55458 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Parts 1005 and 1007 

[Docket No. AO–388–A15 and AO–366–A44; 

DA–03–11] 

Milk in the Appalachian and Southeast 

Marketing Areas; Partial Decision on 

Proposed Amendments to Marketing 

Agreements and to Orders 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule; partial final 

decision. 

SUMMARY: This partial final decision 

adopts proposed amendments to the 

Appalachian and Southeast marketing 

areas as contained in a partial 

recommended decision published in the 

Federal Register on May 20, 2005. 

Specifically, this decision would 

expand the Appalachian milk marketing 

area, eliminate the ability to 

simultaneously pool the same milk on 

the Appalachian or Southeast order and 

on a State-operated milk order that has 

marketwide pooling, and amend the 

transportation credit provisions of the 

Southeast and Appalachian orders. The 

orders as amended are subject to 

approval by producers in the affected 

markets. 

FOR FURTHER INFORMATION CONTACT: 

Antoinette M. Carter, Marketing 

Specialist, USDA/AMS/Dairy Programs, 

Order Formulation and Enforcement 

Branch, STOP 0231–Room 2971, 1400 

Independence Avenue, SW., 

Washington, DC 20250–0231, (202) 690– 

3465, e-mail address: 

antoinette.carter@usda.gov. 

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. 

These proposed amendments have 

been reviewed under Executive Order 

12988, Civil Justice Reform. This rule is 

not intended to have a retroactive effect. 

If adopted, this 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) (Act), provides that 

administrative proceedings must be 

exhausted before parties may file suit in 

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

Act, any handler subject to an order may 

request modification or exemption from 

such order by filing with the 

Department 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. A handler is afforded the 

opportunity for a hearing on the 

petition. After a hearing, the Department 

would rule on the petition. The Act 

provides that the district court of the 

United States in any district in which 

the handler is an inhabitant, or has its 

principal place of business, has 

jurisdiction in equity to review the 

Department’s ruling on the petition, 

provided a bill in equity is filed not 

later than 20 days after the date of the 

entry of the ruling. 

Regulatory Flexibility Analysis and 

Paperwork Reduction Act 

In accordance with the Regulatory 

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

Agricultural Marketing Service has 

considered the economic impact of this 

action on small entities and has certified 

that this proposed rule will not have a 

significant economic impact on a 

substantial number of small entities. 

For the purpose of the Regulatory 

Flexibility Act, a dairy farm is 

considered a ‘‘small business’’ if it has 

an annual gross revenue of less than 

$750,000, and a dairy products 

manufacturer is a ‘‘small business’’ if it 

has fewer than 500 employees. For the 

purposes of determining which dairy 

farms are ‘‘small businesses,’’ the 

$750,000 per year criterion was used to 

establish a production guideline of 

500,000 pounds per month. Although 

this guideline does not factor in 

additional monies that may be received 

by dairy producers, it should be an 

inclusive standard for most ‘‘small’’ 

dairy farmers. For purposes of 

determining a handler’s size, if the plant 

is part of a larger company operating 

multiple plants that collectively exceed 

the 500-employee limit, the plant will 

be considered a large business even if 

the local plant has fewer than 500 

employees. 

During February 2004, the month in 

which the hearing was held, the milk of 

7,311 dairy farmers was pooled on the 

Appalachian (Order 5) and Southeast 

(Order 7) milk orders (3,395 Order 5 

dairy farmers and 3,916 Order 7 dairy 

farmers). Of the total, 3,252 dairy 

farmers (or 96 percent) and 3,764 dairy 

farmers (or 96 percent) were considered 

small businesses on the Appalachian 

and Southeast orders, respectively. 

During February 2004, there were a 

total of 36 plants associated with the 

Appalachian order (25 fully regulated 

plants, 7 partially regulated plants, 1 

producer-handler, and 3 exempt plants) 

and a total of 51 plants associated with 

the Southeast order (32 fully regulated 

plants, 6 partially regulated plants, and 

13 exempt plants). The number of plants 

meeting the small business criteria 

under the Appalachian and Southeast 

orders were 13 (or 36 percent) and 13 

(or 25 percent), respectively. 

The proposed amendments adopted 

in this partial final decision would 

expand the Appalachian milk marketing 

area to include 25 counties and 15 cities 

in the State of Virginia that currently are 

not in any Federal milk marketing area 

(the partial recommended decision 

inadvertently referenced ‘‘14 cities’’ 

verses ‘‘15 cities’’). This decision adopts 

proposed amendments to the producer 

milk provisions of the Appalachian and 

Southeast milk orders that would 

prevent producers who share in the 

proceeds of a state marketwide pool 

from simultaneously sharing in the 

proceeds of a Federal marketwide pool 

on the same milk. In addition, this 

decision adopts proposed amendments 

to the transportation credit provisions of 

the Appalachian and Southeast orders. 

The proposed amendments to expand 

the Appalachian marketing area would 

likely continue to regulate under the 

Appalachian order two fluid milk 

distributing plants located in Roanoke, 

Virginia, and Lynchburg, Virginia, and 

shift the regulation of a distributing 

plant located in Mount Crawford, 

Virginia, from the Northeast order to the 

Appalachian order. 

The proposed amendments would 

allow the Kroger Company’s (Kroger) 

Westover Dairy plant, located in 

Lynchburg, Virginia, that competes for a 

milk supply with other Appalachian 

order plants to continue to be regulated 

under the order if it meets the order’s 

minimum performance standards. The 

plant has been regulated by the 

Appalachian order since January 2000. 

In addition, the proposed amendments 

would remove the disruption that 

occurs as a result of the Dean Foods 

Company’s (Dean Foods) Morningstar 

Foods plant, located in Mount 

Crawford, Virginia, shifting its 

regulatory status under the Northeast 

order. 

The Appalachian order currently 

contains a ‘‘lock-in’’ provision that 

provides that a plant located within the 

marketing area that meets the order’s 

minimum performance standard will be 

regulated by the Appalachian order 

even if the majority of the plant’s Class 

I route sales are in another marketing 

area. The proposed expansion along 

with the lock-in provision would 

regulate fluid milk distributing plants 

physically located in the marketing area 

that meet the order’s minimum 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55459 

performance standard even if the 

majority of their sales are in another 

Federal order marketing area. 

Accordingly, the proposed amendments 

would regulate three distributing plants 

under the Appalachian order: Kroger’s 

Westover Dairy, located in Lynchburg, 

Virginia; Dean Foods’ Morningstar 

Foods plant, located in Mount 

Crawford, Virginia; and National Dairy 

Holdings’ Valley Rich Dairy, located in 

Roanoke, Virginia. Based on Small 

Business Administration criteria these 

are all large businesses. 

This decision adopts proposed 

amendments to the transportation credit 

provisions of the Appalachian and 

Southeast orders. The Appalachian and 

Southeast orders contain provisions for 

a transportation credit balancing fund 

from which payments are made to 

handlers to partially offset the cost of 

moving bulk milk into each marketing 

area to meet fluid milk demands. 

The proposed amendments adopted 

in this final decision would increase the 

maximum rate of the transportation 

credit assessment of the Appalachian 

and Southeast orders by 3 cents per 

hundredweight. Specifically, the 

proposed amendments would increase 

the maximum rate of assessment for the 

Appalachian order from 6.5 cents per 

hundredweight to 9.5 cents per 

hundredweight while increasing the 

maximum rate of assessment for the 

Southeast order from 7 cents per 

hundredweight to 10 cents per 

hundredweight. Increasing the 

transportation assessment rates will 

tend to minimize the exhaustion of the 

transportation credit balancing fund 

when there is a need to import 

supplemental milk from outside the 

marketing areas to meet Class I needs. 

Currently, the Appalachian and 

Southeast orders provide that 

transportation credits shall apply to the 

milk of a dairy farmer who was not a 

‘‘producer’’ under the order during more 

than two of the immediately preceding 

months of February through May but 

not more than 50 percent of the milk 

production of the dairy farmer, in 

aggregate, was received as producer 

milk under the order during those two 

months. The proposed amendments 

contained in this final decision would 

provide the Market Administrator of the 

Appalachian order and the Market 

Administrator of the Southeast order the 

discretionary authority to adjust the 50 

percent milk production standard. 

This decision adopts proposed 

amendments that would prohibit the 

simultaneous pooling of the same milk 

on the Appalachian or Southeast milk 

marketing orders and on a Stateoperated order that provides for the 

marketwide pooling of milk. Since the 

1960’s, the Federal milk order program 

has recognized the harm and disorder 

that result to both producers and 

handlers when the same milk of a 

producer is simultaneously pooled on 

more than one Federal order. When this 

occurs, producers do not receive 

uniform minimum prices, and handlers 

receive unwarranted competitive 

advantages. 

The need to prevent ‘‘double pooling’’

became critically important as 

distribution areas expanded, orders 

merged, and a national pricing surface 

was adopted. Milk already pooled under 

a State-operated program and able to 

simultaneously be pooled under a 

Federal order has essentially the same 

undesirable outcomes that Federal 

orders once experienced and 

subsequently corrected. Accordingly, 

proposed amendments to eliminate the 

‘‘double pooling’’ of the same milk on 

the Appalachian or Southeast order and 

a State-operated milk order that has 

marketwide pooling are adopted. 

The proposed amendments would be 

applied to all Appalachian and 

Southeast order participants (producers 

and handlers), which consist of both 

large and small business. Since the 

proposed amendments adopted in this 

final decision would be subject to all the 

orders’ producers and handlers 

regardless of their size, the provisions 

are not expected to provide a 

competitive advantage to any 

participant. Accordingly, the proposed 

amendments will not have a significant 

economic impact on a substantial 

number of small entities. 

A review of reporting requirements 

was completed under the Paperwork 

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

Chapter 35). It was determined that 

these adopted proposed amendments 

would have no impact on reporting, 

recordkeeping, or other compliance 

requirements because they would 

remain identical to the current 

requirements. No new forms are 

proposed and no additional reporting 

requirements would be necessary. 

This action does not require 

additional information collection that 

requires clearance by the Office of 

Management and Budget (OMB) beyond 

currently approved information 

collection. The primary sources of data 

used to complete the forms are routinely 

used in most business transactions. 

Forms require only a minimal amount of 

information which can be supplied 

without data processing equipment or a 

trained statistical staff. Thus, the 

information collection and reporting 

burden is relatively small. Requiring the 

same reports for all handlers does not 

significantly disadvantage any handler 

that is smaller than the industry 

average. 

Prior documents in this proceeding: 

Notice of Hearing: Issued January 16, 

2004; published January 23, 2004 (69 FR 

3278). 

Partial Recommended Decision: 

Issued May 13, 2005; published May 20, 

2005 (70 FR 29410). 

Preliminary Statement 

A public hearing was held upon 

proposed amendments to the marketing 

agreements and orders regulating the 

handling of milk in the Appalachian 

and Southeast 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 

governing the formulation of marketing 

agreements and marketing orders (7 CFR 

part 900), at Atlanta, Georgia, on 

February 23–26, 2004, pursuant to a 

notice of hearing issued January 16, 

2004, and published January 20, 2004 

(69 FR 3278). 

Upon the basis of the evidence 

introduced at the hearing and the record 

thereof, the Department, on May 13, 

2005, issued a Partial Recommended 

Decision containing notice of the 

opportunity to file written exceptions 

thereto. 

The material issues, findings, 

conclusions, and rulings of the Partial 

Recommended Decision are hereby 

approved and adopted and are set forth 

in herein. The material issues on the 

record of the hearing relate to: 

1. Merger of the Appalachian and 

Southeast Marketing Areas. 

a. Merging the Appalachian and 

Southeast milk marketing areas and 

remaining fund balances. 

b. Expansion of the Appalachian 

marketing area. 

c. Transportation credits provisions. 

2. Promulgation of a new ‘‘Mississippi 

Valley’’ milk order. 

3. Eliminating the simultaneous 

pooling of the same milk on a Federal 

milk order and a State-operated milk 

order that provides for marketwide 

pooling. 

4. Producer-handler provisions. 

This partial final decision deals only 

with Issues 1 through 3. Issue No. 4 will 

be addressed separately in a 

forthcoming decision. 

Findings and Conclusions 

The following findings and 

conclusions on the material issues are 

based on evidence presented at the 

hearing and the record thereof: 

55460 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

1. Merger of the Appalachian and 

Southeast Marketing Areas 

1a. Merging the Appalachian and 

Southeast Milk Marketing Areas and 

Remaining Fund Balances 

This decision does not adopt a 

proposal that would merge the current 

Appalachian marketing area and 

Southeast milk marketing area into a 

single marketing area under a proposed 

single milk order. Accordingly, a 

proposal that would combine the fund 

balances of the current Appalachian and 

Southeast orders is rendered moot and 

is not adopted in this final decision. 

The Appalachian marketing area 

consists of the States of North Carolina 

and South Carolina, parts of eastern 

Tennessee, Kentucky excluding 

southwest counties, 7 counties in 

northwest/central Georgia, 20 counties 

in southern Indiana, 8 counties and 2 

cities in Virginia, and 2 counties in 

West Virginia. The Southeast order 

marketing area consists of the entire 

States of Alabama, Arkansas, Louisiana, 

Mississippi, Georgia (excluding 7 

northern counties), southern Missouri, 

western/central Tennessee, and 

southern Kentucky. 

A witness testifying on behalf of 

Southern Marketing Agency, Inc. 

(SMA), presented testimony in support 

of Proposals 1 and 2 as contained in the 

hearing notice published in the Federal 

Register (69 FR 3278). Proposal 1 would 

merge the current Appalachian and 

Southeast marketing areas into a single 

marketing area (hereafter referred to as 

the proposed merged milk order) and 

Proposal 2 would combine the 

remaining balances of funds of the 

current Appalachian and Southeast 

orders if the proposed merged order was 

adopted. According to the witness, SMA 

is a marketing agency whose 

cooperative members include Arkansas 

Dairy Cooperative Association, Inc. 

(ADCA), Dairy Farmers of America, Inc. 

(DFA), Dairymen’s Marketing 

Cooperative, Inc. (DMC), Lone Star Milk 

Producers, Inc. (Lone Star), Maryland & 

Virginia Milk Producers Cooperative 

Association, Inc. (MD&VA), and 

Southeast Milk, Inc. (SMI) (proponent 

cooperatives). 

The witness for the proponent 

cooperatives said SMA was created in 

response to a changing market structure 

and is an extension of the cooperatives’

initiative to consolidate and seek 

enhanced marketing efficiencies. The 

witness indicated that SMA pools 

certain costs and returns for its 

cooperative member producers 

supplying distributing plants fully 

regulated under the Appalachian and 

Southeast milk orders. SMA considers 

the Appalachian and Southeast orders 

one market in terms of the distribution 

of revenues, the allocation and pooling 

of marketing costs, milk supply and 

demand, and the development of its 

annual budget, the witness explained. 

The proponent cooperatives’ witness 

stated that the proposed merged milk 

order would create a milk market which 

would be commonly supplied and 

deserving of a common blend price. The 

witness testified that the continued 

existence of the separate Appalachian 

and Southeast Federal milk orders 

across a functionally single fluid milk 

marketing area inhibits market 

efficiency in supplying and balancing 

the market, creates unjustified blend 

price differences, encourages 

uneconomic movements of milk, and 

results in the inequitable sharing of the 

Class I proceeds of what should be a 

single market. 

The proponent cooperatives’ witness 

stated that different blend prices and 

different and separate pool qualification 

requirements constitute disruptive 

conditions that would be removed by a 

merger of the orders. The witness 

asserted that the proposed merger 

would allow producer milk to flow 

more freely between pool plants and 

provide for the equal sharing of 

balancing costs across all producers in 

the proposed merged milk order. 

The proponent cooperatives’ witness 

stressed that the adoption of the 

proposed merged milk order would 

assure producers that milk would be 

sold at reasonable minimum prices and 

producers would share pro rata in the 

returns from sales of milk including 

milk not needed for fluid use. The 

witness further stated that handlers 

would be assured that competitors 

would pay a single set of minimum 

prices for milk set by the established 

order. The witness stated that a 

proposed merged milk order is in the 

public interest because it assures that an 

adequate supply of high quality milk 

will be available for consumers. 

The proponent cooperatives’ witness 

noted that the adoption of a new Federal 

order is contingent upon being able to 

show that interstate commerce occurs in 

the proposed marketing area. It is the 

opinion of the witness that ‘‘interstate 

commerce’’ does exist due to the 

movement of bulk and packaged milk 

products within, into, and out of the 

Appalachian and the Southeast 

marketing areas—the proposed 

marketing area. 

The proponent cooperatives’ witness 

noted a trend of larger geographical 

areas being served by fewer Federal 

milk marketing orders. Specifically, the 

witness said between 1996 and 2003 the 

number of dairy farmers in the 

southeastern States of Alabama, 

Arkansas, Georgia, Kentucky, Louisiana, 

Mississippi, Missouri, North Carolina, 

South Carolina, Tennessee, and Virginia 

declined from 11,712 to 7,180. This 

decrease, the witness explained, 

parallels the trend of a drop in the 

number of dairy farmers pooled on the 

current Appalachian and Southeast 

orders. The witness stated that based on 

the final decision for Federal Order 

Reform (issued March 12, 1999, and 

published April 2, 1999 (64 FR 16025), 

8,180 dairy farmers were expected to 

pool their milk on the consolidated 

Appalachian and Southeast orders. 

However, the witness noted only 7,243 

dairy producers supplied milk to the 

two orders during December 2003. 

The proponent cooperatives’ witness 

stressed that there is an acute milk 

deficit in the Appalachian and 

Southeast Federal orders. Referencing 

data obtained from the USDA National 

Agricultural Statistics Service (NASS) 

for the States of Alabama, Arkansas, 

Georgia, Kentucky, Louisiana, 

Mississippi, Missouri, North Carolina, 

South Carolina, Tennessee, and Virginia 

(southeast region), the witness testified 

that a decline in dairy farmers led to a 

decline in milk production in the 

southeast region. The witness noted 

milk production decreased from 13,518 

million pounds in 1996 to 10,671 

million pounds in 2003 a decline of 21 

percent. The witness asserted that this 

decline coupled with an increase in 

population has resulted in a major 

expansion of the milkshed for the 

southeastern region of the United States. 

According to the proponent 

cooperatives’ witness, 9,072 million 

pounds of Class I producer milk was 

pooled on the combined Appalachian 

and Southeast orders during 2003. The 

witness said marketings of milk 

produced in the southeastern region was 

10,671 million pounds in 2003, which 

means 85 percent of Grade A milk 

production was needed for Class I use 

on an annual basis. 

In 1996, the proponent witness 

testified, it was anticipated that 72 fluid 

milk processing plants were or would 

become fully regulated distributing 

plants on the consolidated Appalachian 

and Southeast orders. However, the 

witness noted, only 52 remained 

regulated by the orders during 

December 2003. The witness indicated 

that of the fully regulated pool plants 

existing in both January 1996 and 

December 2003, more than two-thirds 

have experienced at least one ownership 

change and some have experienced 

several ownership changes. 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55461 

The proponent cooperatives’ witness 

cited a set of criteria used for 

consolidation of marketing areas and 

orders during the reform process. The 

witness said this list included 

overlapping route sales and areas of 

milk supply, the number of handlers 

within a market, the natural boundaries, 

the cooperative associations operating 

in the service area, provisions common 

to the existing orders, milk utilization in 

common dairy products, disruptive 

marketing conditions, and 

transportation differences. 

The proponent cooperatives’ witness 

testified that significant competition for 

sales between plants exists between the 

Appalachian and Southeast marketing 

areas. The witness noted that a 

‘‘corridor of competition’’ is the shared 

border of the Appalachian and 

Southeast. The witness testified that 

Federal milk order data for 2003 shows 

Class I disposition on routes inside the 

Southeast order by Appalachian order 

pool plants was 11.25 percent of the 

total Class I route disposition by all 

plants in the Southeast order. According 

to the witness, Class I route disposition 

in the Southeast marketing area by 

Appalachian order pool plants has 

increased in total by 11.1 percentage 

points since January 2000 (i.e., 5.9 

percentage points from 2000 to 2001, 2.1 

percentage points from 2001 to 2002, 

and 1.9 percentage points from 2002 to 

2003). In addition, the witness stated 

that record data reveals that Class I 

route disposition by Appalachian order 

pool plants into the Southeast marketing 

area was 63.9 percent of the total Class 

I disposition by all nonpool plants for 

the Southeast order during 2003. 

According to the proponent 

cooperatives’ witness, all of the 

distributing plants currently regulated 

under the Appalachian and Southeast 

orders are expected to be fully regulated 

by the proposed merged milk order. 

Using December 2003 data, the witness 

stated that the proposed merged milk 

order would have had a Class I route 

distribution of 773.4 million pounds. 

The witness added that 86.58 percent of 

Class I sales would have been from milk 

produced in the proposed marketing 

area. The witness stated that the 

proposed Southeast marketing area 

would rank third in the total number of 

pool plants regulated by a Federal milk 

order. 

The proponent cooperatives’ witness 

stated that there is substantial and 

significant overlap of the supply of 

producer milk for the Appalachian and 

Southeast marketing areas. The witness 

noted Federal order data for 2000 

through 2003 shows that dairy farmers 

located in southern Indiana, central 

Kentucky, central Tennessee, central 

North Carolina, western South Carolina, 

and central and southern Georgia have 

supplied milk to plants regulated under 

Appalachian or Southeast orders. The 

witness said milk of dairy farmers 

located in the Central marketing area 

and Southwest marketing area, and 

dairy farmers located in northwestern 

Indiana and south central Pennsylvania, 

have supplied fluid milk plants 

regulated by the Appalachian and 

Southeast orders. 

In December 2003, the witness stated, 

dairy farmers located in 28 states 

supplied milk to handlers regulated 

under the Appalachian or Southeast 

orders. Sixteen of the 28 states supplied 

milk to both marketing areas and 13 

states were located wholly or partially 

within the proposed merged milk order 

marketing area, the witness noted. 

The witness for the proponent 

cooperatives testified that the proposed 

merged milk marketing area and order 

would rank second in Class I utilization 

representing 19.5 percent of total Class 

I sales in all Federal milk orders. Using 

annual Federal milk order data, the 

witness noted that for 2003, Class I 

utilization for the Appalachian and 

Southeast marketing areas was 70.36 

percent and 65.47 percent, respectively. 

The witness said the combined Class I 

utilization for the proposed merged milk 

marketing area would have been 67.77 

percent for 2003 or 9,072 million 

pounds of 13,386 million pounds of 

producer milk pooled. 

The proponent cooperatives’ witness 

noted that milk not needed for fluid 

uses in the Appalachian marketing area 

is primarily used in Class II and Class 

IV while milk not needed for fluid uses 

in the Southeast marketing area is 

primarily used in Class III. For 2003, the 

witness noted that non-fluid milk 

utilization for the Appalachian order 

was 14.41 percent Class II, 7.11 percent 

Class III, and 8.12 percent Class IV, 

while the non-fluid milk utilization for 

the Southeast order was 9.97 percent 

Class II, 17.79 percent Class III, and 6.78 

percent Class IV. The witness stressed 

that these differing uses of milk result 

in different blend prices between the 

Appalachian and Southeast orders 

which leads to disorderly marketing 

conditions. The witness emphasized 

that differences in blend prices between 

the two orders is largely due to 

significant differences in uses and 

prices in the manufacturing classes and 

is not necessarily due to significant 

differences in Class I milk utilization. 

The witness explained that SMA in 

April 2002 began the common pooling 

of the costs and returns to supply the 

customers of member cooperatives in 

the separate orders in an effort to 

alleviate disruptive blend price 

differences. The witness testified that 

while this procedure has resolved some 

blend price differences, their procedure 

does not result in removing inequitable 

blend prices for all producer milk 

pooled on the separate orders. 

Regarding the commonality of 

cooperative associations in the two 

marketing areas, the proponent 

cooperatives’ witness stated that 

cooperative membership is an 

indication of market association and 

provides support for the consolidation 

of marketing areas. The witness noted 

that the six SMA member cooperatives 

accounted for approximately 734 

million pounds of producer milk during 

November 2003, which represents about 

67 percent of the total producer milk 

that would be pooled on the proposed 

merged milk order. Also, the witness 

stated these cooperatives market milk of 

other cooperatives whose member 

producers’ milk would be pooled on the 

proposed merged milk order. Using 

November 2003, the witness stated 

approximately 871 million pounds or 79 

percent of the producer milk pooled 

under the proposed merged milk order 

would be represented by these 

proponent cooperatives. 

The witness for the proponent 

cooperatives pointed out that the 

regulatory provisions of the 

Appalachian and Southeast orders are 

similar in most respects except for the 

qualification standards for producer 

milk and a producer. While not a 

Federal milk order regulatory provision, 

the proponent witness stated that the 

common handling of costs and returns 

for milk that would be pooled on the 

proposed merged milk order recognized 

similar marketing conditions within the 

proposed marketing area. 

The proponent cooperative witness 

testified that the proposed merged milk 

order should retain the Appalachian 

order pool plant provisions. The witness 

recommended adopting provisions that 

would allow the pooling of a supply 

plant operated by a cooperative 

association that is located outside the 

marketing area but within the State of 

Virginia. The witness stated that the 

proposed merged milk order should 

include the Appalachian order ‘‘split’’

pool plant provision which would 

continue to provide for defining that 

portion of a pool plant designated as a 

‘‘nonpool plant’’ that is physically 

separate and operates separately from 

the pool portion of such plant. 

The proponent cooperatives’ witness 

stated that lock-in provisions should be 

included in the proposed merged milk 

order. According to the witness, 

55462 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

distributing plants in the Southeastern 

markets have been ‘‘locked in’’ or fully 

regulated as pool plants under the order 

in which they are physically located 

since the mid-1980s. The witness 

testified that unit pooling distributing 

plants on the basis of their physical 

location should be retained in the 

proposed merged milk order. The 

witness noted that the Appalachian and 

Southeast orders currently provide that 

two or more plants operated by the same 

handler that are located within the 

marketing area may qualify for pool 

status as a unit by meeting the in-area 

Class I route disposition standards 

specified for pool distributing plants. 

The witness for the proponent 

cooperatives explained that lock-in 

provisions help to preserve the viability 

of capital investments in pool 

distributing plants. The witness 

indicated that lock-in provisions in the 

Southeast and Appalachian orders 

adequately provide for regulatory 

stability for pool plants on the edge of 

a market area that may shift regulatory 

status between two orders due to 

changes in route disposition patterns. 

The proponent cooperatives’ witness 

recommended changing the ‘‘touch 

base’’ requirement of the producer milk 

provision from a ‘‘days’’ production 

standard to a ‘‘percentage’’ production 

standard. This change, the witness 

stated, will accommodate pooling the 

milk of large producers who ship 

multiple loads of milk per day. The 

witness proposed that individual 

producers deliver 15 percent of their 

monthly milk production (equivalent to 

approximately 4.5 days of milk 

production) to a pool plant during 

January through June and 33 percent 

(equivalent to about 10 days of milk 

production) of their of monthly milk 

production during the months of July 

through December. The witness stated 

that the 33 percent production standard 

is a reasonable minimum requirement 

for establishing a producer’s association 

with the market during the short 

production months of July through 

December. Under their proposal, the 

milk of a dairy farmer would be eligible 

for diversion to a nonpool plant the first 

day of the month during which the milk 

of such dairy farmer meets the order’s 

touch base requirements. 

The proponent cooperatives’ witness 

indicated that their proposal contains 

current Southeast order language that 

limits the total amount of producer milk 

that may be diverted by a pool plant 

operator or cooperative association to 33 

percent during the months of July 

through December and 50 percent 

during January through June. 

The proponent cooperatives’ witness 

proposed that the reserve balances of 

the marketing services, administrative 

expense, producer-settlement funds, 

and the transportation credit balancing 

funds that have accrued in the 

individual Appalachian and Southeast 

orders be merged or combined in their 

entirety if the proposed merged milk 

order is adopted. The witness explained 

that the handlers and producers 

servicing the milk needs of the 

individual orders would continue to 

furnish the milk needs of the proposed 

marketing area. 

According to the proponent 

cooperatives’ witness, it would be 

appropriate to combine the reserve 

balances of the orders’ marketing service 

funds since marketing service programs 

for producers would continue under the 

proposed merged milk order. In regards 

to the administrative expense funds, the 

witness stated that it would be equitable 

and more efficient to combine the 

remaining administrative funds 

accumulated under the individual 

orders. In addition, the witness 

indicated that this would enable the 

producer-settlement funds and the 

transportation credit funds of the 

proposed merged milk order to continue 

without interruption. 

Witnesses for Maryland & Virginia 

Milk Producers Cooperative, Inc. 

(MD&VA), Arkansas Dairy Cooperative, 

Inc. (ADCA), Lone Star Milk Producers, 

Inc. (Lone Star), and Dairymen’s 

Marketing Cooperative, Inc. (DMC), 

testified in support of consolidating the 

current Appalachian and Southeast milk 

orders into a single milk order. 

According to witnesses, MD&VA is 

comprised of 1,450 to 1,500 dairy 

farmers, ADCA has 160 member dairy 

farmers, Lone Star is comprised of about 

160 member dairy farmers, and DMC is 

comprised of 168 member dairy farmers. 

The witnesses indicated that all of the 

cooperatives are members of SMA and 

that the milk of their dairy farmer 

members is shipped to plants regulated 

by the Appalachian or Southeast orders. 

The MD&VA witness asserted that the 

consolidation of the current 

Appalachian and Southeast marketing 

areas and orders is necessary due to 

changes in the marketing structure (i.e., 

milk production and processing sectors) 

in the southeastern United States. The 

witness was of the opinion that the area 

covered by the two current orders is 

essentially a single market and that all 

of the producers delivering milk to the 

market should share a common Federal 

order blend price. 

The witnesses for MD&VA, ADCA, 

Lone Star, and DMC stated the producer 

milk requirements under the current 

Appalachian and Southeast orders make 

it difficult to ensure the pooling of milk 

on the orders. The witnesses contended 

a merger of the Appalachian and 

Southeast marketing areas and orders 

would enhance market equity, allow for 

increased efficiencies in supplying a 

deficit milk region, and eliminate the 

disruptive and disorderly marketing 

conditions that currently exist in the 

Appalachian and Southeast orders by 

eliminating blend price differences. 

A witness representing Georgia Milk 

Producers, Inc. (GMP), testified in 

opposition to the merger as proposed in 

Proposals 1 and 2. The witness was of 

the opinion that USDA had made a 

mistake in 2000 when the western part 

of the current Southeast marketing area, 

which had a lower Class I utilization, 

was added to the Southeast marketing 

area which had a higher Class I 

utilization. 

Other testimony presented on behalf 

of GMP, and relying on 1997 data, 

indicated that milk production in 

Georgia fell short of Georgia’s fluid milk 

demand by about 122 million pounds as 

compared to only 4 to 11 million pound 

supply shortfalls in the other states 

included in the proposed merged milk 

order area. The witness stated that the 

widening supply-demand gap will 

accelerate as population increases and 

milk production declines in Georgia. 

The GMP witness stated that: ‘‘Based on 

the decline in production in the region 

compared to the growth in demand, 

USDA has not sufficiently considered 

the needs of the dairy farmers in the 

states covered by the Order.’’ According 

to the witness, GMP dairy farmers have 

lost income each time the Southeast 

Federal order has been expanded. 

The GMP witness testified that a 

rejection of the proposed merged milk 

order together with the creation of a 

new Mississippi Valley Order, as offered 

by Proposal 5, would be the first step to 

help rectify the mistake made in Federal 

milk order reform. The witness 

supported raising the utilization in the 

most deficit areas of the Southeastern 

States by creating a Mississippi Valley 

order and combining the high 

utilization areas of the remainder of the 

current Southeast order (Order 7) into a 

new smaller Southeast Order. 

The GMP witness asserted that 

historically, the larger the marketing 

area, the higher the balancing costs in a 

deficit market. The witness further 

asserted that transportation credits shift 

part of that cost to the entire market 

rather than to the dairy farmers in the 

order who are members of cooperatives. 

The witness testified that transportation 

credits unintentionally encourage the 

importation of milk rather than 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55463 

encourage increased production of local 

milk. 

A witness representing the Kroger 

Company (Kroger) testified in support of 

the proposed merger of the Appalachian 

and Southeast orders. According to the 

witness, Kroger owns and operates 

Winchester Farms Dairy, in Winchester, 

Kentucky, and Westover Dairy, in 

Lynchburg, Virginia. The witness stated 

that both plants are pool distributing 

plants regulated on the Appalachian 

milk order. The witness stated that 

Kroger owns and operates Heritage 

Farms Dairy in Murfreesboro, 

Tennessee, and Centennial Farms Dairy 

in Atlanta, Georgia, both fully regulated 

distributing plants under the Southeast 

milk order. 

According to the Kroger witness, their 

Winchester, Kentucky, plant was 

associated with the Ohio Valley order 

(now part of the Mideast order) from 

1982 to 1988, with the LouisvilleLexington-Evansville order from 1988 

through 1999, and with the Appalachian 

order since 2000. The witness indicated 

that previous decisions by USDA 

adopted pool plant provisions that 

allowed their Winchester, Kentucky, 

plant to be regulated under the 

Appalachian order. According to the 

witness, being regulated by the 

Appalachian order retains that plant’s 

ability to procure milk with a higher 

blend price when compared with the 

Mideast order. 

The Kroger witness indicated that 

with the exception of the Murfreesboro, 

Tennessee, plant, which has a minority 

supply of milk from independent 

producers, all of the Kroger pool 

distributing plants are supplied by Dairy 

Farmers of America, Inc. The witness 

indicated that if their Winchester plant 

were to again be associated with the 

Mideast order, the returns to the milk 

supplying cooperative would be 

reduced due to the lower Mideast order 

blend price. The witness requested that 

the current Appalachian order pool 

plant definition be included in the 

proposed merged milk order. This 

request, according to the witness, would 

permit their plant located in 

Winchester, Kentucky, to continue its 

association with the proposed merged 

milk order rather than with the Mideast 

order. 

A witness representing Dairy Farmers 

of America, Inc. (DFA), testified that the 

proponents do not anticipate any 

difficulties from merging of the two 

orders or expanding the proposed 

merged milk order area to include 

additional Virginia counties. According 

to the witness, the Virginia State Milk 

Commission has been able to 

simultaneously operate a producer base 

milk pricing program for producers 

supplying milk to plants with Class I 

sales within the State. The witness 

indicated that DFA opposes any change 

to the proposed merged milk order 

provisions that may cause conflicts 

between the operations of the Virginia 

State Milk Commission and the Federal 

milk marketing order program. 

A witness representing Prairie Farms 

testified in opposition to Proposals 1 

and 2. The witness indicated that the 

fluid milk industry would be better 

served by more Federal milk marketing 

orders covering smaller areas rather 

than fewer Federal milk marketing 

orders covering large areas. The witness 

indicated that Federal milk order reform 

left ‘‘dead zones’’ in the States of Illinois 

and Missouri, near St. Louis. According 

to the witness, this area is not able to 

attract a fluid milk supply and 

experiences weekly fluid milk deficits. 

The Prairie Farms witness indicated 

that the low per capita milk production 

in Illinois, in combination with 

economic incentives to move the milk 

produced in Illinois and eastern 

Missouri into the Appalachian and 

Southeast orders, has caused disorderly 

marketing conditions. The witness 

indicated that the blend price 

differences between the Upper Midwest 

order and the Central order are not 

sufficient to cover the transportation 

cost of moving milk to the ‘‘dead 

zones’’. The witness testified that at an 

October 31, 2001, meeting, DFA—

Prairie Farms’ major supplier—

indicated that they would no longer be 

able to provide supplemental milk 

supplies to Prairie Farms due to the lack 

of incentives and expenses. 

The Prairie Farms witness stated that 

today’s dairy environment shows that 

the current order system needs to be 

reconfigured and inequities fixed 

system-wide. The witness asserted that 

the consequences for nearby marketing 

areas and adjacent orders must be 

considered when revising or merging 

orders. The witness indicated that 

market efficiency suffers and difficulties 

occur in supplying and balancing the 

market at all Federal milk order borders. 

The witness indicated that the lines 

drawn between marketing areas create 

unjustified blend price differences, 

encourage uneconomic movements of 

milk, and result in the inequitable 

sharing of Class I proceeds. 

A witness representing Dean Foods 

testified in opposition to the proposed 

merger of the Appalachian and the 

Southeast market areas. According to 

the witness, more and smaller order 

areas create more flexible incentives to 

deliver milk to Federal order pool 

plants. According to the witness, 

relative blend prices determine where 

milk is shipped and pooled. According 

to the witness the disincentives 

associated with increased transportation 

costs increase faster than the incentives 

from the higher location value of the 

merged order blend price. The witness 

cited the St. Louis/southern Illinois area 

and its chronic milk deficit as a prime 

example of these phenomena. 

Post-hearing briefs addressing 

Proposals 1 and 2 were submitted by 

SMA, Dean Foods, and Prairie Farms. 

The proponent cooperatives for the 

proposed merged milk order, submitted 

a post-hearing brief reiterating their 

support for the merger of the 

Appalachian and Southeast orders. The 

brief described conditions existing in 

the Appalachian and Southeast orders 

as disruptive and disorderly, and 

asserted that these conditions are 

symptoms of a market that has changed 

significantly since the orders were 

promulgated by Federal order reform, 

effective January 1, 2000. 

According to the proponent 

cooperatives’ brief, a merger of the 

existing orders would bring blend price 

uniformity, recognize inter-order 

competition and integrate Class I sales 

within the proposed merged milk order, 

recognize common supply areas within 

the proposed merged milk order, and 

allow producer milk to move more 

freely between pool plants within the 

proposed marketing areas. In addition, 

proponents contended it would equalize 

the costs of balancing within the 

proposed marketing area, erase the 

artificial line that separates a common 

milk market, and recognize the common 

pooling of costs and returns for 

producer milk within the proposed 

merged order. The brief asserts that no 

additional parties would become 

regulated as a result of the proposed 

merged milk order. According to the 

proponent cooperatives’ brief, other 

options that forestall a complete merger 

are inadequate to correct the present 

disruptive and disorderly conditions in 

the separate orders. 

Opposition to Proposal 1 was 

reiterated by Dean Foods and Prairie 

Farms in a joint post-hearing brief. The 

brief suggested that blend price 

differences between orders cause milk 

to move to where it is most needed. 

Dean Foods and Prairie Farms stated 

that without blend price differences 

milk movements between and within 

marketing areas are impaired. The 

opponents brief suggested a national 

hearing in order to consider 

simultaneously all marketing regions 

because the results of one proceeding 

directly affects other regions. The brief 

stated that combining the Appalachian 

55464 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

and Southeast marketing areas was 

considered but was not adopted under 

Federal milk order reform. 

The Dean Foods and Prairie Farms 

joint brief stated that market 

administrator data demonstrates that 

moving milk to where it is needed 

through blend price differences 

effectively moves milk from the west to 

the east for the Southeast marketing area 

and from north to south for the 

Appalachian marketing area. The brief 

offered the St. Louis area as an example 

of blend price differences that are 

sometimes too small to cover additional 

costs of transporting milk to major 

metropolitan area for fluid use. The 

brief indicated that similar problems 

could result elsewhere if the two orders 

are merged. 

In their joint brief, Dean Foods and 

Prairie Farms suggested that although a 

majority of dairy market participants 

may favor a merger, it is important to 

consider the minority opinion. The brief 

also requested the inclusion of the 

Kentucky counties of Ballard, Calloway, 

Carlisle, Fulton, Graves, Hickman, 

Marshall, and McCracken in the 

Southeast marketing area if Proposal 1 

is denied and Proposal 5 is adopted. 

Dean Foods and Prairie Farms’ joint 

brief contended that the proposal to 

merger the Appalachian and Southeast 

orders brings forth a significant policy 

and legal question the Department must 

address prior to issuing a decision on 

the merits of the proposal. The proposed 

merger, if adopted, would cause the 

number of Federal orders to fall to 

below the minimum number of 10 

required by Congress in the 1996 Farm 

Bill, they stated. 

A written statement submitted on 

behalf of LuVel Dairy Products, Inc., 

requested that the administrative 

requirements of the producer-settlement 

fund be modified to extend the time 

period in which payments to the fund 

are due by one full business day and to 

allow payments due to the fund to be 

submitted overnight instead of through 

the electronic wiring of funds. However, 

this was not a noticed proposal and no 

evidence or witness was available to 

testify regarding this written request. 

The 1996 Farm Bill mandated that 

Federal milk orders be consolidated to 

not less than 10 or more than 14. The 

Federal order reform final decision 

issued March 12, 1999, and published 

in the Federal Register April 2, 1999 (64 

FR 16026), meet the requirements set 

forth in the 1996 Farm Bill through the 

consolidation of the 31 Federal milk 

orders into 11 orders. The Agricultural 

Marketing Agreement Act of 1937 (Act), 

as amended, provides the Department 

the authority to issue and amend orders. 

Accordingly, the merger proposal may 

be considered by the Department. 

A partial recommended decision 

published in the May 13, 2005, Federal 

Register (70 FR 29410) found that 

record evidence does not support 

merging the Southeast and Appalachian 

marketing areas or substantiate the need 

for merging these two separate 

marketing order areas. Record evidence 

of this proceeding clearly demonstrates 

that the measure of association between 

the Appalachian and Southeast 

marketing areas in terms of overlapping 

Class I route sales and overlapping milk 

procurement areas is relatively 

unchanged since the consolidated 

orders were implemented in January 

2000. The evidence of this record does 

not indicate that current marketing 

conditions within the two marketing 

areas are disorderly. 

Southern Marketing Agency, Inc., 

(SMA) and Dairy Farmers of America, 

Inc., (DFA) filed comments in response 

to the partial recommended decision 

expressing opposition to the 

Department’s denial of the proposed 

merger. They noted that the proposed 

merger was supported by a substantial 

portion of market participants servicing 

the Class I needs of the market with 

minimal opposition from milk 

processing companies. In comments 

filed by MD&VA and ADCA, the 

cooperatives maintained their support 

for the proposed order merger. 

In comments and exceptions filed in 

response to the recommended decision, 

both SMA and DFA contended that the 

proposed order merger is needed due to 

the milk supply relative to the demand 

for milk southeastern region of the 

United States. The proponents continue 

to maintain that the two marketing 

orders are effectively a single fluid 

market. 

SMA reiterated the need for the 

merger of the marketing areas and 

orders stating logistical and marketing 

efficiency in supplying these deficit 

markets with supplemental milk is 

paramount to the area producers, to 

processors of milk, and ultimately to 

consumers. SMA contended that the 

milk deficit condition in the southeast 

region necessitates the importation of 

milk from wherever it is available, 

which currently is the Southwest and 

Mideast marketing areas. The 

proponents asserted that daily interplay 

of the milk supply to the Appalachian 

and Southeast marketing areas from 

these outside-area locations 

demonstrates the absolute need to merge 

the two orders. 

SMA stated that other alternatives to 

the proposed merger were considered 

including the merger of the 

transportation credit funds of the two 

orders and other amendments to the 

orders’ transportation credit provisions, 

development of reciprocal producer 

qualification standards on the two 

orders, adjustments in the orders’

producer milk qualification provisions, 

and amendments to the orders’ pool 

plant provisions. SMA contended that 

the proposed merger is the only viable 

alternative to resolving all the issues in 

the proposed marketing area. 

DFA expressed disappointment at the 

recommended denial of the proposed 

merger and stated that the main concern 

of DFA and other proponent 

cooperatives is the additional costs 

associated with serving the market in 

two marketing areas. According to DFA, 

the proposed merger is critical because 

the milk supply relative to demand in 

the southeastern region grows even 

more deficit each month. The 

cooperative stated that servicing a 

deficit milk market is an extremely 

expensive proposition and suggested 

that efforts to reduce marketing costs be 

given the most serious consideration. 

DFA contended the proposed order 

merger would aid the market’s suppliers 

in returning more dollars to dairy 

farmers. 

SMA and DFA contended the partial 

recommended decision provided no set 

standards regarding overlapping Class I 

route disposition and milk procurement 

areas which the denial of the proposed 

merger was based. They asked that a 

standard be identified or developed and 

communicated to the industry. DFA 

indicated the partial recommended 

decision provided references to the 1999 

Federal order reform decision that do 

not explicate the objective basis of that 

decision but rather simply invokes the 

decision. DFA insisted the industry 

would be better served by more 

transparent decision-making criteria. 

As proposed in the partial 

recommended decision, this decision 

finds that record evidence does not 

support merging the Southeast and 

Appalachian marketing areas. Record 

evidence of this proceeding does not 

substantiate the need for merging these 

two separate marketing order areas. 

Overlap of Class I route disposition 

between the two marketing areas is 

relatively unchanged since the separate 

orders were created in 2000. The 

overlap in milk supply areas for plants 

in the Appalachian and Southeast 

marketing areas remains minimal and 

unchanged since 2000. Blend price 

differences and other marketing 

conditions in the two marketing areas 

raised by the proponents are not 

significantly different from conditions 

existing in 2000. The proponents have 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55465 

not demonstrated that the current 

marketing conditions are disorderly. 

The proponents have not made a 

convincing case that the current 

marketing conditions are disorderly. 

The Act provides that milk orders 

may be issued where the marketing of 

milk is in the current of interstate or 

foreign commerce or where it directly 

burdens, obstructs, or affects interstate 

or foreign commerce. Federal milk 

orders define the terms under which 

handlers in specified markets purchase 

milk from dairy farmers. The orders are 

designed to promote the orderly 

exchange of milk between dairy farmers 

(producers) and the first buyers 

(handlers) of milk. As the proponents 

assert, orders do provide terms and 

provisions to identify those who are 

supplying the Class I needs of a market 

and thus, should share in the order 

revenues. The record evidence of this 

proceeding does not support a finding 

that the current Appalachian and 

Southeast milk orders are not achieving 

the goal of orderly marketing. 

Proponents in providing justification 

to merge the Appalachian and Southeast 

marketing areas and orders advanced a 

set of criteria that was essentially the 

same criteria as the criteria the 

Department used during Federal milk 

order reform. The criteria included 

overlapping Class I route sales and 

overlapping milk procurement areas. As 

noted in the partial recommended 

decision, the criteria considered when 

the current Appalachian and Southeast 

marketing areas and orders were 

established as part of Federal milk order 

reform are considered in this decision. 

The Department considered and 

weighed this set of criteria and the 

supporting justification offered by 

proponents of the proposed order 

merger. 

In determining whether Federal milk 

order marketing areas should be merged, 

the Department generally has 

considered the extent to which Federal 

order markets share common 

characteristics such as overlapping sales 

and procurement areas, and other 

commonly shared structural 

relationships. The most important of 

these factors are evidence of 

overlapping sales patterns among 

handlers of Class I milk and overlapping 

milk procurement area. In support of the 

proposed merger, proponents assert that 

there is substantial overlap in Class I 

route sales and milk procurement areas 

between the Appalachian and Southeast 

markets. However, record evidence of 

this proceeding clearly demonstrates 

that the measure of association between 

these two marketing areas in terms of 

overlapping Class I route sales and 

overlapping milk procurement areas is 

relatively unchanged since the 

consolidated orders became effective in 

January 2000. 

Several criteria were used by the 

Department in determining which of the 

31 milk order marketing areas exhibited 

a sufficient measure of association in 

terms of sales, procurement area, and 

other structural relationships to warrant 

consolidation or mandated by the 1996 

Farm Bill into the current 10 milk 

marketing areas. These criteria included 

overlapping route disposition, 

overlapping areas of milk supply, 

number of handlers within a market, 

natural boundaries, cooperative 

associations, common regulatory 

provisions, and milk utilization in 

common dairy products. 

The primary factors during reform 

that supported the creation of the 

consolidated Appalachian milk order 

marketing area and the consolidated 

Southeast milk order marketing area 

were overlapping route sales and milk 

procurement areas between the 

marketing areas. The determinations 

were based on an analysis of milk sales 

and procurement area overlap between 

the pre-reform orders using 1997 data. 

Specifically, the Federal order reform 

final decision issued March 1999 stated 

that the primary factors for the 

consolidation of the (1) Tennessee 

Valley, (2) Louisville-LexingtonEvansville, and the (3) Carolina 

marketing areas into the current 

Appalachian milk order marketing area 

were commonality of overlapping route 

disposition and milk procurement 

between the two marketing areas. The 

decision found that there was ‘‘a 

stronger relationship between the three 

marketing areas involved than between 

any one of them and any other 

marketing area on the basis of both 

criteria’’ (64 FR 16059). 

For the Southeast order, the Federal 

order reform final decision stated that 

the basis for the adopted Southeast 

marketing area which consolidated the 

former Southeast marketing area with 

additional counties in Arkansas, 

Kentucky, and Missouri was 

‘‘overlapping route dispositions within 

the marketing area to a greater extent 

than with other marketing areas. 

Procurement of producer milk also 

overlaps between the states within the 

market’’ (64 FR 16064). 

Proposals to merge the Appalachian 

and Southeast order marketing areas 

into a single marketing area were 

considered during the Federal order 

reform process. Dairy Farmers of 

America, Inc., and Carolina-Virginia 

Milk Producers Association submitted 

comments requesting that the proposed 

consolidated Appalachian order 

marketing area and the proposed 

consolidated Southeast order marketing 

area be combined into a single 

consolidated Southeast marketing area. 

Also, the Kentucky Farm Bureau 

Federation requested a single Federal 

order consisting of the proposed 

consolidated Appalachian and 

Southeast marketing areas including all 

of the State of Kentucky. 

The proponents for merging the two 

consolidated marketing areas contended 

that common procurement areas 

between the orders would result in 

different blend prices paid to producers 

if the orders were not consolidated. The 

Federal order reform final decision 

rejected this assertion stating that ‘‘As 

discussed in the proposed rule, 

consolidating the Carolina and 

Tennessee Valley markets with the 

Southeast does not represent the most 

appropriate consolidation option 

because of the minor degree of 

overlapping route disposition and 

producer milk between these areas’’ (64 

FR 16060). Accordingly, the order 

merger proposals were not adopted 

during Federal order reform. These 

findings continue to apply to the current 

proposed merged order. 

Record evidence indicates that the 

Appalachian and Southeast order 

marketing areas share minor and 

unchanged commonality in sources of 

milk supply, fluid milk route sales, and 

market participants (cooperative 

associations and handlers). However, as 

discussed later in this decision, such 

measures of association between the 

Appalachian and Southeast order 

marketing areas can only support a 

finding to maintain two separate Federal 

order marketing areas with some minor 

modifications. 

Overlapping Route Sales and Milk 

Supply. Current proponents of merging 

the Appalachian and Southeast 

marketing areas contend that there is 

substantial overlap in route sales and 

milk supply areas. The movements of 

packaged fluid milk between Federal 

milk order marketing areas provide 

evidence that plants from more than one 

Federal milk order are in competition 

with each other for fluid milk sales. 

Overlapping sales patterns that result in 

the regulatory shifting of handlers 

between orders tend to cause disorderly 

marketing conditions by changing the 

price relationships between competing 

handlers and neighboring dairy farmers. 

As discussed later in this decision, there 

is no evidence of disorder occurring 

within the Appalachian and Southeast 

order marketing areas as a result of 

plants shifting regulation to other 

orders. 

55466 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

Overlapping milk supply principally 

applies when the major proportions of 

a market’s milk is supplied by the same 

area. The cost of a handler’s milk is 

influenced by the location of the milk 

supply which affects other competitive 

factors. The common pooling of milk 

produced within the same procurement 

area under the same order facilitates the 

uniform pricing of producer milk among 

dairy farmers. However, all marketing 

areas having overlapping procurement 

areas do not warrant consolidation. An 

area that supplies a minor proportion of 

an adjoining area’s milk needs from 

minor proportions of its own total milk 

supply and has minimal competition 

among handlers in the adjacent 

marketing area for fluid sales, supports 

concluding that the two marketing areas 

are clearly separate and distinct. 

As contained in the partial 

recommended decision, this decision 

provides detailed analysis of the 

association between the Appalachian 

and Southeast order marketing areas in 

terms of overlapping Class I route sales 

and milk procurement areas from 2000 

through 2003. 

Based on record evidence of Federal 

milk order data, Table 1 illustrates that 

the Appalachian and Southeast order 

marketing areas have experienced no 

significant change in overlapping Class 

I route sales or milk procurement since 

the orders were consolidated. 

TABLE 1:—OVERLAPPING ROUTE SALES AND MILK SUPPLY APPALACHIAN (ORDER 5) AND SOUTHEAST (ORDER 7) MILK

ORDERS

Date 

From order 5 

to order 7 

(percent) 

From order 7 

to order 5 

(percent) 

Route Disposition 

(Share of Class I Sales) 

Annual Average—2000 ................................................................................................................................................ 11.4 1.9 

Annual Average—2001 ................................................................................................................................................ 12.2 2.4 

Annual Average—2002 ................................................................................................................................................ 12.2 1.9 

Annual Average—2003 ................................................................................................................................................ 12.4 2.0 

Overlapping Milk Supply 

(Share of Total Producer Milk) 

Annual Average—2000 ................................................................................................................................................ 3.1 8.5 

Annual Average—2001 ................................................................................................................................................ 3.2 6.9 

Annual Average—2002 ................................................................................................................................................ 3.2 6.8 

Annual Average—2003 ................................................................................................................................................ 3.2 4.3 

Source: Appalachian and Southeast Market Administrator Data. 

For the 2000 through 2003 period, 

route sales by distributing plants 

regulated by the Appalachian order into 

the Southeast marketing area averaged 

about 12 percent, while the route sales 

from plants regulated by the Southeast 

order into the Appalachian marketing 

area averaged about 2 percent. Record 

data also indicates that the majority of 

the Class I sales by distributing plants 

regulated by the Appalachian and 

Southeast orders is within each of the 

respective orders. For the 4-year period, 

Appalachian order handlers accounted 

for about 75 percent of the total Class I 

sales within the order’s marketing area 

and plants regulated by the Southeast 

order accounted for about 85 percent of 

the order’s total Class I sales. 

Of the total producer milk pooled on 

the Appalachian order, the amount of 

producer milk produced in the 

Southeast marketing area decreased 

from 8.5 percent in 2000 to 4.3 percent 

in 2003. The milk produced in the 

Appalachian marketing area that was 

pooled on the Southeast order 

accounted for about 3.2 percent of the 

total producer milk pooled on the 

Appalachian order for the same 4-year 

period. 

In summary, the Table 1 data 

illustrates that route sales from 

Appalachian order handlers into the 

Southeast marketing area increased 

slightly (1 percentage point) from 2000 

to 2003, while route sales from the 

Southeast order regulated plants into 

the Appalachian marketing area 

remained relatively unchanged for the 

4-year period. Likewise, the data in 

Table 1 shows that producer milk 

pooled on the Appalachian order that 

originated from the Southeast marketing 

area declined each year since 2000, 

while the producer milk pooled on the 

Southeast order that originated from the 

Appalachian marketing area has 

remained unchanged since the orders 

were consolidated in January 2000. 

Table 2, which is based on Federal 

milk order record data, further details 

the source of producer milk pooled on 

the Appalachian and Southeast orders. 

TABLE 2.—SOURCE OF PRODUCER MILK FOR THE APPALACHIAN AND SOUTHEAST ORDERS BY ORDER AND UNREGULATED

AREAS

Year 

Percent from 

inside order 

area 

Percent from 

northeast order 

area 

Percent from 

mideast order 

area 

Percent from 

southeast order 

area 

Percent from all 

other orders and 

unregulated areas 

Appalachian Order Producer Milk 

2000 ....................................................... 51.9 6.7 9.1 8.5 23.9 

2001 ....................................................... 47.9 6.9 11.4 6.9 26.8 

2002 ....................................................... 46.7 7.3 14.6 6.8 24.6 

2003 ....................................................... 45.1 5.8 19.2 4.3 25.6 

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Year 

Percent from 

inside order 

area 

Percent from 

central order 

area 

Percent from 

southwest order 

area 

Percent from 

Appalachian 

order area 

Percent from all 

other orders and 

unregulated areas 

Southeast Order Producer Milk 

2000 ....................................................... 66.5 8.9 17.1 3.1 4.4 

2001 ....................................................... 59.8 9.8 20.1 3.2 7.1 

2002 ....................................................... 57.0 10.5 21.8 3.2 7.5 

2003 ....................................................... 58.1 14.2 17.5 3.2 7.1 

Source: Appalachian and Southeast Market Administrator Data. 

The Table 2 data illustrates that the 

share of total producer milk pooled on 

the Appalachian order produced within 

the marketing area during 2000 through 

2003 has declined from about 51 

percent to about 45 percent. The amount 

of producer milk produced in the 

Southeast marketing area as a share of 

the total amount of producer milk 

pooled on the Appalachian order also 

has declined from 8.5 percent in 2000 

to 4.3 percent in 2003. At the same time, 

the amount of producer milk produced 

in the Mideast marketing area that was 

pooled on the Appalachian order 

increased from 9.1 percent in 2000 to 

19.2 percent in 2003. 

During 2000 through 2003, the 

Northeast, Southeast, and Mideast 

marketing areas accounted for about 27 

percent of the total producer milk 

pooled on the Appalachian order. Of the 

total producer milk pooled on the 

Appalachian order that was produced 

outside the Appalachian marketing area 

during this period, 12.7 percent was 

produced in the Southeast marketing 

area, 12.8 percent in the Northeast 

marketing area, and 26 percent in the 

Mideast marketing area. In addition, 

record data indicates that approximately 

half of the pooled milk on the 

Appalachian order is produced in 

counties within the marketing area and 

20 percent to 25 percent of the total 

pooled milk is supplied by Federally 

unregulated areas, mainly from counties 

in the State of Virginia, Pennsylvania, 

and New York. 

For the 4-year period of 2000 through 

2003, record data reveals the share of 

the total Southeast order producer milk 

produced within the marketing area 

declined from about 67 percent in 2000 

to about 58 percent in 2003. However, 

this decline was not supplied by 

producer milk that was produced in the 

Appalachian marketing area which 

remained relatively unchanged at about 

3 percent from 2000 through 2003. 

Record data reveals that the 

supplemental milk for the Southeast 

order is produced primarily in the 

Central and Southwest marketing areas. 

Specifically, the share of producer milk 

produced in the Central marketing area 

that was pooled on the Southeast order 

increased from 8.9 percent in 2000 to 

14.2 percent in 2003. In addition, 

producer milk produced in the 

Southwest marketing area that was 

pooled on the Southeast order was 

about 17 percent in 2000, increased to 

about 22 percent in 2002, and declined 

to about 17 percent in 2003. 

The record data clearly reveals the 

degree of overlap in milk supply 

between the Appalachian and Southeast 

milk order marketing areas has 

decreased over the 4-year period since 

Federal order reform while the degree of 

overlap between the Appalachian and 

Mideast orders has increased each year. 

The data further reveals that the primary 

out-of-area sources of supplemental 

milk for the Appalachian order 

marketing area are the Northeast and 

Mideast regions. In contrast, the primary 

out-of-area sources of milk supply for 

the Southeast order marketing area are 

the Southwest and Central marketing 

areas. 

Record data reveals that the minimal 

overlap in milk supply areas that exists 

between the Appalachian and Southeast 

milk order marketing areas is primarily 

concentrated along the Tennessee and 

Kentucky borders. Such overlap is 

typical for adjoining marketing areas. 

The Federal order reform final decision 

addressed the issue of overlapping milk 

supply areas among adjacent orders by 

stating that ‘‘an area that supplies a 

minor proportion of an adjoining area’s 

milk supply with a minor proportion of 

its own total milk production while 

handlers located in the area are engaged 

in minimal competition with handlers 

located in the adjoining area likely does 

not have a strong enough association 

with the adjoining area to require 

consolidation. For a number of the 

consolidated areas it would be very 

difficult, if not impossible, to find a 

boundary across which significant 

quantities of milk are not procured for 

other marketing areas.’’ (64 FR 16045) 

Accordingly, the overlap existing 

between the Appalachian and Southeast 

milk order marketing areas does not 

warrant an order merger. 

Based on the record data, this 

decision finds that the overlap in route 

sales and milk procurement areas 

between the Appalachian and Southeast 

milk order marketing areas does not 

support merging the two orders. 

Milk Utilization. During 2000 through 

2003, the 4-year weighted average Class 

I utilizations for the Appalachian and 

Southeast orders were 66.9 percent and 

63.1 percent, respectively. The level of 

Class I utilization is a factor considered 

in determining whether orders should 

be merged but does not form the basis 

for adopting a merger because it is a 

function of how much milk is pooled on 

an order. 

From 2000 through 2004, the nonClass I use of milk (Class II, Class III, 

and Class IV) of the Appalachian and 

Southeast marketing areas has been 

different. During this 5-year period, 

Appalachian order Class II, Class III and 

Class IV utilization rates averaged 14.5 

percent, 7.3 percent, and 10.1 percent, 

respectively. For the same period, the 

Class II, Class III, and Class IV 

utilization rates for the Southeast order 

averaged 10.8 percent, 17.3 percent, and 

8.5 percent, respectively. This data 

illustrates that the Appalachian 

marketing area is balanced primarily by 

Class II and Class IV while in the 

Southeast marketing area is balanced by 

Class II and Class III. 

Blend Prices. Proponent cooperatives 

contend that the differences in blend 

prices between the Appalachian and 

Southeast milk orders result in 

disruptive marketing conditions. The 

blend price of an order is a function of 

the utilization of milk in the respective 

classes (Class I, Class II, Class III, and 

Class IV) at the corresponding class 

prices. The blend prices for the 

Appalachian and Southeast order have 

differed due to the orders’ different class 

utilization of milk. The magnitude of 

the blend price differences is primarily 

attributed to the differences between the 

class prices since the Appalachian 

marketing area is mainly balanced by 

Class II and Class IV and the Southeast 

marketing area by Class II and Class III. 

The blend price difference further 

illustrates that the Appalachian and 

55468 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

Southeast milk orders have separate and 

distinct market characteristics. 

For the 5-year period of 2000 to 2004, 

the annual average blend price of the 

Appalachian order has been higher than 

that of the Southeast order blend price. 

This is in part due to the Appalachian 

order having a greater percentage of 

milk utilized in Class I compared to the 

Southeast order over the past five years. 

The range of the blend price differences 

for the Appalachian and Southeast 

orders is mainly due to differences in 

the Class III and Class IV prices (i.e., the 

‘‘balancing’’ classes of milk). When the 

Class III prices goes up relative to the 

Class IV price, the blend price 

difference between the two orders 

narrows due to the predominance of 

milk utilized in Class III among the nonClass I uses in the Southeast marketing 

area. 

Blend price differences between the 

Appalachian and Southeast orders have 

narrowed since the orders were 

consolidated in 2000. The differences in 

the weighted average blend prices for 

the two orders was $0.36 per cwt in 

2000, $0.24 per cwt in 2001, $0.21 per 

cwt in 2002, $0.09 per cwt in 2003, and 

$0.08 per cwt in 2004. Over the 2000 to 

2004 period, the Appalachian order 

blend price exceeded the Southeast 

order blend price by an average of $0.20 

per cwt. 

A 1995 final decision that 

consolidated five former Southeastern 

orders (Georgia, Alabama-West Florida, 

New Orleans-Mississippi, Greater 

Louisiana, and Central Arkansas) with 

unregulated counties of four states to 

form the Southeast order addressed the 

issue of blend price differences among 

orders (60 FR 25014). The decision 

stated that blend price differences 

between orders may be caused by a 

number of factors including order 

provisions, institutional factors, the 

location of surplus milk and differences 

in class prices. The decision concluded 

that the five separate orders were 

encouraging plants to shift regulation 

among the orders which resulted in 

disorderly marketing conditions as 

producers and handler inequity greatly 

increased. 

The current Southeast and 

Appalachian orders do not experience 

disorderly marketing conditions as a 

result of plants shifting regulation 

between orders. This may be attributed 

to the current lock-in and unit pooling 

provisions contained in the 

Appalachian and Southeast orders’

pooling provisions. The lock-in 

provisions provide that a plant located 

within a marketing area that meets the 

minimum performance standards of the 

order will be regulated by that order 

even if the majority of its sales occur in 

another marketing area. Also, the unit 

pooling provisions allow two or more 

plants located in the marketing area and 

operated by the same handler to qualify 

for pool status as a unit by meeting the 

order’s total and in-area route 

disposition standards as if they were a 

single distributing plant. 

A plant shifting regulation to an order 

with a lower blend price could 

jeopardize the plant’s ability to maintain 

a milk supply. Current Appalachian and 

Southeast order provisions allow a plant 

that meets the performance standards of 

the order and is physically located 

within the order marketing area to be 

regulated by the order even if the 

majority of its sales are in another 

marketing area. The provisions were 

adopted into the southeastern orders 

and retained in the consolidated 

Appalachian and Southeast orders to 

allow plants that are associated with the 

market and are servicing the market’s 

fluid needs to be regulated under the 

order in which they are physically 

located. 

If these provisions were not present in 

the Appalachian and Southeast orders, 

plants could shift regulation between 

orders which could cause disorderly 

marketing conditions to occur. Since 

record data indicates that the 

Appalachian and Southeast orders’

blend price differences are continuing to 

decrease and there are provisions that 

prevent plants from shifting regulation 

among orders, this decision finds that 

the blend price differences between the 

two orders do not form a contributing 

basis for merging the two marketing 

areas. 

Proponents of the proposed order 

merger filed comments to the partial 

recommended decision stating that the 

decision placed great weight on the fact 

that no plants have switched regulation 

between the two orders and implied that 

such action is a preeminent form of 

disorderly marketing. Proponents 

asserted that such an implication misses 

the complexities of the marketplace. 

Proponents asserted the two separate 

Appalachian and Southeast orders 

result in the improperly sharing of Class 

I revenues under each of the orders and 

inefficient milk movements. 

The partial recommended decision 

noted a 1995 decision that concluded 

that the existence of five separate orders 

were encouraging plants to shift 

regulation among the orders which 

resulted in disorderly marketing 

conditions. The partial recommended 

decision indicated that no record 

evidence revealed marketing disorder in 

the Appalachian and Southeast 

marketing areas resulting from the 

orders provisions, which would support 

a merger on this basis. 

The record provides no specific 

evidence of inefficient milk movements 

resulting from the orders’ provisions. 

Also, record evidence reveals no 

inequitable sharing of the Class I 

proceeds within each of the marketing 

areas. 

Both the Appalachian and Southeast 

orders provide discretionary authority 

to the Market Administrator to adjust 

certain performance standards, if upon 

completion of an investigation, the 

Market Administrator finds that the 

standards are resulting in inefficient 

movements of milk, and that a 

modification of such standards will 

ensure that the Class I needs of the 

market are met. 

An analysis of the record data reveals 

that the proposed merger would likely 

lower the blend price paid to dairy 

farmers whose milk is pooled on the 

Appalachian milk order and increase 

the blend price paid to dairy farmers 

whose milk is pooled on the Southeast 

milk order. The gains to Southeast order 

dairy farmers would be offset by losses 

to Appalachian order dairy farmers by a 

similar magnitude. 

If the two order marketing areas are 

merged and assuming no significant 

depooling in the Federal order system, 

it is projected that for the period of 2005 

through 2009 the blend price paid to 

dairy farmers whose milk is pooled on 

the current Appalachian order would be 

reduced by about $0.07 per cwt on 

average, while the blend price paid to 

dairy farmers whose milk is pooled on 

the current Southeast order would be 

increased by $0.07 per cwt on average. 

The $0.07 per cwt decline in the current 

Appalachian order blend price would 

cause average order pool receipts to 

decline by about 11 million pounds and 

average order pool revenues to fall by 

$6.6 million. For the current Southeast 

order, the $0.07 per cwt blend price 

increase would increase average order 

pool receipts by an average of 11 million 

pounds, resulting in an average gross 

pool revenue increase of $6.5 million 

per year. 

Record testimony by proponent 

cooperatives indicates that SMA has, 

through its pooling of costs and returns, 

reduced their pay price differences to 

their member producers. Thus, a merger 

of the Appalachian and Southeast 

orders would merely increase the blend 

price for Southeast order nonmember 

producers while reducing the blend 

price received by Appalachian order 

nonmember producers. 

Proponents of the proposed merger 

filed comments contending that the 

consolidation of the Appalachian and 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55469 

Southeast marketing areas and orders 

would result in additional money to 

dairy farmers in terms of efficiencies in 

milk movements. The proponents’

assertions of market efficiencies arising 

for the proposed merger are out weighed 

by the projected negative impact of the 

order merger on the revenues of 

Appalachian order nonmember 

producers, particularly, when the record 

does not contain any specific evidence 

of disorder resulting from the provisions 

of the two orders. In effect, while 

benefiting certain producers, the 

proposed merged milk marketing area 

and order would negatively affect 

certain other dairy farmers. 

Based on this analysis, the absence of 

disorderly marketing conditions, 

together with the minimal and 

unchanged overlap between the 

Appalachian and Southeast orders in 

Class I sales and milk procurement area, 

the two marketing areas and orders 

should not be merged. 

Cooperative Associations. Record 

evidence clearly demonstrates that there 

is a strong cooperative association 

commonality between the Appalachian 

and Southeast order marketing areas. 

During December 2003, there were a 

total of 14 cooperatives marketing the 

milk of members on the Appalachian 

and Southeast orders and 9 of these 

cooperatives marketed milk on both 

orders. A number of these cooperatives 

are members of SMA and others 

cooperatives have the milk of their 

members that is pooled on the 

Appalachian and Southeast orders 

marketed by SMA. 

The evidence indicates that 

proponent cooperatives market the 

majority of the milk pooled on the 

Appalachian and Southeast orders. For 

example, for December 2003, proponent 

cooperatives marketed 62.23 percent of 

the total producer milk pooled on the 

Appalachian order and 69.68 percent of 

the total producer milk pooled on the 

Southeast order. While commonality of 

cooperative associations can be 

significant, it is not a primary criteria 

used to determine whether orders 

should be merged. 

The record indicates that the 

proposed merger could likely provide 

some administrative relief to SMA in 

marketing the milk of their cooperative 

members. However, this outcome is at 

the expense of independent dairy 

farmers who are currently associated 

with the Appalachian order. 

Market and Structural Changes. 

Record evidence indicates that there 

have been several market and structural 

changes in the Southeast and 

Appalachian markets since the Federal 

Order Reform process began in 1996 and 

the implementation of the consolidated 

orders in January 2000. These changes 

include fewer and larger producers and 

producer organizations, handler 

consolidations, and other plant 

ownership changes. 

From January 2000 through December 

2003, the number of dairy farmers 

pooled on the Appalachian and 

Southeast milk orders decreased. For 

the Southeast, the decline was 13.2 

percent from 4,213 to 3,658, and the 

number of dairy farmers pooled on the 

Appalachian order decreased by 15.6 

percent from 4,974 to 4,200. Milk 

production in the Appalachian and 

Southeast marketing areas has decreased 

since the Federal orders were 

consolidated. This decrease in milk 

production has caused additional 

supplemental milk to be imported into 

these deficit milk production markets. 

The record reveals that producer 

organizations associated with the 

Appalachian and Southeast order 

marketing areas changed since the 

Federal order reform process. In 1996, 

there were 14 cooperative associations 

marketing the milk of their members on 

the current Appalachian order and nine 

Southeast order cooperatives. During 

December 2003, the number of 

cooperative associations marketing 

members’ milk on the Appalachian and 

Southeast orders was 12 and 11, 

respectively. In 2002, five cooperative 

associations formed SMA, which 

markets the majority of the raw milk 

supplied to plants regulated by the 

Appalachian and Southeast orders. 

The number of pool distributing 

plants on the Appalachian and 

Southeast orders for 1996 was 29 and 

36, respectively. For December 2003, the 

number of pool distributing plants for 

the orders was 24 and 27, respectively. 

The plant changes that have occurred 

include ownership changes, new plant 

openings, as well as plant closings. 

Taken singularly or as a whole, the 

structural changes that have occurred 

from 1996 to present have had no 

significant impact on overlapping route 

disposition and overlapping 

procurement patterns of the 

Appalachian and Southeast orders. 

Other order provisions. Proponent 

cooperatives’ proposal to combine the 

balances of the Producer Settlement 

Funds, the Transportation Credit 

Balancing Funds, the Administrative 

Assessment Funds, and the Marketing 

Service Funds of the Appalachian and 

Southeast milk orders for the proposed 

merged milk order is not adopted in this 

decision. The proposal is moot since 

this decision does not propose merging 

the two orders. 

Proponent cooperatives offered order 

provisions for inclusion in the proposed 

merged milk order. These 

recommendations included adopting for 

the proposed merged milk order 

provisions that currently are included in 

the Appalachian order and/or the 

Southeast order. The proponent 

cooperatives recommended that the 

proposed merged milk order include 

pool plant provisions currently in the 

Appalachian order, and proposed the 

‘‘touch-base’’ requirement of the 

producer milk provisions include a 

‘‘percentage’’ production standard 

instead of a ‘‘days’’ production 

standard. Since this decision does not 

adopt the proposal to merge the 

Appalachian and Southeast marketing 

areas, the recommendations concerning 

order provisions for the proposed 

merged milk order are moot. 

The proponent cooperatives requested 

that the proposed merged milk order 

contain transportation credit provisions 

currently applicable to the Appalachian 

and Southeast milk orders, with certain 

modifications. The proponent 

cooperatives requested the 

transportation credit provisions be 

modified to increase the maximum rate 

of assessment to $0.10 per cwt, change 

the months a producer’s milk is not 

allowed to be associated with the 

market for such producer to be eligible 

for transportation credits, and provide 

the Market Administrator the authority 

to adjust the 50-percent production 

eligibility standard. They also supported 

the proposed changes for the individual 

orders if their order merger proposal 

was not adopted. 

Proponent cooperatives contended 

that by adopting transportation credits 

provisions of the Appalachian and 

Southeast orders the Department 

established the inextricable and 

common supply relationship between 

the orders. The proponents state that the 

proposed order merger simply extends 

that recognition to provide common 

uniform prices and terms of trade for all 

dairy farmers delivering milk to the 

market, and a common set of producer 

qualification requirements. 

This decision finds that the inclusion 

of transportation credit provisions of the 

Appalachian and Southeast orders is not 

a basis for merging the two orders. Such 

provisions were incorporated and 

established in the orders based on the 

prevailing marketing conditions in each 

individual order marketing area. 

Record indicates that the orders’

transportation credit balancing funds 

have functioned differently since 2000 

with respect to the assessment rates at 

which handlers made payments and the 

payments from the orders’

55470 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

transportation credit balancing funds. 

The Appalachian order waived the 

collection of assessments at least two 

months of each year from 2001 through 

2003. The Southeast order, while 

collecting assessments at the maximum 

rate of $0.07 per cwt, has prorated 

payments from the transportation credit 

balancing fund each year since 2001. 

In exceptions to the partial 

recommended, SMA contends that the 

record is replete of evidence of disorder 

with respect to the payouts under the 

Appalachian and Southeast orders’

transportation credit provisions. This 

decision finds that the different levels of 

payouts of transportation credits under 

the orders do not substantiate the need 

to merge the two orders. The payments 

from the orders’ transportation credit 

balancing funds and the assessment 

rates at which handlers made payments 

are reflective of the prevailing marketing 

conditions in the individual markets. 

As discussed later, proposed 

amendments to the transportation credit 

provisions of the Appalachian and 

Southeast orders are adopted in this 

decision. The proposed amendments are 

warranted due to the declining milk 

production within the Appalachian and 

Southeast marketing areas and the 

anticipated growing need of importing 

milk produced outside the marketing 

areas to supply the fluid needs of the 

markets. 

1b. Expansion of the Appalachian 

Marketing Area 

While the proposal for merging the 

Appalachian and Southeast milk 

marketing areas is not adopted, this 

decision would expand the current 

boundaries of the Appalachian milk 

marketing area to include certain 

unregulated counties and cities in the 

State of Virginia. (The partial 

recommended decision inadvertently 

noted ‘‘14’’ unregulated cities verses 

‘‘15’’ and excluded the city of 

Waynesboro, which is located in 

Augusta County, Virginia, from the list 

of proposed cities.) 

Expansion of the marketing area 

adjoining the Appalachian marketing 

area was contained in the proposal 

published in the hearing notice as 

Proposal 3. The proposal would have 

expanded the proposed merged milk 

order marketing area to include 25 

currently unregulated counties and 15 

currently unregulated cities in the State 

of Virginia. Similarly, a proposal 

published in the notice of hearing as 

Proposal 4 sought the expansion of the 

marketing area by adding an area 

adjoining the Appalachian marketing 

area that includes two unregulated cities 

and two unregulated counties in State of 

Virginia. Proposal 3, which also was 

supported by proponents of Proposal 4, 

is adopted. 

Proponent cooperatives of Proposal 3 

offered that the merger of the 

Appalachian and Southeast marketing 

areas be expanded to include the 

Virginia counties of Allegheny, 

Amherst, Augusta, Bathe, Bedford, 

Bland, Botetourt, Campbell, Carroll, 

Craig, Floyd, Franklin, Giles, Grayson, 

Henry, Highland, Montgomery, Patrick, 

Pittsylvania, Pulaski, Roanoke, 

Rockbridge, Rockingham, Smyth, and 

Wythe) and Virginia cities of Bedford, 

Buena Vista, Clinton Forge, Covington, 

Danville, Galax, Harrisonburg, 

Lexington, Lynchburg, Martinsville, 

Radford, Roanoke, Salem, Staunton, and 

Waynesboro. 

The proponent cooperatives’ witness 

testified that the addition of the 25 

counties and the 15 cities would 

properly change the regulatory status of 

a Dean Foods’ Morningstar Foods plant 

located at Mount Crawford, Virginia, 

from the Northeast order to the 

Appalachian order. Also, the witness 

stated the proposed expansion would 

have the effect of fully and continuously 

regulating under the Appalachian order 

two fluid milk distributing plants (the 

Kroger Company’s Westover Dairy 

plant, located in Lynchburg, Virginia, 

and the National Dairy Holdings’ Valley 

Rich Dairy plant, located in Roanoke, 

Virginia) under the proposed merger. 

The witness said the Dean Foods 

Company’s Mount Crawford plant 

alternates between partially regulated 

and fully regulated status under the 

Northeast milk order. According to the 

witness, in order for the plant to procure 

an adequate supply of milk, producers 

delivering to it must receive a blend 

price comparable with the blend price 

generated under the proposed merged 

milk order, if adopted. 

The proponent cooperatives’ witness 

stated that the milk supply located near 

Dean Foods’ Mount Crawford, Virginia, 

plant is an attractive source of supply 

for plants that are fully regulated by the 

Appalachian order that are located in 

southern Virginia, North Carolina, 

South Carolina, and eastern Tennessee. 

The witness indicated that the impact of 

this proposal on the Virginia State Milk 

Commission and Virginia base-holder 

producers would be insignificant. The 

witness was of the opinion that, if there 

were any impact on Virginia baseholders producers, it would be 

positive—reflecting the higher blend 

price at Mount Crawford, Virginia, for 

the plants under the proposed merged 

milk order versus the Northeast order. 

The proponent cooperatives 

submitted a post-hearing brief 

supporting the expansion of the 

proposed merged milk order area to 

include the additional 25 counties and 

15 cities in Virginia. 

A witness representing the Kroger 

Company (Kroger) testified in support of 

Proposal 4 to expand the proposed 

merged milk order to include two 

currently unregulated counties 

(Campbell and Pittsylvania), and two 

currently unregulated cities (Lynchburg 

and Danville) in the State of Virginia. 

The witness stated that Kroger owns and 

operates four pool distributing plants 

associated with the Southeast and 

Appalachian milk orders, including 

Westover Dairy located in Lynchburg, 

Virginia. The witness also testified in 

support of adopting the current 

Appalachian order pool plant 

definition. 

According to the Kroger witness, the 

Appalachian order pool distributing 

plant provisions require that at least 25 

percent of a plant’s total route 

disposition must be to outlets within the 

marketing area. This requirement, 

explained the witness, has restricted 

Kroger’s ability to expand its Class I 

sales into areas outside the Appalachian 

marketing area, including the area 

directly associated with the plant’s 

physical location (Lynchburg, Virginia). 

The Kroger witness noted that 

Westover Dairy has been a fully 

regulated plant on the Appalachian 

order since January 2000, and prior to 

reform, the plant was regulated on the 

Carolina order—one of the former orders 

combined to form the Appalachian 

order. According to the Kroger witness, 

the total in-area route disposition 

standard increased from 15 percent to 

25 percent when the consolidated and 

reformed Appalachian order became 

effective in January 2000. This change, 

the witness contended, has created an 

undue hardship on Westover Dairy and 

has forced it to relinquish sales in areas 

outside of the Appalachian market to 

maintain its pool status under the order. 

The witness concluded by stating that 

Kroger prefers Proposal 3—the larger 

expansion—which would not only 

expand the order area to include their 

plant located at Lynchburg, Virginia, but 

would allow a further expansion of 

Class I sales into other surrounding 

areas. 

The witnesses for MD&VA, ADCA, 

Lone Star, and DMC testified in support 

of Proposal 3 to expand the proposed 

Southeast milk order area to include 

certain unregulated counties and cities 

in the State of Virginia as proposed by 

the proponent cooperatives. The 

witnesses stated that the cooperatives 

were not opposed to the expansion of 

the proposed Southeast milk marketing 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55471 

area into the smaller territory in the 

State of Virginia as proposed by Kroger 

but stated the larger expanded area in 

Proposal 3 was preferable. 

The MD&VA witness explained that 

some of its member producers are 

located in the proposed expanded area 

and that the cooperative delivers the 

milk of producers holding Virginia Milk 

Commission base to plants fully 

regulated under the Appalachian milk 

order. According to the witness, the 

milk of MD&VA member producers is 

marketed to Dean Foods’ Morningstar 

Foods plant located in Mount Crawford, 

Virginia, which would become a pool 

distributing plant if the proposed 

merged milk order and the expansion to 

Virginia counties and cities are adopted. 

Witness appearing on behalf of Dean 

Foods and Prairie Farms stated they 

were not opposed to Proposals 3 and 4. 

Thus, there was no opposition 

expressed at the hearing or in posthearing briefs to the adoption of these 

proposals. 

In response to the partial 

recommended decision, Kroger, Dairy 

Farmers of America, Inc. (DFA), 

MD&VA, and ADCA filed comments in 

support of expanding the Appalachian 

marketing area to include certain 

unregulated counties and cities in the 

State of Virginia. Kroger stated the 

proposed expansion is supported by the 

hearing record. According to DFA, the 

current Appalachian order configuration 

makes it difficult for plants to establish 

supply patterns and pricing terms since 

the potential exists for plants to shift 

their regulatory status from month to 

month. Thus, DFA asserted the 

proposed expansion is beneficial 

because it will assure full and regular 

pool plant status for the affected bottling 

plants. 

MD&VA and ADCA asserted that the 

proposed expansion of the Appalachian 

marketing area will enhance producer 

and handler equity, provide for orderly 

marketing, and improve marketing 

efficiencies. Under the current 

Appalachian order, MD&VA and ADCA 

noted that the Kroger’s Westover Dairy 

plant, located in Lynchburg, Virginia, 

has limited expansion of sales area to 

preserve its regulatory status as a pool 

distribution plant on the order. The 

cooperatives stated the proposed 

marketing area expansion will allow the 

plant to operate more efficiently, 

perpetuate the plant’s regulatory status 

as a pool plant, and eliminate the 

disorder that could occur if the plant’s 

regulatory status changes. 

According to MD&VA and ADCA, the 

Dean Foods’ Morningstar Foods plant, 

located in Mount Crawford, Virginia, 

has been plagued with issues of 

regulatory status. MD&VA and ADCA 

asserted that the proposed expansion 

should correct actual and perceived 

handler inequities between partially 

regulated and fully regulated handlers 

that result from different blend prices, 

and bring forth order and stability in the 

marketing area. The cooperatives 

explained that the continual shifting of 

regulatory status between, or in and out 

of a Federal milk order is disorderly. 

They stated the proposed expansion 

will remove the disorder associated 

with the plant’s continuous change in 

regulatory status. 

This decision adopts proposed 

amendments to the Appalachian order 

that would expand the marketing area to 

include 25 currently unregulated 

counties and 15 cities in the State of 

Virginia. The proposed amendments 

would cause the full and regular 

regulation under the Appalachian order 

of three fluid milk distributing plants—

one of which has been shifting 

regulatory status under the Northeast 

order—provided the plants meet the 

order’s minimum performance standard. 

The plants are located in Lynchburg, 

Virginia, Roanoke, Virginia, and Mount 

Crawford, Virginia. Because of 

Appalachian order’s lock-in provision, 

these plants, which would be physically 

located within the Appalachian 

marketing area, would continue to be 

regulated under the Appalachian order 

even if the majority of their sales are in 

another Federal order marketing area. 

The proposed expansion would 

continue the regulation of two fluid 

milk distributing plants (Kroger’s 

Westover Dairy plant, Lynchburg, 

Virginia, and National Dairy Holdings’

Valley Rich Dairy plant, Roanoke, 

Virginia) under the Appalachian order. 

The proposed expansion also would 

shift the regulation of the Dean Foods’

Morningstar Foods plant, Mount 

Crawford, Virginia, from the Northeast 

order to the Appalachian order. 

The Kroger’s Westover Dairy plant has 

been regulated by the Appalachian 

order since the order was consolidated 

in January 2000. Current Appalachian 

order pool plant provisions require that 

at least 25 percent of a distributing 

plant’s total Class I sales be to outlets 

within the marketing area. Prior to the 

reform of Federal milk orders, the 

former order marketing areas that were 

combined into the Appalachian order 

marketing area contained a 15 percent 

in-area route disposition standard for 

pool distributing plants. 

Record evidence indicates that the 

current in-area Class I route sales 

standard likely is limiting the growth 

potential of Kroger’s Westover Dairy 

plant, located in Lynchburg, Virginia. It 

is not the intent of Federal milk orders 

to inhibit the growth of handlers. 

Federal orders are designed to provide 

for the orderly exchange of milk from 

the dairy farmer to the first buyer 

(handler). The orders also provide 

minimum performance standards to 

ensure that the fluid needs of the market 

are satisfied. Accordingly, the adoption 

of the expansion proposal would allow 

the Kroger Westover Dairy plant to 

maintain a milk supply in competition 

with nearby Appalachian order plants, 

and eliminate any disorder that is 

resulting from current Appalachian 

order provisions. 

In the case of Dean Foods’

Morningstar Foods plant in Mount 

Crawford, Virginia, the proposed 

amendments would eliminate the 

current disruption and disorder caused 

by the plant shifting its regulatory status 

from fully to partially regulated status 

under the Northeast order. Such shifting 

from fully to partially regulated status 

under an order may cause financial 

harm to producers supplying. The 

proposed expansion should result in 

more order and stability in the 

marketing area. 

The record indicates that the Kroger’s 

Westover Dairy plant and Dean Foods’

Morningstar plant are supplied by 

producers located near the plants and 

that the plants compete with other 

Appalachian order plants in milk 

procurement. This decision finds that 

orderly market conditions would be 

preserved by the adoption of the 

proposed expansion amendments. The 

regulation of no other plants should be 

affected by the adoption of these 

proposed amendments. In addition, the 

proposed expansion of the Appalachian 

marketing area is not expected to have 

a negative impact on the blend price 

paid to producers. 

If the proposed marketing area 

expansion for the Appalachian order 

becomes effective, milk originating from 

any of the 25 counties or 15 cities in the 

State of Virginia would not be eligible 

to receive transportation credits under 

the Appalachian and Southeast orders. 

1c. Transportation Credits Provisions 

As proposed in the partial 

recommended decision, this decision 

finds that the maximum rates of the 

transportation credit assessment for the 

Appalachian and Southeast orders 

should each be increased by 3 cents per 

hundredweight. Increasing the 

transportation assessment rates will 

tend to minimize the exhaustion of the 

transportation credit balancing fund 

when the need for importing 

supplemental bulk milk from outside of 

the marketing areas to meet Class I 

55472 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

needs occurs. Additionally, this 

decision provides the Market 

Administrators of the orders the 

discretionary authority to increase or 

decrease the 50 percent production 

standard for determining the milk of a 

dairy farmer that is eligible for 

transportation credits. Such dairy 

farmer should not have been a producer 

under the order during more than two 

of the immediately preceding months of 

February through May for the milk of 

the dairy farmer to be eligible for receipt 

of a transportation credit. 

The Appalachian and Southeast 

orders each contain a transportation 

credit balancing fund from which a 

payment is made to partially offset the 

cost of moving milk into each marketing 

area to meet fluid milk demands. The 

fund is the mechanism by which 

handlers deposit, on a monthly basis, 

payments at specified rates for eventual 

payout as defined by a specified 

formula. The orders’ transportation 

credit provisions provide payments 

typically during the short production 

months of July through December to 

handlers who incur hauling costs 

importing supplemental milk to meet 

the fluid demands of the market. 

Transportation credit payments are 

restricted to bulk milk received from 

plants regulated by other Federal orders 

or shipped directly from farms of dairy 

farmers located outside the marketing 

areas and who are not regularly 

associated with the market. The handler 

payments into the funds are applicable 

to the Class I milk of producers who 

supply the market throughout the year. 

The Market Administrators of the orders 

are authorized to adjust payments to 

and from the relevant transportation 

credit balancing fund. 

The transportation credit provisions 

of the Appalachian and Southeast 

orders differ by the assessment rate at 

which handlers make payments to the 

transportation credit balancing fund. 

The maximum rate of assessment for the 

Appalachian order is $0.065 per cwt 

while the maximum rate of assessment 

for the Southeast order is $0.07 per cwt. 

A feature of the proposal for merging 

the Appalachian and Southeast 

marketing areas and orders was 

providing for a maximum transportation 

assessment rate of 10 cents for the 

proposed Southeast order. This would 

essentially represent a 3-cent per cwt 

increase from the current Southeast 

order, and a 3.5-cent increase from the 

Appalachian order. While there was no 

separate proposal for increasing the 

assessment rate for the transportation 

credit fund, it was made clear by the 

proponents that in the absence of 

adopting the proposed merger an 

increase in the transportation credit 

assessment rate was warranted and 

supported for the current orders. 

With regard to the transportation 

credit issue, the proponent cooperatives’

witness testified that the maximum 

transportation credit assessment rate 

should be increased to $0.10 per cwt. 

According to the witness, the increase is 

necessary to eliminate insufficient 

funding for transportation credit claims 

that would likely have been paid had 

sufficient funds been available. 

According to the witness, the 

transportation credit rate of $0.07 per 

cwt for the current Southeast order has 

been at the maximum rate since the 

inception of the order, but that 

payments from the transportation credit 

balancing fund were exhausted in 2001, 

2002, and 2003 resulting in prorating 

dollars from the transportation credit 

balancing fund to the amount of 

transportation claims submitted for 

receipt of the credit. In contrast, the 

witness noted, the transportation credit 

fund for the Appalachian order has been 

sufficiently funded since 2000 thus 

enabling the payment of all claims. 

The proponent cooperatives’ witness 

was of the opinion that the exhaustion 

of transportation credit funding in the 

Southeast order resulted in inequitable 

supplemental milk costs to handlers 

between the two orders. The witness 

testified that handlers procuring 

supplemental milk supplies for the 

Appalachian order were reimbursed at 

100 percent of their claimed credits 

while handlers procuring supplemental 

milk supplies for the Southeast order 

were reimbursed at approximately 50 

percent of their claimed credits. 

According to the witness, the unequal 

payout between the two orders results 

in disorderly marketing conditions 

exhibited by inequitable costs for 

producer milk among handlers. 

Dean Foods and Prairie Farms voiced 

opposition to the proponents’ proposed 

amendments to increase the maximum 

rate of assessments and increase the 

amount of milk that would be eligible of 

for transportation credits. Dean Foods 

and Prairie Farms pointed out that the 

proposals to incorporate transportation 

credit provisions into the southeastern 

orders were strongly opposed by some 

fluid milk processors and some dairy 

farmers. They noted that the intent and 

purpose of transportation credit 

provisions were to only pay a portion of 

the cost associated with hauling 

supplemental milk to the markets to 

meet fluid needs. 

In their post-hearing brief, Dean 

Foods and Prairie Farms stated there is 

no reason to increase the rate of 

assessment. Changing the rate of 

assessment, they contended, would 

effectively change the system of pricing 

without considering the impact on other 

marketing orders. 

In opposition to any change in the 

rate of transportation credits, a witness 

for Georgia Milk Producers, Inc. (GMP), 

testified that increasing the assessment 

rate would generate more revenue to be 

paid to truck drivers instead of paying 

higher prices to local dairy farmers. 

According to the witness, the price of 

milk paid to local dairy farmers should 

be increased rather than subsidizing 

additional outlays for transportation 

costs. 

The GMP witness suggested that 

instead of increasing the transportation 

credit assessment rate, a financial 

incentive should be initiated for dairy 

farmers to encourage milk production 

during the fall months when fluid milk 

demands are highest. According to the 

witness, if the incentive plan still does 

not cover the local milk production 

deficits, only then should the 

assessment rate for transportation 

credits be increased. The witness was of 

the opinion that an incentive plan 

encouraging local milk production 

would reduce hauling costs because less 

milk would be imported into the 

Southeast market. The witness also was 

of the opinion that a financial incentive 

plan would lower balancing costs by 

encouraging the movement of milk 

supplies located near processing plants. 

Three comments were filed in support 

of the proposed amendments to the 

transportation credit provisions as 

contained in the partial recommended 

decision. 

Dairy Farmers of America, Inc. (DFA), 

supported the decision to increase by 3 

cents per cwt the maximum 

transportation credit assessment rates to 

fund the existing transportation credit 

funds of the Appalachian and Southeast 

orders. According to DFA, costs are 

exceeding the reimbursement as 

provided by the transportation credits 

due to declining milk production in the 

southeastern region and increasing costs 

of procuring and transporting 

supplemental milk supplies. DFA 

asserted that the increase in the orders’

maximum assessment rates will provide 

additional money to offset costs and 

allow processors and consumers to bear 

an increased share of the market supply 

cost. 

MD&VA and ADCA expressed 

support for the proposed amendments 

to the transportation credit provision of 

the Appalachian and Southeast orders. 

Specifically, the cooperative 

associations support increasing the 

maximum assessment rates under both 

orders by 3 cents per cwt, and proposed 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55473 

amendments that provide the Market 

Administrator of each of the orders the 

discretionary authority to set the milk 

production standard for determining 

which producer milk meets the 

performance standard. 

MD&VA and ADCA stated the current 

maximum rates provided in the 

individual orders are insufficient to 

cover transportation credit claims. The 

cooperatives noted that the Market 

Administrators for the Appalachian and 

Southeast orders prorated payments 

during several months of the 2004 

payout period. MD&VA and ADCA 

stated the record indicates that milk 

production continues the declining 

trend while Class I sales is projected to 

increase. The increase in the maximum 

assessment rate for the Appalachian and 

Southeast orders is necessary to correct 

shortages and lessen handler inequities, 

the cooperatives asserted. They 

maintained that insufficiency in the 

funds has worsened and created an 

increased burden on the marketers of 

raw milk to find other ways to help 

cover the costs associated with the 

transport of milk. 

MD&VA and ADCA expressed 

support for greater Market 

Administrator discretion in setting 

limits and minimum performance 

standards in Federal Orders. The 

cooperative indicated that defining 

under the order what milk is 

‘‘supplemental milk’’ by limiting the 

portion of milk pooled from a dairy 

farmer in the spring months is a prime 

example of an Order provision which 

needs flexibility. They asserted that 

overly rigid provisions in the 

Appalachian and Southeast areas can 

cause inefficiencies in the marketing of 

milk, disorderly marketing, or 

uneconomic movements of milk. 

MD&VA explained that unexpected 

declines in milk production in the 

spring months may signal the need for 

additional shipments of milk into the 

order areas over historic levels. In such 

a case, the cooperatives indicated that it 

is highly desirable for the Market 

Administrator to have discretionary 

authority to adjust the delivery 

standard. The order requirement that 

prior to making any change in the 

provision a Market Administrator must 

seek views, data and argument from the 

industry assures openness in decisionmaking, inclusiveness, and fairness, the 

cooperatives asserted. 

Current Appalachian and Southeast 

order transportation credit provisions 

have been a feature of the orders, or 

predecessor orders, since 1996. The 

need for transportation credits arose 

from the consistent need to import milk 

from many areas outside of these 

marketing areas during certain months 

of the year when milk production in the 

areas is not sufficient to meet Class I 

demands. The transportation credit 

provisions provide payments to 

handlers and cooperative associations in 

their capacity as handlers to cover some 

of the costs of importing supplemental 

milk supplies into the Appalachian and 

Southeast marketing areas during the 

short production months of July through 

December. The provisions also are 

designed to limit the ability of 

producers who are not normally pooled 

on these orders from pooling their milk 

on the Appalachian and Southeast 

orders during the flush production 

months when such milk is not needed 

to supply fluid needs. 

While Federal milk order reform 

made modifications to certain features 

of the transportation credit fund 

provisions of the Appalachian and 

Southeast orders, the maximum 

assessment rate at which payments are 

collected was not modified. The current 

maximum rate of $0.065 per cwt for the 

Appalachian order has been sufficient to 

meet most of the claims made by 

handlers applying for transportation 

credit. The record reveals that since 

implementation of milk order reform in 

January 2000, the Market Administrator 

for the Appalachian order waived 

assessing handlers in at least two 

months of each year from 2001 through 

2003. 

For the current Southeast order, the 

current maximum transportation credit 

rate of $0.07 per cwt has not been 

sufficient to cover hauling cost claims 

by handlers. As a result, the Market 

Administrator of the Southeast order 

has prorated payments from the 

transportation credit balancing fund 

since 2001. 

Even though this decision does not 

adopt the merger of the current 

Southeast and Appalachian marketing 

areas, the fundamental purpose of the 

transportation credit fund provisions of 

the orders are strongly supported by the 

proponent cooperatives. This support is 

independent of providing for a new and 

larger Southeast milk marketing order. 

An increase in the maximum 

transportation credit assessment rate for 

the Appalachian and Southeast orders is 

warranted on the basis of declining milk 

production within the Appalachian and 

Southeast marketing areas. For example, 

the final decision of Federal milk order 

reform anticipated that about two-thirds 

of the milk supply for the Appalachian 

order would be produced within the 

marketing area, with supplemental milk 

supplies from unregulated areas to the 

north in Virginia and Pennsylvania 

(based on 1997 data). Since 

implementation of Federal order reform 

in January 2000, record evidence reveals 

that only 50 percent of the Appalachian 

milk supply is produced within the 

marketing area. The trend of lower inarea milk production strongly suggests 

that the anticipated future needs of 

relying on milk supplies from outside 

the marketing area will only grow and 

that steps should be taken to assure a 

continuing adequate supply of milk for 

handlers servicing the marketing area. 

An increase in the Appalachian order 

maximum transportation credit 

assessment rate is a means of assuring 

and adequate milk supply for fluid use 

for the area. The Southeast marketing 

area exhibits the same trend. 

To the extent that assessments are not 

needed to meet expected transportation 

credit claims, this decision adopts 

provisions that provide discretionary 

authority to the Market Administrator to 

set the assessment rate at a level deemed 

sufficient or to waive assessments. 

Additionally, the transportation credit 

provisions of the Appalachian and 

Southeast orders prevent the 

accumulation of funds beyond actual 

handler claims. In this regard, 

increasing the transportation credit rate 

will not result in an unwarranted 

accumulation of funds beyond what is 

needed to pay handler claims. 

As part of the proposed merged 

marketing areas and orders, the 

proponent cooperatives’ witness 

proposed that any producer that is 

located outside of the marketing area 

would be eligible for transportation 

credits if that producer did not pool 

more than 50 percent of the producer’s 

own milk production during the months 

of March and April. The witness 

testified that the Market Administrator 

should also be given the discretionary 

authority to adjust the 50 percent limit 

based on the prevailing supply and 

demand conditions for milk in the area. 

The current transportation credit 

provisions of the Appalachian and 

Southeast orders specify that 

transportation credits will apply to the 

milk of a dairy farmer who was not a 

‘‘producer’’ under the order during more 

than 2 of the immediately preceding 

months of February through May, and 

not more than 50 percent of the 

production of the dairy farmer during 

those two months, in aggregate, was 

received as producer milk under the 

orders during those two months. These 

provisions provide the basis for 

determining the milk of a dairy farmer 

that is truly supplemental to the 

market’s fluid needs. The provision 

specifies the months of February 

through May—the period when milk 

production is greatest—as the months 

55474 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

used to determine the eligibility of a 

producer whose milk is needed on the 

market. 

The Market Administrators of the 

orders should be given discretionary 

authority to adjust the 50 percent 

eligibility standard for producer milk 

receiving transportation credits based 

on the prevailing marketing conditions 

within the marketing area. The Market 

Administrator should have the authority 

to increase or decrease this requirement 

because it is consistent with authorities 

already provided for supply plant 

performance standards and diversion 

limit standards. Accordingly, the 

proposed change to the transportation 

credit provisions of the Appalachian 

and Southeast orders is recommended 

for adoption. 

This decision does not recommend 

changing the period the milk of a dairy 

farmer is not allowed to be associated 

with the market for such dairy farmer’s 

milk to be eligible for transportation 

credits. If the months were modified 

from February through May to March 

and April, the definition of 

supplemental milk under the 

transportation credit provisions would 

effectively change. Supplemental milk 

for purposes of determining the 

eligibility of transportation credits is 

that milk that is not regularly associated 

with the market. The proposed change 

would allow supplemental milk to be 

delivered to a pool plant all twelve 

months, potentially lowering the 

uniform price during those high 

production months by pooling 

additional milk when is not needed for 

fluid use. 

By retaining the months of February 

through May and allowing the Market 

Administrators of the Appalachian and 

Southeast orders to adjust the 50 

percent production standard, the 

current definition of supplemental milk 

remains intact. The orders’ Market 

Administrator would be allowed to 

increase or decrease the 50 percent 

production standard, if warranted, 

based on current marketing conditions. 

2. Promulgation of a New ‘‘Mississippi 

Valley’’ Milk Order 

A proposal, published in the hearing 

notice as Proposal 5, seeking to split 

from the current Southeast marketing 

area and forming a new Mississippi 

Valley milk marketing area and order 

was not proposed for adoption in the 

partial recommended decision and is 

not adopted in this final decision. 

A witness appearing on behalf of 

Dean Foods and Prairie Farms testified 

in support of Proposal 5. In splitting the 

current Southeast marketing area, a new 

marketing area, to be named the 

Mississippi Valley order, would include 

the area of the existing Southeast 

marketing area west of the AlabamaMississippi borderline including the 

States of Mississippi, Louisiana, 

Arkansas. According to the witness, this 

new marketing area would extend 

northward through the relevant portions 

of Tennessee and Kentucky, and would 

include southern Missouri. The second 

order, according to the witness, would 

consist of the remainder of the current 

Southeast marketing area, i.e., Georgia, 

a portion of the western panhandle of 

Florida, and Alabama. 

The Dean Foods-Prairie Farms 

witness, and others supporting the 

adoption of Proposal 5, asserted that 

increasing the number of Federal milk 

marketing areas and orders would 

provide the economic incentives for 

more efficient movement of milk and 

increase the blend price received by 

producers who supply the needs of the 

Class I market. According to the 

witnesses, splitting the Southeast order 

into two orders would reduce 

transportation costs and improve the 

efficient operation of the transportation 

credit balancing fund in each proposed 

new marketing area by more efficiently 

attracting milk to the Class I market and 

decreasing the need for hauling milk 

from longer distances. 

The Dean Foods-Prairie Farms 

witness testified that there are two 

major incentives to ship milk to 

distributing plants—the blend price 

paid by pool distributing plants and the 

blend price paid for diverted milk. 

According to the witness, there are two 

disincentives to ship milk to a pool 

distributing plant under any order—the 

net transportation cost of shipping milk 

and the alternative blend prices in other 

markets that may attract milk to plants 

in those other markets. The witnesses 

cited milk deficit areas in southern 

Illinois and St. Louis, Missouri, as 

examples of areas where, in the opinion 

of the witnesses, blend price differences 

result in a failure to attract enough milk 

to adequately serve the Class I market. 

The witness asserted that the 

establishment of a Mississippi Valley 

order would likely result in blend price 

differences between the new areas 

which would provide producers the 

economic incentives of receiving higher 

blend prices while incurring lower 

transportation costs. 

The Dean Foods-Prairie Farms 

witness testified that a national hearing 

may be justified to more fully consider 

the border, pricing, and milk deficit 

issues and alternatives to proposals (like 

Proposals 1 and 5) advanced to merge or 

to split the Southeast marketing area. 

According to the witness, when 

marketing area borders are changed, 

such change affects all marketing areas 

in the Federal order milk order system. 

The witness was of the opinion that 

considering border issues would 

necessarily require a broad rethinking of 

the marketing areas of the entire Federal 

order program and that a national 

hearing may be the most appropriate 

venue to consider these affects. 

A witness for GMP testified that the 

expansions of the Southeast marketing 

area prior to Federal milk order reform, 

and as a result of Federal order reform, 

have successively reduced income to 

Georgia producers. The witness 

explained that the expansions of the 

marketing area have discouraged local 

milk production and encouraged 

movements of milk from outside the 

marketing area. According to the 

witness, the declining ability of local 

production to meet the Class I needs of 

the market, and the increased balancing 

requirements of an expanded marketing 

area, have increased costs while 

reducing revenues to Georgia dairy 

farmers. 

In the opinion of the GMP witness, 

the establishment of a separate 

Mississippi Valley marketing area and 

order and a smaller Southeast marketing 

area would have positive benefits for 

Georgia milk producers. The witness 

explained that as a smaller Southeast 

marketing area, the Georgia market 

would likely experience lower 

balancing costs and expanded local 

production to meet the growing Class I 

needs of the market. 

A witness for proponents of Proposal 

1 testified in opposition to adopting a 

new Mississippi Valley marketing area 

by splitting it from the current 

Southeast marketing area. According to 

the witness, the proposed new 

marketing area would not lead to lower 

transportation costs but instead may 

lead to increased administrative 

difficulties with transportation credit 

balancing funds. The witness was of the 

opinion that blend price enhancement 

for the proposed smaller Southeast 

marketing area would be achieved at the 

expense of producers pooled on the 

proposed new Mississippi Valley order. 

The opposition witness was of the 

opinion that blend prices for the 

proposed smaller Southeast marketing 

area may increase to levels that would 

exacerbate differences between the 

blend prices of the new smaller 

Southeast and the Appalachian order 

and may give rise to unintended market 

disruptions. The witness was of the 

opinion that a smaller Southeast 

marketing area and order also may 

result in administrative difficulties in 

the operation of transportation credit 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55475 

balancing funds among the three orders 

and may lead to the inefficient 

movements of milk. The witness 

expressed the opinion that splitting the 

Southeast marketing area would not 

address the concerns that proponents of 

Proposal 1 have raised regarding 

overlapping sales and inefficient milk 

movement issues between the 

Appalachian and Southeast marketing 

areas. The witness indicated that these 

issues would remain unresolved if the 

Southeast marketing area was split and 

if the Southeast and Appalachian 

marketing areas were not merged. 

A post hearing brief by the 

proponents of Proposal 5 reiterated their 

position that creating more, rather than 

fewer, blend price differences will 

provide incentives to ship milk to 

markets where the milk is demanded. In 

addition, the brief reiterated that 

splitting the Southeast marketing area 

will reduce transportation costs and 

result in more efficient movement of 

milk in a smaller Southeast marketing 

area and a Mississippi Valley marketing 

area. The brief also called for the 

including the Kentucky counties of 

Ballard, Calloway, Carlisle, Fulton, 

Graves, Hickman, Marshall, and 

McCracken into the smaller Southeast 

order if Proposal 5 is adopted. 

Southern Marketing Agency, Inc., and 

Dairy Farmers of America, Inc. (DFA), 

filed comments to the partial 

recommended decision supporting the 

denial of the proposed split of the 

Southeast order marketing area. DFA 

stated that for proponents of the 

proposed order merger adoption of 

Proposal 5 would have exacerbated their 

milk supply issues—made it more 

expensive to service the markets—and 

would have been of no corresponding 

benefit to milk suppliers. 

The proposal to split the current 

Southeast marketing area hinges on the 

assertions that geographically smaller 

marketing areas tend to reduce 

transportation and balancing costs and 

increase blend prices for pooled 

producers in each of the newly defined 

marketing areas. The record does not 

contain specific evidence to support 

these conclusions. The record lacks 

evidence to support concluding that the 

adoption of Proposal 5 would lower 

transportation costs, increase local milk 

production, and reduce balancing costs. 

The same is true for concluding that 

local milk production would be 

encouraged and increased to the extent 

that transportation expenses, and the 

need for continued transportation credit 

fund payments, would be significantly 

reduced while bringing forth a sufficient 

supply of milk to meet the Class I needs 

of the proposed marketing areas. 

Opponents of Proposal 5 argued that 

blend price increases from splitting the 

Southeast marketing area may not occur 

and that lower transportation cost may 

not be realized. 

This decision does not adopt Proposal 

5. The record is insufficient in 

demonstrating the marketing 

efficiencies advanced by the 

proponents. 

3. Eliminating the Simultaneous Pooling 

of the Same Milk on a Federal Milk 

Order and a State-Operated Milk Order 

That Provides for Marketwide Pooling 

A proposal, published in the hearing 

notice as Proposal 6, seeking to prohibit 

the simultaneous pooling of the same 

milk on the Appalachian or Southeast 

milk marketing orders and on a Stateoperated order that provides for the 

marketwide pooling of milk is adopted 

in this partial final decision. Currently, 

neither the Appalachian or Southeast 

orders have a provision that would 

prevent the simultaneous pooling of the 

same milk on the order and on a Stateoperated order that provides for 

marketwide pooling. 

The proponents of Proposal 6, Deans 

Foods and Prairie Farms testified that 

the simultaneous pooling of milk on 

more than one marketing order was 

prohibited between all Federal milk 

orders. According to the Dean FoodPrairie Farms’ witnesses, a loophole was 

inadvertently created during the 

consolidation of Federal orders 

permitting double pooling of the same 

milk on a Federal milk marketing order 

and on a State-operated order that, like 

a Federal order, provides for the 

marketwide pooling of producer milk. 

(The double pooling of milk has become 

known as ‘‘double dipping.’’) 

According to the Dean Foods/Prairie 

Farms’’ witnesses, this loophole has 

been exploited for financial gain by 

some parties at the expense of pooled 

producers in other Federal orders until 

prohibited by subsequent milk order 

amendments. The proponents testified 

that proposals similar to Proposal 6 

have been adopted in the Upper 

Midwest, Pacific Northwest, and Central 

Federal milk orders. 

Proponents testified that prohibition 

of double dipping in the Southeast and 

Appalachian orders would close a 

potential loophole in these orders or in 

a successor order if these orders were 

merged. The witnesses testified that the 

pooling of milk regulated by Virginia 

and Pennsylvania milk programs would 

not be affected by the prohibition of 

double pooling. According to the 

witnesses, milk that is pooled on these 

State milk programs does not receive 

extraordinary benefits that would have 

an impact on Federal milk order pools. 

No opposition testimony was presented. 

Dairy Farmers of America, Inc., 

Maryland and Virginia Milk Producers 

Cooperative Association, Inc. (MD&VA), 

and Arkansas Dairy Cooperative 

Association, Inc. (ADCA), filed 

comments to the partial recommended 

decision supporting findings to 

eliminate the simultaneous pooling of 

the same milk on the Appalachian and 

Southeast milk order and a Stateoperated order that provides 

marketwide pooling. 

MD&VA and ADCA noted that the 

hearing record indicates that the 

Virginia State Milk Commission does 

not operate a producer revenue pool. 

Accordingly, the cooperatives asserted, 

the proposed amendments that would 

eliminate the pooling of milk under the 

Appalachian or Southeast orders of a 

dairy farmer that shares simultaneously 

in the revenues of a State-operated 

marketwide pool must not pertain to 

Virginia Milk Commission Base-holder 

dairy farmers. 

According to MD&VA and ADCA, the 

ability for milk to be simultaneously 

pooled on a State-operated marketwide 

pool and a Federal order pool violates 

the premises established for the pooling 

of milk. The cooperatives stated milk 

may serve one market only at a time, 

and thus, must not be allowed to be 

pooled on multiple pools at one time. 

They noted that recommended and final 

decisions for other orders rightfully 

implemented amendments to prohibit 

the simultaneously pooling of milk on 

multiple orders, and assert that the 

Appalachian and Southeast orders 

should be amended likewise. 

Since the 1960s the Federal milk 

order program has recognized the harm 

and disorder that resulted to both 

producers and handlers when the same 

milk of a producer was simultaneously 

pooled on more than one Federal order. 

When this occurs, producers do not 

receive uniform minimum prices, and 

some handlers receive unfair 

competitive advantages. The need to 

prevent ‘‘double pooling’’ became 

critically important as distribution areas 

expanded, orders merged, and a 

national pricing system was adopted. 

Milk already pooled under a Stateoperated program and able to 

simultaneously be pooled under a 

Federal order creates the same 

undesirable outcomes that allowing 

milk to be pooled on two Federal orders 

used to cause and subsequently 

corrected. 

There are other State-operated milk 

order programs that provide for 

marketwide pooling. For example, New 

York operates a milk order program for 

55476 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

the western region of that State. A key 

feature explaining why this Stateoperated program has operated for years 

alongside the Federal milk order 

program is the provision in the State 

pool that excludes milk from the State 

pool when the same milk is already 

pooled under a Federal order. Other 

States with marketwide pooling 

similarly do not allow double-pooling of 

Federal order milk. 

The record supports that the 

Appalachian, Southeast, and possible 

successor orders should be amended to 

preclude the ability to simultaneously 

pool the same milk on the order if the 

milk is already pooled on a Stateoperated order that provides for 

marketwide pooling. Although no 

record evidence was presented 

illustrating or documenting current 

double pooling of milk in the 

Appalachian and Southeast orders, the 

adoption of Proposal 6 offers a 

reasonable solution for prohibiting the 

same milk to draw pool funds from 

Federal and State marketwide pools 

simultaneously. It is consistent with the 

current prohibition against allowing the 

same milk to participate simultaneously 

in more than one Federal order pool. 

Evidence presented at the hearing 

establishes that milk that can be pooled 

simultaneously on a State-operated 

order and a Federal order would render 

the Appalachian and Southeast milk 

orders unable to establish prices that are 

uniform to producers and to handlers. 

This shortcoming of the pooling 

provisions allows milk which was 

pooled on a State order to be pooled 

milk on a Federal order. Such milk 

therefore could not provide a reasonable 

or consistent service to meet the needs 

of the Class I market because it was 

committed to the State order. 

Adoption of Proposal 6 will not 

establish any barrier to the pooling of 

milk from any source that actually 

demonstrates performance in supplying 

the Appalachian and Southeast markets’

Class I needs. Accordingly, Proposal 6 is 

included as part of this partial final 

decision. 

4. Producer-Handler Provisions 

Proposals considered at the hearing 

regarding the regulatory status of 

producer-handlers will be addressed in 

a separate decision. 

Dairy Farmers of America, Inc. (DFA), 

filed a comment response to the partial 

recommended decision expressing 

disappointment in the lack of decision 

regarding the producer-handler issue 

and expects a decision on these 

provisions to be issued soon. 

As stated previously in this decision, 

Issue No. 4 regarding the producerhandler provisions of the Appalachian 

and Southeast orders will be addressed 

separately in a forthcoming decision. 

Requests for Expedited Issuance of 

Final Decision 

Comments submitted by Dairy 

Farmers of America, Inc., Maryland and 

Virginia Milk Producers Cooperative 

Association, Inc. (MD&VA), Arkansas 

Dairy Cooperative Association, Inc. 

(ADCA), and Southern Marketing 

Agency, Inc. (SMA), in response to the 

partial recommended decision 

requested the expedited issuance of a 

final decision on proposed amendments 

contained in the partial recommended 

decision. 

Conforming Change 

This decision amends the 

Appalachian and Southeast orders to 

appropriately reference the Deputy 

Administrator of Dairy Programs to 

reflect changes in a position and 

program name within the Agricultural 

Marketing Service. 

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 Appalachian 

and Southeast 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 

agreements and the 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 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 tentative marketing 

agreements and the orders, as hereby 

proposed to be amended, will regulate 

the handling of milk in the same 

manner as, and will be applicable only 

to persons in the respective classes of 

industrial and commercial activity 

specified in, the marketing agreements 

upon which a hearing has been held; 

and 

(d) All milk and milk products 

handled by handlers, as defined in the 

tentative marketing agreement and the 

order for Appalachian marketing area, 

and hereby proposed to be amended, are 

in the current of interstate commerce or 

directly burden, obstruct, or affect 

interstate commerce in milk or its 

products. 

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, and an Order amending the order 

regulating the handling of milk in the 

Appalachian and Southeast marketing 

areas, 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. 

Determination of Producer Approval 

and Representative Period 

June 2005 is hereby determined to be 

the representative period for the 

purpose of ascertaining whether the 

issuance of the orders, as amended and 

as hereby proposed to be amended, 

regulating the handling of milk in the 

Appalachian, and Southeast marketing 

areas is approved or favored by 

producers, as defined under the terms of 

the orders (as amended and as hereby 

proposed to be amended), who during 

Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55477 

such representative period were 

engaged in the production of milk for 

sale within the aforesaid marketing 

areas. 

List of Subjects in 7 CFR Parts 1005 and 

1007 

Milk marketing orders. 

Dated: September 15, 2005. 

Lloyd C. Day, 

Administrator, Agricultural Marketing 

Service. 

Order Amending the Order Regulating 

the Handling of Milk in the 

Appalachian and Southeast Marketing 

Areas 

(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 Appalachian 

and Southeast 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, marketing agreements upon 

which a hearing has been held; and 

(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. 

Order Relative to Handling 

It is therefore ordered, that on and 

after the effective date hereof, the 

handling of milk in the Appalachian 

and Southeast marketing areas shall be 

in conformity to and in compliance with 

the terms and conditions of the orders, 

as amended, and as hereby amended, as 

follows: 

The provisions of the proposed 

marketing agreements and orders 

amending each of the specified orders 

contained in the Recommended 

Decision issued by the Administrator, 

Agricultural Marketing Service, on May 

13, 2005, and published in the Federal 

Register on May 20, 2005 (70 FR 29410), 

shall be and are the terms and 

provisions of this order, amending the 

orders, and are set forth in full herein. 

PART 1005—MILK IN THE 

APPALACHIAN MARKETING AREA 

1. The authority citation for 7 CFR 

part 1005 continues to read as follows: 

Authority: 7 U.S.C. 601–674. 

2. Section 1005.2 is amended by 

revising the Virginia counties and cities 

to read as follows: 

§ 1005.2 Appalachian marketing area. 

* * * * * 

Virginia Counties and Cities 

Alleghany, Amherst, Augusta, Bath, 

Bedford, Bland, Botetourt, Buchanan, 

Campbell, Carroll, Craig, Dickenson, 

Floyd, Franklin, Giles, Grayson, Henry, 

Highland, Lee, Montgomery, Patrick, 

Pittsylvania, Pulaski, Roanoke, 

Rockbridge, Rockingham, Russell, Scott, 

Smyth, Tazewell, Washington, Wise, 

and Wythe; and the cities of Bedford, 

Bristol, Buena Vista, Clifton Forge, 

Covington, Danville, Galax, 

Harrisonburg, Lexington, Lynchburg, 

Martinsville, Norton, Radford, Roanoke, 

Salem, Staunton, and Waynesboro. 

* * * * * 

3. Section 1005.13 is amended by 

revising the introductory text and 

adding a new paragraph (e) to read as 

follows: 

§ 1005.13 Producer milk. 

Except as provided for in paragraph 

(e) of this section, Producer milk means 

the skim milk (or the skim equivalent of 

components of skim milk) and butterfat 

contained in milk of a producer that is: 

* * * * * 

(e) Producer milk shall not include 

milk of a producer that is subject to 

inclusion and participation in a 

marketwide equalization pool under a 

milk classification and pricing program 

imposed under the authority of a State 

government maintaining marketwide 

pooling of returns. 

* * * * * 

§ 1005.81 [Amended] 

4. In § 1005.81(a), remove ‘‘$0.065’’

and add, in its place, ‘‘$0.095’’. 

§ 1005.82 [Amended] 

5. In § 1005.82, paragraph (b) is 

amended by removing the words 

‘‘Director of the Dairy Division’’ and 

adding, in their place, the words 

‘‘Deputy Administrator of Dairy 

Programs’’ and adding a new paragraph 

(c)(2)(iv) to read as follows: 

§ 1005.82 Payments from the 

transportation credit balancing fund. 

* * * * * 

(c) * * * 

(2) * * * 

(iv) The market administrator may 

increase or decrease the milk 

production standard specified in 

paragraph (c)(2)(ii) of this section if 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 either on the market 

administrator’s own initiative or at the 

request of interested persons. 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 at least one day before the 

effective date. 

* * * * * 

PART 1007—MILK IN THE SOUTHEAST 

MARKETING AREA 

6. The authority citation for part 1007 

continues to read as follows: 

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

7. Section 1007.13 is amended by 

revising the introductory text and 

adding a new paragraph (e) to read as 

follows: 

55478 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 

1First and last sections of order. 

2Appropriate Part number. 

3Next consecutive section number. 4Appropriate representative period for the order. 

§ 1007.13 Producer milk. 

Except as provided for in paragraph 

(e) of this section, Producer milk means 

the skim milk (or the skim equivalent of 

components of skim milk) and butterfat 

contained in milk of a producer that is: 

* * * * * 

(e) Producer milk shall not include 

milk of a producer that is subject to 

inclusion and participation in a 

marketwide equalization pool under a 

milk classification and pricing program 

imposed under the authority of a State 

government maintaining marketwide 

pooling of returns. 

* * * * * 

§ 1007.81 [Amended] 

8. In § 1007.81(a), remove ‘‘$0.07’’ and 

add, in its place, ‘‘$0.10’’. 

§ 1007.82 [Amended] 

9. In § 1007.82, paragraph (b) is 

amended by removing the words 

‘‘Director of the Dairy Division’’ and 

adding, in their place, the words 

‘‘Deputy Administrator of Dairy 

Programs’’ and adding a new paragraph 

(c)(2)(iv) to read as follows: 

§ 1007.82 Payments from the 

transportation credit balancing fund. 

* * * * * 

(c) * * * 

(2) * * * 

(iv) The market administrator may 

increase or decrease the milk 

production standard specified in 

paragraph (c)(2)(ii) of this section if 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 either on the market 

administrator’s own initiative or at the 

request of interested persons. 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 at least one day before the 

effective date. 

* * * * * 

[This marketing agreement will not appear in 

the Code of Federal Regulations] 

Marketing Agreement Regulating the 

Handling of Milk in Certain Marketing 

Areas 

The parties hereto, in order to 

effectuate the declared policy of the Act, 

and in accordance with the rules of 

practice and procedure effective 

thereunder (7 CFR part 900), desire to 

enter into this marketing agreement and 

do hereby agree that the provisions 

referred to in paragraph I hereof as 

augmented by the provisions specified 

in paragraph II hereof, shall be and are 

the provisions of this marketing 

agreement as if set out in full herein. 

I. The findings and determinations, 

order relative to handling, and the 

provisions of §§ lllll1 to, all 

inclusive, of the order regulating the 

handling of milk in the (lllName of 

orderlll) marketing area (7 CFR 

PART lll2) which is annexed hereto; 

and 

II. The following provisions: 

§ lllll3 Record of milk handled 

and authorization to correct 

typographical errors. 

(a) Record of milk handled. The 

undersigned certifies that he/she 

handled during the month of 

lllll4, hundredweight of milk 

covered by this marketing agreement. 

(b) Authorization to correct 

typographical errors. The undersigned 

hereby authorizes the Deputy 

Administrator, or Acting Deputy 

Administrator, Dairy Programs, 

Agricultural Marketing Service, to 

correct any typographical errors which 

may have been made in this marketing 

agreement. 

§ lllll3 Effective date. This 

marketing agreement shall become 

effective upon the execution of a 

counterpart hereof by the Secretary in 

accordance with Section 900.14(a) of the 

aforesaid rules of practice and 

procedure. 

In Witness Whereof, The contracting 

handlers, acting under the provisions of 

the Act, for the purposes and subject to 

the limitations herein contained and not 

otherwise, have hereunto set their 

respective hands and seals. 

Signature 

By (Name) llllllllll 

(Title) llllllllll 

(Address) llllllllll 

(Seal) 

Attest 

[FR Doc. 05–18758 Filed 9–20–05; 8:45 am] 

BILLING CODE 3410–02–P