Federal Register, Volume 60 Issue 90 (Wednesday, May 10, 1995)

[Federal Register Volume 60, Number 90 (Wednesday, May 10, 1995)]
[Proposed Rules]
[Pages 25014-25071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11311]

[[Page 25013]]

_______________________________________________________________________

Part III

Department of Agriculture

_______________________________________________________________________

Agricultural Marketing Service

_______________________________________________________________________

7 CFR Part 1007

Milk in the Georgia and Certain Other Marketing Areas; Decision on
Proposed Amendments to Marketing Agreements and to Orders; Proposed
Rule

Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 /
Proposed Rules
[[Page 25014]]

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1007

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

Milk in the Georgia and Certain Other Marketing Areas; Decision
on Proposed Amendments to Marketing Agreements and to Orders

------------------------------------------------------------------------
7 CFR part Marketing area Docket No.
------------------------------------------------------------------------
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
------------------------------------------------------------------------

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This decision combines 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.

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 rule will not have a
significant economic impact on a substantial number of small entities.
The amendments will promote orderly marketing of milk by producers and
regulated handlers.
The proposed amendments have been reviewed under Executive Order
12778, Civil Justice Reform. They are not intended to have a
retroactive effect. If adopted, the proposed rule will 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).
Recommended Decision: Issued November 21, 1994; published November
29, 1994 (59 FR 61070).
Extension of Time for Filing Exceptions: Issued December 27, 1994;
published January 3, 1995 (60 FR 65).

Preliminary Statement

A public hearing was held to consider proposed amendments to the
marketing agreements and the orders regulating the handling of milk in
the aforesaid marketing areas. The hearing was held pursuant to the
provisions of the Agricultural Marketing Agreement Act of 1937, as
amended (7 U.S.C. 601-674), and the applicable rules of practice (7 CFR
Part 900), in Atlanta, Georgia, on November 1-5, 1993. Notice of such
hearing was issued on September 3, 1993, and published September 10,
1993 (58 FR 47653) and a supplemental notice of hearing was issued
October 13, 1993, and published October 15, 1993 (58 FR 53436).
Upon the basis of the evidence introduced at the hearing and the
record thereof, the Administrator, on November 21, 1994, issued a
recommended decision containing notice of the opportunity to file
written exceptions thereto.
The material issues, findings and conclusions, rulings, and general
findings of the recommended decision are hereby approved and adopted
and are set forth in full herein, subject to the modifications
contained in this final decision. Certain sections of this final
decision differ from the recommended decision only by discussing
comments that were received, correcting obvious typographical errors,
or adding footnotes to reflect new information, such as a cooperative
merger. These sections include marketing area, unit pooling, producer,
producer-handler, balancing plants, and seasonal adjustment to Class
III and III-A prices. Other sections have been revised substantially
and/or contain actual changes in order provisions. Sections which fall
into this category include producer milk, product prices, Class III
price, Class II price, plant location adjustments, and base-excess
plan. In addition to these changes, the Map of the Southeast marketing
area and the Map Guide (i.e., Table No. 1) have been revised to reflect
the new pricing zones, a clarifying paragraph has been added at the end
of the discussion of lock-in provision, and a discussion has been added
at the end of the findings and conclusions regarding Motions to Reopen
the Hearing.

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.^{1 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.

\1\The changes to this section include an updated map of the
marketing area and an updated Table 1.
---------------------------------------------------------------------------

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, [[Page 25015]] 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.'' The map has been modified to reflect changes in
pricing zones that are discussed under ``plant location adjustments.''
Table No. 1 is a map guide for the plants that corresponds to the
numbers shown on the map. The table has been modified to delete four
plants: McClendon Cheese (Zone 4), Meadow Gold, Gadsden (Zone 5), Flav-
O-Rich, Montgomery (Zone 8), and Meadow Gold, Nashville (Zone 2). In
addition, one new plant has been added to the table: Publix
Supermarkets, Zone 7, which is scheduled to commence operations this
spring.
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.
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.

BILLING CODE 3410-02-P
[[Page 25016]]

[GRAPHIC][TIFF OMITTED]TP10MY95.000

BILLING CODE 3410-02-C

[[Page 25017]]
Table No. 1.--Map Guide for the Southeast Marketing Area
------------------------------------------------------------------------
No. Plant name Location Zone
------------------------------------------------------------------------
1............... Foremost Dairy, Inc.. Shreveport, LA...... 8
2............... Borden, Inc.......... Monroe, LA.......... 8
3............... Borden, Inc.......... Lafayette, LA....... 12
4............... Borden, Inc.......... Baton Rouge, LA..... 12
5............... Dairy Fresh of LA.... Baker, LA........... 12
6............... Kleinpeter Farms Baton Rouge, LA..... 12
Dairy.
7............... Mid-America Dairymen, Kentwood, LA........ 11
Inc.
8............... Mid-America Dairymen, Franklinton, LA..... 11
Inc.
9............... Superbrand Dairy Hammond, LA......... 11
Products.
10.............. Barbe's Dairy........ Westwego, LA........ 12
11.............. Schepps-Foremost..... New Orleans, LA..... 12
12.............. Avent's Dairy, Inc... Oxford, MS.......... 5
13.............. Barber Pure Milk Tupelo, MS.......... 5
Company.
14.............. Brookshire Dairy Columbus, MS........ 7
Products.
15.............. LuVel Dairy Products, Kosciusko, MS....... 7
Inc.
16.............. Flav-O-Rich.......... Canton, MS.......... 8
17.............. Borden, Inc.......... Jackson, MS......... 9
18.............. Dairy Fresh Hattiesburg, MS..... 10
Corporation.
19.............. Shoals Cheese........ Florence, AL........ 5
20.............. Dasi Products, Inc... Decatur, AL......... 5
21.............. Meadow Gold Dairies, Huntsville, AL...... 5
Inc.
22.............. Barber Pure Milk Oxford, AL.......... 7
Company.
23.............. Baker and Sons Dairy. Birmingham, AL...... 7
24.............. Barber Pure Milk Birmingham, AL...... 7
Company.
25.............. Barber Ice Cream..... Birmingham, AL...... 7
26.............. Flav-O-Rich Ice Cream Sylacauga, AL....... 7
27.............. Dairy Fresh Ice Cream Greensboro, AL...... 8
28.............. McClendon Cheese..... Uniontown, AL....... 7
29.............. Superbrand Dairy Montgomery, AL...... 9
Products.
30.............. Barber Pure Milk Montgomery, AL...... 9
Company.
31.............. Dairy Fresh Cowarts, AL......... 10
Corporation.
32.............. Barber Pure Milk Mobile, AL.......... 12
Company.
33.............. Dairy Fresh Prichard, AL........ 12
Corporation.
34.............. Southern Ice Cream... Marrietta, GA....... 7
35.............. Kraft General Foods.. Atlanta, GA......... 7
36.............. Peeler Jersey Farms.. Athens, GA.......... 7
37.............. New Atlanta Dairies, Atlanta, GA......... 7
Inc.
38.............. Publix Supermarkets, Atlanta, GA......... 7
Inc.
39.............. Borden, Inc.......... Macon, GA........... 8
40.............. Kinnett Dairies, Inc. Columbus, GA........ 8
41.............. Kinnett Ice Cream.... Columbus, GA........ 8
42.............. Hershey Chocolate, Savannah, GA........ 10
USA.
43.............. Fleming Companies, Nashville, TN....... 1
Inc.
44.............. Purity Dairies, Inc.. Nashville, TN....... 1
45.............. Cumberland Creamery, Antioch, TN......... 1
Inc.
46.............. Heritage Farms Dairy. Murfreesboro, TN.... 2
47.............. Mid-America Dairymen, Lewisburg, TN....... 2
Inc.
48.............. Turner Dairies....... Covington, TN....... 3
49.............. Forest Hill Dairy.... Memphis, TN......... 4
50.............. Harbin Mix........... Memphis, TN......... 4
51.............. Borden, Inc.......... Little Rock, AR..... 4
52.............. Coleman Dairy........ Little Rock, AR..... 4
53.............. Gold Star Dairy, Inc. Little Rock, AR..... 4
54.............. 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.,^{2 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,^{3 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.

\2\Effective March 1, 1994, September 1, 1994, and February 1,
1995, respectively, Gulf Dairy Association, Dairymen, Inc., and
Southern Milk Sales became part of Mid-America Dairymen, Inc. (Mid-
Am).
\3\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.
---------------------------------------------------------------------------

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
[[Page 25018]] 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 [[Page 25019]] 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 were 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
would be an order at all, or for how long there would be 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 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 the 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 exists today. He said the
[[Page 25020]] 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 that 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 of 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
[[Page 25021]] 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, 1991-93
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 1991-93
[In dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Order 7 Order 93 Order 94 Order 96 Order 97 Order 98 Order 99 Order 108
--------------------------------------------------------------------------------------------------------------------------------------------------------
1991............................................ \1\13.35 \1\13.71 13.51 \1\$13.84 12.88 12.75 12.67 12.90
1992............................................ \1\14.64 \1\14.83 14.63 \1\15.01 13.94 13.99 14.02 13.86
1993\2\......................................... \1\14.37 \1\14.52 14.05 \1\14.32 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
[[Page 25022]] 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.
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).

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
--------------------------------------------------------------------------------------------------------------------------------------------------------
Arizona................................... 14 ........ 3 3 3 3 ........ ........ ........ ........ ........
Missouri.................................. 8 ........ 4 4 5 4 ........ ........ ........ ........ ........
Tennessee................................. ........ 1 4 2 ........ ........ ........ 1 ........ 26 5
Kentucky.................................. ........ ........ 4 2 ........ ........ ........ ........ ........ 2 ........
Massachusetts............................. ........ ........ ........ 2 ........ ........ ........ 20 7 ........ ........
Georgia................................... ........ ........ ........ ........ ........ ........ 33 ........ ........ 6 14
Alabama................................... ........ ........ ........ ........ ........ ........ ........ 2 ........ 4 ........
Florida................................... ........ ........ ........ ........ ........ ........ ........ 1 ........ ........ ........
Louisana.................................. ........ ........ ........ ........ ........ ........ ........ 1 19 ........ ........
Texas..................................... ........ ........ ........ ........ ........ ........ ........ ........ 1 ........ ........
Total................................... 22 1 15 13 8 7 33 25 27 38 19
--------------------------------------------------------------------------------------------------------------------------------------------------------

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:

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:

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:

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:

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:

------------------------------------------------------------------------
Federal
Plant/location 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:

------------------------------------------------------------------------
Federal
Plant/location 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, KY................................ 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:

------------------------------------------------------------------------
Federal
Plant/location order
------------------------------------------------------------------------
Borden, Inc., Baton Rouge, LA............................. 94.
Borden, Inc., Jackson, MS................................. 94.
Brown's Velvet Dairy Prod., Inc., New Orleans, LA......... 94.
Dairy Fresh Corp., Hattiesburg, MS........................ 94.
Superbrand Dairy Products, Inc., Hammond, LA.............. 94.
Borden, Inc., Conroe, TX.................................. 126.
Borden, Inc., Tyler, TX................................... 126.
Gold Star Dairy, Inc., Little Rock, AR.................... 126.
Southwest Dairy, Tyler, TX................................ 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.^{4 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.

\4\ 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 [[Page 25024]] 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, 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 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 was 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 are
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.
AMPI and Mid-Am filed exceptions objecting to the denial of the
proposal for a Mid-South marketing area. Mid-Am stated that there is
very little overlap of distribution and procurement between the
proposed Mid-South marketing area and the other areas included in the
Southeast marketing area. In addition, Mid-Am argues that the minimal
overlap in distribution between Central Arkansas and the rest of the
Southeast marketing area is from two plants: the Gold Star plant in
Little Rock that distributes into the Greater Louisiana and New
Orleans-Mississippi marketing areas and the Fleming Dairies plant in
Nashville that distributes into the Central Arkansas and former Memphis
marketing areas.
The findings in this decision specifically note that the Gold Star
plant has distribution in the Georgia marketing area and the Alabama-
West Florida marketing area, in addition to the Greater Louisiana and
New Orleans-Mississippi marketing areas. The former Memphis market not
only receives distribution from the Fleming Dairies plant at Nashville,
but also from the Heritage Farms plant at Murfreesboro, Tennessee
(Order 7), and Avents Dairy at Oxford, Mississippi (Order 94). Finally,
the Heritage plant and the Fleming plant distribute fluid milk products
into the Central Arkansas marketing area.
The overlap in procurement between Orders 7, 93, 94, and 96 with
Orders 108, 97, and 99 is not as great as it is among other marketing
areas being merged. Nevertheless, there is an overlap in procurement
between Order 94 and former Order 97 (13 counties in May 1993) and
between Orders 94 and 108 (8 counties in May 1993). Moreover, the need
to merge these marketing areas is justified by a combination of factors
(distribution, procurement, and [[Page 25025]] marketing stability)
that justifies the inclusion of Central Arkansas and Memphis in the
Southeast marketing area.
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, Georgia, and Arkansas 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 currently-
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 area 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.\5\ 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.

\5\The findings and conclusions in this section are identical to
those of the recommended decision, except for ``lock-in provision,''
``unit pooling,'' ``supply plants,'' ``producer-handler,''
``producer,'' and ``producer milk.''
---------------------------------------------------------------------------

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,'' and ``filled milk.''
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
[[Page 25026]] 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.^{6 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.

\6\Official notice is taken of the suspension of certain
provisions of the Southwest Plains order effective February 1, 1994
(59 FR 11180).
---------------------------------------------------------------------------

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 eliminate
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 and used only as reload points for
transferring bulk milk from one tank truck to another or separate
facilities used only as distribution points for storing packaged fluid
milk products in transit for route disposition would not be plants
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(d). 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.
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 and 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 [[Page 25027]] 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, 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(d), 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.
A new paragraph--Sec. 1007.7(d)--has been added to the pool plant
rules in this final decision to clarify the application of the lock-in
provision. Although the order language would clearly regulate such a
plant by not releasing it to another order in either Sec. 1007.7(g) (3)
or (4), the inclusion of the new paragraph (d) leaves no doubt about
the matter.
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 in which it 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(e). 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 [[Page 25028]] 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. There
is 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, [[Page 25029]] 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.
In their exceptions, Barber Pure Milk Company (Birmingham, Alabama)
and Dairy Fresh Corporation (Greensboro, Alabama) objected to the
additional unit pooling restriction. They contend that any handler can
accomplish the same result--i.e., pool milk at a higher-priced
location--by diverting milk to a Class II plant located in the higher-
priced zone. They argue that it is more efficient to permit unit
pooling for Class II plants located in higher-priced zones than the
pricing zone of the qualifying distributing plant and urge that the
restriction be removed.
First of all, it is not possible to accomplish the exact same
result by diverting milk to a Class II plant in a higher-priced zone.
The Barber witness testified that some milk could be pooled in this
manner, but not all of the milk that might be required. Before a
handler can divert milk, the milk to be diverted must become eligible
for diversion. This is accomplished by delivering the milk to a pool
plant for a minimum number of days. Under the Southeast order, at least
10 days' production (4 days' production during January through June)
must be received at a pool plant during the months of July through
December.
Because of this requirement, there is a practical limit on where
milk will be diverted in relation to the pool plant from which
diverted. For example, it is unlikely that a handler in Nashville will
divert milk to a nonpool plant in Hattiesburg. With unit pooling,
however, milk going to a Class II operation may have no association
with a Class I operation that is hundreds of miles away.
There is no indication of how the removal of this restriction would
promote greater efficiencies. However, the decision clearly sets forth
the reasons for the restriction: to promote a degree of fairness to all
market handlers, whether their Class I and Class II uses are in the
same or separate facilities, and to the market's producers in the
distribution of pool funds.
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 [[Page 25030]] 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.
The Fleming Companies, Kraft General Foods, and Southern Foods
Group urged that consideration be given to establishing pooling
provisions for proprietary handlers that are the same as those for
cooperatives. They contend that the cooperatives are able to attach
milk supplies to the market which are devoted exclusively for
manufacturing use, but that proprietary manufacturing plants and fluid
milk handlers are prohibited from doing the same thing. Specifically,
they stated that cooperative association ``balancing'' plants are
allowed to pool based on the organizational performance of the
cooperative, an option that obviously is not available to proprietary
handlers. Instead, proprietary handlers would have to rely on supply
plants that are required to receive, unload, reload, and transfer
producer milk to distributing plants in order to qualify as pool supply
plants. The issue, they argue, is not one of ``need'' for supply plant
milk to supply the fluid market, but whether the order should permit
the dominant cooperative to service the market efficiently while
requiring non-cooperative sources of milk to be encumbered with great
inefficiency.
It is questionable how the ability of proprietary handlers to
attach additional supplies of milk for manufacturing use with the
market promotes inefficiencies in supplying the fluid milk needs of the
market. The primary objective of pooling provisions is to provide the
incentive to supply the fluid milk needs of the market and to
accommodate the pooling of the reserve supplies of milk that are
available and are necessary to serve or balance the fluid milk needs.
To the extent that supply plants are necessary, the pooling
standards are the same for cooperatives and proprietary handlers. The
shipping standards are set at a level to ensure a sufficient
association with the fluid market to warrant a share in the Class I use
of the market.
Cooperative association ``balancing plants'' serve a different
role. These plants are the outlets of last resort. When surplus milk
has no other place to go on weekends or during the spring and summer
months, it is manufactured into storable products at Mid-Am's
manufacturing plants in Franklinton and Kentwood, Louisiana, and
Lewisburg, Tennessee. When production decreases, these plants may shut
down completely or operate at minimal capacity. There has to be some
place for surplus milk to go and dairy farmers, through their
cooperative associations, have assumed the burden of processing this
surplus milk. At the same time, the overall pooling standards ensure
that milk is supplied for fluid use, which is a primary objective of
the cooperative associations supplying the market.
A proprietary cheese plant operates on a different premise. The
primary objective of a proprietary cheese plant operator is to produce
as much cheese as possible as efficiently as possible. Ideally, such
plants prefer to operate at full operating capacity all the time. To
give up any more milk than is absolutely necessary is to forgo profits.
There is no basis for incorporating order provisions in this market
that would encourage additional cheese production by making it easier
to pool cheese plants. In an area such as the Southeast marketing area
that has a high Class I price to assure an adequate supply of milk for
fluid use, the adoption of provisions to facilitate the proliferation
of cheese plants is unwarranted. There is no shortage of milk for
cheese in the United States, and there is no reason to encourage
additional milk production for cheese plants in the Southeast. Fluid
milk processors in the Southeast pay relatively high Class I prices to
assure an adequate supply of milk for fluid use, and the blend prices
resulting from those Class I prices should not be reduced by
encouraging additional production destined for Class III use.
Revisions of pooling standards: Sec. 1007.7(f). 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 [[Page 25031]] 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 plant 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. [[Page 25032]]
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, there is 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, there is no basis for the payment of administrative
assessments by producer-handlers and, therefore, must deny the
proposal.
Mid-Am filed an exception to the producer-handler provisions
contending that there was no basis for denying its producer-handler
proposal. It reiterated its arguments that effective regulation of
producer-handlers cannot be achieved without the adoption of its
proposal and that producer-handlers should have to pay the
administrative assessment that is applied to other handlers.
Mid-Am's arguments do not provide a basis for altering the findings
and conclusions on this issue. There is no indication in the record
that producer-handlers are causing marketing problems in the proposed
marketing area. This demonstrates that effective regulation of
producer-handlers can be achieved without the unduly restrictive
regulations proposed by Mid-Am. Also, there is not a sufficient basis
to conclude that there is a need for producer-handlers to pay an
administrative assessment.
Producer: Sec. 1007.12. The term producer defines those dairy
farmers who constitute the regular source of supply for the order.
Under the [[Page 25033]] 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.
Mid-Am filed an exception to the denial of a ``dairy farmer for
other markets'' provision. Mid-Am contends that even though the
proposed Southeast order contains a base-excess plan, ``this does not
substantially remove the incentive for a dairy farmer who has been
associated with another market during the base-forming months to become
a producer under the Southeast market during other months of the
year.''
The record does not support the adoption of a ``dairy farmer for
other markets'' provision. As indicated, there was considerable
opposition to this provision both at the hearing and in post-hearing
briefs. Those opposed to the provision argued that it was a barrier
that would remove a handler's flexibility to shift milk economically
between plants.
The amount of milk that may be pooled under the Southeast order is
dictated by the order's pooling standards and diversion limits. The
market cannot be flooded with outside milk during the months of January
through July because four days' production of a producer's milk must be
received at a pool plant during the month, and during the months of
December through June only 50 percent of the producer milk physically
received at a plant may be diverted to nonpool plants.
The need for marketing flexibility outweighs the concerns of Mid-Am
regarding the possibility of surplus milk pooling on the Southeast
market. The ``dairy farmer for other markets'' provision should not be
adopted.
Producer Milk:^{7 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, with some modifications, 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
[[Page 25034]] producer has a direct association with a pool plant each
month of the year.

\7\As explained in the last two paragraphs at the end of this
section, the diversion limits applicable to pool plant units which
are qualified pursuant to Sec. 1007.7(e) have been changed from
those contained in the recommended decision.
---------------------------------------------------------------------------

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.
In their exceptions, Barber Pure Milk Company and Dairy Fresh
Corporation (Greensboro, Alabama) reiterated the request initially made
in their hearing proposal to be permitted to combine all of the milk
physically received at all of their pool plants in determining their
diversion limits rather than compute diversion limits based on each
plant's receipts.
This modification should be adopted for handlers that unit pool
their plants. Like unit pooling, unit diverting also will allow
handlers to operate their plants in a more efficient manner. Rather
than having to juggle milk between two pool plants to meet touch-base
requirements, handlers will be able to divert milk from the plant that
normally receives it. This provision, in conjunction with unit pooling,
will provide handlers great flexibility in the operation of their
plants.
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 [[Page 25035]] 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. A final decision amending the Class
II price under all Federal orders was issued January 27, 1995, and
published February 2, 1995 (60 FR 6606). The decision changed the
computation of the Class II price in a manner that removed the need for
a section dealing with ``product prices.'' Since the amended language
of the Class II decision is applicable to the merged order proposed in
this proceeding, Sec. 1007.20 has been removed.
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 Section
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:^{8 Secs. 1007.50-1007.54. Milk pooled
under most [[Page 25036]] 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.

\8\ Several changes in pricing have been made in this final
decision. Changes in Class II and III prices are the result of
national decisions amending all Federal order Class II and III
prices. In addition, plant location adjustments have been changed as
a result of the comments received.
---------------------------------------------------------------------------

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) and as adopted for all Federal milk orders in a final
decision issued January 27, 1995, and published on February 7, 1995 (60
FR 7290). The basic formula price is the preceding month's average pay
price for manufacturing grade milk in Minnesota and Wisconsin using the
``base month'' series, as reported by the Department for the month,
adjusted to a 3.5 percent butterfat basis using the butterfat
differential for the preceding month computed pursuant to Sec. 1007.74
and rounded to the nearest cent, plus or minus the change in gross
value yield by the butter-nonfat dry milk and Cheddar cheese product
price. This price will be used in each of the individual orders
involved in this proceeding and in every other Federal order. It
reflects the value of manufacturing grade milk used to produce hard
cheese and butter and is equally appropriate for the Southeast
marketing area.
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; 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 Mid-America Dairymen, Inc., plants in Lewisburg, Tennessee, and
Franklinton, Louisiana. As a result of the institution of Class III-A
pricing in December 1993, the cooperative 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 no compelling reason exists 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.
In its exception to the recommended decision, Mid-Am repeated its
request for a seasonal adjustment of Class III and III-A prices. While
conceding that Class III-A pricing does provide ``some relief'' to
those handlers manufacturing nonfat dry milk, Mid-Am argued that
``Class III-A pricing does not provide relief from the costs associated
with the seasonal variability of the supply of milk utilized to produce
nonfat dry milk powder.''
Mid-Am's claims for adopting seasonal pricing of Class III and III-
A milk are insufficient in view of the reasons set forth for denying
seasonal pricing.
Class II price: Sec. 1007.50(b). A final order amending Class II
pricing under all Federal milk orders was issued on January 27, 1995,
and published on February 2, 1995 (60 FR 6606). As amended, the Class
II price is the basic formula price for the second preceding month,
plus 30 cents. This price is adopted for the Southeast order for all of
the reasons set forth in the final decision (i.e., See 59 FR 64524)
pertaining to that issue. There was no opposition to the adoption of
this price at the hearing, in briefs that were filed, or in the
exceptions that were received. [[Page 25037]]
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
ensure 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.
This final decision, like the recommended decision, provides for 12
pricing zones. However, unlike the recommended decision, which provided
for a base zone, five minus zones, and six plus zones, this final
decision contains a base zone, six minus zones, and five plus zones.
These zones, and the Class I differential adjusted for location for
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.
Several changes in location adjustments have been made from those
set forth in the recommended decision. Zone 1 has been expanded to
include 5 counties that were part of Zone 2; a new zone, designated as
Zone 3 on the map, has been added; several Arkansas counties, including
the Little Rock area, have been added to the zone that encompasses the
Memphis area (i.e., Zone 4); the changes to Zone 4 have resulted in a
slight and non-significant reconfiguration of the Arkansas counties
that are contained in Zones 5 and 6; Zones 9 and 10 have been combined
into one zone with a $3.40 price; some of Zone 12 has been moved to
Zone 11; and the Zone 12 price has been changed to $3.65. In addition,
because of the addition of the new Zone 3, the recommended Zones 3-8
are now Zones 4-9. As a result of these modifications, Class I prices
were reduced from those in the recommended decision by 5 cents at
Nashville; 7 cents at Little Rock; 8 cents at Hattiesburg, Mississippi,
and Cowarts, Alabama; 10 cents at Hammond, Louisiana; and 3 cents at
Baton Rouge, New Orleans, and Mobile.
Although there is, in reality, one Class I price that will apply to
the Southeast marketing area, when this price is adjusted for location,
it results in a unique Class I price for each of the 12 zones of the
marketing area. The Class I price that will be shown for the market
will be the price applicable to Zone 7, the base zone (Zone 6 in the
recommended decision). 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 prices in the individual marketing areas lined up
properly on an east-to-west axis in the merged marketing area, the
fluid needs throughout the marketing area, the supply of milk locally
available to each plant within the marketing area, the competitive
relationship among handlers in the marketing area, and the exceptions
received in response to the recommended decision.
The zones 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 surplus production areas to
metropolitan areas where distributing plants are located.
Zone 7. The base zone, Zone 7 (Zone 6 in the recommended decision),
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.
The Mississippi portion of Zone 7 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 7 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 7 extends into 6 counties in southern
Arkansas, which are currently not regulated by any order. There are
presently no distributing plants in this area. Seven counties in
southern Arkansas, which contain no distributing plants and are not now
regulated, have been removed from the base zone and placed in Zone 6.
This change, and a similar conforming change to Zone 5, was made to
maintain an orderly price surface in southern Arkansas following the
[[Page 25038]] transfer of several counties in the Little Rock area to
Zone 4.
One exception to the base zone price of $3.08 was filed on behalf
of Barber (Birmingham) and Dairy Fresh (Greensboro). This exception is
addressed after the discussion of Zone 9.
Zone 8. Zone 8 (Zone 7 in the recommended decision) should have a
Class I differential adjusted for location 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, Louisiana; 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 9), 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 9. Zone 9 (formerly Zone 8 in the recommended decision) 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 9 is the Borden plant in Jackson,
while the two Alabama plants are the Superbrand and Barber Pure Milk
Company plants in Montgomery. Under Order 94, the Jackson plant now has
a Class I differential adjusted for location 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 adjusted for location of $3.35, which was also the
price 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 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.
Fleming and Purity took exception to the recommended 7-cent price
reduction at Jackson, Mississippi, and Montgomery, Alabama. They argued
that this change was not proposed or supported and is untested by the
realities of supply and demand. Finally, they were concerned that the
milk supply of handlers in Jackson and Montgomery might be jeopardized
by the price reduction.
Neither the supplier of the Jackson and Montgomery plants nor the
handlers themselves filed comments suggesting a problem with the
proposed price of $3.28. In terms of inter and intra-order alignment, a
price of $3.28 appears to line up well with prices to the north, south,
east and west. It is 170 miles from Mobile to Montgomery. If the
transportation cost were computed from Mobile, the price at Montgomery
would be $3.23 (i.e., $3.65 - [17 x .025]). If transportation cost
were added to the price at Birmingham, the price would be about $3.33
(i.e., $3.08 + [10 x .025]). Based on prices to the east and west of
the marketing area, $3.28 is the correct price for this area.
Barber and Dairy Fresh also objected to the lower Class I price at
LuVel Dairy Products, Inc., Kosciusko, Mississippi, from $3.20 to
$3.08. They stated that there was no support in the record to make this
change.
As explained in the recommended decision, the prices at Kosciusko,
Canton, and Jackson were too high in relation to the prices east and
west of those locations. To maintain the existing prices at those
locations while reducing the prices in northern Louisiana and northern
Mississippi would have put those handlers at a competitive
disadvantage. Neither Flav-O-Rich nor Borden nor LuVel excepted to this
price reduction on grounds that it would jeopardize their milk supply.
In fact, the blend price under the merged order at those locations is
likely to offset the price reduction so that the lower Class I price
should have no impact on their ability to attract a supply of milk.
Zone 10. Zone 10 in this final decision is a combination of Zones 9
and 10 as contained in the recommended decision. The new Zone 10 runs
from the Atlantic Ocean on the east to a $3.34 zone under the Texas
order on the west. The differential price adjusted for location in Zone
10 should be $3.40. There are no distributing plants within this zone
in Louisiana, but there is one nonpool plant operated by Hershey Foods
in Savannah, Georgia, a pool distributing plant operated by Dairy Fresh
Corporation at Cowarts, Alabama, and another Dairy Fresh plant at
Hattiesburg, Mississippi. The Hershey plant in Savannah is now subject
to a $3.38 price under Order 7; the Cowarts plant is subject to a $3.38
price under Order 93; and the Hattiesburg plant has a price of $3.45
under Order 94. Both the cooperative coalition and Fleming Dairy
proposed a continuation of current prices for this area.
A price of $3.48 was recommended for the Cowarts and Hattiesburg
plants in recommended Zone 10 and a price of $3.38 for the Savannah
plant in recommended Zone 9. This price structure would have resulted
in a 10-cent price increase for the Cowarts plant, a 3-cent price
increase for the Hattiesburg plant, and no change in price for the
Savannah plant. After reviewing the comments submitted and further
analyzing the market structure in this area, Zones 9 and 10 should be
combined with a price of $3.40 providing for a smoother pricing
transition between Zones 9 and 11.
Barber (Birmingham) and Dairy Fresh (Greensboro) excepted to the
price reduction of 17 cents at the Flav-O-Rich plant at Canton,
Mississippi, and the 7-cent price reduction at the Borden plant
[[Page 25039]] at Jackson, Mississippi, in relation to the 3-cent
increase in price at the Dairy Fresh plant at Hattiesburg. The
exception noted that the price at Hattiesburg would be increased by
three cents to $3.48 while the price at New Orleans would be lowered 17
cents to $3.68. This would lower the difference between the Hattiesburg
and New Orleans Class I prices to 20 cents from its present 40-cent
level. These handlers asked: ``What kind of equity is this when price
zones are set up so that the price at the plant in Hattiesburg is 30
cents higher than for a plant located in Canton 105 miles north of
Hattiesburg and only 20 cents lower for plants located in New Orleans
105 miles south of Hattiesburg?''
Finally, Dairy Fresh Corporation, on behalf of its plant in
Cowarts, Alabama, excepted to the price proposed for its plant at
Cowarts. It argues that there was no proposal to change this price and
no record evidence to support the proposed price. The price should be
returned to its present $3.38 level, it concludes.
The price change at Hattiesburg, from $3.48 in the recommended
decision to $3.40 in this final decision, will reduce the Hattiesburg
price by five cents from its present $3.45 level under Order 94. This
plant is in a heavy production area so the lowering of its price should
not affect the plant's milk supply. From the standpoint of Class I
price alignment, the lower price at Hattiesburg will not disrupt price
alignment with nearby competitors. Hattiesburg, for example, is 109
miles to New Orleans and 98 miles to Mobile. Based on a transportation
allowance of 2.5 cents per 10 miles, the price at Hattiesburg in
relation to New Orleans should be no lower than $3.37 [i.e., $3.65 -
(11 x .025)], while the price at Hattiesburg in relation to Mobile
should be no lower than $3.40 [i.e., $3.65 - (10 x .025)].
With these price changes, there will be a 12-cent difference in
price between Hattiesburg and Jackson (i.e., $3.40 - $3.28). This is
two cents greater than the difference that now exists between these two
locations and provides no Class I price advantage to the Borden plant
in Jackson. The 105-mile distance between Jackson and Hattiesburg would
support a price difference of 28 cents (i.e., 11 x .025) between
these locations. There is no reason to expect handlers to pay any more
than is necessary to obtain an adequate supply of milk for fluid use.
The prices at Jackson and Canton are appropriate using this standard.
A $3.40 price in the new Zone 10 will increase the Cowarts plant's
price by 2 cents in comparison to its present $3.38 level under Order
93, but it will be lowered by 8 cents in comparison to the $3.48 price
for this area in the recommended decision. Southern Alabama is a
deficit area and milk is transported to plants in this area from as far
away as central Tennessee. A price of $3.48 for Cowarts was proposed in
the recommended decision to ensure that the Dairy Fresh plant would be
adequately supplied under the merged order, as well as to provide a
smooth transition in price from southern Alabama and Georgia into the
$3.58 price zone of the Upper Florida marketing area. Like the plants
in Mobile, the Cowarts plant now enjoys the relatively high utilization
of the Alabama-West Florida order. Under the merged order, the uniform
price will probably be lower at Cowarts and the plant may have
difficulty attracting a supply of milk. Nevertheless, in view of the
strong opposition of Dairy Fresh to any price increase at Cowarts, the
price should be lowered to $3.40. Cowarts is more than 190 miles from
Mobile, so the 25-cent price difference between Cowarts and Mobile is
far below the cost of shipping milk from Cowarts to Mobile. Therefore,
the reduction in price at Cowarts will cause no disruption in Class I
price alignment with Mobile.
The Hershey plant at Savannah, Georgia, will experience a two-cent
higher Class I price as a result of this change. This minimal price
change should have little impact on this plant, which has a relatively
high Class II utilization.
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, which has been modified by the addition of several
parishes and counties from Zone 12, now includes only one county that
is split between two zones. The portion of Mobile County, Alabama, that
is within 20 miles of the Mobile City Hall is in Zone 12, while the
remainder of Mobile County is in Zone 11.
With these modifications, there is now one distributing plant in
Zone 11 at Hammond, Louisiana, operated by Superbrand Dairy Products,
Inc., and there are two Mid-Am manufacturing plants in the Louisiana
parishes of Tangipahoa and Washington. In Tangipahoa Parish, Mid-Am
operates a cheese plant in Kentwood. In Washington Parish, which is to
the east of Tangipahoa Parish, it operates a butter-powder
manufacturing plant in Franklinton.
At the present time, the Class I differential price at Hammond,
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.
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 based upon this decision should be priced 7 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 $3.40, 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 [[Page 25040]] differential adjusted for location for
Zone 12 should be $3.65 or three cents below the recommended decision's
price of $3.68.
At present, the 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 deficit 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 price
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.). [[Page 25041]]
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.
It is concluded 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. Baton Rouge and New Orleans should be in the same zone with
the same price, and Hammond should be priced 7 cents lower.
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 adjusted for location for Zone 12 should
be $3.65, which is 13 cents below the present price in Baton Rouge and
20 cents below the present price in New Orleans. It is also five 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., 28 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 timeframe 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 will 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 $3.65 is the same 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 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 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 Mid-America
Dairymen, Inc., which operates a cheese manufacturing plant in
Kentwood, Louisiana, and a butter-powder manufacturing plant in
Franklinton, Louisiana; Flav-O-Rich, which operates a distributing
plant located in Canton, Mississippi; Superbrand Dairy Products,
[[Page 25042]] 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 maintaining a $3.65
differential price in Mobile and decreasing the price at alternative
locations--i.e., by 10 cents at Kentwood, Franklinton, and Hammond,
Louisiana; by 20 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.
In its exception, Mid-Am agreed with the recommended decision in
putting Baton Rouge and New Orleans in the same pricing zone. Mid-Am
disagreed, however, with also including Hammond in that zone (Zone 12).
It argued that the distance from Kentwood, Louisiana, which is the
center of the Tangipahoa Parish supply area, to Hammond is 34 miles,
but the distance to Baton Rouge is 82 miles and the distance to New
Orleans is 73 miles. Mid-Am maintains that the added distance from the
supply area justifies at least a 9-cent higher price at New Orleans and
Baton Rouge relative to Hammond. Using the same analysis with respect
to the distance from Franklinton, Louisiana, to Baton Rouge, New
Orleans, and Hammond justifies a price at Hammond that is 7 cents lower
than the New Orleans and Baton Rouge prices, according to the
cooperative. Mid-Am concluded that to improve alignment between
Hammond, Baton Rouge, and New Orleans, the Louisiana parishes of
Livingston, Tangipahoa, and St. Tammany and the Mississippi counties of
Hancock, Harrison, and Jackson should be added to Zone 11 and the price
of Zone 12 should be reduced from $3.68 to $3.65.
Dairy Fresh of Louisiana, Inc., the operator of a distributing
plant at Baker (Baton Rouge), Louisiana, suggested expanding Zone 10 to
include Zone 11 and applying a price of $3.48 to this combined zone. It
also suggested reducing the price in Zone 12 to $3.58. It argued that
no point is served in having a separate zone which only contains Mid-
Am's two manufacturing plants at Franklinton and Kentwood; reducing the
price at these plants to $3.48 would enhance the blend price for the
market and would encourage milk to move from this high production area
to distributing plants at Hattiesburg, Mississippi; Cowarts, Alabama;
and Mobile, Alabama.
Dairy Fresh also stated that revamping prices in this way will not
create any alignment problems with the Upper Florida order or with the
Houston/Beaumont area of the Texas order because there are no Texas
plants in the immediate vicinity of southern Louisiana. It concluded
that its suggested lowering of prices in the Baton Rouge/New Orleans
area will restore the relationship that existed between south Louisiana
and the Houston area prior to 1991, when the Texas price was reduced by
12 cents.
Barber and Dairy Fresh objected to the prices recommended for the
Mobile area. These handlers stated that the Department erred in
dismissing their proposal for separate Class I and producer location
adjustments. They also wrote that separate location differentials for
producers delivering milk to pool plants located within the marketing
area are a method that could and should be used in addition to the
Class I price to move milk to areas within the market where the milk
supply is short.
Barber and Dairy Fresh also objected to placing Mobile, Alabama, in
Zone 12 and increasing the price there by three cents. They urged the
Department to reduce their price to $3.58 or at least to the present
level of $3.65.
Finally, Gold Star Dairy objected to the price reduction in
southern Louisiana because it ``upsets the competitive balance.'' It
stated that ``it is improper to upset the economic balance without
evidence of any change in marketing conditions justifying a change in
prices.''
After reviewing the comments cited above and further analyzing the
market structure of Zone 12 and the surrounding areas, it is concluded
that the Zone 12 price should be lowered from $3.68 to $3.65. Also, as
mentioned previously, the Louisiana parishes of Tangipanoa and St.
Tammany, and the Mississippi counties of Hancock, Harrison, and Jackson
should be moved from Zone 12 to Zone 11. This reduces the price at
Hammond by 7 cents. Bulk milk delivered to Hammond is not worth as much
as milk delivered to Baton Rouge or New Orleans and it is appropriate
to have a lower price at Hammond, as suggested by Mid-Am.
Livingston Parish should not be shifted from Zone 12 to Zone 11, as
suggested by Mid-Am. Although there presently are no plants in this
parish, one could be built there in the future and have a price
advantage over nearby plants in Baton Rouge. Livingston Parish should
remain in Zone 12 to serve as a buffer between Baton Rouge and lower-
priced Zone 11.
In Federal order markets, prices gradually increase from the Upper
Midwest to the tip of Florida. The present pricing structure, which has
evolved over time, reflects the fact that some southern areas
occasionally need to import milk from surplus areas to the north. This
is not true for every southern area. There may be pockets of heavy
production, such as central Tennessee or southern Louisiana, which
[[Page 25043]] do not require supplemental milk from other areas, but
which have higher prices nevertheless to preserve Class I price
alignment with higher-priced areas to the south.
As noted above, southern Louisiana is a heavy production area. The
handlers in Hammond, Baton Rouge, and New Orleans do not have to import
milk from distant areas because they have an abundant supply at their
doorstep. Because there are no handlers in the Gulf of Mexico, prices
do not have to be increased at 2.5 cents per 10 miles through southern
Louisiana to preserve price alignment with areas to the south of New
Orleans.
The argument of Barber and Dairy Fresh that prices should be higher
in New Orleans so that Dairy Fresh at Hattiesburg can afford to ship
and sell packaged milk in New Orleans does not meet the standards of
the Agricultural Marketing Agreement Act. Location adjustments reflect
the cost of hauling bulk milk from production areas to processing
plants. The adjustments compensate producers for the economic service
they provide to handlers.
Similarly, the position of Gold Star Dairy that the reduction in
price at New Orleans upsets the competitive balance between Little Rock
and New Orleans provides no justification for not reducing a price that
obviously is higher than it needs to be.
The goal of the Federal milk order program is to ensure an adequate
supply of milk for fluid use and to establish and maintain orderly
marketing conditions. Consumers in New Orleans should not have to pay
higher milk prices simply to reflect the transportation cost of
shipping packaged products there from Hattiesburg, Texas, Little Rock,
or anywhere else because there are milk processing plants in the New
Orleans area that can obtain bulk fluid milk at a cost that is less
than the cost of hauling packaged milk.
Zone 6. Immediately north of the base zone, a new, transition zone
(Zone 5 in the recommended decision) should be created with a Class I
differential adjusted for location of $2.98. Currently, there are no
distributing plants in this zone. However, at the time of the hearing
there was one distributing plant--the Meadow Gold plant at Gadsden,
Alabama--in this zone. Since the hearing, this plant has closed.
A slightly lower price should apply to Zone 6 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 price in Zone 6 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.
Just north of Zone 6, the Class I price drops to $2.83 in Zone 5.
It is necessary to create an intermediate Zone 6 to eliminate a sharp
25-cent drop that otherwise would occur between Zone 5 and the base
zone.
Zone 5. Zone 5 (Zone 4 in the recommended decision) includes the
northern tier of counties through Georgia, the northern two tiers of
counties through Alabama and Mississippi, and a tier of counties
through Arkansas. This zone should have a differential price adjusted
for location of $2.83. As mentioned previously, the area of Arkansas
included in Zone 5 has been modified from the recommended decision
because of the changes made to Zone 4. With the modification, there are
no plants in Arkansas in this zone.
There are no plants in the Georgia portion of Zone 5, 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 price of $2.83).
There are three plants in the Alabama portion of Zone 5: Meadow
Gold at Huntsville (Madison County), Dasi Products (partially
regulated) at Decatur (Morgan County), and Shoals Cheese in Florence
(Lauderdale County). The Class I price that now applies at these plants
under Order 93 is $2.85.
In the Mississippi portion of Zone 5, there are two fully regulated
distributing plants and one cheese plant. Barber Dairy operates a
distributing plant in Tupelo (Lee County), and Avent's Dairy operates a
distributing plant in Oxford (Lafayette 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 5: 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 price 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 lower than Zone 6 to the south and 6 cents
higher than Zone 4 on the north. The 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 4. Zone 4 (Zone 3 in the recommended decision) is comprised of
the southernmost tier of counties through the State of Tennessee and
has been reconfigured to include two tiers of counties in central
Arkansas. It should have a Class I differential adjusted for location
of $2.77.
There are six plants in this zone: Forest Hill Dairy and Harbin Mix
in Memphis, Tennessee; Borden, Inc., Coleman Dairy, and Gold Star
Dairy, in Little Rock, Arkansas; and Humphrey's Dairy in Hot Springs,
Arkansas. At present, the Class I price at these locations under the
Central Arkansas order is $2.77. The recommended decision proposed a
price of $2.77 for Memphis and a price of $2.83 for the Little Rock
area.
Gold Star Dairy argued in its exception that it had no notice that
any price change was contemplated for Little Rock and that to change
the price at Little Rock simply to tie together east-west price
alignment was inappropriate. It suggested reducing the price at Little
Rock to $2.77 by moving six Arkansas counties from Zone 4 to Zone 3.
Gold Star is incorrect in asserting that it had no notice. In any
merger hearing, all order provisions are to be considered and are
within the scope of the hearing. However, it is true that no attention
was focused on the appropriate price at Little Rock at the hearing.
Proponents assumed that the current pricing structure would be adopted.
A slightly higher price was recommended for the Little Rock area to
better align prices east to west and to slightly enhance the uniform
price at that location under the merged order. This was an increase of
six cents and with the zone configuration in the recommended decision
this price level seemed appropriate. However, with the reconfiguration
of the zones in this final decision it is appropriate to return the
price applicable at Little Rock to $2.77. Accordingly, the Arkansas
counties of Polk, Montgomery, Garland, Saline, Pulaski, Lonoke,
Prairie, Monroe, and Lee have been moved to the new Zone 4, thereby
reducing the price at Little [[Page 25044]] Rock to $2.77, the level
that now applies to that area under Order 108.
Zone 3: A new zone consisting of three counties in western
Tennessee and nine counties in Arkansas should be created after
reviewing the exceptions to the recommended decision.
Fleming and Purity opposed the inclusion of the Turner Dairies
plant at Covington, Tennessee, in recommended Zone 2 with a price of
$2.60. These handlers argued that Covington is in the Memphis
Metropolitan Area and that it should retain the same $2.77 price that
it had under the Memphis order. They stated that they compete with the
Covington plant for route disposition in the Memphis area and would be
seriously affected by the change.
Arkansas Dairy Cooperative Association, Inc. (ADCA), also commented
on the proposed pricing for the Covington plant. It noted that while
the plant now produces mostly Class II products, the proposed 17-cent
lower price at this location could encourage the processing of Class I
products there. ADCA also stated that even though Memphis is 36 miles
south of Covington, the 17-cent price difference between the two
locations would place suppliers of the Covington plant at a
disadvantage vis-a-vis suppliers of the Memphis plant. This would
create a substantial disincentive to supply that plant, they argued.
ADCA also commented on other problems which it saw with the
proposed Zone 2. It stated that in October 1994 it purchased land in
Damascus, Arkansas, to build a receiving station/balancing plant. When
it made this commitment, it had no idea that this area would be priced
17 cents below the price that had applied to Van Buren County under the
Central Arkansas order. It wrote that ``this is an inequitable result
which surely would not have occurred if the plant had been in place at
the time of the rulemaking and discussed at the hearing.''
A new zone should be added between recommended Zones 2 and 3 in
Arkansas and western Tennessee. The price for this zone is $2.70, which
is 7 cents lower than the Zone 3 price and 10 cents higher than the
Zone 2 price. The new zone consists of the Arkansas counties of
Johnson, Pope, Van Buren, Cliburne, Independence, Jackson, Craighead,
Poinsett, and Mississippi; and the Tennessee Counties of Tipton,
Lauderdale, and Haywood. This new zone, which includes the Turner
Dairies plant at Covington and the plant which ADCA intends to build at
Decatur, will reduce the price difference between the Turner Dairies
plant at Covington and handlers in Nashville, Memphis, and Little Rock.
It will also help to mitigate the price reductions cited by ADCA.
A $2.70 price for this new zone will improve alignment between
Zones 2 and 3. Based on the 36-mile distance between Covington and
Memphis, a 7-cent lower price for Covington is a little higher than the
10-cent difference that would be justified based on 2.5 cents per 10
miles. Similarly, based on a distance of approximately 40-50 miles from
Damascus to Little Rock, a difference of at least seven cents is
justified between those two points. Milk should be encouraged to move
from Damascus to Little Rock, where it is needed by distributing plants
for fluid use. In view of the fact that Covington and Memphis were in
the same zone under the Memphis order and Van Buren County was part of
the base zone under Order 108, it is appropriate to limit the
difference to 7 cents between Zone 2 and new Zone 3.
The new $2.70 zone is not carried through central Tennessee. This
is a departure from the pricing zones to the north and south of this
zone which extend on an east-west plane through the marketing area. As
noted previously, central Tennessee is a heavy supply area from which
milk moves to various parts of the marketing area. This area includes
Mid-Am's butter-powder plant at Lewisburg, which processes the market's
surplus milk. Under the Alabama-West Florida order, the price at this
plant is now $2.52, the same as the price applicable to the Purity
plant at Nashville and 1.5 cents below the price at the Fleming Dairy
plant, which has been regulated under the Georgia order. As proposed in
the recommended decision, the price at Lewisburg was $2.60, the same as
the price applicable at Murfreesboro and Nashville. This pricing was
based, in part, on Fleming's testimony that the price at Lewisburg
should be no higher than the price at Murfreesboro because otherwise
producers would have an incentive to deliver their milk to Lewisburg
for manufacturing use rather than to Murfreesboro for fluid use. The
recommended decision attempted to extend this reasoning to the
Nashville area as well by including Nashville in the same zone as the
Murfreesboro and Lewisburg plants, but, as explained below, the
Nashville handlers excepted to the higher price at Nashville and it has
been changed.
With the addition of the new $2.70 zone, a question again arises
concerning the proper price at Lewisburg. Based on higher prices to the
east and west of Lewisburg, some might argue that Lewisburg should be
in the $2.70 zone. Similarly, in terms of north-south Class I price
alignment, it could be argued that Lewisburg should be priced at $2.70,
seven cents lower than Giles County, immediately below Lewisburg. These
considerations, however, are outweighed by the fact that there are no
distributing plants in Tennessee south of Murfreesboro which would
require a higher price at Lewisburg to preserve Class I price
alignment. In addition, because the Lewisburg plant is a surplus
processing plant, it is not necessary to increase the price at
Lewisburg to $2.70 to assure that the plant receives an adequate supply
of milk. Finally, the price at Lewisburg has been very close to the
price applicable at the Purity and Fleming plants at Nashville and the
necessity of keeping this relationship as close as possible overshadows
the potential problem that could arise if a distributing plant is ever
built at Lewisburg.
Zones 1 and 2. With the addition of the new Zone 3, as described
above, Zone 2 now consists of 27 counties in central Tennessee and
three counties in northwest Arkansas. The price for this zone should be
$2.60.
There are two plants in this zone: The Heritage Farms plant in
Murfreesboro (Rutherford County) and the Mid-America Dairymen, Inc.,
butter-powder manufacturing plant in Lewisburg (Marshall County). The
Heritage plant now has a $2.605 price under Order 7 and the Lewisburg
plant has a $2.52 price under Order 93.
The cooperative coalition proposed a price of $2.60 for these two
plants. A $2.60 Class I differential adjusted for location also was
proposed for these locations in the recommended decision. Neither
Heritage nor Mid-Am excepted to this price, and it is the price adopted
in this final decision.
Zone 1 of the Southeast marketing area, as modified in this final
decision, includes 21 counties in northern Tennessee and 8 counties in
northern Arkansas. There are three plants in this zone: Fleming
Companies, Inc., and Purity Dairies, Inc., at Nashville, and Cumberland
Creamery at Antioch, Tennessee. The price adopted for this zone is
$2.55, which is three cents higher than the level proposed by the
cooperative coalition and the Fleming Company.
This zone 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).
At present, the Fleming Dairy plant is regulated under Order 7 and
has a Class I price of $2.53, while the Purity Dairy
[[Page 25045]] plant is regulated under Order 93 and has a Class I
price of $2.52. Cumberland Creamery plant is a nonpool plant that makes
condensed milk and milk powder.
The cooperative coalition and the Fleming Company both proposed a
price of $2.52 for the Nashville area. However, the cooperative
coalition proposed $2.605 for Lewisburg and Murfreesboro, while the
Fleming Company proposed a price of $2.55 for those locations.
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 (i.e, Mid-America Dairymen), butter-powder plant in Lewisburg,
Tennessee, the Cumberland Creamery in Antioch, or the Meadow Gold^{9
ice cream plant in Nashville.

\9\This plant recently ceased operations.
---------------------------------------------------------------------------

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.
Based on the testimony of the Fleming Dairy witness, the
recommended decision put Nashville and Murfreesboro in the same zone
with a Class I differential adjusted for location of $2.60. The
recommended decision concluded that there was an abundant supply of
milk available to handlers in central Tennessee and, for this reason,
it was 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 also stated that it would not be
appropriate 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 price
applicable in the adjacent Tennessee Valley marketing area. The
recommended decision concluded that to provide a common pricing level
between the Nashville and Murfreesboro plants, the Nashville price
should be raised to $2.60.
In its exception, Mid-Am stated that the Tennessee Counties of
Dickson, Cheatham, Davidson, Wilson, and Smith should be moved from
Zone 2 to Zone 1, and the price for Zone 1 should be changed from $2.55
to $2.52. The cooperative argued that putting Nashville in Zone 2, as
proposed in the recommended decision, results in price alignment
problems with handlers fully regulated under the Louisville-Lexington-
Evansville order (Order 46). In support of this position, Mid-Am noted
that Louisville, which has a price of $2.11 under Order 46, is 175
miles from Nashville and that, based on a transportation cost of 2.5
cents per 10 miles, the price at Nashville should be no more than 44
cents higher than the Louisville price. It concluded, therefore, that
the price at Nashville should stay at $2.52.
Fleming Companies, Inc., and Purity Dairies, Inc., which operate
distributing plants in Nashville, also opposed the $2.60 price proposed
for Nashville. They contend that a higher price is not needed for
Nashville because there is an abundant supply of milk in north central
Tennessee. They further stated in their exception that there was no
evidence in the record to support a higher price at Nashville; the
arguments made by Fleming Dairy at the hearing were in support of a
lower price at Murfreesboro, not a higher price at Nashville. They also
commented that the recommended decision ``creates a Class I price
disadvantage for Nashville handlers in competition with Southern Belle
and Flav-O-Rich in the southeast Kentucky portion of the Tennessee
Valley market, and with Louisville-Lexington-Evansville handlers.''
They repeated their call for a $2.52 price at Nashville and a $2.55
price at Murfreesboro.
The recommended $2.60 for Nashville was based upon the testimony of
the Fleming Dairy witness, who indicated that Fleming Dairy was at a
competitive disadvantage in procuring milk with the nearby Heritage
Farms Dairy plant at Murfreesboro. In its post-hearing brief, Fleming
stated that: ``The supply of milk to the three Nashville-area plants
comes from counties in central Kentucky and central Tennessee. Most of
the supply comes from Kentucky, and is centered around Barren County
which supplies over 10 million pounds per month to these plants * * *.
The Kroger Murfreesboro plant, like the two Nashville plants, receives
milk supplies from southern Kentucky, centered around Glasgow, in
Barren County * * *. By reference to Glasgow, the center of the common
production area, transportation to Murfreesboro is only six miles
greater than transportation to Nashville * * *. The difference in blend
prices payable to Central Kentucky producers for milk delivered at
comparable distances to the plants in Nashville and Murfreesboro has
caused unrest and discontent between neighboring producers.'' (Brief at
19-20.)
Placing aside any consideration of a procurement problem faced by
either Purity or Fleming which would justify a higher Class I price, a
$2.60 Class I price at Nashville is too high in relation to the Class I
price at Louisville. Based upon the 169-mile distance from Louisville
to Nashville, the cost of transporting bulk milk from Louisville to
Nashville is approximately 43 cents (i.e., 17 x .025). Adding the 43
cents to the $2.11 price at Louisville would result in a price of
$2.54.
The recommended decision did not consider the Class I price
alignment between Somerset, Kentucky, and Nashville, Tennessee, and
between London, Kentucky, and Nashville, Tennessee, because they did
not appear to be germane. Somerset and London are northeast of
Nashville. Southern Belle operates a distributing plant at Somerset,
and Flav-O-Rich operates a distributing plant at London. Both plants
are regulated under the Tennessee Valley order. It is 161 miles from
Somerset to Nashville and 198 miles from London to Nashville. The Class
I price at Somerset and London under the Tennessee Valley order is
$2.45. Based on a hauling cost of 2.5 cents per 10 miles, the
transportation allowance between Somerset and Nashville should be 43
cents (i.e., 17 x .025) and the transportation allowance between London
and Nashville should be 48 cents (i.e., 19 x .025). Adding these
allowances to the $2.45 Class I price at Somerset or London would
justify a Class I price at Nashville of between $2.88 and $2.93. This
computation would not appear to support the Fleming/Purity argument
that a price of $2.60 at Nashville is too high.
The Class I differential adjusted for location at Nashville should
be changed from $2.60 to $2.55 by moving the Tennessee counties of
Dickson, Cheatham, Davidson, Wilson, and Smith [[Page 25046]] from Zone
2 to Zone 1. This change will narrow the difference in price between
Nashville and Murfreesboro from the present 8 cents to 5 cents. Based
on the 43-cent transportation cost between Louisville and Nashville,
and the 43-cent transportation cost between Somerset and Nashville,
this modest 3-cent price increase at Nashville should pose no Class I
price alignment problem for Nashville-area plants. It will have the
beneficial effect of increasing slightly the uniform price at Nashville
in relation to Louisville, Somerset, London, and Murfreesboro, which
may help Nashville-area handlers retain their milk supplies from
central Kentucky.
No change should be made in the Class I price at Murfreesboro. It
should remain in Zone 2 with a Class I differential adjusted for
location of $2.60.
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 price in those
counties is $2.77. Had those counties been incorporated in the proposed
Southeast order, they would have been included in Zone 5, 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 7, 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 adjusted 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 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 adjusted
for location 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 or 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
[[Page 25047]] 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
stated, 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 [[Page 25048]] 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
[[Page 25049]] 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. A base-excess plan should
be adopted for the merged order. The plan adopted in this final
decision is significantly different than the one proposed in the
recommended decision.
Need For a Base-Excess Plan. 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.
In their exceptions to the recommended decision, Gold Star Dairy
and AMPI maintain that Mid-Am, the dominant cooperative in the
Southeast marketing area, will not pay its producers base and excess
prices. They stated that, historically, base-excess plans have been
used to impede the movement of producers from one market to another and
are not necessary to advance the provisions of the Act. AMPI emphasized
that the plan will be ``especially onerous--and act as an exclusionary
barrier--to the flexible and efficient marketing capability of
cooperatives whose producers are located to the southwest, west and
north of the proposed Southeast marketing area.''
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. However, it is time-consuming and costly for the
market administrator to administer a base-excess plan. If the plan is
not used under the merged order to pay producers, it cannot be
effective for the intended purpose of leveling out production. Absent a
demonstration of use of the plan in paying producers, further
consideration should be given to whether the plan is necessary. This
decision is written, however, on the basis of the testimony, evidence,
and comments on the record of this hearing which demonstrate that the
plan is desired, needed, and will be used to pay producers.
Under the base plan adopted in this final decision, a producer can
earn a base by shipping as little as one day's production to the
Southeast market during the months of July through December. Of course,
such a base will be very small, but the point to be emphasized is that
those who argued that the base plan would inhibit the movement of milk
on and off the market will have the flexibility to shift milk between
plants as conditions may require. The base plan, as modified, should
serve its purpose of encouraging producers to level their seasonal
production pattern but, at the same time, not be a barrier to the
movement of milk on and off the market.
Base-Forming and Base-Paying Months: 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
[[Page 25050]] 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 appropriate base-paying period for this market is February
through May. These are clearly the months when additional milk is not,
in fact, needed. 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 testimony and the comments received, the
cooperative coalition's proposed February-May base-paying period was
proposed in the recommended decision and is adopted in this final
decision.
With respect to the base-forming period, the recommended decision
concluded that the needs of the market's producers would be met by
using the months of September, October, and November. However, many
comments were received opposing these months because they were too
restrictive. Accordingly, this final decision is modified to meet the
needs of all producers by expanding the base-forming months to July
through December. However, only each producer's highest four production
months will be used to determine each producer's base.
In their exceptions to the recommended decision, Mid-America,
Southern Milk Sales, the Louisiana Farm Bureau Federation, the
Mississippi Farm Bureau Federation, and many dairy farmers again stated
their support for the months of September through December. Mid-America
and Southern Milk Sales argued that the merged order should include a
four-month base-forming period of September through December because a
shorter period would be unfair to all producers whose milk will be
pooled under the order. They maintain that the four months of September
through December would balance the desires of producers in both the
northern and southern areas of the proposed marketing area.
The Georgia Milk Producers Association (GMP), Alabama Dairy
Producers, and several dairy farmers reiterated their support for the
months of September through January as the base-forming period. These
commentors argued that the recommended September through November base-
forming period would place producers located in the southern part of
the marketing area at a disadvantage compared to producers located in
the northern area due to the summer heat. GMP contends that the
lingering effects of the hot summer weather on cows as well as the warm
temperatures of late summer and early fall prevent cows from reaching
their peak production until the late fall.
Fleming Dairies reiterated its support for the inclusion of the
months of July and August in the base-forming period. Fleming argued
that while the average producer will find it easier to establish a
``production benchmark'' during the fall months, establishing a base-
forming period to provide ease to producers in building a base is not a
goal of a base-excess plan. It emphasized that the objective of a base-
excess plan is to ``encourage more even production of milk throughout
the year.'' By excluding the shortest milk production months of July
and August from the base-forming period, Fleming contends that a major
objective of the statutory seasonal incentive authority would be
abandoned. It urged that this error be corrected in the final decision.
As a result of the comments received, the recommended base-forming
period of September through November should be expanded to the months
of July through December. However, instead of using every month of this
six-month period to determine a producer's base, only the highest four
production months should be used. This four-month period will better
accomplish the goal of establishing the production benchmark, and it
will allow all of the market's producers to compete on equally
favorable conditions.
As noted above, Fleming claims that July and August should be base-
forming months because these months are low production months when milk
is often in short supply. On the other hand, many of the market's
producers would also like to see the months of December and January
included in the base-forming period because they are accustomed to
these months under their present base plans and the inclusion of these
months would boost their daily average production.
The primary reason for initially excluding the months of July,
August, December, and January from the base-forming period was because
these months would be difficult months for some dairy farmers. However,
the modified base-forming period provides producers with much more
flexibility. [[Page 25051]] While the inclusion of December may help
producers in the southern-most part of the market, the inclusion of
July and August, in conjunction with the use of the four highest daily
average production months, should result in a balanced plan that is
fair to all of the market's producers.
The month of January was not included in the base-forming period
because its inclusion would make it impossible for the market
administrator to determine a producer's base in time for the producer
to transfer that base with certain knowledge of what the base actually
is. Under Sec. 1007.93(a) of the base rules, in order for a transferred
base to be effective at the beginning of the February 1 base-paying
period it must be transferred by February 15. However, if January had
been included in the base-forming period, the market administrator
would not have had the information to compute a base until near the end
of February. With the July-December base-forming period adopted in this
decision, the market administrator will have the time to compute and
announce bases by January 31 so that orderly transfers may take place
prior to, or close to, the outset of the base-paying period. As a
result, producers will not be placed in the position of having to ship
their milk for an entire month without knowing with certainty what
their base was. By having the information available at the outset of
the base-paying period, producers will be in a better position to make
informed and timely management decisions.
Under the plan adopted in this final decision, to qualify for a
base, a dairy farmer must be a ``producer'' under the Southeast order
during one or more of the months of July through December. To determine
each producer's average daily production during the base-forming
months, the market administrator will divide the producer's total
pounds of producer milk delivered to pool plants or diverted to nonpool
plants by the number of days in the month. The sum of the four highest
daily averages so computed will then be added together and divided by
four to determine the producer's daily average base. If a producer was
on the market for less than four months, a zero will be substituted for
each month in which no producer deliveries were made. Unless the
producer qualifies under the hardship provisions described below, the
divisor in this base computation will always be four.
Under the present base plan provisions and those proposed by the
cooperative coalition, accommodation is made for a producer who
experienced a substantial reduction in production as a result of a
catastrophe, certain diseases, or a quarantine. Since only the four
highest months of production out of a total of six months will be used
to determine base under the base-excess plan adopted in this decision,
it is less likely that this provision will be needed. Nevertheless,
such a provision is provided in Sec. 1007.92(c) to accommodate those
situations when a producer's production is severely disrupted by fire,
storm, or other natural disaster, by brucellosis, bovine tuberculosis,
or other infectious diseases, or by a Federal or State quarantine of a
producer's farm. In the unlikely event that a disruption in production
caused by one or more of these conditions leaves a dairy farmer without
four complete months of production from which to compute a base, the
dairy farmer may request a base computation based on a lessor number of
months by submitting to the market administrator in writing on or
before February 1 a statement that establishes to the satisfaction of
the market administrator that during four or more of the months in the
immediately preceding July through December base-forming period the
amount of milk produced on such producer's farm was substantially
reduced because of one or more of the conditions described in
Sec. 1007.92(c).
In addition to discussing the conditions specifically included in
Sec. 1007.92(c), the recommended decision's findings and conclusions
referred to a ``temporary loss of market when cut off by a buying
handler.'' The implication of this language, which emanated from the
testimony of the cooperative coalition's spokesman but which was not in
the proposed rules of the coalition, was not explored.
Under the base plan provisions adopted in this decision, order
language of this nature is unnecessary because a producer can have a
``temporary'' loss of market for as long as two months and still be
eligible for a full base by at least qualifying as a producer for the
remaining four months of the base-building period. Accordingly, no
specific accommodation has to be made for a producer who is temporarily
off the market for this reason.
Producers who do not qualify for a base because they delivered milk
to a nonpool plant that became a pool plant after the beginning of the
base-forming period should be assigned bases under the order. Such
bases should be calculated as if the nonpool plant had been a pool
plant during the entire base-forming period. A base assigned in this
manner also would not be transferable.
Transfer Rules: A base earned by a producer may be transferred.
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 will 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. However, base
transfers to be effective on February 1 must be received by the market
administrator no later than February 15. 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.
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 [[Page 25052]] 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.
Sections 1007.92, 1007.93, and 1007.94 have been modified to
reflect the changes in the base-forming months, in the computation of a
producer's base, and the base rules.
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 [[Page 25053]] 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.

Motions To Reopen the Hearing

Several parties motioned to reopen the hearing. Fleming and Purity
argued that there was no proposal to increase the price at Nashville,
decrease the price at Covington, decrease the price at Montgomery, or
decrease the price at Huntsville. In addition, they state that since
the hearing there has been a major restructuring and reorganization of
plant ownership and milk supplies in the Southeast and that the
dominant cooperative association, Mid-America Dairymen, Inc., has
entered into full supply agreements with Meadow Gold, Borden, and
Barber Pure Milk Company plants, effectively requiring independent
producers supplying those plants to join the cooperative association or
lose the market for their milk. Fleming and Purity maintain that Mid-Am
knew of these changes but concealed them from the hearing participants,
who should have an opportunity to address them.
Gold Star Dairy requested that the hearing be reopened to receive
additional testimony and evidence on the Class I price zones and the
size of the marketing area. Gold Star excepted to the increase in Class
I price at Little Rock, the 17-cent reduction in price at Covington,
Tennessee, and the price reductions in Louisiana, an area that is
[[Page 25054]] priced well above Gold Star's location in Little Rock.
As far as marketing area is concerned, Gold Star states in its
exception that ``in large part Gold Star does not care which order it
is pooled on so long as its pricing and competitive price structure
does not change.''
Dairy Fresh Corporation of Greensboro, Alabama, asked for a
reopened hearing because the price at its plant in Hattiesburg was
increased by 3 cents, while the prices at Canton, Jackson, and
Kosciusko, Mississippi, were reduced by 17 cents, 7 cents, and 12
cents, respectively, the price at New Orleans was reduced by 17 cents,
and the price at Baton Rouge was reduced by 10 cents. In addition,
Dairy Fresh did not agree that a 10-cent increase in price was
necessary for its Cowarts, Alabama, plant.
Admittedly, there have been many changes in the Southeast marketing
area since the November 1993 hearing. Many of these changes were noted
in the recommended decision. Others have been pointed out in this
decision. Since these changes are well known to the handlers and
producers in this market and to the Department, there is nothing to be
gained by reopening the hearing.
With respect to the arguments of Fleming, Purity, Gold Star,
Barber, and Dairy Fresh that they had no notice of the price changes
and no opportunity to address the issues, it is determined that, on the
contrary, they did have notice and an opportunity to present evidence
regarding all provisions of the merged order. Furthermore, they
addressed these issues in their exceptions and the Department carefully
reviewed their arguments, and, for the most part, made changes as a
result of them. In particular, the price at Nashville was reduced from
$2.60 to $2.55, the price at Covington was increased from $2.60 to
$2.70, the price at Little Rock was reduced from $2.77 to $2.70, the
price at Cowarts, Alabama, was reduced from $3.48 to $3.40, the price
at Hattiesburg was reduced from $3.48 to $3.40, and the price at Mobile
was reduced from $3.68 to $3.65. With respect to price reductions that
were made in higher-priced areas to improve alignment or to revise
price increases that were made in 1985, it is concluded that Fleming,
Purity, Gold Star, and Dairy Fresh have no right to expect prices to be
maintained that are higher than necessary simply so that these handlers
can sell their milk in higher-priced markets in Alabama, Mississippi,
Georgia, and Louisiana.
The administrative rulemaking procedure has worked as it is
supposed to work in this proceeding. Many different proposals were
evaluated. They were combined and modified as deemed to be appropriate
and interested parties were given an opportunity to comment on the
recommended decision. In this final decision, the exceptions to the
recommended decision were considered and justified changes were
adopted. There is no reason to delay this proceeding for at least
another year by reopening the hearing to hear facts that are generally
known to everyone involved with this matter. The requests to reopen the
hearing, accordingly, are denied.

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 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 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 Southeast order 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,
a marketing agreement upon which a hearing has been held;
(d) All milk and milk products handled by handlers, as defined in
the Southeast order, 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 pay, as its pro rata share of such expense, 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.

Rulings on Exceptions

In arriving at the findings and conclusions, and the regulatory
provisions of this decision, each of the exceptions received was
carefully and fully considered in conjunction with the record evidence.
To the extent that the findings and conclusions and the regulatory
provisions of this decision are at variance with any of the exceptions,
such exceptions are hereby overruled for the reasons previously stated
in this decision.

Marketing Agreement and Order

Annexed hereto and made a part hereof are two documents, a
Marketing Agreement regulating the handling of milk in the Southeast
marketing area and an Order amending the order regulating the handling
of milk in the Southeast marketing area, which have been decided upon
as the detailed and appropriate means of effectuating the foregoing
conclusions. It is hereby ordered that this entire decision and the two
documents annexed hereto be published in the Federal Register.

Referendum Order to Determine Producer Approval; Determination of
Representative Period; and Designation of Referendum Agent

It is hereby directed that a referenda be conducted and completed
on or before the 30th day from the date this decision is issued, in
accordance with the procedure for the conduct of referenda (7 CFR
900.300-311), to determine whether the issuance of the order as amended
and as hereby proposed to be amended, regulating the handling of milk
in the Southeast marketing area is approved or favored by producers, as
defined under the terms of the individual orders (as amended and as
hereby proposed to be amended), who during such
[[Page 25055]] representative period were engaged in the production of
milk for sale within the aforesaid marketing areas.
The representative period for the conduct of such referenda is
hereby determined to be March 1995.
The agents of the Secretary to conduct such referenda are hereby
designated to be the market administrators of the aforesaid orders.

Determination of Producer Approval and Representative Period

March 1995 is hereby determined to be the representative period for
the purpose of ascertaining whether the issuance of the merged order
regulating the handling of milk in the Southeast marketing area is
approved or favored by producers as defined under the terms of the
individual orders (as amended and as hereby proposed to be amended) who
during the representative period were engaged in the production of milk
for sale within the aforesaid marketing areas.

List of Subjects in 7 CFR Part 1007

Milk marketing orders.

Dated: May 3, 1995.
Patricia A. Jensen,
Acting Assistant Secretary, Marketing and Regulatory Programs.

Order Amending the Order Regulating the Handling of Milk in the
Southeast Marketing Area

This order shall not become effective unless and until the
requirements of Sec. 900.14 of the rules of practice and procedure
governing proceedings to formulate marketing agreements and marketing
orders have been met.

Findings and Determinations

The findings and determinations hereinafter set forth supplement
those that were made when the 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) Findings. A public hearing was held upon certain proposed
amendments to the tentative marketing agreements and to the orders
regulating the handling of milk in the aforesaid marketing areas. The
hearing was held pursuant to the provisions of the Agricultural
Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the
applicable rules of practice and procedure (7 CFR Part 900).
Upon the basis of the evidence introduced at such hearing and the
record thereof, it is found that:
(1) The said orders as hereby amended, and all of the terms and
conditions thereof, will tend to effectuate the declared policy of the
Act;
(2) 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 the aforesaid marketing areas. The
minimum prices specified in the order as hereby 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; and
(3) The said orders as hereby amended regulate the handling of milk
in the same manner as, and is applicable only to persons in the
respective classes of industrial or commercial activity specified in, a
marketing agreement upon which a hearing has been held;
(4) All milk and milk products handled by handlers, as defined in
the order as hereby amended, are in the current of interstate commerce
or directly burden, obstruct, or affect interstate commerce in milk or
its products; and
(5) 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 pay, as its pro rata share of such expense, 5
cents per hundredweight or such lesser amount as the Secretary may
prescribe, with respect to milk specified in Sec. 1007.85.

Order Relative to Handling

It is therefore ordered that on and after the effective date
hereof, the handling of milk in the Southeast marketing area shall be
in conformity to and in compliance with the terms and conditions of the
following attached order.
It is proposed to revise 7 CFR part 1007 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.

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 price.
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 the uniform price.
1007.61 Computation of uniform price (including weighted average
price and uniform prices for base and excess milk).
1007.62 Announcement of uniform price 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 a 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. [[Page 25056]]

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: Cheatham, Clay, Davidson, Dickson, Fentress,
Henry, Houston, Jackson, Lake, Macon, Montgomery, Obion, Overton,
Pickett, Robertson, Smith, Stewart, Sumner, Trousdale, Weakley, and
Wilson.

Zone 2

Arkansas counties: Newton, Searcy, and Stone.
Tennessee counties: Bedford, Benton, Bledsoe, Cannon, Carroll,
Chester, Coffee, Crockett, DeKalb, Decatur, Dyer, Gibson, Grundy,
Henderson, Hickman, Humphreys, Lewis, Madison, Marshall, Maury,
Perry, Putnam, Rutherford, Van Buren, Warren, White, and Williamson.

Zone 3

Arkansas counties: Cleburne, Craighead, Independence, Jackson,
Johnson, Mississippi, Poinsett, Pope, and Van Buren.
Tennessee counties: Lauderdale, Tipton, and Haywood.

Zone 4

Arkansas counties: Conway, Crittenden, Cross, Faulkner, Garland,
Lee, Lonoke, Monroe, Montgomery, Perry, Polk, Prairie, Pulaski,
Saline, St. Francis, White, Woodruff, and Yell.
Tennessee counties: Fayette, Franklin, Giles, Hardeman, Hardin,
Lawrence, Lincoln, McNairy, Moore, Shelby, and Wayne.

Zone 5

Alabama counties: Colbert, De Kalb, Franklin, Jackson,
Lauderdale, Lawrence, Limestone, Madison, Marshall, and Morgan.
Arkansas counties: Arkansas, Clark, Grant, Hot Spring, Howard,
Jefferson, Phillips, Pike, and Sevier.
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 6

Alabama counties: Blount, Cherokee, Cullman, Etowah, Fayette,
Lamar, Marion, Walker, and Winston.
Arkansas counties: Bradley, Calhoun, Cleveland, Dallas, Desha,
Drew, Hempstead, Lincoln, Little River, Nevada, and Ouachita.
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 7

Alabama counties: Bibb, Calhoun, Clay, Cleburne, Jefferson,
Pickens, Randolph, Shelby, St. Clair, Talladega, and Tuscaloosa.
Arkansas counties: Ashley, Chicot, Columbia, Lafayette, Miller,
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 8

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 9

Alabama counties: Autauga, Bullock, Dallas, Elmore, Lowndes,
Macon, Marengo, Monroe, 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 10

Alabama counties: Barbour, Butler, Choctaw, Clarke, Coffee,
Conecuh, Covington, Crenshaw, Dale, Escambia, Geneva, Henry,
Houston, Monroe, Pike, and Washington.
Georgia counties: Appling, Atkinson, Bacon, Baker, Ben Hill,
Berrien, Brantley, Brooks, Bryan, Calhoun, Camden, Charlton,
Chatham, Clay, Clinch, Coffee, Colquitt, Cook, Decatur, Dougherty,
Early, Echols, Glynn, Grady, Irwin, Jeff Davis, Lanier, Lee,
Liberty, Long, Lowndes, McIntosh, Miller, Mitchell, Pierce, Quitman,
Randolph, Seminole, Terrell, Thomas, Tift, Turner, Ware, Wayne, and
Worth.
Louisiana parishes: Avoyelles, Catahoula, Concordia, Grant, La
Salle, Natchitoches (south of State Highway 6 and U.S. 84), Rapides,
Sabine, and Vernon.
Mississippi counties: Adams, Amite, Covington, Forrest,
Franklin, Greene, Jefferson, Jefferson Davis, Jones, Lamar,
Lawrence, Lincoln, Marion, Perry, Pike, Walthall, Wayne, 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, St. Tammany,
Tangipahoa, Washington, and West Feliciana.
Mississippi counties: George, Hancock, Harrison, Jackson, 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, Terrebonne, Vermilion, and West Baton Rouge.

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).
[[Page 25057]]

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), (c) or
(d) of this section, or a unit of plants as specified in paragraph (e)
of this section, but excluding a plant specified in paragraph (g) of
this section. The pooling standards described in paragraphs (a) through
(c) of this section are subject to modification pursuant to paragraph
(f) 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) A plant located within the marketing area (other than a
producer-handler plant or a governmental agency plant) that meets the
qualifications described in paragraph (a) of this section regardless of
its quantity of route disposition in any other Federal order marketing
area.
(e) 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 (e)(1) of this section; and
(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.
(f) 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.
(g) 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 [[Page 25058]] 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 (or such
unit of plants in the case of plants that pool as a unit pursuant to
Sec. 1007.7(d)) 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; [[Page 25059]]
(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.

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. [[Page 25060]]

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
[[Page 25061]] 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; [[Page 25062]]
(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 [[Page 25063]] 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 an other 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 another order plant that are in excess of bulk fluid milk
products [[Page 25064]] 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)(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. [[Page 25065]]

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 another 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 another 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 the basic formula price for the
second preceding month plus $.30.
(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 price.

The basic formula price shall be the preceding month's average pay
price for manufacturing grade milk in Minnesota and Wisconsin using the
``base month'' series, as reported by the Department, adjusted to a 3.5
percent butterfat basis using the butterfat differential for the
preceding month computed pursuant to Sec. 1007.74 and rounded to the
nearest cent, plus or minus the change in gross value yielded by the
butter-nonfat dry milk and Cheddar cheese product price formula
computed pursuant to paragraphs (a) through (e) of this section.
(a) The gross values of per hundredweight of milk used to
manufacture butter-nonfat dry milk and Cheddar cheese shall be
computed, using price data determined pursuant to paragraph (b) of this
section and annual yield factors, for the preceding month and
separately for the current month as follows:
(1) The gross value of milk used to manufacture butter-nonfat dry
milk shall be the sum of the following computations:
(i) Multiply the Grade AA butter price by 4.27;
(ii) Multiply the nonfat dry milk price by 8.07; and
(iii) Multiply the dry buttermilk price by 0.42.
(2) The gross value of milk used to manufacture Cheddar cheese
shall be the sum of the following computations:
(i) Multiply the Cheddar cheese price by 9.87; and
(ii) Multiply the Grade A butter price by 0.238.
(b) The following product prices shall be used pursuant to
paragraph (a) of this section:
(1) Grade AA butter price. Grade AA butter price means the simple
average for the month of the Chicago Mercantile Exchange, Grade AA
butter price, as reported by the Department.
(2) Nonfat dry milk price. Nonfat dry milk price means the simple
average for the month of the Western Nonfat Dry Milk Low/Medium Heat
price, as reported by the Department.
(3) Dry buttermilk price. Dry buttermilk price means the simple
average for the month of the Western Dry Buttermilk price, as reported
by the Department.
(4) Cheddar cheese price. Cheddar cheese price means the simple
average for the month of the National Cheese Exchange 40-pound block
Cheddar cheese price, as reported by the Department.
(5) Grade A butter price. Grade A butter price means the simple
average for the month of the Chicago Mercantile Exchange Grade A butter
price, as reported by the Department.
(c) Determine the amounts by which the gross value per
hundredweight of milk used to manufacture butter-nonfat dry milk and
the gross value per hundredweight of milk used to manufacture Cheddar
cheese for the current month exceed or are less than the respective
gross values for the preceding month.
(d) Compute weighting factors to be applied to the changes in gross
values determined pursuant to paragraph (c) 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 (d)(1) and (d)(2) of this section:
(1) Combine the total nonfat dry milk production for the States of
Minnesota and Wisconsin, as reported by the Department, for the most
recent preceding period, and divide by the annual yield factor for
nonfat dry milk, 8.07, to determine the quantity (in hundredweights) of
milk used in the production of butter-nonfat dry milk; and
(2) Combine the total American cheese production for the States of
Minnesota and Wisconsin, as reported by the Department, for the most
recent preceding period, and divide by the annual yield factor for
Cheddar cheese, 9.87, to determine the quantity (in hundredweights) of
milk used in the production of American cheese.
(e) Compute a weighted average of the changes in gross values per
hundredweight of milk determined pursuant to paragraph (c) of this
section in accordance with the relative proportions of milk determined
pursuant to paragraph (d) of this section. [[Page 25066]]

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 38
Zone 4
Minus 31
Zone 5
Minus 25
Zone 6
Minus 10
Zone 7
No adjustment
Zone 8
Plus 10
Zone 9
Plus 20
Zone 10
Plus 32
Zone 11
Plus 50
Zone 12
Plus 57

(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 (2), (3),
and (4) of this section, the adjustment shall be determined by
subtracting the Class I differential price in Zone 7 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 and Class II prices for the
following month, and the Class III and Class III-A prices for the
preceding month.

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 [[Page 25067]] 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.
[[Page 25068]]

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
[[Page 25069]] 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 prices for base and excess milk 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 current month's butter
price less 0.0028 times the preceding month's average pay price per
hundredweight, at test, for manufacturing grade milk, in Minnesota and
Wisconsin, using the ``base month'' series, adjusted pursuant to
Sec. 1007.51(a) through (e), as reported by the Department. The butter
price means the simple average for the month of the Chicago Mercantile
Exchange, Grade A butter price as reported by the Department.

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 another
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
another 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 [[Page 25070]] 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 another
order plant which serves as a supply plant for such partially regulated
distributing plant by making shipments to the partially regulated
distributed 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 [[Page 25071]] 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 paragraph (c) of this section, a base for each dairy
farmer who was a producer pursuant to Sec. 1007.12 during one or more
of the immediately preceding months of July through December shall be
determined by dividing the total pounds of producer milk delivered by
such producer during each of those months by the number of calendar
days in the month, adding together the four highest monthly averages so
computed, and dividing by four. 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 delivered milk to a nonpool plant that became
a pool plant after the beginning of the July-December 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.
(c) A person who was unable to qualify as a producer during four or
more of the immediately preceding months of July through December or
who did not have at least four complete months of production, in either
case for one or more of the reasons specified in this paragraph, may
request a base computation based upon a lesser number of months by
submitting to the market administrator in writing on or before February
1 a statement that establishes to the satisfaction of the market
administrator that during four or more of the months in the immediately
preceding July through December 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 as a result of:
(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 prevented the
dairy farmer from supplying milk from the farm of such producer to a
plant.

Sec. 1007.93 Base rules.

(a) Except as provided in Sec. 1007.92 (b) and (c) 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.

Sec. 1007.94 Announcement of established bases.

On or before January 31 of each year, the market administrator
shall calculate a base for each person who was a producer during one or
more of the preceding months of July through December 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.

[FR Doc. 95-11311 Filed 5-9-95; 8:45 am]
BILLING CODE 3410-02-P}}}}}}}}