data in this record

indicate that there is more milk

available to handlers in New Orleans

and Baton Rouge than to handlers in

many other parts of the marketing area.

It would therefore appear that, not only

are the present Class I price levels in

Baton Rouge and New Orleans not

needed to help handlers attract a supply

of milk to this area, but, in fact, may

hinder the movement of bulk milk to

other areas where it is needed for fluid

use.

From May 1984 to May 1993, the total

packaged distribution of fluid milk

products in the Greater Louisiana

marketing area decreased from 46.7

million pounds to 46.4 million pounds,

or by .6 percent. During this same time

period, the distribution of packaged

fluid milk products in this marketing

area by handlers regulated under the

Texas order increased from 2.5 million

pounds to 9.8 million pounds, or by

approximately 290 percent. The total

distribution in the area from handlers

regulated under all other Federal orders

increased from 11.9 million pounds to

15.2 million pounds (i.e., 28 percent).

In the Order 94 marketing area, the

total packaged distribution of fluid milk

products declined from 64.0 million

pounds to 61.5 million from May 1984

to May 1993, or by 3.9 percent. During

this time period, the distribution of

packaged fluid milk products from all

other orders increased from 9.3 million

pounds in May 1984 to 13.3 million

pounds in May 1993, or by 43 percent.

These comparisons paint an

unhealthy picture for handlers in

Mississippi and Louisiana. While their

total disposition of fluid milk products

has gone down, more and more of what

remains of their market is being serviced

by handlers outside the marketing area.

Although there may be other

explanations for these statistics, one

thing that definitely happened during

this timeframe is that the Class I prices

in Baton Rouge and New Orleans went

up in relation to all of the surrounding

orders.

The pricing structure adopted here for

Zone 12 will restore proper price

alignment to this area in relation to

prices in surrounding orders.

The Mobile, Alabama, area should

also be part of Zone 12; specifically, that

part of Mobile County, Alabama, within

20 miles of the Mobile City Hall. The

Zone 12 price of $3.65 is the same price

that now applies to Mobile under Order

93 and which was proposed for this area

by the cooperative coalition.

There are two plants in the Mobile

area: Barber Pure Milk Company

(Barber) in Mobile and Dairy Fresh

Corporation (Dairy Fresh) in nearby

Prichard.

At the hearing, Barber and Dairy

Fresh proposed maintaining the present

$3.65 Class I price at Mobile, but

increasing the producer location

adjustment by an additional 22 cents.

Under the cooperative coalition

proposal and the Fleming Company

proposal, the Class I price also would

have remained at the $3.65 level.

Under the Barber/Dairy Fresh

proposal, handlers in their proposed

Zone 17–A (i.e., that part of the

cooperative’s proposed Zone 17 within

the States of Alabama and Florida)

would pay a 57-cent location

adjustment on their Class I milk (i.e.,

$3.65), but the producers delivering

milk to these plants would be paid an

additional 79 cents (over the base zone

price) on all of the milk delivered to the

plants.

The spokesman for Barber and Dairy

Fresh testified that the demand for Class

I milk in the south Alabama area and

western panhandle section of Florida far

exceeds the supply. He said that

historically milk has been shipped

considerable distances to this area.

The witness testified that in December

1992 the Barber and Dairy Fresh plants

received approximately 17.9 million

pounds of producer milk from nonmember producers and cooperative

association member producers, of which

7.3 million pounds, or 41 percent, was

received from producers located in

Louisiana and Mississippi. He stated

that there is approximately 2.5 million

pounds of milk per month located in

southern Alabama and the panhandle of

Florida that is not being shipped to the

Barber and Dairy Fresh plants. Even if

this milk were delivered to those plants,

he said, there would remain a shortfall

of about 4.8 million pounds of milk. To

maintain this supply, based on current

price relationships, he added, will cost

handlers from 33 cents to 75 cents per

hundredweight.

The Barber/Dairy Fresh witness

indicated that the incentive for these

producers to ship their milk to plants

located in the Mobile area has been the

Order 93 blend price, which averaged

53 cents higher than the Order 94 blend

price in southeastern Louisiana/

southern Mississippi for the 12 months

of September 1992 through August

1993. The problem, he stated, was that

in merging these orders, this blend price

incentive will be eliminated. Without an

additional incentive to move milk to

Mobile, according to the witness, it is

likely that some handlers in the Mobile

area will be forced out of business.

The witness stated that there are

several handlers competing for the milk

supply in Louisiana and Mississippi

who have plants located in that heavy

production area. Among these, he said,

are Mid-America Dairymen, Inc., which

operates a cheese manufacturing plant

in Kentwood, Louisiana, and a butterpowder manufacturing plant in

Franklinton, Louisiana; Flav-O-Rich,

which operates a distributing plant

located in Canton, Mississippi;

Superbrand Dairy Products,
25042 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

Incorporated, which is located in

Hammond, Louisiana; Borden, Inc.,

which has plants in Baton Rouge,

Louisiana, and Jackson, Mississippi; and

Dairy Fresh of Louisiana, which

operates a distributing plant in Baker,

Louisiana.

According to the witness, Gulf Dairy

Association charged an additional 30

cents per hundredweight for milk

delivered to Mobile on top of the 53-

cent blend price difference prevailing

between Orders 93 and 94 between

September 1992 and August 1993. He

stated that Gulf Coast Dairymen’s

Association of Gulfport, Mississippi,

charged an additional 40 cents per

hundredweight for milk delivered to

Mobile.

The Barber/Dairy Fresh proposal was

actively opposed by most of the other

hearing participants and was supported

by no one other than the proponents.

The effect of this proposal would be to

have producers and handlers in other

parts of the marketing area subsidize the

delivery of milk to the Barber and Dairy

Fresh plants in the Mobile area. Those

parties opposed to the proposal argued

that they should not have to subsidize

Barber and Dairy Fresh in attracting a

milk supply. They contended that if

higher prices to producers are needed in

Mobile, the handlers operating plants in

Mobile should pay higher Class I prices

to reflect those higher costs.

The problem posed by the Mobile

handlers can be addressed by providing

a greater transportation allowance to

move milk to the Mobile area. At the

present time, the Mobile area is priced

the same as the heavy production area

in southern Mississippi and

southeastern Louisiana. Thus, there is

no incentive for a producer to incur the

cost of shipping milk from this area to

Mobile. By maintaining a $3.65

differential price in Mobile and

decreasing the price at alternative

locations—i.e., by 10 cents at Kentwood,

Franklinton, and Hammond, Louisiana;

by 20 cents in New Orleans; by 7 cents

in Jackson, Mississippi, and

Montgomery, Alabama; by 17 cents in

Canton, Mississippi; and by 12 cents in

Kosciusko, Mississippi—the blend price

in the Mobile area will cover more of

the transportation costs incurred in

shipping milk to Mobile as compared to

these alternative delivery locations.

If, despite these adjustments, the

Mobile handlers still find it difficult to

attract milk to their plants, the location

adjustment in the Mobile area can be

increased further to provide more

transportation allowance for shipping

milk to Mobile. If this proves necessary,

however, it is only appropriate to

increase both the Class I price and the

producer blend price by the same

amount. In that way, the higher Class I

prices of handlers in the Mobile area

will be passed on to consumers, who

should, appropriately, pay higher prices

reflective of the higher costs of bottling

milk in the Mobile area or transporting

packaged milk to the Mobile area from

plants at other locations.

In its exception, Mid-Am agreed with

the recommended decision in putting

Baton Rouge and New Orleans in the

same pricing zone. Mid-Am disagreed,

however, with also including Hammond

in that zone (Zone 12). It argued that the

distance from Kentwood, Louisiana,

which is the center of the Tangipahoa

Parish supply area, to Hammond is 34

miles, but the distance to Baton Rouge

is 82 miles and the distance to New

Orleans is 73 miles. Mid-Am maintains

that the added distance from the supply

area justifies at least a 9-cent higher

price at New Orleans and Baton Rouge

relative to Hammond. Using the same

analysis with respect to the distance

from Franklinton, Louisiana, to Baton

Rouge, New Orleans, and Hammond

justifies a price at Hammond that is 7

cents lower than the New Orleans and

Baton Rouge prices, according to the

cooperative. Mid-Am concluded that to

improve alignment between Hammond,

Baton Rouge, and New Orleans, the

Louisiana parishes of Livingston,

Tangipahoa, and St. Tammany and the

Mississippi counties of Hancock,

Harrison, and Jackson should be added

to Zone 11 and the price of Zone 12

should be reduced from $3.68 to $3.65.

Dairy Fresh of Louisiana, Inc., the

operator of a distributing plant at Baker

(Baton Rouge), Louisiana, suggested

expanding Zone 10 to include Zone 11

and applying a price of $3.48 to this

combined zone. It also suggested

reducing the price in Zone 12 to $3.58.

It argued that no point is served in

having a separate zone which only

contains Mid-Am’s two manufacturing

plants at Franklinton and Kentwood;

reducing the price at these plants to

$3.48 would enhance the blend price for

the market and would encourage milk to

move from this high production area to

distributing plants at Hattiesburg,

Mississippi; Cowarts, Alabama; and

Mobile, Alabama.

Dairy Fresh also stated that revamping

prices in this way will not create any

alignment problems with the Upper

Florida order or with the Houston/

Beaumont area of the Texas order

because there are no Texas plants in the

immediate vicinity of southern

Louisiana. It concluded that its

suggested lowering of prices in the

Baton Rouge/New Orleans area will

restore the relationship that existed

between south Louisiana and the

Houston area prior to 1991, when the

Texas price was reduced by 12 cents.

Barber and Dairy Fresh objected to the

prices recommended for the Mobile

area. These handlers stated that the

Department erred in dismissing their

proposal for separate Class I and

producer location adjustments. They

also wrote that separate location

differentials for producers delivering

milk to pool plants located within the

marketing area are a method that could

and should be used in addition to the

Class I price to move milk to areas

within the market where the milk

supply is short.

Barber and Dairy Fresh also objected

to placing Mobile, Alabama, in Zone 12

and increasing the price there by three

cents. They urged the Department to

reduce their price to $3.58 or at least to

the present level of $3.65.

Finally, Gold Star Dairy objected to

the price reduction in southern

Louisiana because it ‘‘upsets the

competitive balance.’’ It stated that ‘‘it is

improper to upset the economic balance

without evidence of any change in

marketing conditions justifying a change

in prices.’’

After reviewing the comments cited

above and further analyzing the market

structure of Zone 12 and the

surrounding areas, it is concluded that

the Zone 12 price should be lowered

from $3.68 to $3.65. Also, as mentioned

previously, the Louisiana parishes of

Tangipanoa and St. Tammany, and the

Mississippi counties of Hancock,

Harrison, and Jackson should be moved

from Zone 12 to Zone 11. This reduces

the price at Hammond by 7 cents. Bulk

milk delivered to Hammond is not

worth as much as milk delivered to

Baton Rouge or New Orleans and it is

appropriate to have a lower price at

Hammond, as suggested by Mid-Am.

Livingston Parish should not be

shifted from Zone 12 to Zone 11, as

suggested by Mid-Am. Although there

presently are no plants in this parish,

one could be built there in the future

and have a price advantage over nearby

plants in Baton Rouge. Livingston

Parish should remain in Zone 12 to

serve as a buffer between Baton Rouge

and lower-priced Zone 11.

In Federal order markets, prices

gradually increase from the Upper

Midwest to the tip of Florida. The

present pricing structure, which has

evolved over time, reflects the fact that

some southern areas occasionally need

to import milk from surplus areas to the

north. This is not true for every

southern area. There may be pockets of

heavy production, such as central

Tennessee or southern Louisiana, which
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25043

do not require supplemental milk from

other areas, but which have higher

prices nevertheless to preserve Class I

price alignment with higher-priced

areas to the south.

As noted above, southern Louisiana is

a heavy production area. The handlers

in Hammond, Baton Rouge, and New

Orleans do not have to import milk from

distant areas because they have an

abundant supply at their doorstep.

Because there are no handlers in the

Gulf of Mexico, prices do not have to be

increased at 2.5 cents per 10 miles

through southern Louisiana to preserve

price alignment with areas to the south

of New Orleans.

The argument of Barber and Dairy

Fresh that prices should be higher in

New Orleans so that Dairy Fresh at

Hattiesburg can afford to ship and sell

packaged milk in New Orleans does not

meet the standards of the Agricultural

Marketing Agreement Act. Location

adjustments reflect the cost of hauling

bulk milk from production areas to

processing plants. The adjustments

compensate producers for the economic

service they provide to handlers.

Similarly, the position of Gold Star

Dairy that the reduction in price at New

Orleans upsets the competitive balance

between Little Rock and New Orleans

provides no justification for not

reducing a price that obviously is higher

than it needs to be.

The goal of the Federal milk order

program is to ensure an adequate supply

of milk for fluid use and to establish and

maintain orderly marketing conditions.

Consumers in New Orleans should not

have to pay higher milk prices simply

to reflect the transportation cost of

shipping packaged products there from

Hattiesburg, Texas, Little Rock, or

anywhere else because there are milk

processing plants in the New Orleans

area that can obtain bulk fluid milk at

a cost that is less than the cost of

hauling packaged milk.

Zone 6. Immediately north of the base

zone, a new, transition zone (Zone 5 in

the recommended decision) should be

created with a Class I differential

adjusted for location of $2.98. Currently,

there are no distributing plants in this

zone. However, at the time of the

hearing there was one distributing

plant—the Meadow Gold plant at

Gadsden, Alabama—in this zone. Since

the hearing, this plant has closed.

A slightly lower price should apply to

Zone 6 to reflect its closer proximity to

the heavy production area in south

central Tennessee and to provide a

smooth north to south price surface

through this part of the marketing area.

The $2.98 price in Zone 6 borders the

dividing line of a $3.08 zone and $2.93

zone under the Carolina order. On the

west, this zone borders a $3.00 zone

under the Southwest Plains order.

Just north of Zone 6, the Class I price

drops to $2.83 in Zone 5. It is necessary

to create an intermediate Zone 6 to

eliminate a sharp 25-cent drop that

otherwise would occur between Zone 5

and the base zone.

Zone 5. Zone 5 (Zone 4 in the

recommended decision) includes the

northern tier of counties through

Georgia, the northern two tiers of

counties through Alabama and

Mississippi, and a tier of counties

through Arkansas. This zone should

have a differential price adjusted for

location of $2.83. As mentioned

previously, the area of Arkansas

included in Zone 5 has been modified

from the recommended decision

because of the changes made to Zone 4.

With the modification, there are no

plants in Arkansas in this zone.

There are no plants in the Georgia

portion of Zone 5, which cuts through

the Chattahoochee National Forest. In

northwest Georgia, there are seven

counties that are within the Tennessee

Valley marketing area. Most of these

counties also lie within the

Chattahoochee National Forest.

Although there are presently no plants

in this area of Order 11, the location

adjustment for a plant in this area that

becomes regulated under the Southeast

order would be minus 25 cents (i.e., a

Class I price of $2.83).

There are three plants in the Alabama

portion of Zone 5: Meadow Gold at

Huntsville (Madison County), Dasi

Products (partially regulated) at Decatur

(Morgan County), and Shoals Cheese in

Florence (Lauderdale County). The

Class I price that now applies at these

plants under Order 93 is $2.85.

In the Mississippi portion of Zone 5,

there are two fully regulated distributing

plants and one cheese plant. Barber

Dairy operates a distributing plant in

Tupelo (Lee County), and Avent’s Dairy

operates a distributing plant in Oxford

(Lafayette County). The western border

of this zone adjoins a $3.00 zone and a

$2.77 zone under the Southwest Plains

order.

Under the four separate orders, there

are now four separate prices that apply

to Zone 5: under Order 7, the price is

$2.93; under Order 93, the price is

$2.85; under Order 94, the price is

$2.90; and under Order 108, the price is

$2.77. Under the cooperative coalition

proposal, the prices would remain at

their present levels from northern

Georgia to northern Mississippi. The

Fleming Company would standardize

the price at $2.85 from northern Georgia

through northern Mississippi. AMPI

proposed a $2.77 Class I price for the

Little Rock, Memphis, and northwest

Mississippi areas.

Under the merged order, a price of

$2.83 should apply in this zone. This

price would be 15 cents lower than

Zone 6 to the south and 6 cents higher

than Zone 4 on the north. The reason for

selecting a price of $2.83 is that it lines

up well with the prices on the east and

west of the market and contributes to a

smooth north to south transition within

the marketing area.

Zone 4. Zone 4 (Zone 3 in the

recommended decision) is comprised of

the southernmost tier of counties

through the State of Tennessee and has

been reconfigured to include two tiers of

counties in central Arkansas. It should

have a Class I differential adjusted for

location of $2.77.

There are six plants in this zone:

Forest Hill Dairy and Harbin Mix in

Memphis, Tennessee; Borden, Inc.,

Coleman Dairy, and Gold Star Dairy, in

Little Rock, Arkansas; and Humphrey’s

Dairy in Hot Springs, Arkansas. At

present, the Class I price at these

locations under the Central Arkansas

order is $2.77. The recommended

decision proposed a price of $2.77 for

Memphis and a price of $2.83 for the

Little Rock area.

Gold Star Dairy argued in its

exception that it had no notice that any

price change was contemplated for

Little Rock and that to change the price

at Little Rock simply to tie together eastwest price alignment was inappropriate.

It suggested reducing the price at Little

Rock to $2.77 by moving six Arkansas

counties from Zone 4 to Zone 3.

Gold Star is incorrect in asserting that

it had no notice. In any merger hearing,

all order provisions are to be considered

and are within the scope of the hearing.

However, it is true that no attention was

focused on the appropriate price at

Little Rock at the hearing. Proponents

assumed that the current pricing

structure would be adopted.

A slightly higher price was

recommended for the Little Rock area to

better align prices east to west and to

slightly enhance the uniform price at

that location under the merged order.

This was an increase of six cents and

with the zone configuration in the

recommended decision this price level

seemed appropriate. However, with the

reconfiguration of the zones in this final

decision it is appropriate to return the

price applicable at Little Rock to $2.77.

Accordingly, the Arkansas counties of

Polk, Montgomery, Garland, Saline,

Pulaski, Lonoke, Prairie, Monroe, and

Lee have been moved to the new Zone

4, thereby reducing the price at Little
25044 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

Rock to $2.77, the level that now applies

to that area under Order 108.

Zone 3: A new zone consisting of

three counties in western Tennessee and

nine counties in Arkansas should be

created after reviewing the exceptions to

the recommended decision.

Fleming and Purity opposed the

inclusion of the Turner Dairies plant at

Covington, Tennessee, in recommended

Zone 2 with a price of $2.60. These

handlers argued that Covington is in the

Memphis Metropolitan Area and that it

should retain the same $2.77 price that

it had under the Memphis order. They

stated that they compete with the

Covington plant for route disposition in

the Memphis area and would be

seriously affected by the change.

Arkansas Dairy Cooperative

Association, Inc. (ADCA), also

commented on the proposed pricing for

the Covington plant. It noted that while

the plant now produces mostly Class II

products, the proposed 17-cent lower

price at this location could encourage

the processing of Class I products there.

ADCA also stated that even though

Memphis is 36 miles south of

Covington, the 17-cent price difference

between the two locations would place

suppliers of the Covington plant at a

disadvantage vis-a-vis suppliers of the

Memphis plant. This would create a

substantial disincentive to supply that

plant, they argued.

ADCA also commented on other

problems which it saw with the

proposed Zone 2. It stated that in

October 1994 it purchased land in

Damascus, Arkansas, to build a

receiving station/balancing plant. When

it made this commitment, it had no idea

that this area would be priced 17 cents

below the price that had applied to Van

Buren County under the Central

Arkansas order. It wrote that ‘‘this is an

inequitable result which surely would

not have occurred if the plant had been

in place at the time of the rulemaking

and discussed at the hearing.’’

A new zone should be added between

recommended Zones 2 and 3 in

Arkansas and western Tennessee. The

price for this zone is $2.70, which is 7

cents lower than the Zone 3 price and

10 cents higher than the Zone 2 price.

The new zone consists of the Arkansas

counties of Johnson, Pope, Van Buren,

Cliburne, Independence, Jackson,

Craighead, Poinsett, and Mississippi;

and the Tennessee Counties of Tipton,

Lauderdale, and Haywood. This new

zone, which includes the Turner Dairies

plant at Covington and the plant which

ADCA intends to build at Decatur, will

reduce the price difference between the

Turner Dairies plant at Covington and

handlers in Nashville, Memphis, and

Little Rock. It will also help to mitigate

the price reductions cited by ADCA.

A $2.70 price for this new zone will

improve alignment between Zones 2

and 3. Based on the 36-mile distance

between Covington and Memphis, a 7-

cent lower price for Covington is a little

higher than the 10-cent difference that

would be justified based on 2.5 cents

per 10 miles. Similarly, based on a

distance of approximately 40–50 miles

from Damascus to Little Rock, a

difference of at least seven cents is

justified between those two points. Milk

should be encouraged to move from

Damascus to Little Rock, where it is

needed by distributing plants for fluid

use. In view of the fact that Covington

and Memphis were in the same zone

under the Memphis order and Van

Buren County was part of the base zone

under Order 108, it is appropriate to

limit the difference to 7 cents between

Zone 2 and new Zone 3.

The new $2.70 zone is not carried

through central Tennessee. This is a

departure from the pricing zones to the

north and south of this zone which

extend on an east-west plane through

the marketing area. As noted previously,

central Tennessee is a heavy supply area

from which milk moves to various parts

of the marketing area. This area includes

Mid-Am’s butter-powder plant at

Lewisburg, which processes the

market’s surplus milk. Under the

Alabama-West Florida order, the price

at this plant is now $2.52, the same as

the price applicable to the Purity plant

at Nashville and 1.5 cents below the

price at the Fleming Dairy plant, which

has been regulated under the Georgia

order. As proposed in the recommended

decision, the price at Lewisburg was

$2.60, the same as the price applicable

at Murfreesboro and Nashville. This

pricing was based, in part, on Fleming’s

testimony that the price at Lewisburg

should be no higher than the price at

Murfreesboro because otherwise

producers would have an incentive to

deliver their milk to Lewisburg for

manufacturing use rather than to

Murfreesboro for fluid use. The

recommended decision attempted to

extend this reasoning to the Nashville

area as well by including Nashville in

the same zone as the Murfreesboro and

Lewisburg plants, but, as explained

below, the Nashville handlers excepted

to the higher price at Nashville and it

has been changed.

With the addition of the new $2.70

zone, a question again arises concerning

the proper price at Lewisburg. Based on

higher prices to the east and west of

Lewisburg, some might argue that

Lewisburg should be in the $2.70 zone.

Similarly, in terms of north-south Class

I price alignment, it could be argued

that Lewisburg should be priced at

$2.70, seven cents lower than Giles

County, immediately below Lewisburg.

These considerations, however, are

outweighed by the fact that there are no

distributing plants in Tennessee south

of Murfreesboro which would require a

higher price at Lewisburg to preserve

Class I price alignment. In addition,

because the Lewisburg plant is a surplus

processing plant, it is not necessary to

increase the price at Lewisburg to $2.70

to assure that the plant receives an

adequate supply of milk. Finally, the

price at Lewisburg has been very close

to the price applicable at the Purity and

Fleming plants at Nashville and the

necessity of keeping this relationship as

close as possible overshadows the

potential problem that could arise if a

distributing plant is ever built at

Lewisburg.

Zones 1 and 2. With the addition of

the new Zone 3, as described above,

Zone 2 now consists of 27 counties in

central Tennessee and three counties in

northwest Arkansas. The price for this

zone should be $2.60.

There are two plants in this zone: The

Heritage Farms plant in Murfreesboro

(Rutherford County) and the MidAmerica Dairymen, Inc., butter-powder

manufacturing plant in Lewisburg

(Marshall County). The Heritage plant

now has a $2.605 price under Order 7

and the Lewisburg plant has a $2.52

price under Order 93.

The cooperative coalition proposed a

price of $2.60 for these two plants. A

$2.60 Class I differential adjusted for

location also was proposed for these

locations in the recommended decision.

Neither Heritage nor Mid-Am excepted

to this price, and it is the price adopted

in this final decision.

Zone 1 of the Southeast marketing

area, as modified in this final decision,

includes 21 counties in northern

Tennessee and 8 counties in northern

Arkansas. There are three plants in this

zone: Fleming Companies, Inc., and

Purity Dairies, Inc., at Nashville, and

Cumberland Creamery at Antioch,

Tennessee. The price adopted for this

zone is $2.55, which is three cents

higher than the level proposed by the

cooperative coalition and the Fleming

Company.

This zone borders four different

marketing areas with five different

prices (i.e., $2.77 on its eastern border

with Order 11, $2.11 and $2.26 along its

northern border with Order 46, $2.39 in

the Order 99 marketing area, and $2.55

on its western border with Order 106).

At present, the Fleming Dairy plant is

regulated under Order 7 and has a Class

I price of $2.53, while the Purity Dairy
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25045

9This plant recently ceased operations.

plant is regulated under Order 93 and

has a Class I price of $2.52. Cumberland

Creamery plant is a nonpool plant that

makes condensed milk and milk

powder.

The cooperative coalition and the

Fleming Company both proposed a

price of $2.52 for the Nashville area.

However, the cooperative coalition

proposed $2.605 for Lewisburg and

Murfreesboro, while the Fleming

Company proposed a price of $2.55 for

those locations.

The assistant operations manager for

Fleming Dairy, Nashville, Tennessee,

testified that their Nashville plant

competes with The Kroger Company

plant (i.e., Heritage Farms) in

Murfreesboro for sales throughout the

Southeast. He also indicated that both of

these plants, as well as the Purity Dairy

plant in Nashville, compete for milk

supplies from the same general area in

central Kentucky and central Tennessee.

The witness explained that because this

area is a very high production area, it

serves a balancing function for the

Southeast. When the milk is not needed

for fluid use, it is processed at

Dairymen, Inc.’s (i.e, Mid-America

Dairymen), butter-powder plant in

Lewisburg, Tennessee, the Cumberland

Creamery in Antioch, or the Meadow

Gold 9 ice cream plant in Nashville.

The Fleming Dairy witness testified

that the prices between Nashville and

Murfreesboro should be brought into

closer alignment because the existing

price difference at these locations was

causing unrest and discontent among

neighboring producers. He suggested a

price difference of no more than three

cents. The witness also stated that the

price at Lewisburg, Tennessee, should

be no higher than the Murfreesboro

price because, otherwise, producers

would have an incentive to deliver their

milk to Lewisburg for manufacturing

use instead of to a bottling plant for

fluid use.

Based on the testimony of the Fleming

Dairy witness, the recommended

decision put Nashville and

Murfreesboro in the same zone with a

Class I differential adjusted for location

of $2.60. The recommended decision

concluded that there was an abundant

supply of milk available to handlers in

central Tennessee and, for this reason,

it was not necessary to increase the

price at Murfreesboro relative to

Nashville to insure that the Heritage

Farms plant in Murfreesboro obtains an

adequate supply of milk. It also stated

that it would not be appropriate to

reduce the Class I price at Murfreesboro

to the Nashville level because that

would disrupt price alignment with the

higher-priced zones south of Tennessee

and with the $2.77 price applicable in

the adjacent Tennessee Valley

marketing area. The recommended

decision concluded that to provide a

common pricing level between the

Nashville and Murfreesboro plants, the

Nashville price should be raised to

$2.60.

In its exception, Mid-Am stated that

the Tennessee Counties of Dickson,

Cheatham, Davidson, Wilson, and Smith

should be moved from Zone 2 to Zone

1, and the price for Zone 1 should be

changed from $2.55 to $2.52. The

cooperative argued that putting

Nashville in Zone 2, as proposed in the

recommended decision, results in price

alignment problems with handlers fully

regulated under the LouisvilleLexington-Evansville order (Order 46).

In support of this position, Mid-Am

noted that Louisville, which has a price

of $2.11 under Order 46, is 175 miles

from Nashville and that, based on a

transportation cost of 2.5 cents per 10

miles, the price at Nashville should be

no more than 44 cents higher than the

Louisville price. It concluded, therefore,

that the price at Nashville should stay

at $2.52.

Fleming Companies, Inc., and Purity

Dairies, Inc., which operate distributing

plants in Nashville, also opposed the

$2.60 price proposed for Nashville.

They contend that a higher price is not

needed for Nashville because there is an

abundant supply of milk in north

central Tennessee. They further stated

in their exception that there was no

evidence in the record to support a

higher price at Nashville; the arguments

made by Fleming Dairy at the hearing

were in support of a lower price at

Murfreesboro, not a higher price at

Nashville. They also commented that

the recommended decision ‘‘creates a

Class I price disadvantage for Nashville

handlers in competition with Southern

Belle and Flav-O-Rich in the southeast

Kentucky portion of the Tennessee

Valley market, and with LouisvilleLexington-Evansville handlers.’’ They

repeated their call for a $2.52 price at

Nashville and a $2.55 price at

Murfreesboro.

The recommended $2.60 for Nashville

was based upon the testimony of the

Fleming Dairy witness, who indicated

that Fleming Dairy was at a competitive

disadvantage in procuring milk with the

nearby Heritage Farms Dairy plant at

Murfreesboro. In its post-hearing brief,

Fleming stated that: ‘‘The supply of

milk to the three Nashville-area plants

comes from counties in central

Kentucky and central Tennessee. Most

of the supply comes from Kentucky, and

is centered around Barren County which

supplies over 10 million pounds per

month to these plants * * *. The Kroger

Murfreesboro plant, like the two

Nashville plants, receives milk supplies

from southern Kentucky, centered

around Glasgow, in Barren County

* * *. By reference to Glasgow, the

center of the common production area,

transportation to Murfreesboro is only

six miles greater than transportation to

Nashville * * *. The difference in

blend prices payable to Central

Kentucky producers for milk delivered

at comparable distances to the plants in

Nashville and Murfreesboro has caused

unrest and discontent between

neighboring producers.’’ (Brief at 19–

20.)

Placing aside any consideration of a

procurement problem faced by either

Purity or Fleming which would justify

a higher Class I price, a $2.60 Class I

price at Nashville is too high in relation

to the Class I price at Louisville. Based

upon the 169-mile distance from

Louisville to Nashville, the cost of

transporting bulk milk from Louisville

to Nashville is approximately 43 cents

(i.e., 17×.025). Adding the 43 cents to

the $2.11 price at Louisville would

result in a price of $2.54.

The recommended decision did not

consider the Class I price alignment

between Somerset, Kentucky, and

Nashville, Tennessee, and between

London, Kentucky, and Nashville,

Tennessee, because they did not appear

to be germane. Somerset and London are

northeast of Nashville. Southern Belle

operates a distributing plant at

Somerset, and Flav-O-Rich operates a

distributing plant at London. Both

plants are regulated under the

Tennessee Valley order. It is 161 miles

from Somerset to Nashville and 198

miles from London to Nashville. The

Class I price at Somerset and London

under the Tennessee Valley order is

$2.45. Based on a hauling cost of 2.5

cents per 10 miles, the transportation

allowance between Somerset and

Nashville should be 43 cents (i.e.,

17×.025) and the transportation

allowance between London and

Nashville should be 48 cents (i.e.,

19×.025). Adding these allowances to

the $2.45 Class I price at Somerset or

London would justify a Class I price at

Nashville of between $2.88 and $2.93.

This computation would not appear to

support the Fleming/Purity argument

that a price of $2.60 at Nashville is too

high.

The Class I differential adjusted for

location at Nashville should be changed

from $2.60 to $2.55 by moving the

Tennessee counties of Dickson,

Cheatham, Davidson, Wilson, and Smith
25046 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

from Zone 2 to Zone 1. This change will

narrow the difference in price between

Nashville and Murfreesboro from the

present 8 cents to 5 cents. Based on the

43-cent transportation cost between

Louisville and Nashville, and the 43-

cent transportation cost between

Somerset and Nashville, this modest 3-

cent price increase at Nashville should

pose no Class I price alignment problem

for Nashville-area plants. It will have

the beneficial effect of increasing

slightly the uniform price at Nashville

in relation to Louisville, Somerset,

London, and Murfreesboro, which may

help Nashville-area handlers retain their

milk supplies from central Kentucky.

No change should be made in the

Class I price at Murfreesboro. It should

remain in Zone 2 with a Class I

differential adjusted for location of

$2.60.

Location adjustments for plants

outside of the marketing area. Location

adjustments also must be specified for

plants that are located outside of the

Southeast marketing area.

There are seven counties in northern

Georgia that are within the Tennessee

Valley marketing area. There are no

known dairy plants in these counties.

Under the Tennessee Valley order,

which has no location adjustments

within the marketing area, the Class I

price in those counties is $2.77. Had

those counties been incorporated in the

proposed Southeast order, they would

have been included in Zone 5, which

has an adjusted Class I differential price

of $2.83. Therefore, the location

adjustment in those counties under this

order, as provided in § 1007.52(a)(2),

should be minus 25 cents.

The Missouri county of Dunklin is

now unregulated, and Pemiscot County,

Missouri, is within the Paducah,

Kentucky, marketing area. Had these

two counties been included within the

Southeast marketing area, they would

have been included in Zone 1.

Therefore, the appropriate location

adjustment for any plant that may be

located in these two counties is minus

53 cents, as provided in § 1007.52(a)(3).

Had the Texas counties of Bowie and

Cass been incorporated within the

Southeast marketing area, they would

have fallen within Zone 7, the base

zone. Although there are no plants in

these two counties at the present time,

the applicable location adjustment in

those two counties should be zero, as

provided in § 1007.52(a)(4).

Should a plant located within another

Federal order marketing area become

regulated under the proposed Southeast

order, or should producer milk be

diverted to a plant located in another

Federal order marketing area, the

appropriate location adjustment at that

plant location should be based on the

Class I differential adjusted at the

location under the Federal order

regulating that area, except for the seven

Georgia counties within the Tennessee

Valley marketing area and the Missouri

county of Pemiscot. Thus, for example,

if a plant located in Louisville,

Kentucky, were to become regulated

under the Southeast order, the location

adjustment at that plant would be

determined by subtracting the Class I

price under the Louisville-LexingtonEvansville order at the Louisville

location (i.e., $2.11) from the base zone

Class I differential price under the

Southeast order (i.e., $3.08), which

would result in a location adjustment of

minus 97 cents. This treatment is

provided in § 1007.52(a)(5) of the

Southeast order.

The final situation that must be dealt

with concerns a plant that is not located

within any other Federal order

marketing area. Section 1007.52(a)(6) of

the proposed order provides six basing

points (i.e., Shreveport, Louisiana; Little

Rock, Arkansas; Memphis, Tennessee;

Jackson, Tennessee; Nashville,

Tennessee; and Atlanta, Georgia) in the

Southeast marketing area from which to

determine the shortest hard-surfaced

highway distance to the plant location

as determined by the market

administrator. The location adjustment

would be determined by multiplying

each 10-mile increment or fraction

thereof by 2.5 cents and subtracting this

number from the Class I differential

price adjusted for location at the closest

of the six basing points. To illustrate,

should a plant in Richmond, Virginia,

which is 511 miles from Atlanta,

become regulated under the Southeast

order, the location adjustment would be

52 x $.025 or minus $1.30. In the case

of a plant located in Chillicothe,

Missouri, the location adjustment would

be computed by determining the

mileage (i.e., 424 miles) from the closest

basing point (i.e., Little Rock),

multiplying 43 times $.025, and

subtracting that number ($1.08) from the

location adjustment at Little Rock (i.e.,

minus 25 cents) to arrive at a location

adjustment at Chillicothe of minus

$1.33. This method will provide a

reasonable transportation allowance to

ship bulk milk from a distant location

to the Southeast marketing area, while

simultaneously providing a price that is

reasonably aligned with other Federal

order prices closer to the plant location.

2(d). Payments to Producers. On or

before the 26th day of each month, each

handler under the proposed order

should pay for milk received from

producers during the first 15 days of the

month. The rate of payment for this

milk should be the higher of the Class

III price for the preceding month or 90

percent of the preceding month’s

weighted average price.

On or before the 15th day of each

month, a handler would make a final

payment to producers for milk received

during the preceding month. The rate of

payment would be based on the uniform

price(s) that will have been announced

by the market administrator on or before

the 11th day of the month. The final

payment would be net of the partial

payment made on the 26th day of the

prior month, and will also be adjusted

for marketing services deductions

pursuant to § 1007.86, errors, and other

deductions authorized in writing by the

producer.

If a handler has received milk from a

producer who is marketing his or her

milk through a cooperative association,

the handler would pay the cooperative

association for this milk, not the

individual producer. The partial

payment would be made to the

cooperative on or before the 25th day of

the month, and the final payment would

be made on or before the 14th day of the

month. In this way, the cooperative

would, in turn, be able to pay its

producers on the same day that handlers

pay their nonmember producers.

These provisions and the remaining

paragraphs in § 1007.73, are identical to

the provisions proposed by the

cooperative coalition.

The proposed partial payment date is

somewhat earlier than the date that is

provided in the individual orders—i.e.,

the last day of the month—but there was

no testimony to indicate why an earlier

date would not be possible or any

apparent reason why the earlier

payment date would not work.

These payment provisions are

common to all of the individual orders

and should be familiar to all handlers

regulated under the merged order.

A second partial payment to

producers. A proposal that would

establish two partial payments and a

final payment to producers should not

be adopted.

Georgia Milk Producers, Inc. (GMP),

an organization which represents

approximately 195 dairy farmers located

in the State of Georgia, proposed a

provision that would require handlers to

pay producers two partial payments and

a final payment. The proposal specifies

that on or before the 20th day of each

month, producers would be paid for

milk received during the first 15 days of

the month at the rate of 85 percent of

the weighted average price per

hundredweight for the preceding

month; on or before the 5th day of the
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25047

following month, producers would

receive another payment, based on this

rate, for milk received from the 16th

through the last day of the month; and,

finally, on or before the 15th day of each

month, the producer would receive final

payment for milk received during the

preceding month based on the uniform

price(s) for the month.

An agricultural economist at the

University of Georgia testified on behalf

of GMP, Georgia Farm Bureau

Federation (GFBF), Alabama Farmers

Federation (AFF), Louisiana Farm

Bureau (LFB), and the Mississippi Farm

Bureau Federation (MFBF) in support of

the three-payment proposal.

According to the witness, milk is one

of the few agricultural commodities

produced in which the producer

supports or actually finances the

marketing of the product. He stated that

most agricultural commodities are paid

for at or soon after delivery to the first

buyer. He claimed that the dairy farmer

finances not only the production of his

or her milk, but also the marketing of

the milk produced through each of the

marketing channels including the retail

store.

The witness argued that the financial

risk to producers has increased in recent

years. He noted, for example, that from

1982 to 1992, the number of producers

delivering milk to regulated handlers

under Orders 7, 93, 94, 96, and 98,

decreased from 5,765 to 4,600 but that

the average monthly volume of milk

produced increased by 10,000 pounds.

He also pointed out that the number of

pool distributing plants decreased from

75 to 41 from 1982 to 1992. Thus, he

reasoned, there is now a greater

financial obligation per plant and a

greater financial risk per producer.

The witness testified that the threepayment plan would decrease the

financial burden on producers and

reduce the risk of nonpayment. By

reducing by one-third the time between

milk delivery by the producer and the

payment for the milk by the handler, he

claimed, the financial exposure to

producers resulting from a late handler

payment or handler bankruptcy would

also be reduced by about one-third.

The witness emphasized that dairy

farmers do not have the debt protection

and the type of provisions included in

both the Packers and Stockyard Act and

the Perishable Agricultural

Commodities Act. He noted that the

Agricultural Marketing Act of 1937

authorizes the Secretary of Agriculture

to administer milk marketing orders so

as to provide for ‘‘assurance and

security for, the payment by handlers

for milk purchased.’’ However, he

stated, there are no Federal milk orders

that include payment security

provisions.

A dairy farmer testifying on behalf of

the Alabama Farmers Federation Dairy

Committee in support of the threepayment plan stated that the plan is an

opportunity to begin correcting a

problem that exists between the time a

farmer delivers milk to a handler and

the time he is paid. He testified that this

problem needs to be addressed

nationwide but stated that this regional

hearing is an excellent place to begin.

A dairy farmer located in Loudon,

Tennessee, who is also in the milk

hauling business, also testified in

support of the three-payment plan. He

stated that over the years changes in the

dairy industry have limited the selling

and marketing options of dairy farmers.

He said that there are agreements in

place to control producer movement

between processors and cooperatives.

He also stated that the times of year

when producers can change markets

economically are limited because of

base-excess plans, pooling

requirements, and cooperative

procurement needs. Additionally, he

claimed that producers have limited

access to accurate financial information

of handlers.

According to this witness, bankruptcy

is no longer an act of last resort; it is

considered a standard business

procedure that is often a pre-meditated

planned event. He stated that dairy

farmers should not carry the risk after

the milk leaves the farm when they do

not reap the benefits or losses from that

product. He also stated that producers

should be paid three times per month

because the technology is now available

to do it.

A dairy farmer who is the president

of Georgia Milk Producers, Inc., testified

that the three-payment plan would

provide much needed protection against

the risk of dairymen losing money when

handlers go bankrupt and it would

improve producers’ cash flow. Finally, a

dairy farmer located in Barnesville,

Georgia, testified that the three-payment

plan was needed because the credit

situation for producers has changed

over the past 10 years. He claimed that

producers have limited selling options.

The vice president of the International

Dairy Foods Association (IDFA) testified

in opposition to the three-payment plan.

IDFA is comprised of Milk Industry

Foundation (MIF), the national trade

association for processors of fluid milk

and milk products, the National Cheese

Institute (NCI), the national trade

association for manufacturers,

processors and marketers of all varieties

of cheese, and the International Ice

Cream Association (IICA), the national

trade association for manufacturers of

frozen dessert products. According to

the witness, the member companies of

the three associations in total utilize

over 80 percent of all the raw milk

produced in the United States to process

milk and manufacture cheese and frozen

dessert products which they market.

The IDFA witness pointed out that

provisions for three times a month

payments to producers are not in effect

in any of the milk marketing orders

involved in the hearing or in any other

milk marketing orders, with the

exception of three Florida orders. He

said the three-payment plan in the

Florida markets pre-dated the

establishment of the orders and was

based on prevailing market conditions

that were mutually agreed upon by

producers and handlers in those areas at

that time.

The witness cited several decisions in

which the Department denied proposals

to establish thrice-monthly payments to

producers. He said the proposal would

lead to unstable marketing conditions

throughout the southern region and

would create a competitive

disadvantage for both producers and

handlers in the merged order because of

the increased cost of raw milk. He also

argued that thrice-monthly payments

would clearly increase costs to handlers

and severely impact their cash flow and

cash reserve positions. He claimed that

handlers, and ultimately consumers,

would have to pay an additional 2.6

cents per hundredweight due to the

accelerated payment.

The witness stated that there is no

evidence which indicates producers in

this region have suffered financial

hardships as a result of the prevailing

payment schedules in these orders. In

fact, he stated, the financial situation for

producers in this area, as well as most

areas of the country, has improved over

the past few years, indicating no need

to change the payment schedule. He

noted that from 1987 through 1990 the

ratio of current farm business assets to

current farm business liabilities for milk

producers in the southeastern region has

more than tripled from 1.37 to 4.78.

The IDFA witness indicated that dairy

processors also must wait to be paid for

their products. Information from IDFA

member companies, he said, indicates

that handlers’ outstanding accounts

receivable generally run from 25 to 40

days on most commercial accounts, and

accounts receivable on sales to schools

and state institutions run longer,

generally from 60 to 90 days from

billing to collection.

Southern Foods Group and Kraft

General Foods (Kraft) supported the

opposition testimony of IDFA. The
25048 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

procurement manager for Kraft testified

that Kraft’s accounts receivables

averaged 17.3 days in 1993, which does

not include the inventory age of the

product. He also said that, based on

Kraft’s own receivables and payable

schedules and other information, it is

customary for those in the industry to

extend 20 to 25 days credit on their

accounts receivables.

Representatives of Kinnett Dairies,

Inc. (Kinnett), and The Kroger Company

(Kroger), proprietary handlers regulated

under Order 7, also testified in

opposition to the thrice-monthly

payment plan proposal. The Kinnett

witness stated that the plan would give

handlers regulated under other orders a

competitive advantage, and the Kroger

representative claimed that the proposal

would significantly reduce the cash

flow of dairy processors, adversely

affecting the dairy industry. According

to the Kroger witness, reducing the cash

flow for processors would reduce the

amount of money available for research

and development of new products

which helps to maintain and expand the

market for dairy farmers’ milk.

The University of Georgia agricultural

economist and the other proponent

witnesses testified that the thricemonthly payment plan would reduce

the financial risk that dairy farmers face

from handler bankruptcy. Although the

record evidence reveals that bankruptcy

is a problem in the marketing area

involved, the proposal is not one that

guarantees producers protection against

financial loss from handlers who

declare bankruptcy.

One of the advantages that members

of a cooperative association have in

bankruptcy situations is that the

financial loss is shared equally among

all producers and not borne by one

producer alone. Perhaps for this reason,

there was little concern expressed about

this issue at the hearing by cooperative

association representatives or their

member producers.

While proponents of the thricemonthly payment plan argued that the

plan would enhance their cash flow, the

record does not reveal that producers

are experiencing financial problems as a

result of receiving one partial and a final

payment each month. Although the

record does indicate that at least one

dairy farmer pays for feed on a cash-ondelivery basis and is assessed a penalty

for late payment, there is no indication

that a large number of producers are

buying production items on this basis.

Adoption of this proposal would

place handlers regulated under the

merged order at a competitive

disadvantage with unregulated handlers

and handlers regulated under other

orders. It must be concluded that the

extra costs associated with the

implementation of this plan exceed the

benefits to producers.

The Agricultural Marketing

Agreement Act of 1937 authorizes the

setting of payment dates under an order

but it does not specify how frequently

handlers must pay producers.

Customarily, this is established on the

basis of prevailing marketing

conditions, including payment practices

already existing in an area or new

payment practices that handlers and

producers may find mutually desirable.

Producers and handlers should continue

to have the option of negotiating

payment schedules, including an

additional partial payment if mutually

desired. However, this practice should

not be institutionalized by being

incorporated in the merged order.

Producer Assurance Fund. A proposal

to establish a producer security fund

under the merged order should not be

adopted.

A second professor and agricultural

economist at the University of Georgia,

presented a proposal on behalf of some

Georgia dairy farmers, the Alabama

Farmers Federation, and the Louisiana

Farm Bureau which provides for the

establishment of a producer assurance

fund (PAF). He claimed that the PAF

would reduce the financial risk of

producers in bankruptcy cases.

The witness testified that paragraph

5(E) of Section 8c(2) of the Agricultural

Marketing Act of 1937, as amended,

provides for the inclusion of provisions

for the ‘‘assurance of, and security for,

payment by handlers for milk

purchased.’’ He stated that the market

administrator could administer the PAF

at no additional charge, explaining that

processors regulated under the merged

order would be assessed two cents per

hundredweight until the fund was fully

endowed. He said that the market

administrator would review the fund

annually to determine if adjustments

should be made.

The witness stated that operating

cooperatives and chain stores would be

exempt from the fund and that, if the

order is terminated, processors who

contributed to the fund would be

reimbursed a pro rata amount. While

noting that the best approach would be

to implement this fund on a national

level, he said that the next best

alternative is to initiate it on a regional

basis.

The chairman of the Alabama Farmers

Federation Committee (AFFC) and a

Barnesville, Georgia, dairy farmer also

testified in support of the producer

assurance fund. While observing that

the fund would not protect producers

from all loss, the AFFC representative

said that it was a step in the right

direction. The Georgia dairy farmer

related his experience in a bankruptcy

two years ago which resulted in a

financial loss of about 21 days’ of

production.

The witness for the IDFA testified that

the members of the IDFA were opposed

to the establishment of a producer

assurance fund. He said that such a

provision has never existed under

Federal milk orders and questioned

whether the Federal order program was

the appropriate vehicle to implement

this type of fund.

The IDFA witness stated that

processors and manufacturers assume a

significant risk in receiving a steady

supply of raw milk, even as demand

fluctuates throughout the year and does

not always keep up with supply. He

claimed that most of the businesses

within the United States, including

dairy processors, do not have any

protective regulations and/or funds

which guarantee payment on products

sold. He argued that establishment of a

PAF would limit processors in

conducting business and will negatively

impact producers in the long run.

In its post-hearing brief, IDFA claimed

that establishment of the fund would

result in a costly duplication of

regulations that have already been

promulgated by some States in the

Southeast. In addition, IDFA claimed

that the expense of the fund would

place handlers at a competitive

disadvantage vis-a-vis unregulated

handlers or handlers regulated under

other orders.

Representatives of Kraft General

Foods, Kinnett Dairy, and The Kroger

Company also testified in opposition to

implementing a PAF. In their posthearing briefs, Southern Foods Group,

Barber Pure Milk Company, Dairy Fresh

Corporation, and Baker & Sons Dairy,

Inc., also indicated their opposition to

this proposal.

The PAF proposed for the merged

order would place handlers regulated

under the order at a competitive

disadvantage compared to handlers

regulated elsewhere. Those handlers

who operate cost efficient businesses

should not be required to pay the debts

of insolvent handlers whose businesses

were poorly managed.

The record evidence does not reveal

why a fund which protects producers

against bankruptcy should be financed

solely by handlers. In fact, the record

shows that the proposal lacked support

from a substantial number of producers,

many of whom are protected from loss

by belonging to a cooperative

association, which obviously is better
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25049

equipped to withstand a handler

bankruptcy than a single producer.

While a producer assurance fund may

have some merit, the concept should be

more fully researched and explored.

One question that should be answered

is whether such a fund should be

implemented on a local, regional, or

national basis. Another question that

should be addressed is whether

handlers should bear the sole

responsibility of supporting the fund, or

whether producers also should be

required to contribute to it.

Due to the lack of information on the

effects of a PAF on producers and

handlers under the proposed order, the

overwhelming opposition to it by

handlers in this market, and the lack of

producer support exhibited at both the

hearing and in briefs, the proposal

should not be adopted.

Base-excess plan: §§ 1007.90–1007.94.

A base-excess plan should be adopted

for the merged order. The plan adopted

in this final decision is significantly

different than the one proposed in the

recommended decision.

Need For a Base-Excess Plan. The

cooperative coalition’s spokesman

testified that a base-excess plan would

provide an incentive to producers to

balance their milk production

throughout the year. He noted that a

base-excess plan is provided in the

Georgia (Order 7), Alabama-West

Florida (Order 93), and the former

Nashville (Order 98) orders.

There was widespread support at the

hearing and in post-hearing briefs for a

base-excess plan. Representatives of the

Southern Foods Group, Inc., Fleming

Dairy, the Louisiana Farm Bureau

Federation, Georgia Milk Producers,

Inc., and Arkansas Dairy Cooperative

Association testified in support of the

plan. Several individual dairy farmers

also spoke in support of the plan.

A dairy farmer who testified on behalf

of some of the producers supplying

Fleming Dairy in Nashville stated that a

base-excess plan will encourage more

milk production during seasonally low

production months and discourage milk

production during the flush production

months. In the past, he said, dairy

cooperatives have unsuccessfully built

manufacturing plants to help balance

raw milk production to the demand of

the Class I market. He claimed that dairy

producers are the only ones able to

solve the raw milk balancing problem

by leveling out their milk production.

The witness and other dairy farmers

who testified on this issue indicated

that much could be done by dairy

farmers to balance their seasonal swings

in production. Some of the plans have

not been effective in the past, they said,

because they were not implemented on

a regional basis and because some

cooperatives did not pay their producers

a base and excess price.

Opposition to a base-excess plan was

expressed by Gold Star Dairy, which

indicated that the plan would limit Gold

Star’s flexibility in obtaining

supplemental supplies during the

operative months of the plan. The

spokesman for AMPI also indicated

opposition to a base-excess plan for

AMPI’s proposed Mid-South order but

supported the cooperative coalition’s

proposal to include a base-excess plan

in their proposed Gulf States order. He

stated that the plan would build a fence

around the marketing area and impede

the efficient movement of supplemental

milk to the market during periods of

increased demand or reduced

production.

In their exceptions to the

recommended decision, Gold Star Dairy

and AMPI maintain that Mid-Am, the

dominant cooperative in the Southeast

marketing area, will not pay its

producers base and excess prices. They

stated that, historically, base-excess

plans have been used to impede the

movement of producers from one

market to another and are not necessary

to advance the provisions of the Act.

AMPI emphasized that the plan will be

‘‘especially onerous—and act as an

exclusionary barrier—to the flexible and

efficient marketing capability of

cooperatives whose producers are

located to the southwest, west and north

of the proposed Southeast marketing

area.’’

The Agricultural Marketing

Agreement Act states that milk orders

may contain provisions ‘‘to encourage

seasonal adjustments in the production

of milk * * * on the basis of their

[producers] marketings of milk during a

representative period of time * * *.’’

While the performance of the baseexcess plans in Orders 7, 93, 98, and

108 in leveling out production is subject

to some debate, particularly because

several of the cooperatives in these

markets have not been paying their

producers base and excess prices, there

is no doubt that the overwhelming

sentiment of producers, as expressed in

the record of this hearing, is that a baseexcess plan be incorporated in the

merged order. Absent any sound reason

for denying this request, the proposal

should be adopted. However, it is timeconsuming and costly for the market

administrator to administer a baseexcess plan. If the plan is not used

under the merged order to pay

producers, it cannot be effective for the

intended purpose of leveling out

production. Absent a demonstration of

use of the plan in paying producers,

further consideration should be given to

whether the plan is necessary. This

decision is written, however, on the

basis of the testimony, evidence, and

comments on the record of this hearing

which demonstrate that the plan is

desired, needed, and will be used to pay

producers.

Under the base plan adopted in this

final decision, a producer can earn a

base by shipping as little as one day’s

production to the Southeast market

during the months of July through

December. Of course, such a base will

be very small, but the point to be

emphasized is that those who argued

that the base plan would inhibit the

movement of milk on and off the market

will have the flexibility to shift milk

between plants as conditions may

require. The base plan, as modified,

should serve its purpose of encouraging

producers to level their seasonal

production pattern but, at the same

time, not be a barrier to the movement

of milk on and off the market.

Base-Forming and Base-Paying

Months: There was considerable

disagreement concerning the months to

be used for the base-forming and basepaying periods. As contained in the

cooperative coalition’s proposal, bases

would be computed based upon

production during the months of

September through December (i.e., the

‘‘base-forming period’’), and base and

excess prices would be paid during the

following months of February through

May.

The witness for Fleming Dairy stated

that the base-forming period should

consist of the months of July through

November and that producers should be

paid base and excess prices during the

months of January through May. He

noted that statistics for the five-market

region indicate that the Class I

utilization exceeded 80% only during

the months of July through November

from 1990 through 1993. For the same

three-year period, he pointed out, the

percentage of milk utilized in Class III

manufactured products for the fivemarket region was the lowest during

July through October. He also indicated

that Fleming had experienced problems

in trying to encourage producers to

increase milk production during the

months of July and August and that

these two months should, therefore, be

part of the base-forming period.

Two dairy farmers supplying Fleming

Dairy agreed that the base-forming

period should be the months of July

through November and that the basepaying months should be January

through May. Their testimony indicated

that cows and heifers that calve in late
25050 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

August or September will peak in milk

production in November, December,

and January, which are not the months

in which additional milk production is

needed.

One of the dairy farmer witnesses

explained that ‘‘cull’’ cows or ‘‘turn’’

cows dry early in the spring. He stated

that this option is available to each

dairy producer whose milk production

gets out of cycle. Thus, he proposed that

the merged order be structured to

discourage milk production during

those months when milk is typically in

over-supply by paying producers a base

and excess price during the months of

January through May.

The other dairy farmer witness noted

that over the past several years many

county school systems in the South

have moved their fall start-up date from

September until about the third week of

August, which caused the demand

created by school start-ups to be moved

up two weeks. He claimed that

including the month of July in the baseforming period will send the correct

signal to producers as to when more

milk is needed.

The chairman of the Dairy Advisory

Committee of the Louisiana Farm

Bureau Federation (LFBF) testified that

the months of March through June

should be the base-paying period. He

stated that these are the months of

highest production in relation to Class

I needs.

The witness also stated that producers

currently regulated under Orders 94 and

96, which do not now have a baseexcess plan, would be placed at a

greater disadvantage if the base-forming

period began with the month of July or

August instead of September because

production was down in those months

due to the midsummer heat in

Louisiana.

In its post-hearing brief, Georgia Milk

Producers, Inc. (GMP), recommended

that the base-forming period be the

months of September through January.

According to GMP’s brief, adding the

month of January as a base-forming

month would provide a period where

weather conditions are more indicative

of the norm. Additionally, GMP

suggested extending the base-paying

period to include the month of July,

claiming that the extension would allow

producers who have met the needs of

the market by equalizing their

production in the fall and summer to

receive payment for base milk for an

additional month.

Summarizing the hearing proposals

and testimony, the base-forming period

would be September–December

(cooperative coalition, LFBF), July–

November (Fleming Dairy and two dairy

farmers), or September–January (GMP),

while the base-paying period would be

February–May (cooperative coalition),

January–May (Fleming Dairy and two

dairy farmers), March–June (LFBF), or

February–July (GMP).

The appropriate base-paying period

for this market is February through May.

These are clearly the months when

additional milk is not, in fact, needed.

July, August, and December should

clearly not be base-paying months

because supplemental milk supplies

may very well be needed during those

months. June and January are borderline

months. During the past three years, the

average Class I utilization was 72.3

percent in January and 73.3 percent in

June, both of which are above the

comparable percentages for the months

of February through May: i.e., 69.5, 68.4,

67.5, and 70.8 percent, respectively.

Based on this data and analysis, the

testimony and the comments received,

the cooperative coalition’s proposed

February–May base-paying period was

proposed in the recommended decision

and is adopted in this final decision.

With respect to the base-forming

period, the recommended decision

concluded that the needs of the market’s

producers would be met by using the

months of September, October, and

November. However, many comments

were received opposing these months

because they were too restrictive.

Accordingly, this final decision is

modified to meet the needs of all

producers by expanding the baseforming months to July through

December. However, only each

producer’s highest four production

months will be used to determine each

producer’s base.

In their exceptions to the

recommended decision, Mid-America,

Southern Milk Sales, the Louisiana

Farm Bureau Federation, the

Mississippi Farm Bureau Federation,

and many dairy farmers again stated

their support for the months of

September through December. MidAmerica and Southern Milk Sales

argued that the merged order should

include a four-month base-forming

period of September through December

because a shorter period would be

unfair to all producers whose milk will

be pooled under the order. They

maintain that the four months of

September through December would

balance the desires of producers in both

the northern and southern areas of the

proposed marketing area.

The Georgia Milk Producers

Association (GMP), Alabama Dairy

Producers, and several dairy farmers

reiterated their support for the months

of September through January as the

base-forming period. These commentors

argued that the recommended

September through November baseforming period would place producers

located in the southern part of the

marketing area at a disadvantage

compared to producers located in the

northern area due to the summer heat.

GMP contends that the lingering effects

of the hot summer weather on cows as

well as the warm temperatures of late

summer and early fall prevent cows

from reaching their peak production

until the late fall.

Fleming Dairies reiterated its support

for the inclusion of the months of July

and August in the base-forming period.

Fleming argued that while the average

producer will find it easier to establish

a ‘‘production benchmark’’ during the

fall months, establishing a base-forming

period to provide ease to producers in

building a base is not a goal of a baseexcess plan. It emphasized that the

objective of a base-excess plan is to

‘‘encourage more even production of

milk throughout the year.’’ By excluding

the shortest milk production months of

July and August from the base-forming

period, Fleming contends that a major

objective of the statutory seasonal

incentive authority would be

abandoned. It urged that this error be

corrected in the final decision.

As a result of the comments received,

the recommended base-forming period

of September through November should

be expanded to the months of July

through December. However, instead of

using every month of this six-month

period to determine a producer’s base,

only the highest four production months

should be used. This four-month period

will better accomplish the goal of

establishing the production benchmark,

and it will allow all of the market’s

producers to compete on equally

favorable conditions.

As noted above, Fleming claims that

July and August should be base-forming

months because these months are low

production months when milk is often

in short supply. On the other hand,

many of the market’s producers would

also like to see the months of December

and January included in the baseforming period because they are

accustomed to these months under their

present base plans and the inclusion of

these months would boost their daily

average production.

The primary reason for initially

excluding the months of July, August,

December, and January from the baseforming period was because these

months would be difficult months for

some dairy farmers. However, the

modified base-forming period provides

producers with much more flexibility.
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25051

While the inclusion of December may

help producers in the southern-most

part of the market, the inclusion of July

and August, in conjunction with the use

of the four highest daily average

production months, should result in a

balanced plan that is fair to all of the

market’s producers.

The month of January was not

included in the base-forming period

because its inclusion would make it

impossible for the market administrator

to determine a producer’s base in time

for the producer to transfer that base

with certain knowledge of what the base

actually is. Under § 1007.93(a) of the

base rules, in order for a transferred base

to be effective at the beginning of the

February 1 base-paying period it must

be transferred by February 15. However,

if January had been included in the

base-forming period, the market

administrator would not have had the

information to compute a base until

near the end of February. With the JulyDecember base-forming period adopted

in this decision, the market

administrator will have the time to

compute and announce bases by January

31 so that orderly transfers may take

place prior to, or close to, the outset of

the base-paying period. As a result,

producers will not be placed in the

position of having to ship their milk for

an entire month without knowing with

certainty what their base was. By having

the information available at the outset of

the base-paying period, producers will

be in a better position to make informed

and timely management decisions.

Under the plan adopted in this final

decision, to qualify for a base, a dairy

farmer must be a ‘‘producer’’ under the

Southeast order during one or more of

the months of July through December.

To determine each producer’s average

daily production during the baseforming months, the market

administrator will divide the producer’s

total pounds of producer milk delivered

to pool plants or diverted to nonpool

plants by the number of days in the

month. The sum of the four highest

daily averages so computed will then be

added together and divided by four to

determine the producer’s daily average

base. If a producer was on the market for

less than four months, a zero will be

substituted for each month in which no

producer deliveries were made. Unless

the producer qualifies under the

hardship provisions described below,

the divisor in this base computation will

always be four.

Under the present base plan

provisions and those proposed by the

cooperative coalition, accommodation is

made for a producer who experienced a

substantial reduction in production as a

result of a catastrophe, certain diseases,

or a quarantine. Since only the four

highest months of production out of a

total of six months will be used to

determine base under the base-excess

plan adopted in this decision, it is less

likely that this provision will be needed.

Nevertheless, such a provision is

provided in § 1007.92(c) to

accommodate those situations when a

producer’s production is severely

disrupted by fire, storm, or other natural

disaster, by brucellosis, bovine

tuberculosis, or other infectious

diseases, or by a Federal or State

quarantine of a producer’s farm. In the

unlikely event that a disruption in

production caused by one or more of

these conditions leaves a dairy farmer

without four complete months of

production from which to compute a

base, the dairy farmer may request a

base computation based on a lessor

number of months by submitting to the

market administrator in writing on or

before February 1 a statement that

establishes to the satisfaction of the

market administrator that during four or

more of the months in the immediately

preceding July through December baseforming period the amount of milk

produced on such producer’s farm was

substantially reduced because of one or

more of the conditions described in

§ 1007.92(c).

In addition to discussing the

conditions specifically included in

§ 1007.92(c), the recommended

decision’s findings and conclusions

referred to a ‘‘temporary loss of market

when cut off by a buying handler.’’ The

implication of this language, which

emanated from the testimony of the

cooperative coalition’s spokesman but

which was not in the proposed rules of

the coalition, was not explored.

Under the base plan provisions

adopted in this decision, order language

of this nature is unnecessary because a

producer can have a ‘‘temporary’’ loss of

market for as long as two months and

still be eligible for a full base by at least

qualifying as a producer for the

remaining four months of the basebuilding period. Accordingly, no

specific accommodation has to be made

for a producer who is temporarily off

the market for this reason.

Producers who do not qualify for a

base because they delivered milk to a

nonpool plant that became a pool plant

after the beginning of the base-forming

period should be assigned bases under

the order. Such bases should be

calculated as if the nonpool plant had

been a pool plant during the entire baseforming period. A base assigned in this

manner also would not be transferable.

Transfer Rules: A base earned by a

producer may be transferred.

Transferability is an appropriate

provision to include in the plan because

a base is something of value that has

been earned, and the base-holder or his/

her heirs should be compensated for

that value when the base-holder dies or

when the farm of a base holder is sold.

For ease in administering this provision,

the amount of base transferable should

either be its entirety or in amounts not

less than 300-pounds.

A base transfer will be effective on the

first day of the month following the date

on which an application signed by the

base holder or his/her heirs is received

by the market administrator. However,

base transfers to be effective on

February 1 must be received by the

market administrator no later than

February 15. Although the cooperative

coalition also specified that the person

receiving the base should be required to

sign the transfer application, this

requirement has not been adopted.

There is no apparent reason why the

recipient of a base should be required to

sign the application, and this particular

requirement merely adds unnecessary

expense to the administration of the

base plan provisions. If a base is held

jointly, the application for transfer

should be signed by all joint holders or

their heirs to insure that there is no

misunderstanding between the parties

involved in the transfer.

A base established by a partnership

may be divided between partners on any

basis agreed on in writing by them as

long as written notification of the

agreed-upon division, signed by each

partner, is received by the market

administrator prior to the first day of the

month in which the division is to be

effective.

To insure that the exchange of bases

between producers are bona fide

transfers, a producer who transferred all

or part of his/her base on or after

February 1 should not be permitted to

receive other base by transfer that would

be applicable within the February–May

period of the same year. In addition, a

producer who received base by transfer

on or after February 1 should not be

permitted to transfer a portion of that

base to be applicable within the

February–May period of the same year,

but should be permitted to transfer the

entire base.

Inclusion of a base-excess plan under

the merged order will require the

computation of a uniform price during

the non-base-paying months of June

through January and uniform prices for

base and excess milk during the other

months of the year. The steps to be
25052 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

followed in computing these prices are

contained in § 1007.61.

One change should be made in the

computation of the uniform price for

excess milk. As now in Orders 7 and 93

and as proposed by the cooperative

coalition in § 1007.61(b)(1), the uniform

price for excess milk would be

computed by multiplying the pounds of

excess milk that do not exceed the

pounds of milk assigned to Class III by

the Class III price, any remaining excess

pounds by the Class II price, and, if

there are excess pounds remaining, by

the Class I price. The total value so

computed then would be divided by the

total pounds of excess milk to arrive at

the uniform price for excess milk.

This procedure should be modified

slightly to reflect the incorporation of

Class III–A pricing in the order.

Specifically, a new step should be

added—i.e., § 1007.61(b)(1)(i)—that

would first multiply the pounds of

excess milk that do not exceed the

pounds of milk assigned to Class III–A

by the Class III–A price. The remaining

excess pounds would then be

multiplied by the Class III price, the

Class II price, and finally, if there are

any excess pounds left, by the Class I

price.

Without this modification, any milk

that was assigned to Class III–A would

reduce the uniform price for base milk,

instead of the uniform price for excess

milk. This would narrow the difference

between the two prices, thereby

reducing the incentive for producers to

level out their production, which is the

primary purpose of the base-excess

plan.

Sections 1007.92, 1007.93, and

1007.94 have been modified to reflect

the changes in the base-forming months,

in the computation of a producer’s base,

and the base rules.

2(e). Administrative Provisions. The

administrative duties of the market

administrator are detailed under

§ 1000.3 of the General Provisions,

which pertain to all milk orders. In

§ 1000.5 of the General Provisions, a

handler’s responsibility for records and

facilities are also detailed.

Handler Reports. The responsibility of

handlers to establish and maintain

certain records of their operations and

to make such records and facilities

available to the market administrator are

set forth in § 1000.5 of the General

Provisions. That section relates to the

adequacy of the records of the handler

and the period of time for which they

should be maintained.

The requirements of handlers to

maintain such records, and to make

reports of receipts and utilization to the

market administrator under §§ 1007.30,

1007.31, and 1007.32 of the proposed

order, are similar to the requirements

that are now contained in the five orders

to be merged.

To compute the uniform price and the

prices for base and excess milk, the

market administrator must first receive

a report of receipts and utilization from

each of the handlers in the pool. Section

30 of the order describes who should

file a report of receipts and utilization,

what the report should contain, and

when it should be filed. As proposed

and adopted here, this report would

have to be filed on or before the 5th day

after the end of the month, or not later

than the 7th day if the report is

delivered in person to the office of the

market administrator. This filing

deadline will provide the market

administrator with sufficient time to

receive the reports, review and correct

them for obvious errors, compute each

handler’s value of milk at classified

prices, compute the uniform price or

prices, and announce such price or

prices by the 11th day of each month.

Section 31 of the proposed order

discusses the submission of handler

payroll reports. This report shows the

name and address of each producer, the

total pounds of milk received from the

producer, the butterfat content of the

milk, and the price per hundredweight

paid. This report is due on or before the

20th day after the end of the month.

Section 32 deals with the reporting of

base milk for the months of February

through May and any other reports

which the market administrator may

request. The aggregate quantity of base

milk received from producers must be

reported on or before the 7th day after

the end of the month, while the pounds

of base and excess milk received from

each producer must be reported on or

before the 20th day after the end of each

month of February through May.

The dates proposed for the filing of

reports, price announcements, and

payments were patterned after those in

the Alabama-West Florida order. They

are similar, however, to those provided

in other Federal orders in the Southeast.

Therefore, handlers under the proposed

Southeast order will be accustomed to

meeting these deadlines. Likewise,

producers covered by this order will

receive their payments at about the

same time as they have received

payments under the current Federal

orders.

Charge for Overdue Accounts. It is

essential to the effective operation of the

proposed order that handlers make their

payments on time.

Under a marketwide pooling

arrangement, handlers with Class I

utilizations higher than the market

average pay part of their total use value

of milk to the producer-settlement fund.

This money is, in turn, paid out to

handlers with lower than average Class

I utilization so that all handlers in the

market, irrespective of the way they use

their milk, can pay their producers the

same uniform price. The success of this

arrangement depends upon the solvency

of the producer-settlement fund.

The prompt payment of funds due the

administrative and marketing service

funds is also essential for the market

administrator to perform the various

administrative functions prescribed by

the order. Delinquent payments to these

funds could impair the ability of the

market administrator to carry out these

duties in a timely and efficient manner.

Payment delinquency also results in

an inequity among handlers. Handlers

who pay late are, in effect, borrowing

money from producers. In the absence

of any late-payment charge equal to at

least the cost of borrowing money from

commercial sources, handlers who are

delinquent in their payments would

have a financial advantage relative to

those handlers making timely payments.

The late-payment charges included in

the proposed order are not a substitute

for prompt payments by handlers; those

handlers delinquent in their obligations

would still be subject to legal

enforcement action as authorized under

the Act.

Under the late payment provisions,

overdue handler obligations would be

increased by 1.5 percent on the day after

the due date. Any remaining unpaid

portion of the original obligation would

be increased by 1.5 percent on the same

date of each succeeding month until the

obligation is paid.

The late payment charge should apply

not only to the original obligation but

also to any unpaid charges previously

assessed. They would apply whether the

obligation is paid one day late or ten

days late, and would be applicable to

both fully regulated and partially

regulated handlers alike.

The disposition of the late payment

charge would be determined by the

account to which it is due. A charge

resulting from an unpaid obligation to

the producer-settlement fund would go

into that fund. By the same token, a

charge resulting from an unpaid

obligation for order administration or

marketing services would go into those

respective funds.

The proposed rate of 1.5 percent per

month is reasonable and is not less than

the current annual rate for short-term

loans.

Expenses of Administration. The

expenses for the administration of the
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25053

proposed order should be borne by

regulated handlers under the order.

Section 1007.85 provides that each

handler shall pay to the market

administrator his/her pro rata share of

the expenses of administration of the

order. Accordingly, on or before the

15th day after the end of the month,

each handler will be required to pay the

market administrator five cents per

hundredweight, or such lesser amount

as the Secretary may determine is

necessary, with respect to receipts of

producer milk, including such handler’s

own production, but excluding receipts

from a cooperative association acting as

a handler for milk delivered to pool

plants of other handlers. The payment

shall also apply to other source milk

allocated to Class I and to route

disposition in the marketing area by

partially regulated distributing plants.

To administer the order properly, the

market administrator must have

sufficient funds to cover his costs. The

Act specifically states that such cost of

administration shall be borne by

handlers through an assessment on such

handlers.

A principal function of the market

administrator’s office is to verify the

receipts and disposition of milk from all

sources. Equity in sharing the cost of

administration of the order among

handlers will be achieved by applying

the administrative assessment on the

basis of milk received from dairy

farmers as well as on other source milk

allocated to Class I.

The proposed order provides that a

cooperative shall be the handler for its

member milk which it delivers in tank

trucks from the farm to pool plants of

other handlers. The cooperative is the

handler for such milk basically for the

purpose of accounting to its individual

member producers.

The milk is producer milk at the plant

of the receiving handler and is treated

the same as any other direct receipt

from producers. Therefore, the pool

plant operator who receives the milk

should pay the administrative

assessment on such milk. The

cooperative, however, would be liable

for the administrative assessment for

any amount by which the farm weights

of the producer milk exceeds the

weights at the plant on which the plant

operator purchased the milk from the

cooperative.

The market administrator must verify,

by audit, the receipts and utilization of

pool plants whether the plant operator

buys milk directly from producers or

through a cooperative association as a

handler. It is appropriate, therefore, that

the pool plant operator receiving such

milk should pay the administrative

assessment on the milk on the same

basis as all other producer milk received

at the plant.

In the case of unregulated milk

entering the market through a regulated

plant for Class I use, the regulated

handler who utilizes the unregulated

milk must report to the market

administrator the receipts and use of

such milk. It is appropriate, therefore,

that the regulated handler should be

responsible for payment for the

administrative assessment on such

unregulated milk.

While the proposed order is designed

so that the cost of administration is

shared equitably among handlers

distributing milk in the proposed

marketing area, an assessment should

not be made on other source milk on

which an assessment was made under

another Federal milk marketing order.

Marketing Service Deduction. Proper

payment to producers is assured by the

verification of producer weights and

producer butterfat tests and by keeping

producers well informed about

marketing conditions.

If a producer is a member of a

cooperative association, these services

are performed by the cooperative

association and are paid for by the

members of the cooperative association.

In the case of nonmember producers,

however, the Act authorizes a handler to

deduct a fee from the payment to

nonmember producers for marketing

services, which are provided by the

market administrator or an agent

selected by the market administrator.

There is no need for the market

administrator to duplicate the services

which a cooperative association

normally provides for its membership.

However, since the market

administrator must rely on the

cooperative’s results to insure a proper

accounting of milk and butterfat, it is

essential that the cooperative

association’s performance of these

marketing services be reviewed by the

Secretary. A cooperative association

will not be entitled to perform

marketing services until it files an

application to do so with the market

administrator and demonstrates that it is

fully qualified and capable of

performing these services.

Section 1007.86 of the proposed order

provides the procedure by which

producers pay the cost of marketing

services provided by the market

administrator.

Nonmember producers who will be

pooled under the proposed order will be

dispersed over a wide geographic area.

It is likely that the cost to the market

administrator of performing marketing

services for nonmembers will be as high

as that now incurred under the separate

orders. Therefore, the cooperative

coalition proposal for a seven-cent

maximum fee should be adopted. This

is the maximum fee now permitted

under Orders 93 and 108, but slightly

higher than the level currently

permitted under Orders 7, 94, and 96. It

should be stressed, however, that this is

a maximum fee that may be charged for

these services; it may be that the market

administrator can perform these services

at a lower rate. Nevertheless, to err on

the side of caution, a seven-cent

maximum fee should be provided.

The separate funds that have been

accumulated under each of the orders to

defray the costs of administration and

providing marketing services to

producers, as well as the producersettlement fund reserves, should be

consolidated under the merged order.

Consolidation of these funds provides

an effective and equitable way of

avoiding an interruption of services and

regulation in the area. Any liabilities of

such funds under the current orders

should be paid from the appropriate

new fund under the merged order.

Similarly, any obligations that are due

to the several funds under the

individual orders should be paid to the

appropriate combined fund under the

merged order.

Motions To Reopen the Hearing

Several parties motioned to reopen

the hearing. Fleming and Purity argued

that there was no proposal to increase

the price at Nashville, decrease the price

at Covington, decrease the price at

Montgomery, or decrease the price at

Huntsville. In addition, they state that

since the hearing there has been a major

restructuring and reorganization of plant

ownership and milk supplies in the

Southeast and that the dominant

cooperative association, Mid-America

Dairymen, Inc., has entered into full

supply agreements with Meadow Gold,

Borden, and Barber Pure Milk Company

plants, effectively requiring

independent producers supplying those

plants to join the cooperative

association or lose the market for their

milk. Fleming and Purity maintain that

Mid-Am knew of these changes but

concealed them from the hearing

participants, who should have an

opportunity to address them.

Gold Star Dairy requested that the

hearing be reopened to receive

additional testimony and evidence on

the Class I price zones and the size of

the marketing area. Gold Star excepted

to the increase in Class I price at Little

Rock, the 17-cent reduction in price at

Covington, Tennessee, and the price

reductions in Louisiana, an area that is
25054 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

priced well above Gold Star’s location

in Little Rock. As far as marketing area

is concerned, Gold Star states in its

exception that ‘‘in large part Gold Star

does not care which order it is pooled

on so long as its pricing and competitive

price structure does not change.’’

Dairy Fresh Corporation of

Greensboro, Alabama, asked for a

reopened hearing because the price at

its plant in Hattiesburg was increased by

3 cents, while the prices at Canton,

Jackson, and Kosciusko, Mississippi,

were reduced by 17 cents, 7 cents, and

12 cents, respectively, the price at New

Orleans was reduced by 17 cents, and

the price at Baton Rouge was reduced by

10 cents. In addition, Dairy Fresh did

not agree that a 10-cent increase in price

was necessary for its Cowarts, Alabama,

plant.

Admittedly, there have been many

changes in the Southeast marketing area

since the November 1993 hearing. Many

of these changes were noted in the

recommended decision. Others have

been pointed out in this decision. Since

these changes are well known to the

handlers and producers in this market

and to the Department, there is nothing

to be gained by reopening the hearing.

With respect to the arguments of

Fleming, Purity, Gold Star, Barber, and

Dairy Fresh that they had no notice of

the price changes and no opportunity to

address the issues, it is determined that,

on the contrary, they did have notice

and an opportunity to present evidence

regarding all provisions of the merged

order. Furthermore, they addressed

these issues in their exceptions and the

Department carefully reviewed their

arguments, and, for the most part, made

changes as a result of them. In

particular, the price at Nashville was

reduced from $2.60 to $2.55, the price

at Covington was increased from $2.60

to $2.70, the price at Little Rock was

reduced from $2.77 to $2.70, the price

at Cowarts, Alabama, was reduced from

$3.48 to $3.40, the price at Hattiesburg

was reduced from $3.48 to $3.40, and

the price at Mobile was reduced from

$3.68 to $3.65. With respect to price

reductions that were made in higherpriced areas to improve alignment or to

revise price increases that were made in

1985, it is concluded that Fleming,

Purity, Gold Star, and Dairy Fresh have

no right to expect prices to be

maintained that are higher than

necessary simply so that these handlers

can sell their milk in higher-priced

markets in Alabama, Mississippi,

Georgia, and Louisiana.

The administrative rulemaking

procedure has worked as it is supposed

to work in this proceeding. Many

different proposals were evaluated.

They were combined and modified as

deemed to be appropriate and interested

parties were given an opportunity to

comment on the recommended

decision. In this final decision, the

exceptions to the recommended

decision were considered and justified

changes were adopted. There is no

reason to delay this proceeding for at

least another year by reopening the

hearing to hear facts that are generally

known to everyone involved with this

matter. The requests to reopen the

hearing, accordingly, are denied.

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 orders were

first issued and when they were

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 Southeast order, which merges

and amends the Georgia, Alabama-West

Florida, Greater Louisiana, New

Orleans-Mississippi, and Central

Arkansas orders, 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 milk in the aforesaid marketing

areas, and the minimum prices specified

in the tentative marketing agreements

and the orders, 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;

(c) The Southeast order 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, a marketing agreement

upon which a hearing has been held;

(d) All milk and milk products

handled by handlers, as defined in the

Southeast order, are in the current of

interstate commerce or directly burden,

obstruct, or affect interstate commerce

in milk or its products; and

(e) It is hereby found that the

necessary expense of the market

administrator for the maintenance and

functioning of such agency will require

each handler to pay, as its pro rata share

of such expense, 5 cents per

hundredweight or such lesser amount as

the Secretary may prescribe, with

respect to milk specified in § 1007.85 of

the aforesaid tentative marketing

agreement and the Southeast order.

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.

Marketing Agreement and Order

Annexed hereto and made a part

hereof are two documents, a Marketing

Agreement regulating the handling of

milk in the Southeast marketing area

and an Order amending the order

regulating the handling of milk in the

Southeast marketing area, which have

been decided upon as the detailed and

appropriate means of effectuating the

foregoing conclusions. It is hereby

ordered that this entire decision and the

two documents annexed hereto be

published in the Federal Register.

Referendum Order to Determine

Producer Approval; Determination of

Representative Period; and Designation

of Referendum Agent

It is hereby directed that a referenda

be conducted and completed on or

before the 30th day from the date this

decision is issued, in accordance with

the procedure for the conduct of

referenda (7 CFR 900.300–311), to

determine whether the issuance of the

order as amended and as hereby

proposed to be amended, regulating the

handling of milk in the Southeast

marketing area is approved or favored

by producers, as defined under the

terms of the individual orders (as

amended and as hereby proposed to be

amended), who during such
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25055

representative period were engaged in

the production of milk for sale within

the aforesaid marketing areas.

The representative period for the

conduct of such referenda is hereby

determined to be March 1995.

The agents of the Secretary to conduct

such referenda are hereby designated to

be the market administrators of the

aforesaid orders.

Determination of Producer Approval

and Representative Period

March 1995 is hereby determined to

be the representative period for the

purpose of ascertaining whether the

issuance of the merged order regulating

the handling of milk in the Southeast

marketing area is approved or favored

by producers as defined under the terms

of the individual orders (as amended

and as hereby proposed to be amended)

who during the representative period

were engaged in the production of milk

for sale within the aforesaid marketing

areas.

List of Subjects in 7 CFR Part 1007

Milk marketing orders.

Dated: May 3, 1995.

Patricia A. Jensen,

Acting Assistant Secretary, Marketing and

Regulatory Programs.

Order Amending the Order Regulating

the Handling of Milk in the Southeast

Marketing Area

This order shall not become effective

unless and until the requirements of

§ 900.14 of the rules of practice and

procedure governing proceedings to

formulate marketing agreements and

marketing orders have been met.

Findings and Determinations

The findings and determinations

hereinafter set forth supplement those

that were made when the orders were

first issued and when they were

amended. The previous findings and

determinations are hereby ratified and

confirmed, except where they may

conflict with those set forth herein.

(a) Findings. A public hearing was

held upon certain proposed

amendments to the tentative marketing

agreements and to the orders regulating

the handling of milk in the aforesaid

marketing areas. The hearing was 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 and

procedure (7 CFR Part 900).

Upon the basis of the evidence

introduced at such hearing and the

record thereof, it is found that:

(1) The said orders as hereby

amended, and all of the terms and

conditions thereof, will tend to

effectuate the declared policy of the Act;

(2) 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 milk in the aforesaid marketing

areas. The minimum prices specified in

the order as hereby 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

(3) The said orders as hereby

amended regulate the handling of milk

in the same manner as, and is applicable

only to persons in the respective classes

of industrial or commercial activity

specified in, a marketing agreement

upon which a hearing has been held;

(4) All milk and milk products

handled by handlers, as defined in the

order as hereby amended, are in the

current of interstate commerce or

directly burden, obstruct, or affect

interstate commerce in milk or its

products; and

(5) It is hereby found that the

necessary expense of the market

administrator for the maintenance and

functioning of such agency will require

each handler to pay, as its pro rata share

of such expense, 5 cents per

hundredweight or such lesser amount as

the Secretary may prescribe, with

respect to milk specified in § 1007.85.

Order Relative to Handling

It is therefore ordered that on and

after the effective date hereof, the

handling of milk in the Southeast

marketing area shall be in conformity to

and in compliance with the terms and

conditions of the following attached

order.

It is proposed to revise 7 CFR part

1007 to read as follows:

PART 1007—MILK IN THE SOUTHEAST

MARKETING AREA

Subpart—Order Regulating Handling

General Provisions

Sec.

1007.1 General provisions.

Definitions

1007.2 Southeast marketing area.

1007.3 Route disposition.

1007.4 Plant.

1007.5 Distributing plant.

1007.6 Supply plant.

1007.7 Pool plant.

1007.8 Nonpool plant.

1007.9 Handler.

1007.10 Producer-handler.

1007.11 [Reserved].

1007.12 Producer.

1007.13 Producer milk.

1007.14 Other source milk.

1007.15 Fluid milk product.

1007.16 Fluid cream product.

1007.17 Filled milk.

1007.18 Cooperative association.

1007.19 Commercial food processing

establishment.

Handler Reports

1007.30 Reports of receipts and utilization.

1007.31 Payroll reports.

1007.32 Other reports.

Classification of Milk

1007.40 Classes of utilization.

1007.41 Shrinkage.

1007.42 Classification of transfers and

diversions.

1007.43 General classification rules.

1007.44 Classification of producer milk.

1007.45 Market administrator’s reports and

announcements concerning

classification.

Class Prices

1007.50 Class prices.

1007.51 Basic formula price.

1007.52 Plant location adjustments for

handlers.

1007.53 Announcement of class prices.

1007.54 Equivalent price.

Uniform Prices

1007.60 Handler’s value of milk for

computing the uniform price.

1007.61 Computation of uniform price

(including weighted average price and

uniform prices for base and excess milk).

1007.62 Announcement of uniform price

and butterfat differential.

Payments for Milk

1007.70 Producer-settlement fund.

1007.71 Payments to the producersettlement fund.

1007.72 Payments from the producersettlement fund.

1007.73 Payments to producers and to

cooperative associations.

1007.74 Butterfat differential.

1007.75 Plant location adjustments for

producers and on nonpool milk.

1007.76 Payments by a handler operating a

partially regulated distributing plant.

1007.77 Adjustment of accounts.

1007.78 Charges on overdue accounts.

Administrative Assessment and Marketing

Service Deduction

1007.85 Assessment for order

administration.

1007.86 Deduction for marketing services.

Base-Excess Plan

1007.90 Base milk.

1007.91 Excess milk.

1007.92 Computation of base for each

producer.

1007.93 Base rules.

1007.94 Announcement of established

bases.

Authority: 7 U.S.C. 601–674.
25056 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

Subpart—Order Regulating Handling

General Provisions

§ 1007.1 General provisions.

The terms, definitions, and provisions

in Part 1000 of this chapter are hereby

incorporated by reference and made a

part of this order.

Definitions

§ 1007.2 Southeast marketing area.

The Southeast marketing area,

hereinafter called the marketing area,

means all territory within the bounds of

the following Alabama, Florida, Georgia,

Mississippi, Tennessee, and Arkansas

counties and Louisiana parishes,

including all piers, docks, and wharves

connected therewith and all craft

moored thereat, and all territory

occupied by government (municipal,

State, or Federal) reservations,

installations, institutions, or other

similar establishments if any part

thereof is within any of the listed

counties or parishes:

Zone 1

Arkansas counties: Baxter, Clay, Fulton,

Greene, Izard, Lawrence, Randolph, and

Sharp.

Tennessee counties: Cheatham, Clay,

Davidson, Dickson, Fentress, Henry,

Houston, Jackson, Lake, Macon, Montgomery,

Obion, Overton, Pickett, Robertson, Smith,

Stewart, Sumner, Trousdale, Weakley, and

Wilson.

Zone 2

Arkansas counties: Newton, Searcy, and

Stone.

Tennessee counties: Bedford, Benton,

Bledsoe, Cannon, Carroll, Chester, Coffee,

Crockett, DeKalb, Decatur, Dyer, Gibson,

Grundy, Henderson, Hickman, Humphreys,

Lewis, Madison, Marshall, Maury, Perry,

Putnam, Rutherford, Van Buren, Warren,

White, and Williamson.

Zone 3

Arkansas counties: Cleburne, Craighead,

Independence, Jackson, Johnson, Mississippi,

Poinsett, Pope, and Van Buren.

Tennessee counties: Lauderdale, Tipton,

and Haywood.

Zone 4

Arkansas counties: Conway, Crittenden,

Cross, Faulkner, Garland, Lee, Lonoke,

Monroe, Montgomery, Perry, Polk, Prairie,

Pulaski, Saline, St. Francis, White, Woodruff,

and Yell.

Tennessee counties: Fayette, Franklin,

Giles, Hardeman, Hardin, Lawrence, Lincoln,

McNairy, Moore, Shelby, and Wayne.

Zone 5

Alabama counties: Colbert, De Kalb,

Franklin, Jackson, Lauderdale, Lawrence,

Limestone, Madison, Marshall, and Morgan.

Arkansas counties: Arkansas, Clark, Grant,

Hot Spring, Howard, Jefferson, Phillips, Pike,

and Sevier.

Georgia counties: Gilmer, Towns, and

Union.

Mississippi counties: Alcorn, Benton,

Coahoma, DeSoto, Itawamba, Lafayette, Lee,

Marshall, Panola, Pontotoc, Prentiss,

Quitman, Tate, Tippah, Tishomingo, Tunica,

and Union.

Zone 6

Alabama counties: Blount, Cherokee,

Cullman, Etowah, Fayette, Lamar, Marion,

Walker, and Winston.

Arkansas counties: Bradley, Calhoun,

Cleveland, Dallas, Desha, Drew, Hempstead,

Lincoln, Little River, Nevada, and Ouachita.

Georgia counties: Bartow, Cherokee,

Dawson, Floyd, Gordon, Habersham,

Lumpkin, Pickens, Rabun, and White.

Mississippi counties: Bolivar, Calhoun,

Chickasaw, Grenada, Monroe, Sunflower,

Tallahatchie, and Yalobusha.

Zone 7

Alabama counties: Bibb, Calhoun, Clay,

Cleburne, Jefferson, Pickens, Randolph,

Shelby, St. Clair, Talladega, and Tuscaloosa.

Arkansas counties: Ashley, Chicot,

Columbia, Lafayette, Miller, and Union.

Georgia counties: Banks, Barrow, Butts,

Carroll, Clarke, Clayton, Cobb, Coweta, De

Kalb, Douglas, Elbert, Fayette, Forsyth,

Franklin, Fulton, Greene, Gwinnett, Hall,

Haralson, Hart, Heard, Henry, Jackson,

Jasper, Lincoln, Madison, Morgan, Newton,

Oconee, Oglethorpe, Paulding, Polk, Putnam,

Rockdale, Spalding, Stephens, Taliaferro,

Walton, and Wilkes.

Mississippi counties: Attala, Carroll,

Choctaw, Clay, Holmes, Humphreys, Leflore,

Lowndes, Montgomery, Noxubee, Oktibbeha,

Washington, Webster, and Winston.

Zone 8

Alabama counties: Chambers, Chilton,

Coosa, Greene, Hale, Lee, Perry, Sumter

(north of U.S. 80), and Tallapoosa.

Georgia counties: Baldwin, Bibb, Burke,

Columbia, Crawford, Glascock, Hancock,

Harris, Jefferson, Jones, Lamar, McDuffie,

Meriwether, Monroe, Muscogee, Pike,

Richmond, Talbot, Taylor, Troup, Twiggs,

Upson, Warren, Washington, and Wilkinson.

Louisiana parishes: Bienville, Bossier,

Caddo, Claiborne, East Carroll, Jackson,

Lincoln, Morehouse, Ouachita, Richland,

Union, Webster, and West Carroll.

Mississippi counties: Issaquena, Kemper,

Leake, Madison, Neshoba, Sharkey, and

Yazoo.

Zone 9

Alabama counties: Autauga, Bullock,

Dallas, Elmore, Lowndes, Macon, Marengo,

Monroe, Montgomery, Russell, Sumter (south

of U.S. 80), and Wilcox.

Georgia counties: Bleckley, Bulloch,

Candler, Chattahoochee, Crisp, Dodge, Dooly,

Effingham, Emanuel, Evans, Houston,

Jenkins, Johnson, Laurens, Macon, Marion,

Montgomery, Peach, Pulaski, Schley,

Screven, Stewart, Sumter, Tattnall, Telfair,

Toombs, Treutlen, Webster, Wheeler, and

Wilcox.

Louisiana parishes: Caldwell, De Soto,

Franklin, Madison, Natchitoches (north of

State Highway 6 and U.S. 84), Red River,

Tensas, and Winn.

Mississippi counties: Claiborne, Clarke,

Copiah, Hinds, Jasper, Lauderdale, Newton,

Rankin, Scott, Simpson, Smith, and Warren.

Zone 10

Alabama counties: Barbour, Butler,

Choctaw, Clarke, Coffee, Conecuh,

Covington, Crenshaw, Dale, Escambia,

Geneva, Henry, Houston, Monroe, Pike, and

Washington.

Georgia counties: Appling, Atkinson,

Bacon, Baker, Ben Hill, Berrien, Brantley,

Brooks, Bryan, Calhoun, Camden, Charlton,

Chatham, Clay, Clinch, Coffee, Colquitt,

Cook, Decatur, Dougherty, Early, Echols,

Glynn, Grady, Irwin, Jeff Davis, Lanier, Lee,

Liberty, Long, Lowndes, McIntosh, Miller,

Mitchell, Pierce, Quitman, Randolph,

Seminole, Terrell, Thomas, Tift, Turner,

Ware, Wayne, and Worth.

Louisiana parishes: Avoyelles, Catahoula,

Concordia, Grant, La Salle, Natchitoches

(south of State Highway 6 and U.S. 84),

Rapides, Sabine, and Vernon.

Mississippi counties: Adams, Amite,

Covington, Forrest, Franklin, Greene,

Jefferson, Jefferson Davis, Jones, Lamar,

Lawrence, Lincoln, Marion, Perry, Pike,

Walthall, Wayne, and Wilkinson.

Zone 11

Alabama counties: Baldwin and Mobile

(more than 20 miles from the Mobile city

hall).

Florida counties: Escambia, Okaloosa,

Santa Rosa, and Walton.

Louisiana parishes: Allen, Beauregard, East

Feliciana, Evangeline, Pointe Coupee, St.

Helena, St. Landry, St. Tammany,

Tangipahoa, Washington, and West

Feliciana.

Mississippi counties: George, Hancock,

Harrison, Jackson, Pearl River, and Stone.

Zone 12

Alabama counties: Mobile (within 20 miles

of the Mobile city hall).

Louisiana parishes: Acadia, Ascension,

Assumption, Calcasieu, Cameron, East Baton

Rouge, Iberia, Iberville, Jefferson, Jefferson

Davis, Lafayette, Lafourche, Livingston,

Orleans, Plaquemines, St. Bernard, St.

Charles, St. James, St. John the Baptist, St.

Martin, St. Mary, Terrebonne, Vermilion, and

West Baton Rouge.

§ 1007.3 Route disposition.

Route disposition means a delivery to

a retail or wholesale outlet (except a

plant), either directly or through any

distribution facility (including

disposition from a plant store, vendor or

vending machine) of a fluid milk

product classified as Class I milk.

Packaged fluid milk products that are

transferred to a distributing plant from

a plant with route disposition in the

marketing area and which are classified

as Class I under § 1007.40(a) shall be

considered as route disposition from the

transferor plant, rather than the

transferee plant, for the single purpose

of qualifying it as a pool plant under

§ 1007.7(a).
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25057

§ 1007.4 Plant.

Plant means the land, buildings,

facilities, and equipment constituting a

single operating unit or establishment at

which milk or milk products, including

filled milk, are received, processed, or

packaged. Separate facilities without

stationary storage tanks that are used

only as a reload point for transferring

bulk milk from one tank truck to

another or separate facilities used only

as a distribution point for storing

packaged fluid milk products in transit

for route disposition shall not be a plant

under this definition.

§ 1007.5 Distributing plant.

Distributing plant means a plant that

is approved by a duly constituted

regulatory agency for the handling of

Grade A milk and at which fluid milk

products are processed or packaged and

from which there is route disposition in

the marketing area during the month.

§ 1007.6 Supply plant.

Supply plant means a plant that is

approved by a duly constituted

regulatory agency for the handling of

Grade A milk and from which fluid milk

products are transferred during the

month to a pool distributing plant.

§ 1007.7 Pool plant.

Pool plant means a plant specified in

paragraphs (a), (b), (c) or (d) of this

section, or a unit of plants as specified

in paragraph (e) of this section, but

excluding a plant specified in paragraph

(g) of this section. The pooling

standards described in paragraphs (a)

through (c) of this section are subject to

modification pursuant to paragraph (f)

of this section:

(a) A distributing plant from which

during the month:

(1) Total route disposition, except

filled milk, is equal to 50 percent or

more of the total quantity of Grade A

fluid milk products, except filled milk,

physically received at such plant or

diverted therefrom pursuant to

§ 1007.13; and

(2) Route disposition, except filled

milk, in the marketing area is at least the

lesser of a daily average of 1,500 pounds

or 10 percent of the total quantity of

fluid milk products, except filled milk,

physically received or diverted

therefrom pursuant to § 1007.13.

(b) A supply plant from which during

each of the months of July through

November 60 percent (40 percent during

each of the months of December through

June) of the total quantity of Grade A

milk that is received during the month

from dairy farmers (including producer

milk diverted from the plant pursuant to

§ 1007.13 but excluding milk diverted to

such plant) and handlers described in

§ 1007.9(c) is transferred to pool

distributing plants.

(c) A plant located within the

Southeast marketing area that is

operated by a cooperative association if

pool plant status under this paragraph is

requested for such plant by the

cooperative association and during the

month producer milk of members of

such cooperative association is

delivered directly from farms to pool

distributing plants or is transferred to

such plants as a fluid milk product from

the cooperative’s plant. Such deliveries,

in excess of receipts by transfer from

pool distributing plants, must equal not

less than 60 percent of the total

producer milk of such cooperative

association in each of the months of July

through November, and 40 percent of

such milk in each of the months of

December through June. The plant’s

pool plant status shall be subject to the

following conditions:

(1) The plant does not qualify as a

pool plant under paragraphs (a) or (b) of

this section or under the provisions of

another Federal order applicable to a

distributing plant or a supply plant; and

(2) The plant is approved by a duly

constituted regulatory agency to handle

Grade A milk.

(d) A plant located within the

marketing area (other than a producerhandler plant or a governmental agency

plant) that meets the qualifications

described in paragraph (a) of this

section regardless of its quantity of route

disposition in any other Federal order

marketing area.

(e) Two or more plants operated by

the same handler and that are located

within the Southeast marketing area

may qualify for pool status as a unit by

meeting the total and in-area route

disposition requirements specified in

paragraph (a) of this section and the

following additional requirements:

(1) At least one of the plants in the

unit must qualify as a pool plant

pursuant to paragraph (a) of this section;

(2) Other plants in the unit must

process only Class I or Class II products

and must be located in a pricing zone

providing the same or a lower Class I

price than the price applicable at the

distributing plant included in the unit

pursuant to paragraph (e)(1) of this

section; and

(3) A written request to form a unit,

or to add or remove plants from a unit,

must be filed with the market

administrator prior to the first day of the

month for which it is to be effective.

(f) The applicable percentages in

paragraphs (a) through (c) of this section

may be increased or decreased up to 10

percentage points by the market

administrator if, following a written

request for such a revision, the market

administrator finds that such revision is

necessary to assure orderly marketing

and efficient handling of milk in the

marketing area. Before making such a

finding, the market administrator shall

investigate the need for the revision by

conducting an investigation and

conferring with the Director of the Dairy

Division. If the investigation shows that

a revision might be appropriate, the

market administrator shall issue a notice

stating that the revision is being

considered and inviting written data,

views, and arguments. Any decision to

revise an applicable percentage must be

issued in writing seven days before the

effective date.

(g) The term pool plant shall not

apply to the following plants:

(1) A producer-handler plant;

(2) An exempt plant as defined in

§ 1007.8(e);

(3) A plant qualified pursuant to

paragraph (a) of this section which is

not located within the Southeast

marketing area, meets the pooling

requirements of another Federal order,

and has had greater sales in such other

Federal order marketing area for three

consecutive months, including the

current month;

(4) A plant qualified pursuant to

paragraph (a) of this section which is

located in another order’s marketing

area and which is required to be

regulated under such other order

because of its location within the other

order’s marketing area; and

(5) A plant qualified pursuant to

paragraph (b) of this section which also

meets the pooling requirements of

another Federal order and from which

greater qualifying shipments are made

to plants regulated under such other

order than are made to plants regulated

under this part, or such plant has

automatic pooling status under such

other order.

§ 1007.8 Nonpool plant.

Nonpool plant means any milk or

filled milk receiving, manufacturing, or

processing plant other than a pool plant.

The following categories of nonpool

plants are further defined as follows:

(a) Other order plant means a plant

that is fully subject to the pricing and

pooling provisions of another order

issued pursuant to the Act.

(b) Producer-handler plant means a

plant operated by a producer-handler as

defined in any order (including this

part) issued pursuant to the Act.

(c) Partially regulated distributing

plant means a nonpool plant that is not

an other order plant, a producer-handler

plant, or an exempt plant, from which
25058 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

there is route disposition in consumertype packages or dispenser units in the

marketing area during the month.

(d) Unregulated supply plant means a

supply plant that does not qualify as a

pool supply plant and is not an other

order plant, a producer-handler plant, or

an exempt plant.

(e) Exempt plant means a plant:

(1) Operated by a governmental

agency from which fluid milk products

are distributed in the marketing area.

Such plant shall be exempt from all

provisions of this part; or

(2) Which has monthly route

disposition of 100,000 pounds or less

during the month. Such plant will be

exempt from the pricing and pooling

provisions of this order, but the handler

will be required to file periodic reports

as prescribed by the market

administrator to enable determination of

the exempt status of such handler.

§ 1007.9 Handler.

Handler means:

(a) Any person who operates one or

more pool plants;

(b) Any cooperative with respect to

producer milk which it causes to be

diverted pursuant to § 1007.13 for the

account of such cooperative association;

(c) Any cooperative association with

respect to milk that it receives for its

account from the farm of a producer for

delivery to a pool plant of another

handler in a tank truck owned and

operated by, or under the control of,

such cooperative association, unless

both the cooperative association and the

operator of the pool plant notify the

market administrator prior to the time

that such milk is delivered to the pool

plant that the plant operator will be the

handler of such milk and will purchase

such milk on the basis of weights

determined from its measurement at the

farm and butterfat tests determined from

farm bulk tank samples. Milk for which

the cooperative association is the

handler pursuant to this paragraph shall

be deemed to have been received by the

cooperative association at the location

of the pool plant to which such milk is

delivered;

(d) Any person who operates a

partially regulated distributing plant;

(e) A producer-handler;

(f) Any person who operates an other

order plant described in § 1007.8(a);

(g) Any person who operates an

unregulated supply plant; and

(h) Any person who operates an

exempt plant.

§ 1007.10 Producer-handler.

Producer-handler means a person

who:

(a) Operates a dairy farm and a

distributing plant from which there is

monthly route disposition in excess of

100,000 pounds per month;

(b) Receives no Class I milk from

sources other than his/her own farm

production and pool plants;

(c) Disposes of no other source milk

as Class I milk; and

(d) Provides proof satisfactory to the

market administrator that the care and

management of the dairy animals and

other resources necessary to produce all

Class I milk handled (excluding receipts

from pool plants) and the operation of

the processing and packaging business

are his/her personal enterprise and

personal risk.

§ 1007.11 [Reserved]

§ 1007.12 Producer.

(a) Except as provided in paragraph

(b) of this section, producer means any

person who produces milk approved by

a duly constituted regulatory agency for

fluid consumption as Grade A milk and

whose milk is:

(1) Received at a pool plant directly

from such producer;

(2) Received by a handler described in

§ 1007.9(c); or

(3) Diverted from a pool plant in

accordance with § 1007.13.

(b) Producer shall not include:

(1) A producer-handler as defined in

any order (including this part) issued

pursuant to the Act;

(2) Any person with respect to milk

produced by such person whose milk is

delivered to an exempt plant, excluding

producer milk diverted to such exempt

plant pursuant to § 1007.13;

(3) Any person with respect to milk

produced by such person which is

diverted to a pool plant from an other

order plant if the other order plant

designates such person as a producer

under that order and such milk is

allocated to Class II or Class III

utilization pursuant to

§ 1007.44(a)(8)(iii) and the

corresponding step of § 1007.44(b); or

(4) Any person with respect to milk

produced by such person which is

reported as diverted to an other order

plant if any portion of such person’s

milk so moved is assigned to Class I

under the provisions of such other

order.

§ 1007.13 Producer milk.

Producer milk means the skim milk

and butterfat contained in milk of a

producer that is:

(a) Received at a pool plant directly

from such producer by the operator of

the plant;

(b) Received by a handler described in

§ 1007.9(c);

(c) Diverted from a pool plant to the

pool plant of another handler. Milk so

diverted shall be deemed to have been

received at the location of the plant to

which diverted; or

(d) Diverted by the operator of a pool

plant or cooperative association to a

nonpool plant that is not a producerhandler plant, subject to the following

conditions:

(1) In any month of December through

June, not less than four days’ production

of the producer whose milk is diverted

is physically received at a pool plant

during the month;

(2) In any month of July through

November, not less than ten days’

production of the producer whose milk

is diverted is physically received at a

pool plant during the month;

(3) The total quantity of milk so

diverted during the month by a

cooperative association shall not exceed

33 percent during the months of July

through November, or 50 percent during

the months of December through June,

of the producer milk that the

cooperative association caused to be

delivered to, and physically received at,

pool plants during the month;

(4) The operator of a pool plant that

is not a cooperative association may

divert any milk that is not under the

control of a cooperative association that

diverts milk during the month pursuant

to paragraph (d) of this section. The

total quantity of milk so diverted during

the month shall not exceed 33 percent

during the months of July through

November, or 50 percent during the

months of December through June, of

the producer milk physically received at

such plant (or such unit of plants in the

case of plants that pool as a unit

pursuant to § 1007.7(d)) during the

month;

(5) Any milk diverted in excess of the

limits prescribed in paragraphs (d)(3)

and (4) of this section shall not be

producer milk. The diverting handler

shall designate the dairy farmer

deliveries that will not be producer milk

pursuant to paragraphs (d)(3) and (4) of

this section. If the handler fails to make

such designation, no milk diverted by

such handler shall be producer milk;

(6) To the extent that it would result

in nonpool status for the plant from

which diverted, milk diverted for the

account of a cooperative association

from the pool plant of another handler

shall not be producer milk;

(7) The cooperative association shall

designate the dairy farm deliveries that

are not producer milk pursuant to

paragraph (d)(6) of this section. If the

cooperative association fails to make

such designation, no milk diverted by it

to a nonpool plant shall be producer

milk;
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25059

(8) Diverted milk shall be priced at

the location of the plant to which

diverted; and

(9) The market administrator may

increase or decrease the applicable

percentages in paragraphs (d)(3) and (4)

of this section by up to 10 percentage

points, and may increase or decrease the

10-day and 4-day delivery requirements

in paragraphs (d)(1) and (2) of this

section by 50 percent if, following a

written request for such a revision, the

market administrator finds that such

revision is necessary to assure orderly

marketing and efficient handling of milk

in the marketing area. Before making

such a finding, the market administrator

shall investigate the need for the

revision by conducting an investigation

and conferring with the Director of the

Dairy Division. If the investigation

shows that a revision might be

appropriate, the market administrator

shall issue a notice stating that the

revision is being considered and

inviting written data, views, and

arguments. Any decision to revise an

applicable percentage must be issued in

writing seven days before the effective

date.

§ 1007.14 Other source milk.

Other source milk means all skim

milk and butterfat contained in or

represented by:

(a) Receipts of fluid milk products

and bulk products specified in

§ 1007.40(b)(1) from any source other

than producers, a handler described in

§ 1007.9(c), or pool plants;

(b) Receipts in packaged form from

other plants of products specified in

§ 1007.40(b)(1);

(c) Products (other than fluid milk

products, products specified in

§ 1007.40(b)(1), and products produced

at the plant during the same month)

from any source which are reprocessed,

converted into, or combined with

another product in the plant during the

month; and

(d) Receipts of any milk product

(other than a fluid milk product or a

product specified in § 1007.40(b)(1)) for

which the handler fails to establish a

disposition.

§ 1007.15 Fluid milk product.

(a) Except as provided in paragraph

(b) of this section, fluid milk product

means any milk products in fluid or

frozen form containing less than 9

percent butterfat, that are in bulk or are

packaged, distributed and intended to

be used as beverages. Such products

include, but are not limited to: Milk,

skim milk, lowfat milk, milk drinks,

buttermilk, and filled milk, including

any such beverage products that are

flavored, cultured, modified with added

nonfat milk solids, sterilized,

concentrated (to not more than 50

percent total milk solids), or

reconstituted.

(b) The term fluid milk product shall

not include:

(1) Plain or sweetened evaporated

milk, plain or sweetened evaporated

skim milk, sweetened condensed milk

or skim milk, formulas especially

prepared for infant feeding or dietary

use that are packaged in hermetically

sealed containers, any product that

contains by weight less than 6.5 percent

nonfat milk solids, and whey; and

(2) The quantity of skim milk in any

modified product specified in paragraph

(a) of this section that is in excess of the

quantity of skim milk in an equal

volume of an unmodified product of the

same nature and butterfat content.

§ 1007.16 Fluid cream product.

Fluid cream product means cream

(other than plastic cream or frozen

cream), including sterilized cream, or a

mixture of cream and milk or skim milk

containing 9 percent or more butterfat,

with or without the addition of other

ingredients.

§ 1007.17 Filled milk.

Filled milk means any combination of

nonmilk fat (or oil) with skim milk

(whether fresh, cultured, reconstituted,

or modified by the addition of nonfat

milk solids), with or without milkfat, so

that the product (including stabilizers,

emulsifiers, or flavoring) resembles milk

or any other fluid milk product, and

contains less than 6 percent nonmilk fat

(or oil).

§ 1007.18 Cooperative association.

Cooperative association means any

cooperative marketing association of

producers which the Secretary

determines after application by the

association:

(a) To be qualified under the

provisions of the Act of Congress of

February 18, 1922, as amended, known

as the ‘‘Capper-Volstead Act;’’ and

(b) To have full authority in the sale

of milk of its members and be engaged

in making collective sales of, or

marketing, milk or milk products for its

members.

§ 1007.19 Commercial food processing

establishment.

Commercial food processing

establishment means any facility, other

than a milk or filled milk plant, to

which bulk fluid milk products and

bulk fluid cream products are disposed

of, or producer milk is diverted, that

uses such receipts as ingredients in food

products, and has no disposition of

fluid milk products or fluid cream

products other than those that it

received in consumer type packages.

Producer milk diverted to commercial

food processing establishments shall be

subject to the same provisions relating

to diversions to plants, including, but

not limited to, provisions in §§ 1007.13,

1007.41, and 1007.52.

Handler Reports

§ 1007.30 Reports of receipts and

utilization.

On or before the 5th day after the end

of the month (if postmarked), or not

later than the 7th day if the report is

delivered in person to the office of the

market administrator, each handler shall

report for such month to the market

administrator, in the detail and on forms

prescribed by the market administrator,

as follows:

(a) Each handler, with respect to each

of its pool plants, shall report the

quantities of skim milk and butterfat

contained in or represented by:

(1) Receipts of producer milk,

including producer milk diverted by the

handler from the pool plant to other

plants;

(2) Receipts of milk from handlers

described in § 1007.9(c);

(3) Receipts of fluid milk products

and bulk fluid cream products from

other pool plants;

(4) Receipts of other source milk;

(5) Inventories at the beginning and

end of the month of fluid milk products

and products specified in

§ 1007.40(b)(1); and

(6) The utilization or disposition of all

milk, filled milk, and milk products

required to be reported pursuant to this

paragraph.

(b) Each handler operating a partially

regulated distributing plant shall report

with respect to such plant in the same

manner as prescribed for reports

required by paragraph (a) of this section.

Receipts of milk that would have been

producer milk if the plant had been

fully regulated shall be reported in lieu

of producer milk. Such report shall

show also the quantity of any

reconstituted skim milk in route

disposition in the marketing area.

(c) Each handler described in § 1007.9

(b) and (c) shall report:

(1) The quantities of skim milk and

butterfat contained in receipts from

producers; and

(2) The utilization or disposition of all

such receipts.

(d) Each handler not specified in

paragraphs (a) through (c) of this section

shall report with respect to its receipts

and utilization of milk, filled milk, and

milk products in such manner as the

market administrator may prescribe.
25060 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

§ 1007.31 Payroll reports.

(a) On or before the 20th day after the

end of each month, each handler

described in § 1007.9 (a), (b), and (c)

shall report to the market administrator

its producer payroll for such month, in

detail prescribed by the market

administrator, showing for each

producer:

(1) Such producer’s name and

address;

(2) The total pounds of milk received

from such producer, showing separately

the pounds of milk received from the

producer on each delivery day;

(3) The average butterfat content of

such milk; and

(4) The price per hundredweight, the

gross amount due, the amount and

nature of any deduction, and the net

amount paid.

(b) Each handler operating a partially

regulated distributing plant who elects

to make payment pursuant to

§ 1007.76(b) shall report for each dairy

farmer who would have been a producer

if the plant had been fully regulated in

the same manner as prescribed for

reports required by paragraph (a) of this

section.

§ 1007.32 Other reports.

(a) Each handler described in § 1007.9

(a), (b), and (c) shall report to the market

administrator on or before the 7th day

after the end of each month of February

through May the aggregate quantity of

base milk received from producers

during the month, and on or before the

20th day after the end of each month of

February through May the pounds of

base milk received from each producer

during the month. In the case of milk

diverted to another plant, the handler

shall also report the pounds of base milk

of each producer assigned to the

divertee plant.

(b) In addition to the reports required

pursuant to paragraph (a) of this section

and §§ 1007.30 and 1007.31, each

handler shall report such information as

the market administrator deems

necessary to verify or establish each

handler’s obligation under the order.

Classification of Milk

§ 1007.40 Classes of utilization.

Except as provided in § 1007.42, all

skim milk and butterfat required to be

reported pursuant to § 1007.30 shall be

classified as follows:

(a) Class I milk shall be all skim milk

and butterfat:

(1) Disposed of in the form of a fluid

milk product, except as otherwise

provided in paragraphs (b) and (c) of

this section;

(2) In packaged fluid milk products in

inventory at the end of the month; and

(3) Not specifically accounted for as

Class II or Class III milk.

(b) Class II milk shall be all skim milk

and butterfat:

(1) Disposed in the form of a fluid

cream product or any product

containing artificial fat, fat substitutes,

or 6 percent or more nonmilk fat (or oil)

that resembles a fluid cream product,

except as otherwise provided in

paragraph (c) of this section;

(2) In packaged inventory at the end

of the month of the products specified

in paragraph (b)(1) of this section and in

bulk concentrated fluid milk products

in inventory at the end of the month;

(3) In bulk fluid milk products and

bulk fluid cream products disposed of

or diverted to a commercial food

processing establishment if the market

administrator is permitted to audit the

records of the commercial food

processing establishment for the

purpose of verification. Otherwise, such

uses shall be Class I;

(4) Used to produce:

(i) Cottage cheese, lowfat cottage

cheese, dry curd cottage cheese, ricotta

cheese, pot cheese, Creole cheese, and

any similar soft, high-moisture cheese

resembling cottage cheese in form or

use;

(ii) Milkshake and ice milk mixes (or

bases), frozen desserts, and frozen

dessert mixes distributed in one-quart

containers or larger and intended to be

used in soft or semi-solid form;

(iii) Aerated cream, frozen cream, sour

cream, sour half-and-half, sour cream

mixtures containing nonmilk items,

yogurt, and any other semi-solid

product resembling a Class II product;

(iv) Eggnog, custards, puddings,

pancake mixes, buttermilk biscuit

mixes, coatings, batter, and similar

products;

(v) Formulas especially prepared for

infant feeding or dietary use (meal

replacement) that are packaged in

hermetically sealed containers;

(vi) Candy, soup, bakery products and

other prepared foods which are

processed for general distribution to the

public, and intermediate products,

including sweetened condensed milk, to

be used in processing such prepared

food products; and

(vii) Any product not otherwise

specified in this section.

(c) Class III milk shall be all skim milk

and butterfat:

(1) Used to produce:

(i) Cream cheese and other spreadable

cheeses, and hard cheese of types that

may be shredded, grated, or crumbled,

and are not included in paragraph

(b)(4)(i) of this section;

(ii) Butter, plastic cream, anhydrous

milkfat, and butteroil;

(iii) Any milk product in dry form

except nonfat dry milk;

(iv) Evaporated or sweetened

condensed milk in a consumer-type

package and evaporated or sweetened

condensed skim milk in a consumertype package; and

(2) In inventory at the end of the

month of unconcentrated fluid milk

products in bulk form and products

specified in paragraph (b)(1) of this

section in bulk form;

(3) In fluid milk products, products

specified in paragraph (b)(1) of this

section, and products processed by the

disposing handler that are specified in

paragraphs (b)(4)(i) through (iv) of this

section, that are disposed of by a

handler for animal feed;

(4) In fluid milk products, products

specified in paragraph (b)(1) of this

section, and products processed by the

disposing handler that are specified in

paragraphs (b)(4) (i) through (iv) of this

section, that are dumped by a handler.

The market administrator may require

notification by the handler of such

dumping in advance for the purpose of

having the opportunity to verify such

disposition. In any case, classification

under this paragraph requires a handler

to maintain adequate records of such

use. If advance notification of such

dumping is not possible, or if the market

administrator so requires, the handler

must notify the market administrator on

the next business day following such

use;

(5) In fluid milk products and

products specified in paragraph (b)(1) of

this section that are destroyed or lost by

a handler in a vehicular accident, flood,

fire, or in a similar occurrence beyond

the handler’s control, to the extent that

the quantities destroyed or lost can be

verified from records satisfactory to the

market administrator;

(6) In skim milk in any modified fluid

milk product or in any product

specified in paragraph (b)(1) of this

section that is in excess of the quantity

of skim milk in such product that was

included within the fluid milk product

definition pursuant to § 1007.15 and the

fluid cream product definition pursuant

to § 1007.16; and

(7) In shrinkage assigned pursuant to

§ 1007.41(a) to the receipts specified in

§ 1007.41(a)(2) and in shrinkage

specified in § 1007.41 (b) and (c).

(d) Class III–A milk shall be all skim

milk and butterfat used to produce

nonfat dry milk.

§ 1007.41 Shrinkage.

For the purposes of classifying all

skim milk and butterfat to be reported

by a handler pursuant to § 1007.30, the
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25061

market administrator shall determine

the following:

(a) The pro rata assignment of

shrinkage of skim milk and butterfat,

respectively, at each pool plant to the

respective quantities of skim milk and

butterfat:

(1) In the receipts specified in

paragraphs (b) (1) through (6) of this

section on which shrinkage is allowed

pursuant to such paragraph; and

(2) In other source milk not specified

in paragraphs (b) (1) through (6) of this

section which was received in the form

of a bulk fluid milk product or a bulk

fluid cream product;

(b) The shrinkage of skim milk and

butterfat, respectively, assigned

pursuant to paragraph (a) of this section

to the receipts specified in paragraph

(a)(1) of this section that is not in excess

of:

(1) Two percent of the skim milk and

butterfat, respectively, in producer milk

(excluding milk diverted by the plant

operator to another plant);

(2) Plus 1.5 percent of the skim milk

and butterfat, respectively, in milk

received from a handler described in

§ 1007.9(c), except that if the operator of

the plant to which the milk is delivered

purchased such milk on the basis of

weights determined from its

measurement at the farm and butterfat

tests determined from farm bulk tank

samples, the applicable percentage shall

be 2 percent;

(3) Plus 0.5 percent of the skim milk

and butterfat, respectively, in producer

milk diverted from such plant by the

plant operator to another plant, except

that if the operator of the plant to which

the milk is delivered purchased such

milk on the basis of weights determined

from its measurement at the farm and

butterfat tests determined from farm

bulk tank samples, the applicable

percentage shall be zero;

(4) Plus 1.5 percent of the skim milk

and butterfat, respectively, in bulk fluid

milk products received by transfer from

other pool plants;

(5) Plus 1.5 percent of the skim milk

and butterfat, respectively, in bulk fluid

milk products received by transfer from

other order plants, excluding the

quantity for which Class II or Class III

classification is requested by the

handler; and

(6) Plus 1.5 percent of the skim milk

and butterfat, respectively, in bulk fluid

milk products received by transfer from

unregulated supply plants, excluding

the quantity for which Class II or Class

III classification is requested by the

handler; and

(7) Less 1.5 percent of the skim milk

and butterfat, respectively, in bulk fluid

milk products transferred to other plants

that is not in excess of the respective

amount of skim milk and butterfat to

which percentages are applied in

paragraphs (b)(1), (2), (4), (5), and (6) of

this section; and

(c) The quantity of skim milk and

butterfat, respectively, in shrinkage of

milk from producers for which a

cooperative association is the handler

pursuant to § 1007.9 (b) or (c), but not

in excess of 0.5 percent of the skim milk

and butterfat, respectively, in such milk.

If the operator of the plant to which the

milk is delivered purchases such milk

on the basis of weights determined from

its measurement at the farm and

butterfat tests determined from farm

bulk tank samples, the applicable

percentage under this paragraph for the

cooperative association shall be zero.

§ 1007.42 Classification of transfers and

diversions.

(a) Transfers and diversions to pool

plants. Skim milk or butterfat

transferred or diverted in the form of a

fluid milk product or transferred in the

form of a bulk fluid cream product from

a pool plant to another pool plant shall

be classified as Class I milk unless the

operators of both plants request the

same classification in another class. In

either case, the classification shall be

subject to the following conditions:

(1) The skim milk or butterfat

classified in each class shall be limited

to the amount of skim milk and

butterfat, respectively, remaining in

such class at the transferee-plant after

the computations pursuant to

§ 1007.44(a)(12) and the corresponding

step of § 1007.44(b). The amount of skim

milk or butterfat classified in each class

shall include the assigned utilization of

skim milk or butterfat in transfers of

concentrated fluid milk products.

(2) If the transferor-plant received

during the month other source milk to

be allocated pursuant to § 1007.44(a)(7)

or the corresponding step of

§ 1007.44(b), the skim milk or butterfat

so transferred shall be classified so as to

allocate the least possible Class I

utilization to such other source milk;

and

(3) If the transferor-plant received

during the month other source milk to

be allocated pursuant to § 1007.44(a)

(11) or (12) or the corresponding steps

of § 1007.44(b), the skim milk or

butterfat so transferred, up to the total

of the skim milk and butterfat,

respectively, in such receipts of other

source milk, shall not be classified as

Class I milk to a greater extent than

would be the case if the other source

milk had been received at the transfereeplant.

(b) Transfers and diversions to other

order plants. Skim milk or butterfat

transferred or diverted in the form of a

fluid milk product or transferred in the

form of a bulk fluid cream product from

a pool plant to an other order plant shall

be classified in the following manner.

Such classification shall apply only to

the skim milk or butterfat that is in

excess of any receipts at the pool plant

from the other plant of skim milk and

butterfat, respectively, in fluid milk

products and bulk fluid cream products,

respectively, that are in the same

category as described in paragraph

(b)(1), (2), or (3) of this section.

(1) If transferred as packaged fluid

milk products, classification shall be in

the classes to which allocated as a fluid

milk product under the other order;

(2) If transferred in bulk form,

classification shall be in the classes to

which allocated under the other order

(including allocation under the

conditions set forth in paragraph (b)(3)

of this section);

(3) If the operators of both plants so

request in their reports of receipts and

utilization filed with their respective

market administrators, transfers or

diversions in bulk form shall be

classified as Class II or Class III milk to

the extent of such utilization available

for such classification pursuant to the

allocation provisions of the other order;

(4) If information concerning the

classes to which such transfers or

diversions were allocated under the

other order is not available to the market

administrator for the purpose of

establishing classification under this

paragraph, classification shall be Class I

subject to adjustment when such

information is available;

(5) For purposes of this paragraph, if

the other order provides for a different

number of classes of utilization than is

provided for under this part, skim milk

or butterfat allocated to the class

consisting primarily of fluid milk

products shall be classified as Class I

milk, and skim milk or butterfat

allocated to the other classes shall be

classified as Class III milk; and

(6) If the form in which any fluid milk

product that is transferred to an other

order plant is not defined as a fluid milk

product under such other order,

classification shall be in accordance

with the provisions of § 1007.40.

(c) Transfers and diversions to

producer-handlers and to exempt

plants. Skim milk or butterfat that is

transferred or diverted from a pool plant

to a producer-handler under another

Federal order or to an exempt plant

shall be classified:

(1) As Class I milk if transferred or

diverted to a producer-handler;
25062 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

(2) As Class I milk if transferred to an

exempt plant in the form of a packaged

fluid milk product;

(3) In accordance with the utilization

assigned to it by the market

administrator if transferred or diverted

in the form of a bulk fluid milk product

or a bulk fluid cream product to an

exempt plant. For this purpose, the

transferee’s utilization of skim milk and

butterfat in each class, in series

beginning with Class III, shall be

assigned to the extent possible to its

receipts of skim milk and butterfat,

respectively, in bulk fluid cream

products, pro rata to each source.

(d) Transfers and diversions to other

nonpool plants. Skim milk or butterfat

transferred or diverted in the following

forms from a pool plant to a nonpool

plant that is not an other order plant, a

producer-handler plant, or an exempt

plant shall be classified:

(1) As Class I milk, if transferred in

the form of a packaged fluid milk

product; and

(2) As Class I milk, if transferred or

diverted in the form of a bulk fluid milk

product or transferred in the form of a

bulk fluid cream product, unless the

following conditions apply:

(i) If the conditions described in

paragraphs (d)(2)(i) (A) and (B) of this

section are met, transfers or diversions

in bulk form shall be classified on the

basis of the assignment of the nonpool

plant’s utilization to its receipts as set

forth in paragraphs (d)(2) (ii) through

(viii) of this section:

(A) The transferor-handler or divertorhandler claims such classification in

such handler’s report of receipts and

utilization filed pursuant § 1007.30 for

the month within which such

transaction occurred; and

(B) The nonpool plant operator

maintains books and records showing

the utilization of all skim milk and

butterfat received at such plant which

are made available for verification

purposes if requested by the market

administrator;

(ii) Route disposition in the marketing

area of each Federal order from the

nonpool plant and transfers of packaged

fluid milk products from such nonpool

plant to plants fully regulated

thereunder shall be assigned to the

extent possible in the following

sequence:

(A) Pro rata to receipts of packaged

fluid milk products at such nonpool

plants from pool plants;

(B) Pro rata to any remaining

unassigned receipts of packaged fluid

milk products at such nonpool plants

from other order plants;

(C) Pro rata to receipts of bulk fluid

milk products at such nonpool plant

from pool plants; and

(D) Pro rata to any remaining

unassigned receipts of bulk fluid milk

products at such nonpool plant from

other order plants;

(iii) Any remaining Class I disposition

of packaged fluid milk products from

the nonpool plant shall be assigned to

the extent possible pro rata to any

remaining unassigned receipts of

packaged fluid milk products at such

nonpool plant from pool plants and

other order plants;

(iv) Transfers of bulk fluid milk

products from the nonpool plant to a

plant regulated under any Federal milk

order, to the extent that such transfers

to the regulated plant exceed receipts of

fluid milk products from such plant and

are allocated to Class I at the transfereeplant, shall be classified to the extent

possible in the following sequence:

(A) Pro rata to receipts of fluid milk

products at such nonpool plant from

pool plants; and

(B) Pro rata to any remaining

unassigned receipts of fluid milk

products at such nonpool plant from

other order plants;

(v) Any remaining unassigned Class I

disposition from the nonpool plant shall

be assigned to the extent possible in the

following sequence:

(A) To such nonpool plant’s receipts

from dairy farmers who the market

administrator determines constitute

regular sources of Grade A milk for such

nonpool plant; and

(B) To such nonpool plant’s receipts

of Grade A milk from plants not fully

regulated under any Federal milk order

which the market administrator

determines constitute regular sources of

Grade A milk for such nonpool plant;

(vi) Any remaining unassigned

receipts of bulk fluid milk products at

the nonpool plant from pool plants and

other order plants shall be assigned, pro

rata among such plants, to the extent

possible first to any remaining Class I

utilization, then to Class II utilization,

and then to Class III utilization at such

nonpool plant;

(vii) Receipts of bulk fluid cream

products at the nonpool plant from pool

plants and other order plants shall be

assigned, pro rata among such plants, to

the extent possible first to any

remaining Class II utilization, then to

any remaining Class III utilization, and

then to Class I utilization at such

nonpool plant; and

(viii) In determining the nonpool

plant’s utilization for purposes of this

paragraph, any fluid milk products and

bulk fluid cream products transferred

from such nonpool plant to a plant not

fully regulated under any Federal milk

order shall be classified on the basis of

the second plant’s utilization using the

same assignment priorities at the second

plant that are set forth in this paragraph.

(e) Transfers by a handler described

in § 1007.9(c) to pool plants. Skim milk

and butterfat transferred in the form of

bulk milk by a handler described in

§ 1007.9(c) to another handler’s pool

plant shall be classified pursuant to

§ 1007.44 pro rata with producer milk

received at the transferee-handler’s

plant.

§ 1007.43 General classification rules.

In determining the classification of

producer milk pursuant to § 1007.44,

the following rules shall apply:

(a) Each month the market

administrator shall correct for

mathematical and other obvious errors

all reports filed pursuant to § 1007.30

and shall compute separately for each

pool plant, and for each cooperative

association with respect to milk for

which it is the handler pursuant to

§ 1007.9 (b) or (c) that was not received

at a pool plant, the pounds of skim milk

and butterfat, respectively, in each class

in accordance with §§ 1007.40, 1007.41,

and 1007.42. The combined pounds of

skim milk and butterfat so determined

in each class for a handler described in

§ 1007.9 (b) or (c) shall be such

handler’s classification of producer

milk;

(b) If any of the water contained in the

milk from which a product is made is

removed before the product is utilized

or disposed of by the handler, the

pounds of skim milk in such product

that are to be considered under this part

as used or disposed of by the handler

shall be an amount equivalent to the

nonfat milk solids contained in such

product plus all of the water originally

associated with such solids;

(c) The classification of producer milk

for which a cooperative association is

the handler pursuant to § 1007.9 (b) or

(c) shall be determined separately from

the operations of any pool plant

operated by such cooperative

association;

(d) Skim milk and butterfat contained

in receipts of bulk concentrated fluid

milk and nonfluid milk products that

are reconstituted for fluid use shall be

assigned to Class I use, up to the

reconstituted portion of labeled

reconstituted fluid milk products, on a

pro rata basis (except for any Class I use

of specific concentrated receipts that is

established by the handler) prior to any

assignment under § 1007.44. Any

remaining skim milk and butterfat in

concentrated receipts shall be assigned

to uses under § 1007.44 on a pro rata
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25063

basis, unless a specific use of such

receipts is established by the handler;

and

(e) Class III–A milk shall be allocated

in combination with Class III milk and

the quantity of producer milk eligible to

be priced in Class III–A shall be

determined by prorating receipts from

pool sources to Class III–A use on the

basis of the quantity of total receipts of

bulk fluid milk products allocated to

Class III use at the plant.

§ 1007.44 Classification of producer milk.

For each month the market

administrator shall determine for each

handler described in § 1007.9(a) for each

pool plant of the handler separately the

classification of producer milk and milk

received from a handler described in

§ 1007.9(c), by allocating the handler’s

receipts of skim milk and butterfat to

the utilization of such receipts by such

handler as follows:

(a) Skim milk shall be allocated in the

following manner:

(1) Subtract from the total pounds of

skim milk in Class III the pounds of

skim milk in shrinkage specified in

§ 1007.41(b);

(2) Subtract from the total pounds of

skim milk in Class I the pounds of skim

milk in:

(i) Receipts of packaged fluid milk

products from an unregulated supply

plant to the extent that an equivalent

amount of skim milk disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order;

(ii) Packaged fluid milk products in

inventory at the beginning of the month.

This paragraph shall apply only if the

pool plant was subject to the provisions

of this paragraph or comparable

provisions of another Federal milk order

in the immediately preceding month;

(3) Subtract from the pounds of skim

milk remaining in each class the pounds

of skim milk in fluid milk products

received in packaged form from an other

order plant, except that to be subtracted

pursuant to paragraph (a)(7)(vi) of this

section, as follows:

(i) From Class III milk, the lesser of

the pounds remaining or 2 percent of

such receipts; and

(ii) From Class I milk, the remainder

of such receipts;

(4) Subtract from the pounds of skim

milk in Class II the pounds of skim milk

in products specified in § 1007.40(b)(1)

that were received in packaged form

from other plants, but not in excess of

the pounds of skim milk remaining in

Class II;

(5) Subtract from the remaining

pounds of skim milk in Class II the

pounds of skim milk in products

specified in § 1007.40(b)(1) in packaged

form and in bulk concentrated fluid

milk products that were in inventory at

the beginning of the month, but not in

excess of the pounds of skim milk

remaining in Class II. This paragraph

shall apply only if the pool plant was

subject to the provisions of this

paragraph or comparable provisions of

another Federal milk order in the

immediately preceding month;

(6) Subtract from the remaining

pounds of skim milk in Class II the

pounds of skim milk in bulk

concentrated fluid milk products and in

other source milk (except other source

milk received in the form of an

unconcentrated fluid milk product or a

fluid cream product) that is used to

produce, or added to, any product

specified in § 1007.40(b) (excluding the

quantity of such skim milk that was

classified as Class III milk pursuant to

§ 1007.40(c)(6)), but not in excess of the

pounds of skim milk remaining in Class

II;

(7) Subtract in the order specified

below from the pounds of skim milk

remaining in each class, in series

beginning with Class III, the pounds of

skim milk in each of the following:

(i) Bulk concentrated fluid milk

products and other source milk (except

other source milk received in the form

of an unconcentrated fluid milk

product) and, if paragraph (a)(5) of this

section applies, packaged inventory at

the beginning of the month of products

specified in § 1007.40(b)(1) that were

not subtracted pursuant to paragraphs

(a)(4), (a)(5), and (a)(6) of this section;

(ii) Receipts of fluid milk products

(except filled milk) for which Grade A

certification is not established;

(iii) Receipts of fluid milk products

from unidentified sources;

(iv) Receipts of fluid milk products

from a producer-handler as defined

under any Federal milk order and from

an exempt distributing plant;

(v) Receipts of reconstituted skim

milk in filled milk from an unregulated

supply plant that were not subtracted

pursuant to paragraph (a)(2)(i) of this

section; and

(vi) Receipts of reconstituted skim

milk in filled milk from an other order

plant that is fully regulated under any

Federal milk order providing for

individual-handler pooling, to the

extent that reconstituted skim milk is

allocated to Class I at the transferorplant;

(8) Subtract in the order specified

below from the pounds of skim milk

remaining in Class II and Class III, in

sequence beginning with Class III:

(i) The pounds of skim milk in

receipts of fluid milk products from an

unregulated supply plant that were not

subtracted pursuant to paragraphs

(a)(2)(i) and (7)(v) of this section for

which the handler requests a

classification other than Class I, but not

in excess of the pounds of skim milk

remaining in Class II and Class III

combined;

(ii) The pounds of skim milk in

receipts of fluid milk products from an

unregulated supply plant that were not

subtracted pursuant to paragraphs

(a)(2)(i), (7)(v), and (8)(i) of this section

which are in excess of the pounds of

skim milk determined pursuant to

paragraphs (a)(8)(ii) (A) through (C) of

this section. Should the pounds of skim

milk to be subtracted from Class II and

Class III combined exceed the pounds of

skim milk remaining in such classes, the

pounds of skim milk in Class II and

Class III combined shall be increased

(increasing as necessary Class III and

then Class II to the extent of available

utilization in such classes at the nearest

other pool plant of the handler, and

then at each successively more distant

pool plant of the handler) by an amount

equal to such excess quantity to be

subtracted, and the pounds of skim milk

in Class I shall be decreased a like

amount. In such case, the pounds of

skim milk remaining in each class at

this allocation step at the handler’s

other pool plants shall be adjusted in

the reverse direction by a like amount;

(A) Multiply by 1.25 the sum of the

pounds of skim milk remaining in Class

I at this allocation step at all pool plants

of the handler (excluding any

duplication of Class I utilization

resulting from reported Class I transfers

between pool plants of the handler);

(B) Subtract from the above result the

sum of the pounds of skim milk in

receipts at all pool plants of the handler

of producer milk, milk from a handler

described in § 1007.9(c), fluid milk

products from pool plants of other

handlers, and bulk fluid milk products

from other order plants that were not

subtracted pursuant to paragraph

(a)(7)(vi) of this section; and

(C) Multiply any plus quantity

resulting above by the percentage that

the receipts of skim milk in fluid milk

products from unregulated supply

plants that remain at this pool plant is

of all such receipts remaining at this

allocation step at all pool plants of the

handler; and

(iii) The pounds of skim milk in

receipts of bulk fluid milk products

from another order plant that are in

excess of bulk fluid milk products
25064 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

transferred or diverted to such plant and

that were not subtracted pursuant to

paragraph (a)(7)(vi) of this section, if

Class II or Class III classification is

requested by the operator of the other

order plant and the handler, but not in

excess of the pounds of skim milk

remaining in Class II and Class III

combined;

(9) Subtract from the pounds of skim

milk remaining in each class, in series

beginning with Class III, the pounds of

skim milk in fluid milk products and

products specified in § 1007.40(b)(1) in

inventory at the beginning of the month

that were not subtracted pursuant to

paragraphs (a)(2)(ii), (a)(5), and (a)(7)(i)

of this section;

(10) Add to the remaining pounds of

skim milk in Class III the pounds of

skim milk subtracted pursuant to

paragraph (a)(1) of this section;

(11) Subject to the provisions of

paragraphs (a)(11) (i) and (ii) of this

section, subtract from the pounds of

skim milk remaining in each class at the

plant, pro rata to the total pounds of

skim milk remaining in Class I and in

Class II and Class III combined at this

allocation step at all pool plants of the

handler (excluding any duplication of

utilization in each class resulting from

transfers between pool plants of the

handler), with the quantity prorated to

Class II and Class III combined being

subtracted first from Class III and then

from Class II, the pounds of skim milk

in receipts of fluid milk products from

an unregulated supply plant that were

not subtracted pursuant to paragraphs

(a)(2)(i), (a)(7)(v), (a)(8)(i), and (a)(8)(ii)

of this section and that were not offset

by transfers or diversions of fluid milk

products to the same unregulated

supply plant from which fluid milk

products to be allocated at this step

were received:

(i) Should the pounds of skim milk to

be subtracted from Class II and Class III

combined pursuant to paragraph (a)(11)

of this section exceed the pounds of

skim milk remaining in such classes, the

pounds of skim milk in Class II and

Class III combined shall be increased

(increasing as necessary Class III and

then Class II to the extent of available

utilization in such classes at the nearest

other pool plant of the handler, and

then at each successively more distant

pool plant of the handler) by an amount

equal to such excess quantity to be

subtracted, and the pounds of skim milk

in Class I shall be decreased a like

amount. In such case, the pounds of

skim milk remaining in each class at

this allocation step at the handler’s

other pool plants shall be adjusted in

the reverse direction by a like amount;

and

(ii) Should the pounds of skim milk

to be subtracted from Class I pursuant

to paragraph (a)(11) of this section

exceed the pounds of skim milk

remaining in such class, the pounds of

skim milk in Class I shall be increased

by an amount equal to such excess

quantity to be subtracted, and the

pounds of skim milk in Class II and

Class III combined shall be decreased by

a like amount (decreasing as necessary

Class III then Class II). In such case, the

pounds of skim milk remaining in each

class at this allocation step at the

handler’s other pool plants shall be

adjusted in the reverse direction by a

like amount, beginning with the nearest

plant at which Class I utilization is

available;

(12) Subtract in the manner specified

below from the pounds of skim milk

remaining in each class the pounds of

skim milk in receipts of bulk fluid milk

products from an other order plant that

are in excess of bulk fluid milk products

transferred or diverted to such plant that

were not subtracted pursuant to

paragraphs (a)(7)(vi) and (8)(iii) of this

section:

(i) Subject to the provisions of

paragraphs (a)(12) (ii), (iii) and (iv) of

this section, such subtraction shall be

pro rata to the pounds of skim milk in

Class I and in Class II and Class III

combined, with the quantity prorated to

Class II and Class III combined being

subtracted first from Class III and then

from Class II, with respect to whichever

of the following quantities represents

the lower proportion of Class I milk:

(A) The estimated utilization of skim

milk of all handlers in each class as

announced for the month pursuant to

§ 1007.45(a); or

(B) The total pounds of skim milk

remaining in each class at this

allocation step at all pool plants of the

handler (excluding any duplication of

utilization in each class resulting from

transfers between pool plants of the

handler);

(ii) Should the proration pursuant to

paragraph (a)(12)(i) of this section result

in the total pounds of skim milk at all

pool plants of the handler that are to be

subtracted at this allocation step from

Class II and Class III combined

exceeding the pounds of skim milk

remaining in Class II and Class III at all

such plants, the pounds of such excess

shall be subtracted from the pounds

remaining in Class I after such proration

at the pool plants at which such other

source milk was received;

(iii) Except as provided in paragraph

(a)(12)(ii) of this section, should the

computations pursuant to paragraph

(a)(12) (i) or (ii) of this section result in

a quantity of skim milk to be subtracted

from Class II and Class III combined that

exceeds the pounds of skim milk

remaining in such classes, the pounds of

skim milk in Class II and Class III

combined shall be increased (increasing

as necessary Class III and then Class II

to the extent of available utilization in

such classes at the nearest other pool

plant of the handler, and then at each

successively more distant pool plant of

the handler) by an amount equal to such

excess quantity to be subtracted, and the

pounds of skim milk in Class I shall be

decreased by a like amount. In such

case, the pounds of skim milk remaining

in each class at this allocation step at

the handler’s other pool plants shall be

adjusted in the reverse direction by a

like amount; and

(iv) Except as provided in paragraph

(a)(12)(ii) of this section, should the

computations pursuant to paragraph

(a)(12) (i) or (ii) of this section result in

a quantity of skim milk to be subtracted

from Class I that exceeds the pounds of

skim milk remaining in such class, the

pounds of skim milk in Class I shall be

increased by an amount equal to such

excess quantity to be subtracted, and the

pounds of skim milk in Class II and

Class III combined shall be decreased by

a like amount (decreasing as necessary

Class III and then Class II). In such case

the pounds of skim milk remaining in

each class at this allocation step at the

handler’s other pool plants shall be

adjusted in the reverse direction by a

like amount beginning with the nearest

plant at which Class I utilization is

available;

(13) Subtract from the pounds of skim

milk remaining in each class the pounds

of skim milk in receipts of fluid milk

products and bulk fluid cream products

from another pool plant according to the

classification of such products pursuant

to § 1007.42(a); and

(14) If the total pounds of skim milk

remaining in all classes exceed the

pounds of skim milk in producer milk

and milk received from a handler

described in § 1007.9(c), subtract such

excess from the pounds of skim milk

remaining in each class in series

beginning with Class III. Any amount so

subtracted shall be known as ‘‘overage’’;

(b) Butterfat shall be allocated in

accordance with the procedure outlined

for skim milk in paragraph (a) of this

section; and

(c) The quantity of producer milk and

milk received from a handler described

in § 1007.9(c) in each class shall be the

combined pounds of skim milk and

butterfat remaining in each class after

the computations pursuant to paragraph

(a)(14) of this section and the

corresponding step of paragraph (b) of

this section.
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25065

§ 1007.45 Market administrator’s reports

and announcements concerning

classification.

The market administrator shall make

the following reports and

announcements concerning

classification:

(a) Whenever required for the purpose

of allocating receipts from other order

plants pursuant to § 1007.44(a)(12) and

the corresponding step of § 1007.44(b),

estimate and publicly announce the

utilization (to the nearest whole

percentage) in each class during the

month of skim milk and butterfat,

respectively, in producer milk of all

handlers. Such estimate shall be based

upon the most current available data

and shall be final for such purpose.

(b) Report to the market administrator

of the other order, as soon as possible

after the report of receipts and

utilization for the month is received

from a handler who has received fluid

milk products or bulk fluid cream

products from another order plant, the

class to which such receipts are

allocated pursuant to §§ 1007.43(d) and

1007.44 on the basis of such report

(including any reclassification of

inventories of bulk concentrated fluid

milk products), and thereafter, any

change in such allocation required to

correct errors disclosed in the

verification of such report.

(c) Furnish each handler operating a

pool plant who has shipped fluid milk

products or bulk fluid cream products to

another order plant the class to which

such shipments were allocated by the

market administrator of the other order

on the basis of the report by the

receiving handler, and, as necessary,

any changes in such allocation arising

from the verification of such report.

(d) On or before the 12th day after the

end of each month, report to each

cooperative association which so

requests, the percentage of producer

milk delivered by members of such

association that was used in each class

by each handler receiving such milk.

For the purpose of this report the milk

so received shall be prorated to each

class in accordance with the total

utilization of producer milk by such

handler.

Class Prices

§ 1007.50 Class prices.

Subject to the provisions of § 1007.52,

the class prices for the month per

hundredweight of milk containing 3.5%

butterfat shall be as follows:

(a) The Class I price shall be the basic

formula price for the second preceding

month plus $3.08.

(b) The Class II price shall be the basic

formula price for the second preceding

month plus $.30.

(c) The Class III price shall be the

basic formula price for the month.

(d) The Class III-A price for the month

shall be the average Central States

nonfat dry milk price for the month, as

reported by the Department, less 12.5

cents, times an amount computed by

subtracting from 9 an amount calculated

by dividing 0.4 by such nonfat dry milk

price, plus the butterfat differential

value per hundredweight of 3.5 percent

milk and rounded to the nearest cent,

and subject to the adjustments set forth

in paragraph (c) of this section for the

applicable month.

§ 1007.51 Basic formula price.

The basic formula price shall be the

preceding month’s average pay price for

manufacturing grade milk in Minnesota

and Wisconsin using the ‘‘base month’’

series, as reported by the Department,

adjusted to a 3.5 percent butterfat basis

using the butterfat differential for the

preceding month computed pursuant to

§ 1007.74 and rounded to the nearest

cent, plus or minus the change in gross

value yielded by the butter-nonfat dry

milk and Cheddar cheese product price

formula computed pursuant to

paragraphs (a) through (e) of this

section.

(a) The gross values of per

hundredweight of milk used to

manufacture butter-nonfat dry milk and

Cheddar cheese shall be computed,

using price data determined pursuant to

paragraph (b) of this section and annual

yield factors, for the preceding month

and separately for the current month as

follows:

(1) The gross value of milk used to

manufacture butter-nonfat dry milk

shall be the sum of the following

computations:

(i) Multiply the Grade AA butter price

by 4.27;

(ii) Multiply the nonfat dry milk price

by 8.07; and

(iii) Multiply the dry buttermilk price

by 0.42.

(2) The gross value of milk used to

manufacture Cheddar cheese shall be

the sum of the following computations:

(i) Multiply the Cheddar cheese price

by 9.87; and

(ii) Multiply the Grade A butter price

by 0.238.

(b) The following product prices shall

be used pursuant to paragraph (a) of this

section:

(1) Grade AA butter price. Grade AA

butter price means the simple average

for the month of the Chicago Mercantile

Exchange, Grade AA butter price, as

reported by the Department.

(2) Nonfat dry milk price. Nonfat dry

milk price means the simple average for

the month of the Western Nonfat Dry

Milk Low/Medium Heat price, as

reported by the Department.

(3) Dry buttermilk price. Dry

buttermilk price means the simple

average for the month of the Western

Dry Buttermilk price, as reported by the

Department.

(4) Cheddar cheese price. Cheddar

cheese price means the simple average

for the month of the National Cheese

Exchange 40-pound block Cheddar

cheese price, as reported by the

Department.

(5) Grade A butter price. Grade A

butter price means the simple average

for the month of the Chicago Mercantile

Exchange Grade A butter price, as

reported by the Department.

(c) Determine the amounts by which

the gross value per hundredweight of

milk used to manufacture butter-nonfat

dry milk and the gross value per

hundredweight of milk used to

manufacture Cheddar cheese for the

current month exceed or are less than

the respective gross values for the

preceding month.

(d) Compute weighting factors to be

applied to the changes in gross values

determined pursuant to paragraph (c) of

this section by determining the relative

proportion that the data included in

each of the following paragraphs is of

the total of the data represented in

paragraphs (d)(1) and (d)(2) of this

section:

(1) Combine the total nonfat dry milk

production for the States of Minnesota

and Wisconsin, as reported by the

Department, for the most recent

preceding period, and divide by the

annual yield factor for nonfat dry milk,

8.07, to determine the quantity (in

hundredweights) of milk used in the

production of butter-nonfat dry milk;

and

(2) Combine the total American

cheese production for the States of

Minnesota and Wisconsin, as reported

by the Department, for the most recent

preceding period, and divide by the

annual yield factor for Cheddar cheese,

9.87, to determine the quantity (in

hundredweights) of milk used in the

production of American cheese.

(e) Compute a weighted average of the

changes in gross values per

hundredweight of milk determined

pursuant to paragraph (c) of this section

in accordance with the relative

proportions of milk determined

pursuant to paragraph (d) of this

section.
25066 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

§ 1007.52 Plant location adjustments for

handlers.

(a) For milk received at a plant from

producers or a handler described in

§ 1007.9(c) and which is classified as

Class I milk without movement in bulk

form to a pool distributing plant at

which a higher Class I price applies, the

price specified in § 1007.50(a) shall be

adjusted by the amount stated in

paragraphs (a)(1) through (6) of this

section for the location of such plant:

(1) For a plant located within one of

the zones set forth in § 1007.2, the

adjustment (cents per hundredweight)

shall be as follows:

Zone 1 ................................................Minus 53

Zone 2 ................................................Minus 48

Zone 3 ................................................Minus 38

Zone 4 ................................................Minus 31

Zone 5 ................................................Minus 25

Zone 6 ................................................Minus 10

Zone 7 .......................................No adjustment

Zone 8 ...................................................Plus 10

Zone 9 ...................................................Plus 20

Zone 10 .................................................Plus 32

Zone 11 .................................................Plus 50

Zone 12 .................................................Plus 57

(2) For a plant located in that portion

of the Tennessee Valley marketing area

that is within the State of Georgia, the

adjustment shall be minus 25 cents.

(3) For a plant located in the Missouri

counties of Dunklin or Pemiscot, the

adjustment shall be minus 53 cents.

(4) For a plant located in the Texas

counties of Bowie or Cass, the

adjustment shall be zero.

(5) For a plant located within another

Federal order marketing area, other than

in those counties specified in

paragraphs (2), (3), and (4) of this

section, the adjustment shall be

determined by subtracting the Class I

differential price in Zone 7 of this order

from the Class I differential price,

adjusted for the plant’s location, under

such other Federal order.

(6) For a plant located outside the

areas described in paragraphs (a)(1)

through (5) of this section, the

adjustment shall be computed by

multiplying 2.5 cents per 10 miles, or

fraction thereof (by the shortest hardsurfaced highway distance as

determined by the market

administrator), from the nearer of

Shreveport, Louisiana; Little Rock,

Arkansas; Memphis, Tennessee;

Jackson, Tennessee; Nashville,

Tennessee; or Atlanta, Georgia, and

subtracting that figure from the location

adjustment applicable at Shreveport,

Little Rock, Memphis, Jackson,

Nashville, or Atlanta, as the case may

be.

(b) For fluid milk products transferred

in bulk form from a pool plant to a pool

distributing plant at which a higher

Class I price applies and which are

classified as Class I milk, the Class I

price shall be the Class I price at the

transferee-plant subject to a location

adjustment credit for the transferorplant which shall be determined by the

market administrator for skim milk and

butterfat, respectively, as follows:

(1) Subtract from the pounds of skim

milk remaining in Class I at the

transferee-plant after the computations

pursuant to § 1007.44(a)(12) plus the

pounds of skim milk in receipts of

concentrated fluid milk products from

other pool plants that are assigned to

Class I use, an amount equal to:

(i) The pounds of skim milk in

receipts of milk at the transferee-plant

from producers and handlers described

in § 1007.9(c); and

(ii) The pounds of skim milk in

receipts of packaged fluid milk products

from other pool plants;

(2) Assign any remaining pounds of

skim milk in Class I at the transfereeplant to the skim milk in receipts of

fluid milk products from other pool

plants, first to the transferor-plants at

which the highest Class I price applies

and then to other plants in sequence

beginning with the plant at which the

next highest Class I price applies;

(3) Compute the total amount of

location adjustment credits to be

assigned to transferor-plants by

multiplying the hundredweight of skim

milk assigned pursuant to paragraph

(b)(2) of this section to each transferorplant at which the Class I price is lower

than the Class I price applicable at the

transferor-plant and the transferee-plant,

and add the resulting amounts;

(4) Assign the total amount of location

adjustment credits computed pursuant

to paragraph (b)(3) of this section to

those transferor-plants that transferred

fluid milk products containing skim

milk classified as Class I milk pursuant

to § 1007.42(a) and at which the

applicable Class I price is less than the

Class I price at the transferee-plant, in

sequence beginning with the plant at

which the highest Class I price applies.

Subject to the availability of such

credits, the credit assigned to each plant

shall be equal to the hundredweight of

such Class I skim milk multiplied by the

adjustment rate determined pursuant to

paragraph (b)(3) of this section for such

plant. If the aggregate of this

computation for all plants having the

same adjustment as determined

pursuant to paragraph (b)(3) of this

section exceeds the credits that are

available to those plants, such credits

shall be prorated to the volume of skim

milk in Class I in transfers from such

plants; and

(5) Location adjustment credit for

butterfat shall be determined in

accordance with the procedure outlined

for skim milk in paragraphs (b)(1)

through (4) of this section.

(c) The market administrator shall

determine and publicly announce the

zone location of each plant of each

handler. The market administrator shall

notify the handler on or before the first

day of any month in which a change in

a plant location zone will apply.

(d) The Class I price applicable to

other source milk shall be adjusted at

the rates set forth in paragraph (a) of this

section, except that the adjusted Class I

price shall not be less than the Class III

price.

§ 1007.53 Announcement of class prices.

The market administrator shall

announce publicly on or before the fifth

day of each month the Class I price and

Class II prices for the following month,

and the Class III and Class III–A prices

for the preceding month.

§ 1007.54 Equivalent price.

If for any reason a price or pricing

constituent required by this part for

computing class prices or for other

purposes is not available as prescribed

in this part, the market administrator

shall use a price or pricing constituent

determined by the Secretary to be

equivalent to the price or pricing

constituent that is required.

Uniform Prices

§ 1007.60 Handler’s value of milk for

computing the uniform price.

For the purpose of computing the

uniform price, the market administrator

shall determine for each month the

value of milk of each handler with

respect to each of the handler’s pool

plants and of each handler described in

§ 1007.9 (b) and (c) with respect to milk

that was not received at a pool plant as

follows:

(a) Multiply the pounds of producer

milk and milk received from a handler

described in § 1007.9(c) that were

classified in each class pursuant to

§§ 1007.43(a) and 1007.44(c) by the

applicable class prices, and add the

resulting amounts;

(b) Add the amounts obtained from

multiplying the pounds of overage

subtracted from each class pursuant to

§ 1007.44(a)(14) and the corresponding

step of § 1007.44(b) by the respective

class prices, as adjusted by the butterfat

differential specified in § 1007.74, that

are applicable at the location of the pool

plant;

(c) Add the amount obtained from

multiplying the difference between the

Class III price for the preceding month
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25067

and the Class I price applicable at the

location of the pool plant or the Class

II price, as the case may be, for the

current month by the hundredweight of

skim milk and butterfat subtracted from

Class I and Class II pursuant to

§ 1007.44(a)(9) and the corresponding

step of § 1007.44(b);

(d) Add the amount obtained from

multiplying the difference between the

Class I price applicable at the location

of the pool plant and the Class III price

by the hundredweight of skim milk and

butterfat assigned to Class I pursuant to

§ 1007.43(d) and the hundredweight of

skim milk and butterfat subtracted from

Class I pursuant to § 1007.44(a)(7) (i)

through (iv) and the corresponding step

of § 1007.44(b), excluding receipts of

bulk fluid cream products from an other

order plant and bulk concentrated fluid

milk products from pool plants, other

order plants, and unregulated supply

plants;

(e) Add the amount obtained from

multiplying the difference between the

Class I price applicable at the location

of the transferor-plant and the Class III

price by the hundredweight of skim

milk and butterfat subtracted from Class

I pursuant to § 1007.44(a)(7) (v) and (vi)

and the corresponding step of

§ 1007.44(b);

(f) Add the amount obtained from

multiplying the Class I price applicable

at the location of the nearest

unregulated supply plants from which

an equivalent volume was received by

the pounds of skim milk and butterfat

in receipts of concentrated fluid milk

products assigned to Class I pursuant to

§ 1007.43(d) and § 1007.44(a)(7)(i) and

the pounds of skim milk and butterfat

subtracted from Class I pursuant to

§ 1007.44(a)(11) and the corresponding

step of § 1007.44(b), excluding such

skim milk and butterfat in receipts of

fluid milk products from an unregulated

supply plant to the extent that an

equivalent amount of skim milk or

butterfat disposed of to such plant by

handlers fully regulated under any

Federal milk order is classified and

priced as Class I milk and is not used

as an offset for any other payment

obligation under any order;

(g) Subtract, for reconstituted milk

made from receipts of nonfluid milk

products, an amount computed by

multiplying $1.00 (but not more than

the difference between the Class I price

applicable at the location of the pool

plant and the Class III price) by the

hundredweight of skim milk and

butterfat contained in receipts of

nonfluid milk products that are

allocated to Class I use pursuant to

§ 1007.43(d);

(h) Exclude, for pricing purposes

under this section, receipts of nonfluid

milk products that are distributed as

labeled reconstituted milk for which

payments are made to the producersettlement fund of another order under

§ 1007.76(a)(5) or (c); and

(i) For pool plants that transfer bulk

concentrated fluid milk products to

other pool plants and other order plants,

add or subtract the amount per

hundredweight of any class price

change from the previous month that

results from any inventory

reclassification of bulk concentrated

fluid milk products that occurs at the

transferee plant. Any such applicable

class price change shall be applied to

the plant that used the concentrated

milk in the event that the concentrated

fluid milk products were made from

bulk unconcentrated fluid milk

products received at the plant during

the prior month.

§ 1007.61 Computation of uniform price

(including weighted average price and

uniform prices for base and excess milk).

(a) The market administrator shall

compute the weighted average price for

each month and the uniform price for

each month of June through January per

hundredweight of milk of 3.5 percent

butterfat content as follows:

(1) Combine into one total the values

computed pursuant to § 1007.60 for all

handlers who filed the reports

prescribed in § 1007.30 for the month

and who made payments pursuant to

§ 1007.71 for the preceding month;

(2) Add not less than one-half the

unobligated balance in the producersettlement fund;

(3) Add an amount equal to the total

value of the minus adjustments and

subtract an amount equal to the total

value of the plus adjustments computed

pursuant to § 1007.75;

(4) Divide the resulting amount by the

sum of the following for all handlers

included in these computations;

(i) The total hundredweight of

producer milk; and

(ii) The total hundredweight for

which a value is computed pursuant to

§ 1007.60(f); and

(5) Subtract not less than 4 cents nor

more than 5 cents per hundredweight.

The resulting figure, rounded to the

nearest cent, shall be the weighted

average price for each month and the

uniform price for the months of June

through January.

(b) For each month of February

through May, the market administrator

shall compute the uniform prices per

hundredweight for base milk and for

excess milk, each of 3.5 percent

butterfat content, as follows:

(1) Compute the total value of excess

milk for all handlers included in the

computations pursuant to paragraph

(a)(1) of this section as follows:

(i) Multiply the hundredweight

quantity of excess milk that does not

exceed the total quantity of such

handlers’ producer milk assigned to

Class III–A by the Class III–A price:

(ii) Multiply the remaining

hundredweight quantity of excess milk

that does not exceed the total quantity

of such handlers’ producer milk

assigned to Class III by the Class III

price:

(iii) Multiply the remaining

hundredweight quantity of excess milk

that does not exceed the total quantity

of such handlers’ producer milk

assigned to Class II by the Class II price:

(iv) Multiply the remaining

hundredweight quantity of excess milk

by the Class I price; and

(v) Add together the resulting

amounts;

(2) Divide the total value of excess

milk obtained in paragraph (b)(1) of this

section by the total hundredweight of

such milk and adjust to the nearest cent.

The resulting figure shall be the uniform

price for excess milk;

(3) From the amount resulting from

the computations pursuant to

paragraphs (a)(1) through (a)(3) of this

section subtract an amount computed by

multiplying the hundredweight of milk

specified in paragraph (a)(4)(ii) of this

section by the weighted average price;

(4) Subtract the total value of excess

milk determined by multiplying the

uniform price obtained in paragraph

(b)(2) of this section times the

hundredweight of excess milk from the

amount computed pursuant to

paragraph (b)(3) of this section;

(5) Divide the amount calculated

pursuant to paragraph (b)(4) of this

section by the total hundredweight of

base milk included in these

computations; and

(6) Subtract not less than 4 cents nor

more than 5 cents from the price

computed pursuant to paragraph (b)(5)

of this section. The resulting figure,

rounded to the nearest cent, shall be the

uniform price for base milk.

§ 1007.62 Announcement of uniform price

and butterfat differential.

The market administrator shall

announce publicly on or before:

(a) The fifth day after the end of each

month the butterfat differential for such

month; and

(b) The 11th day after the end of the

month the applicable uniform price(s)

pursuant to § 1007.61 for such month.
25068 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

Payments for Milk

§ 1007.70 Producer-settlement fund.

The market administrator shall

establish and maintain a separate fund

known as the producer-settlement fund

into which the market administrator

shall deposit all payments made by

handlers pursuant to §§ 1007.71,

1007.76, and 1007.77, and out of which

the market administrator shall make all

payments pursuant to §§ 1007.72 and

1007.77. Payments due any handler

shall be offset by any payments due

from such handler.

§ 1007.71 Payments to the producersettlement fund.

(a) On or before the 12th day after the

end of the month, each handler shall

pay to the market administrator the

amount, if any, by which the amount

specified in paragraph (a)(1) of this

section exceeds the amount specified in

paragraph (a)(2) of this section:

(1) The total value of milk of the

handler for such month as determined

pursuant to § 1007.60.

(2) The sum of:

(i) The value at the uniform price(s)

as adjusted pursuant to § 1007.75, of

such handler’s receipts of producer milk

and milk received from handlers

pursuant to § 1007.9(c); and

(ii) The value at the weighted average

price applicable at the location of the

plant from which received of other

source milk for which a value is

computed pursuant to § 1007.60(f).

(b) On or before the 25th day after the

end of the month each person who

operated an other order plant that was

regulated during such month under an

order providing for individual-handler

pooling shall pay to the market

administrator an amount computed as

follows:

(1) Determine the quantity of

reconstituted skim milk in filled milk in

route disposition from such plant in the

marketing area which was allocated to

Class I at such plant. If there is route

disposition from such plant in

marketing areas regulated by two or

more marketwide pool orders, the

reconstituted skim milk allocated to

Class I shall be prorated to each order

according to such route disposition in

each marketing area; and

(2) Compute the value of the

reconstituted skim milk assigned in

paragraph (b)(1) of this section to route

disposition in this marketing area by the

difference between the Class I price

under this part applicable at the

location of the other order plant (but not

to be less than the Class III price) and

the Class III price.

§ 1007.72 Payments from the producersettlement fund.

On or before the 13th day after the

end of each month, the market

administrator shall pay to each handler

the amount, if any, by which the

amount computed pursuant to

§ 1007.71(a)(2) exceeds the amount

computed pursuant to § 1007.71(a)(1). If,

at such time, the balance in the

producer-settlement fund is insufficient

to make all payments pursuant to this

section, the market administrator shall

reduce uniformly such payments and

shall complete such payments as soon

as the funds are available.

§ 1007.73 Payments to producers and to

cooperative associations.

(a) Each handler shall pay each

producer for producer milk for which

payment is not made to a cooperative

association pursuant to paragraph (b) of

this section, as follows:

(1) On or before the 26th day of each

month, for milk received during the first

15 days of the month from such

producer who has not discontinued

delivery of milk to such handler before

the 23rd day of the month at not less

than the Class III price for the preceding

month or 90 percent of the weighted

average price for the preceding month,

whichever is higher, less proper

deductions authorized in writing by the

producer. If the producer had

discontinued shipping milk to such

handler before the 25th day of any

month, or if the producer had no

established base upon which to receive

payments during the base paying

months of February through May, the

applicable rate for making payments to

such producer shall be the Class III

price for the preceding month; and

(2) On or before the 15th day of the

following month, an amount equal to

not less than the uniform price(s), as

adjusted pursuant to §§ 1007.74 and

1007.75, multiplied by the

hundredweight of milk or base milk and

excess milk received from such

producer during the month, subject to

the following adjustments:

(i) Less payments made to such

producer pursuant to paragraph (a)(1) of

this section;

(ii) Less deductions for marketing

services made pursuant to § 1007.86;

(iii) Plus or minus adjustments for

errors made in previous payments made

to such producers; and

(iv) Less proper deductions

authorized in writing by such producer.

(3) If a handler has not received full

payment from the market administrator

pursuant to § 1007.72 by the 15th day of

such month, such handler may reduce

payments pursuant to this paragraph to

producers on a pro rata basis but not by

more than the amount of the

underpayment. Such payments shall be

completed thereafter not later than the

date for making payments pursuant to

this paragraph next following after

receipt of the balance due from the

market administrator.

(b) On or before the day prior to the

dates specified in paragraph (a) (1) and

(2) of this section, each handler shall

make payment to the cooperative

association for milk from producers who

market their milk through the

cooperative association and who have

authorized the cooperative to collect

such payments on their behalf an

amount equal to the sum of the

individual payments otherwise payable

for such producer milk pursuant to

paragraph (a) (1) and (2) of this section.

(c) If a handler has not received full

payment from the market administrator

pursuant to § 1007.72 by the 15th day of

such month, such handler may reduce

payments pursuant to paragraph (b) of

this section to such cooperative

association on a pro rata basis, prorating

such underpayment to the volume of

milk received from such cooperative

association in proportion to the total

milk received from producers by the

handler, but not by more than the

amount of the underpayment. Such

payments shall be completed in the

following manner:

(1) If the handler receives full

payment from the market administrator

by the 15th day of the month, the

handler shall make payment to the

cooperative association of the full value

of the underpayment on the 15th day of

the month;

(2) If the handler has not received full

payment from the market administrator

by the 15th day of the month, the

handler shall make payment to the

cooperative association of the full value

of the underpayment on or before the

date for making such payments

pursuant to this paragraph next

following after receipt of the balance

due from the market administrator.

(d) Each handler pursuant to

§ 1007.9(a) who receives milk from a

cooperative association as a handler

pursuant to § 1007.9(c), including the

milk of producers who are not members

of such association, and who the market

administrator determines have

authorized such cooperative association

to collect payment for their milk, shall

pay such cooperative for such milk as

follows:

(1) On or before the 25th day of the

month for milk received during the first

15 days of the month, not less than the

Class III price for the preceding month

or 90 percent of the weighted average
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25069

price for the preceding month,

whichever is higher; and

(2) On or before the 14th day of the

following month, not less than the

appropriate uniform price(s) as adjusted

pursuant to §§ 1007.74 and 1007.75, and

less any payments made pursuant to

paragraph (d)(1) of this section.

(e) If a handler has not received full

payment from the market administrator

pursuant to § 1007.72 by the 14th day of

such month, such handler may reduce

payments pursuant to paragraph (d) of

this section to such cooperative

association and complete such

payments for milk received from such

cooperative association in its capacity as

a handler pursuant to § 1007.9(c), in the

manner prescribed in paragraph (c) (1)

and (2) of this section.

(f) In making payments to producers

pursuant to this section, each handler

shall furnish each producer, except a

producer whose milk was received from

a handler described in § 1007.9(c), a

supporting statement in such form that

it may be retained by the recipient

which shall show:

(1) The month and identity of the

producer;

(2) The daily and total pounds and the

average butterfat content of producer

milk;

(3) For the months of February

through May the total pounds of base

milk received from such producer;

(4) The minimum rate(s) at which

payment to the producer is required

pursuant to this order;

(5) The rate(s) used in making the

payment if such rate(s) is (are) other

than the applicable minimum rate(s);

(6) The amount, or rate per

hundredweight, and nature of each

deduction claimed by the handler; and

(7) The net amount of payment to

such producer or cooperative

association.

§ 1007.74 Butterfat differential.

For milk containing more or less than

3.5 percent butterfat, the uniform prices

for base and excess milk shall be

increased or decreased, respectively, for

each one-tenth percent butterfat

variation from 3.5 percent by a butterfat

differential, rounded to the nearest onetenth cent, which shall be 0.138 times

the current month’s butter price less

0.0028 times the preceding month’s

average pay price per hundredweight, at

test, for manufacturing grade milk, in

Minnesota and Wisconsin, using the

‘‘base month’’ series, adjusted pursuant

to § 1007.51(a) through (e), as reported

by the Department. The butter price

means the simple average for the month

of the Chicago Mercantile Exchange,

Grade A butter price as reported by the

Department.

§ 1007.75 Plant location adjustments for

producers and on nonpool milk.

(a) The uniform price and the uniform

price for base milk shall be adjusted

according to the location of the plant at

which the milk was physically received

at the rates set forth in § 1007.52(a); and

(b) The weighted average price

applicable to other source milk shall be

adjusted at the rates set forth in section

§ 1007.52(a) applicable at the location of

the nonpool plant from which the milk

was received, except that the adjusted

weighted average price shall not be less

than the Class III price.

§ 1007.76 Payments by a handler

operating a partially regulated distributing

plant.

Each handler who operates a partially

regulated distributing plant shall pay on

or before the 25th day after the end of

the month to the market administrator

for the producer-settlement fund the

amount computed pursuant to

paragraph (a) of this section. If the

handler submits pursuant to

§§ 1007.30(b) and 1007.31(b) the

information necessary for making the

computations, such handler may elect to

pay in lieu of such payment the amount

computed pursuant to paragraph (b) of

this section:

(a) The payment under this paragraph

shall be an amount resulting from the

following computations:

(1) Determine the pounds of route

disposition in the marketing area from

the partially regulated distributing

plant;

(2) Subtract the pounds of fluid milk

products received at the partially

regulated distributing plant:

(i) As Class I milk from pool plants

and other order plants, except that

subtracted under a similar provision of

another Federal milk order; and

(ii) From another nonpool plant that

is not an other order plant to the extent

that an equivalent amount of fluid milk

products disposed of to such nonpool

plant by handlers fully regulated under

any Federal milk order is classified and

priced as Class I milk and is not used

as an offset for any payment obligation

under any order;

(3) Subtract the pounds of

reconstituted milk that are made from

nonfluid milk products and which are

then disposed of as route disposition in

the marketing area from the partially

regulated distributing plant;

(4) Multiply the remaining pounds by

the difference between the Class I price

and the weighted average price, both

prices to be applicable at the location of

the partially regulated distributing plant

(except that the Class I price and

weighted average price shall not be less

than the Class III price); and

(5) Add the amount obtained from

multiplying the pounds of labeled

reconstituted milk included in

paragraph (a)(3) of this section by the

difference between the Class I price

applicable at the location of the partially

regulated distributing plant less $1.00

(but not to be less than the Class III

price) and the Class III price. For any

reconstituted milk that is not so labeled,

the Class I price shall not be reduced by

$1.00. Alternatively, for such

disposition, payments may be made to

the producer-settlement fund of the

order regulating the producer milk used

to produce the nonfluid milk

ingredients at the difference between

the Class I price applicable under the

other order at the location of the plant

where the nonfluid milk ingredients

were processed (but not to be less than

the Class III price) and the Class III

price. This payment option shall apply

only if a majority of the total milk

received at the plant that processed the

nonfluid milk ingredients is regulated

under one or more Federal orders and

payment may only be made to the

producer-settlement fund of the order

pricing a plurality of the milk used to

produce the nonfluid milk ingredients.

This payment option shall not apply if

the source of the nonfluid ingredients

used in reconstituted fluid milk

products cannot be determined by the

market administrator.

(b) The payment under this paragraph

shall be the amount resulting from the

following computations:

(1) Determine the value that would

have been computed pursuant to

§ 1007.60 for the partially regulated

distributing plant if the plant had been

a pool plant, subject to the following

modifications:

(i) Fluid milk products and bulk fluid

cream products received at the partially

regulated distributing plant from a pool

plant or another order plant shall be

allocated at the partially regulated

distributing plant to the same class in

which such products were classified at

the fully regulated plant;

(ii) Fluid milk products and bulk fluid

cream products transferred from the

partially regulated distributing plant to

a pool plant or another order plant shall

be classified at the partially regulated

distributing plant in the class to which

allocated at the fully regulated plant.

Such transfers shall be computed to the

extent possible to those receipts at the

partially regulated distributing plant

from pool plants and other order plants

that are classified in the corresponding
25070 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules

class pursuant to paragraph (b)(1)(i) of

this section. Any such transfers

remaining after the above allocation

which are in Class I and for which a

value is computed for the handler

operating the partially regulated

distributing plant pursuant to § 1007.60

shall be priced at the uniform price (or

at the weighted average price if such is

provided) of the respective order

regulating the handling of milk at the

transferee plant, with such uniform

price adjusted to the location of the

nonpool plant (but not to be less than

the lowest class price of the respective

order), except that transfers of

reconstituted skim milk in filled milk

shall be priced at the lowest price class

of the respective order; and

(iii) If the operator of the partially

regulated distributing plant so requests,

the value of milk determined pursuant

to § 1007.60 for such handler shall

include, in lieu of the value of other

source milk specified in § 1007.60(f) less

the value of such other source milk

specified in § 1007.71(a)(2)(ii), a value

of milk determined pursuant to

§ 1007.60 for each nonpool plant that is

not another order plant which serves as

a supply plant for such partially

regulated distributing plant by making

shipments to the partially regulated

distributed plant during the month

equivalent to the requirements of

§ 1007.7(b), subject to the following

conditions:

(A) The operator of the partially

regulated distributing plant submits

with its reports filed pursuant to

§§ 1007.30(b) and 1007.31(b) similar

reports for each such nonpool supply

plant;

(B) The operator of such nonpool

plant maintains books and records

showing the utilization of all skim milk

and butterfat received at such plant

which are made available if requested

by the market administrator for

verification purposes; and

(C) The value of milk determined

pursuant to § 1007.60 for such nonpool

supply plant shall be determined in the

same manner prescribed for computing

the obligation of such partially regulated

distributing plant; and

(2) From the partially regulated

distributing plant’s value of milk

computed pursuant to paragraph (b)(1)

of this section, subtract:

(i) The gross payments by the operator

of the partially regulated distributing

plant, adjusted to a 3.5 percent butterfat

basis by the butterfat differential

specified in § 1007.74, for milk received

at the plant during the month that

would have been producer milk had the

plant been fully regulated;

(ii) If paragraph (b)(1)(iii) of this

section applies, the gross payments by

the operator of such nonpool supply

plant, adjusted to a 3.5 percent butterfat

basis by the butterfat differential

specified in § 1007.74, for milk received

at the plant during the month that

would have been producer milk if the

plant had been fully regulated; and

(iii) The payments by the operator of

the partially regulated distributing plant

to the producer-settlement fund of

another order under which such plant is

also a partially regulated distributing

plant and like payments by the operator

of the nonpool supply plant if paragraph

(b)(1)(iii) of this section applies.

(c) Any handler may elect partially

regulated distributing plant status for

any plant with respect to receipts of

nonfluid milk ingredients assigned to

Class I use under § 1007.43(d).

Payments may be made to the producersettlement fund of the order regulating

the producer milk used to produce the

nonfluid milk ingredients at the

difference between the Class I price

applicable under the other order at the

location of the plant where the nonfluid

milk ingredients were processed (but

not less than the Class III price) and the

Class III price. This payment option

shall apply only if a majority of the total

milk received at the plant that processed

the nonfluid milk ingredients is

regulated under one or more Federal

orders and payment may only be made

to the producer-settlement fund of the

order pricing a plurality of the milk

used to produce the nonfluid milk

ingredients. This payment option shall

not apply if the source of the nonfluid

ingredients used in reconstituted fluid

milk products cannot be determined by

the market administrator.

§ 1007.77 Adjustment of accounts.

Whenever audit by the market

administrator of any handler’s reports,

books, records, or accounts, or other

verification discloses errors resulting in

money due the market administrator

from a handler, or due a handler from

the market administrator, or due a

producer or cooperative association

from a handler, the market

administrator shall promptly notify

such handler of any amount so due and

payment thereof shall be made on or

before the next date for making

payments as set forth in the provisions

under which the error(s) occurred.

§ 1007.78 Charges on overdue accounts.

Any unpaid obligation due the market

administrator from a handler pursuant

to §§ 1007.71, 1007.76, 1007.77,

1007.78, 1007.85, and 1007.86 shall be

increased 1.5 percent each month

beginning with the day following the

date such obligation was due under the

order. Any remaining amount due shall

be increased at the same rate on the

corresponding day of each month until

paid. The amounts payable pursuant to

this section shall be computed monthly

on each unpaid obligation and shall

include any unpaid charges previously

made pursuant to this section. The late

charges shall be added to the respective

accounts to which due. For the purpose

of this section, any obligation that was

determined at a date later than

prescribed by the order because of a

handler’s failure to submit a report to

the market administrator when due

shall be considered to have been

payable by the date it would have been

due if the report had been filed when

due.

Administrative Assessment and

Marketing Service Deduction

§ 1007.85 Assessment for order

administration.

As each handler’s pro rata share of the

expense of administration of the order,

each handler shall pay to the market

administrator on or before the 15th day

after the end of the month 5 cents per

hundredweight or such lesser amount as

the Secretary may prescribe with respect

to:

(a) Receipts of producer milk

(including such handler’s own

production) other than such receipts by

a handler described in § 1007.9(c) that

were delivered to pool plants of other

handlers;

(b) Receipts from a handler described

in § 1007.9(c);

(c) Receipts of concentrated fluid milk

products from unregulated supply

plants and receipts of nonfluid milk

products assigned to Class I use

pursuant to § 1007.43(d) and other

source milk allocated to Class I pursuant

to § 1007.44(a) (7) and (11) and the

corresponding steps of § 1007.44(b),

except such other source milk that is

excluded from the computations

pursuant to § 1007.60 (d) and (f); and

(d) Route disposition in the marketing

area from a partially regulated

distributing plant that exceeds the skim

milk and butterfat subtracted pursuant

to § 1007.76(a)(2).

§ 1007.86 Deduction for marketing

services.

(a) Except as provided in paragraph

(b) of this section each handler, in

making payments to producers for milk

(other than milk of such handler’s own

production) pursuant to § 1007.73, shall

deduct 7 cents per hundredweight or

such lesser amount as the Secretary may

prescribe and shall pay such deductions
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Proposed Rules 25071

to the market administrator not later

than the 15th day after the month. Such

money shall be used by the market

administrator to verify or establish

weights, samples and tests of producer

milk and provide market information for

producers who are not receiving such

services from a cooperative association.

Such services shall be performed in

whole or in part by the market

administrator or an agent engaged by

and responsible to the market

administrator;

(b) In the case of producers for whom

a cooperative association that the

Secretary has determined is actually

performing the services set forth in

paragraph (a) of this section, each

handler shall make, in lieu of the

deduction specified in paragraph (a) of

this section, such deductions from the

payments to be made to such producers

as may be authorized by the

membership agreement or marketing

contract between such cooperative

association and such producers, and on

or before the 15th day after the end of

the month, pay such deductions to the

cooperative association rendering such

services accompanied by a statement

showing the amount of any such

deductions and the amount of milk for

which such deduction was computed

for each producer.

Base-Excess Plan

§ 1007.90 Base milk.

Base milk means the producer milk of

a producer in each month of February

through May that is not in excess of the

producer’s base multiplied by the

number of days in the month.

§ 1007.91 Excess milk.

Excess milk means the producer milk

of a producer in each month of February

through May in excess of the producer’s

base milk for the month, and shall

include all the producer milk in such

months of a producer who has no base.

§ 1007.92 Computation of base for each

producer.

(a) Subject to paragraph (c) of this

section, a base for each dairy farmer

who was a producer pursuant to

§ 1007.12 during one or more of the

immediately preceding months of July

through December shall be determined

by dividing the total pounds of producer

milk delivered by such producer during

each of those months by the number of

calendar days in the month, adding

together the four highest monthly

averages so computed, and dividing by

four. If a producer operated more than

one farm at the same time, a separate

computation of base shall be made for

each such farm.

(b) Any producer who delivered milk

to a nonpool plant that became a pool

plant after the beginning of the July–

December base-forming period shall be

assigned a base calculated as if the plant

were a pool plant during such entire

base-forming period. A base thus

assigned shall not be transferable.

(c) A person who was unable to

qualify as a producer during four or

more of the immediately preceding

months of July through December or

who did not have at least four complete

months of production, in either case for

one or more of the reasons specified in

this paragraph, may request a base

computation based upon a lesser

number of months by submitting to the

market administrator in writing on or

before February 1 a statement that

establishes to the satisfaction of the

market administrator that during four or

more of the months in the immediately

preceding July through December baseforming period the amount of milk

produced on such producer’s farm was

substantially reduced because of

conditions beyond the control of such

person as a result of:

(1) The loss by fire, windstorm, or

other natural disaster of a farm building

used in the production of milk on the

producer’s farm;

(2) Brucellosis, bovine tuberculosis or

other infectious diseases in the

producer’s milking herd as certified by

a licensed veterinarian; or

(3) A quarantine by a Federal or State

authority that prevented the dairy

farmer from supplying milk from the

farm of such producer to a plant.

§ 1007.93 Base rules.

(a) Except as provided in § 1007.92 (b)

and (c) and paragraph (b) of this section,

a base may be transferred in its entirety

or in amounts of not less than 300

pounds effective on the first day of the

month following the date on which such

application is received by the market

administrator. Base may be transferred

only to a person who is or will be a

producer by the end of the month that

the transfer is to be effective. A base

transfer to be effective on February 1 for

the month of February must be received

on or before February 15. Such

application shall be on a form approved

by the market administrator and signed

by the baseholder or the legal

representative of the baseholder’s estate.

If a base is held jointly, the application

shall be signed by all joint holders or

the legal representative of the estate of

any deceased baseholder.

(b) A producer who transferred base

on or after February 1 may not receive

by transfer additional base that would

be applicable during February through

May of the same year. A producer who

received base by transfer on or after

February 1 may not transfer a portion of

the base to be applicable during

February through May of the same year,

but may transfer the entire base.

(c) The base established by a

partnership may be divided between the

partners on any basis agreed to in

writing by them if written notification of

the agreed upon division of base by each

partner is received by the market

administrator prior to the first day of the

month in which such division is to be

effective.

(d) Two or more producers in a

partnership may combine their

separately established bases by giving

notice to the market administrator prior

to the first day of the month in which

such combination of bases is to be

effective.

§ 1007.94 Announcement of established

bases.

On or before January 31 of each year,

the market administrator shall calculate

a base for each person who was a

producer during one or more of the

preceding months of July through

December and shall notify each

producer and the handler receiving milk

from such dairy farmer of the base

established by the producer. If requested

by a cooperative association, the market

administrator shall notify the

cooperative association of each

producer-member’s base.

[FR Doc. 95–11311 Filed 5–9–95; 8:45 am]

BILLING CODE 3410–02–P