House Report 106-239 - CONSOLIDATION OF MILK MARKETING ORDERS

[House Report 106-239]
[From the U.S. Government Publishing Office]

106th Congress Report
1st Session HOUSE OF REPRESENTATIVES 106-239

======================================================================

CONSOLIDATION OF MILK MARKETING ORDERS

_______

July 19, 1999.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Combest, from the Committee on Agriculture, submitted the following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 1402]

[Including cost estimate of the Congressional Budget Office]

The Committee on Agriculture, to whom was referred the bill
(H.R. 1402) to require the Secretary of Agriculture to
implement the Class I milk price structure known as Option 1-A
as part of the implementation of the final rule to consolidate
Federal milk marketing orders, having considered the same,
report favorably thereon with an amendment and recommend that
the bill as amended do pass.

The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:

SECTION 1. REQUIRED USE OF OPTION 1A AS PRICE STRUCTURE FOR CLASS I
MILK UNDER CONSOLIDATED FEDERAL MILK MARKETING
ORDERS.

(a) Use of Option 1A.--In implementing the final decision for the
consolidation and reform of Federal milk marketing orders, as required
by section 143 of the Federal Agriculture Improvement and Reform Act of
1996 (7 U.S.C. 7253), the Secretary of Agriculture shall price fluid or
Class I milk under the orders using the Class I price differentials
identified as Option 1A ``Location-Specific Differentials Analysis'' in
the proposed rule published in the Federal Register on January 30, 1998
(63 Fed. Reg. 4802, 4809), except that the Secretary shall include the
corrections and modifications to such Class I differentials made by the
Secretary through April 2, 1999.
(b) Effect on Implementation Schedule.--The requirement to use Option
1A in subsection (a) does not modify or delay the time period for
actual implementation of the final decision as part of Federal milk
marketing orders specified in section 738 of the Agriculture, Rural
Development, Food and Drug Administration, and Related Agencies
Appropriations Act, 1999 (as contained in section 101(a) of division A
of Public Law 105-277; 112 Stat. 2681-30).

SEC. 2. NECESSITY OF USING FORMAL RULEMAKING TO DEVELOP PRICING METHODS
FOR CLASS III AND CLASS IV MILK; MODIFIED
MANUFACTURING ALLOWANCE FOR CHEESE.

(a) Congressional Finding.--The Class III and Class IV pricing
formulas included in the final decision for the consolidation and
reform of Federal milk marketing orders, as published in the Federal
Register on April 2, 1999 (64 Fed. Reg. 16025), do not adequately
reflect public comment on the original proposed rule published in the
Federal Register on January 30, 1998 (63 Fed. Reg. 4802), and are
sufficiently different from the proposed rule and any comments
submitted with regard to the proposed rule that further emergency
rulemaking is merited.
(b) Formal Rulemaking.--
(1) Required.--The Secretary of Agriculture shall conduct
rulemaking, on the record after an opportunity for an agency
hearing, to reconsider the Class III and Class IV pricing
formulas included in the final decision referred to in
subsection (a).
(2) Implementation.--A final decision on the formula shall be
implemented not later than 10 months after the date of the
enactment of this Act.
(3) Effect of court order.--The actions authorized by this
subsection are intended to ensure the timely publication and
implementation of new pricing formulas for Class III and Class
IV milk. In the event that the Secretary is enjoined or
otherwise restrained by a court order from implementing the
final decision under paragraph (2), the length of time for
which that injunction or other restraining order is effective
shall be added to the time limitations specified in paragraph
(2) thereby extending those time limitations by a period of
time equal to the period of time for which the injunction or
other restraining order is effective.
(c) Failure To Timely Complete Rulemaking.--If the Secretary of
Agriculture fails to implement new Class III and Class IV pricing
formulas within the time period required under subsection (b)(2) (plus
any additional period provided under subsection (b)(3)), the Secretary
may not assess or collect assessments from milk producers or handlers
under section 8c of the Agricultural Adjustment Act (7 U.S.C. 608c),
reenacted with amendments by the Agricultural Marketing Agreement Act
of 1937, for marketing order administration and services provided under
such section after the end of that period until the pricing formulas
are implemented. The Secretary may not reduce the level of services
provided under that section on account of the prohibition against
assessments, but shall rather cover the cost of marketing order
administration and services through funds available for the
Agricultural Marketing Service of the Department.
(d) Effect on Implementation Schedule.--Subject to subsection (e),
the requirement for additional rulemaking in subsection (b) does not
modify or delay the time period for actual implementation of the final
decision referred to in subsection (a) as part of Federal milk
marketing orders, as such time period is specified in section 738 of
the Agriculture, Rural Development, Food and Drug Administration, and
Related Agencies Appropriations Act, 1999 (as contained in section
101(a) of division A of Public Law 105-277; 112 Stat. 2681-30).
(e) Modified Manufacturing Allowance for Cheese.--Pending the
implementation of new pricing formulas for Class III and Class IV milk
as required by subsection (b), the Secretary of Agriculture shall
modify the formula used for determining Class III prices, as contained
in the final decision referred to in subsection (a), to replace the
manufacturing allowance of 17.02 cents per pound of cheese each place
it appears in that formula with an amount equal to 14.7 cents per pound
of cheese.

SEC. 3. ONE-YEAR EXTENSION OF CURRENT MILK PRICE SUPPORT PROGRAM.

(a) Extension of Program.--Subsection (h) of section 141 of the
Agricultural Market Transition Act (7 U.S.C. 7251) is amended by
striking ``1999'' both places it appears and inserting ``2000''.
(b) Continuation of Current Price Support Rate.--Subsection (b)(4) of
such section is amended by striking ``year 1999'' and inserting ``years
1999 and 2000''.
(c) Delay in Recourse Loan Program for Processors.--Section 142(e) of
the Agricultural Market Transition Act (7 U.S.C. 7252(e)) is amended by
striking ``2000'' and inserting ``2001''.

SEC. 4. DAIRY FORWARD PRICING PROGRAM.

The Agricultural Adjustment Act (7 U.S.C. 601 et seq.), reenacted
with amendments by the Agricultural Marketing Agreement Act of 1937, is
amended by adding at the end the following new section:

``SEC. 23. DAIRY FORWARD PRICING PROGRAM.

``(a) In General.--Not later than 90 days after the date of enactment
of this section, the Secretary of Agriculture shall establish a program
under which milk producers and cooperatives are authorized to
voluntarily enter into forward price contracts with milk handlers.
``(b) Minimum Milk Price Requirements.--Payments made by milk
handlers to milk producers and cooperatives, and prices received by
milk producers and cooperatives, under the forward contracts shall be
deemed to satisfy all regulated minimum milk price requirements of
paragraphs (A), (B), (C), (D), (F), and (J) of subsection (5), and
subsections (7)(B) and (18), of section 8c.
``(c) Application.--This section shall apply only with respect to the
marketing of federally regulated milk (regardless of its use) that is
in the current of interstate or foreign commerce or that directly
burdens, obstructs, or affects interstate or foreign commerce in
federally regulated milk.''.

Brief Explanation

H.R. 1402, as amended, modifies the final decision of the
Secretary of Agriculture announced in the Federal Register on
April 2, 1999 (64 Fed. Reg. 16025) with regard to the
differential pricing method for Class I or fluid milk within
Federal Milk Marketing Orders. Under the Act, the Class I price
structure identified as Option 1A `Location-Specific
Differentials Analysis' in the proposed rule published in the
Federal Register on January 30, 1998 (63 Fed. Reg. 4802, 4809)
as modified or corrected by the Secretary of Agriculture
through April 2, 1999, and published on July 14, 1999 (64 Fed.
Reg. 37894, 37895) would be adopted in place of the modified
Option 1-B included as part of the final decision.
The requirement to use the modified Option 1-A does not
modify or delay any previously legislated time periods for
actual implementation of the final decision.
The Act, as amended, reduces the processor cheese make
allowance in the final decision from $0.1702/cwt. to $0.147/
cwt. for a period of 10 months during which time the Secretary
is required to engage in emergency rulemaking to develop the
Class III and IV price structure.
The Act, as amended, extends the dairy price support
program for 1 year at its current level while delaying
implementation of the Recourse Loan Program for the same period
of time.
Finally, the Act, as amended, requires the Secretary to
establish forward pricing program so that producers and
cooperatives may enter into contracts with handlers on a
voluntary basis in order to manage risk and reduce the negative
impacts of price volatility.

Purpose and Need

The Agricultural Marketing Agreement Act of 1937 authorizes
the Federal Milk Market Order program which is currently
undergoing a reform process in accordance with Congressional
mandates enacted in the Federal Agriculture Improvement and
Reform Act of 1996 (P.L. 104-127).
Milk marketing orders are legal instruments, voluntarily
initiated and approved by two-thirds of the producers affected
by the order. Handlers or first buyers--not producers--are
regulated under an order.
Milk marketing orders address situations that would cause
disorderly marketing, unfair trade and inequitable market
conditions in their absence. Milk orders prevent handlers from
playing producers against each other in an attempt to drive
down the prices that handlers have to pay for milk. Milk orders
also establish a system of prices that reflect the incentives
to draw milk from surplus regions to deficit regions when local
supplies are not adequate to satisfy fluid demands.
In each milk marketing order area, the Class I price is the
minimum price that regulated handlers must pay for milk used in
fluid products--called Class I milk. Like Class II and Class
III prices, producers do not receive the Class I price
directly; rather, they receive a weighted average, called the
blend price, which represents the volume and price of all milk
in the marketing order area used in Class I, II, III, and III-A
(re-designated Class IV under the final Decision announced by
the Secretary on April 2, 1999). Under the current program, the
Class I price is announced each month for the following month,
as the sum of the Basic Formula Price (BFP) for the previous
month plus a stated Class I price differential. Since the BFP
is the same for every milk order, most discussions of Class I
prices focus on the Class I differential, which varies across
milk marketing orders.
Class I differentials vary across Federal milk order areas
for two reasons. First, there needs to be a price incentive
(called the Class I differential) to move Grade A milk from
points of production to fluid milk processing plants, which are
typically located closer to population centers than to
production areas. However, Federal orders also recognize that
local milk prices should not exceed the cost of available
``distant'' milk plus transportation costs to the ``local''
market. The price incentive also persuades manufacturing plants
to ``give up'' milk and make it available for the fluid market.
The two Class I pricing options that the earlier proposed
ruled advanced for final consideration were reviewed in the
final decision. The final decision published by the Secretary
of Agriculture in the Federal Register on April 2, 1999 (64
Fed. Reg. 16025) adopted a modified differential pricing system
that, according to an independent analysis conducted at the
request of the Committee by the Food and Agricultural Policy
Research Institute and including input from experts in diary
economics from industry, academia, and the U.S. Department of
Agriculture, would result in a nationwide net decrease in all-
milk prices by as much as $0.01 to $0.02/cwt compared with the
option adopted in this Act.
The Committee concluded that while the national impact was
small, the option preferred by the USDA would have a
significant impact on producer revenue when evaluated on a
regional basis. In reaching the conclusion that individual
regions would benefit from the higher Class I differentials
contained in the modified option 1A, theCommittee also
considered the impact the current system has had on price volatility.
This concern was addressed through the inclusion of an authorization
for producers and cooperatives who sell to private handlers to engage
in forward price contracting, a risk management tool that has
historically been available in any Federal Milk Marketing Order to
producers who sell milk to cooperatives only. Under this provision,
producers may, on a voluntary basis, enter into a contract with a
private handler to supply milk at a set price, thereby reducing the
risk of price volatility that has historically impacted dairy markets.
The need for the Committee substitute's provision requiring
that USDA reconsider formulas for pricing Class III and Class
IV was made clear both by the Department's justifications
contained in the Final Decision and by the testimony of
numerous witnesses at two hearings held by the Subcommittee on
Livestock and Horticulture since the Decision was released.
While the Committee provision specifically requires a change in
the cheese ``manufacturing allowance''--a price adjustment
meant to account for the cost of converting raw milk into
cheese--other provisions of the Class III and Class IV formulas
recommended by the Department were called into question. The
cheese manufacturing allowance, however, presents a clear
example of why the Committee substitute contains its finding
that the Final Decision is not well-founded on the public
evidence submitted to the Department in the course of its
rulemaking process.
When the Proposed Rule was first issued in January of 1998,
the Class III pricing formula was to be based on the NASS
survey of prices for cheese. To account for the value added by
manufacturing, a ``make allowance'' was deducted from that
price prior to the calculation of the producer's price. A one
cent change in the make allowance for cheese results in a 10.14
cent change in the producer price in the opposite direction.
The 1998 Proposed Rule included a make allowance of 12.7 cents
per pound of cheese. This level invited scrutiny from the
outset since the BFP Replacement Committee--established by the
Department to provide it with expert analysis in this area--
used a standard make allowance of 13.7 cents per pound.
Dairy industry organizations commented to USDA specifically
on the make allowance included in the 1998 Proposed Rule. Among
those who felt it was too low were:
The National Milk Producers Federation--which
represents producer-owned cooperatives. NMPF suggested
a level of 14.21 cents, an amount based on a survey of
cheese plants conducted by USDA's own Rural Cooperative
Business Service.
The International Dairy Foods Association--which
represents processors including cheese manufacturers.
IDFA suggested a level of 15.2 cents, based on a
weighted average of California's audited survey and the
RCBS survey.
The Dairy Institute of California, which suggested a
level of 17 cents for block cheese and 14 cents for
barrels.
In requiring an interim adjustment of the make allowance to
14.7 cents during the required emergency rulemaking, the
Committee has chosen an average of the levels proposed by the
National Milk Producers Federation and the International Dairy
Foods Association--organizations which represent much of the
nation's cooperative and proprietary cheese-making capacity. By
including this level, the Committee is not suggesting that 14.7
cents is the correct level for the Department to propose at the
conclusion of the rulemaking required by the Committee
substitute. The Com-

mittee expects the rulemaking to be an opportunity for the
Department to obtain further views from the industry as a
whole, and to adopt a formula that is clearly justified based
on the evidence submitted.
The approach adopted by the Committee in this regard allows
implementation of order reform to proceed on schedule while
Class III and Class IV formulas are reconsidered. In a letter
to the Committee dated June 29, 1999, the Secretary of
Agriculture volunteered the Department's willingness ``to
reassess the manufacturing milk pricing question, providing
that the process comports with and does not interfere with
USDA's implementation of its reforms of the milk marketing
order system.'' The Committee provision meets the Secretary's
conditions.

Section-by-Section Analysis

Section 1. Required use of option 1-A

Subsection (a) modifies the final decision of the Secretary
of Agriculture announced in the Federal Register on April 2,
1999 (64 Fed. Reg. 16025) with regard to the differential
pricing method for Class I or fluid milk within Federal Milk
Marketing Orders by replacing the differentials in the decision
with those identified as Option 1A `Location-Specific
Differentials Analysis' in the proposed rule published in the
Federal Register on January 30, 1998 (63 Fed. Reg. 4802, 4809)
as modified or corrected by the Secretary of Agriculture
through April 2, 1999, and published on July 14, 1999 (64 Fed.
Reg. 37894, 37895).
Subsection (b) clarifies that the requirement to use the
modified Option 1-A does not modify or delay any previously
legislated time periods for actual implementation of the final
decision.

Section 2. Necessity of using formal rulemaking to develop pricing
methods for Class III and Class IV milk; modified manufacturing
allowance for cheese

Subsection (a) expresses Congressional findings.
Subsection (b) requires the Secretary to enter into formal
rulemaking, on an emergency basis, to develop Class III and
Class IV pricing formulas within 10 months of enactment. The
subsection provides that the time limitation for rulemaking can
be extended only upon an order of the court.
Subsection (c) would prohibit the Secretary from assessing
or collecting assessments from milk producers or handlers to
administer the federal milk market order program if the final
rule required under the previous subsection is delayed. The
subsection stipulates that in the event that assessments are
prohibited, no reduction in services currently available in
administering the market order program can occur.
Subsection (d) clarifies that nothing in the section may
delay implementation of the final rule for consolidating
federal milk market orders.
Subsection (e) reduces the processors manufacturing
allowance from $0.1702/cwt to $0.147/cwt during the period of
time necessary for rulemaking required under subsection (b).

Section 3. One year extension of the current milk price support program

This section extends the price support program, as well as
the cheese price support rate for 1 year at their current
levels. The section also delays implementation of the processor
recourse loan program authorized in section 142(e) of 1996 farm
bill.

Section 4. Dairy forward pricing program

The section requires the Secretary of Agriculture, within
90 days of enactment, to implement a program of price forward
contracting, in federally regulated milk market orders, so that
producers and cooperatives can voluntarily contract with
handlers. The section clarifies that payment of the contract
price shall be deemed to have met the minimum price
requirements of the Agricultural Adjustment Act of 1937.

Committee Consideration

I--subcommittee

On June 24, 1999, the Subcommittee on Livestock and
Horticulture held a hearing regarding H.R. 1402. Testimony was
taken from Members of Congress, the Governor of the State of
Minnesota, Economists with the Food and Agriculture Policy
Research Institute located at the University of Missouri, and
milk producers and processors testifying both for and against
the bill.

II--full committee

The Committee on Agriculture met, pursuant to notice and
with a quorum present, on June 30, 1999 to consider H.R. 1402
and other pending business. Mr. Pombo, Chairman of the
Subcommittee on Livestock and Horticulture sought, and was
granted consent to discharge the Subcommittee on Livestock and
Horticulture from further consideration of the bill. Chairman
Combest recognized Committee Counsel to provide a brief
explanation of the bill.
The Chairman opened the consideration of the bill for
discussion and amendments.
The first amendment, offered by Mr. Pombo addressed an
issue raised by Mr. Pombo during the Subcommittee hearing
regarding some minor changes that were made to the Option 1A
differential levels presented in the Proposed Rule. The changes
only involved adjusting certain county specific differentials
to provide for more appropriate price alignment in several
counties in the northeast, seven counties in Florida, and one
county in North Carolina. These changes, while included in the
Regulatory Impact Analysis prepared by the Secretary of
Agriculture and made available at the time of publication of
the final decision, were not, in and of themselves, published
in the Federal Register. The amendment clarifies that the
changes that were referred to in the Federal Register on April
2, 1999 (64 Fed. Reg., p.16110) will be implemented in the
final rule. Without objection, the amendment was adopted. The
Committee is aware that following the markup of H.R. 1402, the
corrections referred to in 64 Fed. Reg. p.16110 were published
on July 14, 1999 (64 Fed. Reg. 37894, 37895). It is the
Committee's intent that enacting this legislation, the
Secretary implement the corrections published in the Federal
Register on July 14, 1999.
Mr. Peterson was then recognized to offer and explain an
amendment that extends the current milk price support program
for one year. Discussion occurred and the amendment was adopted
by a voice vote.
Mr. Gutknecht offered and explained an amendment concerning
control of excess milk production in marketing order areas
where Class I differential exceeds the national average Class I
differential. Discussion occurred, and without objection, Mr.
Gutknecht withdrew the amendment.
Mr. Stenholm was then recognized to offer and explain an
amendment to mandate formal rulemaking to develop pricing
methods for Class III and Class IV milk and to modify
manufacturing allowance for cheese. Discussion occurred, and by
a division vote of 29 yeas to 15 nays, the amendment was
adopted.
Mr. Gutknecht was recognized to offer and explain an
amendment to mandate a limitation on a corporate marketing
association on blending of proceeds from the collective sales
or marketing of milk and milk products. Discussion occurred,
and by a recorded vote of 12 yeas to 37 nays, the amendment was
not adopted. See Rollcall Vote No. 1.
Mr. Dooley was then recognized to offer and explain an
amendment to mandate a dairy forward pricing program.
Following discussion, Mr. Stenholm offered and explained a
second degree amendment that would allow for the establishment
of forward contract programs within Federal milk marketing
orders subject to normal rulemaking process and approval by
producers in affected orders to the Dooley amendment to mandate
a dairy forward pricing program. Discussion occurred, and by a
division vote of 21 yeas to 21 nays, the Stenholm amendment was
not adopted. The vote then occurred on the underlying Dooley
amendment, and by a division vote of 23 yeas to 20 nays, the
amendment was adopted.
Mr. Minge was then recognized to offer and explain an
amendment to require sharing of additional receipts among all
producers. Discussion occurred, and by a voice vote the
amendment was not adopted.
Mr. Boehner was then recognized to offer and explain an
amendment in the nature of a substitute to provide for the
eventual termination of milk orders. Discussion occurred, and
by a roll call vote of 11 yeas to 35 nays, the amendment was
not adopted. See Rollcall Vote No. 2.
The Chairman recognized Mr. Stenholm, who made a motion
that the bill be favorably reported to the House, as amended.
The motion was carried by a roll call vote of 32 yeas to 15
nays. See Rollcall Vote No. 3.
Mr. Stenholm then made a motion to authorize the Chairman
to offer such motions as may be necessary in the House to go to
conference with the Senate on H.R. 1402 or a similar Senate
bill. Without objection, the motion was agreed to.
The Chairman then thanked the Members and adjourned the
meeting.

Reporting the Bill--Rollcall Votes

In compliance with clause 3(b) of rule XIII of the House of
Representatives, the Committee sets forth the record of the
following roll call votes taken with respect to H.R. 1402:

Rollcall No. 1

Summary: Amendment to mandate a limitation on a corporate
marketing association on blending of proceeds from the
collective sales or marketing of milk and milk products.
Offered by: Mr. Gutknecht.
Results: Failed by a roll call vote: 12 yeas to 37 nays.
YEAS NAYS
1. Mr. Ewing 1. Mr. Combest
2. Mr. Smith 2. Mr. Barrett
3. Mrs. Chenoweth 3. Mr. Boehner
4. Mr. LaHood 4. Mr. Goodlatte
5. Mr. Thune 5. Mr. Pombo
6. Mr. Gutknecht 6. Mr. Everett
7. Mr. Simpson 7. Mr. Lucas, OK
8. Mr. Peterson 8. Mr. Hostettler
9. Mr. Dooley 9. Mr. Chambliss
10. Mr. Minge 10. Mr. Moran
11. Mr. Pomeroy 11. Mr. Schaffer
12. Mr. Hill 12. Mr. Jenkins
13. Mr. Cooksey
14. Mr. Calvert
15. Mr. Riley
16. Mr. Walden
17. Mr. Ose
18. Mr. Hayes
19. Mr. Fletcher
20. Mr. Stenholm
21. Mr. Condit
22. Mrs. Clayton
23. Mr. Hilliard
24. Mr. Holden
25. Mr. Bishop
26. Mr. Thompson, MS
27. Mr. Baldacci
28. Mr. Berry
29. Mr. Goode
30. Mr. McIntyre
31. Ms. Stabenow
32. Mr. Etheridge
33. Mr. John
34. Mr. Boswell
35. Mr. Phelps
36. Mr. Lucas, KY
37. Mr. Thompson, CA
NOT VOTING
1. Mr. Canady
2. Mr. Brown

Rollcall No. 2

Summary: Amendment in the Nature of a Substitute to provide
for the eventual termination of milk orders.
Offered by: Mr. Boehner.
Results: Failed by a roll call vote: 11 yeas to 35 nays.
YEAS NAYS
1. Mr. Barrett 1. Mr. Combest
2. Mr. Boehner 2. Mr. Ewing
3. Mr. Hostettler 3. Mr. Pombo
4. Mr. LaHood 4. Mr. Smith
5. Mr. Calvert 5. Mr. Everett
6. Mr. Gutknecht 6. Mr. Lucas, OK
7. Mr. Ose 7. Mrs. Chenoweth
8. Mr. Peterson 8. Mr. Chambliss
9. Mr. Minge 9. Mr. Moran
10. Mr. Pomeroy 10. Mr. Schaffer
11. Mr. Boswell 11. Mr. Thune
12. Mr. Jenkins
13. Mr. Riley
14. Mr. Walden
15. Mr. Simpson
16. Mr. Hayes
17. Mr. Fletcher
18. Mr. Stenholm
19. Mr. Dooley
20. Mrs. Clayton
21. Mr. Hilliard
22. Mr. Holden
23. Mr. Bishop
24. Mr. Thompson, MS
25. Mr. Baldacci
26. Mr. Berry
27. Mr. Goode
28. Mr. McIntyre
29. Ms. Stabenow
30. Mr. Etheridge
31. Mr. John
32. Mr. Phelps
33. Mr. Lucas, KY
34. Mr. Thompson, CA
35. Mr. Hill
NOT VOTING
1. Mr. Goodlatte
2. Mr. Canady
3. Mr. Cooksey
4. Mr. Brown
5. Mr. Condit

Rollcall No. 3

Summary: Final Passage on H.R. 1402, as amended.
Offered by: Mr. Stenholm.
Results: Adopted by a rollcall vote: 32 yeas to 15 nays.
YEAS NAYS
1. Mr. Combest 1. Mr. Barrett
2. Mr. Smith 2. Mr. Boehner
3. Mr. Everett 3. Mr. Ewing
4. Mr. Lucas, OK 4. Mr. Pombo
5. Mr. Chambliss 5. Mrs. Chenoweth
6. Mr. LaHood 6. Mr. Hostettler
7. Mr. Moran 7. Mr. Thune
8. Mr. Schaffer 8. Mr. Calvert
9. Mr. Jenkins 9. Mr. Gutknecht
10. Mr. Riley 10. Mr. Ose
11. Mr. Walden 11. Mr. Peterson
12. Mr. Simpson 12. Mr. Dooley
13. Mr. Hayes 13. Mr. Minge
14. Mr. Fletcher 14. Mr. Pomeroy
15. Mr. Stenholm 15. Mr. Boswell
16. Mr. Condit
17. Mrs. Clayton
18. Mr. Hilliard
19. Mr. Holden
20. Mr. Bishop
21. Mr. Thompson, MS
22. Mr. Baldacci
23. Mr. Berry
24. Mr. Goode
25. Mr. McIntyre
26. Ms. Stabenow
27. Mr. Etheridge
28. Mr. John
29. Mr. Phelps
30. Mr. Lucas, KY
31. Mr. Thompson, CA
32. Mr. Hill

NOT VOTING
1. Mr. Goodlatte
2. Mr. Canady
3. Mr. Cooksey
4. Mr. Brown

Budget Act Compliance (Sections 308, 402, and 423)

The provisions of clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives and section 308(a)(1) of the
Congressional Budget Act of 1974 (relating to estimates of new
budget authority, new spending authority, new credit authority,
or increased or decreased revenues or tax expenditures) are not
considered applicable. The estimate and comparison required to
be prepared by the Director of the Congressional Budget Office
under clause 3(c)(3) of rule XIII of the Rules of the House of
Representatives and sections 402 and 423 of the Congressional
Budget Act of 1974 submitted to the Committee prior to the
filing of this report are as follows:

U.S. Congress,
Congressional Budget Office,
Washington, DC, July 13, 1999.
Hon. Larry Combest,
Chairman, Committee on Agriculture,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1402, a bill to
require the Secretary of Agriculture to implement the Class I
milk price structure known as Option 1-A as part of the
implementation of the final rule to consolidate federal milk
marketing orders.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Jim Langley
(for federal costs) and Roger Hitchner (for the private-sector
impact).
Sincerely,
Barry B. Anderson
(for Dan L. Crippen, Director).
Enclosure.

Congressional Budget Office Cost Estimate

H.R. 1402--A bill to require the Secretary of Agriculture to implement
the Class I milk price structure known as Option 1-A as part of
the implementation of the final rule to consolidate federal
milk marketing orders

Summary: H.R. 1402 would require the Secretary of
Agriculture to modify final rulemaking procedures to change the
method by which minimum prices are established for fluid milk
in different regions of the country. The bill would require
formal rulemaking procedures to develop pricing methods--known
as marketing orders--for milk used in manufactured dairy
products (cheese, butter, and nonfat dry milk) and would,
pending a final rule, modify the formula for minimum cheese
prices. H.R. 1402 also would extend for one year the current
milk price support program (scheduled to expire December 31,
1999), delay starting the recourse loan program for commercial
processors of dairy products, and require the Secretary to
establish a new dairy program that would allow milk producers
and cooperatives to enter into forward price contracts with
milk handlers.
CBO estimates that implementing the provisions related to
federal marketing orders for milk prices would not require any
additional discretionary outlays over the 2000-2004 period.
Enacting the bill would affect direct spending--primarily as a
result of the extending current price-support programs for one
year. Thus, pay-as-you-go procedures would apply. CBO estimates
that enacting H.R. 1402 would reduce direct spending by $102
million in 2000 but would result in a net increase in direct
spending of $149 million over the 2000-2004 period.
H.R. 1402 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on state, local, or tribal governments. The bill would
impose a private-sector mandate, as defined by UMRA, by
requiring handlers of milk regulated by federal milk marketing
orders to pay a higher price for milk than they would otherwise
be required to pay. The estimated cost to the private sector of
the mandate contained in this bill would exceed the threshold
for private-sector mandates ($100 million in 1996, adjusted
annually for inflation) established in UMRA.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 1402 is shown in the following table.
The cost of this legislation fall primarily within budget
function 350 (agriculture).

Estimated Budget Authority.................................... -102 241 -4 7 7
Estimated Outlays............................................. -102 241 -4 7 7
----------------------------------------------------------------------------------------------------------------

Basis of Estimate: For the purpose of this estimate, CBO
assumes that H.R. 1402 will be enacted before October 1, 1999.
The bill would require the Secretary of Agriculture to choose
an alternative marketing order by that date.
One-year extension of current milk price support program
H.R. 1402 would extend the milk price support program for
one year and delay implementing a loan program for commercial
processors of dairy products. CBO estimates that these two
provisions would reduce federal outlays by $102 million in 2000
and increase federal outlays by $149 million over the 2000-2004
period.
The Federal Agriculture Improvement and Reform Act of 1996
(Public Law 104-127) terminates the milk price support program
on December 31, 1999, replacing it with recourse loans
available to commercial processors beginning January 1, 2000.
These recourse loans would help dairy processors manage
inventories of dairy products and assure a greater degree of
price stability for the dairy industry during the year. The
loan period extend through the end of the fiscal year in which
they are made, but the Secretary of Agriculture may extend
these loans for up to one additional year. (CBO assumes that
the Secretary will extend recourse loans.) The Credit Reform
Act of 1990 exempted all credit programs of the Commodity
Credit Corporation form its provisions, and the budget
therefore would record these loans on a cash basis.
Under current law, CBO estimates that the net outlays for
recourse loans (loans made minus loans repaid during the same
fiscal year) would be $280 million in 2000 (the first year of
the program) and would be in the range of -$12 million to $7
million in subsequent years as outlays for new loans would be
offset by repayments of previous loans. By delaying
implementation of the recourse loan program one year (until
January 1, 2001), the relatively large start-up cost for the
program would be shifted from 2000 to 2001.
CBO estimates that continuing the milk price support
program for one year would increase federal outlays (by
increasing net purchases of dairy products and related
expenses) by $178 million in 2000. Hence, the net effect of
extending milk price supports and delaying recourse loans would
be to reduce outlays $102 million in 2000 ($178 million in net
price support cost minus $280 million in forgone recourse loan
start-up costs). Outlays would increase by $241 million in
2001, as $251 million in net recourse loans would be partially
offset by a reduction of $9 million in net purchases.
Relatively small changes occur in subsequent fiscal years. The
difference between net recourse loans forgone in 2000 ($280
million) and made in 2001 ($251 million) arises because loan
activity depends on commercial stocks, for which CBO estimates
different levels in 2000 and 2001.
Consolidated Federal milk marketing order provisions
As required by Public Law 104-127, the Secretary of
Agriculture announced on March 31, 1999, a final decision to
overhaul the federal milk marketing order program. Milk
marketing orders classify milk by use, set minimum prices that
handlers must pay for each class of milk, and provide for
paying average prices to all dairy farmers who supply a
particular region. The decision to adopt a new marketing order
must be approved by producer referendums, which USDA will
conduct later this year. If approved by referendum, the changes
will take effect on October 1, 1999.
The most controversial aspect of milk marketing reform is
the method of setting minimum prices for fluid milk. The
Secretary's decision--known as Option 1-B--would probably
increase fluid milk prices in the Upper Midwest and Florida and
reduce prices elsewhere. Despite these regional differences,
the national average price of milk is not expected to change
significantly.
If enacted, H.R. 1402 would require the Secretary of
Agriculture to implement an alternative method of calculating
minimum fluid milk prices known as Option 1-A. This alternative
method would more closely reflect the current regional
distribution of fluid milk prices. The bill would not alter the
requirement of Public Law 104-127 that reform of milk marketing
orders be implemented by October 1, 1999.
The bill would require the Secretary to use rulemaking to
develop pricing methods for milk used for cheese, butter, and
nonfat dry milk and would modify the formula for setting
minimum cheese prices until a final decision was approved by
rulemaking (required to be completed within 10 months of
enactment).
H.R. 1402 also would require the Secretary to establish a
program under which milk producers and cooperatives would be
authorized to enter into forward price contracts with milk
handlers of federally regulated milk. CBO estimates that
implementing this program would not have any significant impact
on administrative costs of the Department of Agriculture.
By affecting the price of milk, changes in milk marketing
orders could affect federal nutrition programs, particularly
the Special Milk Program. However, CBO expects that H.R. 1402
would have a negligible impact on the Special Milk Program
because the impact on retail milk prices is likely to be small.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays that are subject to pay-as-you-go procedures
are shown in the following table. For the purposes of enforcing
pay-as-you-go procedures, only the effects in the current year,
the budget year, and the succeeding four years are counted.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
----------------------------------------------------------------------------------------------------------------
Changes in outlays............... 0 -102 241 -4 7 7 4 3 -1 1 1
Changes in receipts.............. Not applicable
----------------------------------------------------------------------------------------------------------------

Estimated impact on state, local, and tribal governments:
H.R. 1402 contains no intergovernmental mandates as defined in
UMRA and would impose no costs on state, local, or tribal
governments.
Estimated impact on the private sector: H.R. 1402 would
impose a private-sector mandate, as defined by UMRA, by
requiring handlers of milk regulated by federal milk marketing
orders to pay a higher price for milk than they would otherwise
be required to pay. The Secretary of Agriculture issued on
March 31, 1999, final rules for the consolidation and reform of
federal milk marketing orders. Such consolidation and reform
was required by the Federal Agricultural Improvement and Reform
Act of 1996 and will take effect October 1, 1999, if approved
by producer referendum. Such approval is expected. As a part of
those final rules, the Secretary established new Class I price
differentials that set premiums that handlers in the various
federal orders must pay for milk used for fluid purposes, such
as bottled milk. H.R. 1402 would require the Secretary to use a
different set of Class I differentials than announced as part
of the final rule. In nine of the eleven new federal order
areas, the differential required by H.R. 1402 would be higher
than that announced by the Secretary. Milk handlers in those
areas would be required to pay producers more for milk used for
fluid purposes. Based on projections of milk marketings and
use, CBO estimates that handlers would be required to pay milk
producers annually about $140 million more than they would
without this change in the law.
Section 2 of H.R. 1402 would require the Secretary of
Agriculture to use a formal rulemaking process to reconsider
the Class III and Class IV minimum pricing formulas announced
in the final rules issued March 31, 1999. Class III milk is
that used to produce cheese; Class IV milk is that used to
produce butter and milk powder. The bill would require that a
new decision on those formulas be implemented within 10 months
after enactment. In the interim, H.R. 1402 would require the
Secretary to replace the manufacturing allowance for cheese
that was announced in the March 31, 1999, rules with a lower
value. Substituting the lower value in the formula has the
effect of raising the price that milk handlers must pay
producers for fluid milk and raising the minimum price that
must be paid for milk used to produce cheese, in both cases by
nearly $0.24 per hundredweight. On an annualized basis the cost
to milk handlers of this provision would exceed $100 million.
CBO can not provide a more precise estimate because of the
uncertainty of how long this provision would be in effect and
how the increase in the minimum Class III price would affect
prices paid to producers.
Milk producers' gross receipts would be higher by an amount
corresponding to the higher costs to milk handlers that would
result from enactment of H.R. 1402. The higher costs faced by
handlers would be mostly passed on to consumers as higher
prices for milk and milk products.
All changes cited above are estimated relative to what is
expected to happen without enactment of H.R. 1402. The final
rules issued in March 1999, which are expected to become
effective in October 1999, would probably reduce farm and
consumer-level milk prices. The new rules, as amended by the
provisions of H.R. 1402, would cause such decreases in milk
prices to be smaller.
Estimate prepared by: Federal costs: Jim Langley; impact on
the private sector: Roger Hitchner.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.

Committee Cost Estimate

Pursuant to clause 3(d)(2) of Rule XIII of the Rules of the
House of Representatives, the Committee report incorporates the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to sections 402 and 423 of the
Congressional Budget Act of 1974.

Constitutional Authority Statement

Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the
House of Representatives, the Committee finds the
Constitutional authority for this legislation in Article I,
clause 8, section 18, that grants Congress the power to make
all laws necessary and proper for carrying out the powers
vested by Congress in the Government of the United States or in
any department or officer thereof.

Oversight Statement

No summary of oversight findings and recommendations made
by the Committee on Government Reform, as provided for in
clause 3(c)(4) of Rule XIII of the Rules of the House of
Representatives, was available to the Committee with reference
to the subject matter specifically addressed by H.R. 1402.

Committee Oversight Findings

Pursuant to clause 3(c)(1) of Rule XIII of the Rules of the
House of Representatives, the Committee on Agriculture's
oversight findings and recommendations are reflected in the
body of this report.

Advisory Committee Statement

No advisory committee within the meaning of section 5(b) of
the Federal Advisory Committee Act was created by this
legislation.

Applicability to the Legislative Branch

The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act (Public Law
104-1).

Federal Mandates Statement

The Committee adopted as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act (Public Law 104-4).

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

AGRICULTURAL MARKET TRANSITION ACT

* * * * * * *

Subtitle D--Other Commodities

CHAPTER 1--DAIRY

SEC. 141. MILK PRICE SUPPORT PROGRAM.

(a) * * *
(b) Rate.--The price of milk shall be supported at the
following rates per hundredweight for milk containing 3.67
percent butterfat:
(1) * * *

* * * * * * *

(4) During calendar [year 1999] years 1999 and 2000,
$9.90.

* * * * * * *

(h) Period of Effectiveness.--This section (other than
subsection (g)) shall be effective only during the period
beginning on the first day of the first month beginning after
the date of enactment of this title and ending on December 31,
[1999] 2000. The program authorized by this section shall
terminate on December 31, [1999] 2000, and shall be considered
to have expired notwithstanding section 257 of the Balanced
Budget and Emergency Deficit Control Act of 1985 (2 U.S.C.
907).

SEC. 142. RECOURSE LOAN PROGRAM FOR COMMERCIAL PROCESSORS OF DAIRY
PRODUCTS.

(a) * * *

* * * * * * *

(e) Effective Date.--This section shall be effective
beginning January 1, [2000] 2001.

* * * * * * *

----------

SECTION 23 OF THE AGRICULTURAL ADJUSTMENT ACT

SEC. 23. DAIRY FORWARD PRICING PROGRAM.

(a) In General.--Not later than 90 days after the date of
enactment of this section, the Secretary of Agriculture shall
establish a program under which milk producers and cooperatives
are authorized to voluntarily enter into forward price
contracts with milk handlers.
(b) Minimum Milk Price Requirements.--Payments made by milk
handlers to milk producers and cooperatives, and prices
received by milk producers and cooperatives, under the forward
contracts shall be deemed to satisfy all regulated minimum milk
price requirements of paragraphs (A), (B), (C), (D), (F), and
(J) of subsection (5), and subsections (7)(B) and (18), of
section 8c.
(c) Application.--This section shall apply only with respect
to the marketing of federally regulated milk (regardless of its
use) that is in the current of interstate or foreign commerce
or that directly burdens, obstructs, or affects interstate or
foreign commerce in federally regulated milk.

DISSENTING VIEWS

I strenuously disagree with the Committee's action to
reverse the very modest reforms contained within the final rule
developed by the U.S. Department of Agriculture. Despite three
years of rule making and an exhaustive public comment period,
H.R. 1402 breaks a commitment by the Congress in the 1996 Farm
Bill to adopt a more market-oriented policy for our nation's
dairy industry. Instead, this legislation leaves in place a
blatantly unfair Depression-era pricing structure that
penalizes dairy producers based on how close they are to Eau
Claire, Wisconsin.
At a time when the United States is working to negotiate
the liberalization of trade barriers throughout the world, the
Option 1A legislation will perpetuate the regionalist and
protectionist thinking which ultimately undermines the
modernization of our dairy industry. A decision to prolong the
worse features of our current policy is a contradiction of the
worst kind. Moreover, the Committee is supporting changes to
the final rule despite analysis by the USDA and independent
economists that the reforms will result in a minimal impact on
dairy farmer revenues. Rather than encouraging greater
efficiencies in milk distribution, greater equity for all
producers, and a more consumer friendly pricing system, the
Committee's approval of H.R. 1402 is an endorsement of the
status quo.

Gil Gutknecht.