[Federal Register Volume 59, Number 228 (Tuesday, November 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29067]


[[Page Unknown]]

[Federal Register: November 29, 1994]


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Part III





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 1007




Milk in the Georgia and Certain Other Marketing Areas; Recommended 
Decision and Opportunity To File Written Exceptions on Proposed 
Amendments to Tentative Marketing Agreement and To Order; Proposed Rule
DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1007

[Docket Nos. AO-366-A36, et al.; DA-93-21]

 
Milk in the Georgia and Certain Other Marketing Areas; 
Recommended Decision and Opportunity To File Written Exceptions on 
Proposed Amendments to Tentative Marketing Agreement and To Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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        7 CFR part                Marketing area           Docket no.   
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1007......................  Georgia...................  AO-366-A36      
1093......................  Alabama-West Florida......  AO-386-A14      
1094......................  New Orleans-Mississippi...  AO-103-A56      
1096......................  Greater Louisiana.........  AO-257-A43      
1099......................  Paducah, Kentucky.........  AO-183-A45      
1108......................  Central Arkansas..........  AO-243-A46      
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SUMMARY: This recommended decision would combine five Federal milk 
order marketing areas with unregulated counties in Arkansas, Georgia, 
Mississippi, and Tennessee to form the Southeast marketing area. The 
decision is based on industry proposals to merge the individual 
marketing areas so as to more equitably divide the markets' proceeds in 
what essentially has become a single, large market with significantly 
overlapping sales and procurement areas.

DATES: Comments are due on or before December 29, 1994.

ADDRESSES: Comments (six copies) should be filed with the Hearing 
Clerk, Room 1083, South Building, United States Department of 
Agriculture, Washington, DC 20250.

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: This administrative action is governed by 
the provisions of Sections 556 and 557 of Title 5 of the United States 
Code and, therefore, is excluded from the requirements of Executive 
Order 12866.
    The 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. 
The amendments would promote orderly marketing of milk by producers and 
regulated handlers.
    The amendments to the rules proposed herein have been reviewed 
under Executive Order 12778, Civil Justice Reform. They are not 
intended to have a retroactive effect. If adopted, the proposed 
amendments would not preempt any state or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Agricultural Marketing Agreement Act of 1937, 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 provision of the 
order, or any obligation imposed in connection with the order is not in 
accordance with the law and requesting a modification of an 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 entry of the ruling.

Prior Documents in This Proceeding

    Notice of Hearing: Issued September 3, 1993; published September 
10, 1993 (58 FR 47653).
    Supplemental Notice of Hearing: Issued October 13, 1993; published 
October 15, 1993 (58 FR 53436).
    Extension of Time for Filing Briefs: Issued January 24, 1994; 
published February 3, 1994 (59 FR 5132).

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
recommended decision with respect to proposed amendments to the 
tentative marketing agreements and the orders regulating the handling 
of milk in the Georgia and certain other marketing areas. This notice 
is issued pursuant to the provisions of the Agricultural Marketing 
Agreement Act and the applicable rules of practice and procedure 
governing the formulation of marketing agreements and marketing orders 
(7 CFR part 900).
    Interested parties may file written exceptions to this decision 
with the Hearing Clerk, U.S. Department of Agriculture, Washington, DC 
20250, by the 30th day after publication of this decision in the 
Federal Register. Six copies of the exceptions should be filed. All 
written submissions made pursuant to this notice will be made available 
for public inspection at the office of the Hearing Clerk during regular 
business hours (7 CFR 1.27(b)).
    The proposed amendments set forth below are based on the record of 
a public hearing held in Atlanta, Georgia, on November 1-5, 1993, 
pursuant to notices of hearing issued September 3, 1993 (58 FR 47653), 
and October 13, 1993 (58 FR 53436).
    The material issues on the record of hearing relate to:
    1. Interstate commerce, merger of marketing areas under one order, 
and expansion of the marketing area.
    2. Provisions of the merged order with respect to:
    (a) Milk to be priced and pooled;
    (b) Classification of milk;
    (c) Pricing of milk;
    (d) Payments to producers; and
    (e) Administrative provisions.

Findings and Conclusions

    The following findings and conclusions on the material issues are 
based on evidence presented at the hearing and the record thereof:

1. Interstate Commerce, Merger of Marketing Areas Under One Order, and 
Expansion of the Marketing Area

    The handling of milk in the proposed merged and expanded marketing 
area is in the current of interstate commerce and directly burdens or 
obstructs interstate commerce in milk and milk products. Interstate 
commerce is involved in both the procurement and sales of fluid milk 
and dairy products by handlers operating plants in the proposed 
marketing area.
    The record evidence clearly shows the movement of bulk milk from 
Georgia to Alabama and Tennessee; from Alabama to Georgia, Mississippi, 
Louisiana, and Tennessee; from Louisiana to Texas, Mississippi, and 
Alabama; from Texas to Arkansas, Louisiana and Mississippi; from 
Tennessee to Georgia, Alabama, Kentucky, and Mississippi; from Kentucky 
to Alabama, Mississippi, and Tennessee; and from Arkansas to Georgia, 
Tennessee, and Mississippi. In addition, the record indicates that 
packaged fluid milk products regularly move across States into each of 
the separate marketing areas involved in this proceeding.
    The proposed merged and expanded marketing area, designated as the 
``Southeast'' marketing area, is shown on the map entitled ``Southeast 
Marketing Area.\1\ Table No. 1 is a map guide for the plants that 
correspond to the numbers shown on the map. The proposed Southeast 
marketing area includes the present adjacent marketing areas of Orders 
7, 93, 94, and 96; the Central Arkansas (Order 108) marketing area; the 
northeastern Georgia county of Rabun; the northwestern Mississippi 
counties of Canola, De Soto, Lafayette, Marshall, Tate, and Tunica; all 
of the territory within the State of Tennessee that is not included 
within the Tennessee Valley Federal marketing area; and all of the 
presently unregulated counties in the State of Arkansas. The proposed 
merged order would use the part number for the present Georgia order, 
part 1007. The amended Part 1007, upon issuance, would supersede Parts 
1093, 1094, 1096, and 1108.
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    \1\For a copy of the map, contact the person listed in ``For 
Further Information Contact'' at the beginning of this preamble.
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    Although the present five orders would no longer exist upon 
effectuation of the Southeast order, this merger action is not intended 
to preclude the completion of those procedures that would otherwise 
have existed under the separate orders with respect to milk handled 
prior to the effective date of the merger. Such procedures, which would 
need to be carried out after the merger date, include the announcement 
of certain class prices, submission of reports, computation of uniform 
prices, payment of obligations and verification activities. The 
provisions of the merged order would apply only to that milk handled 
after the effective date of the merger.

                   Table No. 1.--Map Guide for Plants Located in the Southeast Marketing Area                   
----------------------------------------------------------------------------------------------------------------
              No.                               Plant name                          Location              Zone  
----------------------------------------------------------------------------------------------------------------
1.............................  Foremost Dairy, Inc......................  Shreveport, LA............          7
2.............................  Borden, Inc..............................  Monroe, LA................          7
3.............................  Borden, Inc..............................  Lafayette, LA.............         12
4.............................  Borden, Inc..............................  Baton Rouge, LA...........         12
5.............................  Dairy Fresh of Louisiana.................  Baker, LA.................         12
6.............................  Kleinpeter Farms Dairy...................  Baton Rouge, LA...........         12
7.............................  Mid-America Dairymen, Inc................  Kentwood, LA..............         11
8.............................  Dairymen, Inc............................  Franklinton, LA...........         11
9.............................  Superbrand Dairy Products, Inc...........  Hammond, LA...............         12
10............................  Barbe's Dairy............................  Westwego, LA..............         12
11............................  Schepps-Foremost.........................  New Orleans, LA...........         12
12............................  McClendon Cheese.........................  Booneville, MS............          4
13............................  Avent's Dairy, Inc.......................  Oxford, MS................          4
14............................  Barber Pure Milk Company.................  Tupelo, MS................          4
15............................  Brookshire Dairy Prod., Inc..............  Columbus, MS..............          6
16............................  LuVel Dairy Prod., Inc...................  Kosciusko, MS.............          6
17............................  Flav-O-Rich, Inc.........................  Canton, MS................          7
18............................  Borden, Inc..............................  Jackson, MS...............          8
19............................  McClendon Cheese.........................  Newton, MS................          8
20............................  Dairy Fresh Corporation..................  Hattiesburg, MS...........         10
21............................  Shoals Cheese............................  Florence, AL..............          4
22............................  Dasi Products, Inc.......................  Decatur, AL...............          4
23............................  Meadow Gold Dairies, Inc.................  Huntsville, AL............          4
24............................  Meadow Gold Dairies, Inc.................  Gadsden, AL...............          5
25............................  Barber Pure Milk Company.................  Oxford, AL................          6
26............................  Baker and Sons Dairy.....................  Birmingham, AL............          6
27............................  Barber Pure Milk Company.................  Birmingham, AL............          6
28............................  Barber Ice Cream.........................  Birmingham, AL............          6
29............................  Flav-O-Rich Ice Cream....................  Sylacauga, AL.............          6
30............................  Dairy Fresh Ice Cream....................  Greensboro, AL............          7
31............................  McClendon Cheese.........................  Uniontown, AL.............          7
32............................  Superbrand Dairy Products, Inc...........  Montgomery, AL............          8
33............................  Flav-O-Rich, Inc.........................  Montgomery, AL............          8
34............................  Barber Pure Milk Company.................  Montgomery, AL............          8
35............................  Dairy Fresh Corporation..................  Cowarts, AL...............         10
36............................  Barber Pure Milk Company.................  Mobile, AL................         12
37............................  Dairy Fresh Corporation..................  Prichard, AL..............         12
38............................  Southern Ice Cream.......................  Marrietta, GA.............          6
39............................  Kraft....................................  Atlanta, GA...............          6
40............................  Peeler Jersey Farms, Inc.................  Athens, GA................          6
41............................  New Atlanta Dairies, Inc.................  Atlanta, GA...............          6
42............................  Flav-O-Rich, Inc.........................  Atlanta, GA...............          6
43............................  Borden, Inc..............................  Macon, GA.................          7
44............................  Kinnett Dairies, Inc.....................  Columbus, GA..............          7
45............................  Kinnett Ice Cream........................  Columbus, GA..............          7
46............................  Hershey Chocolate, U.S.A.................  Savannah, GA..............          9
47............................  Fleming Companies, Inc...................  Nashville, TN.............          2
48............................  Meadow Gold Ice Cream....................  Nashville, TN.............          2
49............................  Purity Dairies, Inc......................  Nashville, TN.............          2
50............................  Cumberland Creamery, Inc.................  Antioch, TN...............          2
51............................  Heritage Farms Dairy.....................  Murfreesboro, TN..........          2
52............................  Dairymen, Inc............................  Lewisburg, TN.............          2
53............................  Turner Dairies...........................  Covington, TN.............          2
54............................  Forest Hill Dairy........................  Memphis, TN...............          3
55............................  Harbin Mix...............................  Memphis, TN...............          3
56............................  Borden, Inc..............................  Little Rock, AR...........          4
57............................  Coleman Dairy............................  Little Rock, AR...........          4
58............................  Gold Star Dairy, Inc.....................  Little Rock, AR...........          4
59............................  Humphrey's Dairy.........................  Hot Springs, AR...........          4
----------------------------------------------------------------------------------------------------------------

    The marketing area proposed herein is a combination of several of 
the proposals presented at the hearing. A group of four cooperative 
associations, comprised of Dairymen, Inc., Gulf Dairy Association, 
Inc.,\1\a Southern Milk Sales, Inc., and Carolina Virginia Milk 
Producers Association, Inc., proposed the merger of the marketing areas 
of Orders 7, 93, 94, 96, together with the former Nashville, Tennessee 
(Order 98), marketing area,\2\ and the four unregulated Tennessee 
counties of Franklin, Lincoln, Moore, and Van Buren. In this decision, 
these cooperatives will be referred to as the ``cooperative 
coalition,'' and their proposal will be referred to as Proposal No. 1. 
At the time of the hearing, these groups represented approximately 54 
percent of the producers and 55 percent of the milk pooled under Orders 
7, 93, 94, and 96.
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    \1\aEffective March 1, 1994, and September 1, 1994, Gulf 
Dairy Association and Dairymen, Inc., respectively, became part of 
Mid-America Dairymen, Inc. (Mid-Am).
    \2\Official notice is taken of the termination of the former 
Memphis, Tennessee (Part 1097), and Nashville, Tennessee (Part 1098) 
Federal milk marketing orders effective July 31, 1993. The marketing 
areas of these former orders may be found in Secs. 1097.2 and 1098.2 
of 7 CFR, revised as of January 1, 1992 and 1993, respectively.
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    Malone & Hyde Dairy (aka Fleming Dairy), Nashville, Tennessee, 
proposed expanding the area proposed by the cooperative coalition by 
including the one remaining unregulated county in Georgia (i.e., Rabun 
County), the six unregulated counties between the Tennessee Valley 
marketing area and the former Nashville marketing area (four of which 
were also included in Proposal No. 1), the former Memphis, Tennessee 
(Order 97), marketing area, and the remaining unregulated Tennessee 
counties that are bordered on the east by former Order 98, on the west 
by former Order 97, on the north by Order 99, and on the south by Order 
94. Malone & Hyde Dairy hereinafter will be referred to as ``Fleming 
Dairy,'' and their proposal will be referred to as Proposal No. 9.
    Arkansas Dairy Cooperative Association, Inc., which also will be 
referred to as ``ADCA,'' proposed including the Central Arkansas 
marketing area and the former Memphis marketing area in the merged 
order proposed by the cooperative coalition. Their proposal will be 
referred to as Proposal No. 2.
    Finally, Associated Milk Producers, Inc., or ``AMPI,'' proposed and 
testified in support of a proposal (i.e., Proposal No. 13) to merge the 
former Memphis marketing area with the Paducah, Kentucky, and Central 
Arkansas marketing areas to form a ``Mid-South'' marketing area. Under 
this proposal, the marketing area also would include all presently 
unregulated counties in Arkansas, the unregulated Missouri county of 
Dunklin, and the two unregulated Texas counties of Bowie and Cass.
Testimony in Support of Proposal No. 1
    The Vice President of Dairymen, Inc., testified on behalf of the 
cooperative coalition in support of Proposal No. 1.
    The thrust of his testimony was that fluid milk processors in the 
proposed merged marketing area had increasingly expanded their 
distribution to serve larger geographic areas and, as a result, a 
larger order is now needed to maintain market stability, to insure that 
producers in the proposed marketing area would be able to share pro 
rata in the classified uses of their milk, and to provide assurance to 
handlers that their competitors were paying at least the order's 
minimum prices regardless of where their milk supply originated.
    He also stated that a merged order was in the public's interest 
because it would establish orderly marketing conditions for producers 
and handlers in the marketing area and assure a continuing, adequate 
supply of high quality milk.
    The Chairman of the Louisiana Dairy Advisory Committee of the 
Louisiana Farm Bureau Federation testified that the proposal was 
significant because it could eliminate price disparities among 
producers in the Southeast, facilitate the movement of milk to where it 
is needed, and provide a more equitable sharing among producers of 
higher valued fluid milk sales.
    The division manager for milk procurement for The Kroger Company 
testified that Heritage Farms Dairy, a Kroger Company plant located in 
Murfreesboro, Tennessee, also expressed qualified support for the 
merger of milk orders in the Southeast, but said that Proposal No. 1 
fell short of addressing all the problems or answering all the 
questions facing Federal milk marketing orders in the Southeast. He 
said that markets not contained in this proceeding present challenges 
that need to be addressed at a future hearing.
Testimony in Opposition to Proposal No. 1
    A consultant for Barber Pure Milk Company and Dairy Fresh 
Corporation, testified that Barber Pure Milk Company, a handler under 
Orders 7, 93, and 94, and Dairy Fresh Corporation, a handler under 
Orders 7, 93, 94, and 96, opposed Proposal No. 1 because it did not 
include Orders 5 (Carolina) and 11 (Tennessee Valley). He stated that, 
in May 1993, 52 percent of all Class I sales in the Order 7 marketing 
area were made by plants pooled on other orders, with 26.4 percent and 
11.6 percent from Orders 5 and 11, respectively.
    With respect to raw milk procurement, the Barber/Dairy Fresh 
spokesman testified that Order 7 and 93 handlers competed with Order 5 
and 11 handlers for their milk supply. Because of the intermingling of 
producers among these orders, the milk of some producers is shipped 
alternatively between Orders 7 and 5 handlers, he said, and differences 
in utilization in these markets result in different pay prices for milk 
of neighboring producers, creating instability in the milk supply. 
Further, to create a large marketing area including most of five or six 
states with small orders nearby could lead to undesirable pooling 
practices, he added.
    A representative for Kinnett Dairies (Kinnett) in Columbus, 
Georgia, testified that Kinnett purchased raw milk from a group of 
independent producers located in Georgia, Alabama, and Tennessee, and 
also purchased a portion of its raw milk needs from Carolina-Virginia 
Milk Producers Association, Charlotte, North Carolina. He stated that 
while Kinnett generally supported the concept of merging Federal Orders 
7, 93, 94, and 96, with the area covered by the terminated Nashville 
order, it was opposed to Proposal No. 1 because it did not include the 
Tennessee Valley and Carolina orders (Orders 11 and 5, respectively). 
He explained that in August 1993--after the Kroger plant at 
Murfreesboro, Tennessee, and the Fleming Dairy plant at Nashville, 
Tennessee, became regulated under Order 7--35.4 percent of the Class I 
disposition on Order 7 was marketed by other order distributing plants. 
He pointed out that this was a higher percentage of other order Class I 
sales than that accounted for by any of the other orders involved in 
the merger proceeding.
Testimony in Support of Proposal No. 9
    The assistant operations manager for Fleming Dairy, Nashville, 
Tennessee, testified in support of Proposal No. 9. He explained that 
the Fleming Company operated two distributing plants: One plant located 
in Nashville, Tennessee, and a second plant located in Baker, 
Louisiana, which is jointly owned with Dairy Fresh of Alabama.
    The Fleming spokesman testified that Fleming's Nashville plant 
distributed approximately 25 million pounds of Class I and Class II 
dairy products per month in the former Nashville and Memphis Federal 
order marketing areas, as well as in the marketing areas of Order 46 
(Louisville-Lexington-Evansville), Order 99 (Paducah), Order 108 
(Central Arkansas), Order 106 (Southwest Plains), Order 94 (New 
Orleans-Mississippi), Order 93 (Alabama-West Florida), Order 6 (Upper 
Florida), Order 7 (Georgia), Order 5 (Carolina), and Order 11 
(Tennessee Valley). He stated that Fleming procured most of its raw 
milk supply from dairy farmers located in central Tennessee and south 
central Kentucky, with approximately 55 percent of Fleming's raw milk 
supply purchased from Kentucky dairy farmers and 45 percent purchased 
from Tennessee dairy farmers. In addition to purchasing milk from 
independent producers, Fleming purchases raw milk from Carolina-
Virginia Milk Producers and other dairy cooperatives and proprietary 
handlers, he added.
    The witness testified that a southeast merger which does not 
include the Chattanooga area will result in blend price differences 
between the Tennessee Valley order and the new Southeast order which 
will cause problems where the two orders' procurement areas overlap. He 
said the Department should address this potential problem of blend 
price differences by considering the merger of the Louisville order 
with the Tennessee Valley order and possibly the Carolina order in the 
very near future and that the implementation of such a merger should 
coincide with the merger of other Federal orders in the Southeast.
    The Fleming spokesman stated that the former Memphis marketing area 
should be included in the merged order because Fleming Dairy has 
significant sales in that area. However, the merged order should not 
include several Kentucky counties in former Order 98, he said, because 
those counties do not have a significant level of milk sales from 
Nashville distributing plants. He stated there were no distributing 
plants in that area, but there was a cheese plant there that could 
attach unnecessary milk to the market if that plant was in the 
marketing area.
Testimony in Support of Proposal No. 2 and in Opposition to Proposal 13
    The general manager of the Arkansas Dairy Cooperative Association, 
Incorporated, testified that ADCA, which has 113 dairy farmer members 
located within the State of Arkansas, was formed in 1991 by its members 
to provide an alternative to Associated Milk Producers, Inc. (AMPI), 
the only outlet then available for their milk. He indicated that ADCA 
sold its milk to the Borden, Incorporated, plant in Little Rock, the 
Turner Dairies plants in Memphis and Covington, Tennessee, and the 
Turner Dairy plant in Fulton, Kentucky.
    The witness stated that ADCA supported the merger of Orders 7, 93, 
94, 96, 97, 98, and 108, and that ADCA also supported the inclusion of 
presently unregulated counties south and west of the present Central 
Arkansas marketing area, as well as two unregulated Arkansas counties 
(Mississippi and Crittenden) on the eastern edge of the Central 
Arkansas marketing area. He said that the sales of Little Rock plants 
in the former Memphis area and the overlap of procurement areas for the 
two markets supported the adoption of ADCA's proposal.
    The ADCA spokesman indicated that a larger merged market would 
provide market and regulatory stability for ADCA in the future. He 
emphasized that since ADCA's formation, AMPI had successfully 
terminated the Memphis order, attempted to terminate the Paducah order, 
terminated the base-excess plan on Order 108, and now was attempting to 
establish a new Mid-South order which it could dominate.
    The witness stated that with AMPI's proposed Mid-South order, ADCA 
would be at the whim of AMPI management with respect to whether there 
is an order at all, or for how long there is an order. He said that 
situation would be intolerable for ADCA and would create highly 
disorderly marketing conditions. He concluded that a seven-market 
(i.e., including former Orders 97 and 98) merged order would eliminate 
this problem.
    A dairy farmer from Guy, Arkansas, who farms 300 acres and milks 
200 cows, also testified in support of the inclusion of Central 
Arkansas in the merged southeastern order and in opposition to the 
AMPI's proposal to form a Mid-South order. The witness, who is the 
immediate past president of the Board of Directors of Arkansas Dairy 
Cooperative Association, Inc., stated that he was speaking on behalf of 
himself, the ADCA Board of Directors, and the 113 members of ADCA.
Testimony in Support of Proposal No. 13
    A spokesman representing the Associated Milk Producers, 
Incorporated, Southern Region, Arlington, Texas, stated that his 
testimony in support of Proposal No. 13 was on behalf of the Southern 
Region of AMPI, Mid-America Dairymen, Inc. (Mid-Am), and Dairymen, Inc. 
(DI), co-proponents of Proposals 13, 14, and 15.
    The AMPI spokesman testified that in September 1993 AMPI pooled 
18.4 million pounds of milk in the Central Arkansas market, a quantity 
which represented 50.1 percent of the milk pooled on the order during 
that month. He said the 387 AMPI members who produced that milk 
represented about 69 percent of the total number of dairy farmers on 
the market during September.
    According to the witness, AMPI supplied the Turner Dairy Covington 
plant, which, since the termination of Order 97, had been a partially 
regulated distributing plant. He said that in September 1993 AMPI 
supplied about 3.2 million pounds of milk to the Covington plant but 
could not divert the milk of any producer from the plant because it was 
not a fully regulated facility.
    The witness also testified that AMPI provided supplemental milk to 
the Turner plant in Fulton, Kentucky, jointly with D.I. and Mid-Am. 
During September 1993, he said the three cooperatives supplied about 
5.2 million pounds of the milk required by Turner to operate the Fulton 
facility.
    The AMPI representative said that the supply situation at the 
Fulton facility had changed significantly in recent years. He noted 
that through 1982 the plant was completely supplied and balanced by 
cooperative milk and that beginning in 1983 a total of 4.41 percent of 
the milk came from independent producers. The percentage of supply to 
the Fulton facility increased every year since then, he said, except 
for 1986. For the first 10 months of 1993, the percentage of 
independent supply was almost 47 percent of the handlers' needs, he 
added. He stressed that although the Turner plant had changed its 
source of supply over the last 10 years, the facility continued to rely 
on cooperative associations to balance its supply.
    The AMPI witness pointed out that throughout 1993 most of the 
Fulton supply originated from Kentucky, Missouri, and Tennessee. In 
September 1993, he noted, 93.5 percent of the Fulton supply came from 
these areas.
    The spokesman also observed that Exhibits 5 and 31, which contain 
data introduced by the market administrators of the respective orders, 
indicate a significant overlap in procurement among the areas proposed 
for merger. He noted that in May 1993, for instance, 8.2 million pounds 
of the 22.1 million pounds of producer milk pooled on the Memphis order 
came from Arkansas producers (just over 37 percent) and that another 30 
percent came from nearby Tennessee counties from which 6.6 million 
pounds of milk were pooled on the Central Arkansas order.
    With respect to the Central Arkansas order, the witness testified 
that in May 1993 about 6.5 percent of the producer milk originated in 
nearby counties in Kentucky and Tennessee while 69.1 percent of the 
producer milk pooled on the order originated in Arkansas. Most of the 
remainder of the milk originated in Missouri and Texas, he said.
    The AMPI spokesman testified that route disposition in the Memphis 
area has generally consisted of fluid milk products from about ten 
handlers under other Federal orders. He said that handlers regulated 
under Orders 99 and 108 consistently distribute fluid milk products on 
routes in the Memphis area.
    In Central Arkansas, route disposition from handlers regulated 
under other Federal orders, including Memphis and Paducah, has ranged 
from 28.7 percent in January 1990 to 49.6 percent in March 1993, 
according to the witness. He noted that specific percentages for route 
disposition by Order 97 and 99 handlers cannot be included because less 
than three handlers are involved.
    With respect to the Paducah order, the witness said that at the 
current time that order operates as an individual-handler pool and 
that, as such, the order promotes instability among similarly situated 
producers because blend prices under the Paducah order exceed 
significantly those of surrounding orders. Surrounding markets must 
carry the burden of balancing the supply of the single plant operator 
under that order, he said.
    The witness testified that blend prices generated under the Paducah 
order are unreasonable given the significant overlap of supply and 
distribution patterns that exist today. He said the situation was very 
similar to that of the Milwaukee individual handler pool prior to its 
inclusion in the Chicago Regional pool in 1968 and referenced the final 
decision (33 FR 7516) in that proceeding.
    The AMPI spokesman testified that a situation similar to that 
described in the 1968 decision is currently at play in the Paducah milk 
market. He said under the proposed Mid-South order, however, producers 
will share pro rata in the returns from the sale of milk utilized in 
all classes; all producers will carry their fair share of lower prices 
of reserve milk not needed at any particular time for fluid purposes.
    The witness indicated that the fluid sector of the dairy industry 
has evolved to fewer, but larger, handlers who distribute their 
products over an increasingly larger territory. He predicted that this 
trend will likely continue in the future. He concluded that whenever 
consolidation of areas is considered, the Department must look at the 
area where the significant majority of the overlap occurs in sources 
and in distribution to delineate merged marketing areas.
Testimony in Opposition to Proposal No. 13
    Two dairy farmers from Martin, Tennessee (Weakley County), 
testified in opposition to the merger of Order 99 with any other order. 
Both of these witnesses indicated that they were independent dairy 
farmers delivering their milk to the Turner plant in Fulton, Kentucky. 
They stated that they were opposed to making any change to Order 99 
because it would lower the price to dairy farmers delivering milk to 
the Fulton plant.
Testimony in Support of Other Merger Combinations
    A consultant appearing on behalf of Southern Foods Group, Inc. 
(SFG), testified that SFG supported the widest possible merger of 
orders under consideration. He said the proposed marketing area should 
include not only the area covered by Proposal 1, but also the marketing 
area proposed for inclusion by both Proposals 2 and 9. He stated that 
there was ample evidence of milk handlers from those additional areas 
(i.e., former Order 97 and Order 108) competing with handlers in the 
marketing area encompassed by Proposal 1 to support the inclusion of 
those areas in the merged order.
    This witness testified that SFG owns and operates six fluid 
processing plants in Texas and Louisiana. The plants owned by SFG in 
Louisiana are the Foremost operation in Shreveport (regulated under 
Order 96) and the Brown's Velvet plant in New Orleans, which is 
regulated by Order 94.
    The witness introduced a table showing the ratio of other order and 
partially regulated plants to pool distributing plants. He pointed out 
that the table showed that the ratio is greater than 2:1 for all of the 
present orders under consideration at this hearing, except for Greater 
Louisiana. The Georgia order had a better than 6:1 ratio, he said, 
while Memphis and Central Arkansas had 5:1 and 3:1 ratios, 
respectively.
    The SFG spokesman stated that there was ample justification for a 
single large order based solely on the existing inter-order handler 
competition, the ratio of nonpool to pool plants in the separate 
orders, and the volume of out-of-area shipments packaged products as 
shown in hearing exhibits. He said the Department should not create a 
new merged order without including all areas which are logically part 
of it, particularly if that would leave small orders right on the 
border of the new large order.
    The witness also focused on the ability of the market administrator 
to collect and disseminate meaningful statistical data as a basis for 
supporting a merger of orders. He pointed out that confidentiality 
rules do not permit the market administrator to publish data for a zone 
or an order if less than three regulated handlers are included in that 
zone or order. More meaningful data and less cumbersome data can be 
released for a merged marketing area, he concluded.
    The witness remarked that while SFG did not contest the idea of 
including Shreveport, Lake Charles, and the rest of western Louisiana 
in the new merged marketing area, it was important to note that 
handlers in Shreveport and Lake Charles sell significant quantities of 
milk into east Texas in competition with east Texas handlers and that 
east Texas handlers sell significant quantities of milk into western 
Louisiana.
    He also pointed out that the record data showed that significant 
quantities of bulk milk from Texas were received at Louisiana plants 
and that the surplus Texas milk was available for reserve use in 
Louisiana. The existence of that reserve supply, he said, is a factor 
in the analysis of proper pricing in the new proposed order.
    A spokesman testifying on behalf of Gold Star Dairy, Little Rock, 
Arkansas, stated that Gold Star supported the merger of the Federal 
orders based on the proposals before the Secretary. He emphasized that 
the proposed mergers in this hearing ``were not big enough for Gold 
Star,'' commenting that Gold Star's flexibility would be limited if it 
were not included in a much larger order.
    Goldstar's representative said that based upon September 
marketings, Gold Star would be pooled under the Texas order in the 
event of a five-order merger and would be regulated under the proposed 
Gulf States order in the event of a seven-market merger. It would not 
be pooled under the proposed Mid-South order based upon sales, he 
added. He cautioned, however, that much of Gold Star's sales are to 
wholesalers so that the loss of one customer could determine under 
which order the plant is regulated.
    The witness stated that Gold Star has a manufacturing plant in 
Clovis, New Mexico, in addition to its bottling plant in Little Rock. 
He said that the company also has a bottling agreement with the Flav-O-
Rich Company to distribute products out of their Atlanta, Georgia, 
facility.
    The witness indicated that Gold Star did not wish to be a high 
utilization plant regulated and pooled in a low utilization order 
because eventually it would be required to pay more for its milk. He 
added that Gold Star does not wish to be part of an order with a base-
excess plan because it would limit Gold Star's flexibility in obtaining 
supplemental supplies during the base-excess months. He said that the 
proposed base-excess plan, coupled with the proposed ``dairy farmer for 
other markets'' provision, potentially builds barriers to the movement 
of milk. Gold Star's unique location outside the marketing area makes 
it vulnerable to those barriers, he said. He remarked that the fact 
that such provisions are needed to protect year-round supplies from 
pool riders indicates that the merger is too small.
The Record Supports a Southeast Federal Milk Marketing Order
    The evidence in this record clearly indicates the need to merge all 
but one of the separate orders in this proceeding into a ``Southeast'' 
order that will encompass all of the existing marketing areas of these 
orders as well as the presently unregulated territory specified at the 
outset of this discussion.The basis for reaching this conclusion is 
threefold: (a) There is a clear overlap in milk production areas--not 
between every order with every other order, but significant enough to 
link the orders together; (b) there is a clear overlap in the 
distribution of packaged fluid milk products by handlers regulated 
under the individual orders; and (c) there is an obvious need to insure 
marketing stability for all producers within the proposed marketing 
area. Since there was overwhelming support for the merger of Orders 7, 
93, 94, 96, and former Order 98, and a clear unanimity of opinion 
expressed with regard to the overlap of milk production and sales in 
those areas, this discussion will focus primarily on the need to 
combine Proposals 1, 2, 9, and 13 to form one order comprised of 
existing orders 7, 93, 94, 96, and 108, the two orders terminated in 
1993 (Orders 97 and 98), and the unregulated territory in Georgia, 
Tennessee, and Arkansas.
    a. Overlap in milk production areas. The overlap in milk production 
areas among two or more orders often results in producer unrest and 
market instability when blend prices differ to any extent between the 
orders. This happens because producers are generally aware of the 
prices being received by their neighbors and seek to find the most 
lucrative market for themselves. Sometimes, this may result in a 
producer leaving the cooperative association with which he or she has 
been associated or switching from one proprietary handler to another. 
It may also result in producers entering into business relationships 
with handlers of questionable financial stability, which could lead to 
the problem of handler defaults described on the hearing record.
    The difference in two orders' blend prices at a particular location 
may be caused by a variety of factors, including order provisions, 
institutional factors, and the location of surplus manufacturing 
facilities, as well as obvious differences in class prices.
    In the States of Louisiana, Mississippi, Alabama, and Georgia, the 
blend prices are greatly influenced by the presence of DI's butter-
powder manufacturing plant at Franklinton, Louisiana, and Mid-America 
Dairymen Association's cheese plant at Kentwood, Louisiana, both of 
which are Order 94 pool plants that process surplus milk into lower 
valued Class III and III-A products. The influence of these plants on 
blend prices in this region is evident when comparing the difference in 
Class I utilization between Order 94 and its neighbors: Orders 7, 96, 
and 93. As can be seen from Table 2, in 1991 the average Class I 
utilization for Order 94 was 69.7 percent, compared to 74.6 percent for 
Order 7, 80.4 percent for Order 96, and 79.7 percent for Order 93. A 
similar comparison of the utilization percentages contained in Table 2 
shows that this pattern continued in 1992 and during the first seven 
months of 1993.

               Table 2.--Percent Class I Utilization of Producer Milk by Federal Order, 1991-1993               
----------------------------------------------------------------------------------------------------------------
                    Order 7    Order 93    Order 94    Order 96    Order 97    Order 98    Order 99    Order 108
----------------------------------------------------------------------------------------------------------------
1991............        74.6        79.7        69.7        80.4        73.7        80.2        78.6        73.3
1992............        76.5        76.9        68.2        78.9        69.2        80.8        82.6        63.9
1993\1\.........        80.4        76.1        59.1        69.9        59.8        80.4        87.4        58.7
----------------------------------------------------------------------------------------------------------------
\1\January-July.                                                                                                

    The extremely high utilization of the Paducah market (Order 99), 
which increased from 78.6 percent in 1991 to 87.4 percent during the 
first nine months of 1993, can be attributed to the fact that there is 
only one handler, Turner Dairy, with a pool plant under that order and 
to the institutional changes that have occurred in that market, 
particularly the growth of a non-member milk supply and a corresponding 
reduction in cooperative association milk. Consequently, the single 
plant operator in that market has an incentive to keep the utilization 
as high as possible so as to generate a high blend price for its non-
member producers. From a different perspective, it means keeping any 
reserve supplies associated with the plant to a minimum. This situation 
is far different from a market with manufacturing facilities, such as 
Order 94, which is handling a disproportionate share of the region's 
reserve supplies. It is noteworthy that as the Class I utilization of 
the Paducah order increased by 19 points from 1991 to 1993, the Class I 
utilizations of the neighboring Central Arkansas and Memphis orders 
dropped by 14 points.
    The differences in blend prices resulting from these utilizations 
can be seen in Table 3, which compares average blend prices for 1991, 
1992, and the first 7 months of 1993. With respect to Orders 97, 99, 
and 108, it should be noted that the higher Class I utilization for the 
Paducah order more than offset the fact that its Class I price was 38 
cents lower than the Class I price for Orders 108 and 97.

                               Table 3.--Blend Prices by Federal Order, 1991-1993                               
----------------------------------------------------------------------------------------------------------------
                    Order 7    Order 93    Order 94    Order 96    Order 97    Order 98    Order 99    Order 108
----------------------------------------------------------------------------------------------------------------
1991............   $13.35\1\   $13.71\1\      $13.51   $13.84\1\      $12.88      $12.75      $12.67      $12.90
1992............    14.64\1\    14.83\1\       14.63    15.01\1\       13.94       13.99       14.02       13.86
1993\2\.........    14.37\1\    14.52\1\       14.05    14.32\1\       13.31       14.03       13.62      13.32 
----------------------------------------------------------------------------------------------------------------
\1\Order 7 price adjusted to southern zone, Order 93 price adjusted to Zone IV, and Order 96 price adjusted to  
  Zone III to be comparable to Order 94, which is reported for the highest-priced, southernmost zone.           
\2\January-July.                                                                                                

    The blend prices shown in Table 3 for Orders 7, 93, and 96 were 
adjusted to the highest-priced, southernmost zone, to be comparable 
with the Order 94 blend price, which is reported in that way. The lower 
utilization of Order 94 is evidenced by its blend price, which is far 
below that of Order 93 on the east or Order 96 on the west.
    When price differences are related to location, there may be 
adequate grounds for justifying such differences. When they occur 
within a common production area, however, they cause market 
instability. Data in this record show many common production areas 
which are subject to significantly different blend prices.
    Production data in the record shows a heavy production area in 
southern Mississippi and in the ``Florida parishes'' of Louisiana north 
of New Orleans. Milk from this area moves to Orders 96, 94, and 93. The 
record also indicates there is a very pronounced overlap in production 
areas between Orders 7 and 93 throughout northern Georgia. The 
production area for the Georgia market also overlaps the procurement 
area for the former Nashville market in southeastern Tennessee. In 
addition, the counties throughout central Tennessee provide a 
significant share of the milk supply for Order 93 as well as former 
Order 98.
    Table 4 shows the number of counties in various States from which 
producer milk was supplied to various combinations of orders. The table 
shows, for example, that in May 1993 there were 14 Arkansas counties 
from which producer milk was supplied to Orders 97 and 108; that the 
Memphis and Paducah orders shared a common supply area in four 
Tennessee counties, four Kentucky counties, three Arkansas counties, 
and four counties in south central Missouri; and that, in aggregate, 
the production area for Orders 93 and 98 overlapped in 38 counties in 
four different States. Order combinations that were left out of the 
table--for example, 108/96--had no production counties in common.

                     Table 4.--Number of Counties in Designated States Providing Milk to Specified Federal Order Markets in May 1993                    
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        State                           97/108   97/98    97/99    97/94    108/94   108/99    7/93    93/94    94/96    93/98     7/98 
--------------------------------------------------------------------------------------------------------------------------------------------------------
AR...................................................       14  .......        3        3        3        3  .......  .......  .......  .......  .......
MO...................................................        8  .......        4        4        5        4  .......  .......  .......  .......  .......
TN...................................................  .......        1        4        2  .......  .......  .......        1  .......       26        5
KY...................................................  .......  .......        4        2  .......  .......  .......  .......  .......        2  .......
MS...................................................  .......  .......  .......        2  .......  .......  .......       20        7  .......  .......
GA...................................................  .......  .......  .......  .......  .......  .......       33  .......  .......        6       14
AL...................................................  .......  .......  .......  .......  .......  .......  .......        2  .......        4  .......
FL...................................................  .......  .......  .......  .......  .......  .......  .......        1  .......  .......  .......
LA...................................................  .......  .......  .......  .......  .......  .......  .......        1       19  .......  .......
TX...................................................  .......  .......  .......  .......  .......  .......  .......  .......        1  .......  .......
Total................................................       22        1       15       13        8        7       33       25       27       38       19
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In each of the overlapping production areas referenced above, a 
pricing disparity problem either presently exists or potentially could 
exist as a result of the difference in the blend prices prevailing in 
those areas. A single merged marketing area will largely eliminate this 
problem, but it will, of course, persist to some extent wherever the 
merged marketing area abuts a neighboring marketing area (i.e., the 
Texas order, the Southwest Plains order, the Louisville-Lexington-
Evansville order, the Tennessee Valley order, the Carolina order, and 
the Upper Florida order).
    b. Overlap in sales distribution areas. Market instability may 
occur when handlers in one marketing area have significant distribution 
in another order's marketing area. Problems may arise because of Class 
I price misalignment between orders resulting in an undue price 
advantage for a handler in another market. Problems also arise when a 
handler in one marketing area has enough sales in another order's 
marketing area to become regulated under such other order. If the blend 
prices differ significantly at the plant's location, the handler may be 
forced to pay over-order charges to maintain its local milk supply, 
which, in turn, could put it at a competitive disadvantage vis-a-vis 
its competitors in the marketing area where it is located.
    Data in the record indicate a significant overlap in distribution 
areas within the proposed Southeast marketing area.
    In August 1993, 37.5 percent of the route disposition in Order 108 
came from plants regulated under Orders 7, 49, (Indiana), 99, 106, and 
126. These sales came from the following plants:

                                                                        
------------------------------------------------------------------------
                 Plant/Location                       Federal order     
------------------------------------------------------------------------
Fleming Dairy, Nashville, Tennessee............  7                      
Heritage Farms, Murfreesboro, Tennessee........  7                      
Gold Star Dairy, Little Rock, Arkansas.........  126                    
Turner Dairies, Fulton, Kentucky...............  99                     
Others.........................................  106, 126, 49           
------------------------------------------------------------------------

    In July 1993, during the last month of the Memphis order, the 
percentage of route disposition represented by other order plants was 
30 percent of the total route disposition in the marketing area. These 
sales came from the following plants:

                                                                        
------------------------------------------------------------------------
                 Plant/Location                       Federal order     
------------------------------------------------------------------------
Fleming Dairy, Nashville, Tennessee............  98                     
Heritage Farms, Murfreesboro, Tennessee........  98                     
Gold Star Dairy, Little Rock, Arkansas.........  126                    
Turner Dairies, Fulton, Kentucky...............  99                     
Avents Dairy, Oxford, Mississippi..............  94                     
Borden, Inc., Little Rock, Arkansas............  108                    
Others.........................................  106, 126, 49           
------------------------------------------------------------------------

    The Paducah market also has an extremely high ratio of Class I 
sales represented by other order and partially regulated plants. In 
July 1993, 67 percent of the Class I sales in the Paducah marketing 
area originated from other order and partially regulated plants. These 
sales came from the following plants:

                                                                        
------------------------------------------------------------------------
                 Plant/Location                       Federal order     
------------------------------------------------------------------------
Fleming Dairy, Nashville, Tennessee............  98                     
Heritage Farms, Murfreesboro, Tennessee........  98                     
Purity Dairies, Nashville, Tennessee...........  98                     
Others.........................................  32, 46, 49             
------------------------------------------------------------------------

    In the Georgia marketing area, other order and partially regulated 
distributing plants accounted for nearly 34 million pounds of Class I 
sales in August 1993. These sales, which represented roughly 28 percent 
of the total Class I sales that month, came from the following plants:

                                                                        
------------------------------------------------------------------------
                 Plant/Location                       Federal order     
------------------------------------------------------------------------
Baker and Sons Dairy, Inc., Birmingham, AL.....  93                     
Barber Pure Milk Company, Birmingham, AL.......  93                     
Barber Pure Milk Company, Mobile, AL...........  93                     
Dairy Fresh Corporation, Cowarts, AL...........  93                     
Flav-O-Rich, Inc., Montgomery, AL..............  93                     
Meadow Gold Dairies, Inc., Gadsden, AL.........  93                     
Superbrand Dairy Products, Montgomery, AL......  93                     
Gold Star Dairy, Inc., Little Rock, AR.........  126                    
Others.........................................  2, 5, 6, 11, 13, 49,   
                                                  131                   
------------------------------------------------------------------------

    In the Alabama-West Florida market, Class I sales accounted for by 
other order and partially regulated plants in August 1993 totaled 15.4 
million pounds or 17 percent of total Class I sales that month. These 
sales came from the following plants:

                                                                        
------------------------------------------------------------------------
                 Plant/Location                       Federal order     
------------------------------------------------------------------------
Borden, Inc., Macon, Georgia...................  7                      
Flav-O-Rich, Inc., Atlanta, GA.................  7                      
Fleming Companies, Inc., Nashville, TN.........  7                      
Heritage Farms Dairy, Murfreesboro, TN.........  7                      
Flav-O-Rich, Inc., Atlanta, GA.................  7                      
Kinnett Dairies, Inc., Columbus, GA............  7                      
Superbrand Dairy Products, Inc., Greenville, SC  7                      
Avent's Dairy, Inc., Oxford, MS................  94                     
Barber Pure Milk Company, Tupelo, MS...........  94                     
Borden, Inc., Jackson, MS......................  94                     
Turner Dairies, Fulton, Kentucky...............  99                     
Gold Star Dairy, Inc., Little Rock, AR.........  126                    
Others.........................................  11, 46, 49, 131        
------------------------------------------------------------------------

    Class I sales by other order and partially regulated distributing 
plants in August 1993 accounted for 12 million pounds of Class I sales 
in the New Orleans-Mississippi marketing area or roughly 22 percent of 
the total Class I sales that month. These sales came from the following 
plants:

                                                                        
------------------------------------------------------------------------
                 Plant/Location                       Federal order     
------------------------------------------------------------------------
Fleming Companies, Inc., Nashville, TN.........  7                      
Heritage Farms Dairy, Inc., Murfreesboro, TN...  7                      
Barber Pure Milk Company, Mobile, AL...........  93                     
Brookshire Dairy Products Co., Columbus, MS....  93                     
Dairy Fresh Corporation, Prichard, AL..........  93                     
Flav-O-Rich, Montgomery, AL....................  93                     
Meadow Gold Dairies, Inc., Huntsville, AL......  93                     
Superbrand Dairy Products, Montgomery, AL......  93                     
Borden, Inc., Lafayette, Louisiana.............  96                     
Dairy Fresh of LA, Baker, LA...................  96                     
Kleinpeter Farms Dairy, Baton Rouge, LA........  96                     
Turner Dairies, Fulton, Kentucky...............  99                     
Forest Hill Dairy, Memphis, TN.................  108                    
Gold Star Dairy, Inc., Little Rock, AR.........  126                    
Others.........................................  13, 49, 139            
------------------------------------------------------------------------

    Finally, in August 1993, other order and partially regulated 
distributing plants accounted for 16.3 million pounds of Class I sales 
in the Greater Louisiana marketing area or roughly 40 percent of the 
total Class I sales that month. These sales came from the following 
plants:

                                                                        
------------------------------------------------------------------------
                 Plant/Location                       Federal order     
------------------------------------------------------------------------
Borden, Inc., Baton Rouge, LA..................  94                     
Borden, Inc., Jackson, MS......................  94                     
Brown's Velvet Dairy Prod, Inc., New Orleans...  94                     
Dairy Fresh Corp., Hattiesburg, MS.............  94                     
Superbrand Dairy Products, Inc., Hammond, LA...  94                     
Borden, Inc., Conroe, Texas....................  126                    
Borden, Inc., Tyler, Texas.....................  126                    
Gold Star Dairy, Inc., Little Rock, AR.........  126                    
Southwest Dairy, Tyler, Texas..................  126                    
Vandervoorts Dairy, Fort Worth, TX.............  126                    
------------------------------------------------------------------------

    The Class I sales data discussed above indicate clearly that each 
of the markets involved in this proceeding is closely integrated with 
neighboring Federal order markets. However, it still leaves open the 
question of how best to combine these orders because sales data alone 
do not provide sufficient guidance to answer this question.
    c. Market stability. The third factor that must be considered in 
determining the appropriate marketing area is the need to insure market 
stability, a prime objective of the Agricultural Marketing Agreement 
Act.
    The record testimony paints a picture of a rapidly evolving 
industry. The marketing of milk products continues to change with ever-
wider distribution areas, centralized operations, inter-handler 
marketing agreements, two-way containers, back-hauling arrangements, 
plant closings, and changes in ownership, among others. As handlers 
widen their distribution patterns, blend prices are buffeted by the 
changing Class I utilization that a large plant can cause in a 
marketwide pool. The shifting of a plant from one order to another can, 
and does, result in handlers being placed in a position where they can 
no longer hold on to their milk supply. Most of these changes were 
described in the record; some were not. Official notice is taken of the 
closing of Guth Dairy in Lake Charles, Louisiana; Acadia Dairy in 
Thibodaux, Louisiana; and Walker Resources in Metairie, Louisiana; and 
the minority financial interest acquired by Mid-America Dairymen, Inc., 
in Southern Foods Group effective February 17, 1994.
    On the producer side, there have also been significant changes in 
marketing arrangements. Producers have left their cooperative 
associations, formed new cooperative associations, and merged existing 
cooperatives. Official notice was previously taken of the merger of 
Gulf Dairy Cooperative Association and Mid-America Dairymen, Inc., 
effective March 1, 1994.
    The record evidence in this proceeding--specifically, the overlap 
of procurement and sales areas, together with the need for stability in 
a rapidly changing marketing environment--lead us to conclude that 
orderly marketing will best be served by a market that is large enough 
to equitably share the region's reserve supplies, to provide regulatory 
stability for the plants in this area, and to provide producers with 
the freedom to market their milk in whatever manner and to whomever 
they wish.
    Although there are many instances of plants that are located in one 
market, but regulated in another market, there are also many price 
alignment problems that result from these situations.\3\ It is best, if 
possible, to avoid them. The Gold Star plant would enjoy a more stable 
marketing environment if it were located in the Southeast marketing 
area, instead of the Mid-South marketing area proposed by AMPI.
---------------------------------------------------------------------------

    \3\Official notice is taken of the suspension of certain 
provisions of the Greater Louisiana order effective November 1, 
1993, (58 FR 63031) to keep a Lake Charles, Louisiana, plant from 
becoming regulated under the Texas order, under which the plant 
would have experienced a sharp reduction in its blend price.
---------------------------------------------------------------------------

    The larger Southeast market will give producers in the Central 
Arkansas and former Memphis markets more choices in marketing their 
milk. At present, there are a limited number of distributing plants 
available to producers in those markets and those that are available 
are primarily supplied by AMPI. Under the merged order, however, 
producers will have a choice of many different handlers and 
cooperatives through which to market their milk. With a uniform set of 
regulations applicable to the larger market, it will be easier for 
producers to supply different handlers at different times of the year 
without fear of being shut out of the market because of separate base 
and excess plans that are now, or have in the past, been applicable to 
several of the individual orders involved in the merger.
    As indicated in the record, the Paducah market is, for all intents 
and purposes, an individual handler pool. Producers that are fortunate 
enough to have a market with Turner Dairies enjoy extremely high blend 
prices and a stable marketing environment. Their neighbors, on the 
other hand, who are not part of Turner Dairies' nonmember supply but 
instead belong to cooperative associations such as AMPI, Mid-Am, DI, or 
ADCA, must move their milk to whatever market is available to them and, 
according to the testimony of Turner producers who have compared milk 
checks, receive less money for their milk. This is not the essence of a 
marketwide pool: to preserve a market for one group of producers, while 
their neighbors, who balance the Class I needs of the market, must ship 
their milk hundreds of miles away and receive lower prices for it. In 
fact, the fluid market and the reserve market should be shared equally 
among all producers in a marketwide pool.
    The Paducah market is not equitably distributing returns to 
producers supplying that market, and it should be considered for 
incorporation within a larger market, but it should not be incorporated 
in the proposed Southeast market. An analysis of the Federal order 
exhibits entered into the record indicates that in August 1993 there 
were 11.5 million pounds of milk pooled under Order 99, of which 88.4 
percent were Class I. Since Turner Dairies' Fulton, Kentucky, plant was 
the only pool plant that month, its Class I sales were approximately 
10.2 million pounds (i.e., .884 x 11.5). The exhibits also show that 
there were 2.0 million pounds of Class I sales in the marketing area 
from the Fulton plant, leaving about 8.2 million which were distributed 
in other marketing areas. Although the exact distribution of these 8.2 
million pounds was not shown in the record, it is known from the 
exhibits that there was distribution from this plant into the Central 
Arkansas, Memphis, New Orleans-Mississippi, and Alabama-West Florida 
marketing areas. If this pattern of distribution were to continue under 
the proposed Southeast order, the Fulton, Kentucky, plant would become 
regulated under that order.
    According to the data in the hearing record, in July 1993--the most 
recent month in which separate data for the Nashville market was 
available--33 percent of the Class I sales in the Paducah marketing 
area were made by Turner Dairies, Fulton, Kentucky; 22 percent of the 
sales were made by handlers regulated under Order 32; 18 percent of the 
Class I sales were made by Nashville area plants; and the remaining 27 
percent of Class I sales were made by plants that were regulated under 
Orders 46 or 49 (Indiana), or by handlers that were partially regulated 
or unregulated. With this distribution pattern, the Paducah marketing 
area may fit more appropriately with one of these other orders than it 
does with the proposed Southeast marketing area.
    The Memphis market in July 1993, its last month of operation, 
resembled the Paducah market in having only Turner Dairies plants. In 
addition to its Memphis plant, Turner Dairies also operated a plant at 
Covington, Tennessee, 36 miles northeast of Memphis. Unlike the Paducah 
market, a majority of the other order sales in the Memphis market is 
from handlers that would be regulated under the proposed Southeast 
order. Also, there is a significant overlap in procurement areas 
between the Memphis order and the Central Arkansas and New Orleans-
Mississippi orders. There is clearly sufficient evidence in the record 
to warrant regulation of the Memphis area as part of the Southeast 
marketing area.
    In August 1993, the Central Arkansas market had four fully 
regulated distributing plants: the Borden, Inc., plant in Little Rock; 
the Forest Hill Dairy Plant (i.e., Turner Dairies) that was regulated 
under the Memphis order in July 1993; Coleman Dairy, Inc., in Little 
Rock; and Humphrey's Dairy in Hot Springs, 55 miles southwest of Little 
Rock.
    Before it shifted to the Texas order in January 1993, the Gold Star 
plant also was regulated under the Central Arkansas order. During 
December, its last month under Order 108, there were 49.1 million 
pounds of producer milk pooled under that order; in January the pounds 
of producer milk dropped to 24.9 million pounds. There was a similar 
drop in Class I producer milk, from 30.2 million pounds in December 
1992 to 15.4 million pounds in January 1993.
    In August 1993, there were 38.4 million pounds of producer milk 
pooled under the Central Arkansas order, including the producer milk of 
Forest Hill Dairy (i.e., Turner Dairies), which had been pooled under 
Order 97. Combining this amount with the 11.5 million pounds of 
producer milk pooled under the Paducah market that month yields a 
combined total of approximately 50 million pounds, which would have 
made it one of the smallest Federal order markets that month.
    The point of this comparison is to show that, if the AMPI proposal 
had been adopted, it would have created a market that would not have 
provided the marketing stability that is needed in this area. In fact, 
it is very likely that the proposed Mid-South market would have been 
the subject of another lengthy merger proceeding within the near 
future.
    The Southeast marketing area adopted in this decision encompasses 
all of the areas involved in this proceeding, with the exception of the 
Kentucky portion of the former Nashville, Tennessee, order, the Texas 
counties of Cass and Bowie, the Missouri county of Dunklin, and the 
Paducah marketing area. This excluded area (other than the already 
discussed Paducah area), and the previously unregulated area in 
Tennessee, Missouri, Georgia, Arkansas, and Texas that has been 
included, are discussed below.
Kentucky Portion of Former Nashville Marketing Area
    The Kentucky counties of Allen, Barren, Metcalf, Monroe, Simpson, 
and Warren, and the Fort Campbell military reservation should not be 
included in the Southeast marketing area.
    Proponents of Proposal No. 1 indicated that they had included these 
counties in their proposal because they had been in the previously 
regulated Nashville marketing area.
    There are no plants in these counties, except the Glasgow Cheese 
Plant, which, according to the record, is not capable of supplying the 
market because it does not have a Grade A receiving facility.
    These counties are surrounded on three sides by the Louisville-
Lexington-Evansville order. There are no distributing plants in these 
counties, and there are no significant population centers, other than 
Bowling Green (population: 42,017) and Fort Campbell. According to the 
witness for Fleming Dairy in Nashville, there are no significant sales 
in these counties from Nashville distributing plants.
    In view of their northernmost location and their proximity to the 
Order 46 marketing area, the Fort Campbell Military Reservation and the 
six Kentucky counties that were part of the Nashville marketing area 
should not be included in the Southeast marketing area, but instead 
should be left unregulated at this time. There are no plants that would 
be unregulated by their exclusion from the marketing area.
The Georgia County of Rabun
    This county, in the extreme northeast portion of the State of 
Georgia within the Chattahoochee National Forest, is surrounded on the 
west and south by the Georgia marketing area and on the east and north 
by the Carolina marketing area. There are no milk plants located within 
the county and no change in the regulatory status of any plant would 
occur as a result of its inclusion in the Southeast marketing area. It 
should be included in the marketing area for administrative 
convenience.
The Tennessee Counties of Van Buren, Bledsoe, Grundy, Franklin, 
Lincoln, and Moore
    These previously unregulated counties are located between the 
Tennessee Valley marketing area on the east, the terminated Nashville 
marketing area on the west, and the Alabama-West Florida marketing area 
on the south. This is a sparsely populated area from which milk is 
produced for the Nashville and Alabama-West Florida markets. There are 
no milk plants in these counties and no now-unregulated plants outside 
of these counties would be regulated by the inclusion of these counties 
in the marketing area. This area should also be included in the 
proposed marketing area.
The Tennessee Counties of Henry, Carroll, Benton, Decatur, Henderson, 
Chester, and McNairy
    These seven counties, bordered on all sides by the proposed 
Southeast marketing area, should also be part of the marketing area. 
There are no milk plants in this area, nor are there any plants that 
would become regulated as a result of their addition to the marketing 
area. Since they would be bordered on all sides by other parts of the 
marketing area, no useful purpose would be served in leaving them out 
of the marketing area.
The Unregulated Arkansas Counties
    These counties, which were proposed by AMPI for inclusion in the 
Mid-South marketing area, should be included in the Southeast marketing 
area. There are no distributing plants in these counties, and no new 
plants will become regulated as a result of the inclusion of these 
counties in the marketing area.
The Unregulated Texas Counties of Bowie and Cass
    The Texas counties of Bowie and Cass should not be included in the 
Southeast marketing area. The apparent reason for including these 
counties in the proposed Mid-South marketing was for administrative 
convenience since these two unregulated Texas counties would have been 
surrounded by regulated area. This is a good reason to include these 
two counties but they may, in fact, be more closely associated with the 
Texas market. Rather than introduce the State of Texas into the 
Southeast marketing area for the sake of two counties that do not 
include any distributing plants, the counties of Bowie and Cass should 
be left unregulated for possible inclusion in the Texas marketing area 
when the opportunity presents itself.
    Similarly, since the Paducah marketing area has not been included 
in the Southeast marketing area, there is no point in adding one 
Missouri county to the marketing area for the sake of map-drawing 
convenience. Therefore, Dunklin County, Missouri, should not be part of 
the Southeast marketing area.

2(a). Milk to be Priced and Pooled

    It is necessary to designate what milk and which persons would be 
subject to the merged order. This is accomplished by providing 
definitions to describe the persons, plants, and milk to which the 
applicable provisions of the order relate.
    The definitions included in the order serve to identify the 
specific types of milk and milk products to be subject to regulation 
and the persons and facilities involved with the handling of such milk 
and milk products. Definitions relating to handling and facilities are 
``route disposition,'' ``plant,'' ``distributing plant,'' ``supply 
plant,'' ``pool plant,'' and ``nonpool plant.'' Definitions of persons 
include ``handler,'' ``producer-handler,'' ``producer,'' and 
``cooperative association.'' Definitions relating to milk and milk 
products include ``producer milk,'' ``other source milk,'' ``fluid milk 
product,'' ``fluid cream product,'' ``filled milk,'' and ``product 
prices.''
    Several of these definitions were of particular issue at the 
hearing: i.e., ``route disposition,'' ``pool plant,'' ``producer-
handler,'' and ``producer.'' All of the remaining definitions are 
patterned after those contained in one or more of the orders involved 
in this proceeding. Official notice of the final decisions setting 
forth the need and basis of such provisions was taken at the hearing. A 
discussion of those definitions that were of particular issue at the 
hearing, as well as those that involve substantive modifications, is 
set forth below.
Route Disposition: Sec. 1007.3
    The route disposition definition sets forth the type of deliveries 
that are considered in determining whether a distributing plant 
qualifies for pooling under the order.
    As proposed in Proposal No. 1, route disposition means any delivery 
to a retail or wholesale outlet (except to a plant) either direct or 
through any distribution facility (including disposition from a plant 
store, vendor or vending machine) of a fluid milk product classified as 
Class I milk. This definition should be modified slightly to include, 
for the limited purpose of determining pool plant qualification, 
packaged fluid milk products that are transferred from a plant with 
route disposition in the marketing area to a distributing plant if such 
transfers are classified as Class I milk.
    This language, which is also included in the Eastern Colorado 
Federal milk order (See Sec. 1137.3) is necessary to preclude a plant 
from becoming partially regulated because it ships significant 
quantities of packaged fluid milk products to another distributing 
plant, which then distributes those fluid milk products to retail and 
wholesale outlets. This precise situation has occurred in the 
neighboring Southwest Plains order, where a previously fully regulated 
plant failed to qualify as a pool plant because it shipped more than 50 
percent of its packaged fluid milk products to a distributing plant 
which it operated in another city.\4\ As a partially regulated plant 
with a Class I utilization higher than the market average, the handler 
was in a position to pay its producers a price in excess of the order's 
blend price. In addition, during one month AMPI was required to depool 
milk that it had diverted from the plant in order to insure that the 
plant qualified as a pool plant. This resulted in financial loss to the 
cooperative.
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    \4\Official notice is taken of the suspension of certain 
provisions of the Southwest Plains order effective February 1, 1994 
(59 FR 11180).
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    To prevent this situation from occurring in the Southeast marketing 
area, the route disposition definition should include, for the limited 
purpose of determining pool plant qualification, packaged fluid milk 
products that are transferred from a plant with route disposition in 
the marketing area to a distributing plant if such transfers are 
classified as Class I milk.
    As a general application of the order, packaged fluid milk products 
that are transferred from one handler to another will be treated as an 
interhandler transfer. Thus, each transaction should be properly 
identified and specifically reported as such to the market 
administrator. This will facilitate orderly operations and avoids 
ambiguous or dual reports.
    The modified route disposition definition adopted herein will not 
change this treatment. It merely provides that such transfers, which 
are classified as Class I and emanate from a plant with route 
disposition in the marketing area, shall be considered as route 
disposition from the transferor plant, rather than the transferee 
plant, for the single purpose of qualifying the transferor plant as a 
pool distributing plant under Sec. 1007.7(a).
Plant: Sec. 1007.4
    A plant definition should be included in the merged order to remove 
any uncertainty with respect to what constitutes a plant and what 
constitutes a reload point.
    The cooperative coalition's proposed plant definition is identical 
to the definition now found in Order 93. Order 96 contains a slightly 
different plant definition, while Orders 7, 94, and 108 do not define 
this term.
    The cooperatives' proposed definition should be adopted for the 
merged order. The proposal defines plant as the land, buildings, 
facilities, and equipment constituting a single operating unit or 
establishment at which milk or milk products, including filled milk, 
are received, processed, or packaged. Separate facilities without 
stationary storage tanks that are used only as a reload point for 
transferring bulk milk from one tank truck to another or separate 
facilities used only as a distribution point for storing packaged fluid 
milk products in transit for route disposition would not be a plant 
under this definition.
    There was no opposition to this proposal at the hearing or in the 
briefs that were filed. This definition is widely used in other Federal 
orders and is familiar to the industry. It should be included in the 
merged order.
Pool Plants: Sec. 1007.7
    Essential to the operation of a marketwide pool is the 
establishment of minimum performance standards to distinguish between 
those plants substantially engaged in serving the fluid needs of the 
regulated market and those plants that do not serve the market in a way 
or to a degree that warrants their sharing in the Class I utilization 
of the market. The pooling standards that are contained in the attached 
order would carry out this concept under present marketing conditions.
Distributing Plants: Sec. 1007.7(a)
     To be pooled under the merged order, a distributing plant's total 
route disposition each month must be equal to 50 percent or more of the 
fluid milk products physically received at the plant or diverted from 
the plant during the month. In addition, the plant's daily average 
route disposition in the marketing area must be equal to at least 1,500 
pounds per day or 10 percent of the plant's receipts of fluid milk 
products, except filled milk, physically received at the plant or 
diverted from it during the month.
    Citing an expected Class I utilization under the merged order that 
is likely to exceed 68 percent during all months of the year, the 
cooperative coalition proposed a total route disposition requirement of 
50 percent each month of the year and an in-area route disposition 
requirement of 10 percent. These requirements are similar to those of 
the five existing markets, except for the Georgia market, which has a 
15 percent in-area requirement. These standards are reasonable and 
should be adopted for the merged order.
Lock-In Provision: Sec. 1007.7(f)(2)
    With a 10 percent in-area route disposition requirement, it is 
possible that a distributing plant may meet the pooling standards of 
more than one order. A question then arises concerning under which 
order the plant should be regulated. Under Proposal No. 1, a 
distributing plant that met the order's pooling standards would be 
regulated under the Southeast order if the plant is located in the 
Southeast marketing area. This is a sensible provision to have in this 
area and should be adopted. The lock-in is accomplished by not 
excluding within Sec. 1007.7(f)(2) a plant located in the marketing 
area that would otherwise be regulated under another order by virtue of 
the fact that it had greater sales in such other marketing area.
    Testifying in support of the lock-in provision, the spokesman for 
the cooperative coalition stated that this provision differs slightly 
from the traditional Federal order method of determining where a 
distributing plant should be regulated when the plant qualifies for 
pooling under more than one order. He explained that the traditional 
method provides that a plant should be pooled under the order in which 
it has the most sales. The principle behind that rule, he added, was to 
insure that all handlers having sales in an order area were subject to 
the same price and other regulatory provisions as their competition.
    The coalition's witness stated that with the advent of processing 
plants with sales distribution over wide geographic areas, the 
traditional method of pooling distributing plants is outdated. He said 
that another, and equally important, reason for adopting a lock-in 
provision is to minimize any inequities which may occur between 
producers located within the same geographic supply area. These 
inequities are created when a distributing plant is located within one 
marketing area, obtains its milk supply within that marketing area, but 
is regulated by another Federal order.
    The witness referred to an exhibit which compared blend prices 
under the Greater Louisiana and the adjacent Texas orders. He noted 
that the Greater Louisiana order blend prices, f.o.b. Lake Charles and 
Shreveport, Louisiana, have been substantially above the Texas order 
prices at similar locations. He said that the 73 to 77 cents per 
hundredweight average difference in blend prices between the two 
orders, considering the overlap of supply for both plants, would create 
unstable and disruptive marketing conditions in the proposed merged 
order supply area and that these differences in producer pay prices 
would create difficulties in maintaining sales and attracting adequate 
supplies of milk for handlers under the merged order.
    In its brief, Southern Foods Group urged the Secretary to reject 
any lock-in provisions, arguing that it was philosophically opposed to 
a lock-in provision, unless the provision is designed to avoid 
switching the regulation of a plant from one market to another on a 
frequent basis. It stated that ``in general, a plant should be 
regulated where it has a plurality of its milk distribution since that 
is where it is competing the most against other regulated handlers.'' 
The brief also stated that the problem experienced by Guth Dairy, Lake 
Charles, Louisiana (See footnote No. 3), is irrelevant because that 
plant has gone out of business. Finally, focusing on Gold Star Dairy in 
Little Rock, SFG argued that, if that plant has greater sales in the 
Texas marketing area than in the Southeast marketing area, it should be 
regulated under the Texas order.
    The question of where to regulate a plant that meets the standards 
of more than one order may actually depend upon the circumstances 
involved. While SFG holds that the plant should be regulated in the 
market in which it mostly competes for sales, problems that have 
surfaced in the past year in the Greater Louisiana, Tennessee Valley, 
and Louisville-Lexington-Evansville orders would indicate that a 
handler's procurement area may be more important than its distribution 
area in determining where the plant should be regulated.
    Given proper Class I price alignment between two orders (i.e., the 
same Class I price at a given location regardless of which order a 
plant is regulated under), a plant which meets the pooling standards of 
more than one order will be in a better position to procure a milk 
supply by being regulated in the marketing area in which it is located 
unless it is shipping milk into a market which is generating a higher 
blend price at the plant's location. Even with the higher blend price 
under the other order, however, it may still not be appropriate to 
regulate the plant under the higher-priced market if, in doing so, it 
causes disorderly marketing conditions in the market where the plant is 
located.
    With the exception of the Upper Florida market, the Southeast 
marketing area is surrounded by markets with equal or lower prices. In 
addition, it is expected that the Class I utilization of the Southeast 
market will exceed the utilization of these surrounding markets with 
the exception of the Upper Florida market. Consequently, the blend 
price at any location within the Southeast marketing area is likely to 
be higher than the blend price at that location under any of the 
surrounding orders.
    As indicated, the sole exception to this statement is in southern 
Georgia or southern Alabama, where there are no plants at the present 
time that would qualify for pool status in the Upper Florida market. In 
view of this, the lock-in provision proposed for the Southeast market 
is a prudent measure that will avoid the disorderly marketing 
conditions that result when a plant becomes regulated in a lower blend 
price market or switches back and forth between two orders.
    Under the proposed Southeast order, a plant that qualifies as a 
pool distributing plant and which is located within the marketing area 
will be regulated under this order even if it has greater sales in 
another order's marketing area. The adjacent Texas, Southwest Plains, 
Paducah, Louisville-Lexington-Evansville, and Upper Florida orders 
contain provisions (Secs. 1126.7(f)(4), 1106.7(f)(2), 1099.7(c)(3), 
1046.7(e)(3), and 1006.7(d)(3), respectively) that will conform to this 
provision by yielding regulation of the plant to the Southeast order. 
However, Secs. 1005.7(d)(3) and 1011.7(d)(3) of the Carolina and 
Tennessee Valley orders, respectively, do not contain this type of 
provision, setting up a potential conflict with Sec. 1007.7(f)(3), 
which will only release a plant that has more sales in another 
marketing area if the plant is not located in the Southeast marketing 
area.
    At the present time, there is no distributing plant in the 
Southeast marketing area that has, or is likely to have, more sales in 
the Carolina or Tennessee Valley marketing areas than in the Southeast 
marketing area. Should this situation change, however, and a plant 
located in the Southeast marketing area does develop more route 
disposition under Order 5 or 11 than under Order 7, the plant should 
remain regulated under Order 7 notwithstanding the provisions of Orders 
5 and 11.
    The Southeast order should also contain a provision releasing a 
plant from regulation if the other order contains a provision that 
requires regulation of the plant because of its location within that 
order's marketing area. For example, the Louisville-Lexington-
Evansville order, in Sec. 1046.7(e)(2)(ii), requires regulation of a 
distributing plant if the plant meets the pooling standards of 
Sec. 1046.7(a), is located in the marketing area, and is subject to a 
Class I price under Order 46 that is not less than the Class I price 
under another order in which it also qualifies as a pool plant and in 
which marketing area it has more route disposition. Accordingly, a 
paragraph is included in the proposed Southeast order, 
Sec. 1007.7(e)(4), which recognizes the jurisdiction of Order 46 to 
regulate such a plant.
Multiple Order Pooling
    At the hearing, Gold Star suggested another way of handling a plant 
with sales in more than one market. It suggested prorating the plant's 
sales among the markets in which it qualifies for pooling and has at 
least 25 percent of its sales. Producers supplying the plant would 
receive a weighted average price based upon the blend prices of the 
various markets in which the plant so qualifies.
    This proposal should not be adopted. It would result in paying 
producers different prices in a common supply area--one of the problems 
cited for merging these orders--and it would be cumbersome to 
administer. With this merger and perhaps others to follow, the 
regulatory problems experienced with large plants distributing over 
wide areas should be significantly diminished.
Unit Pooling: Sec. 1007.7(d)
    Barber Pure Milk Company (Barber) and Dairy Fresh Corporation 
(Dairy Fresh) proposed the ``unit pooling'' of a distributing plant and 
one or more other plants. Under their proposal, a unit consisting of 
one distributing plant and one or more additional plants of a handler 
at which Class I and/or Class II products only are processed and 
packaged would be considered as one plant for the purpose of meeting 
the pool distributing plant requirements if all of the plants in the 
unit were located within the marketing area, and if, prior to the first 
of the month, the handler operating such plants filed a written request 
for unit pooling with the market administrator. The proposal would 
permit only one unit per handler, require that all plants in a unit be 
located in the marketing area, and exclude plants producing frozen 
desserts from being part of a unit.
    Barber's spokesman testified that Barber Pure Milk Company operates 
two non-pool plants that process and package Class II products, one 
located in Montgomery, Alabama, and the other located in Oxford, 
Alabama. The Montgomery plant processes dessert and ice cream mix and 
buttermilk for baking and currently receives about 700,000 pounds of 
milk from producers per month. The Oxford plant processes and packages 
cottage cheese, sour cream, and sour cream dip and receives about 
400,000 pounds of milk from producers each month.
    The witness stated that, up until early 1992, Barber operated four 
plants on the Alabama-West Florida order, located at Birmingham, 
Mobile, Montgomery, and Oxford, Alabama, which is 60 miles east of 
Birmingham. Each of the four plants engaged in the manufacture of Class 
II products in varying degrees. He said that, for efficiency purposes, 
the Class I processing and packaging at the Montgomery and Oxford 
plants was moved to the Birmingham and Mobile plants, while the Class 
II processing and packaging at the Birmingham and Mobile plants was 
moved to the Montgomery and Oxford plants.
    The Barber witness stated that to accommodate this economical 
specialization of plant operations, and not create any chaos in the 
marketplace, it was necessary to make some changes in the order. If the 
unit pooling proposal is not adopted, he said, it will become necessary 
to incur unnecessary costs of moving milk to pool distributing plants, 
unloading the milk, reloading the milk, and transporting it back to the 
Class II specialty plants. He noted that the diversion provisions will 
accommodate the movement of some of the needed milk directly from the 
farm to the Class II plants, but not all of the milk required.
    The Barber witness testified that the milk supply for the Oxford 
plant comes from six producers located in the Alabama counties of 
Calhoun, Etowah, and Talladega who produce approximately 500,000 pounds 
of milk per month or about 80 percent of the plant's requirements. He 
said that without the unit pooling provision, about two-thirds of this 
milk could be diverted to the Oxford plant, but the remaining third 
would have to be delivered to the Birmingham pool plant, unloaded at 
the plant, reloaded, and hauled the 60 miles back to Oxford. The 
additional cost involved in this, he estimated, was approximately 47 
cents per hundredweight or $225 per load.
    This witness also testified that milk to supply the Montgomery 
plant of approximately 700,000 pounds per month is located in northern 
Alabama and Tennessee and must be transported through the city of 
Birmingham on its way to Montgomery. There is no additional hauling 
cost if the milk is received at Birmingham; however, the cost of 
receiving the milk, washing the truck, and reloading the milk adds an 
additional .20 cents per hundredweight to the cost of the milk at 
Montgomery or an additional $95 for each load of milk received at 
Birmingham and then transferred to Montgomery.
    The witness stated that unit pooling should not be rejected because 
of concerns about attracting additional supplies of milk to the market 
for Class II products. He said that the production of Class II products 
was demand driven and that no additional quantity beyond the demand 
would be produced by the specialized plants. Nevertheless, to allay any 
concerns that these plants would be used for surplus disposal, he said 
the proposal restricts unit pooling to plants which produce Class I and 
II products only, excluding ice cream.
    In its proposal concerning the proposed Mid-South marketing area, 
AMPI also proposed the unit pooling of plants that are located within 
the marketing area. Unlike the Barber/Dairy Fresh proposal, the AMPI 
proposal did not exclude plants making ice cream from the unit.
    In its post-hearing brief, the Fleming Companies urged that unit 
pooling be rejected. It stated that pool performance standards should 
be fixed so that each producer, each plant, and each supply 
organization demonstrate a close association with the Class I 
requirements of the market.
    The unit pooling proposals make economic sense and should be 
adopted for the merged marketing area, but with certain restrictions.
    The order's pooling standards insure that each distributing plant 
and each unit of plants consisting of at least one distributing plant 
perform at the same minimum level to be eligible for pool plant status. 
The total route disposition requirement--50 percent each month of the 
year--recognizes that not all of the plant's receipts will be needed 
for Class I use. That standard permits up to 50 percent of the plant's 
receipts to be used in Class II, III, or III-A products.
    If Handler A chooses to operate one large distributing plant in 
which 40 percent of the plant's receipts are used in Class II products, 
while Handler B chooses to operate a distributing plant exclusively for 
fluid use and another plant exclusively for Class II products and the 
Class I utilization of both plants added together is 60 percent, it 
makes no sense to preclude Handler B from separating the operations. 
Both handlers are performing at precisely the same levels; they simply 
differ in their modes of operation. They should be permitted to operate 
in whatever manner they deem most efficient.
    As proposed by Barber and Dairy Fresh, a unit should be restricted 
to plants located in the marketing area that make only Class I or Class 
II products. If a handler wishes to add or remove plants from the unit, 
the handler would have to file a request with the market administrator 
before the first day of the month in which the change is to be 
effective.
    The provision adopted here deviates from the Barber/Dairy Fresh 
proposal by permitting plants that make frozen desserts to be included 
in a unit. No convincing rationale was given for excluding ice cream or 
other frozen dessert plants from a unit. This restriction would be 
unfair to a handler who makes ice cream in a separate plant, as 
compared to another handler who bottles milk and makes ice cream in the 
same plant. It also would require a set of standards to determine what 
is a frozen dessert plant and what is not. For example, if 50 percent 
of a manufacturing plant's milk was used to make cottage cheese, and 50 
percent was used to make ice cream, one would have to determine whether 
this plant was a cottage cheese plant or a frozen dessert plant. We can 
find no basis for distinguishing frozen desserts from other Class II 
products for the purpose of unit pooling. Accordingly, this part of the 
Barber/Dairy Fresh proposal is not adopted.
    One additional restriction should be added to the proposal, 
however. It would be inappropriate to permit a Class II operation in a 
higher-priced zone to unit pool with a distributing plant in a lower-
priced zone. An example will illustrate the point.
    If a handler with a plant in Montgomery, Alabama, processed 6 
million pounds into Class I products and 4 million pounds into Class II 
products, it would pay into the pool--based on prices proposed in this 
decision--a Class I location adjustment of $12,000 (i.e., 6 million 
pounds  x  $.20 per cwt.) but in paying producers supplying the plant 
the handler would draw out of the pool a location adjustment value of 
$20,000 (i.e., 10 million pounds  x  $.20 per cwt.). In effect, the 
handler would take out of the pool in location value $8,000 more than 
it contributed.
    It is universally true that a handler in a higher-priced zone will 
draw out of the pool more location value in the blend price to its 
producers than it contributes on the basis of its location adjustment 
for Class I milk. This is because the pooling standards do not require 
a handler to use all its milk in Class I. Because the market for Class 
II products is more of a regional market, location value has not been 
added to Class II products. The pool, in effect, absorbs a certain 
amount of transportation cost to provide a handler with milk for Class 
II use. When both the Class I and II products are processed at the same 
plant, this subsidization is limited by the amount of milk that may be 
used in Class II at that location.
    Under the unit pooling proposal of Barber and Dairy Fresh, it would 
be possible to unit pool a Class I distributing plant in a lower-priced 
zone (e.g., Montgomery, Alabama) with a Class II operation in a higher-
priced zone (e.g., Franklinton, Louisiana). Assuming that in this unit, 
the Montgomery plant processed 6 million pounds of Class I milk, while 
the Franklinton plant processed 4 million pounds of Class II milk, the 
handler would contribute $12,000 to the pool in location value on Class 
I milk, but it would draw out of the pool $32,000 (i.e., 6 million 
pounds  x  $.20 in Montgomery plus 4 million pounds  x  $.50 cents in 
Franklinton). In other words, it would take out of the pool $20,000 
more than it contributed in location value.
    It would not be fair to expect all of the market's producers to 
subsidize the delivery of milk for Class II use in the Montgomery/
Franklinton unit example described above. As previously noted, a 
certain amount of subsidization will always occur to the extent that 
Class I route disposition requirements are less than 100 percent and no 
location value is attached to the Class II price. However, the 
opportunity to take advantage of this situation is equally available to 
all of the market's handlers. On the other hand, under the Barber/Dairy 
Fresh unit pooling proposal large handlers with multiple plants would 
be able to take a disproportionate share of location value out of the 
pool if their Class II operation were located in a higher priced zone 
than their Class I operation.
    To correct this inequity, the composition of units should be 
further restricted. Specifically, in a unit consisting of two or more 
plants, any plant that, by itself, would not qualify as a pool plant, 
must be located in a pricing zone providing the same or a lower Class I 
price than the price applicable at the unit distributing plant that 
would, by itself, qualify as a pool plant. Thus, for example, a Class 
II operation in Nashville may unit pool with a Class I operation in 
Atlanta, but a Class II operation in Atlanta may not unit pool with a 
Class I operation in Nashville.
    This additional restriction on unit pooling will insure a degree of 
fairness to all of the market's handlers in processing Class II 
products and to all of the market's producers in the distribution of 
pool funds. It also will tend to encourage milk in lower-priced areas 
to be used in lower-valued products while encouraging milk to move to 
the market's higher-priced areas for use in Class I.
Supply plants: Sec. 1007.7(b)
    A supply plant should be defined as a plant that is approved by a 
duly constituted regulatory agency for the handling of Grade A milk and 
from which fluid milk products are transferred during the month to a 
pool distributing plant. This is the definition now included in Orders 
93 and 108 and proposed by the cooperative coalition for the merged 
order.
    To qualify as a pool plant, a supply plant should be required to 
transfer a certain portion of its receipts each month to a pool 
distributing plant. In that way, it will be contributing to the fluid 
needs of the market.
    As proposed by the cooperative coalition, a supply plant would have 
to transfer 60 percent of its receipts to pool distributing plants 
during each of the months of July through November and 40 percent 
during each of the months of December through June. The supply plant's 
``receipts'' would include milk that is diverted from the plant as 
``producer milk,'' but would exclude milk that is diverted to the 
supply plant from another pool plant. In addition, receipts would 
include not only the milk received from individual dairy farmers, but 
also the milk received from a cooperative association acting as a 
handler on milk delivered directly from producer-members' farms 
(i.e.,pursuant to Sec. 1007.9(c) of the order).
    At the hearing, a spokesman for Kraft Foods testified that a pool 
supply plant should be allowed to use the most efficient form of milk 
movement to meet supply plant shipping requirements. He said that, in 
addition to including transfers from the plant, diversions to pool 
distributing plants directly from producers' farms also should be 
counted in meeting those pooling requirements. In its Proposal No. 9, 
the Fleming Companies also proposed that diversions be used to meet a 
supply plant's shipping requirement.
    The record indicates that distributing plants in the Southeast 
marketing area are supplied with milk that comes directly from 
producers' farms. Pool supply plants, as defined in Section 7(b) of the 
individual orders, have not been a factor in this area for many years. 
To the extent that any plant milk is transferred to distributing 
plants, such milk generally comes from cooperative association 
``balancing plants,'' which qualify as pool plants based on the 
cooperatives' total deliveries of milk to pool distributing plants, as 
opposed to individual plant performance. Such deliveries may include 
transfers of plant milk but, as a general rule, the milk comes directly 
from producers' farms without being first delivered to the 
cooperative's plant.
    Despite the fact that this market may have little need for true 
supply plants, the merged order should continue to accommodate the 
possible pooling of such plants in case plant milk from a distant 
location is needed to supplement locally-produced milk. However, there 
is no reason to facilitate the pooling of manufacturing plants as 
``pool supply plants'' by allowing such plants to qualify on the basis 
of direct deliveries from the farm when the very fact that such 
deliveries can be economically made belies the need for the ``supply 
plant'' in the first place. For this reason, the Kraft and Fleming 
proposals to permit diversions to be used as qualifying shipments for a 
supply plant should not be adopted.
Balancing plants: Sec. 1007.7(c)
    While the term ``balancing plant'' is not actually used in the 
order, as described in Sec. 1007.7(c) of the proposed Southeast order 
it means a plant located in the marketing area and operated by a 
cooperative association which delivers 60 percent of the producer milk 
of its members to pool distributing plants during each of the months of 
July through November and 40 percent during each of the months of 
December through June. The deliveries to pool distributing plants may 
include deliveries directly from the farms of producer members of the 
association as well as transfers from the cooperative's plant.
    To be eligible for pool status, the plant must not qualify as a 
pool distributing plant or a pool supply plant under the Southeast 
order or any other Federal order. Also, the plant must be approved to 
handle Grade A milk by a duly constituted regulatory agency.
    This provision is essentially the same as the proposal of the 
cooperative coalition, except that it requires a plant that qualifies 
under this paragraph to be located within the Southeast marketing area. 
The plants that are likely to become cooperative balancing plants under 
the Southeast order are DI's plants in Franklinton, Louisiana, and 
Lewisburg, Tennessee, and Mid-America Dairymen's plant in Kentwood, 
Louisiana. Therefore, the in-area location requirement should not 
affect the regulatory status of any plant that is expected to be pooled 
as a balancing plant under this order.
    Unlike a supply plant, which must incur the cost of shipping milk 
to the market, a balancing plant could be located in New Mexico, 
Arizona, or some other distant location and not incur the cost of 
shipping milk from those locations to the market. Such a plant could 
qualify based on the direct deliveries of locally-produced milk. For 
this reason, it would be imprudent not to require a balancing plant to 
have some association with the Southeast marketing area, as urged by 
the Fleming Companies, Barber, and Dairy Fresh in their briefs.
    In its joint brief, Barber and Dairy Fresh urged the Secretary to 
not only require a balancing plant to be located in the marketing area, 
but also to require the plant to transfer 10 percent of the plant's 
receipts to pool distributing plants each month. The Fleming Companies 
made a similar plea in its brief.
    These handlers provided no convincing reason why any shipments from 
a balancing plant that is located within the marketing area are needed. 
Such plants, in fact, provide a service to the market in balancing its 
reserve supplies. The performance standards applicable to the 
cooperatives which operate these plants assure that milk will be made 
available to meet the Class I needs of the market. Therefore, in the 
absence of a compelling reason for adopting these seemingly unnecessary 
milk handling and transportation requirements, the request for specific 
performance from such a plant is denied.
Revisions of pooling standards: Sec. 1007.7(e)
    Kraft Foods proposed that the market administrator be given the 
authority to adjust pool supply plant shipping standards. The Kraft 
witness stated that this will afford the Department more flexibility in 
meeting the changing needs of the market. The witness cited the lengthy 
delays that are now frequently incurred in suspending regulations when 
market conditions change. He also noted that while some orders permit 
the Director of the Dairy Division to issue revisions of shipping 
standards, this process is also a lengthy procedure.
    The Kraft proposal should be adopted, but it should be modified to 
include the distributing plant route disposition standards in 
Sec. 1007.7(a), the supply shipping standards in Sec. 1007.7(b), the 
cooperative ``balancing plant'' performance standards in 
Sec. 1007.7(c), the ``touch base'' standards in Sec. 1007.13(d) (1) and 
(2), and the diversion limitations in Sec. 1007.13(d) (3) and (4). The 
authority to increase or decrease a percentage performance level should 
be restricted to not more than 10 percentage points above or below the 
levels established in the order. The authority to increase or decrease 
the producer ``touch base'' standards in Sec. 1007.13(d) (1) and (2) 
should be restricted to 50 percent of the standard specified in the 
order.
    Most milk order actions involve temporary adjustments to pooling 
standards to recognize changes in supply and demand conditions. These 
adjustments are accomplished in most orders by ``suspending'' certain 
language from a provision of the order so as to reduce the regulatory 
burden on handlers and assure the continued pooling of milk that has 
been historically associated with a market without the need for making 
costly and inefficient movements of milk. A large percentage of these 
suspensions could be avoided by permitting the order's pooling 
standards to be adjusted slightly at the direction of the market 
administrator, who is the person delegated by the Secretary to 
administer the order.
    Suspension actions only provide a means for reducing pooling 
standards. These actions cannot be used to increase pooling standards 
in the event that additional supplies of milk are needed. A few orders 
provide authorization for the Director of the Dairy Division to either 
increase or decrease pooling standards as a result of changes in supply 
and demand conditions. This authority is intended to provide a greater 
degree of flexibility to adjust performance standards to the varying 
needs of the market. However, the process for implementing the changes 
has made it extremely difficult to respond as expeditiously as is 
necessary to reflect frequent and rapid changes in marketing 
conditions.
    As proposed herein, the authority to modify pooling standards and 
diversion limitations would be restricted to not more than 10 
percentage points up or down. Following a written request to make such 
an adjustment, the market administrator will notify all parties in the 
market who would have an interest in the request. This would include, 
at a minimum, every handler and every cooperative association 
representing producers in the market. In addition, the market 
administrator will notify the Director of the Dairy Division, 
Agricultural Marketing Service, of the request. The market 
administrator will provide at least seven days for the submission of 
written comments, which may be faxed or mailed, before making a 
decision concerning the request. Prior to making such a decision, the 
market administrator will confer with the Director of the Dairy 
Division.
    The flexibility accorded in the order by this provision should be 
helpful in meeting any fluctuating needs of the market in a timely 
manner.
Nonpool plant: Sec. 1007.8
    The nonpool plant definition proposed for the merged order should 
be adopted. The plants defined as nonpool plants include other order 
plants, plants of producer-handlers, partially regulated distributing 
plants, unregulated supply plants, and exempt plants. With the 
exception of the exempt plant definition, these terms are standard 
among the separate markets involved in this proceeding.
    The exempt plant definition proposed by the cooperative coalition 
includes, in addition to a plant operated by a governmental agency, a 
plant with monthly route disposition of less than 100,000 pounds.
    At the hearing, the cooperative coalition spokesman indicated that 
if the two small producer-handlers now in the Georgia market--Etowah 
Maid Dairies, Inc., at Canton, Georgia, and Sheppard Brothers Dairy 
Farm at Stone Mountain, Georgia--were not exempt from regulation under 
the producer-handler provisions proposed for the merged order, they 
would be under the proposed exempt plant definition. Although neither 
producer-handler testified at the hearing or filed a post-hearing 
brief, it is not certain that they would, in fact, be exempt from 
regulation under the proposed exempt plant definition.
    According to the cooperatives' witness, the purpose of the 100,000-
pound exemption ``is to exempt from pricing and pooling those producer-
handlers who are fairly small in size, whether or not they might 
otherwise qualify as a producer-handler.'' As written and as explained 
at the hearing, however, this provision would apply to any plant with 
monthly route disposition under 100,000 pounds, whether or not the 
handler otherwise meets the criteria for being a producer-handler.
    The proposed exemption from regulation based on monthly route 
disposition should be adopted. As a practical matter, the exemption of 
plants of this size would pose no threat to the order's regulated 
handlers. In addition, the regulatory burden on a handler of this size 
is much greater than it is on an average size handler. Although it is 
not certain that the two producer-handlers in this market would be 
exempt under this provision, it should nevertheless be included in the 
order to preclude the regulation of any small handler who may 
distribute fluid milk products in the Southeast marketing area.
Handler: Sec. 1007.9
    The impact of regulation under a Federal order is primarily on 
handlers. A handler definition is therefore necessary to identify those 
persons from whom the market administrator must receive reports, or who 
have a financial responsibility for payment for milk in accordance with 
its classified use value. This will assure that all information 
necessary to determine a person's status under the order can be readily 
determined by the market administrator.
    As proposed by the cooperative coalition, the handler definition 
should include the operator of a pool plant, a cooperative association 
that diverts milk to nonpool plants or delivers milk to pool plants for 
its account, a producer-handler, and any person who operates a 
partially regulated distributing plant, an other order plant, an 
unregulated supply plant, or an exempt plant.
    With the exception of the operator of an exempt plant, these terms 
are standard definitions, which are included in virtually all Federal 
milk orders. The inclusion of the operator of an exempt plant in the 
handler definition is somewhat unusual. Although most of the individual 
orders, except Order 108, exempt government plants from regulation, 
none of them include the exemption for a plant based on minimum route 
disposition. Because of this additional basis for exemption, the 
operator of an exempt plant should be included in the handler 
definition. Although the operator of an exempt plant is, as the name 
implies, exempt from full regulation under the order, the plant 
operator must still file reports with the market administrator so that 
the basis for exemption can be determined and milk handled by the plant 
can be properly classified. For this reason, it is logical to include 
an exempt plant operator in the handler definition.
Producer-handler: Sec. 1007.10
    The merged order should exempt a producer-handler from regulation 
if the producer-handler meets certain specified requirements. The only 
two producer-handlers now operating in the proposed marketing area have 
been subject to the provisions of the Georgia order. Since this 
provision is short, simple, easily understood and virtually identical 
to the producer-handler provisions contained in the separate orders, it 
should be adopted for the merged order.
    The cooperative coalition's proposed producer-handler provision 
defines a producer-handler as a person who is engaged in the production 
of milk and also operates a plant from which during the month fluid 
milk products are disposed of directly to consumers through home 
delivery retail routes or through a retail store located on the same 
property as the plant. A person meeting all of the other requirements 
for a producer-handler, but who disposes of fluid milk products through 
wholesale outlets, jobbers, independent route distributors, or retail 
outlets other than a plant store would not qualify as a producer-
handler.
    As described by the cooperatives' spokesman, the retail-wholesale 
distinction is designed to address the point at which the pricing 
advantage granted to producer-handlers contributes to disorderly 
marketing. The witness testified that a producer of medium farm size 
who bottles his or her own product and sells to his/her neighbors is 
not a serious threat to orderly marketing. While such a person still 
has the same buying advantage, such savings are less than the 
additional cost inherent with small size.
    The cooperatives' spokesman also stated that even a producer-
handler of substantial size who develops home-delivery routes will 
probably not pose a serious threat to orderly marketing under current 
economic circumstances. He noted that where such distribution does 
exist, it is far less price sensitive than sales from supermarket 
shelves. Although the producer-handler would have a cost advantage by 
exemption from pricing and pooling, this advantage would be eroded 
through the cost associated with the manner of distribution, according 
to the witness.
    The witness also testified that a producer-handler who distributes 
fluid milk products through a plant store does not pose a serious 
threat to orderly marketing since the consumer must come to the 
producer-handler's place of operation. Moreover, the product is not in 
the regular price-sensitive channels of distribution.
    The witness said that most fluid milk product disposition now takes 
place through wholesale distribution to multiple store outlets. These 
wholesale accounts are generally high volume in nature and highly 
sensitive to price differentials, he added, and those handlers who 
engage in trade through wholesale channels should not be exempt from 
pricing and pooling, even if such handler deals exclusively with its 
own raw milk production.
    The spokesman argued that the purpose of Federal orders is to 
insure an adequate amount of pure and wholesome milk for consumers by 
establishing a regulatory scheme that insures equitable treatment of 
all handlers and producers. Unless there is a very good reason to 
exempt a plant from regulation under an order, each handler should be 
subject to the same pricing and pooling provisions to insure the 
integrity of the regulatory scheme, he said.
    The witness also claimed that while Congress intended to exempt 
small family production/distribution units from regulation under an 
order, it did not envision the large, multi-million pound units that 
now compete in the wholesale milk trade in many parts of the country. 
For this reason, he said, the cooperatives' proposed language was 
designed to insure that any single person, partnership, or corporation 
that establishes a production/distribution unit of this magnitude and 
which competes in the wholesale market would come under full 
regulation.
    Experience in the markets involved in this proceeding indicates 
that effective regulation can be achieved without adopting the type of 
overly restrictive producer-handler provision proposed by the 
cooperative coalition. In particular, we can find no basis for 
absolutely precluding a producer-handler from having wholesale 
customers.
    As adopted in this decision, a producer-handler is any person who 
operates a dairy farm and a distributing plant which has route 
disposition of more than 100,000 pounds per month and who receives no 
Class I milk from sources other than his/her own farm production and 
pool plants. The producer-handler must provide proof satisfactory to 
the market administrator that the care and management of the dairy 
animals and other resources necessary to produce all Class I milk 
handled and the operation of the processing and packaging business are 
his/her personal enterprise and risk.
    In conjunction with their proposal to revise the producer-handler 
definition, the cooperative coalition proposed that the administrative 
assessment that is applied to other handlers also apply to producer-
handlers. The coalition spokesman testified that the market 
administrator must audit producer-handlers and may do so for no other 
reason than to determine that the handler is, in fact, eligible under 
the provisions of the order to be exempt from pricing and pooling. He 
said that if producer-handlers do not pay their pro-rata share of 
administrative expenses, the total cost would unjustly fall on the 
remaining handlers under the order.
    Currently, under each of the separate orders, the administrative 
assessment is applied to handlers on their receipts of producer milk 
and on other receipts on which there is a pool obligation. Producer-
handlers, on the other hand, who have no receipts of producer milk or 
any pool obligation, are not subject to an administrative assessment.
    To the extent that administrative costs are incurred in 
administering the producer-handler provisions, fully and partially 
regulated handlers who bear the administrative costs associated with 
this activity are assured that producer-handlers continue to operate in 
the manner provided under the order. This insures that producer-
handlers are not able to transfer the costs and risks of their 
operation to others and, consequently, are not able to gain an 
advantage relative to other producers or handlers. Despite proponents' 
testimony, we remain unconvinced that any grounds exist for the payment 
of administrative assessments by producer-handlers and, therefore, must 
deny the proposal.
Producer: Sec. 1007.12
    The term producer defines those dairy farmers who constitute the 
regular source of supply for the order. Under the Southeast order, 
producer status should be provided for any dairy farmer who produces 
milk approved by a duly constituted regulatory agency for fluid 
consumption as Grade A milk and whose milk is received at a pool plant 
directly from the producer's farm or is picked up at the farm by a 
cooperative as a bulk tank milk handler for delivery to a pool plant.
    Producer status should also be accorded to a dairy farmer who has 
an established association with the market and whose milk is diverted 
from a pool plant to a nonpool plant by a cooperative association or a 
pool plant operator. To establish an association with the market, a 
dairy farmer's milk must be delivered to a pool plant each month to be 
eligible to be diverted to a nonpool plant as ``producer milk.'' These 
delivery requirements will be explained further under the discussion of 
producer milk.
    Since producer-handlers and exempt plants are not subject to the 
order's pricing and pooling provisions, milk which is in excess of the 
needs of such operators will not be treated as producer milk when it is 
moved directly from the farms of such operations to a pool plant. Any 
such milk delivered to a pool plant would be ``other source milk.''
    A dairy farmer should not be a producer under two Federal orders 
with respect to the same milk. The producer definition should exclude a 
dairy farmer with respect to milk which is received at a pool plant 
under the Southeast order by diversion from a pool plant under another 
Federal order if the dairy farmer is a producer under the other order 
with respect to the milk and the milk is allocated to Class II or Class 
III use under the Southeast order. Also, as proposed by the cooperative 
coalition, the producer definition would exclude a dairy farmer with 
respect to milk which is diverted to a pool plant under another Federal 
order if any portion of such person's milk is assigned to Class I milk 
under the other Federal order.
    In its proposed producer definition, the cooperative coalition 
included a paragraph dealing with a ``dairy farmer for other markets.'' 
This provision would exclude from the producer definition during the 
flush production months a dairy farmer who delivered more than one-
fifth of his/her milk to plants as other than producer milk during the 
short season. Specifically, if during the immediately preceding months 
of August through December more than one-fifth of the milk from the 
same farm was caused to be delivered to plants as other than producer 
milk, then no milk of such a dairy farmer would be considered to be 
producer milk during the following months of January through July.
    The cooperative coalition's spokesman explained that this provision 
was designed to prevent producers of other Federal order markets from 
pooling their milk on the merged order during the flush spring months 
[perhaps because the blend price was more attractive] when such milk 
was not pooled on the merged order during the fall months [when the 
milk may have been needed]. This provision was supported by Barber Pure 
Milk Company, Dairy Fresh Corporation, and the Arkansas Dairy 
Cooperative Association. It was opposed by Southern Foods Group and 
Gold Star Dairy.
    In its post-hearing brief, Southern Foods Group stated that it 
strongly opposed this provision because it would make it impossible for 
milk from nearby areas to be pooled on the Southeast order except in 
extraordinary circumstances. SFG acknowledged that it had brought Texas 
milk into the Greater Louisiana market to provide an independent milk 
supply from nearby areas. It stated that the flexibility to deliver a 
producer's milk to different plants during the month avoids uneconomic 
shipments of milk and has permitted SFG flexibility in providing milk 
to a deficit market.
    The dairy farmer for other markets provision was also opposed by 
Gold Star Dairy, which characterized the provision as a ``trade 
barrier.'' Gold Star stated that it will interfere with the seamless 
movement of milk between the new order and neighboring orders and noted 
that it was inappropriate to penalize a producer for not delivering 
milk to the market when it was not needed.
    The ``dairy farmer for other markets'' provision should not be 
adopted for the merged order. As discussed later in this decision, the 
proposed order contains a base-excess plan which will substantially 
remove the incentive for a dairy farmer who has been associated with 
another market during the base-building months to become a producer 
under the Southeast market during the base-paying months. In addition, 
this order has stringent pool plant performance standards and fairly 
tight diversion limitations. In order to be eligible for diversion 
during the months of July through November (December through June), 10 
days' (4 days') production of a producer's milk must be received at a 
pool plant. This ``touch-base'' requirement will help to keep distant 
milk from associating with this market when the milk is not really 
needed at a pool distributing plant. Finally, with the flexibility 
accorded the market administrator in this order, the pooling standards 
and diversion limitations can be adjusted quickly to forestall any 
abuse of the order should it occur. For these reasons, there is no need 
to adopt the dairy farmer for other markets provision in this market.
Producer Milk: Sec. 1007.13
     The producer milk definition of the proposed Southeast order 
defines the milk that will be priced and pooled under the order.
    The provisions proposed by the cooperative coalition, and adopted 
in this decision, would require that each individual producer deliver 
at least 4 days' production to a pool plant in each of the months of 
December through June and 10 days' production in each of the months of 
July through November. This requirement will insure that each producer 
has a direct association with a pool plant each month of the year.
    Without a ``touch base'' requirement of this nature, milk of a 
producer could be pooled without ever having to come to a pool plant. 
With the provision, however, there is certainty that the milk of that 
producer is at least partially associated with a pool plant of the 
order every month.
    So long as the touch-base requirement has been met during the 
month, all of the other milk of a producer that is not needed at a pool 
plant may be diverted directly from the farm to a nonpool plant if it 
is not needed at the pool plant. In aggregate, however, the total 
quantity of milk of all producers so diverted should be restricted to 
50 percent during the months of December through June and 33 percent 
during the months of July through November.
    Ten days' production is a reasonable minimum number of days for 
associating an individual producer's milk with this market during the 
short production months. Based on data in the record, the Class I 
utilization in this market is expected to exceed 80 percent during the 
months of July through November and should range from 65 to 75 percent 
during the months of December through June. These projections support a 
10-day delivery requirement for the short production season. If at 
least 10 days' production of a producer's milk is not delivered to a 
pool plant during the summer and fall months, the milk cannot be 
considered to be a part of the regular source of supply for the fluid 
milk market and should not share fully in the Class I utilization of 
the marketwide pool.
    In addition to performance by an individual producer, the producer 
milk section of the order also sets specific limits on the total amount 
of producer milk which may be diverted by the operator of a pool plant 
or a cooperative association to nonpool plants during the month. As 
proposed and adopted here, diversions to nonpool plants by a pool plant 
operator would be limited to 33 percent during the months of July 
through November, and 50 percent during the months of December through 
June, of the producer milk that is physically received at pool plants 
as producer milk of such handler during the month. In the case of a 
cooperative association, these percentages would be based on the 
producer milk that the cooperative association caused to be delivered 
to, and physically received at, pool plants during the month.
    For efficiency in the delivery of producer milk to pool plants, the 
proposed order provides for the diversion of producer milk from one 
pool plant to another pool plant. There is no limit on this type of 
diversion.
    The proposed order also provides a procedure to be followed for 
determining the pool status of milk if a pool plant operator or a 
cooperative association diverts milk in excess of the percentage 
allowances specified in the order. In this case, the excess quantity of 
milk would not qualify as producer milk and would not be priced under 
the order. The diverting handler would be required to designate the 
dairy farmer deliveries that should not be considered producer milk. 
Absent such a designation, no milk diverted by the handler will be 
producer milk.
    A parallel situation occurs when a cooperative association's 
diversions from a pool plant to nonpool plants would cause the pool 
plant to lose its pool status. In such a case, the cooperative will be 
responsible for identifying which dairy farmers' milk will not be 
producer milk. If the cooperative fails to designate the dairy farmers' 
deliveries that are to be excluded as producer milk, then no milk 
diverted by the cooperative to nonpool plants will be considered 
producer milk.
    Milk that is diverted from a pool plant to a nonpool plant should 
be priced at the location of the nonpool plant where the milk is 
physically received. Diverted milk is presently priced under the 
individual orders in this manner and should continue to be so priced 
under the merged order.
    As discussed above (with reference to pool plants), the market 
administrator, upon request of a handler in the market and following 
the submission of data, views, and arguments, should be permitted 
limited flexibility to adjust pooling standards and diversion 
limitations. With respect to diversion limitations, the market 
administrator should be permitted to increase or decrease diversion 
limitations by 10 percentage points. For example, the 33 percent 
limitation could be decreased to 23 percent or increased to 43 percent. 
In the case of the touch-base requirement, the market administrator 
should be permitted to increase or decrease these requirements by up to 
50 percent. Accordingly, the requirement that each producer deliver 10 
days' production of milk to a pool plant before being eligible for 
diversion to a nonpool plant may be increased to 15 days or decreased 
to five days. During the months of December through June, when a four 
day touch-base requirement applies, the touch base requirement could be 
increased to six days or decreased to two days. This flexibility will 
allow the market administrator to respond quickly to changing market 
conditions.
Other Source Milk: Sec. 1007.14
    The other source milk definition has been a standard definition 
included in all milk orders since 1974, when a uniform classification 
plan was instituted for all milk orders. The definition included in the 
proposed Southeast order is identical to those included in the 
individual orders.
    In addition to milk received from producers, a regulated pool plant 
may receive milk or milk products from sources other than producers. 
The other source milk definition identifies those other sources.
    Specifically, ``other source milk'' means all skim milk and 
butterfat in a handler's receipts of fluid milk products or bulk fluid 
cream products from any source other than producers, cooperative 
association handlers, or pool plants. It also includes a handler's 
receipts of fluid cream products in packaged form from other plants. In 
addition, any milk products (other than fluid milk products, fluid 
cream products, and products produced at the plant in the same month) 
from any source which are reprocessed, converted into, or combined with 
another product in a handler's plant during the month would be 
considered a receipt of other source milk. Finally, receipts of milk 
products (other than fluid milk products or fluid cream products) for 
which a handler fails to establish a disposition would also be included 
under the other source milk definition.
    Unlike packaged fluid cream products, which are Class II products 
and therefore not included in the fluid milk product definition, bulk 
fluid cream products are treated in the same manner as fluid milk 
products for the purpose of applying the other source milk definition. 
This facilitates the application of the other provisions of the order. 
Accordingly, receipts of fluid cream products in packaged form from 
other plants are considered other source milk.
    Although no handler obligation is involved with these receipts, it 
is desirable for accounting purposes that such receipts be defined as 
other source milk. This accounting technique precludes the record-
keeping difficulties that might otherwise be experienced in accounting 
separately for inventories and sales of Class II products processed in 
the handler's plant versus those received at the plant in packaged form 
from other plants. Such receipts are allocated directly to the 
handler's Class II utilization.
    Manufactured products from any source that are reprocessed, 
converted into, or combined with another product in the plant also are 
considered as other source milk. Such products include dry curd cottage 
cheese received at a pool plant to which cream is added before 
distribution. Such receipts are allocated to a handler's Class II or 
III utilization, depending upon the use of the product. No handler 
obligation is applicable.
    Products manufactured in a pool plant during the month and then 
reprocessed, converted into, or combined with another product in the 
same plant during the same month are not other source milk. Under this 
situation, producer milk is considered as having been used to produce 
the final product.
    Disappearance of manufactured milk products for which the handler 
fails to establish a disposition is considered as other source milk. 
Each handler is required to account for all milk and milk products 
received or processed at the handler's plant. Otherwise, a handler may 
have an opportunity to gain a competitive advantage over competitors. 
Treating the unexplained disappearance of manufactured milk products as 
other source milk contributes to a uniform application of the 
provisions to all handlers.
Fluid Milk Product/Fluid Cream Product: Secs. 1007.15 and 1007.16
    The terms fluid milk product and fluid cream product are standard 
definitions in all milk orders and were proposed for inclusion in the 
merged order. There was little discussion at the hearing concerning 
these definitions and no opposition to their inclusion in the merged 
order.
    The fluid milk product and fluid cream product definitions were 
most recently revised in a national decision involving all Federal milk 
orders that was issued on February 5, 1993 (58 FR 12634), and which 
became effective on July 1, 1993. Official notice is taken of that 
decision, including the reasons set forth for the standards adopted in 
these definitions. They are incorporated by reference in this decision.
Filled Milk: Sec. 1007.17
    The term filled milk also is identical in all milk orders and was 
proposed for inclusion in the merged order. There was no opposition to 
this provision.
    Filled milk is defined as any combination of nonmilk fat (or oil) 
with skim milk (whether fresh, cultured, reconstituted, or modified by 
the addition of nonfat milk solids), with or without butterfat, so that 
the product (including stabilizers, emulsifiers, or flavoring) 
resembles milk or any other fluid milk product, and contains less than 
six (6) percent nonmilk fat (or oil). In determining the classification 
of filled products, the same competitive criteria should apply to these 
products as to fluid milk products.
    The filled milk definition stems from the Assistant Secretary's 
decision for all Federal orders issued October 13, 1969 (34 FR 16881). 
That decision is incorporated by reference in this decision.
Commercial Food Processing Establishment: Sec. 1007.19
    A standard definition for commercial food processing establishment 
was added to all orders on July 1, 1993. The definition contained in 
the Assistant Secretary's February 5, 1993, decision (58 FR 12675) is 
just as appropriate for the merged Southeast order as it is for the 
individual orders of which it is comprised.
Product Prices: Sec. 1007.20
    Section 20 of the proposed order defines product prices, including 
``butter price,'' ``cheddar cheese price,'' ``nonfat dry milk price,'' 
and ``edible whey price.'' These terms are also standard terms, are 
included in each of the individual orders, and were proposed, without 
opposition, for inclusion in the merged order.

2(b). Classification of Milk: Secs. 1007.40 Through 1007.45

    Under a Federal milk order, milk is priced according to the form or 
manner in which it is used. Section 40 of the proposed order discusses 
the four classes of utilization under the order. Section 41 discusses 
how to classify ``shrinkage,'' the disappearance of skim and butterfat 
that occurs through handling, transporting, and processing milk. 
Section 42 sets forth rules for classifying skim milk and butterfat 
that is transferred or diverted between plants. Section 43 contains 
general rules pertaining to the classification of producer milk, and 
Sec. 1007.44, ``classification of producer milk,'' describes how to 
classify producer milk by allocating a handler's receipts of skim milk 
and butterfat to the handler's utilization of such receipts. Finally, 
Sec. 1007.45 describes the market administrator's reports and 
announcements concerning classification.
    The classification scheme proposed for the Southeast order is 
identical to the uniform classification plan now in use in the five 
individual orders and in most other Federal order markets. A detailed 
explanation of the purpose and application of these provisions is 
contained in the Department's final decisions that were issued February 
19, 1974 (39 FR 9012), July 17, 1975 (40 FR 30119), and February 5, 
1993 (58 FR 12634). Because these provisions deal with inter-order, as 
well as intra-order, movements of milk, they should be essentially 
uniform with the surrounding orders and adopted, with only a slight 
modification, for the merged order.
    Under the present Georgia order, the application of Sec. 1007.42(c) 
has been unclear with respect to the transfer or diversion of bulk 
fluid milk products to an exempt governmental agency plant. At present, 
if bulk milk is transferred to an exempt plant, it is automatically 
classified as Class I, based on the presumption that the transferred 
milk is needed only to supplement the own-farm production of the exempt 
handler. However, where the exempt handler has no own-farm production, 
this presumption has resulted in a Class I classification for milk 
that, in fact, was used in a Class II product. Therefore, this 
paragraph should be modified to provide an automatic Class I 
classification for transfers or diversions of fluid milk products to a 
producer-handler. It should also provide for a Class I classification 
for a packaged fluid milk product transferred to an exempt governmental 
agency plant defined in Sec. 1007.8(e). However, in the case of bulk 
fluid milk products or fluid cream products transferred or diverted to 
an exempt plant, the classification should be based on the exempt 
plant's utilization as determined by the market administrator.

2(c). Pricing of Milk: Secs. 1007.50-1007.54

    Milk pooled under most Federal orders is now priced in four use 
classifications: Class I, Class II, Class III, and Class III-A. Class I 
milk, which is generally milk consumed as a beverage, competes for 
sales on a local or regional basis; Class II milk products, which 
include soft dairy products such as cottage cheese, ice cream, and 
dips, compete on a regional basis, and Class III milk products (hard 
cheese and butter) and Class III-A products (nonfat dry milk) are 
products which can be stored for extended periods of time and compete 
for sales on a national basis.
    There are several issues to be discussed in connection with the 
pricing of milk: Class III and III-A prices, the Class II price, the 
seasonal adjustment proposed for the Class III and III-A prices, the 
Class I price level, and the location adjustments that are needed for 
the new order.
The Class III-A Price: Sec. 1007.50(d)
    The present Class III-A price that is applicable to each of the 
individual orders should be continued for the Southeast marketing area. 
This price is based on a product formula, specified in Sec. 1007.50(d), 
that is defined as the average Central States nonfat dry milk price for 
the month, as reported by the Department, less 12.5 cents, times an 
amount computed by subtracting from 9 an amount calculated by dividing 
0.4 by such nonfat dry milk price, plus the butterfat differential 
value per hundredweight of 3.5 percent milk and rounded to the nearest 
cent.
    Class III-A pricing was added to the individual orders on December 
1, 1993. The reasons for moving nonfat dry milk from Class III to Class 
III-A and for adopting the product formula described above were 
thoroughly explained in a final decision issued October 20, 1993, and 
published in the Federal Register on October 29, 1993 (58 FR 58112). 
The findings and conclusions of that decision are incorporated by 
reference in this decision. There was no opposition to a continuation 
of this price under the merged order.
The Class III Price: Sec. 1007.50(c)
    The Class III price for the Southeast order should be the ``basic 
formula price,'' as defined in Sec. 1007.51(a). The basic formula 
price\5\ is the average price per hundredweight for manufacturing grade 
milk, f.o.b. plants in Minnesota and Wisconsin, as reported by the 
Department for the month, adjusted to a 3.5 percent butterfat basis and 
rounded to the nearest cent using the butterfat differential computed 
pursuant to Sec. 1007.74. This price is now used in each of the 
individual orders involved in this proceeding, in every other Federal 
order, and was proposed by the cooperative coalition for the merged 
order. It appropriately reflects the value of milk used to produce hard 
cheese and butter and is equally appropriate for the Southeast 
marketing area.
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    \5\A national hearing was held in June 1992 to consider 
modifications to the basic formula price for all orders. A 
recommended decision was issued on the basis of that hearing on 
August 3, 1994 (59 FR 40418). Whatever is adopted as a result of 
that proceeding will be incorporated in the merged order.
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Seasonal Adjustment to Class III and III-A Prices
    The cooperative coalition proposal to seasonally adjust the Class 
III and III-A prices should not be adopted.
    The proposal would reduce Class III and III-A prices by 10 cents 
during the months of December, January, and February, and by 30 cents 
during the months of March, April, and May; and it would increase these 
prices by 10 cents in June, 20 cents in July, 25 cents in August 
through October, and 15 cents in November.
    The cooperative coalition's spokesman testified that there is 
considerable cost involved in balancing the seasonal excess supply of 
the proposed marketing area. The cooperative coalition proposal, he 
testified, is designed to relieve the handlers of some of the cost 
involved in assuming this role.
    This proposal was opposed by a handler and a regional cooperative 
association in post-hearing briefs. Baker & Sons Dairy stated in its 
brief that while the simple average of the proposed seasonal 
adjustments would be mathematically neutral, they are far from neutral 
on a weighted average basis and would substantially reduce the blend 
price and producer income during the months of December through May. 
The handler also argued that this proposal undermines the principle of 
pricing Class III and III-A products on a national and international 
basis, and instead would give one area of the country an advantage over 
other areas.
    Milk Marketing, Inc., a cooperative with dairy farmer members in 
eight states, also submitted a brief opposing any seasonal adjustment 
to the Class III and III-A prices. MMI wrote that plants utilizing milk 
in Class III and III-A during the months of March, April, and May would 
have a 30-cent per hundredweight advantage over plants regulated under 
other orders. It stated that this translates to a price advantage of 3 
to 4 cents per pound for nonfat dry milk powder.
    The proposal to seasonally adjust Class III and III-A prices cannot 
be justified on the basis of this hearing record. It is apparent from 
reviewing the market administrator's price announcements from December 
1993 through March 1994 that much of the seasonally surplus milk in the 
proposed Southeast marketing area is manufactured into nonfat dry milk 
at the Dairymen, Inc., plants in Lewisburg, Tennessee, and Franklinton, 
Louisiana. As a result of the institution of Class III-A pricing in 
December 1993, DI has already obtained substantial relief in the 
pricing of Class III-A milk. For the four months from December 1993 
through March 1994, the Class III-A price averaged $2.15 below the 
Class III price. This reduction in price for Class III-A milk would 
have reduced the blend price by approximately nine cents per 
hundredweight in the proposed market for these months if the merged 
order had been in effect.
    Producers in this marketing area have already contributed to those 
organizations that are balancing the reserve supplies of the market, 
and we find no compelling reason on the basis of this record to 
increase this contribution by further reducing the Class III and III-A 
prices with the proposed seasonal adjustments. The proposal is, 
therefore, denied.
Class II Price: Sec. 1007.50(b)
    The Class II price proposed for the merged order is the price now 
applicable to the individual orders and to most other Federal orders. 
There was no opposition to the continuation of this price under the 
merged order.\6\
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    \6\A recommended decision that would modify Class II pricing 
under all Federal milk orders was issued on August 22, 1994, and 
published on August 26, 1994 (59 FR 44074). Any amendments resulting 
from that proceeding will be applicable to the merged order proposed 
in this proceeding.
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Class I Pricing
    The Class I price under the proposed Southeast order should be 
determined by adding a Class I differential to the basic formula price 
for the second preceding month. This is the method for determining 
Class I prices under all Federal orders and the method proposed for the 
merged order. There was no opposition to this proposal.
    As proposed by the cooperative coalition, the Class I differential 
applicable to the base zone, which includes Birmingham, Alabama, and 
Atlanta, Georgia, should be $3.08 per hundredweight, the differential 
that is now applicable to those locations under the Georgia and 
Alabama-West Florida orders.
    In establishing the Class I price level, a primary consideration 
must be to attract an adequate supply of Grade A milk for fluid use, 
taking into consideration production within the marketing area relative 
to the demand for fluid milk by handlers regulated under the order and 
the cost of transporting bulk milk from surplus producing areas to 
supplement local production. However, an equally important 
consideration is to establish a Class I price that will provide proper 
alignment with Class I prices in neighboring markets. A Class I price 
that is too high could result in excessive milk production within the 
market and a retail price advantage for handlers regulated under lower-
priced orders distributing packaged products in the marketing area. 
Therefore, the Class I price should not exceed the Class I price in the 
closest surplus-producing region plus the cost of transporting bulk 
milk from that area to this market.
    Based on the current cost of transporting milk, which the 
cooperative coalition's spokesman indicated was in excess of 3.9 cents 
per hundredweight per 10 miles distance, the $3.08 Class I differential 
proposed for the base zone of the merged order should be high enough to 
insure an adequate supply of milk but not too high so as to provide a 
pricing advantage for handlers in lower-priced markets to the north of 
the Southeast marketing area.
Plant Location Adjustments: Sec. 1007.52
    The merged order should have a total of 12 pricing zones consisting 
of a base zone, five ``minus'' zones, and six ``plus'' zones. These 
zones, and the Class I differential that would apply to each zone, are 
shown on the map of the marketing area included in this decision. Table 
1 identifies the plants designated by the numbers on the map.
    Although there are, in reality, 12 different Class I prices that 
will apply to the Southeast marketing area, for statistical purposes 
the Class I price that will be shown for the market will be the price 
applicable to Zone 6, the base zone. As noted earlier, this zone 
includes Atlanta, Georgia, and Birmingham, Alabama, two of the market's 
key population centers.
    In arriving at the appropriate location adjustments for the 
Southeast marketing area, several factors were taken into 
consideration. In addition to considering the prices that are now 
applicable in each of the separate areas and those embodied in the 
proposals submitted, it was necessary to consider other factors such as 
the prices in marketing areas contiguous to the Southeast marketing 
area, whether the zones in the separate marketing areas lined up 
properly on an east-to-west axis in the merged marketing area, the 
fluid needs of each area, the supply of milk locally available to each 
area, and the competitive relationship among handlers in each area.
    The zones proposed in this decision were carefully drawn to provide 
proper alignment with the Carolina order to the east, the Upper Florida 
order to the south, the Texas and Southwest Plains orders on the west, 
and the Louisville-Lexington-Evansville, Paducah, and Tennessee Valley 
orders on the north; they were drawn so as to minimize price changes 
from one zone to the next zone; as much as possible, the zones were 
drawn so as to include in the same zone all plants located in close 
proximity to one another; and they were drawn in a way that will 
provide an incentive for milk to move from areas of surplus production 
to metropolitan areas where distributing plants are located.
Zone 6
    As indicated above, the base zone (Zone 6) includes a band of 
counties extending from South Carolina on the east to Texas on the 
west. The $3.08 Class I differential applicable to this zone borders a 
$3.08 zone in the Carolina order and a $3.16 zone in the Texas order 
and a $3.00 zone in the Southwest Plains order. Included within this 
zone are three distributing plants in Georgia, three in Alabama, and 
two in Mississippi. The $3.08 adopted for the Georgia and Alabama 
plants is the same price that is now applicable to these plants and 
that was proposed by the cooperative coalition and Fleming Dairy.\7\
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    \7\It should be understood that references to the ``Fleming 
Dairy'' proposal mean Proposal No. 9 as included in the notice of 
hearing.
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    The Mississippi portion of Zone 6 includes the Brookshire (Dairy 
Fresh) Dairy Products, Inc., plant in Columbus (Lowndes County) and 
LuVel Dairy Products, Inc., in Kosciusko (Attala County). At the 
present time, the price at the Columbus plant is $3.10, while the price 
in Kosciusko is $3.20. Proposal number 1 would have maintained these 
prices, while the Fleming Dairy proposal would have included the 
Columbus plant in its $3.08 zone and the Kosciusko plant in its $3.18 
zone.
    Lowndes and Attala Counties should be added to Zone 6 of the 
proposed Southeast marketing area with a Class I differential of $3.08. 
This price ties in well with prices to the east and west and will be 10 
cents below the Class I price applicable to LuVel's closest competitor, 
Flav-O-Rich in Canton, which is about 50 miles southeast of Kosciusko.
    The $3.08 price in Zone 6 would extend into 13 counties in southern 
Arkansas, which are now not regulated by any order. There are now no 
distributing plants in this area.
Zone 7
    Zone 7 should have a Class I differential of $3.18 (i.e., a plus 
location adjustment of 10 cents). This zone borders a $3.23 zone under 
the Carolina order on its easternmost edge and a $3.16 zone under the 
Texas order on its western border. There are five distributing plants 
in this zone: Foremost Dairies in Shreveport, Louisiana; the Borden 
Company in Monroe; Flav-O-Rich in Canton, Mississippi; Kinnett Dairy in 
Columbus, Georgia; and the Borden Company in Macon, Georgia. The 
Shreveport and Monroe plants are now in a $3.28 zone under Order 96, 
the Flav-O-Rich plant is in a $3.35 zone under Order 94, and the 
Columbus and Macon, Georgia, plants are in a $3.18 zone under Order 7.
    Testimony at the hearing indicated that handlers in northwestern 
Louisiana compete with handlers in east Texas who are subject to a 
$3.16 price. It was also pointed out in testimony and in a brief that 
Dallas, Texas, which is roughly the same latitude as Shreveport, had 
the same price as Shreveport from 1985 through 1991, after which the 
Dallas price was reduced from $3.28 to $3.16.
    Data and testimony in the record also indicated that there are 
abundant supplies of milk available to the Shreveport and Monroe 
handlers in nearby De Soto Parish and in Hopkins County, Texas, which 
produced 74 million pounds of milk in December 1992.
    The $3.28 price that presently applies at Shreveport and Monroe and 
which was proposed for this area by the cooperative coalition is too 
high in relation to the $3.16 Class I differential under the Texas 
order. In the absence of any testimony indicating that the Shreveport/
Monroe area is a deficit area needing an unusually high price to 
attract a supply of milk, the price in that area should be reduced to 
$3.18.
    The price at the Flav-O-Rich plant in Canton should be reduced by 
17 cents to provide proper alignment with areas to the east and west of 
Canton. Although the competitive relationship will be changed between 
Flav-O-Rich, Canton, and its nearest competitor, the Borden plant in 
Jackson, Mississippi (Zone 8), the 10-cent difference in price is not 
unreasonably wide in view of the roughly 25 miles from Canton to 
Jackson and is necessary to provide a proper price relationship with 
areas to the east and west of Canton.
Zone 8
    Zone 8 of the proposed marketing area includes no plants in 
Louisiana or Georgia, but does encompass one plant in Mississippi and 
two plants in Alabama.
    The Mississippi plant in Zone 8 is the Borden plant in Jackson, 
while the two Alabama plants are the Superbrand and Flav-O-Rich plants 
in Montgomery. Under Order 94, the Jackson plant now has a Class I 
differential price of $3.35. As proposed by the cooperative coalition 
and Fleming Dairy, that would also be the price under the merged order. 
The two Montgomery plants also now have a Class I differential of 
$3.35, which were also the prices proposed for those two areas.
    The price in Jackson, Mississippi, and Montgomery, Alabama, should 
be reduced from $3.35 to $3.28. These plants are on nearly the same 
east-west plane as Dallas, Shreveport, and Monroe, which would be 
subject to a $3.18 differential price. There was no indication of a 
problem attracting a milk supply in this area, and there are no plants 
in the immediate area that would be negatively impacted by this modest 
reduction in price. Accordingly, the pricing in the four separate 
marketing areas should be integrated by the creation of this $3.28 
zone.
Zone 9
    Zone 9 runs from the Atlantic Ocean on the east to a $3.34 zone 
under the Texas order on the west. The differential price in Zone 9 
should be $3.38. There are no distributing plants within this zone in 
Louisiana, Mississippi, or Alabama, but there is one nonpool plant 
operated by Hershey Foods in Savannah, Georgia. The Hershey plant in 
Savannah is now subject to a $3.38 Class I differential price under 
Order 7. Both the cooperative coalition and Fleming Dairy proposed a 
continuation of current prices for this area.
Zone 10
    Zone 10 should be priced at $3.48, or 10 cents above Zone 9.
    There are two plants in Zone 10: the Dairy Fresh plants in 
Hattiesburg, Mississippi, and Cowarts, Alabama. The present price at 
the Hattiesburg plant is $3.45, while the Cowarts plant (in Houston 
County) is subject to a $3.38 price in a one-county zone under the 
Alabama-West Florida order. The present price in the Alabama counties 
adjacent to Houston County is $3.65. Under the Georgia order, the price 
at this latitude is now $3.38, while in Louisiana, it is $3.55.
    A $3.48 price in Zone 10 will provide for proper price alignment 
with the $3.58 differential price that applies to the Upper Florida 
marketing area. It will also provide for a gradual transition in price 
to the higher priced zones in Alabama, Mississippi, and Louisiana.
Zone 11
    Zone 11 of the Southeast marketing area borders the Upper Florida 
order on the east, where the Class I differential price is $3.58, and 
the Texas order on the west, where the price is $3.34. The price in 
Zone 11 should be $3.58.
    Zone 11 includes two counties that are split between two zones. The 
portion of Tangipahoa Parish, Louisiana, north of State highway 16 is 
within Zone 11; the remainder of Tangipahoa Parish is in Zone 12. The 
portion of Mobile County, Alabama, that is within 25 miles of the 
Mobile City Hall is in Zone 12, while the remainder of Mobile County is 
in Zone 11.
    There are no distributing plants in Zone 11, but there are two 
cooperative manufacturing plants in the Louisiana parishes of 
Tangipahoa and Washington. In the portion of Tangipahoa Parish north of 
State highway 16, Mid-America Dairymen, Inc., operates a cheese plant 
in Kentwood. In Washington Parish, which is to the east of Tangipahoa 
Parish, Dairymen, Inc., operates a butter-powder manufacturing plant in 
Franklinton.
    At the present time, the Class I differential price at Kentwood and 
Franklinton is $3.65 under Order 94. The cooperative coalition proposed 
a continuation of this price level under the merged order, as did 
Fleming Dairy, Dairy Fresh, Acadia Dairy, Barber Dairy, Brown's Velvet 
Dairy, Guth Dairy, Kleinpeter Dairy, and Walker Resources. It should be 
noted, however, that these proposals were directed at the zone as it 
presently exists under Order 94 (i.e., including Baton Rouge and 
Hammond, Louisiana) and not as it is proposed here.
    In August 1993, Tangipahoa Parish produced 23 million pounds of 
milk, far more than any other parish in Louisiana. Washington Parish 
was the next highest production parish that month, producing 14.6 
million pounds. Directly north of Tangipahoa and Washington Parishes 
are the Mississippi counties of Pike and Walthall, which are the two 
highest production counties in Mississippi, producing 6.9 and 7.0 
million pounds, respectively, in August 1993.
    Because of the substantial milk production in this area of southern 
Mississippi and southeastern Louisiana, this area serves as a reserve 
supply area for much of the Southeast. In August 1993, for example, 
more milk was supplied to the Alabama-West Florida market from 
Washington Parish than any other county or parish in the Southeast.
    A $3.58 price level for Zone 11 will align properly with the Upper 
Florida marketing area and will provide a smooth transition to Zone 12, 
which should be priced 10 cents above Zone 11. Milk is not needed in 
Zone 11, but it is needed in Zone 12. Therefore, the price in Zone 11 
needs to be high enough to provide proper alignment with lower prices 
north of this area and higher prices south of the area, but it does not 
have to be kept at its present level, particularly since the price in 
Zone 12 is being reduced.
    Although Zones 11 and 10 ($3.58 and $3.48, respectively) of the 
Southeast order abut a $3.34 zone under the Texas order, there are no 
distributing plants in the Texas county of Newton, which borders these 
zones. Due to the extremely large zones in the Texas marketing area, it 
is not possible to gradually increase prices on a north to south axis 
in Louisiana while simultaneously matching up perfectly with the zone 
prices of the Texas marketing area. Because there are no plants in this 
area, however, this is not a serious problem at the present time.
Zone 12
    Zone 12 contains several of the large population centers in this 
marketing area, including Baton Rouge, New Orleans, and Mobile. It 
extends from Mobile, Alabama, on the east to the Texas border on the 
west. The Class I differential applicable to Zone 12 should be $3.68.
    At present, the differential prices at Baton Rouge, New Orleans, 
and Mobile are $3.78, $3.85, and $3.65, respectively. Under the 
cooperative coalition proposal, these prices would stay at their 
present levels. Under the Fleming Dairy proposal, and under Proposal 
No. 3, which was jointly submitted by Dairy Fresh, Barber Dairy, 
Brown's Velvet Dairy, and Kleinpeter Dairy, the price at Baton Rouge 
would be reduced to $3.65 and the price at New Orleans would be reduced 
to $3.72. Fleming Dairy also proposed a price of $3.65 for Mobile.
    A spokesman representing Dairy Fresh of Louisiana (i.e., part of 
the Fleming Companies), which operates a distributing plant in Baker, 
Louisiana (about five miles north of Baton Rouge), testified that the 
Class I prices in southern Louisiana should be adjusted for three 
reasons. First, he said that the current Class I price for southern 
Louisiana which was established by Congressional mandate in 1985 has 
put this area significantly out of alignment with the price grid of 
other locations in the South. The Congressionally-mandated Class I 
pricing in southern Louisiana, he said, was not justified in the 1985 
legislative history and cannot be justified now, particularly since the 
area north of Lake Pontchartrain and Lake Maurepas contains one of the 
greatest concentrations of milk cows of the deep South.
    The witness testified that in the Federal order system higher Class 
I prices at one location compared to another suggest a need to attract 
milk from distant supply areas. But southern Louisiana, he pointed out, 
is not more deficient in milk production than Florida. In fact, he 
added, southern Louisiana milk supply is regularly transferred, 
primarily by Dairymen, Incorporated, to Florida during short production 
months to supplement Florida's raw milk requirements. He said that 
Louisiana shipments to Florida totaled 17 million pounds in 1989, 4 
million pounds in 1990, 5 million pounds in 1991, 2.5 million pounds in 
1992, and in August 1993 seven loads containing 330,000 pounds.
    The second reason why southern Louisiana prices should be lowered, 
according to the witness, was that in September of 1990 a new 
Superbrand plant commenced operation in Hammond, Louisiana, which is 
about 40 miles due east of Baton Rouge, and 55 miles north of New 
Orleans. He said the Superbrand plant was 25 miles closer to New 
Orleans than Baton Rouge, yet the Hammond plant enjoyed a Class I 
differential of $3.65, which is 13 cents lower than the Baton Rouge 
price of $3.78.
    The witness testified that the mileage allowance between Hammond 
and New Orleans is 3.6 cents per hundredweight per ten miles while the 
mileage allowance between Baton Rouge and New Orleans is 0.8 cents per 
hundredweight per ten miles. He stated that the Hammond allowance 
clearly exceeds the prevailing rate of about 2.0 cents to 2.5 cents per 
hundredweight per 10 miles that prevails elsewhere in the Southeast.
    The Dairy Fresh witness stated that the third reason why southern 
Louisiana prices should be lowered is that in 1991 the Department 
lowered the Texas Class I differential by 12 cents per hundredweight. 
As a result, he said, milk processors in Texas immediately received a 
relative 12-cent advantage in their ability to compete with Louisiana 
processors. Prior to this decision, he testified, handlers in the 
Houston-Beaumont zone of the Texas market, paid 4 cents per 
hundredweight more for their Class I milk than processors in the Baton 
Rouge area. After the change, however, these processors paid 8 cents 
less than the Baton Rouge processors, he added. The witness said that 
the Texas plants with regular distribution in Louisiana include two 
plants in Tyler, one in Conroe, and one plant in Fort Worth. One of the 
Tyler plants, he estimated, distributed 4 million pounds of Class I 
milk per month to retail stores in Louisiana.
    The witness also testified that gross margins on Louisiana 
wholesale milk prices have tightened up since the Department lowered 
the Texas prices. He said it was time to address and correct the 
problem of competitive inequity and price misalignments without further 
delay and urged the Department to address the southern Louisiana 
pricing problems by partial recommended and final decisions, without 
waiting for analysis and resolution of other merger issues.
    A spokesman for the Southern Foods Group (SFG) testified that SFG 
agreed with Fleming Dairy that the price in southeastern Louisiana was 
too high relative to other areas. He also stated that the price surface 
that exists there today is solely the result of the 1985 Farm Bill, 
which established statutory minimums for Class I differentials in New 
Orleans and Shreveport. He added that there is no longer a reason to 
maintain the existing price structure in southern Louisiana because the 
Congressional mandate to increase prices was not binding after April 
30, 1988.
    The SFG witness testified that the largest population center for 
the Southeast order is Zone 8 of Proposal No. 1 (i.e., the Atlanta 
area) with a population of 3.3 million. He said the next most populous 
area is the Birmingham, Alabama, area with 1,717,455 people, followed 
by the Baton Rouge-West Louisiana and southern Georgia areas with 1.3 
million each, and then New Orleans with 1.2 million.
    Using data on nearby milk supplies and per capita consumption of 
fluid milk, the witness asserted that there is more production in 
relation to population in southern Louisiana than in any other 
population center of the marketing area. He said that nearby milk 
supplies in southern Louisiana for December 1992 exceeded 53.5 million 
pounds while all of the milk production located in Zone 8 of Proposal 
No. 1 was 44.2 million pounds. In contrast, he pointed out, the 
population of Zone 8 exceeded southern Louisiana by 2.4 million people. 
Therefore, he concluded, the milk price in Baton Rouge and New Orleans 
is higher than is warranted.
    In its post-hearing brief, SFG stated that there should be no 
difference in price between Baton Rouge and New Orleans. The brief 
pointed out that prior to the 1985 Farm Bill, the Class I price at 
Baton Rouge and New Orleans was the same. It also emphasized that the 
distance from the large pool of milk in Tangipahoa Parish is roughly 
the same to New Orleans as to Baton Rouge because of the causeway over 
Lake Pontchartrain.
    A witness appearing on behalf of the Louisiana Farm Bureau 
Federation stated that processors in Louisiana are losing fluid milk 
sales and producers are also losing their market. He testified that it 
was important that the pricing structure be aligned appropriately, not 
only within the consolidated area, but also with the adjacent market 
areas. He asked the Department to objectively evaluate the pricing 
structures in the proposed consolidated area. Louisiana processors 
cannot be competitive, he noted, if they are subject to unreasonably 
high prices relative to their competition.
    The witness testified that current Federal order price alignment 
within, and adjacent to, Louisiana markets has resulted in prices that 
are jeopardizing the economic well-being of the State's dairy industry. 
Just as important, he added, it is contributing to a decline in the 
critical mass of services essential to a healthy dairy industry (e.g., 
milk hauling, veterinary services, feed milling, etc.).
    The Louisiana Farm Bureau witness indicated that ``the decline of 
our local markets and loss of our processing industry, can be directly 
linked to imports from adjacent areas.'' He said that the present price 
structure has resulted in the importation of unneeded milk from Texas 
which, in turn, has caused the unnecessary movement of milk at the 
expense of Louisiana dairymen.
    We must conclude from the testimony in this record that a reduction 
in price is absolutely necessary in the Baton Rouge and New Orleans 
areas and that there is no reason for Hammond to be priced 13 cents 
below Baton Rouge or for Baton Rouge to be priced seven cents below New 
Orleans. They should all be in the same zone with the same price.
    The available supplies of milk in the New Orleans/Baton Rouge area 
do not justify a continuation of the present price structure. From 
December 1983 to December 1992, the milk supply in the two Louisiana 
parishes of Tangipahoa and Washington grew by more than 29 percent, 
from 39,492,177 pounds of milk per month to 51,125,921 pounds of milk 
per month. In December 1992, more than 33 million pounds of milk 
produced in Tangipahoa Parish were pooled on Orders 94 and 96. There is 
another 15.9 million pounds of milk available in Washington Parish and 
in excess of 4.6 million pounds for December 1992 from St. Tammany and 
St. Helena Parishes. In total, there were 55 million pounds of milk in 
parishes close to the New Orleans/Baton Rouge area.
    The Class I differential price in Zone 12 should be $3.68, which is 
10 cents below the present price in Baton Rouge, three cents higher 
than the present price in Hammond, Louisiana, and 18 cents below the 
present price in New Orleans. It is also two cents below the adjacent 
Zone 8 price of Order 126.
    In this southernmost part of the Southeast marketing area, there is 
obviously no reason to provide higher prices to preserve alignment with 
more southerly areas because there is nothing but water south of New 
Orleans. The question that must be asked then is whether or not a 
higher price is needed to attract a supply of milk to this area.
    The testimony and data in this record indicate that there is more 
milk available to handlers in New Orleans and Baton Rouge than to 
handlers in many other parts of the marketing area. It would therefore 
appear that, not only are the present Class I price levels in Baton 
Rouge and New Orleans not needed to help handlers attract a supply of 
milk to this area, but, in fact, may hinder the movement of bulk milk 
to other areas where it is needed for fluid use.
    From May 1984 to May 1993, the total packaged distribution of fluid 
milk products in the Greater Louisiana marketing area decreased from 
46.7 million pounds to 46.4 million pounds, or by .6 percent. During 
this same time period, the distribution of packaged fluid milk products 
in this marketing area by handlers regulated under the Texas order 
increased from 2.5 million pounds to 9.8 million pounds, or by 
approximately 290 percent. The total distribution in the area from 
handlers regulated under all other Federal orders increased from 11.9 
million pounds to 15.2 million pounds (i.e., 2.7 percent).
    In the Order 94 marketing area, the total packaged distribution of 
fluid milk products declined from 64.0 million pounds to 61.5 million 
from May 1984 to May 1993, or by 3.9 percent. During this time period, 
the distribution of packaged fluid milk products from all other orders 
increased from 9.3 million pounds in May 1984 to 13.3 million pounds in 
May 1993, or by 43 percent.
    These comparisons paint an unhealthy picture for handlers in 
Mississippi and Louisiana. While their total disposition of fluid milk 
products has gone down, more and more of what remains of their market 
is being serviced by handlers outside the marketing area. Although 
there may be other explanations for these statistics, one thing that 
definitely happened during this time frame is that the Class I prices 
in Baton Rouge and New Orleans went up in relation to all of the 
surrounding orders.
    The pricing structure adopted here for Zone 12 should restore 
proper price alignment to this area in relation to prices in 
surrounding orders.
    The Mobile, Alabama, area should also be part of Zone 12; 
specifically, that part of Mobile County, Alabama, within 20 miles of 
the Mobile City Hall. The Zone 12 price of $3.68 for this area would be 
three cents higher than the $3.65 price that now applies to Mobile 
under Order 93 and which was proposed for this area by the cooperative 
coalition.
    There are two plants in the Mobile area: Barber Pure Milk Company 
(Barber) in Mobile and Dairy Fresh Corporation (Dairy Fresh) in nearby 
Prichard.
    At the hearing, Barber and Dairy Fresh proposed maintaining the 
present $3.65 Class I differential price at Mobile, but increasing the 
producer location adjustment by an additional 22 cents. Under the 
cooperative coalition proposal and the Fleming Company proposal, the 
Class I differential price also would have remained at the $3.65 level.
    Under the Barber/Dairy Fresh proposal, handlers in their proposed 
Zone 17-A (i.e., that part of the cooperative's proposed Zone 17 within 
the States of Alabama and Florida) would pay a 57-cent location 
adjustment on their Class I milk (i.e., $3.65), but the producers 
delivering milk to these plants would be paid an additional 79 cents 
(over the base zone price) on all of the milk delivered to the plants.
    The spokesman for Barber and Dairy Fresh testified that the demand 
for Class I milk in the south Alabama area and western panhandle 
section of Florida far exceeds the supply. He said that historically 
milk has been shipped considerable distances to this area.
    The witness testified that in December 1992 the Barber and Dairy 
Fresh plants received approximately 17.9 million pounds of producer 
milk from non-member producers and cooperative association member 
producers, of which 7.3 million pounds, or 41 percent, was received 
from producers located in Louisiana and Mississippi. He stated that 
there is approximately 2.5 million pounds of milk per month located in 
southern Alabama and the panhandle of Florida that is not being shipped 
to the Barber and Dairy Fresh plants. Even if this milk were delivered 
to those plants, he said, there would remain a shortfall of about 4.8 
million pounds of milk. To maintain this supply, based on current price 
relationships, he added, will cost handlers from 33 cents to 75 cents 
per hundredweight.
    The Barber/Dairy Fresh witness indicated that the incentive for 
these producers to ship their milk to plants located in the Mobile area 
has been the Order 93 blend price, which averaged 53 cents higher than 
the Order 94 blend price in southeastern Louisiana/southern Mississippi 
for the 12 months of September 1992 through August 1993. The problem, 
he stated, was that in merging these orders, this blend price incentive 
will be eliminated. Without an additional incentive to move milk to 
Mobile, according to the witness, it is likely that some handlers in 
the Mobile area will be forced out of business.
    The witness stated that there are several handlers competing for 
the milk supply in Louisiana and Mississippi who have plants located in 
that heavy production area. Among these, he said, are Gulf Dairy 
Association, Incorporated (Mid-America Dairymen, Inc., effective March 
1, 1994), which operates a cheese manufacturing plant in Kentwood, 
Louisiana; Dairymen, Inc., which operates a butter-powder manufacturing 
plant in Franklinton, Louisiana; Flav-O-Rich, which operates a 
distributing plant located in Canton, Mississippi; Superbrand Dairy 
Products, Incorporated, which is located in Hammond, Louisiana; Borden, 
Inc., which has plants in Baton Rouge, Louisiana, and Jackson, 
Mississippi; and Dairy Fresh of Louisiana, which operates a 
distributing plant in Baker, Louisiana.
    According to the witness, Gulf Dairy Association charged an 
additional 30 cents per hundredweight for milk delivered to Mobile on 
top of the 53-cent blend price difference prevailing between Orders 93 
and 94 between September 1992 and August 1993. He stated that Gulf 
Coast Dairymen's Association of Gulfport, Mississippi, charged an 
additional 40 cents per hundredweight for milk delivered to Mobile.
    The Barber/Dairy Fresh proposal was actively opposed by most of the 
other hearing participants and was supported by no one other than the 
proponents. The effect of this proposal would be to have producers and 
handlers in other parts of the marketing area subsidize the delivery of 
milk to the Barber and Dairy Fresh plants in the Mobile area. Those 
parties opposed to the proposal argued that they should not have to 
subsidize Barber and Dairy Fresh in attracting a milk supply. They 
contended that if higher prices to producers are needed in Mobile, the 
handlers operating plants in Mobile should pay higher Class I prices to 
reflect those higher costs.
    The problem posed by the Mobile handlers can be addressed by 
providing a greater transportation allowance to move milk to the Mobile 
area. At the present time, the Mobile area is priced the same as the 
heavy production area in southern Mississippi and southeastern 
Louisiana. Thus, there is no incentive for a producer to incur the cost 
of shipping milk from this area to Mobile. By increasing the price by 
three cents in Mobile and decreasing the price at alternative 
locations--i.e., by 10 cents at Kentwood and Franklinton, Louisiana, by 
17 cents in New Orleans, by 7 cents in Jackson, Mississippi, and 
Montgomery, Alabama, by 17 cents in Canton, Mississippi, and by 12 
cents in Kosciusko, Mississippi--the blend price in the Mobile area 
will cover more of the transportation costs incurred in shipping milk 
to Mobile as compared to these alternative delivery locations.
    If, despite these adjustments, the Mobile handlers still find it 
difficult to attract milk to their plants, the location adjustment in 
the Mobile area can be increased further to provide more transportation 
allowance for shipping milk to Mobile. If this proves necessary, 
however, it is only appropriate to increase both the Class I price and 
the producer blend price by the same amount. In that way, the higher 
Class I prices of handlers in the Mobile area will be passed on to 
consumers, who should, appropriately, pay higher prices reflective of 
the higher costs of bottling milk in the Mobile area or transporting 
packaged milk to the Mobile area from plants at other locations.
Zone 5
    Immediately north of the base zone, a new, transition zone should 
be created with a Class I differential price of $2.98.
    There is one distributing plant in this zone, the Meadow Gold plant 
in Gadsden, Alabama (Etowah County). At the present time, the price at 
Gadsden is the same price as applies at Atlanta, which is 104 miles 
southeast of Gadsden, and at Birmingham, which is 60 miles southwest of 
Gadsden. Both the Fleming Company and the cooperative coalition 
proposed a continuation of this price relationship.
    A slightly lower price should apply at Gadsden to reflect its 
closer proximity to the heavy production area in south central 
Tennessee and to provide a smooth north to south price surface through 
this part of the marketing area. The $2.98 differential price in Zone 5 
borders the dividing line of a $3.08 zone and $2.93 zone under the 
Carolina order. On the west, this zone borders a $3.00 zone under the 
Southwest Plains order.
    Approximately 15 miles north of Gadsden, the Class I differential 
drops to $2.83 in Zone 4. It is necessary to create an intermediate 
Zone 5 to eliminate a sharp 25-cent drop that otherwise would occur 
between Zone 4 and the base zone. If this were not done, a plant 
located just 15 miles from Gadsden could have a 25-cent price 
advantage, which would mirror the soon-to-be-discussed problem of 
handlers in Zone 2.
Zone 4
    Zone 4 includes the northern tier of counties through Georgia, the 
northern two tiers of counties through Alabama and Mississippi, and the 
central two tiers of counties through Arkansas. This zone should have a 
differential price of $2.83.
    There are no plants in the Georgia portion of this zone, which cuts 
through the Chattahoochee National Forest. In northwest Georgia, there 
are seven counties that are within the Tennessee Valley marketing area. 
Most of these counties also lie within the Chattahoochee National 
Forest. Although there are presently no plants in this area of Order 
11, the location adjustment for a plant in this area that becomes 
regulated under the Southeast order would be minus 25 cents (i.e., a 
Class I differential price of $2.83).
    There are three plants in the Alabama portion of Zone 4: Meadow 
Gold at Huntsville (Madison County), Dasi Products (partially 
regulated) at Decatur (Morgan County), and Shoals Cheese in Florence 
(Lauderdale County). The Class I differential price that now applies at 
these plants under Order 93 is $2.85.
    In the Mississippi portion of Zone 4, there are two fully regulated 
distributing plants and one cheese plant. Barber Dairy operates a 
distributing plant in Tupelo (Lee County), Avent's Dairy operates a 
distributing plant in Oxford (Lafayette County), and McClendon Cheese 
has a plant in Booneville (Prentiss County).
    The Arkansas portion of Zone 4 includes the Gold Star, Borden, and 
Coleman Dairy plants in Little Rock (Pulaski County), and Humphrey's 
Dairy in Hot Springs (Garland County). The western border of this zone 
adjoins a $3.00 zone and a $2.77 zone under the Southwest Plains order.
    Under the four separate orders, there are now four separate prices 
that apply to Zone 4: under Order 7, the price is $2.93; under Order 
93, the price is $2.85; under Order 94, the price is $2.90; and under 
Order 108, the price is $2.77. Under the cooperative coalition 
proposal, the prices would remain at their present levels from northern 
Georgia to northern Mississippi. The Fleming Company would standardize 
the price at $2.85 from northern Georgia through northern Mississippi. 
AMPI proposed a $2.77 Class I differential for the Little Rock, 
Memphis, and northwest Mississippi areas.
    Under the merged order, a price of $2.83 should apply in this zone. 
This price would be 15 cents higher than Zone 5 to the south and 13 
cents lower than Zone 3 on the north. The primary reason for selecting 
a price of $2.83 is that it lines up well with the prices on the east 
and west of the market and contributes to a smooth north to south 
transition within the marketing area.
Zone 3
    Zone 3 is comprised of the southernmost tier of counties through 
the State of Tennessee and the Arkansas counties of Crittenden, Cross, 
St. Francis, Woodruff, White, Faulkner, Conway, Perry, and Yell.
    The Forest Hill Dairy plant in Memphis, Tennessee, which is now 
regulated under Order 108, is the only distributing plant in this zone 
(there is also an ice cream manufacturing plant in Memphis). The Order 
108 price at that plant is now $2.77, which also was the price proposed 
for this location by Fleming Dairy. A Class I differential price of 
$2.77 would also apply to that location under the merged order.
Zone 2
    The Tennessee counties which formed the core of the former 
Nashville, Tennessee, marketing area should be included in Zone 2 of 
the Southeast marketing area. Included within this zone would be 
Fleming Dairy, Purity Dairy, and Meadow Gold, in Nashville (Davidson 
County), the Heritage Farms plant in Murfreesboro (Rutherford County), 
Cumberland Creamery in Antioch (Davidson County), the Dairymen, Inc., 
butter-powder manufacturing plant in Lewisburg (Marshall County), and a 
Turner Dairies' plant located in Covington (Tipton County), 36 miles 
north of Memphis.
    At present, the Fleming and Heritage Farms distributing plants are 
regulated under Order 7 and have Class I differential prices of $2.53 
and $2.605, respectively. The Purity Dairy plant in Nashville and the 
Dairymen, Inc., Lewisburg plant are regulated under Order 93 and have a 
Class I differential price of $2.52. The Meadow Gold plant is a nonpool 
plant that manufactures ice cream, and the Cumberland Creamery plant is 
also a nonpool plant that makes condensed milk and milk powder. The 
Covington plant is a partially regulated distributing plant under Order 
108 with a price of $2.77.
    The cooperative coalition proposed a price of $2.52 for the 
Nashville area and $2.605 for Lewisburg and Murfreesboro. The Fleming 
Company proposed a price of $2.52 for Nashville, $2.55 for Murfreesboro 
and Lewisburg, and a continuation of the $2.77 price for Covington.
    The assistant operations manager for Fleming Dairy, Nashville, 
Tennessee, testified that their Nashville plant competes with The 
Kroger Company plant (i.e., Heritage Farms) in Murfreesboro for sales 
throughout the Southeast. He also indicated that both of these plants, 
as well as the Purity Dairy plant in Nashville, compete for milk 
supplies from the same general area in central Kentucky and central 
Tennessee. The witness explained that because this area is a very high 
production area, it serves a balancing function for the Southeast. When 
the milk is not needed for fluid use, it is processed at Dairymen, 
Inc.'s, butter-powder plant in Lewisburg, Tennessee, the Cumberland 
Creamery in Antioch, or the Meadow Gold ice cream plant in Nashville.
    The Fleming Dairy witness testified that the prices between 
Nashville and Murfreesboro should be brought into closer alignment 
because the existing price difference at these locations was causing 
unrest and discontent among neighboring producers. He suggested a price 
difference of no more than three cents. The witness also stated that 
the price at Lewisburg, Tennessee, should be no higher than the 
Murfreesboro price because, otherwise, producers would have an 
incentive to deliver their milk to Lewisburg for manufacturing use 
instead of to a bottling plant for fluid use.
    There is an abundant supply of milk available to handlers in 
central Tennessee. For this reason, it is not necessary to increase the 
price at Murfreesboro relative to Nashville to insure that the Heritage 
Farms plant in Murfreesboro obtains an adequate supply of milk. It 
would not be appropriate, however, to reduce the Class I price at 
Murfreesboro to the Nashville level because that would disrupt price 
alignment with the higher priced zones south of Tennessee and with the 
$2.77 differential applicable in the adjacent Tennessee Valley 
marketing area. Therefore, to provide a common pricing level between 
the Nashville and Murfreesboro plants, the Nashville price should be 
raised to $2.60.
    The price at Covington, Tennessee, should be reduced from $2.77 to 
$2.60. Based on its mileage from Memphis (36 miles) and Fulton, 
Kentucky (87 miles), a $2.60 price at Covington should provide 
appropriate price alignment for this location in relation to areas on 
both a north/south (based on 2.5 cents per 10 miles) and east/west 
axis. Other than Turner Dairies plants in Memphis and Fulton, the next 
closest plant to Covington is the Avents Dairy plant in Oxford, 
Mississippi, 107 miles south of Covington. There are abundant supplies 
of milk available to the Covington plant, so this reduction in price 
should have no impact on this plant's ability to attract raw milk.
Zone 1
    Zone 1 of the Southeast marketing area contains no plants at the 
present time. It borders four different marketing areas with five 
different prices (i.e., $2.77 on its eastern border with Order 11, 
$2.11 and $2.26 along its northern border with Order 46, $2.39 in the 
Order 99 marketing area, and $2.55 on its western border with Order 
106).
    Zone 1 should be priced at $2.55, which is three cents higher than 
the level proposed by the cooperative coalition and the Fleming 
Company. The primary consideration in this northern tier of counties is 
to provide a price that aligns properly with prices to the north and 
south of the zone. Should a plant locate in this area, a price that is 
too low would create the same type of problem between Davidson County 
(i.e., Nashville) and Robertson or Truesdale Counties (i.e., directly 
north of Nashville) as exists between Davidson and Rutherford Counties 
(i.e., Murfreesboro).
Location Adjustments for Plants Outside of the Marketing Area
    Location adjustments also must be specified for plants that are 
located outside of the Southeast marketing area.
    There are seven counties in northern Georgia that are within the 
Tennessee Valley marketing area. There are no known dairy plants in 
these counties. Under the Tennessee Valley order, which has no location 
adjustments within the marketing area, the Class I differential price 
in those counties is $2.77. Had those counties been incorporated in the 
proposed Southeast order, they would have been included in Zone 4, 
which has an adjusted Class I differential price of $2.83. Therefore, 
the location adjustment in those counties under this order, as provided 
in Sec. 1007.52(a)(2), should be minus 25 cents.
    The Missouri county of Dunklin is now unregulated, and Pemiscot 
County, Missouri, is within the Paducah, Kentucky, marketing area. Had 
these two counties been included within the Southeast marketing area, 
they would have been included in Zone 1. Therefore, the appropriate 
location adjustment for any plant that may be located in these two 
counties is minus 53 cents, as provided in Sec. 1007.52(a)(3).
    Had the Texas counties of Bowie and Cass been incorporated within 
the Southeast marketing area, they would have fallen within Zone 6, the 
base zone. Although there are no plants in these two counties at the 
present time, the applicable location adjustment in those two counties 
should be zero, as provided in Sec. 1007.52(a)(4).
    Should a plant located within another Federal order marketing area 
become regulated under the proposed Southeast order, or should producer 
milk be diverted to a plant located in another Federal order marketing 
area, the appropriate location adjustment at that plant location should 
be based on the Class I differential price at the location under the 
Federal order regulating that area, except for the seven Georgia 
counties within the Tennessee Valley marketing area and the Missouri 
county of Pemiscot. Thus, for example, if a plant located in 
Louisville, Kentucky, were to become regulated under the Southeast 
order, the location adjustment at that plant would be determined by 
subtracting the Class I differential price under the Louisville-
Lexington-Evansville order at the Louisville location (i.e., $2.11) 
from the base zone Class I differential price under the Southeast order 
(i.e., $3.08), which would result in a location adjustment of minus 97 
cents. This treatment is provided in Sec. 1007.52(a)(5) of the 
Southeast order.
    The final situation that must be dealt with concerns a plant that 
is not located within any other Federal order marketing area. Section 
1007.52(a)(6) of the proposed order provides six basing points (i.e., 
Shreveport, Louisiana; Little Rock, Arkansas; Memphis, Tennessee; 
Jackson, Tennessee; Nashville, Tennessee; and Atlanta, Georgia) in the 
Southeast marketing area from which to determine the shortest hard-
surfaced highway distance to the plant location as determined by the 
market administrator. The location adjustment would be determined by 
multiplying each 10-mile increment or fraction thereof by 2.5 cents and 
subtracting this number from the Class I differential price applicable 
at the closest of the six basing points. To illustrate, should a plant 
in Richmond, Virginia, which is 511 miles from Atlanta, become 
regulated under the Southeast order, the location adjustment would be 
52  x  $.025 or minus $1.30. In the case of a plant located in 
Chillicothe, Missouri, the location adjustment would be computed by 
determining the mileage (i.e., 424 miles) from the closest basing point 
(i.e., Little Rock), multiplying 43 times $.025, and subtracting that 
number ($1.08) from the location adjustment at Little Rock (i.e., minus 
25 cents) to arrive at a location adjustment at Chillicothe of minus 
$1.33. This method will provide a reasonable transportation allowance 
to ship bulk milk from a distant location to the Southeast marketing 
area, while simultaneously providing a price that is reasonably aligned 
with other Federal order prices closer to the plant location.

2(d). Payments to Producers

    On or before the 26th day of each month, each handler under the 
proposed order should pay for milk received from producers during the 
first 15 days of the month. The rate of payment for this milk should be 
the higher of the Class III price for the preceding month or 90 percent 
of the preceding month's weighted average price.
    On or before the 15th day of each month, a handler would make a 
final payment to producers for milk received during the preceding 
month. The rate of payment would be based on the uniform price(s) that 
will have been announced by the market administrator on or before the 
11th day of the month. The final payment would be net of the partial 
payment made on the 26th day of the prior month, and will also be 
adjusted for marketing services deductions pursuant to Sec. 1007.86, 
errors, and other deductions authorized in writing by the producer.
    If a handler has received milk from a producer who is marketing his 
or her milk through a cooperative association, the handler would pay 
the cooperative association for this milk, not the individual producer. 
The partial payment would be made to the cooperative on or before the 
25th day of the month, and the final payment would be made on or before 
the 14th day of the month. In this way, the cooperative would, in turn, 
be able to pay its producers on the same day that handlers pay their 
nonmember producers.
    These provisions and the remaining paragraphs in Sec. 1007.73, are 
identical to the provisions proposed by the cooperative coalition.
    The proposed partial payment date is somewhat earlier than the date 
that is provided in the individual orders--i.e., the last day of the 
month--but there was no testimony to indicate why an earlier date would 
not be possible, nor is there any apparent reason why the earlier 
payment date would not work.
    These payment provisions are common to all of the individual orders 
and should be familiar to all handlers regulated under the merged 
order.
A Second Partial Payment to Producers
    A proposal that would establish two partial payments and a final 
payment to producers should not be adopted.
    Georgia Milk Producers, Inc. (GMP), an organization which 
represents approximately 195 dairy farmers located in the State of 
Georgia, proposed a provision that would require handlers to pay 
producers two partial payments and a final payment. The proposal 
specifies that on or before the 20th day of each month, producers would 
be paid for milk received during the first 15 days of the month at the 
rate of 85 percent of the weighted average price per hundredweight for 
the preceding month; on or before the 5th day of the following month, 
producers would receive another payment, based on this rate, for milk 
received from the 16th through the last day of the month; and, finally, 
on or before the 15th day of each month, the producer would receive 
final payment for milk received during the preceding month based on the 
uniform price(s) for the month.
    An agricultural economist at the University of Georgia testified on 
behalf of GMP, Georgia Farm Bureau Federation (GFBF), Alabama Farmers 
Federation (AFF), Louisiana Farm Bureau (LFB), and the Mississippi Farm 
Bureau Federation (MFBF) in support of the three-payment proposal.
    According to the witness, milk is one of the few agricultural 
commodities produced in which the producer supports or actually 
finances the marketing of the product. He stated that most agricultural 
commodities are paid for at or soon after delivery to the first buyer. 
He claimed that the dairy farmer finances not only the production of 
his or her milk, but also the marketing of the milk produced through 
each of the marketing channels including the retail store.
    The witness argued that the financial risk to producers has 
increased in recent years. He noted, for example, that from 1982 to 
1992, the number of producers delivering milk to regulated handlers 
under Orders 7, 93, 94, 96, and 98, decreased from 5,765 to 4,600 but 
that the average monthly volume of milk produced increased by 10,000 
pounds. He also pointed out that the number of pool distributing plants 
decreased from 75 to 41 from 1982 to 1992. Thus, he reasoned, there is 
now a greater financial obligation per plant and a greater financial 
risk per producer.
    The witness testified that the three-payment plan would decrease 
the financial burden on producers and reduce the risk of nonpayment. By 
reducing by one-third the time between milk delivery by the producer 
and the payment for the milk by the handler, he claimed, the financial 
exposure to producers resulting from a late handler payment or handler 
bankruptcy would also be reduced by about one-third.
    The witness emphasized that dairy farmers do not have the debt 
protection and the type of provisions included in both the Packers and 
Stockyard Act and the Perishable Agricultural Commodities Act. He noted 
that the Agricultural Marketing Act of 1937 authorizes the Secretary of 
Agriculture to administer milk marketing orders so as to provide for, 
``assurance and security for, the payment by handlers for milk 
purchased.'' However, he stated, there are no Federal milk orders that 
include payment security provisions.
    A dairy farmer testifying on behalf of the Alabama Farmers 
Federation Dairy Committee in support of the three-payment plan stated 
that the plan is an opportunity to begin correcting a problem that 
exists between the time a farmer delivers milk to a handler and the 
time he is paid. He testified that this problem needs to be addressed 
nationwide but stated that this regional hearing is an excellent place 
to begin.
    A dairy farmer located in Loudon, Tennessee, who is also in the 
milk hauling business, also testified in support of the three-payment 
plan. He stated that over the years changes in the dairy industry have 
limited the selling and marketing options of dairy farmers. He said 
that there are agreements in place to control producer movement between 
processors and cooperatives. He also stated that the times of year when 
producers can change markets economically are limited because of base-
excess plans, pooling requirements, and cooperative procurement needs. 
Additionally, he claimed that producers have limited access to accurate 
financial information of handlers.
    According to this witness, bankruptcy is no longer an act of last 
resort; it is considered a standard business procedure that is often a 
pre-meditated planned event. He stated that dairy farmers should not 
carry the risk after the milk leaves the farm when they do not reap the 
benefits or losses from that product. He also stated that producers 
should be paid three times per month because the technology is now 
available to do it.
    A dairy farmer who is the president of Georgia Milk Producers, 
Inc., testified that the three-payment plan would provide much needed 
protection against the risk of dairymen losing money when handlers go 
bankrupt and it would improve producers' cash flow. Finally, a dairy 
farmer located in Barnesville, Georgia, testified that the three-
payment plan was needed because the credit situation for producers has 
changed over the past 10 years. He claimed that producers have limited 
selling options.
    The vice president of the International Dairy Foods Association 
(IDFA) testified in opposition to the three-payment plan. IDFA is 
comprised of Milk Industry Foundation (MIF), the national trade 
association for processors of fluid milk and milk products, the 
National Cheese Institute (NCI), the national trade association for 
manufacturers, processors and marketers of all varieties of cheese, and 
the International Ice Cream Association (IICA), the national trade 
association for manufacturers of frozen dessert products. According to 
the witness, the member companies of the three associations in total 
utilize over 80 percent of all the raw milk produced in the United 
States to process milk and manufacture cheese and frozen dessert 
products which they market.
    The IDFA witness pointed out that provisions for three times a 
month payments to producers are not in effect in any of the milk 
marketing orders involved in the hearing or in any other milk marketing 
orders, with the exception of three Florida orders. He said the three-
payment plan in the Florida markets pre-dated the establishment of the 
orders and was based on prevailing market conditions that were mutually 
agreed upon by producers and handlers in those areas at that time.
    The witness cited several decisions in which the Department denied 
proposals to establish thrice-monthly payments to producers. He said 
the proposal would lead to unstable marketing conditions throughout the 
southern region and would create a competitive disadvantage for both 
producers and handlers in the merged order because of the increased 
cost of raw milk. He also argued that thrice-monthly payments would 
clearly increase costs to handlers and severely impact their cash flow 
and cash reserve positions. He claimed that handlers, and ultimately 
consumers, would have to pay an additional 2.6 cents per hundredweight 
due to the accelerated payment.
    The witness stated that there is no evidence which indicates 
producers in this region have suffered financial hardships as a result 
of the prevailing payment schedules in these orders. In fact, he 
opined, the financial situation for producers in this area, as well as 
most areas of the country, has improved over the past few years, 
indicating no need to change the payment schedule. He noted that from 
1987 through 1990 the ratio of current farm business assets to current 
farm business liabilities for milk producers in the southeastern region 
has more than tripled from 1.37 to 4.78.
    The IDFA witness indicated that dairy processors also must wait to 
be paid for their products. Information from IDFA member companies, he 
said, indicates that handlers' outstanding accounts receivable 
generally run from 25 to 40 days on most commercial accounts, and 
accounts receivable on sales to schools and state institutions run 
longer, generally from 60 to 90 days from billing to collection.
    Southern Foods Group and Kraft General Foods (Kraft) supported the 
opposition testimony of IDFA. The procurement manager for Kraft 
testified that Kraft's accounts receivables averaged 17.3 days in 1993, 
which does not include the inventory age of the product. He also said 
that, based on Kraft's own receivables and payable schedules and other 
information, it is customary for those in the industry to extend 20 to 
25 days credit on their accounts receivables.
    Representatives of Kinnett Dairies, Inc. (Kinnett), and The Kroger 
Company (Kroger), proprietary handlers regulated under Order 7, also 
testified in opposition to the thrice-monthly payment plan proposal. 
The Kinnett witness stated that the plan would give handlers regulated 
under other orders a competitive advantage, and the Kroger 
representative claimed that the proposal would significantly reduce the 
cash flow of dairy processors, adversely affecting the dairy industry. 
According to the Kroger witness, reducing the cash flow for processors 
would reduce the amount of money available for research and development 
of new products which helps to maintain and expand the market for dairy 
farmers' milk.
    The University of Georgia agricultural economist and the other 
proponent witnesses testified that the thrice-monthly payment plan 
would reduce the financial risk that dairy farmers face from handler 
bankruptcy. Although the record evidence reveals that bankruptcy is a 
problem in the marketing area involved, the proposal is not one that 
guarantees producers protection against financial loss from handlers 
who declare bankruptcy.
    One of the advantages that members of a cooperative association 
have in bankruptcy situations is that the financial loss is shared 
equally among all producers and not borne by one producer alone. 
Perhaps for this reason, there was little concern expressed about this 
issue at the hearing by cooperative association representatives or 
their member producers.
    While proponents of the thrice-monthly payment plan argued that the 
plan would enhance their cash flow, the record does not reveal that 
producers are experiencing financial problems as a result of receiving 
one partial and a final payment each month. Although the record does 
indicate that at least one dairy farmer pays for feed on a cash-on-
delivery basis and is assessed a penalty for late payment, there is no 
indication that a large number of producers are buying production items 
on this basis.
    Adoption of this proposal would place handlers regulated under the 
merged order at a competitive disadvantage with unregulated handlers 
and handlers regulated under other orders. It must be concluded that 
the extra costs associated with the implementation of this plan exceed 
the benefits to producers.
    The Agricultural Marketing Agreement Act of 1937 authorizes the 
setting of payment dates under an order but it does not specify how 
frequently handlers must pay producers. Customarily, this is 
established on the basis of prevailing marketing conditions, including 
payment practices already existing in an area or new payment practices 
that handlers and producers may find mutually desirable. Producers and 
handlers should continue to have the option of negotiating payment 
schedules, including an additional partial payment if mutually desired. 
However, this practice should not be institutionalized by being 
incorporated in the merged order.
Producer Assurance Fund
    A proposal to establish a producer security fund under the merged 
order should not be adopted.
    A second professor and agricultural economist at the University of 
Georgia, presented a proposal on behalf of some Georgia dairy farmers, 
the Alabama Farmers Federation, and the Louisiana Farm Bureau which 
provides for the establishment of a producer assurance fund (PAF). He 
claimed that the PAF would reduce the financial risk of producers in 
bankruptcy cases.
    The witness testified that paragraph 5(E) of Section 8c(2) of the 
Agricultural Marketing Act of 1937, as amended, provides for the 
inclusion of provisions for the ``assurance of, and security for, 
payment by handlers for milk purchased.'' He stated that the market 
administrator could administer the PAF at no additional charge, 
explaining that processors regulated under the merged order would be 
assessed two cents per hundredweight until the fund was fully endowed. 
He said that the market administrator would review the fund annually to 
determine if adjustments should be made.
    The witness stated that operating cooperatives and chain stores 
would be exempt from the fund and that, if the order is terminated, 
processors who contributed to the fund would be reimbursed a pro rata 
amount. While noting that the best approach would be to implement this 
fund on a national level, he said that the next best alternative is to 
initiate it on a regional basis.
    The chairman of the Alabama Farmers Federation Committee (AFFC) and 
a Barnesville, Georgia, dairy farmer also testified in support of the 
producer assurance fund. While observing that the fund would not 
protect producers from all loss, the AFFC representative said that it 
was a step in the right direction. The Georgia dairy farmer related his 
experience in a bankruptcy two years ago which resulted in a financial 
loss of about 21 days' of production.
    The witness for the IDFA testified that the members of the IDFA 
were opposed to the establishment of a producer assurance fund. He said 
that such a provision has never existed under Federal milk orders and 
questioned whether the Federal order program was the appropriate 
vehicle to implement this type of fund.
    The IDFA witness stated that processors and manufacturers assume a 
significant risk in receiving a steady supply of raw milk, even as 
demand fluctuates throughout the year and does not always keep up with 
supply. He claimed that most of the businesses within the United 
States, including dairy processors, do not have any protective 
regulations and/or funds which guarantee payment on products sold. He 
argued that establishment of a PAF would limit processors in conducting 
business and will negatively impact producers in the long run.
    In its post-hearing brief, IDFA claimed that establishment of the 
fund would result in a costly duplication of regulations that have 
already been promulgated by some States in the Southeast. In addition, 
IDFA claimed that the expense of the fund would place handlers at a 
competitive disadvantage vis-a-vis unregulated handlers or handlers 
regulated under other orders.
    Representatives of Kraft General Foods, Kinnett Dairy, and The 
Kroger Company also testified in opposition to implementing a PAF. In 
their post-hearing briefs, Southern Foods Group, Barber Pure Milk 
Company, Dairy Fresh Corporation, and Baker & Sons Dairy, Inc., also 
indicated their opposition to this proposal.
    The PAF proposed for the merged order would place handlers 
regulated under the order at a competitive disadvantage compared to 
handlers regulated elsewhere. Those handlers who operate cost efficient 
businesses should not be required to pay the debts of insolvent 
handlers whose businesses were poorly managed.
    The record evidence does not reveal why a fund which protects 
producers against bankruptcy should be financed solely by handlers. In 
fact, the record shows that the proposal lacked support from a 
substantial number of producers, many of whom are protected from loss 
by belonging to a cooperative association, which obviously is better 
equipped to withstand a handler bankruptcy than a single producer.
    While a producer assurance fund may have some merit, the concept 
should be more fully researched and explored. One question that should 
be answered is whether such a fund should be implemented on a local, 
regional, or national basis. Another question that should be addressed 
is whether handlers should bear the sole responsibility of supporting 
the fund, or whether producers also should be required to contribute to 
it.
    Due to the lack of information on the effects of a PAF on producers 
and handlers under the proposed order, the overwhelming opposition to 
it by handlers in this market, and the lack of producer support 
exhibited at both the hearing and in briefs, the proposal should not be 
adopted.
Base-excess Plan: Secs. 1007.90-1007.94
    The cooperative coalition's proposal to adopt a base-excess plan 
for the merged order should be adopted, but the base-forming months 
should be changed to September through November.
    The cooperative coalition's spokesman testified that a base-excess 
plan would provide an incentive to producers to balance their milk 
production throughout the year. He noted that a base-excess plan is 
provided in the Georgia (Order 7), Alabama-West Florida (Order 93), and 
the former Nashville (Order 98) orders.
    There was widespread support at the hearing and in post-hearing 
briefs for a base-excess plan. Representatives of the Southern Foods 
Group, Inc., Fleming Dairy, the Louisiana Farm Bureau Federation, 
Georgia Milk Producers, Inc., and Arkansas Dairy Cooperative 
Association testified in support of the plan. Several individual dairy 
farmers also spoke in support of the plan.
    A dairy farmer who testified on behalf of some of the producers 
supplying Fleming Dairy in Nashville stated that a base-excess plan 
will encourage more milk production during seasonally low production 
months and discourage milk production during the flush production 
months. In the past, he said, dairy cooperatives have unsuccessfully 
built manufacturing plants to help balance raw milk production to the 
demand of the Class I market. He claimed that dairy producers are the 
only ones able to solve the raw milk balancing problem by leveling out 
their milk production.
    The witness and other dairy farmers who testified on this issue 
indicated that much could be done by dairy farmers to balance their 
seasonal swings in production. Some of the plans have not been 
effective in the past, they said, because they were not implemented on 
a regional basis and because some cooperatives did not pay their 
producers a base and excess price.
    Opposition to a base-excess plan was expressed by Gold Star Dairy, 
which indicated that the plan would limit Gold Star's flexibility in 
obtaining supplemental supplies during the operative months of the 
plan. The spokesman for AMPI also indicated opposition to a base-excess 
plan for AMPI's proposed Mid-South order, but supported the cooperative 
coalition's proposal to include a base-excess plan in their proposed 
Gulf States order. He stated that the plan would build a fence around 
the marketing area and impede the efficient movement of supplemental 
milk to the market during periods of increased demand or reduced 
production.
    The Agricultural Marketing Agreement Act states that milk orders 
may contain provisions ``to encourage seasonal adjustments in the 
production of milk * * * on the basis of their [producers] marketings 
of milk during a representative period of time * * *.'' While the 
performance of the base-excess plans in Orders 7, 93, 98, and 108 in 
leveling out production is subject to some debate, particularly because 
several of the cooperatives in these markets have not been paying their 
producers base and excess prices, there is no doubt that the 
overwhelming sentiment of producers, as expressed in the record of this 
hearing, is that a base-excess plan be incorporated in the merged 
order. Absent any sound reason for denying this request, the proposal 
should be adopted.
    There was considerable disagreement concerning the months to be 
used for the base-forming and base-paying periods. As contained in the 
cooperative coalition's proposal, bases would be computed based upon 
production during the months of September through December (i.e., the 
``base-forming period''), and base and excess prices would be paid 
during the following months of February through May.
    The witness for Fleming Dairy stated that the base-forming period 
should consist of the months of July through November and that 
producers should be paid base and excess prices during the months of 
January through May. He noted that statistics for the five-market 
region indicate that the Class I utilization exceeded 80% only during 
the months of July through November from 1990 through 1993. For the 
same three-year period, he pointed out, the percentage of milk utilized 
in Class III manufactured products for the five-market region was the 
lowest during July through October. He also indicated that Fleming had 
experienced problems in trying to encourage producers to increase milk 
production during the months of July and August and that these two 
months should, therefore, be part of the base-forming period.
    Two dairy farmers supplying Fleming Dairy agreed that the base-
forming period should be the months of July through November and that 
the base-paying months should be January through May. Their testimony 
indicated that cows and heifers that calve in late August or September 
will peak in milk production in November, December, and January, which 
are not the months in which additional milk production is needed.
    One of the dairy farmer witnesses explained that ``cull'' cows or 
``turn'' cows dry early in the spring. He stated that this option is 
available to each dairy producer whose milk production gets out of 
cycle. Thus, he proposed that the merged order be structured to 
discourage milk production during those months when milk is typically 
in over-supply by paying producers a base and excess price during the 
months of January through May.
    The other dairy farmer witness noted that over the past several 
years many county school systems in the South have moved their fall 
start-up date from September until about the third week of August, 
which caused the demand created by school start-ups to be moved up two 
weeks. He claimed that including the month of July in the base-forming 
period will send the correct signal to producers as to when more milk 
is needed.
    The chairman of the Dairy Advisory Committee of the Louisiana Farm 
Bureau Federation (LFBF) testified that the months of March through 
June should be the base-paying period. He stated that these are the 
months of highest production in relation to Class I needs.
    The witness also stated that producers currently regulated under 
Orders 94 and 96, which do not now have a base-excess plan, would be 
placed at a greater disadvantage if the base-forming period began with 
the month of July or August instead of September because production was 
down in those months due to the midsummer heat in Louisiana.
    In its post-hearing brief, Georgia Milk Producers, Inc. (GMP) 
recommended that the base-forming period be the months of September 
through January. According to GMP's brief, adding the month of January 
as a base-forming month would provide a period where weather conditions 
are more indicative of the norm. Additionally, GMP suggested extending 
the base-paying period to include the month of July, claiming that the 
extension would allow producers who have met the needs of the market by 
equalizing their production in the fall and summer to receive payment 
for base milk for an additional month.
    Summarizing the hearing proposals and testimony, the base-forming 
period would be September-December (cooperative coalition, LFBF), July-
November (Fleming Dairy and two dairy farmers), or September-January 
(GMP), while the base-paying period would be February-May (cooperative 
coalition), January-May (Fleming Dairy and two dairy farmers), March-
June (LFBF), or February-July (GMP).
    The variations in these proposals, in part, is indicative of the 
fact that the proposed marketing area is a large area in which 
production waxes and wanes in a slightly different seasonal pattern 
from one part of the marketing area to another. While July might be an 
appropriate base-building month in Tennessee, producers farther south 
would prefer to start with September as the first base-building month 
because it is difficult to increase production during the summer's 
heat. On the other hand, where December might be an ideal production 
month in the South, it could be a difficult month for producers in the 
northern part of the marketing area. Consequently, the criteria for 
selecting a base-forming period cannot be Class I utilization alone.
    Based on the different production and utilization patterns within 
the proposed Southeast marketing area, the most appropriate base-
forming months are September through November, while the most suitable 
base-paying months are February through May.
    Although a September-November base-forming period is somewhat 
shorter than the period contained in any of the proposals, as outlined 
above, it is only necessary to establish a production benchmark during 
a representative part of the short production season for a base-excess 
plan to perform successfully; it is not necessary that the entire short 
production season be included in the base-forming months. It should be 
noted, for example, that the base plan in the neighboring Carolina 
order uses the months of September through November as the base-forming 
months with no apparent problem. Using September, October, and November 
as the base-forming period for the merged order will accomplish the 
goal of establishing the production benchmark, while, at the same time, 
allowing all of the market's producers to compete on more equally 
favorable conditions.
    The month of December should not be included in the base-forming 
period, not only because it may be a difficult month weather-wise for 
producers in the northern part of the market, but also because higher 
production and lower demand in December drops the Class I utilization 
in this month well below September-November. During the last three 
years, for example, the average utilization in December for producer 
milk that would have been part of the Southeast market was 71.2 
percent. By contrast, the average Class I utilization percentage for 
the base-forming months of September through November was 84.9, 83.3, 
and 80.3, respectively.
    Fleming Dairy's proposal to include the months of July and August 
in the base-forming period should be denied. Although the three-year 
average Class I utilization for July and August was relatively high at 
81.7 percent and 82.6 percent, respectively, this fact, as noted above, 
should not be the overriding consideration in choosing the base-forming 
period.
    Under the present Georgia order and--prior to its termination in 
July 1993--the former Nashville order, the months of July and August 
were base-paying months. Fleming Dairy may have experienced problems 
attracting additional milk, first under Nashville and then Georgia, 
because these base plans discouraged producers from producing beyond 
their bases during the base-paying period and, perhaps more 
importantly, they discouraged new producers from coming onto the market 
during these months because they would only have received the excess 
price for their milk. In the base plan proposed for the Southeast 
market, however, July and August will be neutral months. While 
producers will have no special incentive to produce additional milk 
during these months, more importantly they will have no disincentive 
for doing so. Moreover, new producers will be able to supply the market 
without penalty during these months. Therefore, the supply problems 
experienced by Fleming under the Nashville and Georgia orders should 
not exist under the plan adopted for the merged order.
    There is no record evidence which supports including the month of 
January as one of the base-forming months. Clearly, while January is 
neither a flush production month, nor a short production month, it is 
undoubtedly a difficult winter production month for some of the dairy 
farmers in this market. Just as the months of July and August should 
not be part of the base-forming period because they would be difficult 
production months for Georgia, Louisiana, and Mississippi producers, 
the month of January should not be a base-forming month because it 
would be an unsuitable month for producers in Tennessee and Arkansas. 
Therefore, GMP's proposal to include January in the base-forming period 
must be denied.
    The appropriate base-paying period is perhaps less difficult to 
choose than the base-forming period. One consideration certainly is to 
reward those producers who supplied the market during the short 
production season, while providing no reward for those producers who 
were not on the market when their milk was needed. Another 
consideration is to select months when additional milk is not, in fact, 
needed. For this reason, July, August, and December should clearly not 
be base-paying months because supplemental milk supplies may very well 
be needed during those months. June and January are borderline months. 
During the past three years, the average Class I utilization was 72.3 
percent in January and 73.3 percent in June, both of which are above 
the comparable percentages for the months of February through May; 
i.e., 69.5, 68.4, 67.5, and 70.8 percent, respectively. Based on this 
data and analysis, the cooperative coalition's proposed February-May 
base-paying period is the appropriate choice for the merged market.
    The market administrator will be responsible for computing the base 
of each producer on an annual basis. This will be accomplished by 
dividing each producer's total pounds of producer milk in September 
through November by the number of days' production represented by such 
producer milk, or by 77, whichever is more. The market administrator 
will notify each producer or the producer's cooperative, and the 
handler receiving his/her milk, of the producer's base by February 1.
    In the cooperative coalition's proposal, the minimum number of days 
to be used in computing base was 100. In changing the base-forming 
period from four months to three months, however, 77 days appears to be 
an appropriate minimum to use. This is also the number that is used in 
the Carolina order, which, as noted, has a three-month base-forming 
period.
    Under the base plan adopted here, the base milk of a producer is 
defined as the producer milk of a producer in each month of February 
through May that is not in excess of the producer's base multiplied by 
the number of days in the month. Excess milk means the producer milk of 
a producer in each month of February through May in excess of the 
producer's base milk for the month and all the producer milk of a 
producer who has no base milk.
    Producers whose milk was delivered to a nonpool plant that became a 
pool plant after the beginning of the base-forming period should be 
assigned bases calculated as if the plant had been a pool plant during 
the base-forming period. A base assigned in this manner would not be 
transferable.
    A base earned by any producer who supplied the market in the base-
forming period should be transferable. Transferability is an 
appropriate provision to include in the plan because a base is 
something of value that has been earned, and the base-holder or his/her 
heirs should be compensated for that value when the base-holder dies or 
when the farm of a base-holder is sold. For ease in administering this 
provision, the amount of base transferable should either be its 
entirety or in amounts not less than 300 pounds.
    A base transfer would be effective on the first day of the month 
following the date on which an application signed by the base holder or 
his/her heirs is received by the market administrator. Although the 
cooperative coalition also specified that the person receiving the base 
should be required to sign the transfer application, this requirement 
has not been adopted. There is no apparent reason why the recipient of 
a base should be required to sign the application, and this particular 
requirement merely adds unnecessary expense to the administration of 
the base plan provisions. If a base is held jointly, the application 
for transfer should be signed by all joint holders or their heirs to 
insure that there is no misunderstanding between the parties involved 
in the transfer.
    A base established by a partnership may be divided between partners 
on any basis agreed on in writing by them as long as written 
notification of the agreed-upon division, signed by each partner, is 
received by the market administrator prior to the first day of the 
month in which the division is to be effective.
    To insure that the exchange of bases between producers are bona 
fide transfers, a producer who transferred all or part of his/her base 
on or after February 1 should not be permitted to receive other base by 
transfer that would be applicable within the February-May period of the 
same year. In addition, a producer who received base by transfer on or 
after February 1 should not be permitted to transfer a portion of that 
base to be applicable within the February-May period of the same year, 
but should be permitted to transfer the entire base.
    A producer who delivered at least 77 days' production during the 
base-forming period would receive a base computed on the same basis as 
a producer who delivered continuously throughout the entire period in 
situations that may occur as a result of natural disaster, temporary 
suspension of a health permit, or temporary loss of market when cut off 
by a buying handler. Such a base would be computed by dividing the 
producer's total producer milk during the three-month period by the 
number of days of production. Producers who come on the market during 
the base-paying months should be assigned the excess milk price.
    In some instances, a natural disaster may cause a producer to 
suffer a significantly reduced rate of production or force the producer 
to temporarily discontinue milk production. In such a case, the plan 
would provide hardship relief by assigning a producer a base equal to 
his/her average daily producer milk deliveries in the month immediately 
preceding the month during which the hardship occurred.
    Inclusion of a base-excess plan under the merged order will require 
the computation of a uniform price during the non-base-paying months of 
June through January and uniform prices for base and excess milk during 
the other months of the year. The steps to be followed in computing 
these prices are contained in Sec. 1007.61.
    One change should be made in the computation of the uniform price 
for excess milk. As now in Orders 7 and 93 and as proposed by the 
cooperative coalition in Sec. 1007.61(b)(1), the uniform price for 
excess milk would be computed by multiplying the pounds of excess milk 
that do not exceed the pounds of milk assigned to Class III by the 
Class III price, any remaining excess pounds by the Class II price, 
and, if there are excess pounds remaining, by the Class I price. The 
total value so computed then would be divided by the total pounds of 
excess milk to arrive at the uniform price for excess milk.
    This procedure should be modified slightly to reflect the 
incorporation of Class III-A pricing in the order. Specifically, a new 
step should be added--i.e., Sec. 1007.61(b)(1)(i)--that would first 
multiply the pounds of excess milk that do not exceed the pounds of 
milk assigned to Class III-A by the Class III-A price. The remaining 
excess pounds would then be multiplied by the Class III price, the 
Class II price, and finally, if there are any excess pounds left, by 
the Class I price.
    Without this modification, any milk that was assigned to Class III-
A would reduce the uniform price for base milk, instead of the uniform 
price for excess milk. This would narrow the difference between the two 
prices, thereby reducing the incentive for producers to level out their 
production, which is the primary purpose of the base-excess plan.

2(e). Administrative Provisions

    The administrative duties of the market administrator are detailed 
under Sec. 1000.3 of the General Provisions, which pertain to all milk 
orders. In Sec. 1000.5 of the General Provisions, a handler's 
responsibility for records and facilities are also detailed.
Handler Reports
    The responsibility of handlers to establish and maintain certain 
records of their operations and to make such records and facilities 
available to the market administrator are set forth in Sec. 1000.5 of 
the General Provisions. That section relates to the adequacy of the 
records of the handler and the period of time for which they should be 
maintained.
    The requirements of handlers to maintain such records, and to make 
reports of receipts and utilization to the market administrator under 
Secs. 1007.30, 1007.31, and 1007.32 of the proposed order, are similar 
to the requirements that are now contained in the five orders to be 
merged.
    To compute the uniform price and the prices for base and excess 
milk, the market administrator must first receive a report of receipts 
and utilization from each of the handlers in the pool. Section 30 of 
the order describes who should file a report of receipts and 
utilization, what the report should contain, and when it should be 
filed. As proposed and adopted here, this report would have to be filed 
on or before the 5th day after the end of the month, or not later than 
the 7th day if the report is delivered in person to the office of the 
market administrator. This filing deadline will provide the market 
administrator with sufficient time to receive the reports, review and 
correct them for obvious errors, compute each handler's value of milk 
at classified prices, compute the uniform price or prices, and announce 
such price or prices by the 11th day of each month.
    Section 31 of the proposed order discusses the submission of 
handler payroll reports. This report shows the name and address of each 
producer, the total pounds of milk received from the producer, the 
butterfat content of the milk, and the price per hundredweight paid. 
This report is due on or before the 20th day after the end of the 
month.
    Section 32 deals with the reporting of base milk for the months of 
February through May and any other reports which the market 
administrator may request. The aggregate quantity of base milk received 
from producers must be reported on or before the 7th day after the end 
of the month, while the pounds of base and excess milk received from 
each producer must be reported on or before the 20th day after the end 
of each month of February through May.
    The dates proposed for the filing of reports, price announcements, 
and payments were patterned after those in the Alabama-West Florida 
order. They are similar, however, to those provided in other Federal 
orders in the Southeast. Therefore, handlers under the proposed 
Southeast order will be accustomed to meeting these deadlines. 
Likewise, producers covered by this order will receive their payments 
at about the same time as they have received payments under the current 
Federal orders.
Charge for Overdue Accounts
    It is essential to the effective operation of the proposed order 
that handlers make their payments on time.
    Under a marketwide pooling arrangement, handlers with Class I 
utilizations higher than the market average pay part of their total use 
value of milk to the producer-settlement fund. This money is, in turn, 
paid out to handlers with lower than average Class I utilization so 
that all handlers in the market, irrespective of the way they use their 
milk, can pay their producers the same uniform price. The success of 
this arrangement depends upon the solvency of the producer-settlement 
fund.
    The prompt payment of funds due the administrative and marketing 
service funds is also essential for the market administrator to perform 
the various administrative functions prescribed by the order. 
Delinquent payments to these funds could impair the ability of the 
market administrator to carry out these duties in a timely and 
efficient manner.
    Payment delinquency also results in an inequity among handlers. 
Handlers who pay late are, in effect, borrowing money from producers. 
In the absence of any late-payment charge equal to at least the cost of 
borrowing money from commercial sources, handlers who are delinquent in 
their payments would have a financial advantage relative to those 
handlers making timely payments.
    The late-payment charges included in the proposed order are not a 
substitute for prompt payments by handlers; those handlers delinquent 
in their obligations would still be subject to legal enforcement action 
as authorized under the Act.
    Under the late payment provisions, overdue handler obligations 
would be increased by 1.5 percent on the day after the due date. Any 
remaining unpaid portion of the original obligation would be increased 
by 1.5 percent on the same date of each succeeding month until the 
obligation is paid.
    The late payment charge should apply not only to the original 
obligation but also to any unpaid charges previously assessed. They 
would apply whether the obligation is paid one day late or ten days 
late, and would be applicable to both fully regulated and partially 
regulated handlers alike.
    The disposition of the late payment charge would be determined by 
the account to which it is due. A charge resulting from an unpaid 
obligation to the producer-settlement fund would go into that fund. By 
the same token, a charge resulting from an unpaid obligation for order 
administration or marketing services would go into those respective 
funds.
    The proposed rate of 1.5 percent per month is reasonable and is not 
less than the current annual rate for short-term loans.
Expenses of Administration
    The expenses for the administration of the proposed order should be 
borne by regulated handlers under the order.
    Section 1007.85 provides that each handler shall pay to the market 
administrator his/her pro rata share of the expenses of administration 
of the order. Accordingly, on or before the 15th day after the end of 
the month, each handler will be required to pay the market 
administrator five cents per hundredweight, or such lesser amount as 
the Secretary may determine is necessary, with respect to receipts of 
producer milk, including such handler's own production, but excluding 
receipts from a cooperative association acting as a handler for milk 
delivered to pool plants of other handlers. The payment shall also 
apply to other source milk allocated to Class I and to route 
disposition in the marketing area by partially regulated distributing 
plants.
    To administer the order properly, the market administrator must 
have sufficient funds to cover his costs. The Act specifically states 
that such cost of administration shall be borne by handlers through an 
assessment on such handlers.
    A principal function of the market administrator's office is to 
verify the receipts and disposition of milk from all sources. Equity in 
sharing the cost of administration of the order among handlers will be 
achieved by applying the administrative assessment on the basis of milk 
received from dairy farmers as well as on other source milk allocated 
to Class I.
    The proposed order provides that a cooperative shall be the handler 
for its member milk which it delivers in tank trucks from the farm to 
pool plants of other handlers. The cooperative is the handler for such 
milk basically for the purpose of accounting to its individual member 
producers.
    The milk is producer milk at the plant of the receiving handler and 
is treated the same as any other direct receipt from producers. 
Therefore, the pool plant operator who receives the milk should pay the 
administrative assessment on such milk. The cooperative, however, would 
be liable for the administrative assessment for any amount by which the 
farm weights of the producer milk exceeds the weights at the plant on 
which the plant operator purchased the milk from the cooperative.
    The market administrator must verify, by audit, the receipts and 
utilization of pool plants whether the plant operator buys milk 
directly from producers or through a cooperative association as a 
handler. It is appropriate, therefore, that the pool plant operator 
receiving such milk should pay the administrative assessment on the 
milk on the same basis as all other producer milk received at the 
plant.
    In the case of unregulated milk entering the market through a 
regulated plant for Class I use, the regulated handler who utilizes the 
unregulated milk must report to the market administrator the receipts 
and use of such milk. It is appropriate, therefore, that the regulated 
handler should be responsible for payment for the administrative 
assessment on such unregulated milk.
    While the proposed order is designed so that the cost of 
administration is shared equitably among handlers distributing milk in 
the proposed marketing area, an assessment should not be made on other 
source milk on which an assessment was made under another Federal milk 
marketing order.
Marketing Service Deduction
    Proper payment to producers is assured by the verification of 
producer weights and producer butterfat tests and by keeping producers 
well informed about marketing conditions.
    If a producer is a member of a cooperative association, these 
services are performed by the cooperative association and are paid for 
by the members of the cooperative association. In the case of nonmember 
producers, however, the Act authorizes a handler to deduct a fee from 
the payment to nonmember producers for marketing services, which are 
provided by the market administrator or an agent selected by the market 
administrator.
    There is no need for the market administrator to duplicate the 
services which a cooperative association normally provides for its 
membership. However, since the market administrator must rely on the 
cooperative's results to insure a proper accounting of milk and 
butterfat, it is essential that the cooperative association's 
performance of these marketing services be reviewed by the Secretary. A 
cooperative association will not be entitled to perform marketing 
services until it files an application to do so with the market 
administrator and demonstrates that it is fully qualified and capable 
of performing these services.
    Section 1007.86 of the proposed order provides the procedure by 
which producers pay the cost of marketing services provided by the 
market administrator.
    Nonmember producers who will be pooled under the proposed order 
will be dispersed over a wide geographic area. It is likely that the 
cost to the market administrator of performing marketing services for 
nonmembers will be as high as that now incurred under the separate 
orders. Therefore, the cooperative coalition proposal for a seven-cent 
maximum fee should be adopted. This is the maximum fee now permitted 
under Orders 93 and 108, but slightly higher than the level currently 
permitted under Orders 7, 94, and 96. It should be stressed, however, 
that this is a maximum fee that may be charged for these services; it 
may be that the market administrator can perform these services at a 
lower rate. Nevertheless, to err on the side of caution, a seven-cent 
maximum fee should be provided.
    The separate funds that have been accumulated under each of the 
orders to defray the costs of administration and providing marketing 
services to producers, as well as the producer- settlement fund 
reserves, should be consolidated under the merged order. Consolidation 
of these funds provides an effective and equitable way of avoiding an 
interruption of services and regulation in the area. Any liabilities of 
such funds under the current orders should be paid from the appropriate 
new fund under the merged order. Similarly, any obligations that are 
due to the several funds under the individual orders should be paid to 
the appropriate combined fund under the merged order.

Rulings on Proposed Findings and Conclusions

    Briefs and proposed findings and conclusions were filed on behalf 
of certain interested parties. These briefs, proposed findings and 
conclusions, and the evidence in the record were considered in making 
the findings and conclusions set forth above. To the extent that the 
suggested findings and conclusions filed by interested parties are 
inconsistent with the findings and conclusions set forth herein, the 
requests to make such findings or reach such conclusions are denied for 
the reasons previously stated in this decision.

General Findings

    The findings and determinations hereinafter set forth supplement 
those that were made when the aforesaid orders were first issued and 
when they were amended. The previous findings and determinations are 
hereby ratified and confirmed, except where they may conflict with 
those set forth herein.
    (a) The tentative marketing agreement and the Southeast order, 
which merges and amends the Georgia, Alabama-West Florida, Greater 
Louisiana, New Orleans-Mississippi, and Central Arkansas orders, as 
hereby proposed to be amended, and all of the terms and conditions 
thereof, will tend to effectuate the declared policy of the Act;
    (b) The parity prices of milk as determined pursuant to section 2 
of the Act are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand for milk in each of the aforesaid marketing areas, 
and the minimum prices specified in the tentative marketing agreements 
and the orders, as hereby proposed to be amended, are such prices as 
will reflect the aforesaid factors, insure a sufficient quantity of 
pure and wholesome milk, and be in the public interest;
    (c) The tentative marketing agreements and the orders, as hereby 
proposed to be amended, will regulate the handling of milk in the same 
manner as, and will be applicable only to persons in the respective 
classes of industrial and commercial activity specified in, marketing 
agreements upon which a hearing has been held;
    (d) All milk and milk products handled by handlers, as defined in 
the tentative marketing agreements and the orders as hereby proposed to 
be amended, are in the current of interstate commerce or directly 
burden, obstruct, or affect interstate commerce in milk or its 
products; and
    (e) It is hereby found that the necessary expense of the market 
administrator for the maintenance and functioning of such agency will 
require each handler to contribute 5 cents per hundredweight or such 
lesser amount as the Secretary may prescribe, with respect to milk 
specified in Sec. 1007.85 of the aforesaid tentative marketing 
agreement and the Southeast order.

Recommended Marketing Agreement and Order Amending the Orders

    The recommended marketing agreements are not included in this 
decision because the regulatory provisions thereof would be the same as 
those contained in the proposed orders, as hereby proposed to be 
amended. The following order amending the orders regulating the 
handling of milk in the respective marketing areas of these orders is 
recommended as the detailed and appropriate means by which the 
foregoing conclusions may be carried out.

List of Subjects in 7 CFR Part 1007

    Milk marketing orders.

    1. The authority citation for 7 CFR Part 1007 is revised to read as 
follows:

    Authority: 7 U.S.C. 601-674.

    2. 7 CFR part 1007 is revised to read as follows:

PART 1007--MILK IN THE SOUTHEAST MARKETING AREA

Subpart--Order Regulating Handling

General Provisions

Sec.
1007.1  General provisions.

Definitions

1007.2  Southeast marketing area.
1007.3  Route disposition.
1007.4  Plant.
1007.5  Distributing plant.
1007.6  Supply plant.
1007.7  Pool plant.
1007.8  Nonpool plant.
1007.9  Handler.
1007.10  Producer-handler.
1007.11  [Reserved]
1007.12  Producer.
1007.13  Producer milk.
1007.14  Other source milk.
1007.15  Fluid milk product.
1007.16  Fluid cream product.
1007.17  Filled milk.
1007.18  Cooperative association.
1007.19  Commercial food processing establishment.
1007.20  Product prices.

Handler Reports

1007.30  Reports of receipts and utilization.
1007.31  Payroll reports.
1007.32  Other reports.

Classification of Milk

1007.40  Classes of utilization.
1007.41  Shrinkage.
1007.42  Classification of transfers and diversions.
1007.43  General classification rules.
1007.44  Classification of producer milk.
1007.45  Market administrator's reports and announcements concerning 
classification.

Class Prices

1007.50  Class prices.
1007.51  Basic formula prices.
1007.52  Plant location adjustments for handlers.
1007.53  Announcement of class prices.
1007.54  Equivalent price.

Uniform Prices

1007.60  Handler's value of milk for computing uniform prices.
1007.61  Computation of uniform price (including weighted average 
price and uniform prices for base and excess milk).
1007.62  Announcement of uniform prices and butterfat differential.

Payments for Milk

1007.70  Producer-settlement fund.
1007.71  Payments to the producer-settlement fund.
1007.72  Payments from the producer-settlement fund.
1007.73  Payments to producers and to cooperative associations.
1007.74  Butterfat differential.
1007.75  Plant location adjustments for producers and on nonpool 
milk.
1007.76  Payments by handler operating a partially regulated 
distributing plant.
1007.77  Adjustment of accounts.
1007.78  Charges on overdue accounts.

Administrative Assessment and Marketing Service Deduction

1007.85  Assessment for order administration.
1007.86  Deduction for marketing services.

Base-Excess Plan

1007.90  Base milk.
1007.91  Excess milk.
1007.92  Computation of base for each producer.
1007.93  Base rules.
1007.94  Announcement of established bases.
    Authority: 7 U.S.C. 601-674.

Subpart--Order Regulating Handling

General Provisions


Sec. 1007.1  General provisions.

    The terms, definitions, and provisions in Part 1000 of this chapter 
are hereby incorporated by reference and made a part of this order.

Definitions


Sec. 1007.2  Southeast marketing area.

    The ``Southeast marketing area,'' hereinafter called the 
``marketing area,'' means all territory within the bounds of the 
following Alabama, Florida, Georgia, Mississippi, Tennessee, and 
Arkansas counties and Louisiana parishes, including all piers, docks, 
and wharves connected therewith and all craft moored thereat, and all 
territory occupied by government (municipal, State, or Federal) 
reservations, installations, institutions, or other similar 
establishments if any part thereof is within any of the listed counties 
or parishes:

Zone 1

Arkansas Counties

    Baxter, Clay, Fulton, Greene, Izard, Lawrence, Randolph, and Sharp.

Tennessee Counties

    Clay, Fentress, Henry, Houston, Jackson, Lake, Macon, Montgomery, 
Obion, Overton, Pickett, Robertson, Stewart, Sumner, Trousdale, and 
Weakley.

Zone 2

Arkansas Counties

    Cleburne, Craighead, Independence, Jackson, Johnson, Mississippi, 
Newton, Poinsett, Pope, Searcy, Stone, and Van Buren.

Tennessee Counties

    Bedford, Benton, Bledsoe, Cannon, Carroll, Cheatham, Chester, 
Coffee, Crockett, Davidson, DeKalb, Decatur, Dickson, Dyer, Gibson, 
Grundy, Haywood, Henderson, Hickman, Humphreys, Lauderdale, Lewis, 
Madison, Marshall, Maury, Perry, Putnam, Rutherford, Smith, Tipton, Van 
Buren, Warren, White, Williamson, and Wilson.

Zone 3

Arkansas Counties

    Conway, Crittenden, Cross, Faulkner, Perry, St. Francis, White, 
Woodruff, and Yell.

Tennessee Counties

    Fayette, Franklin, Giles, Hardeman, Hardin, Lawrence, Lincoln, 
McNairy, Moore, Shelby, and Wayne.

Zone 4

Alabama Counties

    Colbert, De Kalb, Franklin, Jackson, Lauderdale, Lawrence, 
Limestone, Madison, Marshall, and Morgan.

Arkansas Counties

    Arkansas, Garland, Grant, Hot Spring, Jefferson, Lee, Lonoke, 
Monroe, Montgomery, Phillips, Polk, Prairie, Pulaski, and Saline.

Georgia Counties

    Gilmer, Towns, and Union.

Mississippi Counties

    Alcorn, Benton, Coahoma, DeSoto, Itawamba, Lafayette, Lee, 
Marshall, Panola, Pontotoc, Prentiss, Quitman, Tate, Tippah, 
Tishomingo, Tunica, and Union.

Zone 5

Alabama Counties

    Blount, Cherokee, Cullman, Etowah, Fayette, Lamar, Marion, Walker, 
and Winston.

Arkansas Counties

    Clark, Cleveland, Dallas, Desha, Howard, Lincoln, Pike, and Sevier.

Georgia Counties

    Bartow, Cherokee, Dawson, Floyd, Gordon, Habersham, Lumpkin, 
Pickens, Rabun, and White.

Mississippi Counties

    Bolivar, Calhoun, Chickasaw, Grenada, Monroe, Sunflower, 
Tallahatchie, and Yalobusha.

Zone 6

Alabama Counties

    Bibb, Calhoun, Clay, Cleburne, Jefferson, Pickens, Randolph, 
Shelby, St. Clair, Talladega, and Tuscaloosa.

Arkansas Counties

    Ashley, Bradley, Calhoun, Chicot, Columbia, Drew, Hempstead, 
Lafayette, Little River, Miller, Nevada, Ouachita, and Union.

Georgia Counties

    Banks, Barrow, Butts, Carroll, Clarke, Clayton, Cobb, Coweta, De 
Kalb, Douglas, Elbert, Fayette, Forsyth, Franklin, Fulton, Greene, 
Gwinnett, Hall, Haralson, Hart, Heard, Henry, Jackson, Jasper, Lincoln, 
Madison, Morgan, Newton, Oconee, Oglethorpe, Paulding, Polk, Putnam, 
Rockdale, Spalding, Stephens, Taliaferro, Walton, and Wilkes.

Mississippi Counties

    Attala, Carroll, Choctaw, Clay, Holmes, Humphreys, Leflore, 
Lowndes, Montgomery, Noxubee, Oktibbeha, Washington, Webster, and 
Winston.

Zone 7

Alabama Counties

    Chambers, Chilton, Coosa, Greene, Hale, Lee, Perry, Sumter (north 
of U.S. 80), and Tallapoosa.

Georgia Counties

    Baldwin, Bibb, Burke, Columbia, Crawford, Glascock, Hancock, 
Harris, Jefferson, Jones, Lamar, McDuffie, Meriwether, Monroe, 
Muscogee, Pike, Richmond, Talbot, Taylor, Troup, Twiggs, Upson, Warren, 
Washington, and Wilkinson.

Louisiana Parishes

    Bienville, Bossier, Caddo, Claiborne, East Carroll, Jackson, 
Lincoln, Morehouse, Ouachita, Richland, Union, Webster, and West 
Carroll.

Mississippi Counties

    Issaquena, Kemper, Leake, Madison, Neshoba, Sharkey, and Yazoo.

Zone 8

Alabama Counties

    Autauga, Bullock, Dallas, Elmore, Lowndes, Macon, Marengo, 
Montgomery, Russell, Sumter (south of U.S. 80), and Wilcox.

Georgia Counties

    Bleckley, Bulloch, Candler, Chattahoochee, Crisp, Dodge, Dooly, 
Effingham, Emanuel, Evans, Houston, Jenkins, Johnson, Laurens, Macon, 
Marion, Montgomery, Peach, Pulaski, Schley, Screven, Stewart, Sumter, 
Tattnall, Telfair, Toombs, Treutlen, Webster, Wheeler, and Wilcox.

Louisiana Parishes

    Caldwell, De Soto, Franklin, Madison, Natchitoches (north of State 
Highway 6 and U.S. 84), Red River, Tensas, and Winn.

Mississippi Counties

    Claiborne, Clarke, Copiah, Hinds, Jasper, Lauderdale, Newton, 
Rankin, Scott, Simpson, Smith, and Warren.

Zone 9

Alabama Counties

    Barbour, Butler, Choctaw, Clarke, Coffee, Conecuh, Crenshaw, Dale, 
Henry, Monroe, and Pike.

Georgia Counties

    Appling, Bacon, Ben Hill, Bryan, Calhoun, Chatham, Clay, Coffee, 
Dougherty, Irwin, Jeff Davis, Lee, Liberty, Long, McIntosh, Quitman, 
Randolph, Terrell, Tift, Turner, Wayne, and Worth.

Louisiana Parishes

    Catahoula, Concordia, Grant, La Salle, Natchitoches (south of State 
Highway 6 and U.S. 84), and Sabine.

Mississippi Counties

    Adams, Covington, Franklin, Jefferson, Jefferson Davis, Jones, 
Lawrence, Lincoln, and Wayne.

Zone 10

Alabama Counties

    Covington, Escambia, Geneva, Houston, and Washington.

Georgia Counties

    Atkinson, Baker, Berrien, Brantley, Brooks, Camden, Charlton, 
Clinch, Colquitt, Cook, Decatur, Early, Echols, Glynn, Grady, Lanier, 
Lowndes, Miller, Mitchell, Pierce, Seminole, Thomas, and Ware.

Louisiana Parishes

    Avoyelles, Rapides, and Vernon.

Mississippi Counties

    Amite, Forrest, Greene, Lamar, Marion, Perry, Pike, Walthall, and 
Wilkinson.

Zone 11

Alabama Counties

    Baldwin and Mobile (more than 20 miles from the Mobile city hall).

Florida Counties

    Escambia, Okaloosa, Santa Rosa, and Walton.

Louisiana Parishes

    Allen, Beauregard, East Feliciana, Evangeline, Pointe Coupee, St. 
Helena, St. Landry, Tangipahoa (north of State Highway 16), Washington, 
and West Feliciana.

Mississippi Counties

    George, Pearl River, and Stone.

Zone 12

Alabama Counties

    Mobile (within 20 miles of the Mobile city hall).

Louisiana Parishes:

    Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton 
Rouge, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, 
Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, 
St. James, St. John the Baptist, St. Martin, St. Mary, St. Tammany, 
Tangipahoa (south of State Highway 16), Terrebonne, Vermilion, and West 
Baton Rouge.

Mississippi Counties

    Hancock, Harrison, and Jackson.


Sec. 1007.3  Route disposition.

    Route disposition means a delivery to a retail or wholesale outlet 
(except a plant), either directly or through any distribution facility 
(including disposition from a plant store, vendor or vending machine) 
of a fluid milk product classified as Class I milk. Packaged fluid milk 
products that are transferred to a distributing plant from a plant with 
route disposition in the marketing area and which are classified as 
Class I under Sec. 1007.40(a) shall be considered as route disposition 
from the transferor plant, rather than the transferee plant, for the 
single purpose of qualifying it as a pool plant under Sec. 1007.7(a).


Sec. 1007.4  Plant.

    Plant means the land, buildings, facilities, and equipment 
constituting a single operating unit or establishment at which milk or 
milk products, including filled milk, are received, processed, or 
packaged. Separate facilities without stationary storage tanks that are 
used only as a reload point for transferring bulk milk from one tank 
truck to another or separate facilities used only as a distribution 
point for storing packaged fluid milk products in transit for route 
disposition shall not be a plant under this definition.


Sec. 1007.5  Distributing plant.

    Distributing plant means a plant that is approved by a duly 
constituted regulatory agency for the handling of Grade A milk and at 
which fluid milk products are processed or packaged and from which 
there is route disposition in the marketing area during the month.


Sec. 1007.6  Supply plant.

    Supply plant means a plant that is approved by a duly constituted 
regulatory agency for the handling of Grade A milk and from which fluid 
milk products are transferred during the month to a pool distributing 
plant.


Sec. 1007.7  Pool plant.

    Pool plant means a plant specified in paragraphs (a), (b), or (c) 
of this section, or a unit of plants as specified in paragraph (d) of 
this section, but excluding a plant specified in paragraph (f) of this 
section. The pooling standards described in paragraphs (a) through (c) 
of this section are subject to modification pursuant to paragraph (e) 
of this section:
    (a) A distributing plant from which during the month:
    (1) Total route disposition, except filled milk, is equal to 50 
percent or more of the total quantity of Grade A fluid milk products, 
except filled milk, physically received at such plant or diverted 
therefrom pursuant to Sec. 1007.13; and
    (2) Route disposition, except filled milk, in the marketing area is 
at least the lesser of a daily average of 1,500 pounds or 10 percent of 
the total quantity of fluid milk products, except filled milk, 
physically received or diverted therefrom pursuant to Sec. 1007.13.
    (b) A supply plant from which during each of the months of July 
through November 60 percent (40 percent during each of the months of 
December through June) of the total quantity of Grade A milk that is 
received during the month from dairy farmers (including producer milk 
diverted from the plant pursuant to Sec. 1007.13 but excluding milk 
diverted to such plant) and handlers described in Sec. 1007.9(c) is 
transferred to pool distributing plants.
    (c) A plant located within the Southeast marketing area that is 
operated by a cooperative association if pool plant status under this 
paragraph is requested for such plant by the cooperative association 
and during the month producer milk of members of such cooperative 
association is delivered directly from farms to pool distributing 
plants or is transferred to such plants as a fluid milk product from 
the cooperative's plant. Such deliveries, in excess of receipts by 
transfer from pool distributing plants, must equal not less than 60 
percent of the total producer milk of such cooperative association in 
each of the months of July through November, and 40 percent of such 
milk in each of the months of December through June. The plant's pool 
plant status shall be subject to the following conditions:
    (1) The plant does not qualify as a pool plant under paragraphs (a) 
or (b) of this section or under the provisions of another Federal order 
applicable to a distributing plant or a supply plant; and
    (2) The plant is approved by a duly constituted regulatory agency 
to handle Grade A milk.
    (d) Two or more plants operated by the same handler and that are 
located within the Southeast marketing area may qualify for pool status 
as a unit by meeting the total and in-area route disposition 
requirements specified in paragraph (a) of this section and the 
following additional requirements:
    (1) At least one of the plants in the unit must qualify as a pool 
plant pursuant to paragraph (a) of this section;
    (2) Other plants in the unit must process only Class I or Class II 
products and must be located in a pricing zone providing the same or a 
lower Class I price than the price applicable at the distributing plant 
included in the unit pursuant to paragraph (d)(1);
    (3) A written request to form a unit, or to add or remove plants 
from a unit, must be filed with the market administrator prior to the 
first day of the month for which it is to be effective.
    (e) The applicable percentages in paragraphs (a) through (c) of 
this section may be increased or decreased up to 10 percentage points 
by the market administrator if, following a written request for such a 
revision, the market administrator finds that such revision is 
necessary to assure orderly marketing and efficient handling of milk in 
the marketing area. Before making such a finding, the market 
administrator shall investigate the need for the revision by conducting 
an investigation and conferring with the Director of the Dairy 
Division. If the investigation shows that a revision might be 
appropriate, the market administrator shall issue a notice stating that 
the revision is being considered and inviting written data, views, and 
arguments. Any decision to revise an applicable percentage must be 
issued in writing seven days before the effective date.
    (f) The term pool plant shall not apply to the following plants:
    (1) A producer-handler plant;
    (2) An exempt plant as defined in Sec. 1007.8(e);
    (3) A plant qualified pursuant to paragraph (a) of this section 
which is not located within the Southeast marketing area, meets the 
pooling requirements of another Federal order, and has had greater 
sales in such other Federal order marketing area for three consecutive 
months, including the current month;
    (4) A plant qualified pursuant to paragraph (a) of this section 
which is located in another order's marketing area and which is 
required to be regulated under such other order because of its location 
within the other order's marketing area; and
    (5) A plant qualified pursuant to paragraph (b) of this section 
which also meets the pooling requirements of another Federal order and 
from which greater qualifying shipments are made to plants regulated 
under such other order than are made to plants regulated under this 
part, or such plant has automatic pooling status under such other 
order.


Sec. 1007.8  Nonpool plant.

    Nonpool plant means any milk or filled milk receiving, 
manufacturing, or processing plant other than a pool plant. The 
following categories of nonpool plants are further defined as follows:
    (a) Other order plant means a plant that is fully subject to the 
pricing and pooling provisions of another order issued pursuant to the 
Act.
    (b) Producer-handler plant means a plant operated by a producer-
handler as defined in any order (including this part) issued pursuant 
to the Act.
    (c) Partially regulated distributing plant means a nonpool plant 
that is not an other order plant, a producer-handler plant, or an 
exempt plant, from which there is route disposition in consumer-type 
packages or dispenser units in the marketing area during the month.
    (d) Unregulated supply plant means a supply plant that does not 
qualify as a pool supply plant and is not an other order plant, a 
producer-handler plant, or an exempt plant.
    (e) Exempt plant means a plant:
    (1) Operated by a governmental agency from which fluid milk 
products are distributed in the marketing area. Such plant shall be 
exempt from all provisions of this part; or
    (2) Which has monthly route disposition of 100,000 pounds or less 
during the month. Such plant will be exempt from the pricing and 
pooling provisions of this order, but the handler will be required to 
file periodic reports as prescribed by the market administrator to 
enable determination of the exempt status of such handler.


Sec. 1007.9  Handler.

    Handler means:
    (a) Any person who operates one or more pool plants;
    (b) Any cooperative with respect to producer milk which it causes 
to be diverted pursuant to Sec. 1007.13 for the account of such 
cooperative association;
    (c) Any cooperative association with respect to milk that it 
receives for its account from the farm of a producer for delivery to a 
pool plant of another handler in a tank truck owned and operated by, or 
under the control of, such cooperative association, unless both the 
cooperative association and the operator of the pool plant notify the 
market administrator prior to the time that such milk is delivered to 
the pool plant that the plant operator will be the handler of such milk 
and will purchase such milk on the basis of weights determined from its 
measurement at the farm and butterfat tests determined from farm bulk 
tank samples. Milk for which the cooperative association is the handler 
pursuant to this paragraph shall be deemed to have been received by the 
cooperative association at the location of the pool plant to which such 
milk is delivered;
    (d) Any person who operates a partially regulated distributing 
plant;
    (e) A producer-handler;
    (f) Any person who operates an other order plant described in 
Sec. 1007.8(a);
    (g) Any person who operates an unregulated supply plant; and
    (h) Any person who operates an exempt plant.


Sec. 1007.10  Producer-handler.

    Producer-handler means a person who:
    (a) Operates a dairy farm and a distributing plant from which there 
is monthly route disposition in excess of 100,000 pounds per month;
    (b) Receives no Class I milk from sources other than his/her own 
farm production and pool plants;
    (c) Disposes of no other source milk as Class I milk; and
    (d) Provides proof satisfactory to the market administrator that 
the care and management of the dairy animals and other resources 
necessary to produce all Class I milk handled (excluding receipts from 
pool plants) and the operation of the processing and packaging business 
are his/her personal enterprise and personal risk.


Sec. 1007.11  [Reserved]


Sec. 1007.12  Producer.

    (a) Except as provided in paragraph (b) of this section, producer 
means any person who produces milk approved by a duly constituted 
regulatory agency for fluid consumption as Grade A milk and whose milk 
is:
    (1) Received at a pool plant directly from such producer;
    (2) Received by a handler described in Sec. 1007.9(c); or
    (3) Diverted from a pool plant in accordance with Sec. 1007.13.
    (b) Producer shall not include:
    (1) A producer-handler as defined in any order (including this 
part) issued pursuant to the Act;
    (2) Any person with respect to milk produced by such person whose 
milk is delivered to an exempt plant, excluding producer milk diverted 
to such exempt plant pursuant to Sec. 1007.13;
    (3) Any person with respect to milk produced by such person which 
is diverted to a pool plant from an other order plant if the other 
order plant designates such person as a producer under that order and 
such milk is allocated to Class II or Class III utilization pursuant to 
Sec. 1007.44(a)(8)(iii) and the corresponding step of Sec. 1007.44(b); 
or
    (4) Any person with respect to milk produced by such person which 
is reported as diverted to an other order plant if any portion of such 
person's milk so moved is assigned to Class I under the provisions of 
such other order.


Sec. 1007.13  Producer milk.

    Producer milk means the skim milk and butterfat contained in milk 
of a producer that is:
    (a) Received at a pool plant directly from such producer by the 
operator of the plant;
    (b) Received by a handler described in Sec. 1007.9(c);
    (c) Diverted from a pool plant to the pool plant of another 
handler. Milk so diverted shall be deemed to have been received at the 
location of the plant to which diverted; or
    (d) Diverted by the operator of a pool plant or cooperative 
association to a nonpool plant that is not a producer-handler plant, 
subject to the following conditions:
    (1) In any month of December through June, not less than four days' 
production of the producer whose milk is diverted is physically 
received at a pool plant during the month;
    (2) In any month of July through November, not less than ten days' 
production of the producer whose milk is diverted is physically 
received at a pool plant during the month;
    (3) The total quantity of milk so diverted during the month by a 
cooperative association shall not exceed 33 percent during the months 
of July through November, or 50 percent during the months of December 
through June, of the producer milk that the cooperative association 
caused to be delivered to, and physically received at, pool plants 
during the month;
    (4) The operator of a pool plant that is not a cooperative 
association may divert any milk that is not under the control of a 
cooperative association that diverts milk during the month pursuant to 
paragraph (d) of this section. The total quantity of milk so diverted 
during the month shall not exceed 33 percent during the months of July 
through November, or 50 percent during the months of December through 
June, of the producer milk physically received at such plant during the 
month;
    (5) Any milk diverted in excess of the limits prescribed in 
paragraphs (d) (3) and (4) of this section shall not be producer milk. 
The diverting handler shall designate the dairy farmer deliveries that 
will not be producer milk pursuant to paragraphs (d) (3) and (4) of 
this section. If the handler fails to make such designation, no milk 
diverted by such handler shall be producer milk;
    (6) To the extent that it would result in nonpool status for the 
plant from which diverted, milk diverted for the account of a 
cooperative association from the pool plant of another handler shall 
not be producer milk;
    (7) The cooperative association shall designate the dairy farm 
deliveries that are not producer milk pursuant to paragraph (d)(6) of 
this section. If the cooperative association fails to make such 
designation, no milk diverted by it to a nonpool plant shall be 
producer milk;
    (8) Diverted milk shall be priced at the location of the plant to 
which diverted; and
    (9) The market administrator may increase or decrease the 
applicable percentages in paragraphs (d) (3) and (4) of this section by 
up to 10 percentage points, and may increase or decrease the 10-day and 
4-day delivery requirements in paragraphs (d) (1) and (2) of this 
section by 50 percent if, following a written request for such a 
revision, the market administrator finds that such revision is 
necessary to assure orderly marketing and efficient handling of milk in 
the marketing area. Before making such a finding, the market 
administrator shall investigate the need for the revision by conducting 
an investigation and conferring with the Director of the Dairy 
Division. If the investigation shows that a revision might be 
appropriate, the market administrator shall issue a notice stating that 
the revision is being considered and inviting written data, views, and 
arguments. Any decision to revise an applicable percentage must be 
issued in writing seven days before the effective date.


Sec. 1007.14  Other source milk.

    Other source milk means all skim milk and butterfat contained in or 
represented by:
    (a) Receipts of fluid milk products and bulk products specified in 
Sec. 1007.40(b)(1) from any source other than producers, a handler 
described in Sec. 1007.9(c), or pool plants;
    (b) Receipts in packaged form from other plants of products 
specified in Sec. 1007.40(b)(1);
    (c) Products (other than fluid milk products, products specified in 
Sec. 1007.40(b)(1), and products produced at the plant during the same 
month) from any source which are reprocessed, converted into, or 
combined with another product in the plant during the month; and
    (d) Receipts of any milk product (other than a fluid milk product 
or a product specified in Sec. 1007.40(b)(1)) for which the handler 
fails to establish a disposition.


Sec. 1007.15  Fluid milk product.

    (a) Except as provided in paragraph (b) of this section, fluid milk 
product means any milk products in fluid or frozen form containing less 
than 9 percent butterfat, that are in bulk or are packaged, distributed 
and intended to be used as beverages. Such products include, but are 
not limited to: Milk, skim milk, lowfat milk, milk drinks, buttermilk, 
and filled milk, including any such beverage products that are 
flavored, cultured, modified with added nonfat milk solids, sterilized, 
concentrated (to not more than 50 percent total milk solids), or 
reconstituted.
    (b) The term fluid milk product shall not include:
    (1) Plain or sweetened evaporated milk, plain or sweetened 
evaporated skim milk, sweetened condensed milk or skim milk, formulas 
especially prepared for infant feeding or dietary use that are packaged 
in hermetically sealed containers, any product that contains by weight 
less than 6.5 percent nonfat milk solids, and whey; and
    (2) The quantity of skim milk in any modified product specified in 
paragraph (a) of this section that is in excess of the quantity of skim 
milk in an equal volume of an unmodified product of the same nature and 
butterfat content.


Sec. 1007.16  Fluid cream product.

    Fluid cream product means cream (other than plastic cream or frozen 
cream), including sterilized cream, or a mixture of cream and milk or 
skim milk containing 9 percent or more butterfat, with or without the 
addition of other ingredients.


Sec. 1007.17  Filled milk.

    Filled milk means any combination of nonmilk fat (or oil) with skim 
milk (whether fresh, cultured, reconstituted, or modified by the 
addition of nonfat milk solids), with or without milkfat, so that the 
product (including stabilizers, emulsifiers, or flavoring) resembles 
milk or any other fluid milk product, and contains less than 6 percent 
nonmilk fat (or oil).


Sec. 1007.18  Cooperative association.

    Cooperative association means any cooperative marketing association 
of producers which the Secretary determines after application by the 
association:
    (a) To be qualified under the provisions of the Act of Congress of 
February 18, 1922, as amended, known as the ``Capper-Volstead Act;'' 
and
    (b) To have full authority in the sale of milk of its members and 
be engaged in making collective sales of, or marketing, milk or milk 
products for its members.


Sec. 1007.19  Commercial food processing establishment.

    Commercial food processing establishment means any facility, other 
than a milk or filled milk plant, to which bulk fluid milk products and 
bulk fluid cream products are disposed of, or producer milk is 
diverted, that uses such receipts as ingredients in food products, and 
has no disposition of fluid milk products or fluid cream products other 
than those that it received in consumer type packages. Producer milk 
diverted to commercial food processing establishments shall be subject 
to the same provisions relating to diversions to plants, including, but 
not limited to, provisions in Secs. 1007.13, 1007.41, and 1007.52.


Sec. 1007.20  Product prices.

    The prices specified in this section, which are computed by the 
Director of the Dairy Division, Agricultural Marketing Service, shall 
be used, where specified, in calculating the basic formula prices 
pursuant to Sec. 1007.51. The term ``workday'' as used in this section 
shall mean each Monday through Friday that is not a national holiday.
    (a) Butter price means the simple average, for the first 15 days of 
the month, of the daily prices per pound of Grade A (92-score) butter 
on the Chicago Mercantile Exchange, using the price reported each week 
as the price for the day of the report, and for each following workday 
until the next price is reported.
    (b) Cheddar cheese price means the simple average, for the first 15 
days of the month, of the daily prices per pound of cheddar cheese in 
40-pound blocks. The prices used shall be those of the National Cheese 
Exchange (Green Bay, WI), using the price reported each week as the 
price for the day of the report and for each following workday until 
the next price is reported.
    (c) Nonfat dry milk price means the simple average of the prices 
per pound of nonfat dry milk for the first 15 days of the month 
computed as follows:
    (1) The prices used shall be the prices (using the midpoint of any 
price range as one price) of high heat, low heat, and Grade A nonfat 
dry milk, respectively, for the Central States production area;
    (2) For each week, determine the simple average of the prices 
reported for the three types of nonfat dry milk. Such average shall be 
the daily price for the day that such prices are reported and for each 
preceding workday until the day such prices were previously reported; 
and
    (3) Add the prices determined in paragraph (c)(2) of this section 
for the first 15 days of the month and divide by the number of days for 
which there is a daily price.
    (d) Edible whey price means the simple average, for the first 15 
days of the month, of the daily prices per pound of edible whey powder 
(nonhygroscopic). The prices used shall be the prices (using the 
midpoint of any price range as one price) of edible whey powder for the 
Central States production area. The average shall be computed using the 
price reported each week as the daily price for that day and for each 
preceding workday until the day such price was previously reported.

Handler Reports


Sec. 1007.30  Reports of receipts and utilization.

    On or before the 5th day after the end of the month (if 
postmarked), or not later than the 7th day if the report is delivered 
in person to the office of the market administrator, each handler shall 
report for such month to the market administrator, in the detail and on 
forms prescribed by the market administrator, as follows:
    (a) Each handler, with respect to each of its pool plants, shall 
report the quantities of skim milk and butterfat contained in or 
represented by:
    (1) Receipts of producer milk, including producer milk diverted by 
the handler from the pool plant to other plants;
    (2) Receipts of milk from handlers described in Sec. 1007.9(c);
    (3) Receipts of fluid milk products and bulk fluid cream products 
from other pool plants;
    (4) Receipts of other source milk;
    (5) Inventories at the beginning and end of the month of fluid milk 
products and products specified in Sec. 1007.40(b)(1); and
    (6) The utilization or disposition of all milk, filled milk, and 
milk products required to be reported pursuant to this paragraph.
    (b) Each handler operating a partially regulated distributing plant 
shall report with respect to such plant in the same manner as 
prescribed for reports required by paragraph (a) of this section. 
Receipts of milk that would have been producer milk if the plant had 
been fully regulated shall be reported in lieu of producer milk. Such 
report shall show also the quantity of any reconstituted skim milk in 
route disposition in the marketing area.
    (c) Each handler described in Sec. 1007.9 (b) and (c) shall report:
    (1) The quantities of skim milk and butterfat contained in receipts 
from producers; and
    (2) The utilization or disposition of all such receipts.
    (d) Each handler not specified in paragraphs (a) through (c) of 
this section shall report with respect to its receipts and utilization 
of milk, filled milk, and milk products in such manner as the market 
administrator may prescribe.


Sec. 1007.31  Payroll reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec. 1007.9 (a), (b), and (c) shall report to the 
market administrator its producer payroll for such month, in detail 
prescribed by the market administrator, showing for each producer:
    (1) Such producer's name and address;
    (2) The total pounds of milk received from such producer, showing 
separately the pounds of milk received from the producer on each 
delivery day;
    (3) The average butterfat content of such milk; and
    (4) The price per hundredweight, the gross amount due, the amount 
and nature of any deduction, and the net amount paid.
    (b) Each handler operating a partially regulated distributing plant 
who elects to make payment pursuant to Sec. 1007.76(b) shall report for 
each dairy farmer who would have been a producer if the plant had been 
fully regulated in the same manner as prescribed for reports required 
by paragraph (a) of this section.


Sec. 1007.32  Other reports.

    (a) Each handler described in Sec. 1007.9 (a), (b), and (c) shall 
report to the market administrator on or before the 7th day after the 
end of each month of February through May the aggregate quantity of 
base milk received from producers during the month, and on or before 
the 20th day after the end of each month of February through May the 
pounds of base milk received from each producer during the month. In 
the case of milk diverted to another plant, the handler shall also 
report the pounds of base milk of each producer assigned to the 
divertee plant.
    (b) In addition to the reports required pursuant to paragraph (a) 
of this section and Secs. 1007.30 and 1007.31, each handler shall 
report such information as the market administrator deems necessary to 
verify or establish each handler's obligation under the order.

Classification of Milk


Sec. 1007.40  Classes of utilization.

    Except as provided in Sec. 1007.42, all skim milk and butterfat 
required to be reported pursuant to Sec. 1007.30 shall be classified as 
follows:
    (a) Class I milk shall be all skim milk and butterfat:
    (1) Disposed of in the form of a fluid milk product, except as 
otherwise provided in paragraphs (b) and (c) of this section;
    (2) In packaged fluid milk products in inventory at the end of the 
month; and
    (3) Not specifically accounted for as Class II or Class III milk.
    (b) Class II milk shall be all skim milk and butterfat:
    (1) Disposed in the form of a fluid cream product or any product 
containing artificial fat, fat substitutes, or 6 percent or more 
nonmilk fat (or oil) that resembles a fluid cream product, except as 
otherwise provided in paragraph (c) of this section;
    (2) In packaged inventory at the end of the month of the products 
specified in paragraph (b)(1) of this section and in bulk concentrated 
fluid milk products in inventory at the end of the month;
    (3) In bulk fluid milk products and bulk fluid cream products 
disposed of or diverted to a commercial food processing establishment 
if the market administrator is permitted to audit the records of the 
commercial food processing establishment for the purpose of 
verification. Otherwise, such uses shall be Class I;
    (4) Used to produce:
    (i) Cottage cheese, lowfat cottage cheese, dry curd cottage cheese, 
ricotta cheese, pot cheese, Creole cheese, and any similar soft, high-
moisture cheese resembling cottage cheese in form or use;
    (ii) Milkshake and ice milk mixes (or bases), frozen desserts, and 
frozen dessert mixes distributed in one-quart containers or larger and 
intended to be used in soft or semi-solid form;
    (iii) Aerated cream, frozen cream, sour cream, sour half-and-half, 
sour cream mixtures containing nonmilk items, yogurt, and any other 
semi-solid product resembling a Class II product;
    (iv) Eggnog, custards, puddings, pancake mixes, buttermilk biscuit 
mixes, coatings, batter, and similar products;
    (v) Formulas especially prepared for infant feeding or dietary use 
(meal replacement) that are packaged in hermetically sealed containers;
    (vi) Candy, soup, bakery products and other prepared foods which 
are processed for general distribution to the public, and intermediate 
products, including sweetened condensed milk, to be used in processing 
such prepared food products; and
    (vii) Any product not otherwise specified in this section.
    (c) Class III milk shall be all skim milk and butterfat:
    (1) Used to produce:
    (i) Cream cheese and other spreadable cheeses, and hard cheese of 
types that may be shredded, grated, or crumbled, and are not included 
in paragraph (b)(4)(i) of this section;
    (ii) Butter, plastic cream, anhydrous milkfat, and butteroil;
    (iii) Any milk product in dry form except nonfat dry milk;
    (iv) Evaporated or sweetened condensed milk in a consumer-type 
package and evaporated or sweetened condensed skim milk in a consumer-
type package; and
    (2) In inventory at the end of the month of unconcentrated fluid 
milk products in bulk form and products specified in paragraph (b)(1) 
of this section in bulk form;
    (3) In fluid milk products, products specified in paragraph (b)(1) 
of this section, and products processed by the disposing handler that 
are specified in paragraphs (b)(4) (i) through (iv) of this section, 
that are disposed of by a handler for animal feed;
    (4) In fluid milk products, products specified in paragraph (b)(1) 
of this section, and products processed by the disposing handler that 
are specified in paragraphs (b)(4) (i) through (iv) of this section, 
that are dumped by a handler. The market administrator may require 
notification by the handler of such dumping in advance for the purpose 
of having the opportunity to verify such disposition. In any case, 
classification under this paragraph requires a handler to maintain 
adequate records of such use. If advance notification of such dumping 
is not possible, or if the market administrator so requires, the 
handler must notify the market administrator on the next business day 
following such use;
    (5) In fluid milk products and products specified in paragraph 
(b)(1) of this section that are destroyed or lost by a handler in a 
vehicular accident, flood, fire, or in a similar occurrence beyond the 
handler's control, to the extent that the quantities destroyed or lost 
can be verified from records satisfactory to the market administrator;
    (6) In skim milk in any modified fluid milk product or in any 
product specified in paragraph (b)(1) of this section that is in excess 
of the quantity of skim milk in such product that was included within 
the fluid milk product definition pursuant to Sec. 1007.15 and the 
fluid cream product definition pursuant to Sec. 1007.16; and
    (7) In shrinkage assigned pursuant to Sec. 1007.41(a) to the 
receipts specified in Sec. 1007.41(a)(2) and in shrinkage specified in 
Sec. 1007.41(b) and (c).
    (d) Class III-A milk shall be all skim milk and butterfat used to 
produce nonfat dry milk.


Sec. 1007.41  Shrinkage.

    For the purposes of classifying all skim milk and butterfat to be 
reported by a handler pursuant to Sec. 1007.30, the market 
administrator shall determine the following:
    (a) The pro rata assignment of shrinkage of skim milk and 
butterfat, respectively, at each pool plant to the respective 
quantities of skim milk and butterfat:
    (1) In the receipts specified in paragraphs (b)(1) through (6) of 
this section on which shrinkage is allowed pursuant to such paragraph; 
and
    (2) In other source milk not specified in paragraphs (b)(1) through 
(6) of this section which was received in the form of a bulk fluid milk 
product or a bulk fluid cream product;
    (b) The shrinkage of skim milk and butterfat, respectively, 
assigned pursuant to paragraph (a) of this section to the receipts 
specified in paragraph (a)(1) of this section that is not in excess of:
    (1) Two percent of the skim milk and butterfat, respectively, in 
producer milk (excluding milk diverted by the plant operator to another 
plant);
    (2) Plus 1.5 percent of the skim milk and butterfat, respectively, 
in milk received from a handler described in Sec. 1007.9(c), except 
that if the operator of the plant to which the milk is delivered 
purchased such milk on the basis of weights determined from its 
measurement at the farm and butterfat tests determined from farm bulk 
tank samples, the applicable percentage shall be 2 percent;
    (3) Plus 0.5 percent of the skim milk and butterfat, respectively, 
in producer milk diverted from such plant by the plant operator to 
another plant, except that if the operator of the plant to which the 
milk is delivered purchased such milk on the basis of weights 
determined from its measurement at the farm and butterfat tests 
determined from farm bulk tank samples, the applicable percentage shall 
be zero;
    (4) Plus 1.5 percent of the skim milk and butterfat, respectively, 
in bulk fluid milk products received by transfer from other pool 
plants;
    (5) Plus 1.5 percent of the skim milk and butterfat, respectively, 
in bulk fluid milk products received by transfer from other order 
plants, excluding the quantity for which Class II or Class III 
classification is requested by the handler; and
    (6) Plus 1.5 percent of the skim milk and butterfat, respectively, 
in bulk fluid milk products received by transfer from unregulated 
supply plants, excluding the quantity for which Class II or Class III 
classification is requested by the handler; and
    (7) Less 1.5 percent of the skim milk and butterfat, respectively, 
in bulk fluid milk products transferred to other plants that is not in 
excess of the respective amount of skim milk and butterfat to which 
percentages are applied in paragraphs (b) (1), (2), (4), (5), and (6) 
of this section; and
    (c) The quantity of skim milk and butterfat, respectively, in 
shrinkage of milk from producers for which a cooperative association is 
the handler pursuant to Sec. 1007.9 (b) or (c), but not in excess of 
0.5 percent of the skim milk and butterfat, respectively, in such milk. 
If the operator of the plant to which the milk is delivered purchases 
such milk on the basis of weights determined from its measurement at 
the farm and butterfat tests determined from farm bulk tank samples, 
the applicable percentage under this paragraph for the cooperative 
association shall be zero.


Sec. 1007.42  Classification of transfers and diversions.

    (a) Transfers and diversions to pool plants. Skim milk or butterfat 
transferred or diverted in the form of a fluid milk product or 
transferred in the form of a bulk fluid cream product from a pool plant 
to another pool plant shall be classified as Class I milk unless the 
operators of both plants request the same classification in another 
class. In either case, the classification shall be subject to the 
following conditions:
    (1) The skim milk or butterfat classified in each class shall be 
limited to the amount of skim milk and butterfat, respectively, 
remaining in such class at the transferee-plant after the computations 
pursuant to Sec. 1007.44(a)(12) and the corresponding step of 
Sec. 1007.44(b). The amount of skim milk or butterfat classified in 
each class shall include the assigned utilization of skim milk or 
butterfat in transfers of concentrated fluid milk products.
    (2) If the transferor-plant received during the month other source 
milk to be allocated pursuant to Sec. 1007.44(a)(7) or the 
corresponding step of Sec. 1007.44(b), the skim milk or butterfat so 
transferred shall be classified so as to allocate the least possible 
Class I utilization to such other source milk; and
    (3) If the transferor-plant received during the month other source 
milk to be allocated pursuant to Sec. 1007.44(a) (11) or (12) or the 
corresponding steps of Sec. 1007.44(b), the skim milk or butterfat so 
transferred, up to the total of the skim milk and butterfat, 
respectively, in such receipts of other source milk, shall not be 
classified as Class I milk to a greater extent than would be the case 
if the other source milk had been received at the transferee-plant.
    (b) Transfers and diversions to other order plants. Skim milk or 
butterfat transferred or diverted in the form of a fluid milk product 
or transferred in the form of a bulk fluid cream product from a pool 
plant to an other order plant shall be classified in the following 
manner. Such classification shall apply only to the skim milk or 
butterfat that is in excess of any receipts at the pool plant from the 
other plant of skim milk and butterfat, respectively, in fluid milk 
products and bulk fluid cream products, respectively, that are in the 
same category as described in paragraph (b) (1), (2), or (3) of this 
section.
    (1) If transferred as packaged fluid milk products, classification 
shall be in the classes to which allocated as a fluid milk product 
under the other order;
    (2) If transferred in bulk form, classification shall be in the 
classes to which allocated under the other order (including allocation 
under the conditions set forth in paragraph (b)(3) of this section);
    (3) If the operators of both plants so request in their reports of 
receipts and utilization filed with their respective market 
administrators, transfers or diversions in bulk form shall be 
classified as Class II or Class III milk to the extent of such 
utilization available for such classification pursuant to the 
allocation provisions of the other order;
    (4) If information concerning the classes to which such transfers 
or diversions were allocated under the other order is not available to 
the market administrator for the purpose of establishing classification 
under this paragraph, classification shall be Class I subject to 
adjustment when such information is available;
    (5) For purposes of this paragraph, if the other order provides for 
a different number of classes of utilization than is provided for under 
this part, skim milk or butterfat allocated to the class consisting 
primarily of fluid milk products shall be classified as Class I milk, 
and skim milk or butterfat allocated to the other classes shall be 
classified as Class III milk; and
    (6) If the form in which any fluid milk product that is transferred 
to an other order plant is not defined as a fluid milk product under 
such other order, classification shall be in accordance with the 
provisions of Sec. 1007.40.
    (c) Transfers and diversions to producer-handlers and to exempt 
plants. Skim milk or butterfat that is transferred or diverted from a 
pool plant to a producer-handler under another Federal order or to an 
exempt plant shall be classified:
    (1) As Class I milk if transferred or diverted to a producer-
handler;
    (2) As Class I milk if transferred to an exempt plant in the form 
of a packaged fluid milk product;
    (3) In accordance with the utilization assigned to it by the market 
administrator if transferred or diverted in the form of a bulk fluid 
milk product or a bulk fluid cream product to an exempt plant. For this 
purpose, the transferee's utilization of skim milk and butterfat in 
each class, in series beginning with Class III, shall be assigned to 
the extent possible to its receipts of skim milk and butterfat, 
respectively, in bulk fluid cream products, pro rata to each source.
    (d) Transfers and diversions to other nonpool plants. Skim milk or 
butterfat transferred or diverted in the following forms from a pool 
plant to a nonpool plant that is not an other order plant, a producer-
handler plant, or an exempt plant shall be classified:
    (1) As Class I milk, if transferred in the form of a packaged fluid 
milk product; and
    (2) As Class I milk, if transferred or diverted in the form of a 
bulk fluid milk product or transferred in the form of a bulk fluid 
cream product, unless the following conditions apply:
    (i) If the conditions described in paragraphs (d)(2)(i) (A) and (B) 
of this section are met, transfers or diversions in bulk form shall be 
classified on the basis of the assignment of the nonpool plant's 
utilization to its receipts as set forth in paragraphs (d)(2) (ii) 
through (viii) of this section:
    (A) The transferor-handler or divertor-handler claims such 
classification in such handler's report of receipts and utilization 
filed pursuant Sec. 1007.30 for the month within which such transaction 
occurred; and
    (B) The nonpool plant operator maintains books and records showing 
the utilization of all skim milk and butterfat received at such plant 
which are made available for verification purposes if requested by the 
market administrator;
    (ii) Route disposition in the marketing area of each Federal order 
from the nonpool plant and transfers of packaged fluid milk products 
from such nonpool plant to plants fully regulated thereunder shall be 
assigned to the extent possible in the following sequence:
    (A) Pro rata to receipts of packaged fluid milk products at such 
nonpool plants from pool plants;
    (B) Pro rata to any remaining unassigned receipts of packaged fluid 
milk products at such nonpool plants from other order plants;
    (C) Pro rata to receipts of bulk fluid milk products at such 
nonpool plant from pool plants; and
    (D) Pro rata to any remaining unassigned receipts of bulk fluid 
milk products at such nonpool plant from other order plants;
    (iii) Any remaining Class I disposition of packaged fluid milk 
products from the nonpool plant shall be assigned to the extent 
possible pro rata to any remaining unassigned receipts of packaged 
fluid milk products at such nonpool plant from pool plants and other 
order plants;
    (iv) Transfers of bulk fluid milk products from the nonpool plant 
to a plant regulated under any Federal milk order, to the extent that 
such transfers to the regulated plant exceed receipts of fluid milk 
products from such plant and are allocated to Class I at the 
transferee-plant, shall be classified to the extent possible in the 
following sequence:
    (A) Pro rata to receipts of fluid milk products at such nonpool 
plant from pool plants; and
    (B) Pro rata to any remaining unassigned receipts of fluid milk 
products at such nonpool plant from other order plants;
    (v) Any remaining unassigned Class I disposition from the nonpool 
plant shall be assigned to the extent possible in the following 
sequence:
    (A) To such nonpool plant's receipts from dairy farmers who the 
market administrator determines constitute regular sources of Grade A 
milk for such nonpool plant; and
    (B) To such nonpool plant's receipts of Grade A milk from plants 
not fully regulated under any Federal milk order which the market 
administrator determines constitute regular sources of Grade A milk for 
such nonpool plant;
    (vi) Any remaining unassigned receipts of bulk fluid milk products 
at the nonpool plant from pool plants and other order plants shall be 
assigned, pro rata among such plants, to the extent possible first to 
any remaining Class I utilization, then to Class II utilization, and 
then to Class III utilization at such nonpool plant;
    (vii) Receipts of bulk fluid cream products at the nonpool plant 
from pool plants and other order plants shall be assigned, pro rata 
among such plants, to the extent possible first to any remaining Class 
II utilization, then to any remaining Class III utilization, and then 
to Class I utilization at such nonpool plant; and
    (viii) In determining the nonpool plant's utilization for purposes 
of this paragraph, any fluid milk products and bulk fluid cream 
products transferred from such nonpool plant to a plant not fully 
regulated under any Federal milk order shall be classified on the basis 
of the second plant's utilization using the same assignment priorities 
at the second plant that are set forth in this paragraph.
    (e) Transfers by a handler described in Sec. 1007.9(c) to pool 
plants. Skim milk and butterfat transferred in the form of bulk milk by 
a handler described in Sec. 1007.9(c) to another handler's pool plant 
shall be classified pursuant to Sec. 1007.44 pro rata with producer 
milk received at the transferee-handler's plant.


Sec. 1007.43  General classification rules.

    In determining the classification of producer milk pursuant to 
Sec. 1007.44, the following rules shall apply:
    (a) Each month the market administrator shall correct for 
mathematical and other obvious errors all reports filed pursuant to 
Sec. 1007.30 and shall compute separately for each pool plant, and for 
each cooperative association with respect to milk for which it is the 
handler pursuant to Sec. 1007.9 (b) or (c) that was not received at a 
pool plant, the pounds of skim milk and butterfat, respectively, in 
each class in accordance with Secs. 1007.40, 1007.41, and 1007.42. The 
combined pounds of skim milk and butterfat so determined in each class 
for a handler described in Sec. 1007.9 (b) or (c) shall be such 
handler's classification of producer milk;
    (b) If any of the water contained in the milk from which a product 
is made is removed before the product is utilized or disposed of by the 
handler, the pounds of skim milk in such product that are to be 
considered under this part as used or disposed of by the handler shall 
be an amount equivalent to the nonfat milk solids contained in such 
product plus all of the water originally associated with such solids;
    (c) The classification of producer milk for which a cooperative 
association is the handler pursuant to Sec. 1007.9 (b) or (c) shall be 
determined separately from the operations of any pool plant operated by 
such cooperative association;
    (d) Skim milk and butterfat contained in receipts of bulk 
concentrated fluid milk and nonfluid milk products that are 
reconstituted for fluid use shall be assigned to Class I use, up to the 
reconstituted portion of labeled reconstituted fluid milk products, on 
a pro rata basis (except for any Class I use of specific concentrated 
receipts that is established by the handler) prior to any assignment 
under Sec. 1007.44. Any remaining skim milk and butterfat in 
concentrated receipts shall be assigned to uses under Sec. 1007.44 on a 
pro rata basis, unless a specific use of such receipts is established 
by the handler; and
    (e) Class III-A milk shall be allocated in combination with Class 
III milk and the quantity of producer milk eligible to be priced in 
Class III-A shall be determined by prorating receipts from pool sources 
to Class III-A use on the basis of the quantity of total receipts of 
bulk fluid milk products allocated to Class III use at the plant.


Sec. 1007.44  Classification of producer milk.

    For each month the market administrator shall determine for each 
handler described in Sec. 1007.9(a) for each pool plant of the handler 
separately the classification of producer milk and milk received from a 
handler described in Sec. 1007.9(c), by allocating the handler's 
receipts of skim milk and butterfat to the utilization of such receipts 
by such handler as follows:
    (a) Skim milk shall be allocated in the following manner:
    (1) Subtract from the total pounds of skim milk in Class III the 
pounds of skim milk in shrinkage specified in Sec. 1007.41(b);
    (2) Subtract from the total pounds of skim milk in Class I the 
pounds of skim milk in:
    (i) Receipts of packaged fluid milk products from an unregulated 
supply plant to the extent that an equivalent amount of skim milk 
disposed of to such plant by handlers fully regulated under any Federal 
milk order is classified and priced as Class I milk and is not used as 
an offset for any other payment obligation under any order;
    (ii) Packaged fluid milk products in inventory at the beginning of 
the month. This paragraph shall apply only if the pool plant was 
subject to the provisions of this paragraph or comparable provisions of 
another Federal milk order in the immediately preceding month;
    (3) Subtract from the pounds of skim milk remaining in each class 
the pounds of skim milk in fluid milk products received in packaged 
form from another order plant, except that to be subtracted pursuant to 
paragraph (a)(7)(vi) of this section, as follows:
    (i) From Class III milk, the lesser of the pounds remaining or 2 
percent of such receipts; and
    (ii) From Class I milk, the remainder of such receipts;
    (4) Subtract from the pounds of skim milk in Class II the pounds of 
skim milk in products specified in Sec. 1007.40(b)(1) that were 
received in packaged form from other plants, but not in excess of the 
pounds of skim milk remaining in Class II;
    (5) Subtract from the remaining pounds of skim milk in Class II the 
pounds of skim milk in products specified in Sec. 1007.40(b)(1) in 
packaged form and in bulk concentrated fluid milk products that were in 
inventory at the beginning of the month, but not in excess of the 
pounds of skim milk remaining in Class II. This paragraph shall apply 
only if the pool plant was subject to the provisions of this paragraph 
or comparable provisions of another Federal milk order in the 
immediately preceding month;
    (6) Subtract from the remaining pounds of skim milk in Class II the 
pounds of skim milk in bulk concentrated fluid milk products and in 
other source milk (except other source milk received in the form of an 
unconcentrated fluid milk product or a fluid cream product) that is 
used to produce, or added to, any product specified in Sec. 1007.40(b) 
(excluding the quantity of such skim milk that was classified as Class 
III milk pursuant to Sec. 1007.40(c)(6)), but not in excess of the 
pounds of skim milk remaining in Class II;
    (7) Subtract in the order specified below from the pounds of skim 
milk remaining in each class, in series beginning with Class III, the 
pounds of skim milk in each of the following:
    (i) Bulk concentrated fluid milk products and other source milk 
(except other source milk received in the form of an unconcentrated 
fluid milk product) and, if paragraph (a)(5) of this section applies, 
packaged inventory at the beginning of the month of products specified 
in Sec. 1007.40(b)(1) that were not subtracted pursuant to paragraphs 
(a)(4), (a)(5), and (a)(6) of this section;
    (ii) Receipts of fluid milk products (except filled milk) for which 
Grade A certification is not established;
    (iii) Receipts of fluid milk products from unidentified sources;
    (iv) Receipts of fluid milk products from a producer-handler as 
defined under any Federal milk order and from an exempt distributing 
plant;
    (v) Receipts of reconstituted skim milk in filled milk from an 
unregulated supply plant that were not subtracted pursuant to paragraph 
(a)(2)(i) of this section; and
    (vi) Receipts of reconstituted skim milk in filled milk from an 
other order plant that is fully regulated under any Federal milk order 
providing for individual-handler pooling, to the extent that 
reconstituted skim milk is allocated to Class I at the transferor-
plant;
    (8) Subtract in the order specified below from the pounds of skim 
milk remaining in Class II and Class III, in sequence beginning with 
Class III:
    (i) The pounds of skim milk in receipts of fluid milk products from 
an unregulated supply plant that were not subtracted pursuant to 
paragraphs (a)(2)(i) and (7)(v) of this section for which the handler 
requests a classification other than Class I, but not in excess of the 
pounds of skim milk remaining in Class II and Class III combined;
    (ii) The pounds of skim milk in receipts of fluid milk products 
from an unregulated supply plant that were not subtracted pursuant to 
paragraphs (a)(2)(i), (7)(v), and (8)(i) of this section which are in 
excess of the pounds of skim milk determined pursuant to paragraphs 
(a)(8)(ii)(A) through (C) of this section. Should the pounds of skim 
milk to be subtracted from Class II and Class III combined exceed the 
pounds of skim milk remaining in such classes, the pounds of skim milk 
in Class II and Class III combined shall be increased (increasing as 
necessary Class III and then Class II to the extent of available 
utilization in such classes at the nearest other pool plant of the 
handler, and then at each successively more distant pool plant of the 
handler) by an amount equal to such excess quantity to be subtracted, 
and the pounds of skim milk in Class I shall be decreased a like 
amount. In such case, the pounds of skim milk remaining in each class 
at this allocation step at the handler's other pool plants shall be 
adjusted in the reverse direction by a like amount;
    (A) Multiply by 1.25 the sum of the pounds of skim milk remaining 
in Class I at this allocation step at all pool plants of the handler 
(excluding any duplication of Class I utilization resulting from 
reported Class I transfers between pool plants of the handler);
    (B) Subtract from the above result the sum of the pounds of skim 
milk in receipts at all pool plants of the handler of producer milk, 
milk from a handler described in Sec. 1007.9(c), fluid milk products 
from pool plants of other handlers, and bulk fluid milk products from 
other order plants that were not subtracted pursuant to paragraph 
(a)(7)(vi) of this section; and
    (C) Multiply any plus quantity resulting above by the percentage 
that the receipts of skim milk in fluid milk products from unregulated 
supply plants that remain at this pool plant is of all such receipts 
remaining at this allocation step at all pool plants of the handler; 
and
    (iii) The pounds of skim milk in receipts of bulk fluid milk 
products from an other order plant that are in excess of bulk fluid 
milk products transferred or diverted to such plant and that were not 
subtracted pursuant to paragraph (a)(7)(vi) of this section, if Class 
II or Class III classification is requested by the operator of the 
other order plant and the handler, but not in excess of the pounds of 
skim milk remaining in Class II and Class III combined;
    (9) Subtract from the pounds of skim milk remaining in each class, 
in series beginning with Class III, the pounds of skim milk in fluid 
milk products and products specified in Sec. 1007.40(b)(1) in inventory 
at the beginning of the month that were not subtracted pursuant to 
paragraphs (a)(2)(ii), (a)(5), and (a)(7)(i) of this section;
    (10) Add to the remaining pounds of skim milk in Class III the 
pounds of skim milk subtracted pursuant to paragraph (a)(1) of this 
section;
    (11) Subject to the provisions of paragraphs (a)(11)(i) and (ii) of 
this section, subtract from the pounds of skim milk remaining in each 
class at the plant, pro rata to the total pounds of skim milk remaining 
in Class I and in Class II and Class III combined at this allocation 
step at all pool plants of the handler (excluding any duplication of 
utilization in each class resulting from transfers between pool plants 
of the handler), with the quantity prorated to Class II and Class III 
combined being subtracted first from Class III and then from Class II, 
the pounds of skim milk in receipts of fluid milk products from an 
unregulated supply plant that were not subtracted pursuant to 
paragraphs (a)(2)(i), (a)(7)(v), (a)(8)(i), and (a)(8) (1) and (ii) of 
this section and that were not offset by transfers or diversions of 
fluid milk products to the same unregulated supply plant from which 
fluid milk products to be allocated at this step were received:
    (i) Should the pounds of skim milk to be subtracted from Class II 
and Class III combined pursuant to paragraph (a)(11) of this section 
exceed the pounds of skim milk remaining in such classes, the pounds of 
skim milk in Class II and Class III combined shall be increased 
(increasing as necessary Class III and then Class II to the extent of 
available utilization in such classes at the nearest other pool plant 
of the handler, and then at each successively more distant pool plant 
of the handler) by an amount equal to such excess quantity to be 
subtracted, and the pounds of skim milk in Class I shall be decreased a 
like amount. In such case, the pounds of skim milk remaining in each 
class at this allocation step at the handler's other pool plants shall 
be adjusted in the reverse direction by a like amount; and
    (ii) Should the pounds of skim milk to be subtracted from Class I 
pursuant to paragraph (a)(11) of this section exceed the pounds of skim 
milk remaining in such class, the pounds of skim milk in Class I shall 
be increased by an amount equal to such excess quantity to be 
subtracted, and the pounds of skim milk in Class II and Class III 
combined shall be decreased by a like amount (decreasing as necessary 
Class III then Class II). In such case, the pounds of skim milk 
remaining in each class at this allocation step at the handler's other 
pool plants shall be adjusted in the reverse direction by a like 
amount, beginning with the nearest plant at which Class I utilization 
is available;
    (12) Subtract in the manner specified below from the pounds of skim 
milk remaining in each class the pounds of skim milk in receipts of 
bulk fluid milk products from an other order plant that are in excess 
of bulk fluid milk products transferred or diverted to such plant that 
were not subtracted pursuant to paragraphs (a)(7)(vi) and (8)(iii) of 
this section:
    (i) Subject to the provisions of paragraphs (a)(12)(ii), (iii) and 
(iv) of this section, such subtraction shall be pro rata to the pounds 
of skim milk in Class I and in Class II and Class III combined, with 
the quantity prorated to Class II and Class III combined being 
subtracted first from Class III and then from Class II, with respect to 
whichever of the following quantities represents the lower proportion 
of Class I milk:
    (A) The estimated utilization of skim milk of all handlers in each 
class as announced for the month pursuant to Sec. 1007.45(a); or
    (B) The total pounds of skim milk remaining in each class at this 
allocation step at all pool plants of the handler (excluding any 
duplication of utilization in each class resulting from transfers 
between pool plants of the handler);
    (ii) Should the proration pursuant to paragraph (a)(12)(i) of this 
section result in the total pounds of skim milk at all pool plants of 
the handler that are to be subtracted at this allocation step from 
Class II and Class III combined exceeding the pounds of skim milk 
remaining in Class II and Class III at all such plants, the pounds of 
such excess shall be subtracted from the pounds remaining in Class I 
after such proration at the pool plants at which such other source milk 
was received;
    (iii) Except as provided in paragraph (a)(12)(ii) of this section, 
should the computations pursuant to paragraph (a)(12)(i) or (ii) of 
this section result in a quantity of skim milk to be subtracted from 
Class II and Class III combined that exceeds the pounds of skim milk 
remaining in such classes, the pounds of skim milk in Class II and 
Class III combined shall be increased (increasing as necessary Class 
III and then Class II to the extent of available utilization in such 
classes at the nearest other pool plant of the handler, and then at 
each successively more distant pool plant of the handler) by an amount 
equal to such excess quantity to be subtracted, and the pounds of skim 
milk in Class I shall be decreased by a like amount. In such case, the 
pounds of skim milk remaining in each class at this allocation step at 
the handler's other pool plants shall be adjusted in the reverse 
direction by a like amount; and
    (iv) Except as provided in paragraph (a)(12)(ii) of this section, 
should the computations pursuant to paragraph (a)(12)(i) or (ii) of 
this section result in a quantity of skim milk to be subtracted from 
Class I that exceeds the pounds of skim milk remaining in such class, 
the pounds of skim milk in Class I shall be increased by an amount 
equal to such excess quantity to be subtracted, and the pounds of skim 
milk in Class II and Class III combined shall be decreased by a like 
amount (decreasing as necessary Class III and then Class II). In such 
case the pounds of skim milk remaining in each class at this allocation 
step at the handler's other pool plants shall be adjusted in the 
reverse direction by a like amount beginning with the nearest plant at 
which Class I utilization is available;
    (13) Subtract from the pounds of skim milk remaining in each class 
the pounds of skim milk in receipts of fluid milk products and bulk 
fluid cream products from another pool plant according to the 
classification of such products pursuant to Sec. 1007.42(a); and
    (14) If the total pounds of skim milk remaining in all classes 
exceed the pounds of skim milk in producer milk and milk received from 
a handler described in Sec. 1007.9(c), subtract such excess from the 
pounds of skim milk remaining in each class in series beginning with 
Class III. Any amount so subtracted shall be known as ``overage'';
    (b) Butterfat shall be allocated in accordance with the procedure 
outlined for skim milk in paragraph (a) of this section; and
    (c) The quantity of producer milk and milk received from a handler 
described in Sec. 1007.9(c) in each class shall be the combined pounds 
of skim milk and butterfat remaining in each class after the 
computations pursuant to paragraph (a)(14) of this section and the 
corresponding step of paragraph (b) of this section.


Sec. 1007.45  Market administrator's reports and announcements 
concerning classification.

    The market administrator shall make the following reports and 
announcements concerning classification:
    (a) Whenever required for the purpose of allocating receipts from 
other order plants pursuant to Sec. 1007.44(a)(12) and the 
corresponding step of Sec. 1007.44(b), estimate and publicly announce 
the utilization (to the nearest whole percentage) in each class during 
the month of skim milk and butterfat, respectively, in producer milk of 
all handlers. Such estimate shall be based upon the most current 
available data and shall be final for such purpose.
    (b) Report to the market administrator of the other order, as soon 
as possible after the report of receipts and utilization for the month 
is received from a handler who has received fluid milk products or bulk 
fluid cream products from an other order plant, the class to which such 
receipts are allocated pursuant to Secs. 1007.43(d) and 1007.44 on the 
basis of such report (including any reclassification of inventories of 
bulk concentrated fluid milk products), and thereafter, any change in 
such allocation required to correct errors disclosed in the 
verification of such report.
    (c) Furnish each handler operating a pool plant who has shipped 
fluid milk products or bulk fluid cream products to an other order 
plant the class to which such shipments were allocated by the market 
administrator of the other order on the basis of the report by the 
receiving handler, and, as necessary, any changes in such allocation 
arising from the verification of such report.
    (d) On or before the 12th day after the end of each month, report 
to each cooperative association which so requests, the percentage of 
producer milk delivered by members of such association that was used in 
each class by each handler receiving such milk. For the purpose of this 
report the milk so received shall be prorated to each class in 
accordance with the total utilization of producer milk by such handler.

Class Prices


Sec. 1007.50  Class prices.

    Subject to the provisions of Sec. 1007.52, the class prices for the 
month per hundredweight of milk containing 3.5% butterfat shall be as 
follows:
    (a) The Class I price shall be the basic formula price for the 
second preceding month plus $3.08.
    (b) The Class II price shall be computed by the Director of the 
Dairy Division and transmitted to the market administrator on or before 
the 15th day of the preceding month. The Class II price shall be the 
basic Class II formula price computed pursuant to Sec. 1007.51(b) for 
the month plus the amount that the value computed pursuant to paragraph 
(b)(1) of this section exceeds the value computed pursuant to paragraph 
(b)(2) of this section, plus any amount by which the basic Class II 
formula price for the second preceding month, adjusted pursuant to 
paragraphs (b)(1) and (b)(2) of this section, was less than the Class 
III price for the second preceding month.
    (1) Determine for the most recent 12-month period the simple 
average (rounded to the nearest cent) of the basic formula prices 
computed pursuant to Sec. 1007.51 and add 10 cents; and
    (2) Determine for the same 12-month period as specified in 
paragraph (b)(1) of this section the simple average (rounded to the 
nearest cent) of the basic Class II formula prices computed pursuant to 
Sec. 1007.51(b).
    (c) The Class III price shall be the basic formula price for the 
month.
    (d) The Class III-A price for the month shall be the average 
Central States nonfat dry milk price for the month, as reported by the 
Department, less 12.5 cents, times an amount computed by subtracting 
from 9 an amount calculated by dividing 0.4 by such nonfat dry milk 
price, plus the butterfat differential value per hundredweight of 3.5 
percent milk and rounded to the nearest cent, and subject to the 
adjustments set forth in paragraph (c) of this section for the 
applicable month.


Sec. 1007.51  Basic formula prices.

    (a) The basic formula price shall be the average price per 
hundredweight for manufacturing grade milk, f.o.b. plants in Minnesota 
and Wisconsin, as reported by the Department for the month, adjusted to 
a 3.5 percent butterfat basis and rounded to the nearest cent using the 
butterfat differential computed pursuant to Sec. 1007.74.
    (b) The basic Class II formula price for the month shall be the 
basic formula price determined pursuant to Sec. 1007.51(a) for the 
second preceding month plus or minus the amount computed pursuant to 
paragraphs (b) (1) through (4) of this section:
    (1) The gross values per hundredweight of milk used to manufacture 
cheddar cheese and butter-nonfat dry milk shall be computed, using 
price data determined pursuant to Sec. 1007.19 and yield factors in 
effect under the Dairy Price Support Program authorized by the 
Agricultural Act of 1949, as amended, for the first 15 days of the 
preceding month and, separately, for the first 15 days of the second 
preceding month as follows:
    (i) The gross value of milk used to manufacture cheddar cheese 
shall be the sum of the following computations:
    (A) Multiply the cheddar cheese price by the yield factor used 
under the Price Support Program for cheddar cheese;
    (B) Multiply the butter price by the yield factor used under the 
Price Support Program for determining the butterfat component of the 
whey value in the cheese price computation; and
    (C) Subtract from the edible whey price the processing cost used 
under the Price Support Program for edible whey and multiply any 
positive difference by the yield factor used under the Price Support 
Program for edible whey.
    (ii) The gross value of milk used to manufacture butter-nonfat dry 
milk shall be the sum of the following computations:
    (A) Multiply the butter price by the yield factor used under the 
Price Support Program for butter; and
    (B) Multiply the nonfat dry milk price by the yield factor used 
under the Price Support Program for nonfat dry milk.
    (2) Determine the amounts by which the gross value per 
hundredweight of milk used to manufacture cheddar cheese and the gross 
value per hundredweight of milk used to manufacture butter-nonfat dry 
milk for the first 15 days of the preceding month exceed or are less 
than the respective gross values for the first 15 days of the second 
preceding month.
    (3) Compute weighting factors to be applied to the changes in gross 
values determined pursuant to paragraph (b)(2) of this section by 
determining the relative proportion that the data included in each of 
the following paragraphs is of the total of the data represented in 
paragraphs (b)(3) (i) and (ii) of this section:
    (i) Combine the total American cheese production for the States of 
Minnesota and Wisconsin, as reported by the Statistical Reporting 
Service of the Department for the most recent preceding period, and 
divide by the yield factor used under the Price Support Program for 
cheddar cheese to determine the quantity of milk used in the production 
of American cheddar cheese; and
    (ii) Combine the total nonfat dry milk production for the States of 
Minnesota and Wisconsin, as reported by the Statistical Reporting 
Service of the Department for the most recent preceding period, and 
divide by the yield factor used under the Price Support Program for 
nonfat dry milk to determine the quantity of milk used in the 
production of butter-nonfat dry milk.
    (4) Compute a weighted average of the changes in gross values per 
hundredweight of milk determined pursuant to paragraph (b)(2) of this 
section in accordance with the relative proportions of milk determined 
pursuant to paragraph (b)(3) of this section.


Sec. 1007.52  Plant location adjustments for handlers.

    (a) For milk received at a plant from producers or a handler 
described in Sec. 1007.9(c) and which is classified as Class I milk 
without movement in bulk form to a pool distributing plant at which a 
higher Class I price applies, the price specified in Sec. 1007.50(a) 
shall be adjusted by the amount stated in paragraphs (a) (1) through 
(6) of this section for the location of such plant:
    (1) For a plant located within one of the zones set forth in 
Sec. 1007.2, the adjustment (cents per hundredweight) shall be as 
follows:

Zone 1............................................  Minus 53.           
Zone 2............................................  Minus 48.           
Zone 3............................................  Minus 31.           
Zone 4............................................  Minus 25.           
Zone 5............................................  Minus 10.           
Zone 6............................................  No adjustment.      
Zone 7............................................  Plus 10.            
Zone 8............................................  Plus 20.            
Zone 9............................................  Plus 30.            
Zone 10...........................................  Plus 40.            
Zone 11...........................................  Plus 50.            
Zone 12...........................................  Plus 60.            
                                                                        

    (2) For a plant located in that portion of the Tennessee Valley 
marketing area that is within the State of Georgia, the adjustment 
shall be minus 25 cents.
    (3) For a plant located in the Missouri counties of Dunklin or 
Pemiscot, the adjustment shall be minus 53 cents.
    (4) For a plant located in the Texas counties of Bowie or Cass, the 
adjustment shall be zero.
    (5) For a plant located within another Federal order marketing 
area, other than in those counties specified in paragraphs (a) (2), 
(3), and (4) of this section, the adjustment shall be determined by 
subtracting the Class I differential price in Zone 6 of this order from 
the Class I differential price, adjusted for the plant's location, 
under such other Federal order.
    (6) For a plant located outside the areas described in paragraphs 
(a) (1) through (5) of this section, the adjustment shall be computed 
by multiplying 2.5 cents per 10 miles, or fraction thereof (by the 
shortest hard-surfaced highway distance as determined by the market 
administrator), from the nearer of Shreveport, Louisiana; Little Rock, 
Arkansas; Memphis, Tennessee; Jackson, Tennessee; Nashville, Tennessee; 
or Atlanta, Georgia, and subtracting that figure from the location 
adjustment applicable at Shreveport, Little Rock, Memphis, Jackson, 
Nashville, or Atlanta, as the case may be.
    (b) For fluid milk products transferred in bulk form from a pool 
plant to a pool distributing plant at which a higher Class I price 
applies and which are classified as Class I milk, the Class I price 
shall be the Class I price at the transferee-plant subject to a 
location adjustment credit for the transferor-plant which shall be 
determined by the market administrator for skim milk and butterfat, 
respectively, as follows:
    (1) Subtract from the pounds of skim milk remaining in Class I at 
the transferee-plant after the computations pursuant to 
Sec. 1007.44(a)(12) plus the pounds of skim milk in receipts of 
concentrated fluid milk products from other pool plants that are 
assigned to Class I use, an amount equal to:
    (i) The pounds of skim milk in receipts of milk at the transferee-
plant from producers and handlers described in Sec. 1007.9(c); and
    (ii) The pounds of skim milk in receipts of packaged fluid milk 
products from other pool plants;
    (2) Assign any remaining pounds of skim milk in Class I at the 
transferee-plant to the skim milk in receipts of fluid milk products 
from other pool plants, first to the transferor-plants at which the 
highest Class I price applies and then to other plants in sequence 
beginning with the plant at which the next highest Class I price 
applies;
    (3) Compute the total amount of location adjustment credits to be 
assigned to transferor-plants by multiplying the hundredweight of skim 
milk assigned pursuant to paragraph (b)(2) of this section to each 
transferor-plant at which the Class I price is lower than the Class I 
price applicable at the transferor-plant and the transferee-plant, and 
add the resulting amounts;
    (4) Assign the total amount of location adjustment credits computed 
pursuant to paragraph (b)(3) of this section to those transferor-plants 
that transferred fluid milk products containing skim milk classified as 
Class I milk pursuant to Sec. 1007.42(a) and at which the applicable 
Class I price is less than the Class I price at the transferee-plant, 
in sequence beginning with the plant at which the highest Class I price 
applies. Subject to the availability of such credits, the credit 
assigned to each plant shall be equal to the hundredweight of such 
Class I skim milk multiplied by the adjustment rate determined pursuant 
to paragraph (b)(3) of this section for such plant. If the aggregate of 
this computation for all plants having the same adjustment as 
determined pursuant to paragraph (b)(3) of this section exceeds the 
credits that are available to those plants, such credits shall be 
prorated to the volume of skim milk in Class I in transfers from such 
plants; and
    (5) Location adjustment credit for butterfat shall be determined in 
accordance with the procedure outlined for skim milk in paragraphs 
(b)(1) through (4) of this section.
    (c) The market administrator shall determine and publicly announce 
the zone location of each plant of each handler. The market 
administrator shall notify the handler on or before the first day of 
any month in which a change in a plant location zone will apply.
    (d) The Class I price applicable to other source milk shall be 
adjusted at the rates set forth in paragraph (a) of this section, 
except that the adjusted Class I price shall not be less than the Class 
III price.


Sec. 1007.53  Announcement of class prices.

    The market administrator shall announce publicly on or before the 
fifth day of each month the Class I price for the following month, the 
Class III and Class III-A prices for the preceding month, and on or 
before the 15th day of each month the Class II price for the following 
month computed pursuant to Sec. 1007.50(b).


Sec. 1007.54  Equivalent price.

    If for any reason a price or pricing constituent required by this 
part for computing class prices or for other purposes is not available 
as prescribed in this part, the market administrator shall use a price 
or pricing constituent determined by the Secretary to be equivalent to 
the price or pricing constituent that is required.

Uniform Prices


Sec. 1007.60  Handler's value of milk for computing the uniform price.

    For the purpose of computing the uniform price, the market 
administrator shall determine for each month the value of milk of each 
handler with respect to each of the handler's pool plants and of each 
handler described in Sec. 1007.9(b) and (c) with respect to milk that 
was not received at a pool plant as follows:
    (a) Multiply the pounds of producer milk and milk received from a 
handler described in Sec. 1007.9(c) that were classified in each class 
pursuant to Secs. 1007.43(a) and 1007.44(c) by the applicable class 
prices, and add the resulting amounts;
    (b) Add the amounts obtained from multiplying the pounds of overage 
subtracted from each class pursuant to Sec. 1007.44(a)(14) and the 
corresponding step of Sec. 1007.44(b) by the respective class prices, 
as adjusted by the butterfat differential specified in Sec. 1007.74, 
that are applicable at the location of the pool plant;
    (c) Add the amount obtained from multiplying the difference between 
the Class III price for the preceding month and the Class I price 
applicable at the location of the pool plant or the Class II price, as 
the case may be, for the current month by the hundredweight of skim 
milk and butterfat subtracted from Class I and Class II pursuant to 
Sec. 1007.44(a)(9) and the corresponding step of Sec. 1007.44(b);
    (d) Add the amount obtained from multiplying the difference between 
the Class I price applicable at the location of the pool plant and the 
Class III price by the hundredweight of skim milk and butterfat 
assigned to Class I pursuant to Sec. 1007.43(d) and the hundredweight 
of skim milk and butterfat subtracted from Class I pursuant to 
Sec. 1007.44(a)(7)(i) through (iv) and the corresponding step of 
Sec. 1007.44(b), excluding receipts of bulk fluid cream products from 
an other order plant and bulk concentrated fluid milk products from 
pool plants, other order plants, and unregulated supply plants;
    (e) Add the amount obtained from multiplying the difference between 
the Class I price applicable at the location of the transferor-plant 
and the Class III price by the hundredweight of skim milk and butterfat 
subtracted from Class I pursuant to Sec. 1007.44(a)(7)(v) and (vi) and 
the corresponding step of Sec. 1007.44(b);
    (f) Add the amount obtained from multiplying the Class I price 
applicable at the location of the nearest unregulated supply plants 
from which an equivalent volume was received by the pounds of skim milk 
and butterfat in receipts of concentrated fluid milk products assigned 
to Class I pursuant to Sec. 1007.43(d) and Sec. 1007.44(a)(7)(i) and 
the pounds of skim milk and butterfat subtracted from Class I pursuant 
to Sec. 1007.44(a)(11) and the corresponding step of Sec. 1007.44(b), 
excluding such skim milk and butterfat in receipts of fluid milk 
products from an unregulated supply plant to the extent that an 
equivalent amount of skim milk or butterfat disposed of to such plant 
by handlers fully regulated under any Federal milk order is classified 
and priced as Class I milk and is not used as an offset for any other 
payment obligation under any order;
    (g) Subtract, for reconstituted milk made from receipts of nonfluid 
milk products, an amount computed by multiplying $1.00 (but not more 
than the difference between the Class I price applicable at the 
location of the pool plant and the Class III price) by the 
hundredweight of skim milk and butterfat contained in receipts of 
nonfluid milk products that are allocated to Class I use pursuant to 
Sec. 1007.43(d);
    (h) Exclude, for pricing purposes under this section, receipts of 
nonfluid milk products that are distributed as labeled reconstituted 
milk for which payments are made to the producer-settlement fund of 
another order under Sec. 1007.76(a)(5) or (c); and
    (i) For pool plants that transfer bulk concentrated fluid milk 
products to other pool plants and other order plants, add or subtract 
the amount per hundredweight of any class price change from the 
previous month that results from any inventory reclassification of bulk 
concentrated fluid milk products that occurs at the transferee plant. 
Any such applicable class price change shall be applied to the plant 
that used the concentrated milk in the event that the concentrated 
fluid milk products were made from bulk unconcentrated fluid milk 
products received at the plant during the prior month.


Sec. 1007.61  Computation of uniform price (including weighted average 
price and uniform prices for base and excess milk).

    (a) The market administrator shall compute the weighted average 
price for each month and the uniform price for each month of June 
through January per hundredweight of milk of 3.5 percent butterfat 
content as follows:
    (1) Combine into one total the values computed pursuant to 
Sec. 1007.60 for all handlers who filed the reports prescribed in 
Sec. 1007.30 for the month and who made payments pursuant to 
Sec. 1007.71 for the preceding month;
    (2) Add not less than one-half the unobligated balance in the 
producer-settlement fund;
    (3) Add an amount equal to the total value of the minus adjustments 
and subtract an amount equal to the total value of the plus adjustments 
computed pursuant to Sec. 1007.75;
    (4) Divide the resulting amount by the sum of the following for all 
handlers included in these computations;
    (i) The total hundredweight of producer milk; and
    (ii) The total hundredweight for which a value is computed pursuant 
to Sec. 1007.60(f); and
    (5) Subtract not less than 4 cents nor more than 5 cents per 
hundredweight. The resulting figure, rounded to the nearest cent, shall 
be the weighted average price for each month and the uniform price for 
the months of June through January.
    (b) For each month of February through May, the market 
administrator shall compute the uniform prices per hundredweight for 
base milk and for excess milk, each of 3.5 percent butterfat content, 
as follows:
    (1) Compute the total value of excess milk for all handlers 
included in the computations pursuant to paragraph (a)(1) of this 
section as follows:
    (i) Multiply the hundredweight quantity of excess milk that does 
not exceed the total quantity of such handlers' producer milk assigned 
to Class III-A by the Class III-A price:
    (ii) Multiply the remaining hundredweight quantity of excess milk 
that does not exceed the total quantity of such handlers' producer milk 
assigned to Class III by the Class III price:
    (iii) Multiply the remaining hundredweight quantity of excess milk 
that does not exceed the total quantity of such handlers' producer milk 
assigned to Class II by the Class II price:
    (iv) Multiply the remaining hundredweight quantity of excess milk 
by the Class I price; and
    (v) Add together the resulting amounts;
    (2) Divide the total value of excess milk obtained in paragraph 
(b)(1) of this section by the total hundredweight of such milk and 
adjust to the nearest cent. The resulting figure shall be the uniform 
price for excess milk;
    (3) From the amount resulting from the computations pursuant to 
paragraphs (a)(1) through (a)(3) of this section subtract an amount 
computed by multiplying the hundredweight of milk specified in 
paragraph (a)(4)(ii) of this section by the weighted average price;
    (4) Subtract the total value of excess milk determined by 
multiplying the uniform price obtained in paragraph (b)(2) of this 
section times the hundredweight of excess milk from the amount computed 
pursuant to paragraph (b)(3) of this section;
    (5) Divide the amount calculated pursuant to paragraph (b)(4) of 
this section by the total hundredweight of base milk included in these 
computations; and
    (6) Subtract not less than 4 cents nor more than 5 cents from the 
price computed pursuant to paragraph (b)(5) of this section. The 
resulting figure, rounded to the nearest cent, shall be the uniform 
price for base milk.


Sec. 1007.62  Announcement of uniform price and butterfat differential.

    The market administrator shall announce publicly on or before:
    (a) The fifth day after the end of each month the butterfat 
differential for such month; and
    (b) The 11th day after the end of the month the applicable uniform 
price(s) pursuant to Sec. 1007.61 for such month.

Payments for Milk


Sec. 1007.70  Producer-settlement fund.

    The market administrator shall establish and maintain a separate 
fund known as the producer-settlement fund into which the market 
administrator shall deposit all payments made by handlers pursuant to 
Secs. 1007.71, 1007.76, and 1007.77, and out of which the market 
administrator shall make all payments pursuant to Secs. 1007.72 and 
1007.77. Payments due any handler shall be offset by any payments due 
from such handler.


Sec. 1007.71  Payments to the producer-settlement fund.

    (a) On or before the 12th day after the end of the month, each 
handler shall pay to the market administrator the amount, if any, by 
which the amount specified in paragraph (a)(1) of this section exceeds 
the amount specified in paragraph (a)(2) of this section:
    (1) The total value of milk of the handler for such month as 
determined pursuant to Sec. 1007.60.
    (2) The sum of:
    (i) The value at the uniform price(s) as adjusted pursuant to 
Sec. 1007.75, of such handler's receipts of producer milk and milk 
received from handlers pursuant to Sec. 1007.9(c); and
    (ii) The value at the weighted average price applicable at the 
location of the plant from which received of other source milk for 
which a value is computed pursuant to Sec. 1007.60(f).
    (b) On or before the 25th day after the end of the month each 
person who operated an other order plant that was regulated during such 
month under an order providing for individual-handler pooling shall pay 
to the market administrator an amount computed as follows:
    (1) Determine the quantity of reconstituted skim milk in filled 
milk in route disposition from such plant in the marketing area which 
was allocated to Class I at such plant. If there is route disposition 
from such plant in marketing areas regulated by two or more marketwide 
pool orders, the reconstituted skim milk allocated to Class I shall be 
prorated to each order according to such route disposition in each 
marketing area; and
    (2) Compute the value of the reconstituted skim milk assigned in 
paragraph (b)(1) of this section to route disposition in this marketing 
area by the difference between the Class I price under this part 
applicable at the location of the other order plant (but not to be less 
than the Class III price) and the Class III price.


Sec. 1007.72  Payments from the producer-settlement fund.

    On or before the 13th day after the end of each month, the market 
administrator shall pay to each handler the amount, if any, by which 
the amount computed pursuant to Sec. 1007.71(a)(2) exceeds the amount 
computed pursuant to Sec. 1007.71(a)(1). If, at such time, the balance 
in the producer-settlement fund is insufficient to make all payments 
pursuant to this section, the market administrator shall reduce 
uniformly such payments and shall complete such payments as soon as the 
funds are available.


Sec. 1007.73  Payments to producers and to cooperative associations.

    (a) Each handler shall pay each producer for producer milk for 
which payment is not made to a cooperative association pursuant to 
paragraph (b) of this section, as follows:
    (1) On or before the 26th day of each month, for milk received 
during the first 15 days of the month from such producer who has not 
discontinued delivery of milk to such handler before the 23rd day of 
the month at not less than the Class III price for the preceding month 
or 90 percent of the weighted average price for the preceding month, 
whichever is higher, less proper deductions authorized in writing by 
the producer. If the producer had discontinued shipping milk to such 
handler before the 25th day of any month, or if the producer had no 
established base upon which to receive payments during the base paying 
months of February through May, the applicable rate for making payments 
to such producer shall be the Class III price for the preceding month; 
and
    (2) On or before the 15th day of the following month, an amount 
equal to not less than the uniform price(s), as adjusted pursuant to 
Secs. 1007.74 and 1007.75, multiplied by the hundredweight of milk or 
base milk and excess milk received from such producer during the month, 
subject to the following adjustments:
    (i) Less payments made to such producer pursuant to paragraph 
(a)(1) of this section;
    (ii) Less deductions for marketing services made pursuant to 
Sec. 1007.86;
    (iii) Plus or minus adjustments for errors made in previous 
payments made to such producers; and
    (iv) Less proper deductions authorized in writing by such producer.
    (3) If a handler has not received full payment from the market 
administrator pursuant to Sec. 1007.72 by the 15th day of such month, 
such handler may reduce payments pursuant to this paragraph to 
producers on a pro rata basis but not by more than the amount of the 
underpayment. Such payments shall be completed thereafter not later 
than the date for making payments pursuant to this paragraph next 
following after receipt of the balance due from the market 
administrator.
    (b) On or before the day prior to the dates specified in paragraph 
(a) (1) and (2) of this section, each handler shall make payment to the 
cooperative association for milk from producers who market their milk 
through the cooperative association and who have authorized the 
cooperative to collect such payments on their behalf an amount equal to 
the sum of the individual payments otherwise payable for such producer 
milk pursuant to paragraph (a) (1) and (2) of this section.
    (c) If a handler has not received full payment from the market 
administrator pursuant to Sec. 1007.72 by the 15th day of such month, 
such handler may reduce payments pursuant to paragraph (b) of this 
section to such cooperative association on a pro rata basis, prorating 
such underpayment to the volume of milk received from such cooperative 
association in proportion to the total milk received from producers by 
the handler, but not by more than the amount of the underpayment. Such 
payments shall be completed in the following manner:
    (1) If the handler receives full payment from the market 
administrator by the 15th day of the month, the handler shall make 
payment to the cooperative association of the full value of the 
underpayment on the 15th day of the month;
    (2) If the handler has not received full payment from the market 
administrator by the 15th day of the month, the handler shall make 
payment to the cooperative association of the full value of the 
underpayment on or before the date for making such payments pursuant to 
this paragraph next following after receipt of the balance due from the 
market administrator.
    (d) Each handler pursuant to Sec. 1007.9(a) who receives milk from 
a cooperative association as a handler pursuant to Sec. 1007.9(c), 
including the milk of producers who are not members of such 
association, and who the market administrator determines have 
authorized such cooperative association to collect payment for their 
milk, shall pay such cooperative for such milk as follows:
    (1) On or before the 25th day of the month for milk received during 
the first 15 days of the month, not less than the Class III price for 
the preceding month or 90 percent of the weighted average price for the 
preceding month, whichever is higher; and
    (2) On or before the 14th day of the following month, not less than 
the appropriate uniform price(s) as adjusted pursuant to Secs. 1007.74 
and 1007.75, and less any payments made pursuant to paragraph (d)(1) of 
this section.
    (e) If a handler has not received full payment from the market 
administrator pursuant to Sec. 1007.72 by the 14th day of such month, 
such handler may reduce payments pursuant to paragraph (d) of this 
section to such cooperative association and complete such payments for 
milk received from such cooperative association in its capacity as a 
handler pursuant to Sec. 1007.9(c), in the manner prescribed in 
paragraph (c) (1) and (2) of this section.
    (f) In making payments to producers pursuant to this section, each 
handler shall furnish each producer, except a producer whose milk was 
received from a handler described in Sec. 1007.9(c), a supporting 
statement in such form that it may be retained by the recipient which 
shall show:
    (1) The month and identity of the producer;
    (2) The daily and total pounds and the average butterfat content of 
producer milk;
    (3) For the months of February through May the total pounds of base 
milk received from such producer;
    (4) The minimum rate(s) at which payment to the producer is 
required pursuant to this order;
    (5) The rate(s) used in making the payment if such rate(s) is (are) 
other than the applicable minimum rate(s);
    (6) The amount, or rate per hundredweight, and nature of each 
deduction claimed by the handler; and
    (7) The net amount of payment to such producer or cooperative 
association.


Sec. 1007.74  Butterfat differential.

    For milk containing more or less than 3.5 percent butterfat, the 
uniform price(s) shall be increased or decreased, respectively, for 
each one-tenth percent butterfat variation from 3.5 percent by a 
butterfat differential, rounded to the nearest one-tenth cent, which 
shall be 0.138 times the butter price less 0.0028 times the average 
price per hundredweight, at test, for manufacturing grade milk, f.o.b. 
plants in Minnesota and Wisconsin, as reported by the Department for 
the month. The butter price means the simple average for the month of 
the daily prices per pound of Grade A (92-score) butter. The prices 
used shall be those of the Chicago Mercantile Exchange as reported and 
published weekly by the Dairy Division, Agricultural Marketing Service. 
The average shall be computed by the Director of the Dairy Division, 
using the price reported each week as the daily price for that day and 
for each following day until the next price is reported.


Sec. 1007.75  Plant location adjustments for producers and on nonpool 
milk.

    (a) The uniform price and the uniform price for base milk shall be 
adjusted according to the location of the plant at which the milk was 
physically received at the rates set forth in Sec. 1007.52(a); and
    (b) The weighted average price applicable to other source milk 
shall be adjusted at the rates set forth in section Sec. 1007.52(a) 
applicable at the location of the nonpool plant from which the milk was 
received, except that the adjusted weighted average price shall not be 
less than the Class III price.


Sec. 1007.76  Payments by a handler operating a partially regulated 
distributing plant.

    Each handler who operates a partially regulated distributing plant 
shall pay on or before the 25th day after the end of the month to the 
market administrator for the producer-settlement fund the amount 
computed pursuant to paragraph (a) of this section. If the handler 
submits pursuant to Secs. 1007.30(b) and 1007.31(b) the information 
necessary for making the computations, such handler may elect to pay in 
lieu of such payment the amount computed pursuant to paragraph (b) of 
this section:
    (a) The payment under this paragraph shall be an amount resulting 
from the following computations:
    (1) Determine the pounds of route disposition in the marketing area 
from the partially regulated distributing plant;
    (2) Subtract the pounds of fluid milk products received at the 
partially regulated distributing plant:
    (i) As Class I milk from pool plants and other order plants, except 
that subtracted under a similar provision of another Federal milk 
order; and
    (ii) From another nonpool plant that is not an other order plant to 
the extent that an equivalent amount of fluid milk products disposed of 
to such nonpool plant by handlers fully regulated under any Federal 
milk order is classified and priced as Class I milk and is not used as 
an offset for any payment obligation under any order;
    (3) Subtract the pounds of reconstituted milk that are made from 
nonfluid milk products and which are then disposed of as route 
disposition in the marketing area from the partially regulated 
distributing plant;
    (4) Multiply the remaining pounds by the difference between the 
Class I price and the weighted average price, both prices to be 
applicable at the location of the partially regulated distributing 
plant (except that the Class I price and weighted average price shall 
not be less than the Class III price); and
    (5) Add the amount obtained from multiplying the pounds of labeled 
reconstituted milk included in paragraph (a)(3) of this section by the 
difference between the Class I price applicable at the location of the 
partially regulated distributing plant less $1.00 (but not to be less 
than the Class III price) and the Class III price. For any 
reconstituted milk that is not so labeled, the Class I price shall not 
be reduced by $1.00. Alternatively, for such disposition, payments may 
be made to the producer-settlement fund of the order regulating the 
producer milk used to produce the nonfluid milk ingredients at the 
difference between the Class I price applicable under the other order 
at the location of the plant where the nonfluid milk ingredients were 
processed (but not to be less than the Class III price) and the Class 
III price. This payment option shall apply only if a majority of the 
total milk received at the plant that processed the nonfluid milk 
ingredients is regulated under one or more Federal orders and payment 
may only be made to the producer-settlement fund of the order pricing a 
plurality of the milk used to produce the nonfluid milk ingredients. 
This payment option shall not apply if the source of the nonfluid 
ingredients used in reconstituted fluid milk products cannot be 
determined by the market administrator.
    (b) The payment under this paragraph shall be the amount resulting 
from the following computations:
    (1) Determine the value that would have been computed pursuant to 
Sec. 1007.60 for the partially regulated distributing plant if the 
plant had been a pool plant, subject to the following modifications:
    (i) Fluid milk products and bulk fluid cream products received at 
the partially regulated distributing plant from a pool plant or an 
other order plant shall be allocated at the partially regulated 
distributing plant to the same class in which such products were 
classified at the fully regulated plant;
    (ii) Fluid milk products and bulk fluid cream products transferred 
from the partially regulated distributing plant to a pool plant or an 
other order plant shall be classified at the partially regulated 
distributing plant in the class to which allocated at the fully 
regulated plant. Such transfers shall be computed to the extent 
possible to those receipts at the partially regulated distributing 
plant from pool plants and other order plants that are classified in 
the corresponding class pursuant to paragraph (b)(1)(i) of this 
section. Any such transfers remaining after the above allocation which 
are in Class I and for which a value is computed for the handler 
operating the partially regulated distributing plant pursuant to 
Sec. 1007.60 shall be priced at the uniform price (or at the weighted 
average price if such is provided) of the respective order regulating 
the handling of milk at the transferee plant, with such uniform price 
adjusted to the location of the nonpool plant (but not to be less than 
the lowest class price of the respective order), except that transfers 
of reconstituted skim milk in filled milk shall be priced at the lowest 
price class of the respective order; and
    (iii) If the operator of the partially regulated distributing plant 
so requests, the value of milk determined pursuant to Sec. 1007.60 for 
such handler shall include, in lieu of the value of other source milk 
specified in Sec. 1007.60(f) less the value of such other source milk 
specified in Sec. 1007.71(a)(2)(ii), a value of milk determined 
pursuant to Sec. 1007.60 for each nonpool plant that is not an other 
order plant which serves as a supply plant for such partially regulated 
distributing plant by making shipments to the partially regulated 
distributing plant during the month equivalent to the requirements of 
Sec. 1007.7(b), subject to the following conditions:
    (A) The operator of the partially regulated distributing plant 
submits with its reports filed pursuant to Secs. 1007.30(b) and 
1007.31(b) similar reports for each such nonpool supply plant;
    (B) The operator of such nonpool plant maintains books and records 
showing the utilization of all skim milk and butterfat received at such 
plant which are made available if requested by the market administrator 
for verification purposes; and
    (C) The value of milk determined pursuant to Sec. 1007.60 for such 
nonpool supply plant shall be determined in the same manner prescribed 
for computing the obligation of such partially regulated distributing 
plant; and
    (2) From the partially regulated distributing plant's value of milk 
computed pursuant to paragraph (b)(1) of this section, subtract:
    (i) The gross payments by the operator of the partially regulated 
distributing plant, adjusted to a 3.5 percent butterfat basis by the 
butterfat differential specified in Sec. 1007.74, for milk received at 
the plant during the month that would have been producer milk had the 
plant been fully regulated;
    (ii) If paragraph (b)(1)(iii) of this section applies, the gross 
payments by the operator of such nonpool supply plant, adjusted to a 
3.5 percent butterfat basis by the butterfat differential specified in 
Sec. 1007.74, for milk received at the plant during the month that 
would have been producer milk if the plant had been fully regulated; 
and
    (iii) The payments by the operator of the partially regulated 
distributing plant to the producer-settlement fund of another order 
under which such plant is also a partially regulated distributing plant 
and like payments by the operator of the nonpool supply plant if 
paragraph (b)(1)(iii) of this section applies.
    (c) Any handler may elect partially regulated distributing plant 
status for any plant with respect to receipts of nonfluid milk 
ingredients assigned to Class I use under Sec. 1007.43(d). Payments may 
be made to the producer-settlement fund of the order regulating the 
producer milk used to produce the nonfluid milk ingredients at the 
difference between the Class I price applicable under the other order 
at the location of the plant where the nonfluid milk ingredients were 
processed (but not less than the Class III price) and the Class III 
price. This payment option shall apply only if a majority of the total 
milk received at the plant that processed the nonfluid milk ingredients 
is regulated under one or more Federal orders and payment may only be 
made to the producer-settlement fund of the order pricing a plurality 
of the milk used to produce the nonfluid milk ingredients. This payment 
option shall not apply if the source of the nonfluid ingredients used 
in reconstituted fluid milk products cannot be determined by the market 
administrator.


Sec. 1007.77  Adjustment of accounts.

    Whenever audit by the market administrator of any handler's 
reports, books, records, or accounts, or other verification discloses 
errors resulting in money due the market administrator from a handler, 
or due a handler from the market administrator, or due a producer or 
cooperative association from a handler, the market administrator shall 
promptly notify such handler of any amount so due and payment thereof 
shall be made on or before the next date for making payments as set 
forth in the provisions under which the error(s) occurred.


Sec. 1007.78  Charges on overdue accounts.

    Any unpaid obligation due the market administrator from a handler 
pursuant to Secs. 1007.71, 1007.76, 1007.77, 1007.78, 1007.85, and 
1007.86 shall be increased 1.5 percent each month beginning with the 
day following the date such obligation was due under the order. Any 
remaining amount due shall be increased at the same rate on the 
corresponding day of each month until paid. The amounts payable 
pursuant to this section shall be computed monthly on each unpaid 
obligation and shall include any unpaid charges previously made 
pursuant to this section. The late charges shall be added to the 
respective accounts to which due. For the purpose of this section, any 
obligation that was determined at a date later than prescribed by the 
order because of a handler's failure to submit a report to the market 
administrator when due shall be considered to have been payable by the 
date it would have been due if the report had been filed when due.

Administrative Assessment and Marketing Service Deduction


Sec. 1007.85  Assessment for order administration.

    As each handler's pro rata share of the expense of administration 
of the order, each handler shall pay to the market administrator on or 
before the 15th day after the end of the month 5 cents per 
hundredweight or such lesser amount as the Secretary may prescribe with 
respect to:
    (a) Receipts of producer milk (including such handler's own 
production) other than such receipts by a handler described in 
Sec. 1007.9(c) that were delivered to pool plants of other handlers;
    (b) Receipts from a handler described in Sec. 1007.9(c);
    (c) Receipts of concentrated fluid milk products from unregulated 
supply plants and receipts of nonfluid milk products assigned to Class 
I use pursuant to Sec. 1007.43(d) and other source milk allocated to 
Class I pursuant to Sec. 1007.44(a)(7) and (11) and the corresponding 
steps of Sec. 1007.44(b), except such other source milk that is 
excluded from the computations pursuant to Sec. 1007.60(d) and (f); and
    (d) Route disposition in the marketing area from a partially 
regulated distributing plant that exceeds the skim milk and butterfat 
subtracted pursuant to Sec. 1007.76(a)(2).


Sec. 1007.86  Deduction for marketing services.

    (a) Except as provided in paragraph (b) of this section each 
handler, in making payments to producers for milk (other than milk of 
such handler's own production) pursuant to Sec. 1007.73, shall deduct 7 
cents per hundredweight or such lesser amount as the Secretary may 
prescribe and shall pay such deductions to the market administrator not 
later than the 15th day after the month. Such money shall be used by 
the market administrator to verify or establish weights, samples and 
tests of producer milk and provide market information for producers who 
are not receiving such services from a cooperative association. Such 
services shall be performed in whole or in part by the market 
administrator or an agent engaged by and responsible to the market 
administrator;
    (b) In the case of producers for whom a cooperative association 
that the Secretary has determined is actually performing the services 
set forth in paragraph (a) of this section, each handler shall make, in 
lieu of the deduction specified in paragraph (a) of this section, such 
deductions from the payments to be made to such producers as may be 
authorized by the membership agreement or marketing contract between 
such cooperative association and such producers, and on or before the 
15th day after the end of the month, pay such deductions to the 
cooperative association rendering such services accompanied by a 
statement showing the amount of any such deductions and the amount of 
milk for which such deduction was computed for each producer.

Base-Excess Plan


Sec. 1007.90  Base milk.

    Base milk means the producer milk of a producer in each month of 
February through May that is not in excess of the producer's base 
multiplied by the number of days in the month.


Sec. 1007.91  Excess milk.

    Excess milk means the producer milk of a producer in each month of 
February through May in excess of the producer's base milk for the 
month, and shall include all the producer milk in such months of a 
producer who has no base.


Sec. 1007.92  Computation of base for each producer.

    (a) Subject to Sec. 1007.93, the base for each producer shall be an 
amount obtained by dividing the total pounds of producer milk delivered 
by such producer during the immediately preceding months of September 
through November by the number of days represented by such producer 
milk or 77, whichever is more. If a producer operated more than one 
farm at the same time, a separate computation of base shall be made for 
each such farm.
    (b) Any producer who, during the immediately preceding months of 
September through November, delivered milk to a nonpool plant that 
became a pool plant after the beginning of such base-forming period 
shall be assigned a base calculated as if the plant were a pool plant 
during such entire base-forming period. A base thus assigned shall not 
be transferable.


Sec. 1007.93  Base rules.

    (a) Except as provided in Sec. 1007.92(b) and paragraph (b) of this 
section, a base may be transferred in its entirety or in amounts of not 
less than 300 pounds effective on the first day of the month following 
the date on which such application is received by the market 
administrator. Base may be transferred only to a person who is or will 
be a producer by the end of the month that the transfer is to be 
effective. A base transfer to be effective on February 1 for the month 
of February must be received on or before February 15. Such application 
shall be on a form approved by the market administrator and signed by 
the baseholder or the legal representative of the baseholder's estate. 
If a base is held jointly, the application shall be signed by all joint 
holders or the legal representative of the estate of any deceased 
baseholder.
    (b) A producer who transferred base on or after February 1 may not 
receive by transfer additional base that would be applicable during 
February through May of the same year. A producer who received base by 
transfer on or after February 1 may not transfer a portion of the base 
to be applicable during February through May of the same year, but may 
transfer the entire base.
    (c) The base established by a partnership may be divided between 
the partners on any basis agreed to in writing by them if written 
notification of the agreed upon division of base by each partner is 
received by the market administrator prior to the first day of the 
month in which such division is to be effective.
    (d) Two or more producers in a partnership may combine their 
separately established bases by giving notice to the market 
administrator prior to the first day of the month in which such 
combination of bases is to be effective.
    (e) The base assigned a person who was a producer during the 
immediately preceding months of September through November may be 
increased to such producer's average daily producer milk deliveries in 
the month immediately preceding the month during which a condition 
described in paragraph (e)(1), (2), or (3) of this section occurred, 
providing such producer submitted to the market administrator in 
writing on or before February 1 a statement that established to the 
satisfaction of the market administrator that in the immediately 
preceding September through November base-forming period the amount of 
milk produced on such producer's farm was substantially reduced because 
of conditions beyond the control of such person, which resulted from:
    (1) The loss by fire, windstorm, or other natural disaster of a 
farm building used in the production of milk on the producer's farm;
    (2) Brucellosis, bovine tuberculosis or other infectious diseases 
in the producer's milking herd as certified by a licensed veterinarian; 
or
    (3) A quarantine by a Federal or State authority that prevents the 
dairy farmer from supplying milk from the farm of such producer to a 
plant.


Sec. 1007.94  Announcement of established bases.

    On or before February 1 of each year, the market administrator 
shall calculate a base for each person who was a producer during any of 
the preceding months of September through November and shall notify 
each producer and the handler receiving milk from such dairy farmer of 
the base established by the producer. If requested by a cooperative 
association, the market administrator shall notify the cooperative 
association of each producer-member's base.

    Dated: November 21, 1994.
Lon Hatamiya,
Administrator.
[FR Doc. 94-29067 Filed 11-28-94; 8:45 am]
BILLING CODE 3410-02-P