[Federal Register Volume 60, Number 135 (Friday, July 14, 1995)]
[Proposed Rules]
[Pages 36239-36249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17282]



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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1004

[Docket No. AO-160-A71; DA-93-30]


Milk in the Middle Atlantic Marketing Area; Recommended Decision 
and Opportunity To File Written Exceptions on Proposed Amendments to 
Tentative Marketing Agreement and to Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This document recommends changes in some provisions of the 
Middle Atlantic milk marketing order based on industry proposals 
considered at a public hearing. The changes would reduce the standards 
for regulating distributing plants and cooperative reserve processing 
plants and increase the amount of producer milk that can be diverted to 
nonpool plants. Additional changes would authorize the market 
administrator to adjust pool plant qualification standards and producer 
milk diversion limits to reflect changes in marketing conditions. Also, 
the decision provides that a pool distributing plant that meets the 
pooling standards of more than one Federal order should continue to be 
regulated under this order for two months before regulation can shift 
to the other order. A decision on a proposal that would utilize only a 
route disposition standard to determine under which Federal order a 
plant should be regulated cannot be made on the basis of the hearing 
record.

DATES: Comments are due on or before August 14, 1995.

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

FOR FURTHER INFORMATION CONTACT: Gino M. Tosi, Marketing Specialist, 
USDA/AMS/Dairy Division, Order Formulation Branch, Room 2971, South 
Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1366.

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 proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
The amendments would promote more orderly marketing of milk by 
producers and regulated handlers.
    The amendments to the rules proposed herein have been reviewed 
under Executive Order 12778, Civil Justice Reform. They are not 
intended to have a retroactive effect. If adopted, the proposed 
amendments would not preempt any state or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674), provides that administrative proceedings must be 
exhausted before parties may file suit in court. Under section 
608c(15)(A) of the Act, any handler subject to an order may file with 
the Secretary a petition stating that the order, any provision of the 
order, or any obligation imposed in connection with the order is not in 
accordance with the law and requesting a modification of an order or to 
be exempted from the order. A handler is afforded the opportunity for a 
hearing on the petition. After a hearing, the Secretary would rule on 
the petition. The Act provides that the district court of the United 
States in any district in which the handler is an inhabitant, or has 
its principal place of business, has jurisdiction in equity to review 
the Secretary's ruling on the petition, provided a bill in equity is 
filed not later than 20 days after the date of the entry of the ruling.
    Prior document in this proceeding:
    Notice of Hearing: Issued February 25, 1994; published March 4, 
1994 (59 FR 10326).

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
recommended decision with respect to proposed amendments to the 
tentative marketing agreement and the order regulating the handling of 
milk in the Middle Atlantic marketing area. This notice is issued 
pursuant to the provisions of the Agricultural Marketing Agreement Act 
and the applicable rules of practice and procedure governing the 
formulation of marketing agreements and marketing orders (7 CFR Part 
900).
    Interested parties may file written exceptions to this decision 
with the Hearing Clerk, U.S. Department of Agriculture, Washington, DC 
20250, by the 30th day after publication of this decision in the 
Federal Register. Six copies of the exceptions should be filed. All 
written submissions made pursuant to this notice will be made available 
for public inspection at the office of the Hearing Clerk during regular 
business hours (7 CFR 1.27(b)).
    The proposed amendments set forth below are based on the record of 
a public hearing held at the Holiday Inn-Independence Mall, 400 Arch 
Street, Philadelphia, Pennsylvania, on May 3, 1994, pursuant to a 
notice of hearing issued February 25, 1994, and published in the 
Federal Register, March 4, 1994 (59 FR 10326).
    The material issues on the record of the hearing relate to:
    1. Pool plant definitions and qualifications;
    2. Diversions of milk to nonpool plants;
    3. Regulation of distributing plants that meet the pooling 
standards of more than one Federal order.
    4. Discretionary authority to revise pooling standards and producer 
milk diversion limits.

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. Pool Plant Definitions and Qualifications

    Two proposals that would modify the pool plant definition of the 
order should be adopted. One proposal would exclude diversions of 
producer milk 

[[Page 36240]]
from a pool distributing plant's receipts in determining whether or not 
the plant satisfies the pool plant definition standard. Currently, the 
order's pool plant definition includes diverted producer milk as a 
receipt at a distributing plant in determining whether the plant has a 
sufficient proportion of its receipts in Class I use to qualify as a 
pool plant. The other proposal would reduce the percentage of a 
cooperative association's member milk that must be transferred to pool 
distributing plants from 30 percent to 25 percent of receipts for a 
reserve processing plant to qualify as a pool plant.
    Pennmarva, a federation of certain Middle Atlantic marketing area 
dairy cooperatives, and Atlantic Processing, Inc., an association of 
cooperatives, proposed the changes to the pool plant definition of the 
order which were published as Proposal No. 1 and Proposal No. 4 in the 
hearing notice. Pennmarva's members include Atlantic Dairy Cooperative; 
Dairymen Incorporated (Middle Atlantic Division); Maryland and Virginia 
Milk Producers' Cooperative Association; and Valley of Virginia Co-
operative Milk Producers Association--associations that market more 
than 90 percent of the producer milk associated with the order. 
Atlantic Processing, Inc., members include Mount Joy Milk Producers 
Cooperative and Cumberland Valley Milk Producers Cooperative.
    According to the Pennmarva witness, changing the distributing plant 
pooling standard (Proposal No. 1) is a more comprehensive solution to 
past informal rulemaking actions which suspended the requirement that 
40 percent of a pool plant's receipts be disposed of as Class I milk 
during the months of September through February. These suspension 
actions were taken because of the decline of Class I use in the Order 4 
marketplace and because of a shift in regulation of two plants that 
were regulated under the order.
    Pennmarva testified that a more permanent change to the pool plant 
definition is warranted because: (1) the Order 4 market is primarily 
serviced by cooperatives in a system-wide fashion and that accounting 
for diversions at the individual plant level given this cooperatively-
supplied nature of the Order 4 market is burdensome; (2) there is a 
lack of complete knowledge by the servicing cooperative of the total 
receipts and Class I sales of the pool distributing plants from which 
the cooperative diverts milk; and (3) continued association of diverted 
milk on the order would still be provided for because of the producer 
definition of the order.
    Cooperatives in Order 4 attempt to market milk, said Pennmarva, in 
a manner that will minimize the overall transportation costs. Pennmarva 
said that accounting for diversions at the individual plant level 
places an unnecessary and costly burden on cooperatives. Pennmarva also 
noted that to a pool handler who buys his/her entire milk supply from a 
cooperative, there are no market-disruptive consequences if milk is 
over-diverted. According to Pennmarva, handlers continue to pay the 
appropriate class price for the milk when an excess amount of milk is 
diverted from the plant. However, the cooperative supplying milk must 
reduce the volume of milk from the pool when it over-diverts milk 
shipments so that the plant will continue to qualify as a pool plant.
    Additionally, Pennmarva testified that the lack of complete 
knowledge of a pool distributing plant's other milk supplies makes it 
unnecessarily difficult to effectively operate under the current 
requirements of the pool plant definition. No supplier knows either the 
total receipts of the distributing plant or the Class I disposition of 
the plant, said Pennmarva. Similarly, Pennmarva testified, suppliers of 
a pool distributing plant have no knowledge of the plant's in-area 
Class I sales. This lack of knowledge by the supplying cooperative is 
especially important, according to Pennmarva, because the ``lock-in'' 
provisions of the pool plant definition do not apply to the requirement 
that 15 percent of the plant's sales must be within the marketing area.
    Pennmarva testified that deleting diversions from a plant's 
receipts in determining its regulatory status would have limited 
effects given present marketing conditions within the order. According 
to Pennmarva, plants that meet the 15 percent in-area sales and 40 
percent Class I disposition pooling standard in the months of September 
through February, and 30 percent Class I disposition during the 
remainder of the year, will continue to be pooled under the order. 
According to Pennmarva, diversions from such plants either by a 
cooperative or by a handler with a non-member supply will continue to 
be regulated through the producer definition of the order. Pennmarva 
also indicated that both the producer definition and the pool reserve 
processing plant definition will continue to encourage deliveries of 
cooperative and non-member milk supplies to Order 4 pool plants in 
meeting priority Class I needs of the market while decreasing the 
uneconomic movement of milk.
    No opposition to excluding diverted milk as a receipt at a 
distributing plant for determining pool plant status (Proposal No. 1) 
was received.
    Currently, a cooperative must ship a minimum of 30 percent of its 
member milk to an Order 4 pool distributing plant in order for its milk 
to be pooled. Pennmarva proposed to reduce the minimum percentage to 25 
percent as published in the hearing notice as Proposal No. 4. Pennmarva 
testified that this reduction is needed to continue the pooling of 
Order 4 producers historically associated with the market and is 
preferable to suspension of such provisions.
    Pennmarva testified that this change is warranted because of recent 
changes in the market. Pennmarva cited that between 1990 and 1992, the 
level of Class I sales has remained unchanged, while producer receipts 
expanded. The expansion of producer receipts caused a reduction of the 
Class I utilization for the market, according to published statistics. 
Class I use dropped from 53.1 percent in 1990, to 50.7 percent in 1991, 
and to 48.0 percent in 1992. Level Class I sales and expanding 
production in Order 4 between 1990 and 1992, said Pennmarva, reduced 
the proportion of Order 4 milk delivered to pool distributing plants by 
cooperatives operating reserve processing plants.
    Pennmarva also testified that in 1993, both Class I and producer 
receipts declined. According to market administrator statistics, 
production decreased by 162.3 million pounds and Class I sales fell by 
265.6 million pounds--resulting in a Class I utilization percentage of 
45.1 percent.
    According to Pennmarva, the reduction of Class I use in Order 4 
during 1993 was partially attributable to a shifting of an Order 4-
regulated distributing plant located in Lansdale, PA, in November 1992 
and another distributing plant located in Reading, PA, in January 1993 
to regulation under another Federal order. Pennmarva said this had the 
effect of reducing the Order 4 pool plant deliveries required by 
reserve processing plants to maintain pool status.
    Pennmarva maintained that the shifting of regulation of these two 
plants has had a dramatic effect. In a one-year period from October 
1992 to October 1993, Atlantic Dairy Cooperative, which operates a pool 
reserve processing plant, delivered 13.3 percent less milk to a 
Lansdale, PA, distributing plant. Between December 1992 and December 
1993 Maryland and Virginia Milk Producers Cooperative Association, 

[[Page 36241]]
which also operates a pool reserve processing plant, experienced a 14 
percent reduction in deliveries to a Reading, PA, distributing plant.
    Pennmarva noted other changes in the Order 4 market, including the 
closing of a distributing plant in Harrisburg, PA, and a change in the 
product mix of two large Order 4 distributing plants that eliminated 
yogurt and cottage cheese production. Pennmarva said this loss of Class 
II business at distributing plants caused a reduction in the amount of 
pool-qualifying milk deliveries for the cooperative supplying milk to 
these plants. Additionally, Pennmarva made note of previous suspension 
actions to extend the period of automatic pool plant status for supply 
and reserve processing plants.
    No opposition to reducing the shipping standard (Proposal No. 4) 
was received.
    Regarding Proposal No. 1, the record is clear that cooperatives 
play a dominant role in servicing the Middle Atlantic marketing area, 
accounting for some 90 percent of milk deliveries to pool distributing 
plants. While accounting for diversions on an individual plant basis 
has merit, good reason exists to conclude that in this market, 
retaining individual plant accounting for the purposes of diversions 
does place a burden and costs on cooperatives who seek to deliver milk 
to where it is needed in the most economic fashion. This is especially 
important and justified due to the changing marketing conditions of 
declining Class I use in the marketing area.
    As indicated by the testimony and in a brief filed by Pennmarva, 
distributing plants generally have more than one supplier, and such 
suppliers generally do not know the plant's total receipts and Class I 
disposition. This makes it difficult to determine what milk can be 
diverted from any single pool plant in a given month. Inadvertent over-
diversions of milk will result in milk not being eligible for pooling 
and the benefits that accrue from such pooling.
    Part of the Order 4 pooling provisions rests on a 15 percent route 
disposition standard. Adoption of Proposal No. 1 would enable 
cooperatives supplying the market to more economically move milk 
without undermining this standard or other pool plant definition 
standards.
    Regarding Proposal No. 4, changing marketing conditions, namely 
expanding producer receipts and a decline in the Class I utilization of 
the market, provide support for changing the pooling requirements for 
reserve processing plants operated by a cooperative, without negating 
the demands of the Class I market. Such prevailing marketing conditions 
have in the past resulted in the suspension of certain pooling 
provisions of reserve processing plants operated by cooperatives so 
that producer milk normally associated with the Order 4 market would 
remain pooled under the order. Proposal No. 4 offers a more permanent 
and reasonable solution to potentially repetitive requests by Order 4 
producers for suspension of such pooling standards by easing the 
shipping standard by 5 percentage points.

2. Diversions of Milk to Nonpool Plants

    Two proposals that would increase the permissible percentage of 
milk deliveries for both cooperative (or federation of cooperative 
associations) and non-cooperative (nonmember) milk that may be diverted 
under the producer definition of the order should be adopted. The 
proposal for increasing the permissible percentage of cooperative milk 
that can be diverted to nonpool plants was proposed by Pennmarva and 
was Proposal No. 7 as published in the hearing notice. The proposal for 
increasing the permissible percentage of nonmember milk that can be 
diverted to nonpool plants was proposed by Johanna Dairies, Inc. 
(Johanna), a handler regulated under both the Middle Atlantic and New 
York-New Jersey marketing orders and was Proposal No. 9 as published in 
the hearing notice.
    Another proposal by Pennmarva--intended to more clearly define the 
pooling requirements for producer deliveries to pool plants and the 
status of producers whose marketing is interrupted by compliance with 
health regulations under the producer definition of the order--was 
abandoned and received no evidence or testimony at the hearing. This 
proposal was Proposal No. 6 as published in the hearing notice.
    In Proposal No. 7, Pennmarva recommended increasing the permissible 
percentage of milk that can be diverted to nonpool plants to a maximum 
volume of 55 percent of receipts instead of the current 50 percent 
maximum. For nonmember milk, Johanna proposed increasing the maximum 
allowable deliveries from the current 40 percent to a new maximum of 45 
percent.
    Citing statistics prepared by the market administrator, the 
Pennmarva witness observed that over the three-year period of 1991 to 
1993, producer receipts under Order 4 increased by 158.8 millions 
pounds, while Class I disposition fell by 277.3 million pounds. 
Similarly, over the same three-year period, the witness also noted the 
annual Class I utilization of the market fell from 50.7 percent in 
1991, to 48 percent in 1992, and to 45.1 percent in 1993. This witness 
testified that because the market's Class I use decreased, diversions 
to nonpool plants increased. According to Pennmarva, such a situation 
makes it difficult to keep producers historically associated with the 
market pooled under the order.
    Johanna provided similar testimony and indicated that there is no 
equitable basis why diversions of nonmember milk should not similarly 
be increased from the current 40 percent of receipts for nonmember milk 
to a maximum of 45 percent of receipts. Johanna testified that the 
producer definition historically has offered disparate treatment 
between member (cooperative) and nonmember milk in terms of the 
allowable percentage of milk that can be diverted to nonpool plants and 
still be priced under the order. Johanna noted that the incremental 
difference between the two has consistently been 10 percentage points, 
and that if the allowable percentage of member deliveries can be 
increased by 5 percentage points, nonmember milk should similarly be 
increased by the same amount.
    Johanna also supported Pennmarva's observations of the market 
administrator statistics that show the steadily declining percentage of 
Class I milk receipts within the order's pool. The same statistics, 
Johanna said, support the adoption of their proposal.
    No opposition to the adoption of Proposals Nos. 7 and 9 was 
received.
    Regarding Proposal No. 7, changing marketing conditions, namely 
increasing producer receipts and declining Class I use, provide support 
for adoption of this proposal to increase the percentage of milk of 
cooperative members which may be diverted to non-pool plants during the 
months of September through February. This proposal offers a reasonable 
unopposed solution for more orderly marketing and to keep milk pooled 
under the order that has historically been associated with the market.
    Regarding Proposal No. 9, the record does not reveal any reason to 
not similarly increase the permissible diversion limit by handlers with 
non-cooperative member milk supplies for the same reasons already 
indicated regarding Proposal No. 7.

3. Regulation of Distributing Plants That Meet the Pooling Standards of 
More Than One Federal Order

    a. A proposal to leave the determination of which order regulates 

[[Page 36242]]
    a plant with pool-qualifying disposition in more than one Federal order 
to the provisions of Sec. 1004.7(f)(1) cannot be decided upon on the 
basis of the hearing record. The provisions of Sec. 1004.7(f)(1) 
requires that if a pool plant qualifies as a pool plant in another 
order, the plant will be regulated under that order unless the plant 
has a greater volume of Class I dispositions in the Order 4 marketing 
area. Currently, this order provision is subordinated by an additional 
provision in Sec. 1004.7(f)(2) that yields a plant's pool status to 
another order whenever such plant qualifies as a pool plant under the 
other order. It is this subordinating provision that is proposed to be 
deleted from the order (Proposal No. 3 as published in the hearing 
notice). In other words, Proposal No. 3, offered by Pennmarva, would 
determine the regulation of a plant under the order on the basis of 
where the plant has its greatest Class I route disposition in the event 
that a plant qualifies as a pool plant under another order.
     According to Pennmarva, the yield provision contained in 
Sec. 1004.7(f)(2) unnecessarily subordinates the Middle Atlantic milk 
order to the provisions of another Federal order. Such subordination is 
not needed, said Pennmarva, because the provisions of Sec. 1004.7(f)(1) 
defines a comprehensive and adequate standard for determining whether a 
pool plant should be regulated under Order 4.
    Pennmarva testified that two pool plants, one located in Lansdale, 
PA (Lansdale), and the other located in Reading, PA (Reading), have 
changed from being regulated under Order 4 to Order 2. These changes, 
said Pennmarva, have had the effect of depressing the Order 4 blend 
price relative to the blend price of Order 2. According to Pennmarva, 
the New York-New Jersey 1992 average blend price was $0.68 per 
hundredweight less than the Order 4 blend price for the same time 
period. Similarly, Pennmarva indicated that for 1993, the Order 2 blend 
price was $0.50 per cwt. less than in Order 4.
    Pennmarva testified that between 1992 and 1993 there also were 
changes in Class I receipts and utilization between Order 4 and Order 
2. During this time period, Class I receipts of producer milk in Order 
4 fell by 265,613,000 pounds while in Order 2 they rose by 170,765,660 
pounds, said Pennmarva. During this same time period, the Class I 
utilization of Order 4 shrank by nearly 3 percentage points to a total 
of 45.1 percent, while the Order 2 Class I utilization grew by one 
percentage point to a total of 40.3 percent. Pennmarva attributed these 
changes partly to the change in regulation of the already-noted plants.
    Pennmarva also testified that the exchange of milk between Orders 2 
and 4 has historically been equal. However, according to Pennmarva, 
this relationship changed greatly in the past year. Citing Order 4 
market administrator published statistics (the volume of packaged fluid 
sales from Order 2 into the Order 4 marketing area in 1993), Pennmarva 
indicated that 327.3 million pounds of pooled and priced Order 2 milk 
was disposed of in the Order 4 marketing area, up by 134.7 million 
pounds from 1992--an increase of 70 percent. However, Order 4 priced 
and pooled milk in the Order 2 marketing area over the same time period 
increased by only 12.1 percent to a total of 238.0 million pounds. This 
change of the historical balance was attributed by Pennmarva to the 
shifting of regulation of the Lansdale pool plant in November 1992 and 
the Reading pool plant in January 1993 to regulation under Order 2. 
Even though these plants became regulated under the New York-New Jersey 
milk order, Pennmarva said, these plants continued to have significant 
Class I route disposition in the Order 4 marketing area.
    Pennmarva also justified using the measure of greatest Class I 
route sales as the basis for deciding where a plant should be pooled by 
citing the provisions of nearby orders that provide for this 
measurement; specifically, the Carolina (Order 5) and the Eastern Ohio-
Western Pennsylvania (Order 36) milk orders. However, noted Pennmarva, 
the New York-New Jersey order provides a different measure.
    Pennmarva noted differences between Order 4 and Order 2 pooling 
provisions. Order 2 allows for transfers of bulk fluid milk (classified 
as Class I-A) between plants, while Order 4 specifically excludes 
deliveries to a plant, said Pennmarva. This difference in order 
provisions may result in a situation where a plant may have a greater 
in-area packaged route disposition in Order 4, but, testified 
Pennmarva, because Order 2 allows for plant transfers of bulk fluid 
milk (milk classified as Class I-A), such bulk transfers may cause the 
plant to have greater total Class I assignments in Order 2 than in 
Order 4. In this event, said Pennmarva, the subordinating language of 
Sec. 1004.7(f)(2) causes the plant to be regulated as an Order 2 pool 
plant, even though it may have more packaged Class I route distribution 
in the Order 4 marketing area.
    Pennmarva said this proposal would not change the pool plant 
definition of the New York-New Jersey order. According to Pennmarva, a 
plant which qualifies as a pool plant in either order prior to the 
adoption of this proposal will continue to qualify as a pool plant.
    Significant opposition testimony was received regarding Proposal 
No. 3. Johanna, testified that Proposal No. 3 seems intended to prevent 
them from pooling the milk from its Lansdale plant under the New York-
New Jersey milk order despite the fact that the greater percentage of 
such milk ultimately is distributed as Class I milk in that area. To 
the best of his knowledge, Johanna said, Proposal No. 3 would have no 
effect on any other handler. Moreover, the requirement that milk 
received at Johanna's Lansdale plant be pooled in Order 4 yields no 
material benefit to Order 4 producers.
    According to Johanna, Proposal No. 3 fails to recognize the close 
relationship between the Order 2 and Order 4 markets and would be 
counterproductive to the goals of the Federal milk marketing scheme. 
Johanna contended that milk which is received and separated at one 
plant, and then shipped as bulk milk for subsequent packaging and Class 
I distribution by another plant, is most clearly associated with the 
market in which the milk ultimately is distributed on fluid routes. 
Johanna also asserted that if more than half of a plant's receipts from 
producers are regularly shipped to another plant for packaging and 
Class I disposition in another order, the plant initially receiving the 
milk, and those farmers who supply such milk, should be associated with 
and pooled under the order where those later fluid Class I sales are 
made.
    Johanna testified that its Lansdale plant became pooled under Order 
2 for legitimate business reasons and not for the purpose of 
circumventing where it is regulated. The reason for the switch in 
regulation from Order 4 to Order 2 was the cessation of milk processing 
at another Johanna plant located in Flemington, New Jersey 
(Flemington). Prior to this plant's closure, Johanna said, the 
Flemington plant had been distributing some 677 million pounds of Class 
I milk annually in the Order 2 market and had been an Order 2 pool 
plant for more than 15 years.
    Upon closing the Flemington plant, Johanna indicated that the 
greatest majority of its milk business was relocated to its Lansdale 
operation, with the greatest majority of its Class I sales in Order 2. 
Johanna said there was no change in Class I disposition in either Order 
2 or Order 4 by virtue of the movement of that milk. Johanna asserted 
again that the combining of operations of the two plants at Lansdale 

[[Page 36243]]
was a business decision and not an attempt at manipulating order 
provisions.
    Johanna testified that producers in Pennsylvania's milkshed 
typically supply large quantities of milk to handlers in both Orders 2 
and 4. Further, said Johanna, it is unrealistic to view the 
Pennsylvania milkshed as somehow geographically linked to the Order 4 
market. The overlapping nature of this milkshed between the two orders, 
said Johanna, supports Order 2 regulation of a Pennsylvania plant that 
distributes the majority of its fluid milk within the Order 2 marketing 
area.
    Johanna emphasized that the Lansdale plant is a ``designated'' 
Order 2 pool plant, and therefore is relied upon by the performance 
standards of such designation to provide support for Class I sales 
within the marketing area. The presence of such plants, said Johanna, 
supports the blend price which accommodates the large amount of 
manufacturing milk pooled in the New York-New Jersey order.
    No appreciable adverse effect on the Order 4 blend price would 
result from the inclusion of the Lansdale plant under Order 2, 
according to Johanna's analysis. The effect on the Order 4 blend price 
using 1993 averages, said Johanna, amounts to about a three-cent 
reduction. Johanna also indicated that pooling the milk under Order 4 
would have had a slightly smaller reduction in the blend price received 
by Order 2 producers.
    Johanna concluded that any justification for adopting Proposal No. 
3 upon a supposed improvement in the blend price by pooling the 
Lansdale plant under Order 4 fails to account for the effect upon the 
blend price in Order 2. At most, said Johanna, classification of the 
plant's milk with one order or the other would represent an 
insignificant adjustment in the movement, up or down, of blend prices 
in either order.
    Johanna also testified that Proposal No. 3 seems intended to 
eliminate the applicable location differential as an Order 2 plant. 
Because of the Lansdale's route distribution in Order 2, the existing 
location differential is fair, said Johanna. Adoption of Proposal No. 
3, according to Johanna, would place them at a competitive disadvantage 
against other Order 2 handlers competing in the market for fluid sales. 
Johanna noted that there is a 24.5-cent difference in the location 
differential in Order 2 between the Lansdale plant's applicable zone 
(the 71-75 mile zone) and the next nearer zone (the 61-70 mile zone). 
If Proposal No. 3 is intended to alter the location differentials of 
Order 2 because of some perceived unfairness, such changes to the Order 
2 pricing structure should be addressed through proposed amendments to 
the New York-New Jersey order and not this proceeding, said Johanna.
    Johanna asserted that the 24.5-cent location adjustment between the 
two zones was properly factored into Order 2's location differential 
scheme based upon the historical mechanism of transporting distant milk 
to the urban market through the use of receiving stations. Johanna 
added that the 24.5-cent difference equalizes the price, for 
competitive purposes, of milk brought into the Order 2 market from more 
distant locations. The witness said that as milk had to be shipped from 
more distant locations, receiving stations collected the milk from 
dispersed producers. At the time the Order 2 location differential 
applicable to the Lansdale operation was adopted, said Johanna, the 
location adjustment difference was intended to allow handlers to recoup 
the fixed costs associated with the creation and maintenance of 
receiving stations. At the same time, Johanna added, the location 
adjustment difference between zones was intended to not affect any 
Order 2 plant then in existence.
    A witness from Dairylea Cooperative, Inc. (Dairylea), of Syracuse, 
New York, also testified in opposition to Proposal No. 3. Dairylea is a 
dairy farmer cooperative comprised of some 2,200 members throughout the 
northeast of the United States who produce milk regulated under Federal 
Orders 1, 2, 4, and 36. This witness testified Order 4 provisions 
currently recognizes its interdependence with Order 2. When there is a 
dispute over which order a particular plant should be pooled under, 
Dairylea said, there is recognition by Order 4 provisions of the 
historical uniqueness of Order 2 in terms of its use of up-country 
plants to separate farm milk into skim milk that is shipped hundreds of 
miles to city bottling plants, while leaving the cream fraction of the 
raw milk in the up-country plants for processing into Class II or Class 
III products. Dairylea said this is part of a sound economic system 
that has developed over many years.
    According to Dairylea, adoption of Proposal No. 3 would set up a 
direct conflict between Order 4 and Order 2 pooling provisions because 
adopting it would tend to amend the application of Order 2's pooling 
provisions. Dairylea was of the opinion that Proposal No. 3 appeared to 
be based solely on the goal of enhancing a single group's economic 
interest without regard to the potential of injury to another order's 
system of milk sales that developed over many years. Dairylea indicated 
there is a historical uniqueness of Order 2 in terms of its use of up-
country plants to separate farm milk into skim milk that is shipped 
hundreds of miles to city bottling plants, while leaving the cream 
fraction of the raw milk in up-country plants for processing into Class 
II or Class III products.
    Opposition testimony was also received from a witness on behalf of 
Clover Farms Dairy Company (Clover Farms), located in Reading, PA. 
Clover Farms testified that adoption of Proposal No. 3 would lead to 
irreconcilable conflict with the provisions of the New York-New Jersey 
order.
    Clover Farms testified that the most basic provisions of any milk 
marketing order are those that determine which plants are to be 
regulated. These provisions, Clover Farms said, often differ from one 
order to another because they are designed to meet the varying 
characteristics of the marketing areas involved. According to Clover 
Farms, because an individual plant serving a diverse market may meet 
the pooling requirements of more than one Federal order, each order 
must specify how such a situation is to be resolved. Moreover, said 
Clover Farms, the resolution as determined by each order involved must 
lead to the same conclusion, otherwise no guidance will be given either 
to the Department of Agriculture or to the courts in resolving the 
conflict.
    Clover Farms testified that Proposal No. 3 would eliminate the 
basis for deciding which order takes precedence when a plant would 
otherwise be subject to the classification and pricing provisions of 
both Order 4 and another Federal order. Leaving the determination on 
which order has the greater volume of Class I milk disposed of on 
routes in its marketing area from the plant might work, said Clover 
Farms, provided the other order has a provision that provides the same 
conclusion. This could not work in the case of Order 4 and Order 2, 
Clover Farms indicated, because the provisions of the New York-New 
Jersey order bases the decision on which order has the larger portion 
of disposition of Class I-A milk, which includes bulk shipments of milk 
assigned to Class I, in its marketing area. Since Order 4 does not 
recognize the role of bulk shipments in its calculation, said Clover 
Farms, adoption of Proposal No. 3 would provide no basis upon which to 
resolve the conflict between the two orders when a plant meets the 
pooling provisions of both.
    The opposition testimony of the Clover Farms witness was supported 
in testimony by a witness who testified on 

[[Page 36244]]
behalf of Eastern Milk Producers Cooperative Association, a dairy 
farmer cooperative having some 2,400 members that ship milk to Orders 
1, 2, 4, and 36.
    A brief filed by Pennmarva noted that while Johanna agrees that a 
plant should be pooled under the order in which most Class I sales are 
made, Johanna provided no evidence to support the claim that fluid milk 
transfers from the Lansdale plant were in fact distributed on routes in 
the Order 2 marketing area, thereby meeting a defacto route disposition 
test. Pennmarva argues here that if, in fact, the Lansdale plant has 
greater route disposition in Order 2 than it has in Order 4, the 
adoption of Proposal No. 3 will have no effect on the plant. Pennmarva 
further argues that even if the plant did not now have greater route 
disposition in Order 2, operators of the plant could implement the 
changes necessary to ensure greater route sales in Order 2.
    To illustrate the need for adopting Proposal No. 3, the Pennmarva 
brief noted that in 1993, the Lansdale plant had 224 millions pounds of 
Class I disposition in Order 4 and 245 million pounds of Class I 
disposition in Order 2, for a total of 469 million pounds. Of that 469 
million pounds, Pennmarva indicated that at least 10 percent (46.9 
million pounds) of its milk was transferred in bulk or packaged form 
from Lansdale to other plants. According to Pennmarva, Lansdale 
consequently distributed on routes no more than 198.1 million pounds in 
the Order 2 marketing area. Thus, Pennmarva claims that the Lansdale 
plant distributed 198.1 million pounds of Class I milk on routes in 
Order 2 versus 224 million pounds of Class I milk in Order 4, clearly 
revealing that there is more route disposition under Order 4. However, 
because of the yield provision contained in Sec. 1004.7(f)(2), 
according to Pennmarva, the Lansdale plant is regulated under Order 2.
    The Pennmarva brief contends that Johanna's testimony that the 
Lansdale Class I-A milk transfers were ultimately distributed on routes 
in Order 2 is in error. Pennmarva noted that the definition of Class I-
A milk under Order 2 is ``as route disposition in an other order 
marketing area'' as delineated in Sec. 1002.41(a)(1)(ii) of the New 
York-New Jersey order. Thus, according to Pennmarva, a plant which 
otherwise qualifies as an Order 2 pool plant can dispose of milk on 
routes in the Order 4 marketing area, and such dispositions are 
classified under Order 2 as Class I-A. Pennmarva indicated that once 
classified as Class I-A, no further distinction is made regarding the 
ultimate destination of route sales.
    The Pennmarva brief also challenged the Johanna witness' assertion 
that all of its transferred milk was ultimately distributed on routes 
in the Order 2 marketing area. Pennmarva noted that transfers were made 
between Lansdale, PA, and Reddington Farms (an Order 2 pool plant) and 
that market administrator statistics indicate that Reddington Farms 
enjoyed Class I route disposition in the Order 4 marketing area in 
every month between 1991 and 1994.
    In response to the Clover Farms' testimony that adoption of 
Proposal No. 3 would lead to irreconcilable conflict with Order 2 and 
that such conflict would need to be addressed by the Dairy Division, 
Pennmarva cited an example of how, through administrative 
determination, a pooling issue such as this might be handled. The 
Pennmarva brief asserted that it is within the purview of the Act for 
proponent cooperatives, which represent volumes in excess of 90 percent 
of the Order 4 market, to delete provisions which subjugate the order 
to all other orders and to rely on a route disposition test in 
determining where a plant should be pooled when it also qualifies for 
pooling under another order.
    According to the Pennmarva brief, orderly marketing within Order 4 
should not be hinged on an accommodation to another order. Pennmarva 
does concede that the interplay of adjoining markets, such as Order 2 
and 4, must be considered in maintaining orderly marketing but 
indicated there is nothing in the record which provides a reason why 
Order 4 should be subordinated to Order 2 or any other order. This is 
important, according to Pennmarva, because of the economic hardship 
brought about through depressed blend prices. Pennmarva indicates that 
there is no benefit to Order 4 producers from the application of the 
provisions of Sec. 1004.7(f)(2) and that its elimination will not 
change the pooling standards of any other Federal order.
    In defense of the adequacy of using a route disposition test, the 
Pennmarva brief cited a recommended decision applicable to another 
Federal order in which a plant that qualifies under more than one order 
is regulated under the order which it enjoys the greatest route 
disposition. This recommended decision indicated that such application 
normally assures that all handlers having principal sales in a market 
are subject to the same pricing and other regulatory requirements. 
Official Notice is taken of the Final Decision (59 FR 26603, published 
May 23, 1994) for the Southern Michigan marketing area in which no 
changes were made regarding this issue from the recommended decision. 
According to Pennmarva, such an example speaks to a fundamental intent 
of milk marketing orders--to regulate handlers that compete for sales 
within the specific geographic definition of the marketing area.
    A brief filed by Johanna reiterated their opposition to the 
adoption of Proposal No. 3.
    Reply briefs filed by both Pennmarva and Johanna similarly 
reiterated their positions given in testimony and in submitted briefs. 
However, Johanna's reply brief takes objection to Pennmarva's 
suggestion that Johanna should simply effectuate changes in its 
Lansdale operations so as to convert its bulk shipments of fluid milk 
to Order 2 into route disposition and thereby preserve the plant as an 
Order 2 plant under the strictures of Sec. 1004.7(f)(1). According to 
Johanna, this suggestion does not take into account the impracticality 
and costs to Johanna of pooling the Lansdale plant to accommodate the 
packaging requirements of multiple wholesale customers who presently 
receive bulk shipments from the Lansdale plant for packaging and 
ultimate route disposition in Order 2.
    Johanna also counters the Pennmarva's reference to another 
rulemaking proceeding and recommended decision involving a pooling 
issue of a Ultra High Temperature (UHT) plant in another Federal order. 
While Pennmarva cited this recommended decision as an example of how 
administrative intervention could be used to determine where a plant 
should be regulated, Johanna views this recommended decision as 
providing certainty and orderly conditions for the UHT plant and its 
producer on where it will be pooled. In this example, Johanna notes 
that the route disposition test, as a single criteria for pooling, is 
rejected because of the unique aspects of the marketing conditions 
faced by the UHT plant. Such uniqueness should also be recognized for 
the Lansdale plant, said Johanna, because it makes Class I bulk 
shipments to an order which does not rely solely on a route 
distribution pooling test.
    At issue regarding Proposal No. 3 is where a plant should be pooled 
and regulated when it meets the pooling standards of more than one 
order. Both the proponent and opponents to Proposal No. 3 agree that 
the market in which fluid sales distributed on routes are greatest is 
where a plant should be regulated. Where a plant should be regulated is 
a most important feature of 

[[Page 36245]]
all Federal milk orders. The basis upon which a marketing area is 
determined is founded on the basis of where handlers compete with each 
other for fluid sales. An important determinant of handlers competing 
with each other for sales is generally made through a measurement of 
the route disposition of fluid milk. For the Middle Atlantic marketing 
area, the order clearly defines route disposition, and its measurement 
can be made with exacting precision every month. However, the New York-
New Jersey marketing order differs from Order 4 in that it provides for 
the bulk transfers of fluid milk between plants that is classified as 
Class I-A milk. Order 4 specifically excludes such transfers between 
plants from meeting its route disposition test.
    Opponents of Proposal No. 3 assert, in part, that bulk transfers of 
Class I-A between plants are an important feature of the Order 2 
marketing area because of the market structure that evolved there over 
time. The basis of providing for bulk transfers of Class I-A milk 
between plants recognized the market structure and conditions in that 
order. Opponent witnesses describe ``up-country'' plants that assemble 
and separate the skim fraction of producer milk for subsequent transfer 
to ``city'' bottling plants for eventual distribution to retail 
outlets, while leaving the cream fraction in country plants to be 
further processed into Class II and Class III products, as a unique 
characteristic of the Order 2 marketplace.
    On its face, it is difficult to conclude that adoption of Proposal 
No. 3 somehow threatens the above described market structure that Order 
2 handlers have relied upon for a long period of time. Both the 
proponent and opponents of Proposal No. 3 recognize and describe 
similarly the close relationship between Order 2 and Order 4. The 
record reveals that both orders share, to a significant extent, a 
common milkshed. The record also reveals that milk movements between 
orders have been historically equal until the Lansdale plant switched 
regulation from Order 4 to Order 2. The change in the regulatory and 
pool status of the Lansdale plant was due to Order 2 allowing for bulk 
transfers of Class I-A milk as a fluid use which brought the total 
Class I disposition of the plant to have more milk associated with the 
New York-New Jersey marketing area than it had with the Middle Atlantic 
marketing area. This allowance for bulk transfers under the New York-
New Jersey order, together with the subordinating language of Order 4, 
required the regulatory and pool status of the Lansdale plant to shift 
to Order 2 even if the Lansdale plant may have had more route sales in 
Order 4.
    The Lansdale plant is physically located within the Order 4 
marketing area and until recently had historically been pooled as an 
Order 4 pool distributing plant. Further, the Lansdale plant is clearly 
a fluid distributing plant that competes with other handlers for fluid 
sales in Order 4. In the New York-New Jersey order, it seems to enjoy, 
from the testimony of some opponent witnesses, the status of a 
distributing plant while at the same time was inferred to be a 
``country'' plant. Nevertheless, Order 2 recognizes the Lansdale plant 
as a fluid milk distributing plant with the transferring of milk as a 
secondary operation. This distinction is made here because Order 2 also 
recognizes processing plants with manufacturing as a secondary 
operation. Simply put, the Lansdale plant's primary enterprise is as a 
fluid distributing plant.
    The effect of the New York-New Jersey order provision of allowing 
for bulk transfers of Class I-A milk and its lack of a route 
disposition test makes it difficult to determine precisely where the 
majority of Landsdale's Class I sales take place that includes the bulk 
transferred milk. The record reveals, in testimony by Johanna, that 
bulk transfers of Class I-A milk end up eventually as route 
disposition, although the record does not reveal how much of such milk 
is distributed on routes within Order 2 or in another marketing area. 
Pennmarva makes a case from the record evidence that suggests that 
there is more route disposition in Order 4. In this regard, Johanna's 
claim that fluid milk transfers from the Lansdale plant were in fact 
distributed on routes in Order 2 might not be totally accurate on basis 
of the record evidence. This conclusion is further supported by 
examining the Order 2 provision of what constitutes Class I-A milk, 
namely, inclusion of milk distributed on routes in another marketing 
area. This decision agrees with Pennmarva that a plant which otherwise 
qualifies as an Order 2 pool plant can dispose of milk on routes in the 
Order 4 marketing area with such disposition classified as Class I-A, 
and then once so classified, no further distinction as to the ultimate 
route disposition is made through the transfer chain.
    In summary, a conclusion on the basis of the record of where the 
greatest route sales of fluid milk are made by Johanna's Lansdale plant 
cannot be determined. This is problematic because both proponent and 
opponent witnesses indicate that a plant should be pooled where it 
enjoys the majority of its Class I disposition, but Order 2 and Order 4 
each rely on different forms of measuring this outcome. Due recognition 
of the regulatory impact on a plant that meets the pooling standards of 
the New York-New Jersey order is warranted because the plant has met 
that order's standards. At the same time, Order 4 producers are 
required by their order to yield to the pricing provisions of another 
order on the terms of measurement that are not its own.
    This recommended decision agrees with an opponent witness' 
testimony that each marketing order should specify how to resolve 
differences and conflicts that arise in the regulation and pooling of 
plants. In this regard, opponents to Proposal No. 3 voiced concern that 
its adoption would lead to irreconcilable conflict with the provisions 
of the New York-New Jersey order. Such conflict probably would not be 
the case if an identical definition and standard of measurement, that 
is route disposition, existed for both orders.
    In short, adoption of Proposal No. 3 would leave determination of 
the regulatory and pool status of the Lansdale plant solely to the 
Order 4 route disposition test. However, adoption of this proposal has 
the effect of causing a change to the New York-New Jersey order which 
was not open or noticed in this proceeding. Adoption of Proposal No. 3 
provides neither clarity nor a basis, at least with respect to the 
relationship between Order 4 and Order 2, to determine in which order a 
plant should be pooled.
    The apparent intent of Pennmarva's Proposal No. 3 seems clear and 
consistent with how milk is regulated and pooled throughout the Federal 
milk order system. In this regard, Pennmarva is asking that milk 
distributed on routes be the sole test for determining where a plant 
should be pooled. Proponents and opponents agree that where a plant has 
most of its sales is the most appropriate basis for making such a 
determination. Unfortunately, Proposal No. 3 falls short of being able 
to accomplish this without causing a change to the New York-New Jersey 
order.
    The Johanna witness testified that, in part, the purpose of 
Proposal No. 3 appeared intended to eliminate the location differential 
as an Order 2 plant. This would obviously place Johanna at a 
competitive disadvantage against other Order 2 handlers competing in 
the market for fluid sales in the Order 2 marketing area. The witness 
observed correctly that there is a 24.5-cent difference in the location 
adjustment in Order 2 between the Lansdale plant's applicable zone (the 
71-75 mile zone) and the nearer zone (the 61-70 mile 

[[Page 36246]]
zone). On this point, an examination of the Class I price at the 
Lansdale location reveals a disparate price difference between being 
regulated under Order 2 or Order 4. Under the provisions of the Middle 
Atlantic order, the Class I price applicable at Lansdale is $0.345 more 
than what the applicable Class I price would be if it were regulated 
under the New York-New Jersey order.
    This disparate price difference suggests that the Class I price, at 
least at the Lansdale location, could be better aligned. To the extent 
that a $0.345 price difference between the pricing provisions of two 
adjoining orders may be sufficient to encourage bulk Class I-A milk 
transfers, that, together with other forms of milk disposition in the 
New York-New Jersey order, provides the Lansdale plant the economic 
incentive to meet the pooling standards and pricing provisions of Order 
2. If the Class I price at Lansdale were in better alignment, it is 
reasonable to suppose that Johanna would likely be indifferent on which 
order they sought pricing and regulatory status. On the one hand, 
Landsdale is able to attract an adequate supply of fluid milk at a 
price lower than what would be applicable if regulated under Order 4. 
Further, adoption of Proposal No. 3 would likely cause a shift in the 
regulatory status of the Lansdale plant back to Order 4, causing their 
cost of milk to increase when they meet the pooling standards of 
another order. On the other hand, if the Lansdale plant enjoys its 
greatest route disposition in the Order 4 marketing area, they enjoy a 
sales advantage against other Order 4 regulated handlers that pay more 
for their milk.
    It is because of the above discussion of this issue that a 
recommendation for or denial of Proposal No. 3 cannot be made on the 
basis of this record. Adoption of Proposal No. 3 would have the effect 
of causing a change to another order which cannot be accomplished 
without a hearing that includes the other order. Further, the apparent 
disparate price difference between the pricing provisions of the Middle 
Atlantic and New York-Jersey orders suggests that the pooling question 
at issue is perhaps a pricing issue. As such, it is not appropriate to 
attempt correction of a pricing problem by changing pooling provisions.
    Notice is given that the Department expects that interested parties 
will investigate and offer proposals that address the Class I price 
alignment structure between Order 2 and Order 4. Other features of 
marketing order differences, such as that exhibited on the issue 
regarding Proposal No. 3, should similarly be considered with the view 
to facilitating more orderly marketing conditions.
    b. A second proposal that would eliminate the exemption of a pool 
plant's regulation under Order 4 when such a plant meets the pool plant 
definition of another order from the pool plant definition of the order 
should be adopted. This was proposed by Pennmarva (Proposal No. 2 as 
published in the hearing notice).
    Currently, an Order 4 pool plant can continue to be regulated under 
the order as a pool plant for two succeeding months after it fails to 
meet certain pooling standards, unless it simultaneously meets the 
pooling provisions of another Federal order. This feature of the order 
is commonly referred to as the ``lock-in'' provision.
    Pennmarva testified that in the recent past, two Order 4 pool 
distributing plants changed their status from being regulated under the 
Middle Atlantic marketing order to the New York-New Jersey marketing 
order (Order 2). In both cases, Pennmarva said, notice of the change of 
regulation was provided to cooperative suppliers in a timely fashion so 
that the appropriate logistical arrangements could be made. According 
to Pennmarva, an important logistical item attended to was the 
reassociation of the market's producers whose last shipment to a pool 
distributing plant was to one of these plants. Pennmarva said 
accomplishing this task was exacting and time consuming.
    Pennmarva testified that there is no requirement or certainty for a 
handler to give adequate notice to its cooperative suppliers of milk. 
Further, said Pennmarva, cooperative suppliers have no independent 
knowledge that a plant may change from regulation under the order to 
another order. In a worst case scenario, Pennmarva said, a cooperative 
supplying milk to a handler changing regulation would not discover this 
change until ten days into the following month. Pennmarva indicated the 
intent of this proposed amendment is to enhance orderly marketing 
rather than keeping a plant pooled permanently under Order 4.
    Opposition to Proposal No. 2 was voiced by Dairylea. According to 
Dairylea, Proposal No. 2 has no economic or substantive basis. This 
witness drew attention to the timely notification to suppliers by the 
two plants that shifted regulation to the New York-New Jersey order as 
an indicator of the well-functioning current provision of the order. 
Thus, Dairylea concluded that the order therefore does not require a 
modification to address the issue.
    In the interest of promoting more orderly marketing conditions, 
Proposal No. 2 has merit because it mitigates a cooperative's lack of 
knowledge of a distributing plant's dispositions. Such knowledge is 
needed in order for the cooperative to know where a plant is pooled or 
when a plant's pool status may change in any given month. It is 
reasonable to expect that when a distributing plant does change its 
regulatory status under the order, producers supplying the plant should 
have the time to make the business changes and adjustments they deem 
necessary without the loss of the certainty of where their milk will be 
pooled. The record reveals that advance notification was provided to 
cooperative suppliers prior to changes of where certain plants would be 
regulated in some instances. This is commendable and speaks well to the 
interactions between cooperative suppliers of milk and handlers. 
However, such notification is clearly voluntary when requiring it would 
offer clear advantages without being burdensome. The merit in requiring 
advance notification stems from the very real and reasonable need of 
cooperatives to have such prior knowledge of where their milk will be 
pooled and priced. Finding out after-the-fact that a plant's regulatory 
status has changed is tantamount to denying producers access to an 
intended market. For this reason, the objections by the opposition 
witness from Dairylea have little merit. It also places an unreasonable 
economic burden on Order 4 producers because of the order's requirement 
to re-associate producer milk in the marketing area so that producers 
may enjoy the benefits from being pooled in Order 4.
    Because a decision regarding Proposal No. 3 cannot be made on the 
basis of this record, the proposed deletion of Sec. 1004.7(a)(4) as 
proposed by Pennmarva would not accomplish implementing the intent of 
this proposal (Proposal No. 2). Accordingly, this decision modifies the 
language of Sec. 1004.7(a)(4) to ensure that the two month ``lock-in'' 
provisions (as contained in Sec. 1004.7(a)(3)) will apply to plants 
that may, in the future, shift regulation to another Federal order or 
become a nonpool plant.

4. Discretionary Authority To Revise Pooling Requirements and Producer 
Milk Diversion Limits

    Two proposals offered by Pennmarva that would provide discretionary 
authority for the market administrator to revise pooling requirements 
and producer milk diversion limits should be adopted. Proposal No. 5, 
as 

[[Page 36247]]
published in the hearing notice, would provide the market administrator 
the authority to raise or lower the applicable pooling standards for 
distributing plants, supply plants, and reserve processing plants. 
Proposal No. 8, as published in the Notice of Hearing, would similarly 
provide the market administrator the authority to raise or lower the 
applicable diversion limits for cooperative associations, federations 
of cooperative associations, and handlers with non-member milk 
supplies. Adoption of these provisions will provide a procedure for the 
order to be modified in a more responsive manner to changes in 
marketing conditions than is currently the case. Modification can be 
made to encourage the shipment of additional supplies of milk for fluid 
use or to prevent the uneconomic shipments of milk that are in excess 
of fluid needs.
    The order does not currently provide for such discretionary 
authority for the market administrator to change pooling requirements 
or diversion limitations. Typically, pooling standards may be 
temporarily revised or suspended administratively through informal 
rulemaking by the Department at a petitioner's request. The Department 
investigates the request and determines the need to temporarily revise 
or suspend pooling standards. Permanent changes or amendments to 
Federal order provisions, as in this proceeding, are accomplished 
through formal rulemaking procedures based on a public hearing.
    The pool plant definition of Order 4 currently requires that in 
meeting pool plant qualification status, a plant must have a Class I 
disposition of at least 40 percent of its receipts in the months of 
September through February and 30 percent in the months of March 
through August. Additionally, at least 15 percent of receipts must be 
within the marketing area. Any plant that does not meet this criteria 
for pool plant status can still be a pool plant if at least a specified 
percentage of its milk receipts is moved during the month to a plant(s) 
that meet the Class I disposition requirements and volume of route 
disposition within the marketing area indicated above. The applicable 
percentage for the months of September through February is 50 percent 
of receipts; for the months of March through August, the applicable 
percentage is 40 percent. A reserve processing plant operated by a 
cooperative association or by a federation of cooperative associations 
is a pool plant provided, in part, that at least 30 percent of the 
total milk receipts of member producers during the month is moved to 
and physically received at a plant that meets the Class I disposition 
standards.
    The producer definition of Order 4 currently provides that dairy 
farmers can be producers under the order even though their milk is 
moved from the farm to nonpool plants for manufacturing purposes rather 
than to plants for fluid use. Diversion limits apply to handlers 
marketing dairy farmer's milk such as cooperative associations, 
federations of cooperatives, and handlers marketing non-member milk. 
The diversion limit for a cooperative association or a federation of 
cooperatives is restricted to 50 percent of the volume of milk of all 
members of a cooperative association or federation delivered to, or 
diverted from, pool plants during the month. The diversion limit for 
handlers with non-member milk supplies is restricted to 40 percent of 
the total of non-member milk for which a pool plant operator is the 
handler during the month.
    Pennmarva testified that granting the market administrator the 
authority to raise or lower pooling standards and diversion limits will 
enhance orderly marketing by either encouraging needed milk shipments 
or preventing the uneconomic movement of milk. Pennmarva indicated that 
such administrative authority is granted to market administrators in 
other markets, noting for example that the market administrator in the 
Upper Midwest marketing area (Order 68) has similar authority.
    Before making any revision to the pooling standard or diversion 
limits established by the order, Pennmarva offered specific procedures 
that would govern the conditions under which revisions might be 
warranted. The procedure offered specifies that the market 
administrator may increase or decrease the applicable percentages of 
either the pool plant definition section or the producer definition 
section of the order (Secs. 1004.7 and 1004.12 respectively) if a 
revision is necessary to encourage needed shipments or to prevent 
uneconomic shipments of milk. Before making such a finding, the order 
procedure requires the market administrator to investigate the need for 
revision either on the market administrator's own initiative, or at the 
request of interested parties. If the investigation shows that a 
revision might be appropriate, the proposed order language requires the 
market administrator to issue a notice stating that a revision is being 
considered and invite data, views, and arguments on whether a revision 
is necessary. The procedure also specifies that any request for 
revisions be filed with the market administrator no later than the 15th 
day of the month prior to the month for which the requested revision is 
desired to be effective.
    Pennmarva testified that this amendment would provide for more 
timely decisions on factors affecting the pool status of dairy farmers. 
It was Pennmarva's opinion that the market administrator and staff are 
fully appraised of the market conditions in the Middle Atlantic market. 
Such working knowledge, said Pennmarva, can decrease the time and 
expense needed to respond to a changing market and improve regulatory 
efficiency.
    Pennmarva maintains that this process is superior to the process 
currently used to affect needed changes in pooling standards and 
diversion limitations. Pennmarva noted that the Department can 
effectuate suspension actions of order provisions that remove 
regulatory language, thus reducing the burden on handlers. However, the 
witness indicated that deletions of language by informal rulemaking 
procedures is too limiting to address changes in marketing conditions. 
Pennmarva said that providing the market administrator with a procedure 
to make specific percentage changes, either up or down, would be a more 
flexible way of changing shipping requirements or diversion limits.
    Opposition testimony was received from Dairylea for granting such 
discretionary authority to the market administrator for revising 
shipping requirements (Proposal No. 5). Dairylea said that while they 
have significant faith in market administrators, they see no reason to 
abandon long-term practices of having a public hearing or meeting to 
discuss the merits of changing applicable shipping standards within an 
order. Dairylea is of the view that Proposal No. 5 does not provide for 
a public meeting forum but rather simply written arguments almost after 
the fact. Dairylea indicated that shipping standards can have a 
profound economic impact on farmers, cooperatives, processors and 
consumers, and, in fact, are the very essence of the market order 
structure. The witness said that changing these standards without 
public scrutiny in the form of a public meeting or hearing should not 
be allowed. The witness feared that a simple request for a written 
response would leave many people out of the discussion and 
decisionmaking process.
    A witness for Clover Farms testified in opposition to both Proposal 
Nos. 5 and 8. Clover Farms opposes these two proposals unless provision 
is made for a public forum to aid in the decision 

[[Page 36248]]
making process of the market administrator.
    A witness for Eastern Milk Producers Cooperative Association 
(Eastern) also testified in opposition to Proposal Nos. 5 and 8. 
Eastern indicated that it makes sense to provide a degree of 
administrative discretion to the market administrator to resolve the 
problems that may arise as a result of changes in supply and demand 
conditions in the marketplace that would warrant adjustment of shipping 
percentages. Nevertheless, before such discretion is exercised, Eastern 
maintained that there be notice to the industry and preferably that 
there be an opportunity for a public meeting for interested parties to 
bring evidence in aiding the market administrator to make a proper 
decision. Eastern noted that the ``call'' provision of the New York-New 
Jersey marketing order, which requires the market administrator to 
conduct a public meeting in setting performance standards on handlers 
to ensure that the fluid market needs are adequately served, works 
well. Eastern indicated support for a proposal that would be similar in 
scope for the Middle Atlantic order.
    At issue on the part of those who oppose granting administrative 
discretion to the market administrator in adjusting shipping 
requirements and diversion limitations is the lack of a public meeting. 
Opponents have firm opinions that the public and interested parties 
should have a greater degree of participation in the decisional process 
than the proposed administrative proceeding would require. However, 
opponents take no issue on the ability, impartiality or integrity of 
the market administrator to make appropriate administrative decisions 
regarding adjustments to shipping requirements and diversion limits. 
The issue here is one of procedure.
    The informal rulemaking procedure is routinely used for making 
temporary suspensions or revisions to pool plant shipping requirements 
and diversion limitations. The procedure of public notice and comment 
before deciding on the appropriate course of action that is proposed in 
Proposals Nos. 5 and 8 follow in identical fashion the procedures 
followed by the Department. This informal rulemaking procedure does not 
include reliance on public hearings or meetings because of the need for 
urgent and expeditious action to address rapidly changing market 
conditions. Nevertheless, any interested party has the opportunity to 
have their views included in the decision making process.
    As the record reveals, such a procedure has been used in the Upper 
Midwest Marketing Area since 1990. Since the record does not reveal any 
lack of confidence in the ability of market administrators (who are 
entrusted with great responsibility in administering the order) to 
effectively carry out this duty, it is reasonable to conclude that on 
the basis of the broad authorities already entrusted to the market 
administrator to provide for the effective administration of the order, 
such discretionary authority that would be granted with the adoption of 
Proposals Nos. 5 and 8 are consistent with those already given. 
Furthermore, these two proposals have the broad support of producers 
who represent some 90 percent of the milk associated with the market.

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 Middle Atlantic order was first issued 
and when it was 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 order, 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 marketing area, and the minimum 
prices specified in the tentative marketing agreement and the order, 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; and
    (c) The tentative marketing agreement and the order, as hereby 
proposed to be amended, will regulate the handling of milk in the same 
manner as, and will be applicable only to persons in the respective 
classes of industrial and commercial activity specified in a marketing 
agreement upon which a hearing has been held.

Recommended Marketing Agreement and Order Amending the Order

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

List of Subjects in 7 CFR Part 1004
    Milk marketing orders.

    For the reasons set forth in the preamble, the following 
provision(s) in Title 7, Part 1004, is amended as follows:

PART 1004--MILK IN THE MIDDLE ATLANTIC MARKETING AREA

    1. The authority citation for 7 CFR part 1004 continues to read as 
follows:

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

    2. Section 1004.7 is amended by revising paragraphs (a)(1) and 
(a)(4); revising paragraph (d)(1); and by adding a new paragraph (g), 
to read as follows:


Sec. 1004.7  Pool plant.

* * * * *
    (a) * * *
    (1) Milk received at such plant directly from dairy farmers 
(excluding milk diverted as producer milk pursuant to Sec. 1004.12, by 
either the plant operator or by a cooperative association, and also 
excluding the milk of dairy farmers for other markets) and from a 
cooperative in its capacity as a handler pursuant to Sec. 1004.9(c); or
* * * * *
    (4) A plant's status as an other order plant pursuant to paragraph 
(f) of this section will become effective beginning the third month in 
which a plant is subject to the classification and pricing provisions 
of another order.
* * * * *
    (d) * * *
    (1) A reserve processing plant operated by a cooperative 
association at 

[[Page 36249]]
which milk from dairy farmers is received if the total of fluid milk 
products (except filled milk) transferred from such cooperative 
association plant(s) to, and the milk of member producers physically 
received at, pool plants pursuant to Sec. 1004.7(a) is not less than 25 
percent of the total milk of member producers during the month.
* * * * *
    (g) The applicable shipping percentage of paragraphs (a) and (b) or 
(d) of this section may be increased or decreased by the market 
administrator if the market administrator finds that such revision is 
necessary to encourage needed shipments or to prevent uneconomic 
shipments. Before making such a finding, the market administrator shall 
investigate the need for revision either on the market administrator's 
own initiative or at the request of interested parties. If the 
investigation shows that a revision of the shipping percentages might 
be appropriate, the market administrator shall issue a notice stating 
that the revision is being considered and invite data, views and 
arguments. Any request for revision of shipping percentages shall be 
filed with the market administrator no later than the 15th day of the 
month prior to the month for which the requested revision is desired 
effective.
    3. Section 1004.12 is amended by revising paragraphs (d)(2)(i) and 
(d)(2)(ii); and by adding a new paragraph (g), to read as follows:


Sec. 1004.12  Producer.

* * * * *
    (d) * * *
    (2) * * *
    (i) All of the diversions of milk of members of a cooperative 
association or a federation of cooperative associations to nonpool 
plants are for the account of such cooperative association or 
federation, and the amount of member milk so diverted does not exceed 
55 percent of the volume of milk of all members of such cooperative 
association or federation delivered to or diverted from pool plants 
during the month.
    (ii) All of the diversions of milk of dairy farmers who are not 
members of a cooperative association diverting milk for its own account 
during the month are diversions by a handler in his capacity as the 
operator of a pool plant from which the quantity of such nonmember milk 
so diverted does not exceed 45 percent of the total of such nonmember 
milk for which the pool plant operator is the handler during the month.
* * * * *
    (g) The applicable percentages in paragraphs (d)(2)(i) and 
(d)(2)(ii) of this section may be increased or decreased by the market 
administrator if the market administrator finds that such revision is 
necessary to encourage needed shipments or to prevent uneconomic 
shipments. Before making such a finding, the market administrator shall 
investigate the need for revision either on the market administrator's 
own initiative or at the request of interested parties. If the 
investigation shows that a revision of the diversion limit percentages 
might be appropriate, the market administrator shall issue a notice 
stating that the revision is being considered and invite data, views 
and arguments. Any request for revision of the diversion limit 
percentages shall be filed with the market administrator no later than 
the 15th day of the month prior to the month for which the requested 
revision is desired effective.

    Dated: July 10, 1995.
Lon Hatamiya,
Administrator, Agricultural Marketing Service.
[FR Doc. 95-17282 Filed 7-13-95; 8:45 am]
BILLING CODE 3410-02-P