[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).

----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year, in millions of dollars--
                                                               -------------------------------------------------
                                                                  2000      2001      2002      2003      2004
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING

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.

                                

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