[Federal Register Volume 59, Number 63 (Friday, April 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7840]


[[Page Unknown]]

[Federal Register: April 1, 1994]


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DEPARTMENT OF AGRICULTURE
7 CFR Parts 1005, 1007, 1011, and 1046

[DA-93-29]

 

Milk in the Carolina, Georgia, Tennessee Valley, and Louisville-
Lexington-Evansville Marketing Areas; Suspension of Certain Provisions 
of the Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Suspension of rules.

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SUMMARY: This document suspends for 12 months certain provisions of the 
Carolina, Georgia, Tennessee Valley, and Louisville-Lexington-
Evansville Federal milk orders. The suspension will regulate a plant at 
Kingsport, Tennessee, under the Tennessee Valley order, instead of the 
Carolina order, and it will keep regulated under the Tennessee Valley 
order a plant at Somerset, Kentucky, that otherwise could have become 
regulated under the Louisville-Lexington-Evansville order. The action 
is being taken to remove and prevent pricing disparities that could 
jeopardize the business of these handlers, pending an amendatory 
proceeding on these matters.

EFFECTIVE DATE: March 1, 1994, through February 28, 1995.

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

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding:
    Notice of Proposed Suspension (DA-93-29): Issued October 22, 1993; 
published October 28, 1993 (58 FR 57970).
    Revised Proposed Suspension (DA-93-29): Issued January 3, 1994; 
published January 10, 1994 (59 FR 1305).
    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires the 
Agency to examine the impact of a proposed rule on small entities. 
Pursuant to 5 U.S.C. 605(b), the Administrator of the Agricultural 
Marketing Service has certified that this action will not have a 
significant economic impact on a substantial number of small entities. 
This action will lessen the regulatory burden on small entities by 
removing pricing disparities that are causing or could cause financial 
hardship for certain distributing plants.
    The Department is issuing this rule in conformance with Executive 
Order 12866.
    This final rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. This rule is not intended to have a retroactive 
effect. This rule will not preempt any state or local laws, 
regulations, or policies, unless they present an irreconcilable 
conflict with the rule.
    The Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674), provides that administrative proceedings must be 
exhausted before parties may file suit in court. Under section 
608c(15)(A) of the Act, any handler subject to an order may file with 
the Secretary a petition stating that the order, any provisions of the 
order, or any obligation imposed in connection with the order is not in 
accordance with law and requesting a modification of the order or to be 
exempted from the order. A handler is afforded the opportunity for a 
hearing on the petition. After a hearing, the Secretary would rule on 
the petition. The Act provides that the district court of the United 
States in any district in which the handler is an inhabitant, or has 
its principal place of business, has jurisdiction in equity to review 
the Secretary's ruling on the petition, provided a bill in equity is 
filed not later than 20 days after the date of the entry of the ruling.
    This order of suspension is issued pursuant to the provisions of 
the Agricultural Marketing Agreement Act and of the orders regulating 
the handling of milk in each of the aforesaid marketing areas.
    Notice of proposed rulemaking was published in the Federal Register 
(58 FR 57970) on October 28, 1993, concerning the proposed suspension 
of certain provisions of the Georgia, Carolina, Tennessee Valley 
Federal milk orders (DA-93-29). The public was afforded the opportunity 
to comment on the notice by submitting written data, views, and 
arguments by November 4, 1993. Six comment letters were received 
concerning the three-market proposed suspension.
    Subsequent to the issuance of the above proposed suspension, a 
suspension request was received from a handler regulated under the 
Tennessee Valley order that expanded the initial suspension issue to 
the Louisville-Lexington-Evansville order. Thereafter, a revised notice 
of proposed rulemaking was published in the Federal Register (59 FR 
1305) on January 10, 1994, concerning the proposed suspension of 
certain provisions of the Georgia, Carolina, Tennessee Valley, and 
Louisville-Lexington-Evansville Federal milk orders. The public was 
afforded the opportunity to comment on the notice by submitting written 
data, views, and arguments by January 20, 1994. Ten comment letters 
were received concerning the expanded four-market proposed suspension.
    After consideration of all relevant material, including the 
proposal in the notices and other available information, it is hereby 
found and determined that the following provisions of the orders 
regulating the handling of milk in the Georgia, Carolina, Tennessee 
Valley, and Louisville-Lexington-Evansville Federal milk marketing 
areas will not tend to effectuate the declared policy of the Act during 
the months of March 1994 through February 1995:
    1. In Sec. 1005.7(d)(3) of the Carolina order, the words ``from'', 
``there'', ``a greater quantity of route disposition, except filled 
milk, during the month'', and ``than in this marketing area'';
    2. In Sec. 1007.7(e)(3) of the Georgia order, the words ``, except 
as provided in paragraph (e)(4) of this section,'';
    3. In Sec. 1007.7 of the Georgia order, paragraph (e)(4);
    4. In Sec. 1011.7(d)(3) of the Tennessee Valley order, the words 
``from'', ``there'', ``a greater quantity of route disposition, except 
filled milk, during the month'', and ``than in this marketing area''; 
and
    5. In Sec. 1046.2 of the Louisville-Lexington-Evansville order, the 
word ``Pulaski''.

Statement of Consideration

    This action will allow a distributing plant at Kingsport, 
Tennessee, that is located within the Tennessee Valley marketing area 
and that meets all of the pooling standards of the Tennessee Valley 
order to be regulated under that order rather than the Carolina order, 
as now, despite the plant having greater sales in the Carolina 
marketing area. It will allow a distributing plant located at Somerset, 
Kentucky, that has been regulated under the Tennessee Valley order to 
remain regulated under that order even if it should develop greater 
sales in the Louisville-Lexington-Evansville (Order 46) marketing area. 
In addition, this action will allow a supply plant at Springfield, 
Kentucky, that has been supplying the Somerset plant to remain pooled 
under the Tennessee Valley order without having to make uneconomic 
shipments of milk that it contends would have been necessary if the 
Southern Belle plant shifted to Order 46.

1. The Problem of Land-O-Sun Dairies, Inc.

    In recent months, the blend price to producers at Kingsport, 
Tennessee, under the Tennessee Valley order has been significantly 
higher than the blend price at that location under the Carolina order. 
For example, during the months of July through October 1993, the 
Tennessee Valley blend price at Kingsport was 32 cents, 29 cents, 20 
cents, and 20 cents, respectively, higher than the Carolina blend price 
at Kingsport. Although the Class I price at Kingsport is identical 
under both of these orders, the Tennessee Valley order's higher Class I 
utilization has resulted in a higher blend price at Kingsport during 
nearly every month for the past two years.
    The difference in blend prices at Kingsport requires Land-O-Sun 
Dairies, as a Carolina order handler, to pay significant over-order 
prices to retain its milk supply in competition with nearby handlers 
regulated under the Tennessee Valley order. Land-O-Sun indicated that 
it could not continue to pay these over-order prices without 
jeopardizing the existence of its business. It therefore proposed a 
suspension of certain provisions of Orders 5 and 11 that would allow it 
to become regulated under Order 11.
    It should be noted that the paragraph that is being suspended from 
the Georgia order is merely a conforming change to preserve the status 
quo between the Carolina and Georgia orders. This change is necessary 
to continue the regulation of a Greenville, South Carolina, plant under 
the Georgia order. Without the suspension, the plant would become 
regulated under the Carolina order.

2. The Problem of Southern Belle Dairy Company

    Southern Belle Dairy at Somerset, Kentucky, has been regulated 
under Order 11 since 1989. However, recently it has acquired accounts 
that could cause it to shift to Order 46.
    In recent months, the blend price at Somerset under Order 11 has 
been significantly higher than the blend price at that location under 
Order 46. For example, during the months of July through October 1993, 
the blend price under Order 11 at Somerset was 67 cents, 62 cents, 49 
cents, and 25 cents, respectively, higher than the Order 46 blend price 
at that location. Of these amounts, 19 cents is attributable to a 19-
cent higher Class I price at that location under Order 11. Southern 
Belle contended that if it should shift to Order 46 it would have to 
pay substantial over-order prices to its producers to retain its milk 
supply. Moreover, slight changes in sales could cause it to shift back 
and forth between the two orders, causing market instability and 
uncertainty under the base-excess programs applicable to both orders.

3. The Problem of Armour Food Ingredients Company

    Armour operates a supply plant and a nonpool manufacturing plant at 
Springfield, Kentucky. The supply plant has been regulated under Order 
11 since August 1992. If the Southern Belle plant had shifted to Order 
46, Armour's supply plant would also have become subject to the 
regulations of Order 46 because the plant is supplying milk to the 
Southern Belle plant. Armour argued that the plant would not qualify as 
a pool plant based on its present milk handling practices because, 
under the net shipment provision of Order 46, all of the shipments sent 
to its manufacturing facility from pool distributing plants for surplus 
disposal would be subtracted from its shipments to pool distributing 
plants. Armour stated that to keep the milk of its producers pooled 
under Order 46 it would have to incur substantial increases in 
transportation and assembly costs. To avoid these costs, Armour 
proposed suspending language in the net shipment provision of Order 46, 
notice of which was provided in the Federal Register on September 28, 
1993 (DA-93-26). Two comment letters were received opposing that 
request.

4. Industry Responses to the Revised Proposed Suspension

    In response to the notice of proposed suspension and the revised 
proposed suspension, a total of 18 comments were received from 12 
different parties.
    Milkco, Inc., a handler regulated under the Carolina order with a 
plant in Asheville, North Carolina, stated that it supported the 
proposed suspension. Southern Belle Dairy, Armour and Land-O-Sun also 
submitted letters in support of the suspension.
    A letter supporting the proposed suspension affecting Orders 5, 7, 
and 11 also was received from Mid-America Dairymen, Inc., on behalf of 
Southern Milk Sales, Inc., a dairy cooperative with producer milk 
pooled on the Tennessee Valley, Georgia, and Carolina orders. The 
cooperative noted in its letter that ``paying higher over-order values 
to maintain its supply of milk would jeopardize the existence of the 
affected distributing plant.'' Mid-America did not file a comment in 
response to the revised proposed suspension.
    An individual dairy farmer who supplies producer milk to Land-O-Sun 
also filed a comment in support of the suspension, stating that if 
Land-O-Sun paid him a lesser price for his milk he would have to sell 
to another handler. A dairy farmer that formerly supplied Land-O-Sun 
stated that he opposed the action.
    Coburg Dairy, a Carolina order handler located in Charleston, South 
Carolina, and Peeler Jersey Farms, Inc., which operates a distributing 
plant in Gaffney, South Carolina, filed comments opposing the 
suspension. Both handlers compete with the Kingsport plant for Class I 
sales in the Carolina market. Coburg argued that the regulation of the 
Kingsport plant under the Tennessee Valley order would give the plant a 
competitive advantage in the Carolina market since it has a lower Class 
I price and because it presumably would not have to pay over-order 
prices to its producers. Peeler stated that Land-O-Sun was engaging in 
``low ball'' pricing and that no action should be taken that will have 
a significant economic impact on small entities.
    Edisto Milk Producers Cooperative, which supplies Coburg Dairy and 
another Order 5 handler, opposed the suspension because it would allow 
the Kingsport plant to switch to Order 11 at the expense of the Order 5 
pool.
    The North Carolina Farm Bureau Federation, a general farm 
organization, objected to the proposed suspension on the grounds that 
regulation of the Kingsport plant under Order 11 would jeopardize the 
over-order prices in the Carolina market. The Federation indicated that 
eroding Class I premiums and lower Class I utilization were threatening 
the health of the dairy industry in North Carolina.
    Milk Marketing, Inc., a cooperative association with 688 dairy 
farmers under Order 46, stated that it had supported lock-in provisions 
in the past but that it was opposing the suspension that would keep 
Southern Belle regulated under Order 11 because its procurement area 
and sales area were the same.
    Finally, a comment opposing the suspension was submitted by Central 
Milk Producers Cooperative on behalf of all of its constituent 
cooperative members, with the exception of Mid-America Dairymen, Inc, 
the only CMPC member with dairy farmer members in the affected area. 
CMPC stated that it opposed the suspension because it ``circumvents the 
amendment process.'' It argued that the problems described above should 
have been handled through a formal rulemaking process.

5. The Need To Adopt This Suspension Pending an Amendatory Proceeding 
To Resolve These Issues in a More Permanent Manner

    After carefully evaluating the comments that were submitted, it 
must be concluded, on balance, that orderly marketing will be best 
preserved by adopting the proposed suspension, for a 12-month period 
only, to allow the industry time to develop proposals for a hearing to 
be held before the suspension period expires.
    There was only limited opposition to that portion of the suspension 
request that would permit the Southern Belle plant at Somerset, 
Kentucky, and the Armour Food Ingredients Company plant at Springfield, 
Kentucky, to remain pooled under the Tennessee Valley order, where they 
have been regulated since 1989 and 1992, respectively. The present 
suspension will remove a potential problem for both plants and will 
eliminate the need to move forward with an alternative suspension 
action (DA-93-26) that would have removed the net shipment provision of 
Order 46, an action opposed by both Milk Marketing, Inc., and The 
Kroger Company. (Commensurate with the issuance of this suspension 
order, the proceeding involving DA-93-26 is being terminated.)
    The primary objections to the suspension action centered on the 
situation faced by Land-O-Sun Dairy at Kingsport, Tennessee. Coburg 
Dairy and Edisto Milk Producers stated that ``the Kingsport plant has a 
lower Class I price than plants located in the Carolina marketing area 
* * * but the blend price at Kingsport under the Tennessee Valley 
marketing order is significantly greater than the blend price paid to 
Coburg's producers'' and that ``handlers with a lower federal order 
cost of milk procurement, but whose producers receive more by way of 
the blend price, should not be permitted to compete against a handler 
with higher milk procurement costs, but whose producers receive less by 
way of the blend price.''
    The Class I price at Kingsport, Tennessee, is identical under 
Orders 5 and 11. Under Order 5, the price increases to the east and 
southeast of Kingsport reflecting the higher value of milk that is 
consistent with a national pattern of higher milk prices as distance 
increases from the surplus producing areas of Minnesota and Wisconsin. 
Consequently, the Order 5 Class I price applicable to Coburg Dairy at 
Charleston, South Carolina, is 46 cents higher than the Order 5 Class I 
price at Kingsport, Tennessee. This difference in Class I price would 
apply regardless of whether Land-O-Sun was regulated under Order 5 or 
Order 11.
    In December 1993, the Order 5 Class I price was $15.23 at Kingsport 
and $15.69 at Charleston. The Order 5 blend price that producers would 
have received, if the order did not have a base-excess plan, reflected 
this same location difference: $14.65 at Kingsport and $15.11 at 
Charleston.
    The blend price under Order 11 in December 1993 was $14.76, eleven 
cents higher than the Order 5 price at Kingsport that month, but 35 
cents below the blend price at Coburg Dairy in Charleston. 
Consequently, it is simply not correct that Coburg pays a higher Class 
I price but that its producers receive a lower blend price. On the 
contrary, Coburg's producers would receive a higher blend price than 
Land-O-Sun's producers whether Land-O-Sun was regulated under Order 5 
or Order 11. The difference would be less if Land-O-Sun were regulated 
under Order 11.
    The comments of Peeler Jersey Farms, Inc., of Gaffney, South 
Carolina, suggest that shifting the Land-O-Sun plant from Order 5 to 
Order 11 would unfairly impact them economically. Peeler also 
questioned the finding that the suspension would not have a significant 
impact on a substantial number of small entities.
    Like Coburg Dairy, Peeler Jersey Farms has a higher Class I price 
applicable at its location than is applicable at Kingsport. This 
difference of 31 cents in the Class I price would apply whether the 
Kingsport plant was regulated under Order 5 or Order 11. Under Order 5, 
this 31-cent location adjustment is also reflected in the blend price 
at Gaffney as compared to Kingsport.
    Regulation of the Land-O-Sun plant under Order 11 will not have a 
significant economic impact on either Coburg Dairy, Edisto Milk 
Producers, or Peeler Jersey Farms. However, keeping the Land-O-Sun 
plant regulated under Order 5 will have a serious impact on its ability 
to maintain a milk supply in competition with nearby Order 11 handlers.
    A review of the almost 60-year history of the Federal order program 
clearly highlights the continuously evolving nature of the dairy 
industry and the necessity of the market order program to keep up with 
changes in the industry. The price discrepancies leading to this 
suspension request suggest that the regulatory framework in this area 
has not kept pace with the realities of the marketplace.
    In administering the Federal milk order program, the Department 
cannot be insensitive to those who would be unfairly impacted by its 
regulation. The price that is established for a handler may dictate 
whether the handler can maintain a viable business operation.
    In response to those who argue that the Department is engaging in 
rulemaking with this action, we would emphasize that this is a 
temporary measure taken to give the industry time to submit proposals 
for a more permanent solution to these problems. We agree with those 
who stated that the best way to keep current with changes in the 
marketplace is through a hearing process where all parties have an 
opportunity to build a comprehensive record on the matters. However, 
knowing that situations can change quickly or temporarily, Congress 
gave the Secretary the authority to suspend order provisions for 
temporary periods to handle situations in which the order is no longer 
effectuating the declared objectives of the Act.
    We now find ourselves in such a situation. The regulatory program 
may have fallen behind the realities of the marketplace, and time is 
needed to explore possible approaches to deal with these concerns. For 
this reason, we are limiting this suspension to 12 months only. This 
should provide the industry with time to develop and submit proposals 
for a hearing on the appropriate regulatory structure in the marketing 
areas covered by Orders 5, 11, and 46. In the meantime, we believe that 
this suspension will remove the immediate potential of disorderly 
marketing conditions while an amendatory proceeding moves forward.
    It is hereby found and determined that thirty days' notice of the 
effective date hereof is impractical, unnecessary, and contrary to the 
public interest in that: (a) The suspension is necessary to reflect 
current marketing conditions and to assure orderly marketing conditions 
in the marketing area;
    (b) This suspension does not require of persons affected 
substantial or extensive preparation prior to the effective date; and
    (c) Notice of proposed rulemaking was given to interested parties, 
and they were afforded opportunity to file written data, views, or 
arguments concerning this suspension.
    Therefore, good cause exists for making this order effective March 
1, 1994.

List of Subjects in 7 CFR Parts 1005, 1007, 1011, and 1046

    Milk marketing orders.

    For reasons set forth in the preamble, Title 7, parts 1005, 1007, 
1011, and 1046, are amended as follows:
    1. The authority citation for 7 CFR parts 1005, 1007, 1011, and 
1046 continues to read as follows:

    Authority: Secs. 1-19, 48 Stat. 31, as amended; 7 U.S.C. 601-
674.

PART 1005--MILK IN THE CAROLINA MARKETING AREA


Sec. 1005.7  [Temporarily suspended in part]

    2. In Sec. 1005.7(d)(3), the words ``from'', ``there'', ``a greater 
quantity of route disposition, except filled milk, during the month'', 
and ``than in this marketing area'' are suspended from March 1, 1994, 
through February 28, 1995;

PART 1007--MILK IN THE GEORGIA MARKETING AREA


Sec. 1007.7  [Temporarily suspended in part]

    3. In Sec. 1007.7(e)(3), the words ``, except as provided in 
paragraph (e)(4) of this section,'' are suspended from March 1, 1994, 
through February 28, 1995;
    4. In Sec. 1007.7, paragraph (e)(4) is suspended from March 1, 
1994, through February 28, 1995;

PART 1011--MILK IN THE TENNESSEE VALLEY MARKETING AREA


Sec. 1011.7  [Temporarily suspended in part]

    5. In Sec. 1011.7(d)(3), the words ``from'', ``there'', ``a greater 
quantity of route disposition, except filled milk, during the month'', 
and ``than in this marketing area'' are suspended from March 1, 1994, 
through February 28, 1995; and

PART 1046--MILK IN THE LOUISVILLE-LEXINGTON-EVANSVILLE MARKETING 
AREA


Sec. 1046.2  [Temporarily suspended in part]

    6. In Sec. 1046.2 of the Louisville-Lexington-Evansville order, the 
word ``Pulaski'' is suspended from March 1, 1994, through February 28, 
1995.

    Dated: March 28, 1994
Patricia Jensen,
Acting Assistant Secretary Marketing and Inspection Services.
[FR Doc. 94-7840 Filed 3-31-94; 8:45 am]
BILLING CODE 3410-02-P