[Federal Register Volume 60, Number 248 (Wednesday, December 27, 1995)]
[Proposed Rules]
[Pages 66929-66936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31272]



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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 60, No. 248 / Wednesday, December 27, 1995 / 
Proposed Rules

[[Page 66929]]


DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1007

[Docket No. AO-366-A37; AO-388-A9, et al.; DA-95-22]


Milk in the Carolina and Certain Other Marketing Areas; 
Recommended Decision and Opportunity to File Written Exceptions on 
Proposed Amendments to Marketing Agreements and Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This document recommends adoption of proposed amendments that 
would modify certain location adjustments under the Southeast Federal 
milk marketing order. The recommended decision denies a proposal to 
provide a fluid milk surcharge during the period of November 1995 
through March 1996 and a transportation credit on bulk milk purchased 
for 6 Federal milk orders in the Southeastern United States. The 
recommendations are based on the record of a public hearing held in 
Atlanta, Georgia, on September 19, 1995.

DATES: Comments are due on or before January 26, 1996.

ADDRESSES: Comments (four copies) should be filed with the Hearing 
Clerk, Room 1083, South Building, United States Department of 
Agriculture, Washington, DC 20250.

FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist, 
Order Formulation Branch, USDA/AMS/Dairy Division, Room 2971, South 
Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1932.

SUPPLEMENTARY INFORMATION: This administrative action is governed by 
the provisions of sections 556 and 557 of Title 5 of the United States 
Code and, therefore, is excluded from the requirements of Executive 
Order 12866.
    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires the 
Agency to examine the impact of a proposed rule on small entities. 
Pursuant to 5 U.S.C. 605(b), the Administrator of the Agricultural 
Marketing Service has certified that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
The proposed amendments would promote orderly marketing of milk by 
producers and regulated handlers.
    The amendments to the rules proposed herein have been reviewed 
under Executive Order 12778, Civil Justice Reform. They are not 
intended to have a retroactive effect. If adopted, the proposed 
amendments would not preempt any state or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674), provides that administrative proceedings must be 
exhausted before parties may file suit in court. Under section 
608c(15)(A) of the Act, any handler subject to an order may file with 
the Secretary a petition stating that the order, any provision of the 
order, or any obligation imposed in connection with the order is not in 
accordance with the law and requesting a modification of an order or to 
be exempted from the order. A handler is afforded the opportunity for a 
hearing on the petition. After a hearing, the Secretary would rule on 
the petition. The Act provides that the district court of the United 
States in any district in which the handler is an inhabitant, or has 
its principal place of business, has jurisdiction in equity to review 
the Secretary's ruling on the petition, provided a bill in equity is 
filed not later than 20 days after the date of the entry of the ruling.

Prior Documents in This Proceeding:

    Notice of Hearing: Issued August 11, 1995; published August 17, 
1995 (60 FR 42815).
    Supplemental Notice of Hearing: Issued September 8, 1995; published 
September 13, 1995 (60 FR 47495).

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
recommended decision with respect to proposed amendments to the 
tentative marketing agreements and the orders regulating the handling 
of milk in the 7 Federal milk marketing areas in the Southeastern 
United States. This notice is issued pursuant to the provisions of the 
Agricultural Marketing Agreement Act and the applicable rules of 
practice and procedure governing the formulation of marketing 
agreements and marketing orders (7 CFR Part 900).
    Interested parties may file written exceptions to this decision 
with the Hearing Clerk, U.S. Department of Agriculture, Washington, DC 
20250, by the 30th day after publication of this decision in the 
Federal Register. Four copies of the exceptions should be filed. All 
written submissions made pursuant to this notice will be made available 
for public inspection at the office of the Hearing Clerk during regular 
business hours (7 CFR 1.27(b)).
    The proposed amendments set forth below are based on the record of 
a public hearing held at Atlanta, Georgia, on September 19, 1995, 
pursuant to a notice of hearing issued August 11, 1995 (60 FR 42815), 
and a supplemental notice of hearing issued September 8, 1995 (60 FR 
47495).
    The material issues on the record of the hearing relate to:
    1. Whether the location adjustment at Hammond, Louisiana, should be 
increased by 7 cents under Order 7.
    2. Whether the location adjustment at Mobile, Alabama, should be 
reduced by 7 cents under Order 7.
    3. Whether a transportation credit for supplemental milk should be 
adopted for Orders 5, 6, 7, 11, 12 and 13.<SUP>1

    \1\ The Louisville-Lexington-Evansville order was dropped from 
Proposals 4 and 5, as contained in the hearing notice, at the 
hearing.
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    4. Whether a fluid milk surcharge should be provided on a temporary 
basis for Orders 5, 6, 7, 11, 12, and 13.
    5. Whether emergency marketing conditions in the 6 regulated areas 
warrant the omission of a recommended decision and the opportunity to 
file written exceptions thereto.

Findings and Conclusions

    The following findings and conclusions on the material issues are 
based on evidence presented at the hearing and the record thereof:

1. Whether the Location Adjustment at Hammond, Louisiana, Should be 
Increased by 7 Cents Under Order 7

    The location adjustment in the portion of Tangipahoa Parish, 

[[Page 66930]]
    Louisiana, south of State Highway 16, should be increased from plus 50 
cents to plus 57 cents. The 7-cent price increase applies to both Class 
I prices applicable to handlers and blend prices applicable to 
producers. However, for the sake of simplicity, the price increase is 
discussed in terms of the Class I differential.
    The vice-president of fluid milk marketing and economic analysis 
for Mid-America Dairymen, Inc. (Mid-Am), proposed the 7-cent higher 
location adjustment at Hammond, Louisiana, which is located in the 
southern portion of Tangipahoa Parish. He stated that the 7-cent 
location adjustment increase would provide a $3.65 Class I differential 
price at Hammond, the same price applicable at Baton Rouge and New 
Orleans.
    The representative explained that Mid-Am is a cooperative owned by 
approximately 18,000 dairy farmers and a major supplier of distributing 
plants pooled on the Southeast Federal milk marketing order (Order 7). 
He testified that in southeast Louisiana Mid-Am has a full supply 
agreement with 5 of the 6 plants in the New Orleans/Baton Rouge/Hammond 
area and a partial supply agreement with the 6th plant. In August 1995, 
he indicated, Mid-Am represented 55.9 percent of both the Class I sales 
and total producer milk pooled on Order 7.
    The Mid-Am representative stated that the final decision for the 
Southeast order that was issued on May 3, 1995 (60 FR 25014), 
established a price of $3.58 at Hammond and a price of $3.65 at Baton 
Rouge and New Orleans, Louisiana. The representative argued that the 7-
cent difference in price provides a competitive sales advantage to the 
plant located in Hammond while its ability to procure milk is no 
different than plants located in Baton Rouge.
    According to the Mid-Am representative, the milk supply for plants 
in Hammond and Baton Rouge comes from direct-ship milk produced in 
Louisiana's ``Florida parishes'' (i.e., Tangipahoa, Washington, St. 
Tammany, St. Helena, Livingston, East Feliciana, and East Baton Rouge). 
He contended that the 7-cent lower price at Hammond is not justified 
since the per hundredweight rate paid to local milk haulers who deliver 
milk to Baton Rouge and Hammond is the same. He elaborated further that 
the rate per hundredweight that is charged producers in the Florida 
parishes is the same whether the producer's milk is delivered to 
Hammond or Baton Rouge or even New Orleans. Thus, he asserted, 
competing handlers in the New Orleans/Hammond/Baton Rouge area should 
have the same Class I differential price because the cost of procuring 
milk at each of these locations is the same.
    The assistant operations manager for Fleming Dairy, which operates 
two distributing plants in the Southern United States, testified in 
support of the proposal to equalize Class I prices adjusted for 
location at Hammond, Baton Rouge, and New Orleans, Louisiana. 
Alternatively, the witness stated, Fleming would support a 7-cent price 
reduction at Baton Rouge and New Orleans, which also would equalize the 
Class I differential prices at these locations. He testified that equal 
and uniform Class I differential prices are justified for these 
locations for competitive reasons.
    The Fleming witness indicated that 100 percent of the raw milk 
supply delivered to its distributing plant in Baker, Louisiana,<SUP>2 
is produced by dairy farmers located within 45 miles of the plant. He 
stated that a higher Class I price at one location compared to another 
suggests a greater shortage or need to attract milk from distant supply 
areas. However, the witness indicated, southern Louisiana has an 
abundant supply of milk available and has had to regularly transfer 
milk to Florida during short production months to supplement Florida's 
raw milk requirements. Additionally, he argued, handlers located in 
Hammond should not have a competitive advantage over Baton Rouge 
handlers because both locations are approximately the same distance to 
New Orleans, the primary population center of southern Louisiana.

    \2\ Baker is 10 miles north of Baton Rouge. Both Baker and Baton 
Rouge are in East Baton Rouge Parish, which is within Zone 12 of the 
marketing area.
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    According to the Fleming witness, the Secretary's Final Decision 
issued May 3, 1995, justifying the lower price in Hammond compared to 
Baton Rouge or New Orleans was based on mistaken conclusions of facts 
and miscommunications within the newly enlarged cooperative association 
(Mid-Am). The witness also stated that marketing conditions in the 
Southern United States have changed since the merger hearing was held 
in 1993. He explained that a single farmer-owned cooperative now 
controls the milk supply for southern Louisiana, as opposed to three or 
four competing cooperatives which previously supplied this area. 
Accordingly, he agreed with Mid-Am that the difference in price for 
these locations is not justified because there is no freight difference 
in supplying New Orleans, Hammond, and Baton Rouge with raw milk. Thus, 
he urged the Secretary to correct the price disparity at Hammond 
immediately.
    Fleming reiterated support for the 7-cent location adjustment 
increase at Hammond, Louisiana, in its post-hearing brief. Gold Star 
Dairy, Inc. (Gold Star), Little Rock, Arkansas, also supported the 
proposed 7-cent location adjustment increase at Hammond in a post-
hearing brief. Gold Star stated that the 7-cent increase will correct 
an unintended inequity problem in the Southeast order. There was no 
opposition to the proposed increase at the hearing or in post-hearing 
briefs.
    The proposed 7-cent higher location adjustment in the southern 
portion of Tangipahoa Parish should be adopted to provide the same 
prices at pool distributing plants located at Hammond and Baton Rouge, 
Louisiana. These plants are located within a major production area of 
the market and procure their milk supplies from the same nearby farms. 
As a result, the rates paid to haulers to transport milk to Hammond 
compared to Baton Rouge are the same because the mileage from 
producers' farms to the various plants is essentially the same. Thus, 
the value of producer milk delivered to Hammond should be no less than 
the value of such milk delivered to Baton Rouge. Therefore, the 
southern portion of Tangipahoa Parish should be moved to Zone 12, as 
proposed, to provide a 7-cent higher price at Hammond.

2. Whether the Location Adjustment at Mobile, Alabama, Should be 
Reduced by 7 Cents Under Order 7

    The location adjustment at Mobile, Alabama, should be reduced from 
plus 57 cents to plus 50 cents.
    A witness appearing on behalf of Barber Pure Milk Company (Barber) 
and Dairy Fresh Corporation (Dairy Fresh) proposed the 7-cent reduction 
in the location adjustment at Mobile, Alabama. The witness stated that 
Barber and Dairy Fresh operate pool distributing plants under Order 7. 
He said the Barber plant at Mobile and the Dairy Fresh plant at 
Prichard, Alabama, are located within 20 miles of the Mobile City Hall 
and handle approximately 8.5 to 9.5 million pounds of milk per month.
    The witness for Barber and Dairy Fresh contended that the Southeast 
order, which became effective July 1, 1995, established pricing zones 
that created cost inequities for the Barber Mobile plant and the Dairy 
Fresh Prichard plant with other Order 7 pool plant handlers. He argued 
that the final decision lowered the Class I price adjusted for location 
for Barber and Dairy Fresh competitors while the price at Mobile 
remained unchanged at $3.65. 

[[Page 66931]]
He claimed that the 7-cent difference is a substantial amount and that 
Barber and Dairy Fresh cannot continue to operate as viable business 
entities with the current pricing situation. The proposed $3.58 Class I 
differential price is the price applicable for most of Barber and Dairy 
Fresh's competitors and is sufficient to attract an adequate supply of 
milk to the Mobile area, he asserted.
    The Barber/Dairy Fresh witness also indicated that the market 
structure in the Southeastern United States had changed since the 
merger hearing was held in 1993. He stated that several plants had 
closed or changed ownership and that one new large state-of-the-art 
Class I plant had recently opened. Several cooperatives serving the 
Southeast marketing area at the time of the hearing have now joined 
Mid-Am, resulting in Mid-Am being the major supply organization in the 
market, he added.
    The witness explained that one key change that has occurred since 
the 1993 merger hearing is that Barber now receives its entire milk 
supply from Mid-Am and approximately 2.8 million pounds are for its 
Mobile plant. He added that Dairy Fresh purchases about 92 percent of 
its milk from nonmembers and the remainder from Mid-Am. The milk supply 
for both plants is from producers located in the same general area, he 
said, while the Class I distribution area of the Mobile and Prichard 
plants is primarily along the Gulf Coast stretching west from Mobile to 
Hancock County, Mississippi, east from Mobile to Tallahassee, Florida, 
and northeast from Mobile to Montgomery County, Alabama. The witness 
argued that the proposed price change is needed to equalize prices 
between Mobile-area handlers and handlers located in the Upper Florida 
order. He urged the Department to lower the location adjustment by 7 
cents at Mobile, Alabama, thus changing the location adjustment from a 
plus 57 cents to a plus 50 cents.
    A post-hearing brief filed on behalf of Barber and Dairy Fresh 
reiterated their support for the proposed 7-cent lower location 
adjustment. The brief pointed out that witnesses at the hearing 
testified that 7 cents per hundredweight is a significant amount for 
Class I milk. The handlers asserted that the adoption of the proposal 
would align the Mobile price with the price applicable in the northern 
portion of the Upper Florida order.
    At the hearing and in its post-hearing brief, Gold Star opposed the 
7-cent lower location adjustment at Mobile, Alabama, but presented no 
testimony or evidence to support its position. There was no other 
opposition testimony.
    The location adjustment at Mobile, Alabama, should be reduced by 7 
cents to provide a price of $3.58 by eliminating the Zone 12 island 
around Mobile in what is otherwise a Zone 11 region. The city of 
Mobile, Alabama, is within Mobile County, which is in Zone 11 of the 
Southeast order. Unlike the rest of Mobile County, the 20-mile radius 
area surrounding the city of Mobile is now part of Zone 12, which is 
priced 7 cents above Zone 11.
    The record of this hearing indicates that changes in procurement 
patterns have occurred since the 1993 hearing and that the original 
reason for placing the Mobile handlers in the 7-cent higher pricing 
zone--i.e., to insure the two Mobile handlers of an adequate supply of 
milk--is no longer an over-riding consideration. The record of this 
hearing indicates that the Barber plant at Mobile now has a full supply 
contract with Mid-America Dairymen, Inc., thereby eliminating any 
concern that the handler had about obtaining an adequate supply of 
milk.
    Although the Dairy Fresh plant at Prichard still receives a 
majority of its milk from nonmember producers, there was no testimony 
at the hearing from any cooperative association representative or any 
nonmember producer and no post-hearing briefs to indicate that the 
plant would not be able to maintain its milk supply with the proposed 
7-cent lower Class I price. Accordingly, it must be concluded that no 
valid purpose is served by pricing the Mobile area at its current $3.65 
Class I differential price. A 7-cent lower price at Mobile will 
properly align the prices at Mobile with the Florida panhandle, which 
has a Class I differential price of $3.58, as well as with counties 
directly east and west of Mobile, which are also priced at $3.58. Most 
importantly, the record indicated that the lower price at Mobile would 
not jeopardize the supply of milk at the Barber or Dairy Fresh plants.

3. Whether a Temporary Transportation Credit for Supplemental Milk 
Should be Adopted for Orders 5, 6, 7, 11, 12, and 13

    The proposed amendment to provide a transportation credit for bulk 
milk received by transfer from a plant regulated under another Federal 
order for Orders 5, 6, 7, 11, 12, and 13 during the period of July 1995 
through February 1996 should be denied. The cooperatives withdrew their 
pre-hearing request to amend the Louisville-Lexington-Evansville 
Federal milk marketing order.
    The transportation credit was proposed by the Dairy Cooperative 
Marketing Association, Inc. (DCMA), whose members include Arkansas 
Dairy Cooperative, Associated Milk Producers, Inc., Carolina-Virginia 
Milk Producers, Inc., Cooperative Milk Producers, Inc., Florida Dairy 
Farmers Association, Inc., Mid-America Dairymen, Inc., and Tampa 
Independent Dairy Farmers Association, Inc. These cooperatives 
represent the vast majority of milk pooled in the 6 marketing areas.
    A spokesman for DCMA testified that a shortage of milk in the 
Southeast has been brought about by lower prices, rising costs, and 
extreme weather conditions in most areas of the Southeast. According to 
the spokesman, many factors, including extreme heat and drought 
conditions, contributed to the decline in milk production in the 
Southeast. He indicated that milk production in Florida declined by 15 
percent or more during 1995. During August 1995, he noted, producer 
milk pooled on the 6 Federal milk orders was down approximately 15 
million pounds from volumes pooled during August 1994 in comparable 
Federal orders.
    The DCMA spokesman stated that the percentage of producer milk 
allocated to Class I under the 6 orders has increased, while total 
producer milk pooled under the orders has decreased. During July and 
August 1995, the spokesman indicated, the pounds of milk purchased as 
transfers from other Federal order plants exceeded 30 and 74 million, 
respectively.
    According to the witness, current milk production of producers 
pooled on the 6 southeastern orders will be insufficient to meet fluid 
requirements. He argued that the current Federal order minimum Class I 
price structure has not and will not attract an adequate supply of 
locally-produced milk. Some handlers and/or cooperatives, he 
complained, will incur the cost of obtaining needed supplemental 
supplies from distant marketing areas. Additionally, he claimed, those 
producers who are responsible for supplying the needs of the market 
will pay the cost of bringing in supplemental milk. This will result in 
such producers not receiving uniform prices for their milk, he said.
    The DCMA spokesman stated that the proposal would provide a 
temporary transportation credit to handlers who purchase supplemental 
milk allocated to Class I use from plants regulated under other Federal 
milk marketing orders. Milk received on a requested Class II or III 
basis or milk that is simply allocated to Class II or III would not 
receive the transportation credit, he 

[[Page 66932]]
said. He explained that the rate of the hauling credit would be 3.9 
cents per hundredweight per 10 miles, based on the distance between the 
shipping and receiving plants, less any positive difference between the 
Class I differential applicable at the receiving plant and the Class I 
differential applicable at the shipping plant. The rate of 3.9 cents 
per hundredweight per 10 miles is reflective of the actual cost of 
hauling milk, he claimed.
    The DCMA spokesman testified that the transportation credit should 
be made effective beginning July 1, 1995, and extend through February 
29, 1996. Applying the transportation credit retroactively is 
appropriate, he argued, because of the substantial amount of 
supplemental milk purchased during the months of July and August. 
However, he recommended that the amount of money deducted from the pool 
for transportation credits each month be limited to 150 percent of the 
funds generated by the proposed Class I price surcharge for the month. 
This approach would spread the price-reducing impact of the 
transportation credits over the proposed 7-month period. DCMA 
reiterated its position in a post-hearing brief.
    The marketing specialist of the Southern Region of Associated Milk 
Producers, Inc. (AMPI), testified in support of the DCMA's proposed 
transportation credits for emergency relief. According to the 
representative, AMPI's Southern Region represents approximately 3,000 
Grade A dairy farmers located throughout the Southwest United States, 
with the greatest concentration of milk production in Texas and New 
Mexico. He indicated that AMPI also now has a substantial quantity of 
producer milk marketed on the Southeast order each month that was 
associated with the former Central Arkansas Federal milk order (Order 
108).
    The AMPI representative stated that AMPI assisted in supplying 
supplemental milk to the Southeast during the extreme milk shortage. He 
testified that from August 23 through September 10 AMPI delivered 10 
loads of milk per day to Schepps Dairy, Dallas, Texas, to allow Mid-Am 
to reroute an equivalent amount of milk to southeastern handlers from 
the Mid-Am reload facility in Sulphur Springs, Texas. A total of 193 
loads of milk were delivered to Schepps, he noted.
    The AMPI spokesman stated that AMPI supplied approximately 8.8 
million pounds of supplemental milk during July and August, which 
includes milk delivered to Schepps, as well as milk transferred 
directly into the Southeast marketing area. He said that AMPI charged 
the purchasing handler or cooperative $2.00 per hundredweight for this 
service and that the buyer paid the freight charge.
    A representative for Fleming Dairy (Fleming), Nashville, Tennessee, 
testified in support of the proposed transportation credit, but 
recommended certain modifications. He agreed with the testimony of DCMA 
that the Southeast had suffered an unusual milk supply crisis since 
early August and that it would be equitable to provide a method to 
reimburse those who have served the market by incurring extraordinary 
costs to bring supplemental milk into the region from distant supply 
markets. He said that Fleming is supplied primarily by independent 
producers, but receives supplemental supplies from Mid-Am. During the 
last week of August, he indicated, Fleming obtained milk supplies from 
the New Mexico-West Texas and Upper Midwest marketing areas to meet its 
fluid demand due to the insufficient supply of locally-produced milk.
    According to the Fleming representative, some additional 
supplemental milk may be required through October, but the period of 
greatest crisis and demand is now over. Thus, he stated, Fleming would 
favor a transportation credit through the month of October.
    The Fleming spokesman testified that supplemental shipments of milk 
in late summer and fall are a recurring feature of the southeastern 
marketing areas, and transportation credits in some form would be 
justified as a permanent feature of the orders for the months of July 
through October. However, he recommended that the transportation credit 
only apply for distances that exceed 100 miles. He said the Secretary 
should determine whether the proposed 3.9-cent rate is justified.
    The Fleming representative also observed that this is the first 
year in which there has been a significant need for supplemental milk 
in the southeast region from the north-central region since the 
adoption of Class III-A pricing. The witness stated that the 
transportation credit should not be granted to a handler or cooperative 
association that has any milk assigned to Class III-A during the same 
period of time. In addition, he said, Class III-A pricing should be 
suspended for the Southeast region and neighboring marketing areas in 
the northeast and north-central regions when there is a clear demand 
for milk for Class I use that is not being met. Class III-A , he 
stressed, was adopted to permit the orderly disposition of excess milk 
when another use for the milk was not available, not as a bargaining 
lever to extract high give-up costs when the need for fluid milk is 
great.
    Fleming's post-hearing brief reiterated its qualified support for 
transportation credits. The brief stated that transportation credits 
for past services of marketwide benefit are consistent with the 1985 
amendments to the Agricultural Marketing Agreement Act. The 
transportation credits, Fleming contended, are necessarily retroactive 
because the application for credit comes only after a service has been 
rendered.
    The president of Southern Belle Dairy (Southern Belle) Somerset, 
Kentucky, testified in opposition to the proposed transportation 
credit. The representative stated that Southern Belle is a pool plant 
regulated under the Tennessee Valley Federal milk order. He explained 
that Southern Belle receives its milk supply from Southeastern Graded 
Milk Producers, Milk Marketing, Inc., and Mid-America Dairymen, Inc. He 
said Southern Belle also receives supplemental milk supplies from 
Armour Foods.
    According to the Southern Belle representative, during the crisis 
period Southern Belle purchased 2 loads of milk in Buffalo, New York, 
at a give-up charge of $5.50 per hundredweight. He said that, under the 
DCMA proposal, Southern Belle would receive a transportation credit of 
approximately $1,500, but claimed that the proposed 5-cent per 
hundredweight surcharge to pay for the transportation credits would 
force Southern Belle to pay an amount far in excess of its $1,500 
credit.
    In a post-hearing brief, Southern Belle reiterated its opposition 
to the retroactive application of the transportation credit but did not 
support or oppose the prospective issuance of the credit for 
supplemental milk purchased during months of very short production. The 
brief also argued that the record evidence shows that the ``crisis'' 
was due to Mid-Am's inability to properly manage its sales of milk and 
to recover adequate over-order premiums to cover the costs of 
purchasing supplemental milk supplies. Finally, Southern Belle argued 
that the retroactive application of the proposed transportation credit 
would encourage cooperatives to request relief for a problem that no 
longer exists.
    The general manager of Gold Star Dairy (Gold Star), Little Rock, 
Arkansas, also testified in opposition to the proposed transportation 
credit at the hearing. In its post-hearing brief, Gold Star opposed any 
retroactive application of the transportation credit but did not 

[[Page 66933]]
support or oppose the issuance of the credit for Class I milk purchased 
during months of very short production.
    Gold Star contended that there is no record evidence to support 
DCMA'S argument that supplemental milk would be needed beyond October. 
According to Gold Star's brief, the last year of shipments into the 
southeast region from Wisconsin was in 1992, a year in which shipments 
began in mid-August and extended to October. The brief also argued that 
shipments from Wisconsin in 1995 probably have peaked already and that 
no shipments will likely be needed after October.
    Gold Star and Southern Belle argued that the Secretary does not 
have the authority to issue rules that would have a retroactive effect. 
Moreover, even if he did, they contend, such authority would invite the 
post-crisis demand for modifications of the rules to alleviate problems 
that may no longer exist.
    A brief filed on behalf of Land-O-Sun Dairies, Inc. (Land-O-Sun), 
opposed the proposed transportation credit. Land-O-Sun stated that it 
operates pool plants regulated under Orders 5 and 11 in Spartanburg, 
South Carolina, and Kingsport, Tennessee, respectively. The handler 
also indicated it operates an Order 5 partially regulated plant in 
Portsmouth, Virginia.
    Land-O-Sun argued that the Secretary lacks the authority to grant 
rules regarding transportation credits that would have a retroactive 
effect absent the expressed statutory language. According to Land-O-
Sun, the Department of Health and Human Services (HHS) issued a rule in 
1984 which applied to a cost reimbursement calculation method and tried 
to recoup costs that were incurred prior to the effective date of the 
1984 rule. However, Land-O-Sun noted, in the case of Bowen v. 
Georgetown University Hospital, 488 U.S. 204 (1988), the Supreme Court 
invalidated the retroactive feature of the HHS rule.
    Land-O-Sun contends that the Agricultural Marketing Agreement Act, 
as amended, is wholly silent on the issue of retroactive powers vested 
in the Secretary. It argues that in 1986 the Secretary did not have the 
authority to implement retroactively the Class I differentials mandated 
by the 1985 Farm Bill and, by the same token, does not now have the 
authority to implement the proposed transportation credits 
retroactively.
    Land-O-Sun argues that even if the Secretary had the authority to 
impose the retroactive transportation credits, he should deny this 
request because the problem should have been addressed through private 
business agreements. The Land-O-Sun brief states that the proposed 
credit penalizes both handlers who procured their own supplies and 
producers not involved in bringing in supplemental supplies. Finally, 
Land-O-Sun stated that there is significant competition between Order 5 
plants and plants located in Florida, Georgia, Tennessee, Virginia, and 
Kentucky and that the 5-cent higher surcharge for Order 5 compared to 
Orders 7 and 11 would place Order 5 handlers at a competitive 
disadvantage.
    Milkco, Inc. (Milkco), a fully regulated handler under Order 5, 
filed a post-hearing brief in opposition to the proposed transportation 
credit because of its retroactive effect. Milkco stated that if a 
transportation credit is granted, it should apply to the same months 
that an emergency fluid milk surcharge would be applicable.
    After carefully evaluating the record evidence and the post-hearing 
briefs, we must conclude that during the summer of 1995 there was a 
need for supplemental milk for Class I use in all of the 6 orders and 
that this need was particularly acute for the Carolina and 3 Florida 
orders. Furthermore, the record clearly shows that the burden of 
bringing in supplemental milk to satisfy fluid milk demand fell, almost 
exclusively, on the cooperative associations supplying these markets. 
The record also shows that during the months of July and August 1995 
over-order charges were either non-existent or--where they did exist--
appeared to be inadequate to compensate the cooperatives for the costs 
which they incurred.
    It may be true, as opponents argue, that price adjustments should 
not be made to compensate for prior marketing costs. Any pool plant 
operator that obtained milk on a direct-shipped basis--at whatever cost 
it had to pay--during July through September of 1995 would not be 
eligible for a credit under the DCMA proposal; yet the handler would 
now be asked to pay a higher Class I price to subsidize someone else's 
supplemental milk expense.
    Opponents argued that the Secretary lacks the authority to 
retroactively apply the proposals. Ultimately, this question can only 
be clarified in a court of law. However, in this proceeding the 
threshold question of whether or not the proposals are supported by the 
record precludes any subsequent debate concerning their legality.
    While the record clearly showed that a great deal of milk was 
brought into the 6 markets, it lacked comparable data for earlier years 
from which to measure the magnitude of this year's problem. As can be 
seen in Table 1, for example, there was clearly much more bulk milk 
imported to the Carolina and Florida markets for Class I use in August 
of 1995 compared to August 1993, but this picture is less clear in 
comparing the bulk imports for the Southeast market in August 1995 
compared to August 1994, and the comparison is virtually impossible for 
the Tennessee Valley market because of the restrictions on the data. 
Also, while the record data unequivocally demonstrated a significant 
drop in production for some of the markets involved in this proceeding, 
it was less demonstrative for some of the other markets involved. For 
example, while producer receipts in the Southeastern Florida market 
were down by 8.5 percent in July (compared to July 1994), they were up 
by 19 percent during July 1995 in the Tennessee Valley market. 
Similarly, in August 1995 producer receipts were down (compared to a 
year earlier) in 4 of the 6 markets, but they were up by 4 percent in 
Order 7 and by 2 percent in Order 11.

                Table 1.--Millions of Pounds of Bulk Fluid Milk Products From Other Order Plants                
                         [Not Requested for Class II or III Use, July-August, 1993-1995]                        
----------------------------------------------------------------------------------------------------------------
                                        7/93         8/93         7/94         8/94         7/95         8/95   
----------------------------------------------------------------------------------------------------------------
Order 5...........................          2.3          1.8            R            R          1.7         12.3
Orders 6, 12, and 13..............          2.4         17.3            R         15.8         16.3         32.9
Order 7...........................          4.1         12.3          6.9         27.6         10.5         29.7
Order 11..........................           .8            R            0            R            R          5.2
----------------------------------------------------------------------------------------------------------------
R = Data restricted. Less than 3 handlers involved.                                                             


[[Page 66934]]

    The record also was lacking in detail with respect to cooperatives' 
over-order charges. In the Florida markets, where such charges were in 
effect during the summer months, there is no indication how much, if 
any, of the premium is supposed to cover the cost of bringing 
supplemental milk to the market. It was also unclear how this year's 
transportation and give-up costs compared to prior years.
    A transportation credit, with or without an accompanying surcharge, 
might have merit in these seasonally-deficit markets where no other 
means exist to recoup costs of servicing the market. However, the 
specific proposals under consideration in this proceeding are not 
supported by the weight of evidence in the record.

4. Whether a Fluid Milk Surcharge Should be Provided on a Temporary 
Basis for Orders 5, 6, 7, 11, 12, and 13

    The proposal to impose a Class I surcharge in each of the 6 orders 
to pay for the proposed transportation credits should not be adopted.
    A spokesman for DCMA proposed a fluid milk surcharge for the 6 
Federal milk marketing orders for the period of November 1, 1995, 
through March 31, 1996. The spokesman requested that the proposed 
amendment not be considered for the Louisville-Lexington-Evansville 
Federal milk order. The DCMA spokesman estimated that a temporary fluid 
milk surcharge would generate enough money to fund the out-of-pocket 
transportation costs incurred by handlers during the period of July 1, 
1995, through March 31, 1996. This money would be returned to dairy 
farmers through the blend price by the added specified rate to the 
Class I differential for each order, he stated.
    The representative testified that DCMA's revised proposal would 
provide a fluid milk surcharge of 5 cents per hundredweight for Orders 
7 and 11, 10 cents per hundredweight for Order 5, 20 cents per 
hundredweight for Order 6, 25 cents for Order 12, and 30 cents for 
Order 13.
    According to the DCMA representative, these proposed temporary 
surcharges are designed to help assure that an adequate supply of milk 
will be made available to meet the fluid needs of the 6 orders. The 
representative proposed that the fluid milk surcharge for each order 
become effective November 1, 1995, and extend through March 1996. The 
November 1 effective date is needed to provide adequate advance notice, 
he stated.
    The assistant operations manager for Fleming testified in support 
of the proposed fluid milk surcharge. He stated that Fleming favors a 
surcharge to offset the cost of the transportation credit for the 
extraordinary supplemental milk costs incurred by cooperatives during 
the months of July through October, but said that the surcharge and the 
transportation credit should be coordinated for each market. Fleming 
reiterated its qualified support for the proposed fluid milk surcharge 
in its post-hearing brief.
    The controller of Coburg Dairy (Coburg), an Order 5 pool plant 
located in North Charleston, South Carolina, testified in support of 
the proposed fluid milk surcharge at a rate of 10 cents per 
hundredweight for Order 5. The witness indicated that Coburg purchases 
its raw milk supply from Edisto Milk Producers Association, a 
cooperative which purchases raw milk from Carolina Virginia Milk 
Producers Association and, on the spot market, from brokers. He stated 
that Coburg has distribution throughout South Carolina, southeastern 
Georgia, and parts of North Carolina.
    The director of milk procurement and marketing for Dean Foods 
Company (Dean Foods) testified in opposition to DCMA's proposed fluid 
milk surcharge. According to the witness, Dean Foods is the largest 
fluid milk processor in the United States and owns and operates plants 
in Kentucky, Florida, and Athens, Tennessee.
    The witness for Dean Foods stated that weather conditions in the 
southeast region caused milk supply shortages in the region in late 
August and early September. As a result, he indicated, supplemental 
milk was purchased from outside the region. The witness claimed that 
there has been and continues to be a shortage of milk in portions of 
the southeast region and that Dean Foods had adjusted its bottling 
schedule to accommodate the temporary shortage. However, he said, the 
Dean Foods plant at Athens, Tennessee, currently has an adequate supply 
of milk available to meet the plant's needs.
    According to the witness, Dean Foods and other processors in the 
State of Florida agreed in June to accept a 73-cent per hundredweight 
increase in over-order premiums to help producers recover some of the 
costs for transporting supplemental milk into the region. Dean Dairies 
in Florida has agreed to a 40-cent increase for the month of October, 
he indicated. The witness also testified that processors in Florida 
have been paying from $1.00 to $1.75 per hundredweight in over-order 
premiums. Additionally, he stated, Dean Foods, Athens, Tennessee, 
agreed to 15-cent and 20-cent per hundredweight increases in over-order 
premiums for the months of September and October, respectively.
    The witness for Dean Foods stressed that negotiations between 
buyers and sellers of milk remain the best mechanism to recover the 
costs associated with purchasing supplemental milk. He argued that the 
Federal Order system was not designed to remedy short-term aberrations 
in the market or provide relief to cooperatives for poor business 
decisions.
    The general manager for Gold Star also testified in opposition to 
the proposed fluid milk surcharge for the 6 Federal milk marketing 
orders. The witness indicated that Gold Star is a handler regulated 
under the Southeast order but that a significant portion of its sales 
are in the Texas marketing area. If the surcharge were imposed, Gold 
Star would be at a competitive disadvantage compared to handlers 
regulated under the Texas order, he claimed, because those handlers 
would not be subject to the surcharge. These arguments were reiterated 
in Gold Star's post-hearing brief.
    The representatives of Gold Star and Southern Belle claimed that 
the proposed fluid milk surcharge would have an impact on each 
handler's fluid milk sales. The representatives argued that in an 
industry where most sales are determined on fractions of a cent per 
gallon, the handlers would not be able to pass the cost on to its 
customers in areas where its competing handlers would not be subject to 
the surcharge. The Southern Belle representative stated that Southern 
Belle competes with handlers located in Ohio, Kentucky, West Virginia, 
Indiana, and Virginia, all of whom would not be subject to the 
surcharge.
    Southern Belle also filed a post-hearing brief in opposition to the 
proposed fluid milk surcharge. Southern Belle stated that the crisis, 
if there was one, is now over for the Tennessee Valley marketing area. 
Southern Belle also indicated that it acquired its own supplemental 
milk without the assistance of cooperatives and no longer needs any 
supplemental milk. The handler added that it should not be required to 
pay an additional amount for its milk to compensate producers or 
cooperatives for services that it did not receive and will not need.
    Tillamook County Creamy Association (Tillamook), a cooperative 
association located in Tillamook, Oregon, opposed the proposed fluid 
milk surcharge at the hearing and in its post-hearing brief. Tillamook 
contended that the continued existence of Class III-A pricing was and 
is a major contributing factor to any perceived 

[[Page 66935]]
problem of production and delivery of Grade A milk into the Southeast 
during the past summer.
    Tillamook indicated that the amount of milk allocated to Class III-
A in Orders 5, 11, and 46 was about 1.4 million pounds in August 1995 
compared to 270 thousand pounds in August 1994, and further noted that 
Federal Order 7 had approximately 2.1 million pounds of milk allocated 
to Class III-A in August 1995. Additionally, Tillamook pointed out that 
record data indicates that while handlers and cooperatives located in 
the Southeast were purchasing supplemental milk supplies from as far as 
Minnesota and El Paso, significant volumes of milk were being allocated 
to Class III-A in Federal Orders 4 (Middle Atlantic marketing area), 33 
(Ohio Valley marketing area), 36 (Eastern Ohio-Western Pennsylvania 
marketing area), 40 (Southern Michigan marketing area), and 126 (Texas 
marketing area).
    Tillamook recommended that the Secretary suspend Class III-A 
pricing nationwide to free up milk needed for fluid use in the 
Southeast and to continue uniform pricing throughout the Federal order 
program. The cooperative claimed that the fluid milk surcharge benefits 
a small portion of the dairy industry, while the suspension or 
alteration of Class III-A on an emergency basis would increase all 
dairy farmers' income. Therefore, Tillamook urged the Secretary to deny 
the proposed fluid milk surcharge and grant relief on Class III-A 
immediately.
    In a post-hearing brief, Milkco opposed the revised proposal for a 
fluid milk surcharge for the 6 Federal milk orders, specifically the 
10-cent surcharge for Order 5. Milkco indicated that it has 
approximately 44.5 percent of its total Class I sales in the Southeast 
and Tennessee Valley marketing areas. It stated that the proposed 
amendment would require it to pay 5 cents per hundredweight more than 
handlers regulated under Orders 7 and 11. Accordingly, Milkco 
contended, the amount of the surcharge should be the same for Orders 5, 
7, and 11.
    The Agricultural Marketing Agreement Act, as amended, clearly 
authorizes the Secretary to include provisions for payments to handlers 
that provide facilities to furnish additional supplies of milk needed 
by the market, but the Act does not provide for an automatic increase 
in the Class I price to offset such payments. If there had been a 
stronger record supporting adoption of the proposed transportation 
credit, the balance might have weighed in favor of taking the action 
for a temporary period of time. However, the evidence presented by the 
handler opposition to the proposals, in conjunction with the lack of 
clarity in the record concerning the magnitude of the problem and any 
needed increase in Class I prices, leads us to conclude that the 
transportation credit should not be adopted and, consequently, the 
Class I surcharge to pay for the transportation credit need not and 
should not be adopted either.

5. Whether Emergency Marketing Conditions in the 6 Regulated Areas 
Warrant the Omission of a Recommended Decision and the Opportunity to 
File Written Exceptions Thereto

    Proponents of Proposals 1-2 and 4-5 requested that the Secretary 
handle these issues on an expedited basis by omitting a recommended 
decision and the opportunity to file exceptions thereto.
    The request for emergency treatment is denied. In view of the 
denial of Proposals 4 and 5, no benefit would be gained in omitting a 
recommended decision. In fact, the interests of proponents would be 
furthered by providing them with an opportunity to file exceptions to 
this recommended decision.
    Although proponents of Proposals 1 and 2 also requested emergency 
consideration of their proposals at the hearing and no objections were 
expressed either at the hearing or in post-hearing briefs, interested 
parties were not notified of the possible expedited handling of these 
proposals in the hearing notice that was issued. In view of this, and 
in conjunction with the normal handling of Proposals 4 and 5, the 
request for emergency treatment with respect to Proposals 1 and 2 also 
is denied.
    Non-material Issue: Correction to Sec. 1007.50(d). Paragraph (d) of 
Section 50 of the Southeast order should be corrected to reflect the 
appropriate order language. The changes resulting from the 27-market 
Class III-A proceeding (DA-91-13) and included in the December 31, 
1993, Federal Register at 58 FR 63286 were adopted by reference at 60 
FR 25036 in the final decision for the Southeast order. However, in the 
process of preparing the final decision and final order for the 
Southeast marketing area, the revised language in Sec. 1007.50(d) was 
inadvertently overlooked.

Rulings on Proposed Findings and Conclusions

    Briefs and proposed findings and conclusions were filed on behalf 
of certain interested parties. These briefs, proposed findings and 
conclusions, and the evidence in the record were considered in making 
the findings and conclusions set forth above. To the extent that the 
suggested findings and conclusions filed by interested parties are 
inconsistent with the findings and conclusions set forth herein, the 
requests to make such findings or reach such conclusions are denied for 
the reasons previously stated in this decision.

General Findings

    The findings and determinations hereinafter set forth supplement 
those that were made when the orders were first issued and when they 
were amended. The previous findings and determinations are hereby 
ratified and confirmed, except where they may conflict with those set 
forth herein.
    The following findings are hereby made with respect to the 
Southeast tentative marketing agreement and order:
    (a) The tentative marketing agreement and the order, as hereby 
proposed to be amended, and all of the terms and conditions thereof, 
will tend to effectuate the declared policy of the Act;
    (b) The parity prices of milk as determined pursuant to section 2 
of the Act are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand for milk in the aforesaid marketing area, and the 
minimum prices specified in the tentative marketing agreement and the 
order, as hereby proposed to be amended, are such prices as will 
reflect the aforesaid factors, insure a sufficient quantity of pure and 
wholesome milk, and be in the public interest; and
    (c) The tentative marketing agreement and the order, as hereby 
proposed to be amended, will regulate the handling of milk in the same 
manner as, and will be applicable only to persons in the respective 
classes of industrial and commercial activity specified in, a marketing 
agreement upon which a hearing has been held.

Recommended Marketing Agreement and Order Amending the Order

    The recommended marketing agreement is not included in this 
decision because the regulatory provisions thereof would be the same as 
those contained in the order, as hereby proposed to be amended. The 
following order amending the order, as amended, regulating the handling 
of milk in the Southeast marketing area is recommended as the detailed 
and appropriate means by which the foregoing conclusions may be carried 
out. 

[[Page 66936]]


List of Subjects in 7 CFR Part 1007

    Milk marketing orders.

    For the reasons set forth in the preamble, the following provisions 
in 7 CFR part 1007, are proposed to be amended as follows:

PART 1007--MILK IN THE SOUTHEAST MARKETING AREA

    1. The authority citation for 7 CFR part 1007 continues to read as 
follows:

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


Sec. 1007.2  [Amended]

    2. In Sec. 1007.2, Zone 11, the words ``(more than 20 miles from 
the Mobile city hall)'' are removed following the word ``Mobile'' and 
the words ``(north of State Highway 16)'' are added following the word 
``Tangipahoa''.
    3. In Sec. 1007.2, Zone 12, the words ``Alabama counties: Mobile 
(within 20 miles of the Mobile city hall).'' are removed and the words 
``Tangipahoa (south of State Highway 16)'' are added following the word 
``St. Mary,''.


Sec. 1007.50  [Amended]

    4. In Sec. 1007.50(d), the words ``value per hundredweight of 3.5 
percent milk and rounded to the nearest cent, and subject to the 
adjustments set forth in paragraph (c) of this section for the 
applicable month'' are removed and the words ``times 35 and rounded to 
the nearest cent'' are added in their place.

    Dated: December 18, 1995.
Lon Hatamiya,
Administrator.
[FR Doc. 95-31272 Filed 12-26-95; 8:45 am]
BILLING CODE 3410-02-P