54384 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Parts 1000, 1001, 1005, 1006, 

1007, 1030, 1032, 1033, 1124, 1126 and 

1131 

[Doc. No. AO–14–A78, et al.; DA–09–02; 

AMS–09–0007] 

Milk in the Northeast and Other 

Marketing Areas; Recommended 

Decision and Opportunity To File 

Written Exceptions on Proposed 

Amendments to Tentative Marketing 

Agreements and Orders 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule; recommended 

decision. 

SUMMARY: This decision recommends 

that the producer-handler definitions of 

all Federal milk marketing orders be 

amended to limit exemption from 

pooling and pricing provisions to those 

with total route disposition of fluid milk 

products of 3 million pounds or less per 

month. The exempt plant definition 

would continue to limit disposition of 

Class I milk products to 150,000 pounds 

or less per month. 

DATES: Comments must be submitted on 

or before December 21, 2009. 

ADDRESSES: All comments received will 

be posted electronically without change, 

including any personal information 

provided. Comments (three copies) 

should be filed with the Hearing Clerk, 

United States Department of 

Agriculture, STOP 9200–Room 1031, 

1400 Independence Avenue, SW., 

Washington, DC 20250–1031. You may 

electronically submit comments at the 

Federal eRulemaking portal: http:// 

www.regulations.gov. Reference should 

be made to the title of the action and 

docket number. 

FOR FURTHER INFORMATION CONTACT: 

Gino M. Tosi or Jack Rower, Senior 

Marketing Specialists, Order 

Formulation and Enforcement Branch, 

USDA/AMS/Dairy Programs, Stop 

0231–Room 2971, 1400 Independence 

Avenue, SW., Washington, DC 20250– 

0231, (202) 720–7183, e-mail addresses: 

gino.tosi@ams.usda.gov and 

jack.rower@ams.usda.gov. 

SUPPLEMENTARY INFORMATION: This 

decision recommends that the producerhandler provisions of all Federal milk 

marketing orders be amended to limit 

exemption from pooling and pricing to 

those with total route disposition of 

fluid milk products of 3 million pounds 

or less per month. The exempt plant 

definition would continue to limit 

disposition of Class I milk products to 

150,000 pounds or less per month. 

This administrative action is governed 

by the provisions of sections 556 and 

557 of Title 5 of the United States Code 

and, therefore, is excluded from the 

requirements of Executive Order 12866. 

The amendments to the rules 

proposed herein have been reviewed 

under Executive Order 12988, Civil 

Justice Reform. They are not intended to 

have a retroactive effect. The 

Agricultural Marketing Agreement Act 

of 1937, as amended (7 U.S.C. 601–674) 

(AMAA), provides that administrative 

proceedings must be exhausted before 

parties may file suit in court. Under 

Section 608c(15)(A) of the AMAA, any 

handler subject to an order may request 

modification or exemption from such 

order by filing with USDA a petition 

stating that the order, any provision of 

the order, or any obligation 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, USDA 

would rule on the petition. The AMAA 

provides that the district court of the 

United States in any district in which 

the handler is an inhabitant, or has its 

principal place of business, has 

jurisdiction in equity to review USDA’s 

ruling on the petition, provided a bill in 

equity is filed not later than 20 days 

after the date of the entry of the ruling. 

Regulatory Flexibility Act and 

Paperwork Reduction Act 

In accordance with the Regulatory 

Flexibility Act (5 U.S.C. 601 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 purpose of 

determining which dairy farms are 

‘‘small businesses,’’ the $750,000 per 

year criterion was used to establish a 

milk marketing guideline of 500,000 

pounds per month. Although this 

guideline does not factor in additional 

monies that may be received by dairy 

producers, it should be an inclusive 

standard for most ‘‘small’’ dairy farms. 

For purposes of determining a handler’s 

size, if the plant is part of a 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. 

Producer-handlers are dairy farms 

that process their own milk production. 

These entities must operate one or more 

dairy farms as a pre-condition to 

operating processing plants as producerhandlers. The size of the dairy farm(s) 

determines the production level of the 

operation and is a controlling factor in 

the capacity of the processing plant and 

possible sales volume associated with 

the producer-handler entity. 

Determining whether a producerhandler is considered a small or large 

business is therefore dependent on the 

capacity of its dairy farm(s), where a 

producer-handler with annual gross 

revenue in excess of $750,000 is 

considered a large business. 

The proposed amendments would 

obligate some large producer-handlers 

under the Federal milk marketing order 

system to the same terms as other fully 

regulated handlers of their respective 

orders provided they meet the criteria 

for qualification as fully regulated 

plants. Entities currently defined as 

producer-handlers under the terms of 

their order will be subject to the pooling 

and pricing provisions of the order if 

their total route disposition of fluid milk 

products is more than 3 million pounds 

per month. 

Producer-handlers with total route 

disposition of 3 million pounds or less 

during the month will not be subject to 

the pooling and pricing provisions of 

any order as a result of this rulemaking. 

To the extent that current producerhandlers have route disposition of fluid 

milk products outside of the order’s 

marketing areas, such route disposition 

will be subject to the pooling and 

pricing provisions of the orders if total 

route disposition causes them to become 

fully regulated. 

If current producer-handlers have 

total route disposition of fluid milk 

products of more than 3 million pounds 

during a month, such producer-handlers 

will be regulated under the pooling and 

pricing provisions of the orders like 

other fully regulated handlers. Such 

large producer-handlers will account to 

the pool for their uses of milk at the 

applicable minimum class prices and 

pay the difference between their usevalue of milk and the blend price of the 

order to that order’s producer-settlement 

fund. 

While this may cause an economic 

impact on those entities with more than 

three million pounds of route sales that 

are currently considered producerhandlers under the Federal order 

system, the impact is offset by the 

benefit to other small businesses. With 

respect to dairy farms whose milk is 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54385 

pooled on Federal marketing orders, 

such dairy farms who have not 

heretofore shared in the additional 

revenue that accrues from the 

marketwide pooling of Class I sales by 

producer-handlers will share in such 

revenue. All producer-handlers who 

dispose of more than three million 

pounds of fluid milk products per 

month will account to all market 

participants at the announced Federal 

order Class I price for such use. 

To the extent that some large 

producer-handlers become subject to the 

pooling and pricing provisions of 

Federal milk marketing orders, such 

will be determined in their capacity as 

handlers. Such entities will no longer 

have restrictions applicable to their 

business operations that were 

conditions for producer-handler status 

and exemption from the pooling and 

pricing provisions of the orders. In 

general, this includes being able to buy 

or acquire any quantity of milk from 

dairy farmers or other handlers instead 

of being limited by the current 

constraints of the orders. Additionally, 

the burden of balancing their milk 

production is relieved. Milk production 

in excess of what is needed to satisfy 

their Class I route disposition needs 

may receive the minimum price 

protection established under the terms 

of the Federal milk marketing orders. 

The burden of balancing milk supplies 

will be borne by all producers and 

handlers who are pooled and regulated 

under the terms of the orders. 

During May 2009 the Northeast order 

had 57 pool distributing plants, 10 pool 

supply plants, 16 partially regulated 

distributing plants, 13 producer-handler 

plants and 40 exempt plants. Of the 83 

regulated plants, 49 plants or 59 percent 

were considered large businesses. Of the 

13,050 dairy farmers whose milk was 

pooled on the order, 628 farms or 5 

percent were considered large 

businesses and 12,422 farms or 95 

percent of dairy farms in the Northeast 

order were considered small businesses. 

Most of these dairy farms, large and 

small, could benefit by receiving a 

higher blend price, if the recommended 

3-million pound monthly Class I route 

disposition limitation for producerhandlers is adopted. 

During May 2009, the Appalachian 

order had 21 pool distributing plants, 1 

pool supply plant, 2 partially regulated 

distributing plants, 1 producer-handler 

plant and 4 exempt plants. Of the 24 

regulated plants, 21 plants or 88 percent 

were considered large businesses. Of the 

2,516 dairy farmers whose milk was 

pooled on the order, 159 farms or 6 

percent were considered large 

businesses and 2,357 farms or 94 

percent of dairy farms in the 

Appalachian order were considered 

small businesses. Most of these dairy 

farms, large and small, could benefit by 

receiving a higher blend price, if the 

recommended 3-million pound monthly 

Class I route disposition limitation for 

producer-handlers is adopted. 

During May 2009, the Florida order 

had 11 pool distributing plants, 5 

partially regulated distributing plants 

and 2 exempt plants. The order had no 

pool supply plants or producer-handler 

plants as of May 2009. Of the 16 

regulated plants, 12 plants or 75 percent 

were considered large businesses. Of the 

249 dairy farmers whose milk was 

pooled on the order, 105 farms or 42 

percent were considered large 

businesses and 144 farms or 58 percent 

of dairy farms in the Florida order were 

considered small businesses. Most of 

these dairy farms, large and small, could 

benefit by receiving a higher blend 

price, if the recommended 3-million 

pound monthly Class I route disposition 

limitation for producer-handlers is 

adopted. 

During May 2009, the Southeast order 

had 22 pool distributing plants, 3 pool 

supply plants, 6 partially regulated 

distributing plants and 12 exempt 

plants. The order had no producerhandler plants as of May 2009. Of the 

31 regulated plants, 28 plants or 90 

percent were considered large 

businesses. Of the 2,992 dairy farmers 

whose milk was pooled on the order, 

187 farms or 6 percent were considered 

large businesses and 2,805 farms or 94 

percent of dairy farms in the Southeast 

order were considered small businesses. 

Most of these dairy farms, large and 

small, could benefit by receiving a 

higher blend price, if the recommended 

3-million pound monthly Class I route 

disposition limitation for producerhandlers is adopted. 

During May 2009, the Upper Midwest 

order had 24 pool distributing plants, 53 

pool supply plants, 2 partially regulated 

distributing plants, 5 producer-handler 

plants and 11 exempt plants. Of the 79 

regulated plants, 37 plants or 47 percent 

were considered large businesses. Of the 

15,336 dairy farmers whose milk was 

pooled on the order, 1,001 farms or 7 

percent were considered large 

businesses and 14,335 farms or 93 

percent of dairy farms in the Upper 

Midwest order were considered small 

businesses. Most of these dairy farms, 

large and small, could benefit by 

receiving a higher blend price, if the 

recommended 3-million pound monthly 

Class I route disposition limitation for 

producer-handlers is adopted. 

During May 2009, the Central order 

had 30 pool distributing plants, 12 pool 

supply plants, 1 partially regulated 

distributing plant, 7 producer-handler 

plants and 19 exempt plants. Of the 43 

regulated plants, 35 plants or 81 percent 

were considered large businesses. Of the 

3,600 dairy farmers whose milk was 

pooled on the order, 413 farms or 11 

percent were considered large 

businesses and 3,187 farms or 89 

percent of dairy farms in the Central 

order were considered small businesses. 

Most of these dairy farms, large and 

small, could benefit by receiving a 

higher blend price, if the recommended 

3-million pound monthly Class I route 

disposition limitation for producerhandlers is adopted. 

During May 2009, the Mideast order 

had 22 pool distributing plants, 2 pool 

supply plants, 4 partially regulated 

distributing plants, 1 producer-handler 

plant and 17 exempt plants. Of the 28 

regulated plants, 8 plants or 29 percent 

were considered large businesses. Of the 

7,238 dairy farmers whose milk was 

pooled on the order, 504 farms or 7 

percent were considered large 

businesses and 6,734 farms or 93 

percent of dairy farms in the Mideast 

order were considered small businesses. 

Most of these dairy farms, large and 

small, could benefit by receiving a 

higher blend price, if the recommended 

3-million pound monthly Class I route 

disposition limitation for producerhandlers is adopted. 

During May 2009, the Pacific 

Northwest order had 15 pool 

distributing plants, 8 pool supply 

plants, 13 partially regulated 

distributing plants, 5 producer-handler 

plants and 2 exempt plants. Of the 36 

regulated plants, 20 plants or 56 percent 

were considered large business. Of the 

657 dairy farmers whose milk was 

pooled on the order, 326 farms or 50 

percent were considered large 

businesses. Because the Pacific 

Northwest order already fully regulates 

producer-handlers with monthly route 

distribution in excess of three million 

pounds per month, the proposed action 

will have a minimal effect on small 

farmers whose milk is pooled on the 

order. 

During May 2009, the Southwest 

order had 19 pool distributing plants, 2 

pool supply plants, 1 partially regulated 

distributing plant, 5 producer-handler 

plants and 2 exempt plants. Of the 79 

regulated plants, 19 plants or 86 percent 

were considered large businesses. Of the 

588 dairy farmers whose milk was 

pooled on the order, 318 farms or 54 

percent were considered large 

businesses and 270 farms or 46 percent 

of dairy farms in the Southeast order 

were considered small businesses. Most 

of these dairy farms, large and small, 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54386 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

could benefit by receiving a higher 

blend price, if the recommended 3- 

million pound monthly Class I route 

disposition limitation for producerhandlers is adopted. 

During May 2009, the Arizona order 

had 5 pool distributing plants, 1 pool 

supply plant, 15 partially regulated 

distributing plants and 1 exempt plant. 

The order had no producer-handler 

plants as of May 2009. Of the 21 

regulated plants, 13 plants or 62 percent 

were considered large businesses. Of the 

100 dairy farmers whose milk was 

pooled on the order, 95 farms or 95 

percent were considered large 

businesses. Because the Arizona order 

already fully regulates producerhandlers with monthly route 

distribution in excess of 3 million 

pounds, the proposed action will have 

a minimal effect on small farmers whose 

milk is pooled on the order. 

As of May 2009, in their capacity as 

producers, 15 producer-handlers would 

be considered large producers as their 

annual marketings exceed 6 million 

pounds of milk (500,000 pounds per 

month). During the same month, 22 

producer-handlers would be considered 

small producers. Record evidence 

indicates that as of March 2009, seven 

large producer-handlers had total route 

sales of 2 million pounds or more per 

month. Therefore, seven or fewer large 

producer-handlers could potentially 

become subject to the pooling and 

pricing provisions of Federal milk 

marketing orders because of route 

disposition of more than 3 million 

pounds per month. 

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 proposed amendments would 

have minimal impact on reporting, 

recordkeeping, or other compliance 

requirements for entities currently 

considered producer-handlers under 

Federal milk marketing orders because 

they would remain identical to the 

current requirements applicable to all 

other regulated handlers who are subject 

to the pooling and pricing provisions. 

No new forms are proposed and no 

additional reporting requirements 

would be necessary. 

This notice 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 that can be supplied 

without data processing equipment or a 

trained statistical staff. Thus, the 

information collection and reporting 

burden is relatively small. Requiring the 

same reports for all handlers does not 

significantly disadvantage any handler 

that is smaller than the industry 

average. 

Interested parties are invited to 

submit comments on the probable 

regulatory and informational impact of 

this proposed rule on small entities. 

Prior Documents in this Proceeding: 

Notice of Hearing: Issued April 3, 

2009; published April 9, 2009 (74 FR 

16296). 

Preliminary Statement 

Notice is hereby given of the filing 

with the Hearing Clerk of this 

recommended decision with respect to 

proposed amendments to the tentative 

marketing agreement and the order 

regulating the handling of milk in the 

Northeast and all other marketing areas. 

This notice is issued pursuant to the 

provisions of the AMAA and the 

applicable rules of practice and 

procedure governing the formulation of 

marketing agreements and marketing 

orders (7 CFR part 900). 

Interested parties may file written 

exceptions to this decision with the 

Hearing Clerk, U.S. Department of 

Agriculture, STOP 9200–Room 1031, 

1400 Independence Ave., SW., 

Washington, DC 20250–9200, by 

December 21, 2009 or through the 

Federal rulemaking portal at http:// 

www.regulations.gov. Three copies of 

exceptions should be submitted if filed 

with the Hearing Clerk. All written 

submissions made pursuant to this 

notice will be made available for public 

inspection at the Office of the Hearing 

Clerk during regular business hours (7 

CFR 1.27(b)). The hearing notice 

specifically invited interested persons to 

present evidence concerning the 

probable regulatory and informational 

impact of the proposals on small 

businesses. Some evidence was received 

that specifically addressed these issues 

and some of the evidence encompassed 

entities of various sizes. Such evidence 

was considered in this decision. 

A public hearing was held upon 

proposed amendments to the marketing 

agreements and the orders regulating the 

handling of milk in all Federal milk 

marketing orders. The hearing was held 

pursuant to the provisions of the 

AMAA, as amended (7 U.S.C. 601–674), 

and the applicable rules of practice and 

procedure governing the formulation of 

marketing agreements and marketing 

orders (7 CFR part 900). 

The proposed amendments set forth 

below are based on the record of a 

public hearing held in Cincinnati, Ohio, 

pursuant to a notice of hearing issued 

April 9, 2009. 

The material issues on the record of 

hearing relate to: 

1. Producer-handler and exempt plant 

definitions in all Federal milk marketing 

orders. 

Findings and Conclusions 

All orders should be amended to limit 

producer-handlers to total Class I route 

disposition of not more than 3 million 

pounds per month as a condition for 

exemption from pooling and pricing 

provisions. The exempt plant definition 

of all orders should continue to limit 

disposition of Class I milk products to 

150,000 pounds or less per month. 

The Regulatory Status of ProducerHandlers 

Currently, several orders define and 

describe a special category of handler 

known as producer-handler. Under the 

Pacific Northwest and Arizona orders 

(Orders 124 and 131, respectively) 

producer-handlers are subject to 

provisions that limit Class I route 

disposition to 3 million pounds or less 

per month within the respective 

marketing areas. The other 8 orders have 

no similar route disposition limit. The 

3 southeastern orders do not allow 

producer-handlers to purchase 

supplemental milk while the remaining 

5 orders provide producer-handlers the 

opportunity to purchase limited 

amounts. With noted exceptions, the 

producer-handler definitions of all 

Federal milk marketing orders exempt 

producer-handlers from the pooling and 

pricing provisions. 

As a result of their exemption from 

pooling and pricing, producer-handlers, 

as handlers, are not required to pay the 

minimum class prices established under 

the orders nor are they, as producers, 

granted minimum price protection for 

disposal of surplus milk. Producerhandlers, in their capacity as handlers, 

are not obligated to equalize their usevalue of milk through payment of the 

difference between their use-value of 

milk and the respective order’s blend 

price into the producer-settlement fund. 

As such, producer-handlers retain the 

full value of milk processed and 

disposed of as fluid milk products by 

their operation within the marketing 

areas. 

Entities defined as producer-handlers 

must adhere to strict criteria that limit 

certain business practices including the 

purchase of supplemental milk. Given 

these limitations, producer-handlers 

bear the full burden of balancing their 

milk production between fluid and 

other uses. Milk production in excess of 

their Class I route disposition does not 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54387 

enjoy minimum price protection under 

the orders and may be sold at whatever 

price is obtainable in the market. 

Producer-handlers are required to 

submit reports to the Market 

Administrator to ensure compliance 

with the requirements for their 

regulatory status as producer-handlers. 

In this sense, producer-handlers are 

regulated under the orders but are not 

‘‘fully regulated’’ as are other handlers 

who are subject to an order’s pooling 

and pricing provisions. 

The Regulatory Status of Exempt Plants 

The current exempt plant definition 

was implemented in January 2000 and 

is uniform across all orders. Exempt 

plants are not subject to full regulation 

on the basis of size. At or below the 

monthly Class I disposition threshold 

for exempt plants, these entities do not 

impact competitive relationships among 

handlers in the market such that full 

regulation is warranted. Exempt plants 

may operate solely as processing 

operations or may have the structure of 

producer-handlers. Operational 

structure is irrelevant in so much as 

qualification for exempt plant status is 

based solely upon Class I sales volume. 

Exempt plants are required to 

occasionally submit reports and 

information to the Market Administrator 

to ensure compliance with the exempt 

plant definition. 

Summary of Testimony 

Overview of Proposals 

This proceeding was held in response 

to two proposals jointly submitted by 

the National Milk Producers Federation 

(NMPF) and the International Dairy 

Foods Association (IDFA). These 

proposals, marked as Proposals 1 and 2 

would: (1) Eliminate the producerhandler provision from all Federal milk 

orders; (2) increase the exempt plant 

monthly limit on disposition of fluid 

milk products from 150,000 to 450,000 

pounds; and (3) require unique labeling 

for fluid milk products distributed by 

exempt plants. 

This proceeding also considered 17 

alternative proposals received in 

response to the initial proposals. These 

proposals suggested a range of 

amendments to the producer-handler, 

exempt plant and pooling provisions. 

The following summary of evidence 

presented during the proceeding is 

organized as follows: 

1. Elimination of the producerhandler provisions and amendment of 

the exempt plant definition to include 

an increased limit on monthly Class I 

disposition. 

2. Elimination of the producerhandler provisions and adoption of 

grandfathering. 

3. Adoption of producer-handler 

provisions to include a limit on monthly 

Class I disposition. 

4. Exemption of vertically integrated 

operations with retail and home 

delivery distribution. 

5. Exemption of own-farm milk. 

6. Establishment of individual 

handler pools. 

Elimination of the producer-handler 

provisions and amendment of the 

exempt plant definition to include an 

increased limit on monthly Class I 

disposition. 

Proposed by NMPF and IDFA, 

proposals published in the hearing 

notice as Proposal 1 and Proposal 2, 

seek to simultaneously eliminate the 

producer-handler definition from all 

Federal milk orders and increase the 

monthly Class I route disposition limit 

from the current 150,000 pounds to 

450,000 pounds and require unique 

labeling for fluid milk products 

distributed by exempt plants. Proposals 

published in the hearing notice as 19 

and 22 reiterated the positions 

contained in Proposals 1 and 2. 

Representative members and 

supporters of NMPF including dairy 

farmer members, employees and 

representatives of Dairy Farmers of 

America (DFA), Mid-West Dairymen’s 

Company (Mid-West), Lakeshore 

Federated Dairy Cooperative 

(Lakeshore), Michigan Milk Producers 

Association (MMPA), Prairie Farms 

Dairy (Prairie Farms), Maryland & 

Virginia Milk Producers Cooperative 

Association, Inc. (MD&VA), United 

Dairymen of Arizona (UDA), Northwest 

Dairy Association-Darigold (NDADarigold), and St. Albans Cooperative 

Creamery, Inc. (St. Albans) supported 

either the elimination of the producerhandler provisions or an increase in the 

exempt plant Class I route disposition 

limit, or both during the hearing. 

A representative of NMPF testified in 

support of Proposals 1 and 2. NMPF is 

a trade association that represents 31 

dairy farmer cooperatives. The witness 

was of the opinion that the exemption 

for producer-handlers was originally 

based upon the assumption that 

producer-handlers have limited sales of 

fluid milk products and little influence 

in the market. Using USDA data, the 

NMPF witness demonstrated that 

producer-handlers have a growing share 

of fluid milk sales in the markets that do 

not restrict the Class I disposition of 

producer-handlers. Given that some 

producer-handlers now sell large 

volumes of fluid milk products and 

significantly impact the market, larger 

producer-handlers should not be 

exempt from pooling and pricing, the 

witness asserted. 

According to the NMPF witness, large 

producer-handlers have a regulatory 

advantage associated with the price at 

which they acquire milk for processing 

and the sales revenues they retain 

because of the exemption they enjoy. 

Specifically, the witness testified that 

producer-handlers are essentially able to 

acquire their milk at the uniform price 

rather than the Class I price and as a 

result, enjoy a cost advantage over fully 

regulated handlers in procuring milk. 

The witness asserted that the uniform 

price is effectively the market price for 

producer milk and as such, the 

appropriate transfer price (the price at 

which producer-handlers transfer their 

internal milk supply to their plant) for 

analysis of the regulatory impact of 

producer-handlers. Additionally, 

producer-handlers’ exemption from 

payment into the producer-settlement 

fund deprives Federal order pools of 

money that would otherwise be 

distributed among producers, the 

witness stated. Producer-handlers, the 

witness asserted, encounter the same 

costs from cow to bottle as other 

enterprises but are exempt from pool 

payment. 

The NMPF witness testified that the 

potential exists for large dairy farms to 

become large producer-handlers. A 

more than 100 percent increase in dairy 

farms with more than 2,000 cows from 

1998 to 2007 has occurred, the witness 

stated, noting that the monthly milk 

production of a 2,000-cow dairy is 

nearly 4 million pounds. Collectively, 

farms at this level of production, upon 

conversion to producer-handler status, 

could capture a large share of the Class 

I sales in an individual market, or 

nationally, the witness asserted. The 

witness testified that both dairy farms 

and handler operations are threatened 

by the potential for large farms to 

become producer-handlers. According 

to the witness, producer-handlers are 

already disruptive in most Federal order 

marketing areas and particularly in the 

Central order (Order 32) marketing area. 

The witness acknowledged that 

producer-handlers are not currently 

disruptive in all orders but asserted that 

the preemptive adoption of some 

uniform standards regarding producerhandler operations is necessary. 

The NMPF witness explained that 

Proposal 2, seeking an increase in the 

exempt plant limit on monthly Class I 

disposition from 150,000 to 450,000 

pounds, is based in part on a three-fold 

increase in milk production at the farmlevel since the time when the current 

exempt plant limit was set. The witness 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54388 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

testified that plants with less than 

450,000 pounds of route distribution per 

month have trouble competing with 

larger plants on a cost basis even when 

exempt from full regulation because the 

milk procurement price advantage is 

outweighed by higher processing costs. 

The witness also testified that farm size 

and economies-of-scale should be 

considered in setting an exempt plant 

limit, citing evidence of cost 

disadvantages for producer-handlers 

with less than 500,000 pounds of 

monthly production. 

The NMPF witness testified that the 

unique labeling provision of Proposal 2 

is designed to prevent milk buyers from 

exploiting exempt plants’ price 

advantage through the purchase of a 

large supply of identically labeled milk 

at prices lower than those of other, fully 

regulated plants. Additionally, the 

witness testified that NMPF intends the 

450,000-pound monthly limit on Class I 

disposition for exempt plants to apply 

to total sales rather than sales in a single 

market. According to the witness, 

Proposals 1 and 2 in combination would 

allow all but the largest producerhandlers to retain an exemption from 

pooling and pricing while newly 

exempting an additional 30 to 35 

regulated or partially regulated plants. 

Furthermore, the witness asserted, 

adoption of Proposals 1 and 2 would 

establish more equitable rules for dairy 

farmers whose milk is pooled and 

priced under the terms of Federal milk 

orders. 

A panel of three dairy farmer 

members of DFA, a separate witness 

representing DFA, and a witness 

representing both Mid-West and 

Lakeshore testified separately in support 

of Proposals 1 and 2. The DFA dairy 

farmer panelists own and operate 

separate farms in Wisconsin, Texas and 

Kentucky. DFA is a Capper-Volstead 

cooperative of approximately 10,500 

farms that produce milk in 49 states. 

Mid-West is a Capper-Volstead 

cooperative representing 163 dairy 

farms. Lakeshore is comprised of 

Manitowoc Milk Producers Cooperative, 

Milwaukee Cooperative Milk Producers, 

Mid-West and Scenic Central Milk 

Producers Cooperative. Mid-West and 

Lakeshore are located primarily in 

Illinois and Wisconsin. 

Both the DFA dairy farmer panel and 

the Mid-West-Lakeshore witness 

testified that the producer-handler 

exemption reduces revenues for all 

dairy farmers whose milk is pooled on 

Federal orders. The DFA witness and 

the Mid-West-Lakeshore witness 

asserted that producer-handlers also 

disadvantage fully regulated handlers. 

Specifically, the DFA witness and the 

Mid-West-Lakeshore witness explained 

that producer-handlers retain the 

difference between the minimum Class 

I price and the statistical uniform price 

while fully regulated handlers that are 

similarly situated are required to 

account for milk at minimum class 

prices and pay into the producersettlement fund. The Mid-WestLakeshore witness added some dairy 

cooperatives that own and operate fluid 

milk plants have assumed the same risk 

as producer-handlers without enjoying 

the ability producer-handlers have, 

because of their exemption, to balance 

surplus production by adjusting 

packaged milk prices relative to 

production volume. The Mid-WestLakeshore witness asserted that a 

producer-handler in the Upper Midwest 

(Order 30) marketing area, for example, 

has a $0.14 per gallon ‘‘advantage,’’ on 

average, over fully regulated handlers 

due to its pool exemption. Similarly, the 

DFA witness testified that since a 

producer-handler in Order 32 began 

supplying a regional grocer about a year 

ago, its milk has consistently been the 

lowest priced brand. In some of the 

markets where DFA markets milk, price 

concessions, including premium 

discounts, have been needed to meet 

competition from producer-handlers, 

and some of DFA’s processor-customers 

have expressed concern that producerhandlers are marketing milk at such low 

prices that it is difficult to compete, the 

DFA witness stated. 

The DFA dairy farmer panel stated 

that if fully regulated processing plants 

were closed due to unfair producerhandler competition, outlets for milk 

would become fewer and located further 

away from producers, which would 

result in higher hauling costs. 

Ultimately, the DFA dairy farmer panel 

was of the opinion that the integrity of 

the order system would be undermined, 

and the future of dairy farmers 

jeopardized, if the producer-handler 

provisions were allowed to remain. The 

Mid-West-Lakeshore witness echoed 

this position, noting that while MidWest and Lakeshore do not currently 

compete with any producer-handlers, a 

large farm under construction near a 

Mid-West plant was identified as a 

potential producer-handler whose 

operations could lower the revenues of 

Lakeshore dairy farmers. The DFA 

witness provided data on the number of 

‘‘larger’’ dairy farms across the country, 

estimating the potential negative 

impacts on producer minimum blend 

prices if these farms were to become 

producer-handlers. Accordingly, the 

DFA witness asserted that Proposals 1 

and 2, if adopted, would add stability to 

the order system, and assure regulated 

handlers that their competitors pay the 

same minimum prices. 

The DFA witness testified that many 

producer-handlers have maintained 

their businesses within the 150,000- 

pound per month exempt plant limit on 

Class I disposition and the proposal to 

triple this size limit for the exempt plant 

provision would allow a reasonable 

expansion path for many of these 

operations. Furthermore, the DFA dairy 

farmer panel and the DFA witness 

asserted that a 450,000-pound per 

month limit would provide a majority of 

dairy farmers the opportunity to try onfarm processing and marketing, and if 

an operation is successful enough to 

grow the business beyond this level it 

would become fully regulated. The DFA 

witness also testified that the unique 

labeling component of Proposal 2 is 

essential because without it an incentive 

would exist for an integrator to ‘‘daisychain’’ a group of plants to process and 

package under the same label for the 

same customer. The DFA witness agreed 

with the position of NMPF and IDFA 

that the unique labeling provision 

would still allow for bottling under 

multiple labels as long as the labels 

were not shared across processors. 

Witnesses representing MMPA, 

Prairie Farms and MD&VA testified 

separately in support of Proposals 1 and 

2. MMPA is a Capper-Volstead 

cooperative in Michigan. Prairie Farms 

is a Capper-Volstead cooperative, based 

in Illinois, operating 35 fluid milk and 

dairy product processing plants, 26 of 

which are regulated under 5 Federal 

orders. MD&VA is a Capper-Volstead 

cooperative with more than 1,500 

members, marketing member and nonmember milk in 3 Federal orders in the 

Mid-Atlantic and Southeast. MD&VA 

owns and operates three fully regulated 

fluid milk plants, one balancing plant 

and has a majority interest in a second 

balancing plant. 

The MMPA, Prairie Farms and 

MD&VA witnesses provided testimony 

that was largely in agreement with the 

testimony of the DFA dairy farmer 

panel, and the DFA and Mid-WestLakeshore witnesses. The MMPA 

witness testified specifically to the 

increased average size of Michigan dairy 

farms and the possibility that these 

larger dairy farms may become 

producer-handlers. The Prairie Farms 

witness joined in this concern, stating 

that while there are currently only a few 

‘‘large’’ producer-handlers in operation 

across the country, the potential for new 

ones exists. Similarly, the MD&VA 

witness asserted that despite the 

relatively small number of producerhandlers in the Appalachian and 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54389 

Southeast (Federal Orders 5 and 7) 

marketing areas, the potential for growth 

in producer-handler numbers still 

exists. The MD&VA witness explained 

that the combined growth of large farms 

and discontinuation of smaller farm 

operations has created the potential for 

construction of bottling plants on large 

farms. Additionally, the MD&VA 

witness testified that the Appalachian 

and Southeast marketing areas, as 

deficit markets that source out-of-area 

milk, face the possibility of large farms 

located outside of the marketing areas 

obtaining producer-handler status and 

gaining advantages over fully regulated 

handlers who consistently supply the 

two markets. The MD&VA witness was 

of the opinion that producer-handlers 

should pay the same minimum prices as 

MD&VA’s customers. 

The Prairie Farms witness testified 

that as a fully regulated handler, Prairie 

Farms can compete with any other fully 

regulated handler but not with a 

producer-handler that has an unfair 

advantage owed to its exemption from 

full regulation. The MD&VA witness 

stated that MD&VA is billed on a 

monthly basis because of its pool 

obligation while producer-handlers are 

exempt, the MD&VA witness stated. 

Producer-handlers’ exemption from 

pool payment is equivalent to a price 

advantage of $0.23 per gallon in the 

areas in which MD&VA markets milk, 

according to the MD&VA witness. 

The Prairie Farms witness testified 

that adoption of Proposals 1 and 2 

would not harm those that want to 

process, package and sell own-farm 

milk. Rather, the proposed changes 

recognize that when a handler reaches 

a certain size, the size of that operation 

could negatively impact fully regulated 

handlers and producers alike. Similarly, 

the MD&VA witness noted that the 

adoption of the NMPF proposals would 

provide protection to the pool which is 

necessary because marketwide pooling 

is the only way all producers and 

cooperatives share in the higher value 

associated with Class I products. 

The MMPA witness also testified that 

an increase in the exempt plant Class I 

route disposition limit to 450,000 

pounds per month would allow 

relatively small processors to meet the 

needs of niche markets without causing 

disorder, and increase overall consumer 

demand for dairy products and 

encourage the development of new 

dairy products. 

A dairy farmer witness representing 

UDA testified in support of Proposals 1 

and 2. UDA is the only Capper-Volstead 

cooperative in the state of Arizona. The 

witness testified in support of Proposal 

1 as a preventative measure, and noted 

that producers in the Arizona (Order 

131) marketing area have realized higher 

blend prices since a cap was placed on 

producer-handler Class I dispositions in 

a prior rulemaking. The UDA witness 

stated that plants with 450,000 pounds 

or less of monthly Class I disposition 

serve small niche markets, are not 

disruptive and should not be subject to 

full regulation. 

A witness representing NDA and 

Darigold testified in support of 

Proposals 1 and 2. NDA is a CapperVolstead cooperative comprised of 530 

producers located in Washington, 

Oregon, Idaho, Utah, and California. 

NDA and Darigold Inc., wholly owned 

by NDA, own and operate bottling 

plants and manufacturing plants in the 

Pacific Northwest (Order 124) marketing 

area and Idaho. 

The NDA–Darigold witness testified 

that the buyers in the region where NDA 

and Darigold operate are sophisticated 

and price conscious. Drawing from 

conversations with milk buyers, the 

witness illustrated that when buyers are 

presented the opportunity to buy Class 

I milk at a lower price, ruinous 

competition between fully regulated and 

unregulated handlers develops. The 

witness went on to explain that the 

combination of a buyer’s desire for 

lower prices and the occurrence of 

similarly situated handlers competing 

on an uneven playing field creates 

disorderly marketing conditions within 

the market which drive prices below 

commercially reasonable levels. 

The NDA–Darigold witness stated that 

the disorderly marketing and unfair 

competition that led to the changes in 

Orders 124 and 131 no longer exist 

since the implementation of the 3- 

million–pound limit on monthly Class I 

disposition in the marketing areas. The 

witness also noted that producers now 

receive a slightly higher blend price and 

three of the producer-handler operations 

affected by the rulemaking continue to 

operate. 

The NDA–Darigold witness testified 

that handlers with 450,000 pounds or 

less of Class I sales per month should be 

treated uniformly under the exempt 

plant provision. The witness asserted 

that this proposed change closely 

reflects the AMAA’s intent that 

regulation should apply equally to all 

handlers. The witness offered that aside 

from grandfathering certain current 

producer-handlers, the exempt plant 

provision should be the only basis for 

exemption from pooling and pricing in 

the future. 

A witness appeared on behalf of St. 

Albans in support of Proposals 1 and 2. 

St. Albans is a dairy Capper-Volstead 

cooperative based in Vermont that 

processes and markets milk pooled on 

the Northeast order (Order 1). The 

witness testified that the Northeast 

order has more producer-handlers and 

exempt plants than any other order. 

Relying on the Order 1 Annual 

Statistical Bulletin for 2008, the witness 

stated that the Class I sales from 15 

producer-handlers and 46 exempt plants 

are not included in the marketwide 

pool. The witness was of the opinion 

that most of the exempt plants are also 

producer-handlers. 

The St. Albans witness testified that 

large producer-handlers impact Federal 

order pools and a producer-handler 

located outside the Northeast marking 

area marketed milk into that area during 

every month of 2008 in direct 

competition with fully regulated plants 

supplied by local producers. The 

witness asserted that while St. Albans 

currently faces no competition from 

producer-handlers located in the 

Northeast marketing area, the location of 

the producer-handler is irrelevant since 

milk shipped from outside the order 

competes with local production. As 

such, the witness stated that the rapid 

growth in volume of producer-handler 

milk sales represents a potential market 

disruption. 

The following handler members and 

other supporters of IDFA including the 

Northeast Dairy Foods Association 

(NDFA), Worcester Creameries 

(Worcester), Elmhurst Dairy (Elmhurst), 

Mountainside Farms (Mountainside), 

Steuben Foods (Steuben), Harrisburg 

Dairies (Harrisburg), the Pennsylvania 

Association of Milk Dealers (PAMD), 

Anderson Erickson Dairy (AE), Price’s 

Creameries (Price’s), and Bareman Dairy 

(Baremen) testified in support of either 

the elimination of the producer-handler 

provisions or the increase of the exempt 

plant limit on Class I route disposition, 

or both. 

A witness appeared on behalf of IDFA 

in support of Proposals 1 and 2. 

According to the witness, IDFA is a 

trade association representing 

manufacturers, marketers, distributors 

and suppliers of fluid milk and related 

products including ice cream, frozen 

dairy desserts and cheese. The witness 

noted that most of the milk purchased 

and processed by IDFA members is 

regulated under the Federal order 

system. 

The IDFA witness testified that the 

elimination of the producer-handler 

provisions is necessary for a number of 

reasons, all of which give rise to 

disorderly marketing. According to the 

witness, exemption from pooling and 

pricing allows producer-handlers to, in 

effect, pay the uniform price rather than 

the Class I price for own-farm milk. As 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54390 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

a result, producer-handlers have a milk 

acquisition cost advantage over fully 

regulated plants, solely on the basis of 

a regulatory exemption, the witness 

stated. The witness asserted that 

disorderly marketing conditions arise 

when some but not all handlers are 

subject to payment of the Class I 

minimum price. According to the 

witness, handlers not subject to full 

regulation can use their artificial cost 

advantage to offer customers a lower 

price than can be offered by a fully 

regulated handler. 

The IDFA witness also asserted that 

the need for the elimination of the 

producer-handler exemption stems from 

significant structural changes which 

have occurred at all levels of the dairy 

industry. The witness explained that in 

1998 only 235 farms reportedly had 

more than 2,000 cows and by 2008 that 

number had increased to 730 and 

accounted for 30.5 percent of all U.S. 

milk production. Providing additional 

perspective, the witness noted that 

farms with more than 500 milk cows 

accounted for 58.5 percent of U.S. milk 

production in 2008. Cows in the top 5 

milk producing states now produce on 

average, 23,000 pounds of milk per year, 

the witness stated. The witness 

illustrated that a 500-cow farm in these 

states could have monthly production 

of, on average, nearly 1 million pounds. 

Additionally, the witness explained that 

a 2,000-cow herd with the same average 

would be expected to produce nearly 46 

million pounds annually, or 4 million 

pounds monthly. The witness was of the 

opinion that large farms, with milk 

production levels never contemplated 

when producer-handlers first became 

exempt from pooling and pricing, are 

present in the marketplace today. 

With regard to Proposal 2, the IDFA 

witness asserted that IDFA and NMPF 

jointly support an increase of the limit 

on Class I disposition for exempt plants. 

The witness further explained that an 

increase in the exempt plant limit is 

intended to preserve regulatory 

exemption for those plants too small to 

cause material market disruption, 

including those small plants previously 

exempted as producer-handlers. The 

current 150,000 pounds per month 

threshold was adopted in all Federal 

orders as part of Federal order reform as 

it was the highest volume threshold in 

existence at the time, the witness noted. 

Furthermore, the witness asserted that 

since 1990, the time period for which 

data was available when the exempt 

plant provision was adopted, the 

average volume of fluid milk products 

produced by U.S. fluid milk bottling 

plants operated by commercial 

processors has roughly doubled, from 

93.9 million pounds annually in 1990 to 

189.8 million pounds in 2007. The 

witness noted that while the data might 

suggest a doubling of the threshold, the 

overall upward trend clearly shows that 

average fluid milk bottling plant 

volumes continue to increase over time, 

which warrants the adoption of a limit 

that allows for future growth while 

remaining tied to the structural trends of 

the industry. 

Proposal 2, according to the IDFA 

witness, also requires that an exempt 

plant sell its fluid milk products using 

unique labels, lest this exemption be 

abused through the establishment of 

numerous ‘‘small’’ plants effectively 

linked together to market their milk 

jointly and to garner the advantages of 

a large plant without being subject to 

full regulation. The witness noted that 

this particular feature is not intended to 

prevent an exempt plant from marketing 

packaged fluid milk products under 

more than one label. The witness 

provided the example of an exempt 

plant with its own label and other labels 

distributed to a local grocery store and 

via home delivery to illustrate this 

assertion. Ultimately, the witness stated 

that an exempt plant should not be able 

to distribute fluid milk products under 

the same name used by any other 

handler. 

A witness appeared on behalf of 

NDFA in support of Proposal 22 seeking 

elimination of the producer-handler 

provisions. NDFA is a trade association 

based in New York, representing dairy 

processors, manufacturers and 

distributors The NDFA witness 

provided testimony similar to others 

regarding the outdated nature of the 

producer-handler exemption. The 

NDFA witness added that an exemption 

for both producer-handlers and exempt 

plants is inappropriate because 

producer-handlers and exempt plants 

are in direct competition with fully 

regulated handlers. The witness cited 

the procurement of raw milk at lower 

prices, ease of balancing and the ability 

to make pricing adjustments more 

quickly as advantages that accrue to 

exempt handlers. Furthermore, the 

NDFA witness asserted that exempt 

handlers retain the difference between 

the Class I price and uniform price 

which reduces the blend price to 

producers. However, the NDFA witness 

was not opposed to the current exempt 

plant provision. 

A witness appeared on behalf of 

Worcester, Elmhurst, Mountainside and 

Steuben (Worcester et al.). With the 

milk of approximately 200 producers 

and additional purchases of cooperative 

milk, Worcester supplies Elmhurst, 

Mountainside and Steuben, all of which 

are fluid milk plants. The witness 

echoed the testimony of the NDFA 

witness in support of the elimination of 

producer-handler and exempt plant 

provisions. The Worcester et al. witness 

testified in exclusive support of 

Proposal 1 in the event that the exempt 

plant provision was not eliminated. 

By example, the Worcester et al. 

witness asserted that an existing New 

York producer with 4 million pounds of 

monthly production would have a cost 

advantage as a producer-handler and 

would reduce the amount of business 

that proximate fully regulated handlers 

could secure. The witness also testified 

that any increase in exempt plant 

volume would further contribute to 

handler inequity. 

A witness representing Harrisburg 

and PAMD testified in support of 

Proposals 1 and 19. Proposal 19 would 

adopt the 450,000 pound per month 

limit on Class I disposition for exempt 

plants as proposed jointly by NMPF and 

IDFA. The witness testified that 

Harrisburg is a member of PAMD. 

Harrisburg is fully regulated under 

Order 1 with monthly Class I route 

distribution of 4 to 6 million pounds. 

The Harrisburg witness stated that 

Harrisburg Dairies is not presently in 

direct competition with producerhandlers. The witness asserted that 

there is a threat presented by Western 

Pennsylvania producer-handlers 

servicing the same type of retail chains 

as Harrisburg Dairies. The witness 

testified that their operation would not 

survive in its current form if producerhandlers move into eastern 

Pennsylvania. Based on Harrisburg 

Dairies’ experience as a regulated 

handler, the witness estimated that a 

producer-handler of similar size would 

have an average cost advantage of 

$100,000 per month over a fully 

regulated plant because of the pool 

payment exemption. The witness 

testified that Harrisburg Dairies was 

recently asked to become a producerhandler and declined. The witness 

asserted that it is not reasonable for 

some processors to enjoy regulatory 

privileges that other processors do not. 

A consultant witness, a witness 

representing AE and a witness 

representing Price’s, each testified to the 

characteristics and impacts of producerhandlers. The consultant witness 

appeared on behalf of Prairie Farms, 

Dairy Institute of California, NDFA, AE, 

PAMD, Dean Foods Company (Dean), 

National Dairy Holdings, LP, Shamrock 

Foods Company (Shamrock), Shamrock 

Farms and partner farms. 

The consultant witness has had 

involvement in the dairy industry for 

more than two decades and is currently 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54391 

a shareholder in Wilcox Farms (Wilcox), 

a large fluid milk processor and the 

witness’ former employer. AE is private 

family business with 525 full-time 

employees and a processing plant in 

Order 32. AE offers fluid milk and other 

dairy products that are distributed in 

Iowa and portions of six other states. 

Price’s, a division Dean, has 170 

employees and serves the El Paso, 

Texas, area. 

The consultant witness and the AE 

and Price’s witnesses did not testify in 

specific support or opposition to any 

proposals under consideration. Rather, 

each of the witnesses provided 

examples of producer-handler 

competition with fully regulated 

handlers. The consultant witness 

testified that in 1974, a large regional 

grocery chain asked Wilcox to build a 

fluid processing plant and qualify as a 

producer-handler as a means of 

supplying the customer at a lower cost. 

During the period that Wilcox was a 

producer-handler, the grocer was able to 

balance supply through another source, 

the consultant witness stated. The 

consultant witness further testified as to 

the nature of customer-driven 

competition, noting that after 

conversion to fully regulated status in 

1987, Wilcox was occasionally asked to 

lower its price to meet a competitor 

even when the competitor could serve 

only a small number of stores. 

The Price’s witness testified to having 

recently lost business to a producerhandler in the El Paso area. The Price’s 

witness opined that the producerhandler’s processing capacity to be as 

much as 752,000 gallons per week— 

enough to supply 80 percent of the 

demand in the area. In March and April 

2009, Price’s stopped supplying several 

stores in the El Paso area when an 

operation that had gained producerhandler status in January 2009 assumed 

that portion of a national retailer’s 

business, the witness testified. 

According to the witness, the national 

retailer had been purchasing 66,000 

gallons per week from Price’s before it 

switched to the producer-handler 

supplier. The witness was of the 

opinion that Price’s lost business to the 

producer-handler solely on the basis of 

price. The witness further stated that 

after Price’s lost the account, a Price’s 

employee observed a $0.34 per gallon 

reduction in the customer’s retail price, 

translating to a wholesale loss of about 

$4 per hundredweight (cwt) However, 

the Price’s witness acknowledged that 

lower milk prices in El Paso were not 

solely attributable to the producerhandler in the area. 

The AE witness testified that AE 

shares a large customer in the Kansas 

City area with Heartland Creamery 

(Heartland), a producer-handler. The 

witness went on to explain that the 

shared customer traditionally uses a bid 

process to secure a supply of milk for 

two private labels and in 2007, AE 

successfully bid on the account 

consisting of the two private labels in 

addition to the branded product account 

AE already held. According to the AE 

witness, the customer’s pricing scheme 

is such that the brand name product is 

priced about $0.10 above the private 

label product displaying the store’s 

name while the private label product 

with the more generic name is priced 

about $0.20 below the store name 

product. Based on observations of the 

dairy cases in a number of locations and 

additional knowledge as to purchasing 

practices of the customer, the witness 

offered that AE continued supplying the 

customer with the generic label product 

until it was gradually replaced by 

Heartland’s branded product at a lower 

price point. The witness testified that 

AE went from annualized sales of 

185,000 to 40,000 gallons of the generic 

label in one year, and the generic label 

product is now no longer produced. 

It was noted by the AE witness that 

the replacement of a low-cost generic 

labeled product with a branded product 

is somewhat unusual. Given that AE 

continues to supply the customer with 

the AE branded product and the private 

label store name product, the fact that, 

the AE generic label product was 

replaced by the Heartland branded 

product and the AE generic label 

product was in the most price sensitive 

category, the witness concluded that 

Heartland’s ability to obtain the 

customer’s business was solely on the 

basis of price not quality or service. In 

addition, based on AE employee 

conversations with the retailer, the 

witness asserted that the retailer 

account was lost on the basis of price, 

and in particular because of Heartland’s 

pricing strategy of supplying the 

account at a lower price than the AE 

price. 

The AE witness further asserted that 

sales of the AE-produced private label 

store name product have decreased 

approximately 200,000 gallons annually 

since the Heartland product was 

introduced. The witness estimated that 

Order 32 has lost approximately 3.25 

million pounds from the pool due to the 

discontinuation of the AE private label 

generic name product and the reduction 

in sales of the AE private label store 

name product attributable to Heartland’s 

direct competition. 

The consultant witness and the AE 

witness both testified that regulated 

handlers are able to compete with 

producer-handlers in terms of service, 

quality, advertising and packaging, but 

producer-handlers have a clear 

advantage in terms of price. The AE 

witness specifically noted that AE is 

able to respond to more efficient 

operations but the presence of 

regulation which creates inequality is 

not something that can necessarily be 

overcome. 

The consultant witness went on to 

testify regarding producer-handler 

proliferation. For a producer with 

10,000 cows it is comparatively easier to 

add a processing plant than for a 

processor with the capacity to process 

the milk of 10,000 cows to add dairy 

cattle, the consultant witness stated. In 

support of this assertion, the consultant 

witness testified that in the late 1990s, 

Wilcox built a plant with capacity for 

the milk of 5,000 cows for less than $7 

million, and the investment to double 

that capacity would likely have been 

less than $3 million. The consultant 

witness stated that a recent University 

of Florida study found construction of a 

processing plant for the milk of a 

10,000-cow herd would require about 

$40 million. 

The consultant witness described 

several recent trends that enhance 

producer-handler viability: many dairy 

farms are large enough to exclusively 

supply a processing plant; producerhandlers are attractive investments; and 

many milk buyers have multiple 

suppliers capable of balancing 

producer-handlers’ supply. The witness 

testified that uncertainty of the future 

regulation of very large producerhandlers has constrained investment in 

these businesses, but if USDA does not 

modify the producer-handler provisions 

as a result of this proceeding, the 

number of producer-handlers will grow. 

A witness representing Bareman, a 

fluid processer in Michigan, testified in 

support of Proposals 1 and 2. According 

to the witness, Bareman purchases milk 

from cooperatives and is fully regulated 

under the Mideast order (Order 33). The 

witness noted that Bareman competes 

against a number of large fluid milk 

processors and Country Dairy, a 

producer-handler. 

The Bareman witness reiterated the 

testimony of others regarding the 

advantage created by the producerhandler exemption and its associated 

effects on pooled producers and fully 

regulated handlers. The witness added 

that Bareman, as a fully regulated 

handler, is assured that other fully 

regulated handlers pay minimum prices 

in the same manner that it does. 

The Bareman witness testified to 

having lost some accounts to a 

producer-handler, often on the basis of 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54392 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

price. The witness provided an example 

wherein Bareman engaged in price 

competition with Country Dairy (a 

producer-handler) for a convenience 

store account during the spring flush. 

Bareman, the witness testified, was 

ultimately unable to meet the low price 

offered by the producer-handler. The 

disruption noted in this example, the 

witness asserted, arises because of 

producer-handlers’ need to balance 

sales with milk production and their 

resultant willingness to turn to ‘‘fire 

sales’’ for established customers and any 

others that might be receptive. 

Additionally, representatives of the 

Federation of Organic Dairy Farmers 

(FOOD), Cornucopia Institute 

(Cornucopia), National All Jersey (NAJ), 

and the State Departments of 

Agriculture in New Hampshire (NH), 

New York (NY), Pennsylvania (PA), 

Vermont (VT), and Wisconsin (WI), 

testified in support of the elimination of 

the producer-handler provisions, the 

increase of the exempt plant limit on 

Class I route disposition, or both. 

A panel of three dairy farmers 

representing FOOD and a witness on 

behalf of Cornucopia testified in support 

of Proposal 2. FOOD is an umbrella 

organization that represents the Western 

Organic Dairy Producers Alliance 

(WODPA), the Midwest Organic Dairy 

Producers Alliance (MODPA) and the 

Northeast Organic Dairy Producers 

Alliance (NODPA). According to the 

panel, FOOD represents nearly twothirds of the organic dairy farmers in the 

country. The Cornucopia witness 

testified that the Cornucopia Institute is 

a charitable organization serving the 

organic industry. 

By example, the Cornucopia witness 

illustrated the ways that Aurora Organic 

Dairy’s (Aurora) exempt status as a 

producer-handler is disruptive. The 

Cornucopia witness was of the opinion 

that Aurora used the regulatory 

loophole to establish one of the largest 

market shares in the organic dairy 

industry. The witness testified that 

adoption of a limit of 450,000 pounds of 

Class I sales per month for exempt 

plants, as suggested by Proposal 2, 

would be reasonable and sufficiently 

large to accommodate ‘‘legitimate’’ 

family farmers seeking to engage in 

processing and marketing dairy 

products, while minimizing disruption 

associated with the current producerhandler provisions. 

The FOOD panel testified in support 

of a hard-cap limit of 450,000 pounds of 

Class I route disposition per month for 

both producer-handlers and exempt 

plants. The FOOD panel was of the 

opinion that a 450,000-pound per 

month limit on Class I disposition 

would honor the original intent of the 

producer-handler exemption. 

Furthermore, the FOOD panel testified, 

an exempt plant limit of 450,000 

pounds of Class disposition per month 

would ensure a level playing field while 

allowing small scale operations to 

package and sell their product locally. 

The FOOD panel also testified that 

Aurora has been able to use the scale of 

its operation in combination with its 

exemption from full regulation to 

capture a great deal of the organic 

market in the Northeast. According to 

the FOOD panel, Aurora’s significant 

presence in the Northeast marketing 

area has negatively impacted the price 

local organic producers receive for their 

milk and threatened the viability of the 

handlers that purchase local milk 

supplies. 

A witness representing NAJ testified 

in agreement with Proposal 2. The 

witness testified that NAJ is a 

membership organization that 

represents over 1,100 dairy producers 

and is an affiliate member of both NMPF 

and IDFA. The NAJ witness testified 

that the current Federal order producerhandler and exempt plant provisions are 

inequitable. The witness was of the 

opinion that handlers with own-farm 

milk production can be treated very 

differently for outside purchases of milk 

depending on the marketing area where 

they have disposition. The witness 

testified that some Class I milk should 

be exempt from Federal order pooling 

and pricing, and as such, NAJ supports 

Proposal 2. 

A panel of witnesses on behalf of the 

New Hampshire Department of 

Agriculture, Markets and Food; the New 

York Department of Agriculture and 

Markets; the Pennsylvania Department 

of Agriculture; the Vermont Agency of 

Agriculture, Food and Markets; and the 

Wisconsin Department of Agriculture, 

Trade and Consumer Protection (State 

Departments of Agriculture); and 19 

producer-handlers and exempt plants 

located in Wisconsin adopted Proposal 

2 in lieu of Proposal 9. 

The State Departments of Agriculture 

panel supported the unique labeling 

provision of Proposal 2. The panel was 

of the opinion that this provision is 

necessary to prevent the aggregation of 

exempt milk for mass distribution, but 

was not in support of the adoption of 

any other labeling restrictions. 

Conversely, a panel of consultant 

witnesses representing the American 

Independent Dairy Alliance (AIDA) and 

representatives of Braum’s Ice Cream 

and Dairy Stores (Braums), Kreider 

Farms (Kreider), Aurora Organic Dairy 

(Aurora), GH Dairy—El Paso (GH Dairy), 

Heartland Creamery (Heartland), 

Snowville Creamery (Snowville), 

Northeastern state legislators, 

Shamrock, Diamond D Dairy (Diamond 

D), a Southeastern dairy farm, Shatto 

Farms, Inc. (Shatto), Country Dairy, 

Mallorie’s Dairy (Mallorie’s), Hatchland 

Dairy (Hatchland), Dunajski Dairy 

(Dunajski), NDFA and Country Morning 

Farms (Country Morning) testified in 

opposition to the elimination of the 

producer-handler provisions, an 

increase in the exempt plant monthly 

Class I disposition limit, or both. 

The panel of consultants testifying on 

behalf of the American Independent 

Dairy Alliance (AIDA) provided 

testimony as to the lack of foundation 

for Proposals 1 and 2. The panel 

testified that producer-handlers do not 

create disorderly marketing conditions 

since they supply only 1.46 percent of 

the national fluid milk market. The 

significant concentrations of market 

power enjoyed by cooperatives and 

processors result in producer-handler 

market share that is minuscule by 

comparison, the panel asserted. The 

panel further asserted that a primary 

objective of the AMAA is the consistent 

supply of fluid milk to consumers and 

given the Class I utilization levels of the 

orders it would appear there is no 

disruption present in the marketing 

areas. 

Furthermore, the AIDA consultant 

panel asserted there is no realistic threat 

that producer-handlers will ever achieve 

such a scale of operation to become a 

source of disorder as defined by the 

AMAA. The panel was also of the 

opinion that if producer-handlers had a 

substantial competitive advantage as 

alleged, there would be more new 

producer-handlers. The panel 

acknowledged that one factor 

influencing the decision to become a 

producer-handler is the regulatory risk 

associated with the elimination or 

amendment of the provision. In 

addition, the panel provided its opinion 

of conditions which could be 

considered disorderly and those which 

could not and asserted that producerhandlers are not causing disorder. The 

panel was of the opinion that the crucial 

issue is whether treatment is equitable 

in light of the objectives of the AMAA. 

The AIDA consultant panel stated that 

its analysis revealed a number of 

relevant considerations. The panel 

identified these considerations as 

follows: producer-handlers are 

frequently engaged in the production of 

unique and growing niche market 

products such as organic, kosher, and 

grass-fed milk, which are inherently 

much more costly to produce; some 

producer-handlers continue the 

tradition of home delivery; producerVerDate Nov<24>2008 18:41 Oct 20, 2009 Jkt 220001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 E:\FR\FM\21OCP4.SGM 21OCP4

pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54393 

handlers adjust their production 

patterns to minimize surplus 

production, which would otherwise be 

sold at a substantial loss; the managers 

of producer-handler operations have to 

divide their attention between both the 

farming and the processing sides of the 

operation and as such, do not realize 

cost advantages associated with 

specialization; and producer-handlers 

have substantial capital investments in 

their production, processing and 

distribution. The panel asserted that 

ignorance of these realities would lead 

conclusions about producer-handlers to 

be drawn without foundation. The panel 

also explained that niche market 

products can take many forms, 

primarily based on the unique consumer 

preferences associated with a given 

product and a product can lose the 

‘‘niche’’ categorization as it becomes 

relatively less unique due to a greater 

availability of products with similar 

attributes. The panel asserted that even 

producer-handlers who do not serve a 

niche market remain constrained by the 

costs of their operation and that 

producer-handler status is the only way 

they can compete in a monopolistic 

market situation. 

The AIDA consultant panel was of the 

opinion that its survey of AIDA 

producer-handler members revealed a 

great level of diversity across the 

operations. More specifically, the panel 

noted that AIDA producer-handlers 

members: are all small businesses, 

relative to many cooperatives and 

processors; each have their own market 

niches that serve particular consumer 

tastes and preferences reflective of the 

ever increasing diversity of the 

consumer market; sometimes provide 

home delivery services; sometimes 

operate their own stores; market to 

smaller wholesale outlets with smaller 

volumes per account; market products 

with consumer prices that generally 

exceed those of conventional products; 

and provide necessary competition. 

Based on analysis performed using 

USDA data, the AIDA consultant panel 

concluded that the average producerhandler increase in size lies between 

that of the producer and processor size 

increases between 1969 and 2008. 

Furthermore, the panel noted that 

USDA plant structure data shows that of 

the 45 producer-handlers in May 2008, 

40 had sales volume of less than 2 

million pounds and 5 had volume of 

over 2 million pounds. In comparison, 

46 conventional pool plants had a 

volume of less than 2 million pounds 

and 210 had volume of over 2 million 

pounds—73 of which had volume of 

over 20 million pounds. The panel 

asserted that these figures clearly 

indicate that producer-handler growth is 

constrained, and the requirement that 

producer-handlers must maintain sole 

ownership and control over their 

operations places a de facto limit on the 

size of producer-handlers dictated by 

the realities of integrated operations. 

However, the panel acknowledged that 

those producers who recently 

constructed bottling plants and intend 

upon seeking producer-handler status 

were not known at the time the analysis 

was conducted and as such, were not 

included. The panel also acknowledged 

that both producer and processor 

operations could realize lower costs 

with scale. 

The AIDA consultant panel noted that 

USDA data indicates that producerhandler numbers have decreased from 

421 in 1969 to 37 in March 2009. 

Additionally, the panel was of the 

opinion that USDA data does not 

indicate an increasing trend in 

producer-handler sales volumes. 

However, the panel acknowledged that 

the calculations used to arrive at these 

conclusions were for total volumes not 

Class I volumes, although the panel 

asserted that specific concentration on 

Class I volumes was not a necessary 

condition of a complete analysis. The 

panel also acknowledged that the 

analysis did not represent a scenario in 

which figures related to sales volumes 

for entities that had producer-handler 

status prior to the rulemaking in the 

Pacific Northwest and Arizona 

marketing area, which limited producerhandlers with a volume cap. 

Cost-of-production, the AIDA 

consultant panel asserted, is the only 

figure relevant in assessing the cost of 

raw milk faced by the handler portion 

of producer-handler operations. The 

panel further asserted that the 

appropriate transfer price for use in any 

analysis of producer-handler impacts 

should be based on costs of production 

not the difference between the blend 

price and Class I price. The panel 

testified that in general, the cost of milk 

production for all size farms exceeds the 

uniform price by $5 to $8 per cwt. The 

panel did not utilize specific producerhandler data in the cost-of-production 

research presented, and the panel was of 

the opinion that producer-handler data 

would not be substantially different 

from other dairy farm sector data. The 

panel noted that the prices analyzed 

were selected arbitrarily and the panel 

was not aware of the locations from 

which they were collected. The panel 

further stated that regardless of herd 

size, dairy farmers cannot rely on 

simply marketing their raw milk to 

ensure long-term economic viability. 

The producer-handler exemption helps 

farmers who opt to process their own 

milk compete with large fluid plants, 

the panel asserted. However, the panel 

asserted that producer-handlers do not 

have a price advantage as a result of 

their regulatory status. The AIDA 

consultant panel stated that disorder 

existed during the period when the 

AMAA was enacted due to the relatively 

few number of milk buyers and a large 

number of producers seeking outlets. 

The panel further asserted that a lack of 

marketing alternatives is currently an 

issue in some areas where producers are 

reduced to either marketing milk 

through a single cooperative or 

marketing as a producer-handler. By 

example, the panel provided the 

opinion that two producers in the same 

market may not equivalently enjoy the 

benefits of the pool, despite the fact that 

each producer delivers to the same 

cheese plant, because one producer 

markets through a cooperative classified 

as a buyer, while the other remains 

independent. The panel was also of the 

opinion that Federal orders do not 

provide uniform prices to producers 

because prices vary based on 

component values, over-order premiums 

and hauling charges. However, the 

panel testified that the analysis of 

producer prices presented did not take 

into account the formulas used to 

calculate paychecks based on the 

various factors. Ultimately, the panel 

asserted that if producer equity is a goal 

of Federal milk marketing orders, 

producer-handlers do not inhibit 

realization of such a goal. 

According to the AIDA consultant 

panel, pooling producer-handler milk 

would add $0.01 to $0.02 per cwt to the 

average statistical uniform price, an 

amount the panel described as 

insignificant. The panel also asserted 

that uniform and Class I prices could 

not be used as a basis for determining 

disorder. The panel arrived at this 

conclusion based on the opinion that 

prices determined via regulation are not 

real; instead prices determined in the 

marketplace are real and should be the 

basis for examination and identification 

of disorderly conditions. Furthermore, 

the panel testified that the additional 

burden of paying into the pool and 

completing associated paperwork would 

put some producer-handlers out of 

business, although the panel did not 

provide a characterization of those that 

would be expected to go out of business. 

The AIDA consultant panel addressed 

concerns that producer-handlers shift 

balancing costs. The panel argued that 

cooperative balancing is not just a 

service to the market because it is an 

integral part of cooperatives’ marketing 

strategy. As part of that strategy, 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54394 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

cooperatives gain market power from 

performing the balancing function as it 

provides the benefit of milk supply 

control, which allows for the 

negotiation of full supply contracts, the 

panel asserted. It was the opinion of the 

panel that without balancing, 

cooperatives could not negotiate either 

full supply contracts or premiums. 

Based on its survey of AIDA members 

and USDA data, the panel concluded 

that producer-handlers manage 

production levels to correspond with 

product sales plus a sufficient surplus 

capacity and producer-handlers bear the 

burden of selling their small surpluses 

on the market at a price that is almost 

always at a loss. 

Witnesses representing Braums, 

Kreider, Aurora, GH Dairy, Heartland 

and Snowville testified separately as 

members of AIDA. The AIDA members 

all testified in opposition to 

amendments to the current producerhandler provisions. Braums, a producerhandler, milks 12,000 cows with Class 

I utilization of about 50 percent and 

operates retail stores in Oklahoma, 

Texas, Arkansas, Kansas and Missouri. 

Kreider is a family operation located in 

Order 1 and has been a producerhandler since 1972. Aurora, a producerhandler, has 345 employees and is a 

national supplier of private-label and 

store-brand organic milk and butter. 

Aurora milks about 12,000 cows every 

day at 5 farms in Colorado and Texas, 

and is treated as a partially-regulated 

distributing plant under Order 131. GH 

Dairy, a producer-handler, with a plant 

located El Paso, Texas, sells milk to 

distributors and national retailers. 

Heartland is a producer-handler located 

in Missouri with distribution in 

Missouri, Kansas, Iowa, and Illinois. 

Snowville is an exempt plant located in 

Pomeroy, Ohio. 

The Kreider witness testified that 

Kreider produces less than 2.5 million 

pounds of Class I products per month 

and has Class I utilization between 64 

and 77 percent. The witness expanded 

upon the characteristics of Kreider’s 

operation noting that surplus milk is 

often marketed to an ice cream plant or 

to a cheese manufacturer. While Kreider 

is currently below the level of 3 million 

pounds of monthly Class I disposition, 

the implementation of a 3-million 

pound per month cap on Class I 

disposition may work for Kreider in the 

short-run but would not be sustainable 

or profitable in the long-run, the witness 

stated. The witness revealed that 

Kreider temporarily lost producerhandler status at one time, and that the 

associated pool obligations precluded 

its profit-making ability. Ultimately, the 

witness asserted, the processing portion 

of the enterprise would likely cease 

operations should Kreider have to make 

payments into the pool. 

The Kreider witness asserted that 

Kreider fluid products are often priced 

at a premium to the store brand price. 

The witness testified that Kreider 

operates in a niche market within its 

local region, selling milk to customers at 

above-average prices based on the 

perceived value of the product. Kreider 

markets both non-kosher and kosher 

milk. According to the witness, Kreider 

products are higher quality because they 

are locally and sustainably produced, 

chilled rapidly, rbST-free and produced 

on a farm that allows for consumer 

visits, the witness asserted. All of these 

characteristics, the witness explained, 

add to operating costs. 

According to the witness, Kreider 

produces kosher milk for Jewish 

communities in several East Coast 

states, and is under rabbinical 

supervision at the farm and in the plant 

and the same individual supervises both 

facilities. The witness was of the belief 

that while pool plants possess the 

ability to produce kosher milk, 

producer-handler operations are better 

suited to kosher milk production as a 

result of, in Kreider’s case, smaller scale 

and vertical integration. The witness 

elaborated on this point, explaining that 

a pool plant with multiple lines and 

sources of milk would require kosher 

supervision of a greater magnitude than 

is the case for producer-handler 

operations wherein the plant and the 

farm are more proximate and under 

identical control. 

The Aurora witness testified that one 

of the responsibilities of a producerhandler is to balance its own-farm milk 

supply. The witness indicated that 

Aurora balances through careful 

management of its finished goods 

inventory, powder and butter 

production with co-packers, bulk sales 

and farm production. The witness 

further explained that Aurora uses its 

longer life finished goods inventory to 

even out the peaks and valleys of 

customer orders relative to farm 

production. The witness noted that 

powder and butter serve as medium and 

long-term balancers as their shelf lives 

are substantially longer than that of 

fluid milk. 

The Aurora witness testified that their 

cost-of-production is considerably 

higher relative to conventional 

producers because Aurora does not 

produce anything other than certified 

organic milk. The witness testified that 

a producer-handler acquires milk at the 

cost-of-production on the farm, and that 

the cost-of-production for organic milk 

always exceeds Federal order class and 

uniform prices. The witness testified 

that Aurora has a $30 per cwt cost-ofproduction, and that this figure includes 

the capital and operating expenses of 

the farms, but does not include 

transportation of milk from the farms to 

the processing plant or capital and 

operating costs associated with the 

processing plant. The witness also noted 

Aurora is not similarly situated to others 

in the organic marketplace because of 

the operation’s investment in both 

organic dairy farming and processing, 

and the burden associated with the full 

risk and responsibilities of both. 

According to the Aurora witness, 

retailers select private label suppliers 

who have the ability to provide the 

needed product and volume; prioritize 

the customer’s business to meet all 

expectations and challenges; and deliver 

product orders reliably. The witness 

also noted that customers want private 

label suppliers that demonstrate 

rigorous quality assurance capabilities, 

maintain supply chain control and can 

implement corrective action effectively 

and quickly. The witness testified that 

one of the benefits of being vertically 

integrated is the ability to provide 

traceability and complete control of 

organic milk, characteristics that are 

important to Aurora’s clientele. To 

demonstrate the importance of good 

customer service, the witness noted two 

examples in which acquisition and 

maintenance of customer accounts is 

not a function of price. 

The Aurora witness indicated that in 

the organic market, the marketwide pool 

does not facilitate the balancing 

function due to the fragmented and 

dispersed nature of organic milk 

supplies and plants. The witness 

asserted that if the proposal to eliminate 

producer-handlers is adopted, Aurora 

would have to restructure and 

essentially completely revise its 

business model. 

The Aurora witness was of the 

opinion that it is not possible to 

determine the presence or absence of 

orderly marketing conditions without 

considering the actual prices being paid 

to producers and the actual cost of milk 

incurred by handlers. The witness 

testified that based on the actual prices 

and costs, Aurora has not observed any 

unfair competition or the creation of any 

disruption in the market as a result of 

producer-handlers, nor has Aurora 

observed any producer-handlers with a 

price advantage that resulted in a 

competitive advantage. 

The Aurora witness was of the 

opinion that any national policy that is 

adopted should preserve options and 

not foreclose them. The witness 

suggested that some of the proposals 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54395 

punish vertical integration in any form 

other than a cooperative, which is 

anticompetitive and bad for consumers. 

The witness asserted that some of the 

proposals pick one business model as 

the winner, stifle entrepreneurial 

enterprises, and eliminate independent 

vertically-integrated operations that 

meet changing consumer demand. 

The GH Dairy witness strongly 

opposed elimination of the producerhandler provisions and was of the 

opinion that producer-handlers are 

more diversified, innovative and 

responsive than cooperatives. The 

witness testified that GH Dairy’s 

customers appreciate the source 

verification they get as a result of GH 

Dairy having its own dedicated milk 

supply. Additionally, the witness noted 

the benefits of total control over 

processing and milk quality. 

The witness testified that GH Dairy’s 

major competitor has 86 or 87 plants, 

while the witness’s portfolio includes 

only 3. The witness asserted that 

producer-handlers are good for 

consumers because they bring 

competition to the marketplace. The 

witness further stated that dairy farmers 

have only two options, become a 

producer-handler or join a cooperative. 

The witness was of the opinion that 

while deregulation of the milk industry 

is preferable, most producers want 

regulation. The witness further testified 

that a producer-handler is not 

competitive until it distributes 1 million 

gallons per week (approximately 34 

million pounds per month) so 34 

million pounds of Class I disposition 

per month should be the limit for the 

producer-handler exemption. The 

witness affirmed that the transition of 

Sarah Farms, another entity owned by 

the witness, from producer-handler to 

fully regulated plant did not put the 

operation out of business. The witness 

testified that after becoming a fully 

regulated plant in April 2006, Sarah 

Farms underwent restructuring to 

increase production capacity and lower 

its costs. 

The GH Dairy witness also offered 

rebuttal to the testimony of the Price’s 

witness. According to the GH Dairy 

witness, GH Dairy was not a producerhandler at the time it successfully bid 

on school district business that had 

previously been held by Price’s. 

Furthermore, the witness noted, the 

fluid products being supplied to the 

school districts originated at the 

Anderson plant in Nevada and were 

being transported by the witness’ firm to 

the El Paso area. The witness also 

explained that the several El Paso area 

stores in which GH Dairy replaced 

Price’s as the supplier belong to a 

national retailer that uses one of the 

witness’s other fluid processing 

operations, Sarah Farms (a fully 

regulated handler) as a supplier in 

another part of the country. 

A panel of witnesses representing 

Heartland provided details regarding its 

operation. The panel noted that 

Heartland is a diversified operation 

which includes a goat dairy, a cow dairy 

and a milk plant. 

The Heartland panel noted that 

Heartland recently obtained kosher 

certification to produce 11 products. 

Echoing the Kreider witness’ testimony, 

the panel stated that Heartland was 

sought out by the kosher certification 

body, in part because of the dairy’s 

proximity to the plant and the 

associated potential for a single 

individual to supervise both operations. 

The panel further elaborated that 

Heartland’s kosher products could be 

marketed anywhere in the United States 

through the broker and distribution 

center that Heartland uses. 

The Heartland panel testified that as 

a producer-handler, Heartland faces 

competitive constraints that regulated 

handlers do not; and alternatively, 

regulated handlers face competitive 

constraints that Heartland does not. To 

this point, the panel explained that 

Heartland is unable to purchase milk 

while regulated handlers can. More 

specifically, the panel was of the 

opinion that Heartland does not have a 

disruptive impact on the market, as the 

operation has neither an effect on blend 

price to the farmers nor an unfair 

competitive advantage relative to fully 

regulated processing plants. The panel 

further asserted that Heartland is at a 

substantial disadvantage when 

compared with regulated processors 

paying Class I prices because Heartland 

acquires milk at its internal cost-ofproduction. It was also the opinion of 

the panel that Heartland has no 

advantage of size or scale. The panel 

further noted that in a recent attempt to 

secure a new customer, Heartland was 

refused because the customer conveyed 

it was not worth the effort to switch 

suppliers based on a $0.02 difference. 

The Snowville witness was of the 

opinion that the operation of a fluid 

milk plant with only 450,000 pounds of 

Class I route distribution per month 

would not be feasible and as such, a 1 

million pound per month limit on Class 

I disposition is more realistic. 

The Snowville witness recounted 

earlier testimony that smaller dairy 

farmers have a $4 to $5 per cwt 

disadvantage, and speculated that if 

these farms are able to survive into the 

future, it would be through adding value 

or government subsidies. The witness 

was of the opinion that if the option to 

become a producer-handler were to be 

eliminated, all small dairy farms below 

1,000 cows would effectively disappear. 

A panel testified on behalf of two 

dairy farms and Homestead. Homestead 

is a regulated plant located in the Order 

5 marketing area. The panel testified in 

support of an increase in the exempt 

plant monthly Class I disposition limit. 

Homestead, according to the panel, is a 

family run operation that primarily 

packages milk in glass bottles and 

distributes, in part, via home delivery. 

The panel noted that Homestead also 

has limited arrangements with Kroger. 

The Homestead panel suggested that 

450,000 pounds of Class I disposition as 

the standard for the exempt plant 

provision is not high enough, and 

instead suggested a limit of 1 million 

pounds of Class I disposition per month. 

The panel acknowledged that the 

cumulative effect of numerous 1000- 

cow operations would be disruptive, but 

that numerous 100-cow operations 

would not be due to the financial 

constraints associated with such smaller 

operations. 

A witness appearing on behalf of 

several Northeastern legislators testified 

in opposition to the elimination of the 

producer-handler provisions. The 

witness testified that the national 

impact of producer-handler dairy 

operations is very small and producerhandlers bear the true costs of 

production and delivery in the 

production of products that meet the 

demands of their consumers. In fact, the 

witness noted, state legislators have 

significant concerns about consolidation 

and concentration among the largest 

cooperatives and handlers and the 

associated impacts on the marketplace. 

Finally, the witness asserted that the 

problems in the dairy industry are not 

the result of a small number of 

producer-handlers, regardless of the 

sizes of the operations. The witness 

asserted that legislators in the Northeast 

think that a lack of competition in the 

dairy processing sector is damaging to 

both consumers and dairy producers in 

the Northeast. 

A witness on behalf of Shamrock, an 

Arizona milk processor, testified in 

support of the limits on route 

distribution currently in place for 

producer-handlers under Order 131. 

According to the witness, Shamrock is 

unique in that it owns a dairy farm, 

Shamrock Farms, aside from its milk 

processing business. 

The Shamrock witness testified that 

there are four primary fluid milk 

processors in Arizona. According to the 

witness, Shamrock’s primary competitor 

is a former producer-handler out of 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54396 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

Yuma, Arizona. The witness testified 

that this former producer-handler is 

Shamrock’s primary competitor because 

two of the other processors are primarily 

focused on own-store sales, leaving the 

balance of the retail supermarket 

channel, the mass merchandiser 

channel, convenience stores and 

foodservice operations to Shamrock and 

Sarah Farms. 

The Shamrock witness stated that 

they are not particularly averse to the 

producer-handler exemption. However, 

the witness was of the opinion that the 

exemption is incompatible with having 

a market order system that all other 

players are required to operate under. 

The witness was also of the opinion that 

producer-handlers have a competitive 

advantage over regulated handlers 

because they do not pay the Class I 

price. However, the witness testified 

that the elimination of the entire 

producer-handler provisions is not 

particularly necessary. 

A witness appeared on behalf of 

Diamond D Dairy, a dairy farm with a 

fluid milk processing plant in Colorado. 

The witness urged USDA to leave the 

current producer-handler regulations 

unchanged. The witness testified that 

Diamond D services 1,200 home 

delivery customers and 175 wholesale 

accounts in Colorado. 

The Diamond D witness testified that 

approximately 50 percent of the 

Diamond D operation’s milk is 

processed by its on-farm plant and the 

balance is sold to DFA. The witness 

indicated that Diamond D is currently a 

producer and fully regulated 

distributing plant intent upon, should 

business continue to grow, conversion 

to producer-handler status. According to 

the witness, Diamond D is both a 

producer member and a processor 

customer of DFA. The witness testified 

to paying DFA all of the normal fees and 

charges associated with milk marketing. 

The witness stated that those charges 

include balancing, milk hauling, 

forward haul, administrative and milk 

promotion fees, handling and service 

charges including over-order premiums. 

The witness testified that DFA charges 

approximately $5 per cwt for certain 

services, which is an out-of-pocket cost. 

The witness also indicated that as a 

processor customer, Diamond D must 

purchase own-farm milk back from DFA 

for bottling. The witness stated that 

Diamond D’s cost of production is 

around $17 per cwt. 

The Diamond D witness testified that 

rising costs left few options for survival. 

The witness further explained that they 

either had to become larger and 

presumably more efficient or increase 

revenues from the current operation. 

The witness stated that the first option 

was unrealistic for a number of reasons 

including land constraints, and taking 

on responsibility of bottling and 

marketing was the only way to grow the 

bottom line. The witness testified that 

the operation’s survival now is 

conditioned upon the option to become 

a producer-handler. Additionally, the 

witness was of the opinion that there 

exists no need to change producerhandler regulations under Order 32. 

A dairy farmer witness, a member of 

DFA, testified in support of the current 

producer-handler provisions. The 

witness testified to operating a dairy 

farm in Southeast Florida and milking 

over 1,400 cows. The witness’ operation 

opened a bottling plant in March 2009. 

The operation does not currently have 

producer-handler status and is not 

causing any market disruption, the 

Southeast Florida dairy farmer witness 

stated. The witness was of the opinion 

that producer-handlers can better meet 

the demands of niche markets than fully 

regulated handlers. The witness testified 

that one of the reasons to become a 

producer-handler is to avoid payment 

into the marketwide pool. The witness 

was of the opinion that everyone should 

have the opportunity to be able to 

produce and bottle milk within the 

same operation. The witness testified to 

investments made in pursuit of 

qualification for producer-handler 

status. 

A witness representing Shatto, a 

producer-handler located in Missouri, 

testified in opposition to any changes to 

the producer-handler provisions. The 

witness stated that Shatto milks 300 

cows and distributes fluid products in 

the Kansas City area. The witness noted 

that Shatto constructed an on-farm 

bottling facility in 2003, and became a 

producer-handler as a means of adding 

value and selling locally. The witness 

testified that Shatto’s small family 

operation does not compete with any 

other organization serving the area, and 

that its pricing is not comparable to 

others in the market. According to the 

witness, Shatto’s pricing is higher across 

the board because of the premium, 

niche products it markets. 

The Shatto witness was of the opinion 

that disorderly market conditions do not 

exist, and that Shatto’s small operation, 

in particular, does not create disruption. 

The witness further asserted that Shatto 

does not obtain any price advantage 

over any other cooperative or similar 

sized producer-handler, and would not 

do so even with Class I disposition of 

one million pounds per month. 

Furthermore, the witness noted, Shatto 

does not have problems balancing 

supply with demand. 

The Shatto witness testified that 

Shatto faces additional costs resulting in 

higher production costs than those faced 

by other operations. Further, the witness 

stated the level of these costs remove 

Shatto from competition on the basis of 

‘‘milk cost-of-production by size’’ as 

referenced in Proposal 1. Thus, the 

ability to suggest that a limit should be 

based upon some average economies of 

scale has been eliminated, the witness 

asserted. Additionally, the witness 

asserted that the economies of scale 

rationale employed by NMPF is 

misleading and unjust in light of the 

actual costs related to production, since 

a farm cannot significantly reduce 

production costs without transitioning 

away from best management practices. 

The witness testified that Shatto’s per 

cwt on-farm cost, with nearly 300 cows, 

far exceeds the $18 noted in Proposal 1, 

and is likely closer to $25 or $30 per 

cwt. As such, the witness explained that 

Shatto is at a significant cost 

disadvantage compared to not only 

operations of a similar size, but also 

cooperatives of all sizes. 

The Shatto witness was of the opinion 

that the proposal to eliminate the 

producer-handler provision is unjust 

and inconsistent with the original intent 

of exempting producer-handlers serving 

small niche markets that would 

otherwise be left alone by large entities. 

The witness also asserted that the 

proposal will eliminate many small 

operations like Shatto, and reduce one 

component USDA claims is necessary 

for perfect competition. 

The witness testified that Shatto 

would be unable to absorb the cost of 

regulation associated with NMPF’s 

proposals and Shatto would be required 

to pay into the pool for use of own-farm 

milk. The witness testified that overall, 

Proposal 1 penalizes operations for 

taking steps to save the small family 

farm with an on-the-farm bottling 

facility. The witness testified that small 

family farms would be unable to expand 

relative to increased customer demand 

and meet rational business goals, and a 

large number of producer-handlers, 

specifically those with fewer than 600 

cows, would go out of business if the 

NMPF proposals are adopted. The 

witness was of the opinion that this 

would shift more sales to large, 

multistate operations and cooperatives. 

A witness representing Country Dairy, 

a producer-handler, testified in 

opposition to any changes to the 

producer-handler provisions. Country 

Dairy, located in Michigan, has monthly 

production of 2.4 to 2.6 million pounds 

and markets through Cedar Crest Dairy. 

In the 1990s, Country Dairy’s milk 

was sold at a $0.15 to $0.25 premium 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54397 

because it was rbST-free and an account 

was secured based on its rbST-free milk 

supply, the Country Dairy witness 

stated. The witness was also of the 

opinion that Country Dairy’s products 

are sold at retail for a premium because 

consumers perceive the products to be 

of a higher quality. The witness revealed 

that 93 to 98 percent of Country Dairy’s 

production is Class I, and that Country 

Dairy has had an exclusive distribution 

agreement with Cedar Crest Dairy, a 

dealer, since 2001. According to the 

witness, most of Country Dairy’s milk is 

sold under the Country Dairy label 

although some is store branded. The 

witness acknowledged that some of the 

store branded milk is also supplied by 

another processor within the same 

market, through Cedar Crest. 

The Country Dairy witness testified 

that Country Dairy bears all risks of milk 

production and processing. The witness 

explained that Country Dairy’s prices 

tend to follow Class I prices, but at 

times of high production, prices are 

reduced to sell milk and further 

establish retail relationships. The 

witness noted that in the past, when 

Country Dairy was responsible for 

product distribution, this high 

production discount ranged from $0.10 

up to $0.20 per gallon. The witness 

testified that Country Dairy competes 

with regulated processors to supply the 

same kinds of retailers. Michigan 

retailers, even those supplied by fully 

regulated handlers, advertise and sell 

milk at very low prices, the witness 

asserted. The witness was of the opinion 

that this practice may reflect retailers’ 

willingness to sell at a loss. Ultimately, 

the witness asserted that producerhandlers are not a disruptive factor and 

should not be subject to limitations on 

monthly Class I disposition. 

A panel of witnesses testified on 

behalf of Mallorie’s, a producer-handler 

located in Oregon. The panel testified 

that Proposals 1 and 2 should be 

rejected, and if some rules are necessary 

to regulate large producer-handlers, the 

existing rules in Order 124 should be 

used as a model for other milk orders. 

The Mallorie’s panel stated that the 

decision to regulate producer-handlers 

with Class I disposition in excess of 3 

million pounds per month in the Pacific 

Northwest required Mallorie’s to 

significantly restructure its operation 

and lay off a number of employees. The 

panel further asserted that the complete 

elimination of the producer-handler 

provisions would likely disadvantage 

small stores dependent on producerhandlers to supply their limited needs, 

which are not attractive to larger, fully 

regulated handlers. The panel asserted 

that Mallorie’s operation, with Class I 

disposition below 3 million pounds per 

month, is too small to solicit larger 

accounts. The panel further testified 

that Mallorie’s faces costs much higher 

than those faced by larger fluid milk 

processors, and as a producer-handler, 

nets $2.50 to $3.50 below the Class IV 

price for surplus milk. 

A witness testified on behalf of 

Brunton Dairy Farm (Brunton), a 

producer-handler located in 

Pennsylvania, milking 106 cows. 

According to the witness, Brunton 

consists primarily of a glass bottle home 

delivery component and an on-farm 

retail store. The witness testified that 

producer-handlers do not have any 

price advantage over fully regulated 

handlers, and that any advantage 

producer-handlers have over fully 

regulated handlers is on the basis of 

product quality. The witness testified to 

producing products priced above other 

brands of milk, and to replacing other 

brands in the marketplace because 

consumers desire better milk not 

cheaper milk. The witness was of the 

opinion that amendment to the 

producer-handler provisions could 

change the way in which Brunton 

conducts business, resulting in a change 

in the quality of product produced. As 

such, the witness testified that the 

current regulations should not be 

changed. The witness was also of the 

opinion that increased regulation for 

producer-handlers, or the complete 

elimination of the producer-handler 

provisions, would increase the costs of 

certain niche products such as those 

produced by Brunton. 

Witnesses representing Hatchland, 

Mountain Dairy and Dunajski testified 

in support of the current producerhandler provisions. Hatchland, a 

producer-handler located in New 

Hampshire; Mountain Dairy, a 

producer-handler located in 

Connecticut; and Dunajski, a producerhandler located in Massachusetts all 

market milk in the Order 1 marketing 

area. The Hatchland witness and the 

Dunajski witness testified in specific 

opposition to Proposals 1 and 2. The 

NDFA witness testified in opposition to 

Proposal 2. The NDFA witness testified 

that the pooling and pricing exemption 

for plants with less than 150,000 

pounds of Class I route disposition 

should be maintained. 

A witness testified on behalf of 

Country Morning, a producer-handler 

located in Othello, Washington. The 

witness testified in support of the 

current producer-handler provisions. 

The witness acknowledged that Country 

Morning is subject to the 3-million 

pound cap on producer-handlers under 

Order 124. The witness testified that 

Country Morning is the only processing 

plant in Washington State that markets 

milk directly from the farm to the 

consumer without blending milk from 

other farms. The witness testified that 

Country Morning bottles milk under a 

private label owned by a distributor, 

and acknowledged that the same label 

may be used for milk from other plants. 

The witness indicated Country Morning 

does not actively seek sales under a 

particular label or sell surplus through 

co-labeling. 

The Country Morning witness 

testified that if it lost producer-handler 

status, Country Morning would owe 

between $50,000 and $60,000 to the 

pool each month, and neither the farm 

nor the plant would survive. The 

witness further testified that the 

producer-handler issue was debated and 

settled in the Pacific Northwest decision 

three years ago and does not need to be 

revisited. 

Elimination of the producer-handler 

provisions and adoption of 

grandfathering. 

Proposals 17 and 26 were offered by 

NMPF and Mallorie’s, respectively, as 

applicable should the producer-handler 

provisions be eliminated. These 

proposals seek to ‘‘grandfather’’ the 

exemption from pooling and pricing for 

operations that currently have producerhandler status, provided they are 

compliant with certain limitations. 

NMPF was joined by MD&VA, UDA, 

NDA-Darigold, the DFA dairy farmer 

panel and a DFA representative in 

support of Proposal 26. Proposal 17 was 

supported by NAJ, with modifications. 

Proposal 20, proposed on behalf of 

Continental Dairy Products, Inc. and 

Select Milk Producers, Inc., was 

withdrawn on the basis that it was 

closely related to Proposal 17. 

Those in opposition to either Proposal 

17 or Proposal 26, or both, included 

Aurora, Snowville, Kreider, Mountain 

Dairy, the FOOD panel, Dunajski, the 

State Departments of Agriculture, 

Hatchland, Diamond D, the 

Southeastern Florida dairy farmer, 

MMPA, Bareman and Cornucopia. 

NMPF testified that taken together, 

Proposals 1, 2, and 26 would only 

regulate 3 to 5 of the largest producerhandlers in the country, all of whom 

have estimated annual sales of at least 

$10 million and packaged fluid milk 

product sales in excess of 15 million 

pounds per month. The NMPF witness 

stated that it is necessary to both 

regulate all producer-handlers 

distributing more than 3 million pounds 

of packaged fluid milk products per 

month, and limit the proliferation of 

producer-handlers marketing between 

450,000 and 3 million pounds per 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54398 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

month. The witness testified that if 

adopted, Proposal 26 would reduce the 

regulatory impact of Proposal 1 on 

existing producer-handlers that fall 

within the range of 450,000 to 3 million 

pounds of monthly Class I disposition. 

Several witnesses representing 

cooperatives testified in support of 

Proposal 26. The MD&VA witness 

testified in support of Proposal 26 as a 

part of the package of proposals offered 

by NMPF. The UDA witness explained 

that UDA supports the creation of a new 

category of exempt plant to include 

plants with producer-handler status in 

2008, providing those plants have 3 

million pounds or less of Class I sales 

of uniquely branded products. The St. 

Albans witness supported the right of 

small, existing producer-handlers to 

continue operation. The NDA-Darigold 

witness testified in support of 

‘‘grandfathering’’ provided that it only 

applies to current producer-handler 

operations under 3 million pounds of 

monthly Class I disposition, and the 

producer-handler exemption is phased 

out. The NDA-Darigold witness also 

asserted that if a provision allowing 

entities with producer-handler status as 

of the date of enactment of the new 

regulation was adopted then a 

significant number of entities may 

engage in a quick shift to obtain 

producer-handler status prior to the 

regulatory change. 

The DFA dairy farmer panel and the 

DFA witness testified in support of 

Proposal 26. The panel further stated 

that allowing an existing producerhandler to retain their status up to the 

3-million pound limit on monthly Class 

I disposition would be fair and have 

little impact on the market provided 

that if the business exceeds 3 million 

pounds of Class I disposition per month 

it will be treated as a fully regulated 

handler. 

Proposal 17 received supporting 

testimony by the Mallorie’s panel. The 

panel testified that if Proposals 1 and 2 

are adopted, existing producer-handlers 

should be able to retain their exemption 

through grandfathering, as suggested in 

Proposal 17. The panel testified that 

during 2008, Mallorie’s milk production 

averaged 3.1 million pounds per month, 

with average Class I utilization of 63 

percent; average Class II use of 15 

percent; and Class IV utilization ranging 

from 9 to 29 percent, with an average of 

22 percent for the year. 

The Mallorie’s panel testified that the 

producer-handler provisions were 

reviewed extensively in Orders 124 and 

131, and limits on Class I disposition 

went into effect in 2006. The panel 

testified that producer-handlers in these 

orders have adjusted to the new rules 

and that there is no reason to readdress 

the subject. The panel was of the 

opinion that a growing number of 

consumers are concerned about where 

their milk comes from and how it is 

produced. The panel asserted that larger 

processors cannot meet these concerns, 

but operations like Mallorie’s, as a 

producer-handler, can. 

The Mallorie’s panel further testified 

that if its operation were to become fully 

regulated the effect would be 

catastrophic. The panel testified that 

when the Federal Order 124 producerhandler exemption was set at a 

maximum of 3 million pounds, 

Mallorie’s responded with a herd size 

reduction, and discontinuation of both a 

heifer raising facility and a leased 300- 

cow dairy. The panel stated that about 

25 employees lost their jobs and 

purchases of feed, other supplies and 

services were reduced by nearly onethird or over $3 million a year. The 

panel also testified that if Mallorie’s 

were to go out of business, the local and 

Oregon State economies would lose over 

$6 million per year. 

The Mallorie’s panel submitted a 

modification to Proposal 17, explaining 

that if it is adopted, then a limit of 6 

million pounds of monthly Class I route 

disposition should become the point at 

which a grandfathered producer-handler 

loses the exemption from pooling and 

pricing. 

The NAJ witness testified that NAJ 

supports Proposal 17 with some 

suggested modifications. According to 

the witness, NAJ suggests the 

replacement of language that calculates 

a volume of exempt own-farm milk 

dependent on historical sales limited to 

3 million pounds per month, with a 

simple limit on the exemption at 3 

million pounds per month of own-farm 

production. 

The NAJ witness testified in 

opposition to the portion of Proposal 17 

that outlines the calculation of the 

amount of own-farm milk production to 

be considered exempt, and all of 

Proposals 20 and 26, because these 

proposals advocate using a handler’s 

historical processing and sales of ownfarm milk to establish an exemption 

from future pool obligations. These 

proposals, the witness noted, would 

penalize handlers beyond a given point 

in time. This would also be the case, 

added the witness, for new processors 

without previous sales figures to 

establish a base, despite planning for 

bottling operations that occurred under 

existing provisions. The witness was 

also of the opinion that it is inequitable 

to treat existing producer-handlers 

differently from producers with the 

desire to become future producerhandlers. 

As members of AIDA, the Aurora and 

Snowville witnesses testified in specific 

opposition to Proposal 26, and the 

Kreider witness testified in opposition 

to all proposed grandfathering of the 

producer-handler exemption. The 

Hatchland witness also testified in 

specific opposition to Proposal 26. The 

FOOD panel testified in opposition to 

any type of ‘‘grandfathering’’ provisions 

for either producer-handlers or exempt 

plants. The State Departments of 

Agriculture panel also testified in 

opposition to any grandfathering 

provisions. The MMPA and the 

Bareman witnesses testified in 

opposition to any proposals that would 

allow for the grandfathering of 

producer-handlers should the 

exemption be eliminated. 

The Mountain Dairy and Dunajski 

witnesses testified in opposition to the 

adoption of grandfather clauses on the 

basis that these types of proposals 

would limit exempt status to include 

only those operations currently 

classified as producer-handlers. The 

Diamond D witness and the Southeast 

dairy farmer witness testified in 

opposition to grandfathering clauses. 

The Diamond D witness asserted that 

grandfathering would exclude Diamond 

D from becoming a producer-handler in 

the future. The Southeast dairy farmer 

witness testified that such clauses 

would prevent new producer-handlers 

from entering the market. Similarly, the 

Homestead panel testified in opposition 

to Proposal 26 and was of the opinion 

that future generations should have the 

ability to become producer-handlers. 

The Cornucopia witness testified in 

opposition to ‘‘grandfathering’’ existing 

producer-handlers unless qualification 

for grandfathering included a 3-million 

pound per month limit on route 

disposition and packaged fluid sales. 

Adoption of producer-handler 

provisions to include a limit on monthly 

Class I disposition. 

Many hearing participants were in 

support of maintaining the producerhandler provision but limiting the Class 

I disposition a producer-handler could 

have to remain exempt. There were 10 

proposals that would meet this intent, 

published in the hearing notice as 

Proposals 3, 4, 7, 8, 9, 11, 12, 13, 14 and 

21. The proposed changes regarding 

Class I sales limits for producerhandlers were recommended as either 

‘‘hard-caps’’ or ‘‘soft-caps.’’ Hard-caps 

would limit the Class I route disposition 

of producer-handlers, and if exceeded, 

would fully regulate the producerhandler on their entire volume of Class 

I sales. Soft-caps would only regulate 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54399 

the producer-handler on the volume of 

Class I sales over a certain limit. 

Hatchland, Lochmead Dairy 

(Lochmead), FOOD, Monument Farms 

(Monument), Mountain Dairy, Dunajski, 

Shatto, the State Departments of 

Agriculture, Homestead, Country 

Morning and NDFA all testified in 

support of amending the current 

producer-handler provisions to include 

a Class I sales volume limitation. 

Opposition to either general 

limitations of, or the specific 

application of soft-cap limitations to, 

the producer-handler provisions was 

expressed on behalf of IDFA, Diamond 

D, the Dairy Institute of California 

(DIOC), HP Hood, NMPF, DFA and 

NDA-Darigold. 

The Hatchland witness testified as the 

proponent of Proposal 3, which would 

regulate producer-handlers in the 

Northeast order with more than 3 

million pounds of monthly Class I route 

disposition. Hatchland, according to the 

witness, produces nearly 800,000 

pounds of milk per month. As such, the 

witness testified, a 3-million pound 

limit on monthly route disposition by 

producer-handlers would allow 

Hatchland to grow in the future. 

The witness testified that Hatchland 

is a unique dairy operation with an onfarm store and delivery business 

providing milk in glass bottles to homes 

throughout the Northeast. The witness 

emphasized that Hatchland occasionally 

buys from, or sells to, a cooperative, but 

ultimately must balance own-farm 

production. The witness was of the 

opinion that given the extra costs 

incurred by Hatchland’s unique 

operation, the exemption from the 

pooling and pricing provisions does not 

result in a competitive advantage over 

regulated handlers. 

A witness representing Lochmead, a 

producer-handler, testified in support of 

Proposal 4. Lochmead, based in Oregon, 

has average monthly sales of nearly 1 

million pounds and operates 42 DariMart retail stores. 

The Lochmead witness testified that 

both producers and producer-handlers 

have increased in size since the 

producer-handler provisions were first 

established. According to the witness, 

this increase in size necessitates a limit 

on monthly route disposition to remain 

exempt from pooling and pricing 

provisions. The witness testified that 

Lochmead would be unable to compete 

with the larger, more efficient bottlers 

and would go out of business, were it to 

become fully regulated. 

The FOOD panel testified in support 

of establishing a 450,000-pound hardcap on monthly Class I route disposition 

for producer-handlers. The panel 

testified that this proposed change 

honors the original intent and purpose 

of the exemption. 

The FOOD panel testified that 

WODPA, MODPA and NODPA members 

face unfair competition from a large 

producer-handler that sells organic milk 

nationally. The FOOD panel testified 

that this producer-handler sells milk 

through national supermarket chains, 

thereby competing with locally 

produced organic milk at an economic 

advantage based on the pooling and 

pricing exemption. The FOOD panel 

was of the opinion that the regulatory 

exemption for large organic producerhandlers lowers the prices received by 

organic dairy farmers whose milk is 

pooled and priced under the terms of 

Federal milk orders. The FOOD panel 

testified in opposition to any type of 

soft-cap limitations for either producerhandlers or exempt plants. 

A witness appeared on behalf of 

Monument, a Vermont-based producerhandler, in support of establishing a 3- 

million pound per month exemption on 

Class I route distribution for producerhandlers. The witness also testified in 

support of Proposal 13 submitted by the 

New England Producer-Handler 

Association, Inc. 

The witness testified that Monument 

produces approximately 1 million 

pounds of milk per month. The witness 

stated that Monument does not have any 

advantage over fully regulated handlers 

due to costs of production that typically 

exceed the Class I price. The witness 

added that Monument must continually 

balance demand with available supply, 

pay a premium to purchase additional 

milk if necessary, and receive the lowest 

class price or less to sell excess milk. 

As a proponent of Proposal 13, the 

witness for Mountain Dairy expressed 

support for a 3-million pound limit on 

the monthly volume of milk a producerhandler may distribute while retaining a 

regulatory exemption. The witness 

testified that Mountain Dairy delivers 

milk to individual homes and also 

supplies retail customers. The witness 

testified that Mountain Dairy milks 

about 500 cows. The witness was of the 

opinion that the exemption of producerhandlers from the pooling and pricing 

provisions of Federal milk orders is not 

contributing to disorderly marketing 

conditions in the Order 1 marketing 

area. 

Proposal 7 received supporting 

testimony by the Dunajski witness. The 

witness testified that Dunajski Dairy is 

located and markets nearly 350,000 

pounds of Class I products per month in 

the Greater Boston area. The witness 

was of the opinion that Dunajski Dairy 

does not compete with large bottlers on 

the basis of price, and is not disruptive 

in Order 1. 

The Dunajski witness was of the 

opinion that the current producerhandler exemption should not be 

changed. However, the witness was also 

of the opinion that three million pounds 

of Class I sales per month would be an 

acceptable cap on the producer-handler 

exemption providing that no labeling 

restrictions accompany the cap. 

The Shatto witness presented 

testimony as the proponent of Proposals 

11 and 12. The witness stated that 

Shatto’s proposals address the reduction 

in competition, the negative impact on 

small businesses, and the overall 

regulation of the dairy industry as 

alternatives to Proposal 1. The witness 

proposed the producer-handler 

exemption be kept in place with a limit 

of 1 million pounds of Class I sales per 

month because, according to the 

witness, producer-handlers under this 

limit are not disruptive to the market, 

and would be unable to survive the 

financial impact if the producer-handler 

exemption were to be eliminated 

entirely. The witness asserted that the 

effects of Proposals 11 and 12 on small 

business are more appropriate than 

Proposal 1. 

The Homestead panel of witnesses 

testified in support of a 3-million pound 

per month limit on the Class I sales of 

producer-handlers. The Homestead 

panel testified that Homestead Creamery 

and the two associated farms supplying 

its milk are collectively recognized as a 

producer-handler by the state of 

Virginia but not by the Federal order 

system. Homestead Creamery, according 

to the panel, is currently a regulated 

handler. The panel was of the opinion 

that the producer-handler definition 

should change to accommodate 

Homestead, a processor that has farms 

operated in common rather than owned 

in common. 

The Country Morning witness 

testified that a limit of 3 million pounds 

on monthly Class I sales volume for 

retention of producer-handler status 

would be acceptable. Similarly, the 

Shamrock witness did not object to 

establishment of an upper limit on the 

route disposition of producer-handlers. 

Proposal 8 was testified to by the 

panel representing the State 

Departments of Agriculture. The panel 

testified that farmers in NH, NY, PA, 

VT, and WI, are moving toward vertical 

integration, particularly with regard to 

cheese manufacturing. The panel 

testified that the producer-handler 

provision is important in those states 

because consumers have shown 

significant interest in the locallyVerDate Nov<24>2008 18:41 Oct 20, 2009 Jkt 220001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 E:\FR\FM\21OCP4.SGM 21OCP4

pwalker on DSK8KYBLC1PROD with PROPOSALS4
54400 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

produced, niche products producerhandlers provide. 

The State Departments of Agriculture 

panel testified that total producerhandler volume in NH, NY, PA, VT, and 

WI is small relative to total milk 

production, and that producer-handlers 

do not create disorderly marketing 

conditions. The panel asserted that one 

producer-handler with production 

greater than three million pounds of 

route disposition per month could be 

disruptive. The panel provided specific 

examples to justify their position that 

producer-handlers need room to grow. 

The panel stated that a 2-million pound 

per month figure is appropriate as it 

appears to be the level at which 

economies of scale are realized. The 

panel further stated that three million 

pounds per month would be the 

absolute upward bound as a cap on the 

producer-handler exemption. 

The State Departments of Agriculture 

panel also testified that marketwide 

pooling is crucial to dairy farms in the 

five states represented, and an 

unlimited producer-handler exemption 

will ultimately destroy Federal order 

pooling as it erodes minimum prices 

and sharing of Class I revenues. The 

panel advocated a 2-million pound per 

month limit on producer-handler route 

disposition. 

The NDFA witness suggested that if 

the producer-handler provisions were 

not eliminated and a limit was 

established on the Class I sales volume 

of producer-handlers, Order 1 should 

have a lower limit than other Federal 

orders. The witness supported this 

assertion by noting that in Order 1 there 

are significant differences in geographic 

size and population, and a relatively 

high number of producer-handlers and 

exempt plants. Based on a 

characterization of general statistics, the 

witness asserted that from 2002 to 2008, 

total fluid milk sales for producerhandlers across 8 of the 10 Federal 

orders has increased by over 60 percent 

and fluid milk sales from exempt plants 

increased by over 20 percent, while at 

the same time, total fluid milk sales 

from fully regulated plants decreased 

nearly 4 percent. Similarly, for Order 1, 

total fluid milk sales from producerhandlers from 2000 to 2008 increased 

nearly 106 percent, and total fluid milk 

sales from exempt plants increased 

nearly 44 percent. The witness also 

testified that dairy farms managed by 

governments and colleges should be 

excluded from any hard-cap on the 

volume of Class I route disposition to 

maintain an exemption from the pooling 

and pricing provisions of Federal 

orders. 

The IDFA witness argued that the 

proposals seeking to continue the 

producer-handler exemption from 

pooling and pricing provisions with 

some volume limit could, in effect, 

continue the problem of disorderly 

marketing created by this exemption. 

The Diamond D witness testified in 

opposition to limitations to the 

producer-handler exemption on the 

basis that a 3-million pound cap on 

route disposition may affect Diamond D 

in the future if the operation grows. 

A witness representing the Dairy 

Institute of California (DIOC) appeared 

at the request of NMPF for the purpose 

of describing the producer-handler 

exemption under California’s state milk 

pooling system. According to the 

witness, DIOC is a California based 

trade association representing fluid milk 

handlers and dairy product processors. 

The witness opined that USDA may find 

California’s experience with producerhandlers relevant in formulating Federal 

order policy. 

The DIOC witness stated that there are 

two regulatory schemes for producerhandlers in California. According to the 

witness, the first option, the ‘‘exempt 

producer-handler,’’ allows for the pool 

exemption of own-farm production 

provided that both milk production and 

sales average less than 500 gallons per 

day (129,000 pounds) and 95 percent of 

both production and sales are disposed 

to retail/wholesale outlets. The second 

option, the ‘‘option exempt producerhandler,’’ effectively operates under a 

soft-cap, allowing for deduction of 

exempt milk volume from any Class I 

pool obligation in a similar manner as 

suggested by Proposal 17. 

The DIOC witness provided opinion 

and evidence as to producer-handlers’ 

raw milk cost advantage compared to 

fully regulated handlers. The witness, 

using data provided by the California 

Department of Food and Agriculture 

(CDFA), calculated the advantage for 

California milk testing 3.5 percent 

butterfat and 8.7 percent nonfat solids 

by subtracting the quota price per cwt 

from the Class I price. The witness 

stated that the raw product cost 

advantage for producer-handlers was 

calculated by dividing the advantage per 

cwt by the number of whole milk 

gallons in a cwt of milk. The witness 

noted that this cost advantage varies 

greatly depending on the relationship 

between the Class I price and the pool 

quota price. For the period of January 

2000 to March 2009, stated the witness, 

the raw milk cost advantage for 

producer-handlers averaged $0.113 per 

gallon. The witness added that for the 

most recent 12-month period, the cost 

advantage averaged $0.177 per gallon. 

Overall, the witness was of the opinion 

that producer-handlers have a lower raw 

milk cost than fully regulated handlers, 

leading to a producer-handler 

competitive advantage. 

The DIOC witness testified that 

producer-handlers have increased their 

share of Class I sales at the expense of 

fully regulated competitors. Relying on 

CDFA data, the witness compared the 

‘‘option exempt producer-handler’’ 

share of the California Class I market 

with the share attributed to regulated 

handlers from July 1995 to August 2008. 

The witness testified that the producerhandler share of the Class I market 

increased from 14.8 to 23.4 percent. 

In summary, the DIOC witness 

testified that the soft-cap type producerhandler exemption in California has 

significantly advantaged producerhandlers and disadvantaged fully 

regulated handlers. The witness was of 

the opinion that the provision has 

created a dilemma for policy makers 

who struggle to reconcile the goal of 

providing equal prices to competing 

handlers. 

A witness appeared on behalf of HP 

Hood to provide a description of softcap producer-handler provisions, 

similar to those advanced in Proposal 

17, and the resultant impact on the 

competitive landscape in the northern 

California milk market. HP Hood is a 

Massachusetts-based handler that owns 

and operates 22 milk processing and 

manufacturing facilities. 

The witness testified that HP Hood 

has repeatedly lost business to 

producer-handlers who can sell milk at 

a lower price. The witness testified that 

the exemption for producer-handlers 

under the California milk pooling plan 

has decreased the revenues of producers 

whose milk is pooled and allowed 

producer-handlers to increase their 

share of the California Class I market. 

The witness noted that the intent of 

government-controlled dairy pricing 

systems should be to provide market 

stability for both producers and 

processors and avoid the creation of 

opportunities for one party to benefit at 

the expense of another. 

The NMPF witness echoed testimony 

provided by the DIOC and HP Hood 

witnesses, noting that soft-caps have 

been problematic in California. The 

witness was of the opinion that softcaps, applied in the Federal order 

system, would have a negative effect on 

uniform pricing. 

The DFA witness and the NDADarigold witness testified in opposition 

to all proposals seeking establishment of 

soft-caps regulating only a portion of a 

producer-handler’s sales. The DFA 

witness stated that minimum order 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54401 

prices would be unclear to buyers, 

causing them to wonder if competitors 

had access to lower priced milk due to 

the soft-cap. The DFA witness also 

asserted that a soft-cap would require a 

greater level of administration. The 

NDA-Darigold witness stated that the 

adoption of soft-cap provisions would 

further increase the advantages 

associated with producer-handler status. 

Exemption of vertically integrated 

operations with retail and home delivery 

distribution. 

Proposal 24 would exempt from 

regulation milk sold by producerhandlers through ‘‘handler-controlled 

retail channels’’ including home 

delivery and handler-controlled retail 

outlets, regardless of sales volume. 

The AIDA consultant panel testified 

that Proposal 24 is intended for 

adoption only if USDA amends the 

producer-handler provisions. The 

rationale for this proposal, the panel 

explained, is that sales through home 

delivery and handler-controlled retail 

outlets are entirely controlled by the 

handler and do not have an impact on 

the pool. 

The Braums witness testified in 

support of Proposal 24. The Braums 

witness testified that Braums’ business 

model is unique, as the company sells 

own-farm milk and related dairy 

products in company-owned retail 

stores that do not carry any other fluid 

milk brand. The witness further testified 

that Braums serves a niche market that 

other fluid milk retailers do not. 

According to the witness, as a producerhandler, Braums must self-balance and 

cannot use outside suppliers. The 

witness further asserted that Braums’ 

supply is limited to only what its farm 

is able to produce. 

The witness testified that Braums’ 

products are not available anywhere 

other than Braum’s retail stores, and the 

operation has never been approached to 

begin supplying milk to other retailers. 

The witness noted that no other 

operation produces or sells Braums’ 

branded milk products, and since 

Braums sells its product all the way 

through to the retail level, the operation 

incurs all the same costs and risks of 

other producer-handlers along with the 

additional costs and risks associated 

with its exclusive distribution and retail 

business. The witness also stated that 

Braums does not enjoy a price 

advantage because the operation has 

had to make substantial investments in 

the milk production side of the 

business. 

The Braums witness was of the 

opinion that they are not a disruption in 

the market, and that depooling has had 

a far greater impact on blend prices in 

Order 32 than the exemption of 

producer-handlers from pooling and 

pricing provisions. The witness added 

that if Braums were to become fully 

regulated, the blend price in Order 32 

could actually decrease based on 

Braums’ utilization. 

The Kreider witness testified in 

opposition to Proposal 24. The witness 

did not support an exemption from pool 

obligation for volumes of milk sold at 

retail by producer-handlers. Kreider, the 

witness testified, does not currently sell 

to retail customers, direct to consumers 

through home delivery, or via farm 

store. 

The IDFA witness noted that the 

adoption of Proposal 24 would create 

new incentives for existing regulated 

handlers to invest in dairy farms and 

retail stores for the sole purpose of 

gaining an exemption from pooling and 

pricing regulations. The Shamrock 

witness agreed with the IDFA witness, 

stating that the adoption of a retail and 

home delivery exemption may result in 

the creation of a loophole that would 

possibly need to be revisited in the 

future. 

The NMPF witness stated that an 

exemption granted for handler sales 

conducted exclusively through handlercontrolled outlets, as advocated by 

Proposal 24, is inequitable and would 

allow those handlers to balance their 

supply through the rest of the market. 

The DFA witness echoed the NMPF 

witness’ position, adding that an Order 

32 producer-handler selling milk 

entirely through its own retail outlets 

currently aggressively competes for 

retail sales, which has lead to disorderly 

marketing. 

Exemption of own-farm milk. 

Proposal 23, proposed by AIDA, 

would remove the producer-handler 

provision from all milk orders and 

exempt from regulation milk procured 

from a farm owned by a handler. 

Additionally, this proposal would treat 

handlers with own-farm production as 

partially regulated distributing plants. 

The AIDA consultant panel testified 

that under Proposal 23, handlers with 

own-farm milk would be allowed to 

down-allocate the volumes of own-farm 

milk to their lowest value of use in their 

producer-settlement fund obligation 

calculation. Additionally, the panel 

stated that adoption of this proposal 

would allow handlers with own-farm 

production to purchase milk from pool 

sources, providing that all purchased 

milk would be up-allocated to the 

handler’s highest value use. The panel 

also offered that handlers with ownfarm production could elect partiallyregulated distributing plant status for 

own-farm milk volume as an alternative 

to full exemption of own-farm milk. The 

panel concluded that adoption of this 

proposal would allow producerhandlers to remain in business and 

compete in an orderly manner. 

The Braums, Kreider, Aurora, GH 

Dairy, Heartland and Snowville 

witnesses testified in conditional 

support of Proposal 23. The witnesses 

supported its adoption should the 

current producer-handler provisions be 

eliminated or restricted. 

The NAJ witness testified in support 

of Proposal 23, with the modification 

that own-farm milk production should 

be exempt up to 3 million pounds per 

month, and any additional own-farm or 

purchased volume should be subject to 

pooling and pricing. The witness 

testified that expansion of the existing 

partially-regulated distributing plant 

provisions to include an exemption of 

the first 3 million pounds of own-farm 

milk would be equitable for producerhandlers with less than 3 million 

pounds of own-farm milk, those with 

more than 3 million pounds of ownfarm milk, and those with a 

combination of own-farm and 

purchased milk. 

The NMPF, IDFA and DFA witnesses 

testified in opposition to Proposal 23. 

The NMPF witness stated that the 

exemption of own-farm milk would 

disproportionately benefit large 

producer-handlers, while the IDFA 

witness noted that the adoption of 

Proposal 23 would create new 

incentives for existing regulated 

handlers to invest in dairy farms. 

Establishment of individual handler 

pools. 

Proposal 25, as proposed by the 

members of AIDA, would establish 

individual handler pooling provisions 

in all Federal milk orders. The AIDA 

consultant panel was of the opinion that 

adoption of individual handler pools 

would encourage milk in higher class 

uses to move where needed and assure 

that Class I revenues accrue to 

producers serving the Class I market. 

Additionally, the panel asserted that 

there would be little incentive for the 

supply area to expand beyond what is 

sufficient to serve the needs of the 

market, thus saving transportation costs. 

The panel concluded that Proposal 25 

would treat producer-handlers the same 

as any other handler because producerhandlers would function as a regulated 

handler under the order, and would be 

able to buy milk from other producers 

at the blend price. Finally, adoption of 

Proposal 25 would allow producerhandlers to compete in an orderly 

manner, and allow producers and 

cooperatives to benefit from producerhandlers’ sales in excess of own-farm 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54402 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

production, the panel asserted. The 

panel acknowledged reliance on the 

Nourse Commission Report (Nourse 

Report) in the preparation of its 

testimony, and encouraged USDA to 

reference it in making a determination. 

The panel represented that its heavy 

reliance on the Nourse Report in lieu of 

past decisions of the Secretary stemmed 

from its useful guidance on disorderly 

conditions. 

The Braums, Kreider, Aurora, GH 

Dairy, Heartland and Snowville 

witnesses testified in conditional 

support of Proposal 25. The witnesses 

advocated its adoption in the event that 

the current producer-handler exemption 

be eliminated or restricted. 

The Aurora witness acknowledged 

that if Proposal 25 were adopted, Aurora 

could continue to operate as a 

vertically-integrated business, although 

some modification might be necessary. 

The witness testified in support of 

individual handler pools on the basis 

that organic producers and processors 

obtain very limited benefits from the 

marketwide pooling system. The 

witness was also of the opinion that this 

is also true of other differentiated milk 

markets such as grass-fed and kosher. 

Individual handler pools would result 

in differentiated producers and 

processors gaining equity with respect 

to pooling, the witness asserted. 

A witness representing Oberweis 

Dairy (Oberweis) testified in specific 

support of Proposal 25. Oberweis 

operates a distributing plant in Order 30 

with 3 to 5 million pounds of monthly 

Class I disposition and home delivery. 

The Oberweis witness testified that 

individual handler pools would benefit 

Oberweis and its producer suppliers. 

The witness testified that Oberweis 

competes with producer-handlers in the 

Virginia and Detroit markets. The 

witness stated that it is perfectly 

acceptable for regulated plants to 

compete with producer-handlers. The 

witness also testified that the 

government should not set minimum 

milk prices because prices are better 

determined in the marketplace. 

The St. Albans witness testified in 

opposition to individual handler pools. 

The witness was of the opinion that 

individual handler pools would only 

benefit producers in close proximity to 

fluid plants. The witness stated that 

marketwide pooling is crucial to the 

economic survival of St. Alban’s 

members because St. Albans is based in 

a rural area where most of the milk goes 

into manufactured products not fluid 

milk products. 

The NDA-Darigold witness, the NAJ 

witness and State Departments of 

Agriculture panel testified in opposition 

to all individual handler pool proposals. 

The NDA-Darigold witness was of the 

opinion that individual handler pools 

would damage the marketwide pooling 

system—a system NDA and Darigold 

have found to be essential for producer 

support of Federal orders. The NAJ 

witness asserted that the establishment 

of individual handler pools would lead 

to disorderly marketing conditions 

because returns generated by sales of 

higher priced Class I milk would only 

be shared among those producers with 

access to a Class I processing plant. 

The NMPF, DFA, IDFA, Mid-WestLakeshore and UDA witnesses also 

testified in opposition to individual 

handler pooling. The DFA witness 

testified that individual handler pools 

should not be adopted because handlers 

operating fluid plants would gain 

market power and increase competition 

for access to the Class I market. 

Furthermore, the DFA witness was of 

the opinion that individual handler 

pooling is not compatible with the 

AMAA’s basic tenet of minimum order 

prices for both producers and handlers. 

The IDFA witness echoed the DFA 

witness, noting that rather than being 

innovative, Proposal 25 instead 

proposes going back many years despite 

the findings of a number of hearings 

over the years which found individual 

handler pools contribute to disorderly 

marketing. The NMPF witness testified 

that individual handler pools threaten 

the Federal order system because 

producers supplying milk that balances 

the market would not benefit from Class 

I revenues. 

Post-Hearing Briefs 

Post-hearing briefs filed on behalf of 

proponents and opponents for the 

elimination of or amendment to the 

producer-handler definitions in all 

Federal milk marketing orders reiterated 

testimony and provided legal arguments 

as to why producer-handlers should or 

should not be fully regulated under the 

orders. Proponents and opponents alike 

stressed testimony and evidence 

purported to strengthen their specific 

positions. Presented below is a 

summary of the briefs as they related to 

the economic and marketing conditions 

in all marketing areas. 

A brief filed on behalf of the New 

England Producer-Handlers Association, 

Inc., Willard J. Stearns & Sons dba 

Mountain Dairy, Monument Farms, Inc. 

and Homestead Creamery (New England 

Producer-Handlers Association, Inc. et 

al.) reiterated positions given at the 

hearing: producer-handlers in Order 1 

do not give rise to disruption resulting 

from a significant impact on the blend 

price paid to producers; there exists no 

evidence to support the conclusion that 

producers with a large number of cows 

intend to construct bottling facilities 

and seek producer-handler status; 

consumer interest is a factor to be 

weighed during the determination of the 

regulatory treatment of producerhandlers; the producer-handler 

definition should be broadened to 

include entities operating in common; 

the exempt plant limit of 150,000 is 

inadequate and should be increased to 

1 million pounds per month; and the 

exempt plant limit should be increased 

to 3 million pounds of monthly Class I 

route disposition in the event that the 

producer-handler provisions are 

eliminated. 

In their brief, New England ProducerHandlers Association et al. requested 

that findings regarding the regulatory 

treatment of producer-handlers be 

separate for each of the Federal milk 

marketing orders. New England 

Producer-Handlers Association et al. 

argued that record evidence indicates 

that each order’s findings should be 

based upon existing conditions within 

that order’s marketing area. Specifically, 

it was argued that the circumstances 

that existed prior to amendment of the 

producer-handler provisions of Order 

131, and the circumstances that 

currently exist in the Order 126 

marketing area, do not exist in either the 

Order 1 or 5 marketing areas. 

Accordingly, the position taken in the 

New England Producer-Handler 

Association et al. brief was that 

proposals to eliminate the producerhandler provisions of Orders 1 and 5 are 

not relevant to the prevailing conditions 

in either of the two marketing areas. 

A brief filed on behalf of Land 

O’Lakes, Inc (LOL) agreed with 

testimony given in support of Proposals 

1 and 2. LOL is a Capper-Volstead 

cooperative with more than 4,000 dairy 

farmer members marketing in and 

pooling milk on 5 Federal orders. The 

LOL brief also detailed support for the 

grandfathering of existing producerhandler operations at a level to be 

determined by the Secretary and 

opposition to Proposals 23, 24 and 25. 

In their brief, LOL noted that record 

evidence regarding the entrance of GH 

Dairy into the El Paso market supports 

the conclusion that a producer can 

transition their farm into a producerhandler operation with relative ease in 

a short period of time. LOL identified 

testimony that the conversion of a dairy 

farm into a producer-handler operation 

is more favorable, given the economics 

of market entry, than the conversion of 

a dairy processing plant into a producerhandler operation. 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54403 

The LOL brief also detailed market 

disorder associated with the current 

producer-handler provisions. LOL 

stressed that the impact of producerhandler operations varies by size of 

order and the number of producerhandlers selling into a given marketing 

area. LOL further noted that record 

evidence indicates an impact on the 

blend price of as much as $0.12 per cwt 

for Order 32. LOL identified testimony 

that shows disorderly marketing exists 

as a result of pricing inequity between 

producer-handlers and fully regulated 

handlers. Previously, according to LOL, 

pricing discrepancies were not as 

significant when producer-handler 

operations were smaller, and larger 

regulated handlers could compete 

through increased plant efficiency but 

as producer-handler operations have 

grown, regulated handlers’ advantage 

based on scale efficiency has eroded. 

A brief filed on behalf of a Florida 

dairy producer reiterated testimony 

given on the record in support of 

maintaining producer-handler 

provisions in Federal orders and 

detailed the producer’s opposition to 

Proposals 1 and 26. 

A brief filed on behalf of Midwest and 

Lakeshore reiterated Midwest and 

Lakeshore’s support for Proposals 1 and 

2 and opposition to all other proposals 

presented at the hearing. In their brief 

Midwest-Lakeshore noted by illustration 

that raw milk production cost 

differences are not relevant to an 

operation’s status as a producer-handler. 

Midwest-Lakeshore concluded that a 

distinct exemption for producers who 

elect to bottle their own milk is not 

necessary, instead an exemption for all 

handlers with 500,000 or fewer pounds 

of monthly Class I disposition is 

sufficient to accommodate vertically 

integrated entities and others whose 

presence does not give rise to disorderly 

marketing conditions. 

A brief filed on behalf of NAJ 

reiterated and clarified positions taken 

by NAJ at the hearing. NAJ claimed in 

its brief that NAJ’s modification to 

Proposal 17 would result in the addition 

of at least 17 million pounds of milk to 

Federal order pools each month. In 

brief, NAJ reasserted that the exemption 

of producer-handler’s first three million 

pounds of own-farm milk disposed of as 

Class I during the month is equitable for 

producer-handlers who use less or more 

than three million pounds of own-farm, 

or use a combination of own-farm and 

purchased milk. 

A brief filed on behalf of Select and 

Continental articulated support for the 

goals of Proposals 1, 2 and 26, albeit 

with certain noted exceptions to 

Proposal 26. In their brief, Select and 

Continental highlighted evidence 

presented by proponents and opponents 

and offered current and historical 

overviews regarding the regulatory 

treatment of producer-handlers. Select 

and Continental supported their 

position that producer-handlers should 

not gain economic advantage as a result 

of their exemption from pooling and 

pricing. Select and Continental asserted 

that amendments to the regulations 

governing producer-handlers should be 

based upon economic fundamentals. 

The Select and Continental brief 

included details regarding the important 

role played by producer-handlers in the 

marketplace through their service of a 

full range of consumer demands and 

provision of competition to markets that 

would otherwise be characterized by 

imbalances in market power. The brief 

detailed a number of arguments 

supportive of the use of transfer prices 

faced by producer-handlers as the basis 

for determining competitiveness with 

fully regulated handlers. Select and 

Continental asserted that any limit on 

the monthly Class I sales volume of 

producer-handlers should be 

determined according to the level of 

advantage enjoyed by producerhandlers. The level of this advantage, 

according to Select and Continental, can 

be identified by comparing producerhandler transfer prices and the Class I 

price. Select and Continental further 

argued that while the determination of 

an appropriate limit on the producerhandler provisions is necessary because 

economic advantages accrue with 

increased size, a finite limit number 

cannot be determined on basis of the 

hearing record. However, Select and 

Continental asserted that an appropriate 

limit would allow producer-handlers 

with less than 3 million pounds of 

monthly Class I route disposition to 

continue operations with exemption 

from pooling and pricing. Select and 

Continental also asserted that the 

adoption of a limit on the basis of total 

producer-handler sales rather than 

merely in-area sales is justifiable and 

warranted. 

In their brief, Select and Continental 

also opposed the adoption of an exempt 

plant threshold in excess of 450,000 

pounds of monthly Class I route 

disposition. The rationale for the 

exemption of ‘‘exempt plants’’ is 

distinct from the rationale for the 

exemption of producer-handlers and as 

such, a single definition intended to 

encompass the two types of entities 

would be inappropriate, Select and 

Continental argued. In this regard, the 

Select and Continental also pointed out 

that the exempt plant threshold limit is 

not based on farm size or production but 

on the level of Class I distribution. The 

rationale underlying the exemption of 

plants with 450,000 or fewer pounds of 

monthly Class I disposition relates, at 

least in part, to administrative 

convenience, asserted Select and 

Continental. 

The Select and Continental brief 

detailed arguments in opposition to 

using retail price data in the 

determination of disorderly marketing 

conditions and the amendment of the 

producer-handler provisions to include 

labeling restrictions. Select and 

Continental argued that the analysis of 

retail price data does not provide a clear 

illustration of disorder due to handler 

inequity because such analysis is unable 

to disaggregate handler pricing to 

consumers from other factors involved 

in setting retail prices. As to proposed 

unique labeling restrictions, the Select 

and Continental asserted that since any 

relative advantage between producerhandlers and regulated handlers should 

be determined on the basis of the 

regulatory treatment of producerhandlers, there is no need for adoption 

of labeling restrictions. 

Furthermore, Select and Continental 

argued in their brief that when average 

dairy farm size data is compared with 

producer-handler numbers, opposite 

trends are revealed and as such, there is 

insufficient basis for concern that the 

growth in the number of large farms 

suggests the potential for the growth in 

the number of producer-handlers. The 

brief also indicated that the presence of 

organic producers and organic 

producer-handlers in the market should 

not result in different regulatory 

treatment by marketing orders as 

production methods are not relevant. 

The Select and Continental brief 

detailed agreement with the adoption of 

provisions that would provide for a 

‘‘grandfathering’’ clause to be applied to 

current producer-handlers. Continental 

and Select asserted that such a clause 

should allow entities classified as 

producer-handlers prior to July 1, 2009, 

with monthly Class I route disposition 

of no more than 3 million pounds to 

retain their exemption from pooling and 

pricing. According to Select and 

Continental, whatever method is 

selected for limiting producer-handler 

disposition of Class I sales, it is more 

important that current producerhandlers operations within the 

proposed limit not be fully regulated. 

A brief was filed on behalf of Upstate 

Niagara Cooperative, Inc. (Upstate 

Niagara). Upstate Niagara is a CapperVolstead cooperative that owns fluid 

processing and manufacturing plants 

regulated under several Federal orders, 

including Orders 1 and 33. Their brief 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54404 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

detailed support of the positions taken 

by NMPF and IDFA. 

A brief filed on behalf of the State 

Departments of Agriculture of New 

York, Pennsylvania, New Hampshire, 

Vermont and Wisconsin (State 

Departments of Agriculture) stressed 

support for a 3-million pound limit on 

monthly Class I route disposition for 

producer-handlers. The State 

Departments of Agriculture also detailed 

opposition to an unlimited pooling and 

pricing exemption for Class I sales 

through producer-handler-controlled 

retail channels, and the adoption of a 

producer-handler grandfather clause. 

According to the State Departments of 

Agriculture brief, a limit on producerhandler Class I sales volume is 

necessary as it would allow producers 

processing own-farm milk to continue to 

meet growing demand for locally 

produced, single-source milk while also 

preventing the erosion of the value of 

marketwide pools. In their brief, the 

State Departments of Agriculture 

stressed that any limitation on 

producer-handler Class I sales volume 

should apply to total sales. The State 

Departments of Agriculture also 

indicated that producer-handlers with 

three million or fewer pounds of 

monthly Class I route sales should be 

allowed to make temporary purchases of 

limited amounts of supplemental milk 

from other sources without loss of 

producer-handler status. 

A brief filed was on behalf of DIOC. 

In their brief, DIOC provided analysis of 

specific proposals and testimony 

presented during the hearing. More 

specifically, the DIOC discussed the 

impact of California’s producer-handler 

provisions that allow for soft-cap limits 

on Class I sales volume. The brief also 

stressed the relevance of California’s 

producer-handler experiences to the 

current proceeding, the concept of 

transfer pricing as related to producerhandlers’ cost advantage and the 

concept of economic rents. 

In their brief, DIOC reiterated its 

testimony given on the substantial 

negative effects of producer-handlers in 

the California milk marketing system. 

Producer-handlers, according to DIOC, 

realize greater economic returns than 

similarly situated farms and plants that 

are not fully integrated. DIOC went on 

to assert that advantage arises because of 

producer-handler exemption from 

pooling and pricing. That exemption, 

DIOC stressed, allows the integrated 

producer-handler firm to either earn a 

greater return at the farm level by 

paying itself the Class I price, or earn a 

greater return at the plant level by 

paying the farm side of the operation 

less than the Class I value for milk 

supplied. DIOC concluded that the 

advantage enjoyed by producer-handlers 

is not a direct result of realized scale 

economies but rather is the result of 

revenue that is not shared with the pool. 

A brief filed on behalf of Mallorie’s 

Dairy, Nature’s Dairy and Country 

Morning Farms (Mallorie’s Dairy et al.) 

reiterated arguments against the 

adoption of Proposal 1 and for the 

adoption of Proposal 17 should Proposal 

1 be adopted. The majority of these 

arguments rest upon the opinion that 

proponents lack evidence supporting 

adoption of their proposals. Mallorie’s 

Dairy et al. also proposed that should 

the Secretary determine that changes to 

the producer-handler definitions are 

necessary, then the current size 

limitation on producer-handlers in 

Orders 124 and 131 should be adopted 

in other markets as dictated by record 

evidence of the need for change in those 

orders. 

In their brief, Mallorie’s Dairy et al. 

stressed that calculation of producerhandler advantage as the difference 

between the Class I price and the blend 

price is in error. Rather, Mallorie’s Dairy 

et al. asserted that producer-handlers, 

like fully regulated handlers, use ownfarm milk in other classes and as such, 

their pool obligation would likely be 

something less than the Class I price 

minus the blend price applied to total 

production. Mallorie’s et al. further 

stated that proponents’ use of erroneous 

calculations resulted in an 

overstatement of producer-handlers’ 

purported competitive advantage. 

The Mallorie’s Dairy et al. brief also 

articulated additional factors 

determinant in producer-handlers 

competitive position relative to fully 

regulated handlers. According to the 

brief, smaller producer-handlers’ 

processing, balancing and distribution 

costs exceed those of larger pool 

distributing plants and as a result, 

smaller producer-handlers are unable to 

compete with fully regulated plants, or 

to cause disruption in the fluid market 

on the basis of price. 

A brief filed on behalf of IDFA 

reiterated its support for Proposals 1 

and 2 exclusively, and highlighted 

testimony supportive of its position. 

IDFA also purported a lack of evidence 

supporting other proposals and detailed 

its opposition to the adoption of any 

proposals other than Proposals 1 and 2. 

IDFA asserted that the adoption of 

Proposal 1 is warranted based on the 

testimony of dairy farmers, cooperative 

representatives, and regulated fluid milk 

processors that provided numerous 

examples of producer-handlers’ 

presence giving rise to disorderly 

marketing in several Federal milk 

marketing orders. 

In its brief, IDFA stressed that 

significant structural changes within the 

dairy industry have nullified any 

historical justification of the producerhandler exemption from pooling and 

pricing provisions. Movements toward 

concentration and consolidation in the 

dairy farm sector combined with 

unbounded producer-handler 

provisions in many Federal orders, has 

caused producer-handlers to have a 

significant negative impact on orderly 

marketing conditions and the potential 

for an even greater negative impact is 

present, according to IDFA. 

IDFA also asserted in its brief that the 

adoption of Proposal 2 is warranted. 

IDFA revealed that an increase of the 

exempt plant qualification threshold 

from 150,000 pounds to 450,000 pounds 

of monthly Class route disposition will 

allow small handlers, including 

previously exempt small producerhandlers, to enjoy an exemption from 

pooling and pricing provisions because 

they are too small to cause material 

market disruption. IDFA further 

asserted that Proposal 2 should be 

adopted in its entirety. According to the 

IDFA brief, the unique labeling 

restriction feature in Proposal 2 is 

necessary to avoid linking together the 

sales of numerous small exempt plant 

handlers in an effort to gain the volume 

advantages of larger, fully regulated 

handlers. 

A brief filed on behalf of AE, Dean, 

National Dairy Holdings, NDFA, PAMD, 

Parker Farms, Shamrock and Shamrock 

Farms (AE et al.) articulated collective 

support for Proposal 1. In their brief, AE 

et al. also noted that all parties 

represented in brief except NDFA 

support Proposal 2. The brief detailed 

opposition to an increased exempt plant 

Class I distribution limit should USDA 

decline adoption of any proposals under 

consideration in this proceeding or if 

USDA adopts any proposal other than 

Proposal 1. AE et al. also detailed 

specific opposition to any proposals that 

include soft-cap provisions. Finally, AE 

et al. acknowledged that certain parties 

represented in their brief could accept 

an amendment of the orders that would 

establish a 3-million pound hard-cap 

limit on monthly Class route sales for 

producer-handlers. Adoption of this 

limit, according to AE et al., would 

restore orderly conditions in most 

circumstances. 

In their brief, AE et al. asserted that 

record evidence reflects the threat of 

producer-handler proliferation. In 

particular, AE et al. argued that recent 

growth in producer-handler volumes, 

retailing customers search for producerVerDate Nov<24>2008 18:41 Oct 20, 2009 Jkt 220001 PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 E:\FR\FM\21OCP4.SGM 21OCP4

pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54405 

handler suppliers and the presence of 

producers actively structuring their 

operations with the express intent of 

becoming a producer-handler, is 

precisely the sort of evidence indicative 

of a potential threat to the maintenance 

of orderly marketing conditions. AE et 

al. also argued on behalf of NDFA that 

the exempt plant qualification threshold 

in Order 1 should not be increased due 

to the potential aggregate impact of such 

an amendment. According to the brief, 

record evidence shows a substantially 

larger number of exempt plants in Order 

1 than in any other order. 

The AE et al. brief detailed a number 

of reasons to support its position that 

Federal orders should include unique 

label requirements in the event that the 

exempt plant qualification threshold is 

increased or the producer-handler 

provisions are not entirely eliminated. 

Requirements for the unique labeling of 

packaged fluid milk products, according 

to the brief, will prevent the Class I sales 

volumes of exempt handlers, used in 

aggregate, from being balanced against 

the Class I sales volumes of fully 

regulated handlers. AE et al. provided 

several illustrations in support of this 

assertion and noted that unique labeling 

requirements would not prevent an 

exempt handler from bottling under 

several labels or bottling under a label 

other than one bearing its own name. 

Rather, the brief related that the only 

circumstance which would be 

prevented by unique labeling 

requirements is when any exempt 

handler or producer-handler bottles 

milk under the same label used by other 

handlers. 

The AE et al. brief cited several 

examples from the record that they 

assert establish the presence of 

producer-handler driven disorderly 

marketing conditions in individual 

orders as well as across all orders. AE 

et al. further asserted that producerhandlers do not actually face balancing 

costs high enough to eliminate the price 

discrepancy between their operation 

and fully regulated handlers. The 

testimony of regulated handlers and 

producer-handlers alike, according to 

the AE et al., addressed this very issue. 

AE et al. furthered this assertion, noting 

examples where producer-handlers 

were balanced by fully regulated 

suppliers, or supplied fluid milk 

products at retail under a label used by 

another [fully regulated] handler. 

Producer-handlers have a market impact 

across multiple marketing areas because 

some producer-handlers have 

distribution that is national, noted AE et 

al. The effect of producer-handler’s 

multi-order distribution, according to 

AE et al., is amplified by retailers’ 

common practice of requiring fully 

regulated handlers to match producerhandler low-cost competing offers in an 

entire region. 

In their brief, AE et al. also asserted 

that record evidence supports the 

conclusion that producer-handlers’ 

market share has increased even as the 

number of producer-handlers in 

operation has decreased. AE et al. 

stressed that this trend leads to 

concluding that producer-handlers, as 

individual entities, have grown in size 

and that they present a greater potential 

for further growth and disorderly 

marketing. In this regard, the brief cited 

testimony provided by two dairy 

farmers who recently constructed 

processing plants with the intent of 

seeking producer-handler status. The 

potential for growth in producerhandler market share combined with 

retailers’ knowledge of the pricing 

advantage enjoyed by producer-handlers 

is indicative of existing and future 

disorder, according to AE et al. 

Furthermore, AE et al. asserted, if 

producer-handlers’ cost of surplus 

disposal exceeded the advantage of their 

exemption from full regulation, then it 

would be irrational for those operations 

to continue. AE et al. concluded that if 

no action is taken to limit or eliminate 

the producer-handler definitions in all 

orders, then fully regulated handlers 

will be put at further disadvantage and 

the benefits of marketwide pooling will 

be threatened. 

A brief submitted on behalf of NMPF 

summarized its position and highlighted 

record evidence in support of adopting 

Proposals 1, 2 and 26. In its brief, NMPF 

stated that the adoption of Proposals 1, 

2 and 26 would: allow plants meeting a 

small business definition to continue 

operations with an exemption from the 

pooling and pricing provisions of the 

Orders; prevent the aggregation of 

exempt plant Class I sales to circumvent 

regulation; improve revenues paid to 

producers via increased blend prices; 

and allow handlers to face uniform 

classified prices. According to NMPF, 

any provisions regarding exempt 

handlers adopted as a result of this 

proceeding should apply to total sales 

and not only to sales in a particular 

marketing area, and should include 

unique labeling restrictions to prevent 

integration of many small exempt 

handlers in search of a cost advantage 

based upon exempt milk supplies. 

NMPF further asserted that the 

amendments presented in Proposals 1, 2 

and 26 are warranted given current and 

potential disorder, and taken 

collectively would restore orderly 

conditions within the system. NMPF 

reiterated its opposition to Proposals 3, 

4, 5, 7, 8, 11, 13, 15, 17, 18, 20, 21, 23, 

24, 25, 27 and 28. 

In its brief, NMPF asserted that both 

farm sizes and handler operations are 

growing and the increasing availability 

of new technologies has drawn the 

industry to seek scale efficiencies. This 

new climate presents greater potential 

for producer-handler proliferation since 

many dairy farms are now large enough 

to enjoy economies of scale in milk 

production and processing and the cost 

advantage associated with the producerhandler exemption, NMPF emphasized. 

Some producer-handlers, according to 

NMPF, have already reached the size 

and scale necessary to compete directly 

with fully regulated handlers and that 

some current producer-handlers have 

grown to distribute nationally and 

internationally. Additionally, NMPF 

stressed in its brief that producerhandlers in low- and high-Class I 

utilization marketing areas, exhibit 

Class I utilization significantly in excess 

of area averages of fully regulated 

distributing plants. Record evidence, the 

brief asserted, indicates that producerhandler sales comprise a significant and 

growing share of the Class I sales in 

several markets. Furthermore, when full 

regulation occurs, producer-handlers 

can and do survive. 

In brief, NMPF pointed out that 

producer-handlers’ costs-of-production 

are not relevant in assessing their 

impact on orderly marketing conditions. 

NMPF further asserted that 

establishment of a transfer price at 

which producer-handlers acquire ownfarm milk is unnecessary because the 

correct comparison is between the 

regulatory costs of producer-handlers 

and similarly situated plants and the 

farms that supply them. On this basis, 

producer-handlers face costs that are no 

different, except that producer-handlers 

have obligation to the producersettlement fund, NMPF concluded. 

In its brief, NMPF reiterated that 

producer-handlers are a cause of 

disorderly marketing conditions because 

their exemption from pooling and 

pricing regulation decreases revenue 

that is otherwise paid to producers and 

interferes in setting uniform class prices 

to handlers. NMPF furthered this 

position noting that marketwide pooling 

is necessary for the integrity of the 

Federal order system and the exemption 

from pooling and pricing of producerhandlers erodes its effectiveness. The 

larger individual producer-handler 

operations become, the more a 

producer-handler’s exempt status 

undermines producer equity, NMPF 

indicated. The cost advantage of 

producer-handlers, according to NMPF, 

equals the difference between the 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54406 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

average value of milk used and the 

uniform price. This advantage is 

significant in an industry where bids are 

often considered and awarded on 

differences of less than a penny, NMPF 

maintained. The magnitude of producerhandlers’ impact revealed by record 

evidence to be as high as $0.12 during 

certain months in Order 32, NMPF 

noted in its brief. The brief cited other 

record testimony revealing that 

producer-handlers also impact the blend 

price in Order 1. 

The NMPF brief articulated the 

fiercely competitive nature of the retaillevel grocery market. According to 

NMPF, retailers have sought to gain 

producer-handlers as suppliers in 

search of price advantages at retail, and 

producer-handlers can effectively avoid 

balancing their production when 

retailers first rely on all of the milk that 

a producer-handler can offer by meeting 

the remainder of their needs through 

other regulated sources. NMPF also 

noted the testimony of a producerhandler with national distribution 

which revealed that producer-handlers 

balance against alternative suppliers. 

NMPF, in its brief, explained how the 

adoption of any proposals other than 

Proposals 1, 2 and 26 would be 

ineffective in addressing the current 

disorderly marketing conditions caused 

by producer-handlers. Specifically, 

NMPF stands in opposition to all other 

proposals. NMPF noted particular 

concern that the adoption of individual 

handler pooling in lieu of marketwide 

pooling would result in disorderly 

marketing and be detrimental to the 

Federal order system. In this regard, 

NMPF explained that individual 

handler pooling would reward handlers 

who can selectively recruit larger 

producers to supply milk needed for 

Class I use without acknowledging the 

balancing services provided by other 

handlers in the market. 

In its brief, NMPF argued that the 

record supports grandfathering current 

producer-handlers with no more than 

three million pounds of monthly Class 

I route disposition provided 

grandfathering also includes provisions 

requiring unique labeling of package 

fluid milk products and farm and plant 

ownership exclusive of ownership in 

other farms or distributing plants. 

According to NMPF, these conditions 

collectively ensure the independent 

nature of producer-handlers as was 

intended when this category of handler 

was first created. 

NMPF concluded in its brief that 

adoption of their package of proposals 

on a national basis is appropriate and is 

required to correct current disorderly 

marketing conditions and to preempt 

future disorder, noting adoption would 

eliminate the need for numerous and 

redundant hearings. With a national 

view, NMPF asserted that the collective 

adoption of Proposals 1, 2 and 26 would 

likely result in the full regulation of not 

more than five current producer-handler 

entities. 

A brief submitted on behalf of AIDA 

reiterated the testimony of AIDA 

members and further articulated AIDA 

members’ positions. AIDA asserted that 

Proposals 1 and 26 and other proposals 

that would eliminate or restrict 

producer-handler operations should be 

denied and the status quo maintained. 

Should the Secretary find that change to 

the producer-handler provisions is 

necessary, AIDA asserted, only 

Proposals 23, 24 and 25 should be 

considered for adoption. 

In their brief, AIDA asserted that the 

preemptive regulation of producerhandlers and measures to prevent their 

proliferation are not warranted. In this 

regard, AIDA highlighted testimony that 

producer-handler competition is not 

currently an issue. AIDA concluded that 

the decreasing number of producerhandlers should be evidence enough 

that no threat of proliferation exists. 

Furthermore, the AIDA also concluded, 

while the volume of producer-handler 

milk has increased, the total percentage 

of Class I sales attributable to producerhandlers is at its lowest level in more 

than 40 years. 

AIDA reiterated their assertion that 

the record supports concluding that 

producer-handler raw milk costs are 

equivalent to farm-level cost-ofproduction and not the Federal order 

blend price. In this regard, AIDA 

referenced USDA statistics that 

demonstrate farm-level cost-ofproduction exceeds both the blend price 

and the Class I price and as such, 

producer-handlers acquire own-farm 

milk at costs higher than either of these 

prices. Accordingly, AIDA asserted that 

the blend price is not the appropriate 

transfer price of milk from a producerhandler’s farm to its plant. Instead, 

AIDA asserted, the only economically 

rational transfer price is the farm costof-production incurred by the producerhandler. Among other things, AIDA 

maintained, without evidence of an 

unfair cost advantage, no basis can be 

established to conclude that producerhandlers give rise to disorderly 

marketing conditions. 

Expanding upon the argument that 

disorderly marketing conditions are not 

evident, AIDA stressed in its brief that 

disorderly marketing can only be found 

when consumers are unable to obtain a 

sufficient supply of fluid milk at 

reasonable prices. Applying this 

definition to the current record, which 

AIDA asserts does not show any 

consumer inability in buying milk, 

AIDA concluded that disorderly 

marketing is not present. AIDA also 

referred to testimony of proponent 

witnesses that acknowledged that 

producer-handlers are not currently 

causing disorderly marketing 

conditions. AIDA went further to 

suggest that any decisions regarding the 

regulatory treatment of producerhandlers must be based upon economic 

conditions and equity rather than 

equality amongst regulated parties. 

In their brief, AIDA indicated that 

producer-handlers do compete with 

fully regulated handlers on the basis of 

price, but also stressed that price alone 

is not the only determinant factor of 

competition and producer-handlers are 

evidence of nothing more than healthy 

competition. AIDA insisted that 

competition is not the same as 

disorderly marketing and asserted that 

Federal orders are not intended to limit 

or eliminate competition. AIDA relied 

on several examples from the record 

which they purport to show that 

producer-handlers do not compete 

solely on the basis of price and also 

countered testimony intended to show 

the competitive advantages producerhandlers enjoy by being exempt from 

pooling and pricing. 

AIDA cited in their brief record 

testimony demonstrating that producerhandlers meet the regulatory test of 

bearing the burden of balancing their 

milk supply. Based on the testimony of 

several producer-handlers, AIDA 

concluded that producer-handlers are 

price-takers when selling surplus milk 

and the price received for surplus milk 

is lower than the classified prices. In 

addition to bearing the burden of their 

surplus, producer-handlers do not enjoy 

the Federal order minimum prices for 

surplus milk as do pooled producers, 

AIDA asserted. 

AIDA presented several arguments in 

their brief to demonstrate the 

irrelevance of the impact producerhandlers have on blend prices. While 

AIDA acknowledged an impact, they 

argued that the impact is not significant 

relative to the impact of several other 

marketing conditions tolerated by 

Federal orders, including the depooling 

of milk. 

AIDA noted in their brief that the 

producer-handler model is, in many 

marketing areas, the only alternative for 

producers outside of marketing through 

a cooperative. AIDA also asserted that 

through the producer-handler option, 

producers are able to provide 

differentiated products through 

innovative methods and marketing 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54407 

channels that are best served by the 

producer-handler business model. In 

this regard, AIDA mentioned several 

prominent regulated handlers serving 

the current marketplace that began as 

producer-handlers. Accordingly, AIDA 

concluded that USDA should leave the 

producer-handler definition unchanged. 

In the event USDA finds the need for 

changing the producer-handler 

provision, AIDA asserted in their brief 

that Proposals 23, 24 and 25 should be 

adopted because they are lessburdensome alternatives to the other 

proposals under consideration in this 

proceeding. According to AIDA, the two 

parts of Proposal 23 would allow 

handlers to exempt own-farm milk 

volumes from pool obligation while also 

allowing handlers with own-farm milk 

production to elect partially regulated 

distributing plant status. 

In their brief, AIDA reasserted that 

Proposal 24 is primarily intended for 

adoption in the event that USDA 

determines that the producer-handler 

provisions need amending to include 

Class I disposition limits, while also 

maintaining that the proposal could be 

adopted even in the event that the 

producer-handler provisions were 

completely eliminated. AIDA reiterated 

that the proposal’s intent is to exempt 

producer-handlers with handlercontrolled retail channels because their 

control of milk is complete from 

production through to final disposition 

to the consumer and because there is no 

impact on the pool. AIDA noted that 

this provision is intended to be liberally 

construed so as to include independent 

contractor relationships within the 

handler-controlled retail channel. 

In their brief, AIDA reiterated their 

position that individual handler pooling 

(Proposal 25) is an alternative to 

marketwide pooling as a means to 

address the producer-handler issue. 

According to AIDA, the adoption of 

individual handler pools would not 

only allow producer-handlers and 

regulated handlers to enjoy more equal 

treatment, it would also better reflect 

Class I market demands and the 

producers serving those demands. AIDA 

asserted that it would also eliminate the 

need for pooling standards and the 

hearings required to determine them, as 

well as eliminate the disorderly impacts 

of depooling. AIDA concluded that the 

possibility of unequal producer prices 

under individual handler pools would 

not be a great issue. 

In their brief, AIDA also detailed 

support for increasing the exempt 

plant’s limit on Class I distribution 

independent from consideration of the 

regulatory treatment of producerhandlers. Citing from the record, AIDA 

supported a Class I distribution limit of 

1 million pounds per month. 

Discussion and Findings 

General 

At issue in this proceeding is the 

reconsideration of the current 

exemption of certain handlers from 

pooling and pricing provisions of 

Federal milk marketing orders. All milk 

marketing orders provide for the 

exemption of handlers known as 

producer-handlers and plants that have 

less than 150,000 pounds of monthly 

Class I route disposition—commonly 

referred to as exempt plants. While 

exempt plants are limited to 150,000 

pounds or less of monthly Class I 

disposition, the producer-handler 

definitions, except in Orders 124 and 

131, specify no disposition limitation. 

A proposal seeking elimination of the 

producer-handler definitions asserts 

that the pooling and pricing exemption 

of this category of handler has become 

a source of current or potential disorder 

in the marketplace and should be 

eliminated across all orders. A 

companion proposal to mitigate 

regulatory impacts associated with 

elimination of the producer-handler 

definitions was offered to be adopted 

simultaneously. This companion 

proposal seeks to increase the exempt 

plant limit of monthly Class I 

disposition from 150,000 to 450,000 

pounds. As proposed, it is intended to 

allow current small scale producerhandlers, those with less than 450,000 

pounds of Class I disposition per month, 

to be exempt from pooling and pricing 

provisions of the orders. 

Numerous additional proposals were 

offered and considered as alternatives to 

these two proposals. While all producerhandlers endorse the status quo, the 

alternative proposals are offered in the 

event that USDA determines the 

producer-handler definitions should be 

amended. Several current producerhandlers and other interested parties 

offered proposals that would add a 

monthly Class I route disposition limit 

to the producer-handler definitions. 

Other proposals seek to prevent 

proliferation of new entrants under the 

producer-handler definition while 

allowing existing producer-handlers to 

retain their current status. One proposal 

seeks to recast the producer-handler 

definitions to exempt only those entities 

with the additional risk and burden of 

exclusive distribution through 

producer-handler-controlled retail 

channels. Another proposal seeks to 

change the method of pooling milk and 

the classified use-values of milk in the 

orders. Finally, proposals that seek to 

exempt handlers’ own-farm milk 

production disposed of as packaged 

fluid milk products were offered. 

The record reveals that there are 

currently over 100 entities across the 

Federal milk marketing order system 

meeting the current exempt plant 

definition. Many of these entities are 

operated by dairy farmers who bottle 

and sell their milk production as fluid 

milk products. If not for their monthly 

Class I route dispositions being less than 

150,000 pounds, these entities would 

likely meet the producer-handler 

definition of their respective orders. 

Although some exempt plant handlers 

fit the producer-handler definition, 

which requires handlers to have 

integrated production, processing and 

route disposition at their exclusive 

enterprise and risk, exempt plant 

handlers have no such restrictions. In 

other words, exempt plants may be 

exclusively supplied with milk 

purchased from dairy farmers. 

Irrespective of production, processing 

and route disposition, an exempt plant 

incurs no Federal order minimum 

payment obligation to the dairy 

farmer(s) from whom milk was 

purchased. 

The AMAA requires the setting of 

uniform prices to producers regardless 

of how the milk of any single dairy 

farmer is used and uniform prices to 

similarly situated handlers (Section 

608c(5)). Handlers who are similarly 

situated pay at least the class prices 

established under the orders for milk. 

Producers are paid at least the minimum 

uniform (blend) price that is determined 

through marketwide pooling. A 

marketwide pool, through the 

mechanism of a producer-settlement 

fund, equalizes the classified use-values 

of milk pooled on an order among 

handlers and determines a uniform 

price paid to producers. Marketwide 

pooling allows for equitable sharing of 

the cost of supplying and balancing the 

Class I market. These two key features 

of milk orders—classified pricing and 

marketwide pooling—provide the basic 

foundation for orderly marketing and 

address the AMAA’s primary objective 

of ensuring orderly marketing. 

There are currently four different 

producer-handler definitions used in 

Federal milk marketing orders. The 

three southeastern orders (Orders 5, 6 

and 7) have no Class I route disposition 

limits and do not provide for the 

purchase of milk beyond the own-farm 

production of a producer-handler. The 

producer-handler definitions of 5 other 

orders also have no limit on Class I 

route disposition but provide for the 

limited purchase of milk of 150,000 

pounds or less per month beyond ownVerDate Nov<24>2008 18:41 Oct 20, 2009 Jkt 220001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 E:\FR\FM\21OCP4.SGM 21OCP4

pwalker on DSK8KYBLC1PROD with PROPOSALS4
54408 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

1Official notice is taken of Final Decision, 

published December 14, 2005 (70 FR 74166). 

2Official notice is taken of Final Decision, 

published May 13, 1966 (31 FR 7062–7064). 

3Official notice is taken of Final Decision, 

published July 21, 1967 (32 FR 1073–1074). 

4Official notice is taken of Recommended 

Decision, published June 28, 1989 (54 FR 27179). 

farm production. Only Orders 124 and 

131 have a limit on Class I route 

disposition in their marketing areas that, 

when exceeded, obligates producerhandlers to pooling and pricing 

provisions of these orders in the same 

manner as the fully regulated plants. 

The producer-handler definition of 

Order 131 differs from that of Order 124 

in that it also places certain restrictions 

on product labeling. Nevertheless, the 

common criterion of all producerhandler definitions for all orders is the 

requirement that the entire operation be 

under the sole risk and enterprise of the 

producer-handler. 

Despite previous rulemaking 

proceedings which considered full 

regulation of producer-handlers, it was 

not until 2006 that some producerhandlers became subject to pooling and 

pricing provisions under Orders 124 

and 131. In that formal rulemaking 

proceeding, USDA adopted a 3-million 

pound per month Class I disposition 

limit in the marketing area that, when 

exceeded, results in the full regulation 

of producer-handlers. No changes were 

made with regard to the exempt plant 

definitions of the two orders. Shortly 

after implementation of the amended 

Orders 124 and 131, enactment of the 

Milk Regulatory Equity Act of 2005 

required implementation of additional 

regulatory criteria affecting handlers 

and producer-handlers in all Federal 

milk marketing orders. 

In the producer-handler proceeding 

for Orders 124 and 131, USDA found 

that the exemption of large scale 

producer-handlers from pooling and 

pricing disrupted the orderly marketing 

of milk. The record of that proceeding 

demonstrated that large scale producerhandlers enjoyed a price advantage over 

regulated handlers while 

simultaneously decreasing blend 

(uniform) prices to dairy farmers. The 

record of this proceeding does not 

support the same conclusion. Of greater 

significance, the record of this 

proceeding indicates that all producerhandlers enjoy a competitive pricing 

advantage over fully regulated handlers 

because of their exemption from pooling 

and pricing provisions. This is not 

surprising as any entity exempted from 

the regulatory plan will cause prices to 

be set at a lower level than the prices 

that would otherwise be uniform to 

producers and handlers. It is clear from 

this proceeding that as Class I 

dispositions of a producer-handler 

increase, the order’s ability to set prices 

that are uniform to handlers and 

producers is eroded. 

Depending on the volume of Class I 

disposition, the exemption from 

obligation to account for milk at 

minimum classified prices, and the 

exemption from payment into the 

producer-settlement fund of the 

difference between a producer-handler’s 

use-value of milk and the blend price 

become critical factors that give rise to 

disorderly marketing conditions. Large 

producer-handlers become increasingly 

able to market fluid milk at prices below 

those that can be offered by fully 

regulated handlers because the 

classified prices set by the order are not 

uniform. The exemption from payment 

to the producer-settlement fund renders 

the order unable to set uniform prices to 

producers. 

The record of this proceeding 

demonstrates that producer-handlers 

with monthly Class I route disposition 

of three million pounds or less are not 

a cause of disorderly marketing 

conditions that warrant correction by 

eliminating the producer-handler 

definition across all Federal milk 

marketing orders. Accordingly, it is 

reasonable to conclude that the 

objectives of the AMAA can continue to 

be achieved without the complete 

elimination of the producer-handler 

definitions across the system of orders. 

It is also reasonable to conclude that all 

orders should be amended so that the 

producer-handler definitions include 

some limitation on the amount of Class 

I dispositions that a producer-handler 

may have before becoming obligated to 

the system’s regulatory plan of pooling 

and pricing. Doing so is necessary to 

maintain the integrity of the Federal 

order system and orderly marketing 

conditions. 

Elimination of the producer-handler 

definition and increasing the exempt 

plant monthly limitation of Class I 

disposition. 

Record evidence reveals that the 

elimination of the producer-handler 

definitions of the orders is not necessary 

and an increase in the exempt plant 

threshold from the current 150,000 to 

450,000 pounds on Class I route 

disposition per month is not warranted. 

Nevertheless, testimony and evidence 

provided by proponents, most notably 

NMPF and IDFA and associated 

witnesses, identified shortcomings of 

the current producer-handler 

definitions. 

Producer-handler exclusion from 

pooling and pricing has historically 

been based on the premise that the 

declared policy and objectives of the 

AMAA, namely orderly marketing, 

could be achieved without the extension 

of full regulation to this category of 

handler. USDA has articulated its 

authority to obligate producer-handlers 

to further regulation, including 

marketwide pooling and minimum 

pricing provisions, if they singularly or 

collectively have a negative impact on 

the market. USDA found the activity of 

large scale producer-handlers to be a 

source of significant and measurable 

disorder in the Arizona and Pacific 

Northwest marketing areas.1

Accordingly, those orders were 

amended to establish a 3-million pound 

limit on monthly Class I disposition in 

the marketing area in the producerhandler definitions beyond which 

pooling and pricing regulation applies 

to the handler. 

Prior rulemakings consistently 

articulated USDA’s authority to subject 

producer-handlers to full regulation. For 

example, in a Final Decision for the 

Puget Sound order, a predecessor to the 

Pacific Northwest order, USDA found 

that producer-handlers should continue 

to be exempt from pooling and pricing 

provisions of the order with the caveat 

that producer-handlers could be subject 

to further regulation if justified by 

prevailing market conditions.2 This 

position was amplified in a subsequent 

Puget Sound Final Decision wherein 

USDA found that a hearing should be 

held to consider the regulation of 

producer-handlers if the marketing area 

was susceptible to being affected by 

producer-handlers or if producerhandler sales could disrupt or operate to 

the detriment of other producers in the 

market.3 Such policy was also 

articulated in another decision 

concerning producer-handlers in Texas 

and the Southwest Plains.4 That 

decision concluded that it would be 

appropriate to obligate producerhandlers to the pooling and pricing 

provisions of the order if it could be 

shown that producer-handlers cause 

market disruption. 

The proposals for elimination of the 

producer-handler definition are 

primarily based upon issues regarding 

producer-handler size, specifically the 

volume of Class I route disposition. The 

elimination of the producer-handler 

definition across the system of orders is 

proposed to be offset by an increase in 

the exempt plant monthly Class I route 

disposition limit. This would, as the 

proponents intend, mitigate the impact 

of the proposed regulatory change on 

current producer-handlers characterized 

as not having a significant impact on 

orderly marketing conditions. 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54409 

5Official notice is taken of: Final Decision, 

published April 2, 1999 (64 FR 16026); Final 

Decision, published October 13, 1955 (20 FR 7689); 

Final Decision, published June 15, 1990 (55 FR 

25618). 

Producer-handlers are persons who 

operate dairy farms and generally 

process and sell only their own milk 

production. A pre-condition to 

operating a processing plant as a 

producer-handler is the operation of a 

dairy farm. Consequently, the size of the 

dairy farm determines the production 

level of a producer-handler’s farm 

operation and is also the controlling 

factor of the volume that is processed by 

the plant and that is available for 

distribution. Accordingly, the major 

consideration in determining whether a 

producer-handler is a large or small 

business is its capacity as a dairy farm. 

Under SBA criteria, a dairy farm is 

considered large if its gross revenue 

exceeds $750,000 per year which 

equates to a production guideline of 

500,000 pounds of milk per month. 

Accordingly, a producer-handler with 

Class I disposition in excess of three 

million pounds per month is considered 

by this decision to be a large business. 

At what size a producer-handler 

begins to have a significant impact on a 

market’s pooled participants should be 

determined by whether minimum prices 

are uniform to producers and among 

handlers. Testimony in this proceeding 

presented the argument that the 

presence of effective prices—or actual 

prices paid and received—that differ 

from minimum prices set under the 

orders is indicative of disorder. This 

decision disagrees. The regulatory plan 

of the milk order program is not tasked 

with setting the effective prices. Rather, 

the regulatory plan of the milk order 

program provides for setting and 

enforcing minimum prices paid by 

handlers and received by producers. 

The effective prices producers receive 

can and do vary, but prices paid to 

producers and their cooperatives cannot 

be lower than the minimum price 

established under the orders. The fact 

that cooperatives can re-blend the price 

they pay for the marketing of their 

producer member milk is neither an 

example of disorderly marketing 

conditions nor germane to evaluation of 

the conditions appropriate for excluding 

handlers from the pooling and pricing 

provisions of the orders. 

Because producer-handlers do not 

share the additional value of their Class 

I sales with a market’s producers, their 

exemption from the pooling and pricing 

provisions is conditioned on the 

premise that the burden of surplus 

disposal (milk not used for fluid uses) 

is borne by them alone. The surplus 

milk of a producer-handler may be sold 

for any price, but germane to this 

condition, such surplus milk does not 

receive the minimum price protection 

offered by marketwide pooling. When a 

producer-handler is able to avoid the 

burden of surplus disposal while also 

retaining the entire additional value of 

milk accruing from Class I sales, equity 

among producers and handlers is 

jeopardized and disorderly marketing 

conditions can ensue. When uniform 

minimum price conditions exist, the 

basis for orderly marketing is present. In 

the absence of uniformity of minimum 

prices among producers and handlers, 

the basis for orderly marketing is 

undermined. 

The record supports the finding that 

adoption of a limit on producer-handler 

Class I dispositions per month can 

mitigate the disorderly marketing which 

arises when producer-handlers are able 

to avoid bearing the burden of surplus 

disposal. Bearing the burden of surplus 

disposal is a fundamental 

demonstration of a producer-handler 

balancing their milk production with 

market demand for their Class I 

products. Disorderly marketing 

conditions are present when a producerhandler becomes able to directly or 

indirectly balance their Class I 

dispositions with the surplus milk of 

pooled producers. The record indicates 

examples of indirect balancing of 

producer-handlers on the regulated 

market. The record also indicates that as 

the size of a producer-handler’s Class I 

disposition increases, conditions arise 

that offer an even greater ability to 

effectively transfer the balancing burden 

to the regulated market. 

While opponents to the elimination of 

the producer-handler definitions argue 

otherwise, this decision agrees with 

proponent arguments, presented by 

witnesses testifying in support of NMPF 

and IDFA positions, that the difference 

between the Class I price and the blend 

price is a reasonable estimate of the 

price advantage enjoyed by producerhandlers even if it is not possible to 

determine the precise level of the 

advantage for any individual producerhandler. This price advantage is 

compounded as a producer-handler’s 

Class I utilization increases. In addition, 

allowing producer-handlers to have 

unlimited Class I disposition will result 

in a measureable impact on the blend 

price received by pooled producers. 

This decision finds no reason to 

consider the higher costs purportedly 

associated with the operation of 

producer-handlers a relevant factor for 

determining conditions in which 

handlers should or should not be 

subject to full regulation. All handlers 

face different processing costs. These 

differences may be the result of 

divergent plant operating efficiencies 

related to size or to that portion, if any, 

of milk supplied, which may be 

produced and supplied from own-farm 

sources. Whatever the cost differences 

may be and the reasons for them, all 

fully regulated handlers must pay the 

same minimum Class I price, and 

equalize their use-value of milk 

(generally, the difference between the 

Class I price and the blend price) 

through payment into the order’s 

producer-settlement fund. Similarly, all 

producers face different milk 

production costs. Producer cost 

differences, for example, may be the 

result of farm size or variation in milk 

production levels attributable to 

management ability. Producers, 

regardless of their individual costs, 

receive the same blend price. 

Establishment of individual handler 

pools. 

The marketwide sharing of the 

classified use-values of milk among all 

producers supplying a marketing area is 

an essential feature of the Federal milk 

marketing order system. It ensures that 

producers supplying a given marketing 

area receive the same uniform price for 

their milk, regardless of its end use. In 

combination with classified pricing, 

marketwide pooling has, among other 

things, successfully mitigated price 

competition between producers seeking 

the higher-valued fluid outlets for their 

milk. Abandonment of the marketwide 

pooling system in favor of an individual 

handler pool system would reverse the 

stability achieved by its adoption in all 

Federal milk marketing orders. 

The record reveals that justification 

for the adoption of individual handler 

pooling is rooted in a collection of 

extremely selective excerpts of a study 

authored by dairy industry participants 

and published in 1962. The study, 

commonly referred to as the Nourse 

Report, examined in great detail the 

Federal milk marketing order system. 

The few excerpts used to advance the 

features of individual handler pools 

pale in comparison to the Nourse 

Report’s cautions as to its use as well as 

descriptions of the superior qualities 

associated with marketwide pooling. 

Over the years, USDA has repeatedly 

concluded that marketwide pooling 

promotes orderly marketing conditions 

more completely and is one of the most 

important marketing order tools used to 

ensure uniformity in prices to 

producers.5 In markets where much of 

the milk is handled by operating 

cooperatives and large surpluses of milk 

are unevenly distributed among 

handlers, conditions observable today, 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54410 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

marketwide pooling best ensures 

orderly marketing. This is the same 

opinion of the Nourse Report. 

Individual handler pooling did have a 

role to play in the orderly marketing of 

milk, but only under very specific 

conditions. On the eve of milk 

marketing order reform implementation 

which instituted, among other things, 

the current large regional milk 

marketing orders, individual handler 

pooling existed for only one very small 

marketing area that had a single fully 

regulated handler distributing Class I 

products. When a marketing area has a 

single fully regulated handler, the 

classified prices established under the 

order and the blend price returned to 

dairy farmers supplying that handler are 

uniform. However, when a market 

contains more than a single regulated 

handler, the individual handler pooling 

system cannot provide uniform prices to 

producers. 

As marketing areas grew in 

geographic size and in the number of 

handlers competing for Class I sales and 

manufacturing of other dairy products 

increased, marketwide pooling became 

the method ensuring uniform prices to 

producers. The pooled milk of 

producers shared in the additional 

revenue accruing from the higher 

classified use-value of Class I sales and 

the burdens of lower classified usevalues. Under an individual handler 

pooling plan, producers supplying 

handlers with differing utilizations 

would receive different prices. These 

differences would be particularly 

notable between producers delivering to 

handlers with high manufactured class 

utilization and those with a majority of 

Class I uses. Producers supplying a 

handler with high Class I utilization 

would receive higher prices than 

producers whose milk was delivered to 

manufacturing handlers. Returns 

distributed to producers in this manner 

are not uniform nor can they be when 

a market consists of multiple handlers. 

To the extent that individual handler 

pooling is an alternative to the 

elimination of the producer-handler 

definitions, USDA long ago determined 

it to be inferior to marketwide pooling. 

While it may be a novel way to address 

the issues under consideration in this 

proceeding, it does so by a claim that a 

producer-handler is paying itself the 

use-value of its own milk. Its adoption 

could not be immediately implemented 

as it would, for example, require an 

overhaul of an order’s pooling standards 

plus the addition of other criteria to 

ensure that distributing plants had an 

adequate supply of milk for fluid uses. 

The central issue of this proceeding is 

the consideration of the conditions that 

warrant exemption of handlers from full 

regulation not whether the method of 

pooling should be changed. Individual 

handler pooling does not directly 

address when and under what 

circumstances handlers can be 

exempted from pooling and pricing 

without undermining orderly marketing. 

Accordingly, the proposal for adopting 

individual handler pooling (Proposal 

25) is not recommended for adoption. 

Grandfathering, Soft-caps, and Ownfarm Milk Exemptions 

Three proposals, Proposals 17, 23, 

and 26, submitted in response to 

Proposals 1 and 2 received testimony in 

support of ‘‘grandfather clauses’’ and 

exemptions for ‘‘own-farm’’ milk 

supplies. In the context of this 

proceeding, ‘‘grandfather clause’’ refers 

to an exception that would allow 

current producer-handlers to continue 

their operations with added restrictions. 

‘‘Own-farm’’ milk here refers to the 

amount of milk processed for use by a 

handler who is also the producer of that 

milk. These alternative proposals to the 

elimination or amendment of the 

producer-handler definition calling for 

these features are not recommended for 

adoption. 

While requesting the elimination of 

the producer-handler definition in all 

orders, NMPF asserts that their Proposal 

26 is consistent with this request 

because it effectively halts the 

proliferation of new producer-handlers. 

This decision disagrees and does not 

recommend NMPF’s Proposal 26 for 

adoption. If the position is taken that 

the exemption of producer-handlers 

from pooling and pricing causes 

disorderly marketing conditions, then it 

would be reasonable to conclude that 

the current producer-handler 

exemption, regardless of any limitations 

placed on Class I route dispositions, 

should come to an end. A willingness to 

accept a 3-million pound per month 

limit on Class I route dispositions for 

current producer-handlers begs the 

conclusion that producer-handlers with 

Class I dispositions at or below this 

level are not disorderly or, at the least, 

represent a tolerable deviation from 

strict application of pooling and pricing 

provisions. 

Grandfathering clauses, as proposed, 

would create inequity between persons 

who are currently producer-handlers 

and other entities who may in the future 

seek to supply milk as producerhandlers. Adoption of these types of 

provisions would essentially create a 

new category of handler based solely on 

their regulatory status during a specified 

time period. Dairy farmers that aspire to 

produce, process and market milk at 

their own enterprise and risk would be 

denied the opportunity to join the new 

‘‘grandfathered’’ category. 

As previously discussed, the broad 

purpose of the AMAA is to establish 

and maintain orderly marketing 

conditions. Its purpose is not to create 

barriers to entry into a viable business 

or marketing alternative. New-to-market 

operations should not be denied the 

ability to form under the same 

provisions as current entities that have 

already met the producer-handler 

definition. Concern for the proliferation 

of producer-handlers is overly 

proscriptive. 

In their post-hearing brief, Mallorie’s 

Dairy, proponent of Proposal 17, 

articulated a willingness to accept the 

current size limitation of 3 million 

pounds of Class I route disposition of 

the PNW and Arizona orders as a 

reasonable alternative to elimination of 

the producer-handler provisions. This 

willingness was conditioned upon a 

USDA recommendation against the 

elimination of the producer-handler 

provisions and for the application of the 

Class I route disposition limit common 

to the PNW and Arizona orders across 

all other orders. As this decision 

recommends adoption of amendments 

similar to those acceptable to Mallorie’s 

Dairy, no further consideration is given 

to Proposal 17, as proposed by 

Mallorie’s Dairy. 

Modifications to Proposal 17 as 

offered by NAJ request consideration for 

provisions which would create a new 

category of handler. In their posthearing brief, NAJ advocated the 

creation of an exemption for handlers 

with own-farm milk supplies. With 

NAJ’s modification to Proposal 17, 

handlers with own-farm milk would be 

exempting the first three million pounds 

of own-farm milk disposed of as Class 

I during the month. NAJ asserts that this 

would be equitable for handlers with 

less or more than the three million 

pounds of own-farm Class I dispositions 

or a combination of own-farm and 

purchased milk. This decision does not 

find NAJ’s proposed changes to be 

equitable as represented by NAJ. 

NAJ suggests that handlers with ownfarm milk should be partially regulated 

distributing plants with an exemption 

from pooling and pricing equal to their 

own-farm milk volume. While this 

modification uses terminology common 

to current regulation it in fact represents 

a recast meaning of the term ‘‘partially 

regulated.’’ Unlike pool distributing 

plants, partially regulated handlers are 

handlers that distribute fluid milk 

products into a marketing area but do 

not meet the standards for full 

regulation under that order. NAJ uses 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54411 

the term ‘‘partially regulated’’ to refer 

instead to handlers who would only be 

subject to full regulation for own-farm 

fluid milk product volume in excess of 

three million pounds and all purchased 

milk volume. This would essentially 

create a unique exemption based upon 

the origin of the milk supplies received 

by a given handler. 

As proposed, NAJ’s modification is 

grounded in a justification based upon 

the source of a milk supply. It would 

not be appropriate to have differentiated 

regulatory treatment of milk supplies on 

the basis of origin. The current 

producer-handler provisions require 

that operations be performed at their 

exclusive control and through a 

dependence on their own milk 

production without reliance on 

purchased milk. 

AIDA, proponents of Proposal 23, 

offered two versions of Proposal 23 to be 

considered as distinct from one another. 

Both versions would require the 

creation of handler categories specific to 

handlers with own-farm milk supplies 

reflecting certain provisions that 

currently govern the regulatory 

treatment of pool distributing plants and 

partially regulated plants, save one 

major exception. Under the first 

variation of Proposal 23, handlers with 

own-farm milk would be treated as fully 

regulated plants with the ability to 

down-allocate all own-farm milk 

supplies. The second variation would 

allow handlers processing own-farm 

milk for Class I use to elect partially 

regulated status. 

The first version of Proposal 23 would 

cause handlers with own-farm milk to 

have a price advantage due to their 

exemption from pooling and pricing 

while handlers without own-farm milk 

would be subject to pooling and pricing 

provisions of the orders. The second 

version of Proposal 23 seeking treatment 

of handlers with own-farm milk as 

partially regulated plants would treat 

differently those handlers without ownfarm milk supplies. Adoption of this 

proposal would cause differentiated 

treatment of similar plant operations 

solely on the basis of supply sourcing. 

Furthermore, the provisions offered in 

Proposal 23 are far less restrictive than 

the current producer-handler 

provisions, which proponents of 

Proposal 23 contend should not be 

changed. Either form of Proposal 23 

would cause inequitable treatment of 

similarly situated handlers due to an 

exemption favoring handlers having 

own-farm milk supplies. 

While AIDA describes their proposed 

changes using terminology common to 

current regulation, the proposals are 

different than current regulations. The 

proposals do not consider conditions 

under which full exemption from 

pooling and pricing regulation is 

warranted. Proposal 23 uses needlessly 

complex methods to address an issue 

that may be more easily fixed by simply 

modifying the current producer-handler 

definition to include a limit on monthly 

Class I route disposition. Accordingly, 

this decision does not recommend the 

adoption of either version of Proposal 

23. 

The portion of Proposal 23 and the 

NAJ modification that propose total or 

partial exemption from pooling and 

pricing based on own-farm production 

disposed of as Class I while allowing for 

purchase of milk from other producers, 

deviates from the long-held own risk 

and enterprise conditions associated 

with the producer-handler definition. If 

adopted, each of these two proposed 

changes would create a soft-cap 

exemption. Soft-caps exempt some Class 

I disposition while subjecting any 

additional disposition to pooling and 

pricing. This would cause inequitable 

treatment across similarly situated 

handlers where handlers with own-farm 

milk could ‘‘smooth’’ the price 

advantage gained on the volumes of 

exempt fluid milk products across any 

additional Class I sales. In turn, this 

would also allow handlers with ownfarm milk to undercut prices offered by 

those handlers without own-farm milk 

strictly as a consequence of regulation. 

This decision notes the testimony 

regarding the use of similar soft-cap 

limits for producer-handlers under 

California’s milk marketing regulatory 

plan. California’s milk marketing 

regulatory system is similar to that of 

the Federal order system. The soft-cap 

limits there led to inequity among 

similarly situated handlers. According 

to the record, other fully regulated 

handlers with similar Class I 

disposition, but without own-farm milk 

production, were placed at a 

competitive disadvantage relative to 

those handlers with own-farm 

production. 

Retention of the Producer-Handler 

Definition With Limits on Class I 

Disposition 

As discussed above, the exemption of 

producer-handlers of any size (and 

exempt plants) from the regulatory plan 

of milk orders immediately leads to 

minimum prices under the orders that 

are not uniform to producers and 

handlers. However, USDA has a long 

history in which certain categories of 

handlers have not been subject to the 

full regulatory scheme in order to 

achieve the AMAA’s objective of orderly 

marketing. 

While having an absolute impact on 

milk orders’ ability to set uniform prices 

to similarly situated handlers and return 

uniform prices to producers, the volume 

of milk represented by exempt plant 

route dispositions has had and 

continues to have a de minimis impact 

on orderly marketing. As such, USDA 

has concluded that the full regulatory 

plan need not be applicable to such 

small handlers. The exempt plant limit 

on Class I dispositions represents a 

measure of participation in the market 

that while exempt, is tolerable and does 

not undermine the purpose of the order 

system and its treatment of larger 

handlers. 

The same de minimus impact on 

orderly marketing owed to producerhandler Class I route disposition volume 

has been, in part, the rationale for their 

exemption from full regulation. Simply 

stated, producer-handlers have 

historically conducted small scale 

operations and have been subject to 

certain requirements to remain exempt 

from full regulation. Those requirements 

have been that the operation: Be under 

the sole enterprise and risk of the 

producer-handler; bear the full 

responsibility and risks associated with 

the care and management of the dairy 

animals and other resources necessary 

for milk production; and engage in and 

exclusively control the processing and 

distribution of their Class I products. 

Under these and other requirements 

unique to each order, producer-handlers 

have been determined to have neither 

an advantage in their capacity as 

producers or as handlers. 

With these conditional requirements 

for producer-handlers, there was no 

need to consider further regulatory 

requirements for this category of 

handler. Additional amendments to the 

producer-handler definitions became 

necessary when producer-handler size 

was shown to be a cause of disorderly 

marketing conditions in the Arizona and 

Pacific Northwest marketing areas, and 

a cap of three million pounds per month 

on Class I dispositions in the marketing 

area was adopted. 

The record reveals that the number of 

producer-handlers and all other 

categories of handlers is declining. 

Opponents of change from the status 

quo conclude that this is justification to 

leave the producer-handler provisions 

unchanged. This decision disagrees. In 

evaluating the impact producerhandlers may have on orderly 

marketing, the volume of milk marketed 

by any individual producer-handler is 

more important than the overall trend in 

the number of producer-handlers. 

The size of individual producerhandlers will impact orderly marketing 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54412 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

conditions in any of the Federal order 

marketing areas if left without limit. 

Size of operation will have a direct 

bearing on competitive equity between 

producer-handlers and fully regulated 

handlers. Producer-handler size will 

increasingly affect an order’s ability to 

set uniform prices to similarly situated 

handlers and to producers. Producerhandler size will increasingly magnify 

disorderly marketing conditions and 

practices where the burden of balancing 

and surplus disposal is effectively 

transferred to the regulated market. 

These examples of the presence and 

anticipation of disorderly marketing 

conditions can be largely mitigated by 

establishing a reasonable limit on a 

producer-handlers’ Class I route 

dispositions. 

Establishing a reasonable limit on 

total Class I route disposition in all 

producer-handler definitions for all 

Federal milk marketing orders unifies 

the policy objectives of the AMAA to 

establish and maintain orderly 

marketing conditions. Establishment of 

a reasonable limit on Class I disposition 

does not require changing other orderspecific features contained in the 

producer-handler definitions that have 

been provided to address local 

marketing conditions. The addition of a 

uniform limit on producer-handler total 

monthly Class I route dispositions in all 

orders is consistent with the past 

establishment of the uniform limits, 

characteristics and features of various 

milk marketing order provisions 

applicable to other categories of 

regulated handlers. 

The limit acceptable to or broadly 

supported by both handler and producer 

interests is three million pounds of 

monthly Class I disposition. This 

decision finds that a 3-million pound 

per month limit on total Class I route 

disposition is reasonable. The evidence 

supports a conclusion that most 

producer-handlers continue to be small 

enterprises that have minimal impact in 

the marketing areas in which they 

operate. Their participation in the 

market is not giving rise to disorderly 

marketing conditions that warrant 

establishing a more restrictive limit on 

Class I disposition. Implicit in this 

finding is that producer-handlers with 

no more than three million pounds of 

monthly Class I disposition represent a 

level of market participation such that 

the AMAA goal of establishing and 

maintaining orderly marketing is 

achieved. 

The record supports concluding that a 

direct relationship exists between 

producer-handler size and the potential 

for disorder. More specifically, the 

record supports the conclusion that 

adoption of a limit on producerhandlers’ total monthly Class I route 

disposition across all orders is necessary 

to maintain orderly marketing 

conditions. This represents a needed 

change to the producer-handler 

provisions of Orders 124 and 131, 

which only consider producer-handlers’ 

monthly Class I dispositions within the 

respective marketing area. Adoption of 

a limit on the total Class I route 

disposition of producer-handlers is 

reasonable and should mitigate the 

inequitable conditions associated with 

distribution in other marketing areas or 

where the handling of milk is not 

regulated. The producer-handlers with 

more than three million pounds of total 

Class I disposition per month that meet 

the pooling standards of an order will 

have all of their distribution of Class I 

products pooled and priced no matter 

where that milk is sold. The producerhandlers with more than three million 

pounds of total Class I disposition per 

month that do not meet the pooling 

standards of an order will be treated as 

partially regulated distributing plants 

for route sales in the marketing areas. 

An additional proposal, Proposal 24, 

seeking an unlimited exemption for 

producer-handlers marketing own-farm 

milk disposed of as fluid milk products 

through retail channels under the same 

handler’s exclusive control is not 

recommended for adoption. This 

decision gave consideration to the 

testimony and evidence, which revealed 

that producer-handlers distributing 

fluid milk products exclusively through 

their own retail channels are selfcontained and do not balance against 

pooled supplies. While this seems to 

adhere to a long-held producer-handler 

characteristic, the responsibility and 

risk for balancing is still relative to 

producer-handler size, as defined by 

total monthly Class I disposition, which 

represents a significant contributing 

factor to disorderly marketing. At issue 

is the ultimate displacement of Class I 

sales that would otherwise be supplied 

through regulated sources. 

This decision does not recommend 

that the producer-handler definitions be 

amended to include unique labeling 

restrictions. The rationale offered in 

support of establishing labeling 

restrictions offers interesting scenarios 

of the consequences that may arise 

without its inclusion. The scenarios 

speak to how the restrictions will 

provide better assurances that producerhandlers cannot balance their Class I 

dispositions on the fully regulated 

market and cannot daisy-chain together 

to effectively circumvent otherwise 

intended regulation. This decision finds 

such an addition to either the producerhandler or exempt plant definition to be 

overly proscriptive. The record lacks 

evidence, apart from theoretical 

constructions, demonstrating a 

reasonable need for its adoption. This 

recommended decision finds that 

producer-handlers with total Class I 

route disposition in excess of three 

million pounds per month enjoy 

significant competitive sales advantages 

because they do not pay the Class I price 

for raw milk. 

While the adoption of a 3-million 

pound per month limit on total Class I 

disposition will not completely 

eliminate the impact of producerhandlers across the order system, it 

should result in a reduction in any 

current and future market disruption. It 

is also consistent with many of the 

positions detailed during this 

proceeding, and will likely prevent a 

significant increase in the magnitude of 

disruption observed in the marketing 

areas. 

Ruling on Motions 

A motion submitted on behalf of 

Nature’s Dairy moved for review and 

reversal of the Administrative Law 

Judge’s decision to exclude the 

testimony of a witness on behalf of a 

producer-handler, namely Nature’s 

Dairy. The motion requested that the 

hearing be reopened for the purpose of 

cross-examination of the Nature’s Dairy 

witness. New England ProducerHandlers Association et al. and AIDA 

joined Nature’s Dairy and submitted 

motions to that effect. The presiding 

Administrative Law Judge denied the 

Nature’s Dairy, New England ProducerHandler Association et al. and AIDA 

motions prior to certification of the 

record. This recommended decision 

concurs with the ruling of the Presiding 

Administrative Law Judge; accordingly, 

the motions submitted on behalf of 

Nature’s Dairy, New England ProducerHandler Association et al. and AIDA are 

denied. 

Rulings on Proposed Findings and 

Conclusions 

Briefs and proposed findings and 

conclusions were filed on behalf of 

certain interested parties. These briefs, 

proposed findings and conclusions and 

the evidence in the record were 

considered in making the findings and 

conclusions set forth above. To the 

extent that the suggested findings and 

conclusions filed by interested parties 

are inconsistent with the findings and 

conclusions set forth herein, the 

requests to make such findings or reach 

such findings are denied for the reasons 

previously stated in this decision. 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54413 

General Findings 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the orders were 

first issued and when they were 

amended. The previous findings and 

determinations are hereby ratified and 

confirmed, except where they may 

conflict with those set forth herein. 

a. The tentative marketing 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 all marketing areas, and the 

minimum prices specified in the 

tentative marketing agreements 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 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. 

d. All milk and milk products 

handled by handlers, as defined in the 

tentative marketing agreements and the 

orders as hereby proposed to be 

amended, are in the current of interstate 

commerce or directly burden, obstruct, 

or affect interstate commerce in milk or 

its products. 

Recommended Marketing Agreement 

and Order Amending the Orders 

The recommended marketing 

agreements are not included in this 

decision because the regulatory 

provisions thereof would be the same as 

those contained in the orders, as hereby 

proposed to be amended. The following 

order amending the order, as amended, 

regulating the handling of milk in all 

milk marketing areas are recommended 

as the detailed and appropriate means 

by which the foregoing conclusions may 

be carried out. 

List of Subjects in 7 CFR Parts 1001, 

1005, 1006, 1007, 1030, 1032, 1033, 

1124, 1126, and 1131 

Milk marketing orders. 

For reasons set forth in the preamble, 

7 CFR parts 1001, 1005, 1006, 1007, 

1030, 1032, 1033, 1124, 1126, and 1131 

are proposed to be amended as follows: 

1. The authority citation for 7 CFR 

parts 1001, 1005, 1006, 1007, 1030, 

1032, 1033, 1124, 1126, and 1131 

continues to read as follows: 

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

PART 1001—MILK IN THE 

NORTHEAST MARKETING AREA 

2. Amend § 1001.10 by revising 

paragraph (a) to read as follows: 

§ 1001.10 Producer-handler. 

* * * * * 

(a) Operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

and from which total route disposition 

during the month does not exceed 3 

million pounds; 

* * * * * 

PART 1005—MILK IN THE 

APPALACHIAN MARKETING AREA 

3. Amend § 1005.10 by revising 

paragraph (a) to read as follows: 

§ 1005.10 Producer-handler. 

* * * * * 

(a) Operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

and from which total route disposition 

during the month does not exceed 3 

million pounds; 

* * * * * 

PART 1006—MILK IN THE FLORIDA 

MARKETING AREA 

4. Amend § 1006.10 by revising 

paragraph (a) to read as follows: 

§ 1006.10 Producer-handler. 

* * * * * 

(a) Operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

and from which total route disposition 

during the month does not exceed 3 

million pounds; 

* * * * * 

PART 1007—MILK IN THE SOUTHEAST 

MARKETING AREA 

5. Amend § 1007.10 by revising 

paragraph (a) to read as follows: 

§ 1007.10 Producer-handler. 

* * * * * 

(a) Operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

and from which total route disposition 

during the month does not exceed 3 

million pounds; 

* * * * * 

PART 1030—MILK IN THE UPPER 

MIDWEST MARKETING AREA 

6. Amend § 1030.10 by revising 

paragraph (a) to read as follows: 

§ 1030.10 Producer-handler. 

* * * * * 

(a) Operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

and from which total route disposition 

during the month does not exceed 3 

million pounds; 

* * * * * 

PART 1032—MILK IN THE CENTRAL 

MARKETING AREA 

7. Amend § 1032.10 by revising 

paragraph (a) to read as follows: 

§ 1032.10 Producer-handler. 

* * * * * 

(a) Operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

and from which total route disposition 

during the month does not exceed 3 

million pounds; 

* * * * * 

PART 1033—MILK IN THE MIDEAST 

MARKETING AREA 

8. Amend § 1033.10 by revising 

paragraph (a) to read as follows: 

§ 1033.10 Producer-handler. 

* * * * * 

(a) Operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

and from which total route disposition 

during the month does not exceed 3 

million pounds; 

* * * * * 

PART 1124—MILK IN THE PACIFIC 

NORTHWEST MARKETING AREA 

9. Revise § 1124.10 introductory text 

to read as follows: 

§ 1124.10 Producer-handler. 

Producer-handler means a person 

who operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

from which total route disposition 

during the month does not exceed 3 

million pounds, and who the market 

administrator has designated a 

producer-handler after determining that 

all of the requirements of this section 

have been met. 

* * * * * 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
54414 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

PART 1126—MILK IN THE 

SOUTHWEST MARKETING AREA 

10. Amend § 1126.10 by revising 

paragraph (a) to read as follows: 

§ 1126.10 Producer-handler. 

* * * * * 

(a) Operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

and from which total route disposition 

during the month does not exceed 3 

million pounds; 

* * * * * 

PART 1131—MILK IN THE ARIZONA 

MARKETING AREA 

11. Revise § 1131.10 introductory text 

to read as follows: 

§ 1131.10 Producer-handler. 

Producer-handler means a person 

who operates a dairy farm and a 

distributing plant from which there is 

route disposition in the marketing area, 

from which total route disposition 

during the month does not exceed 3 

million pounds, and who the market 

administrator has designated a 

producer-handler after determining that 

all of the requirements of this section 

have been met. 

* * * * * 

Dated: October 15, 2009. 

Rayne Pegg, 

Administrator, Agricultural Marketing 

Service. 

[FR Doc. E9–25292 Filed 10–16–09; 4:15 pm] 

BILLING CODE 3410–02–P 


pwalker on DSK8KYBLC1PROD with PROPOSALS4