Source: https://www.federalregister.gov/documents/2005/07/27/05-14769/milk-in-the-mideast-marketing-area-tentative-partial-decision-on-proposed-amendments-and-opportunity
Timestamp: 2018-02-20 10:23:11
Document Index: 312782828

Matched Legal Cases: ['art 900', 'art 900', '§\u20091033', '§\u20091033', '§\u20091033', 'art 900', '§\u20091033', 'art 1033']

Federal Register :: Milk in the Mideast Marketing Area; Tentative Partial Decision on Proposed Amendments and Opportunity To File Written Exceptions to Tentative Marketing Agreement and Order
A Proposed Rule by the Agricultural Marketing Service on 07/27/2005
Comments should be submitted on or before September 26, 2005.
43335-43343 (9 pages)
Interim Order Amending the Order Regulating the Handling of Milk in the Mideast Marketing Area
Marketing Agreement Regulating the Handling of Milk in the Mideast Marketing Area
https://www.federalregister.gov/d/05-14769 https://www.federalregister.gov/d/05-14769
Comments (6 copies) should be filed with the Hearing Clerk, STOP 9200—Room 1031, United States Department of Agriculture, 1400 Independence Avenue, SW., Washington, DC 20250-9200. You may send your comments by the electronic process available at the Federal e-Rulemaking portal: http://Start Printed Page 43336www.regulations.gov or by submitting comments to amsdairycomments@usda.gov. Reference should be made to the title of action and docket number.
Gino Tosi, Marketing Specialist, Order Formulation and Enforcement Branch, USDA/AMS/Dairy Programs, STOP 0231—Room 2971, 1400 Independence Avenue, SW., Washington, DC 20250-0231, (202) 690-3465, e-mail address: gino.tosi@usda.gov.
This tentative partial decision proposes to adopt amendments which would prohibit the ability to simultaneously pool the same milk on the Mideast Federal milk order and on a marketwide pool administered by another government entity. Additionally, this decision proposes to adopt amendments that would increase supply plant shipping standards and lower diversion limits.
The amendments to the rules proposed herein have been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have a retroactive effect. If adopted, the proposed rule would not preempt any state or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.
The Agricultural Marketing Agreement Act of 1937 (the Act), as amended (7 U.S.C. 601-674), provides that administrative proceedings must be exhausted before parties may file suit in court. Under Section 608c(15)(A) of the Act, any handler subject to an order may request modification or exemption from such order by filing with the Department of Agriculture (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, the USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has its principal place of business, has jurisdiction in equity to review the 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.
During March 2005, the month during which the hearing occurred, there were 9,767 dairy producers pooled on, and 36 handlers regulated by, the Mideast order. Approximately 9,212 producers, or 94.3 percent, were considered small businesses based on the above criteria. On the processing side, approximately 26 handlers, or 72.2 percent, were considered small businesses.
The adoption of the proposed pooling standards serve to revise established criteria that determine those producers, producer milk and plants that have a reasonable association with and are consistently serving the fluid needs of the Mideast milk marketing area. Criteria for pooling are established on the basis of performance levels that are considered adequate to meet the Class I fluid needs and, by doing so, determine those producers who are eligible to share in the revenue that arises from the classified pricing of milk. Criteria for pooling are established without regard to the size of any dairy industry organization or entity. The criteria established are applied in an identical fashion to both large and small businesses and do not have any different economic impact on small entities as opposed to large entities. Therefore, the proposed amendments will not have a significant economic impact on a substantial number of small entities.
This tentative partial decision does not require additional information collection that requires clearance by the Office of Management and Budget (OMB) beyond currently approved information collection. The primary sources of data used to complete the forms are routinely used in most business transactions. Forms require only a minimal amount of information which can be supplied without data processing equipment or a trained statistical staff. Thus, the information collection and reporting burden is relatively small. Requiring the same reports from all handlers does not significantly disadvantage any handler that is smaller than the industry average.
No other burdens are expected to fall on the dairy industry as a result of overlapping Federal rules. This rulemaking proceeding does not duplicate, overlap or conflict with any existing Federal rules.
Notice is hereby given of the filing with the Hearing Clerk of this tentative partial decision with respect to the proposed amendments to the tentative marketing agreement and the order regulating the handling of milk in the Mideast marketing area. This notice is issued pursuant to the provisions of the Agricultural Marketing Agreement Act and the applicable rules of practice and procedure governing the formulation of Start Printed Page 43337marketing agreements and marketing orders (7 CFR part 900).
Interested parties may file written exceptions to this decision with the Hearing Clerk, United States Department of Agriculture, Room 1031-Stop 9200, 1400 Independence Avenue, SW., Washington, DC 20250-9200, by September 26, 2005. Six (6) copies of the exceptions should be filed. All written submissions made pursuant to this notice will be made available for public inspection at the office of the Hearing Clerk during regular business hours (7 CFR 1.27(b)).
A public hearing was held upon proposed amendments to the marketing agreement and the order regulating the handling of milk in the Mideast marketing area. The hearing was held, pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice and procedure governing the formulation of marketing agreements and marketing orders (7 CFR part 900).
2. Determination as to whether emergency marketing conditions exist that warrant the omission of a recommended decision and the opportunity to file written exceptions.
This tentative partial decision specifically addresses proposals, published in the hearing notice as Proposals 1 and 2, along with a portion of Proposal 3, seeking to change the performance standards and producer milk provisions of the order. The portion of Proposal 3, that would provide a definition of “temporary loss of Grade A approval”, Proposals 4-8, that would establish provisions to deter the “de-pooling” of milk, and Proposal 9 that would establish transportation credits will be addressed in a separate decision. The following findings and conclusions on the material issues are based on evidence presented at the hearing and the record thereof:
Three proposals were presented at the hearing that would amend certain features of the Producer milk provision of the Mideast order. A proposal, published in the hearing notice as Proposal 1, seeking to eliminate the ability to simultaneously pool the same milk on the Mideast Federal milk order and on a marketwide equalization pool administered by another government entity, commonly referred to as “double dipping,” should be adopted immediately. Additionally, a portion of a proposal published in the hearing notice as Proposal 2, seeking to seasonally adjust the percentage of total receipts a pool plant could divert to nonpool plants to 50 percent for the months of August through February and to 60 percent for the months of March through July should be adopted immediately. Proposal 3, which sought to adjust the number of days of the milk production of a producer that must be physically received at a Mideast order pool plant before being eligible for diversion to a nonpool plant, commonly referred to as “touching base”, was abandoned at the hearing and will no longer be referenced in this proceeding.
The Mideast order currently does not prohibit the simultaneous pooling of the same milk on the order and on a marketwide equalization pool operated by another government entity. Although no milk is currently simultaneously pooled on the Mideast order and a marketwide equalization pool operated by another government entity, the situation has occurred in the past.
A witness appearing on behalf of the Cooperatives testified that adoption of Proposal 1 would eliminate the potential for the same milk to be simultaneously pooled on the Mideast Federal milk order and on a marketwide pool administered by another government entity. The witness referred to this practice as “double dipping” and as a practice resulting in disorderly marketing conditions. The witness noted that regulatory action has been taken in the Northeast, Central, Upper Midwest, Pacific Northwest and Arizona-Las Vegas Federal milk marketing orders to prohibit the practice. The witness testified that little milk is currently associated with the Start Printed Page 43338Mideast marketing order that is simultaneously pooled by another government entity, but should be prohibited in the same manner as in other Federal milk marketing order areas. The Cooperatives noted in their post-hearing briefs that no opposition to adoption of Proposal 1 was received at the hearing.
The consultant White Eagle witness relied on Market Administrator data to demonstrate the effects of a 10 percent reduction in the diversion limit standards for the period of 2003-2004. The witness stated that if the proposed diversion limit standards had been effective for the month of October 2004, the total volume of milk pooled in the Mideast market would have been reduced by 4.1 percent. The witness hypothesized that the reduction in milk volume pooled would have increased the PPD by about 2 cents per hundredweight (cwt.) for milk remaining pooled, but would have decreased the relative PPD by about $0.73 per cwt. on the milk that was not able to be pooled because of lowered diversion limit standards. The witness noted that the majority of the milk not pooled would have been milk usually pooled by small cooperatives. Accordingly, the witness was of the opinion that lowering the diversion limit standards of the Mideast order should not be adopted until additional analysis is done on the possible negative effects on small cooperatives and processors.
Several proposed changes to the supply plant pooling provisions of the Mideast order, contained in Proposal 2, should also be adopted immediately. The lack of adequate performance standards in the current supply plant pooling provisions allow large volumes of milk to be pooled on the order that do not demonstrate a regular service to the Class I needs of the market causing an unwarranted decrease in the order's blend price.
Specifically, the following amendments should be adopted immediately: (1) Increasing supply plant performance standards for § 1033.7(c) by 10 percentage points, from 30 percent to 40 percent, for all months, (2) increasing performance standards for supply plants operated by a cooperative association under § 1033.7(d) by five percentage points, from 30 percent to 35 percent, for the month of August, and by 10 percentage points, from 30 percent to 40 percent, for the months of September through November, and (3) increasing performance standards for a supply plant with a marketing agreement with a cooperative under § 1033.7(e) by 10 percentage points, from 35 percent to 45 percent, for the months of August through November.
Currently, the Mideast order provides that a supply plant must ship 30 percent of its total monthly receipts to a pool Start Printed Page 43339distributing plant in order for the plant and all of the receipts of the plant to be pooled for the month. This same standard applies to supply plants owned and operated by a cooperative association. A supply plant operated under a marketing agreement with a cooperative, however, must ship 35 percent of total receipts to a pool distributing plant in every month of the year in order for the plant and all the receipts of the plant to be pooled.
A witness appearing on behalf of Dean was also in support of increasing supply plant performance standards. Dean testified at the hearing, and reiterated in their post-hearing brief, that increasing supply plant performance standards will serve to better identify the milk that demonstrates a consistent ability to service the fluid milk needs of the market.
A witness appeared on behalf of Smith Dairy in general support of any proposal that would serve to address the reduction of producer pay prices in the Start Printed Page 43340Mideast order and any proposals that will better identify milk that provides service to the Mideast fluid market. Smith Dairy operates two distributing plants regulated by the Mideast order that are primarily supplied by independent dairy farmers.
The record of this proceeding finds that several amendments to the pooling standards of the Mideast order should be adopted immediately to better identify the milk of producers that should share in the order's marketwide pool proceeds and to establish more appropriate performance measures for providing regular and consistent service in meeting the market's fluid needs. Currently, milk located outside the Mideast marketing area that does not demonstrate regular and consistent performance in supplying the needs of the Class I market is able to qualify for pooling on the Mideast order and share in the increased revenues arising from Class I sales in the marketing area. The vast majority of this milk is pooled on the order at low classified use-values and in turn lowers the blend price to those producers who regularly and consistently supply the Class I needs of the Mideast market. Such milk is not demonstrating a reasonable level of performance in servicing the Class I market to receive the additional revenue arising from Class I use of the Mideast marketing area and therefore should not be pooled.
Since the 1960's, the Federal milk order program has recognized the harm and disorder that results to both producers and handlers when the same milk of a producer is simultaneously pooled on more than one Federal order, commonly referred to as “double-dipping”. In the past, this situation caused price differences between producers and gave rise to competitive equity issues. The need to prevent “double-dipping” became critically important as distribution areas expanded and orders merged.
When the same milk can be simultaneously pooled on a marketwide equalization pool operated by a government entity and on a Federal milk marketing order, it has the same undesirable outcomes as pooling the same milk on two Federal orders which was corrected many years ago. The Mideast order recently has experienced “double-dipping” and it is clear that the Mideast order should be amended to prevent the ability to pool the same milk on the order and on a marketwide equalization pool operated by another government entity. This action is consistent with other recent Federal order amendatory actions regarding the simultaneous pooling of the same milk on a Federal order and on other government operated programs.
The hearing record clearly indicates that the milk of producers that does not regularly and consistently service the needs of the fluid market is able to pool on and receive the Mideast order's blend price. Inadequate diversion limit standards are allowing large volumes of milk to be diverted to non-pool manufacturing plants located far from the marketing area; and inadequate supply plant performance standards also enable milk which has insufficient physical association with the market and which does not demonstrate regular and consistent service to the Class I needs of the marketing area to be pooled on the Mideast order.
Accordingly, supply plant performance standards should be increased by 10 percentage points, from 30 percent to 40 percent of total receipts, for all months; cooperative owned supply plant performance Start Printed Page 43341standards should be increased by 10 percentage points, from 30 percent to 40 percent of total receipts, for the months of September through November.
Additionally, cooperative owned supply plant performance standards for the month of August should be increased by five percentage points, from 30 percent to 35 percent of total receipts, as proposed in MMPA's modification of Proposal 2. These standards will be met using the “rolling annual average” standard during December through July and the “hard” standard during August through November as proposed in Proposal 2. Also, as suggested by Dean in their post-hearing brief, a cooperative owned supply plant must be located in the marketing area. Limiting a cooperative owned supply plant to only those that are located within the marketing area is consistent with other pooling conveniences afforded to other supply plants. For example, system pooling of supply plants that regularly and consistently perform in supplying the Class I needs of the marketing area are a legitimate reserve supply source of milk and are restricted to supply plants located within the marketing area. Qualifying shipments, as already specified in the order, may only include shipments of Class I milk to distributing plants or non-pool plants.
Performance standards for a supply plant with a marketing agreement with a cooperative should be increased by 10 percentage points, from 35 percent to 45 percent of total receipts, for the months of August through November.
Changes are necessary in the standards of the amount of milk that can be diverted from pool plants to nonpool plants to ensure that milk pooled on the order is part of the legitimate reserve supply of Class I handlers. The hearing record evidence clearly reveals that large volumes of milk that are not part of the legitimate reserve supply of the pooling handler can be reported as diverted milk by the pooling handler and receive the order's blend price.
Providing for the diversion of milk is a desirable and needed feature of an order because it facilitates the orderly and efficient disposition of milk when not needed for fluid use. However, it is necessary to safeguard against excessive milk supplies becoming associated with the market through the diversion process. Associating more milk than is actually part of the legitimate reserve supply of the pooling handler unnecessarily reduces the potential blend price paid to dairy farmers who regularly and consistently service the market's Class I needs. Without reasonable diversion limit provisions, the order's performance standards are weakened and give rise to disorderly marketing conditions. Accordingly, diversion limit standards for pool plants should be lowered by ten percentage points, from 60 percent to 50 percent for the months of August through February, and from 70 percent to 60 percent for the months of March through July.
Evidence presented at the hearing and in post-hearing briefs establishes that current pooling standards of the Mideast order are inadequate and are eroding the blend price received by producers who are regularly and consistently serving the Class I needs of the Mideast marketing area and should be amended on an emergency basis. The unwarranted erosion of the blend price stems from inadequate supply plant standards and the lack of appropriate limits on diversions of milk. Additionally, the ability of a handler to pool the same milk on the Mideast Federal milk order and on a marketwide equalization pool administered by another government entity serves to potentially further erode the order's blend price.
Consequently, it is determined that emergency marketing conditions exist and the issuance of a recommended decision is being omitted. The record clearly establishes a basis as noted above for amending the order on an interim basis and the opportunity to file written exceptions to the proposed amended order remains.
Annexed hereto and made a part hereof are two documents—an Interim Marketing Agreement regulating the handling of milk and an Interim Order amending the order regulating the handling of milk in the Mideast marketing area, which have been decided upon as the detailed and appropriate means of effectuating the foregoing conclusions.
The month of March, 2005 is hereby determined to be the representative period for the purpose of ascertaining whether the issuance of the order, as amended and as hereby proposed to be amended, regulating the handling of milk in the Mideast marketing area is approved or favored by producers, as defined under the terms of the order as hereby proposed to be amended, who during such representative period were Start Printed Page 43342engaged in the production of milk for sale within the aforesaid marketing area.
It is hereby directed that a referendum be conducted and completed on or before the 30th day from the date this decision is issued, in accordance with the procedure for the conduct of referenda (7 CFR 900.300-311), to determine whether the issuance of the order, as amended and as hereby proposed to be amended, regulating the handling of milk in the Mideast marketing area is approved by producers, as defined under the terms of the order (as amended and as hereby proposed to be amended), who during such representative period were engaged in the production of milk for sale within the aforesaid marketing area.
The representative period for the conduct of such referendum is hereby determined to be March, 2005.
The agent of the Department to conduct such referendum is hereby designated to be David Z. Walker, Market Administrator.
(b) Revising the introductory text to paragraph (d).
The parties hereto, in order to effectuate the declared policy of the Act, and in accordance with the rules of practice and procedure effective thereunder (7 CFR part 900), desire to enter into this marketing agreement and do hereby agree that the provisions Start Printed Page 43343referred to in paragraph I hereof, as augmented by the provisions specified in paragraph II hereof, shall be and are the provisions of this marketing agreement as if set out in full herein.
I. The findings and determinations, order relative to handling, and the provisions of §§ 1033.1 to 1033.86 all inclusive, of the order regulating the handling of milk in the Mideast marketing area (7 CFR part 1033) which is annexed hereto; and
(a) Record of milk handled. The undersigned certifies that he/she handled during the month of __, 2005, ___ hundredweight of milk covered by this marketing agreement.
[FR Doc. 05-14769 Filed 7-26-05; 8:45 am]