[Federal Register Volume 60, Number 188 (Thursday, September 28, 1995)]
[Proposed Rules]
[Pages 50139-50145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23896]



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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 60, No. 188 / Thursday, September 28, 1995 / 
Proposed Rules  

[[Page 50139]]


DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1131

[Docket No. AO-271-A32; DA-92-24]


Milk in the Central Arizona Marketing Area; Decision on Proposed 
Amendments to Marketing Agreement and Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This decision revises the definition of producer-handler to 
prohibit deliveries of fluid milk products to a wholesale customer if 
the customer is also receiving the same products in the same-sized 
package with a similar label from a fully or partially regulated 
handler during the month. It also clarifies the limits and sources of 
supplemental supplies of producer-handlers. Finally, the decision 
removes the ``associated producer'' and ``associated producer milk'' 
provisions. The decision is based on proposals presented at a public 
hearing held in Phoenix, Arizona, on February 2-3, 1993.

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

SUPPLEMENTARY INFORMATION: This administrative action is governed by 
the provisions of Sections 556 and 557 of Title 5 of the United States 
Code and, therefore, is excluded from the requirements of Executive 
Order 12866.
    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires the 
Agency to examine the impact of a proposed rule on small entities. 
Pursuant to 5 U.S.C. 605(b), the Administrator of the Agricultural 
Marketing Service has certified that this action will not have a 
significant economic impact on a substantial number of small entities. 
The amended order will promote orderly marketing of milk by producers 
and regulated handlers.
    These proposed amendments have been reviewed under Executive Order 
12278, Civil Justice Reform. This rule is not intended to have 
retroactive effect. If adopted, this proposed rule will not preempt any 
state or local laws, regulations, or policies, unless they present an 
irreconcilable conflict with the rule.
    The Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674), provides that administrative proceedings must be 
exhausted before parties may file suit in court. Under section 
608c(15)(A) of the Act, any handler subject to an order may file with 
the Secretary a petition stating that the order, any 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 Documents in This Proceeding

    Notice of Hearing: Issued December 21, 1992; published December 30, 
1992 (57 FR 62241).
    Recommended Decision: Issued December 15, 1993; published December 
22, 1993 (57 FR 67703).
    Extension of Time for Filing Exceptions: Issued February 4, 1994; 
published February 14, 1994 (59 FR 6916).
    Revised Recommended Decision: Issued November 4, 1994; published 
November 14, 1994 (59 FR 56414).

Preliminary Statement

    A public hearing was held to consider proposed amendments to the 
marketing agreement and the order regulating the handling of milk in 
the Central Arizona (Order 1131) marketing area. 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 Phoenix, Arizona, on February 2-3, 1993. 
Notice of such hearing was issued on December 21, 1992, and published 
December 30, 1992 (57 FR 62241).
    Upon the basis of the evidence introduced at the hearing and the 
record thereof, the Administrator, on December 15, 1993, and November 
4, 1994, issued a recommended decision and a revised recommended 
decision, respectively, containing notice of the opportunity to file 
written exceptions thereto.
    The material issues, findings and conclusions, rulings, and general 
findings of the revised recommended decision are hereby approved and 
adopted and are set forth in full herein, subject to the following 
modifications:
    1. The proposed pool payment by a producer-handler that was 
provided for in the proposed amendments to Secs. 1131.60 and 1131.71 
has been dropped;
    2. A new paragraph (a)(3) has been added to the producer-handler 
definition (Sec. 1131.10) which prohibits a producer-handler from 
distributing fluid milk products to a wholesale customer who also is 
receiving the same product in the same-sized package with a similar 
label from a fully or partially regulated handler during the month; and
    3. The discussion of Issue No. 1 in the findings and conclusions 
has been revised to reflect these changes.
    The material issues on the record of hearing relate to:
    1. The definition and treatment of producer-handlers;
    2. The definition and treatment of associated producers; and
    3. Conforming changes and non-substantive changes.

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. The definition and treatment of producer-handlers. The order 
should be amended to prohibit producer-handlers (P-Hs) from 
distributing fluid milk products to wholesale customers 1 who 

[[Page 50140]]
also receive the same products in the same-sized package with similar 
labels from a fully or partially regulated handler during the month. 
Additional amendments will clarify the limits and sources of 
supplemental supplies of the P-H. The basic intent of these provisions 
is to continue to allow the operations of P-Hs, while ensuring they 
bear the burden of their own reserve supply of milk.

    \1\ As used in the amended order, the term ``wholesale 
customer'' means distributors or jobbers, stores that are owned or 
leased by others, or institutions such as schools, hospitals, 
prisons, and nursing homes. It does not mean retail sales to 
consumers at the P-H's dock, at the P-H's own retail stores 
(wherever located), or on the P-H's home delivery routes.
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    At the time of the hearing, Heartland Dairy was the largest P-H in 
the Central Arizona market. Since then, it has sold its cows and dairy 
farms and has become a fully regulated handler under the order. 
Testimony at the hearing indicated that Heartland had been sharing a 
joint account with a fully regulated handler, Jackson Foremost Foods, 
to supply Fry's Food Stores, the dominant supermarket chain in the 
Phoenix area.
    The Executive Director of The United Dairymen of Arizona (UDA), a 
cooperative association in the market, testified that Fry's Food Stores 
is the principal outlet for Heartland Dairy's fluid milk product 
distribution in the Central Arizona marketing area. The witness stated 
that Heartland shared the Fry's account with Jackson Foremost Foods, a 
fully regulated handler supplied by UDA. He said that when Heartland's 
deliveries to Fry's were insufficient to cover its commitment, Fry's 
called on Jackson to make up the deficit. Jackson, in turn, called on 
UDA to supply it with more milk. The witness indicated that this 
scenario had occurred repeatedly in the last three years, particularly 
during the low production months of July, August, September, and 
October, and throughout the year on Fridays and Saturdays.
    The UDA spokesman testified that this pattern of operation by 
Heartland Dairy violated the spirit of the P-H provision. He referenced 
the Secretary of Agriculture's 1962 decision (27 FR 3923) which states 
that:

    A producer-handler should be required to maintain his own 
reserve supply since he is exempted from pooling his Class I sales 
with other producers. The limitation on the amount of milk which an 
exempt producer-handler may purchase from pool plants will make it 
necessary for him to maintain herd production equal to his Class I 
sales plus a reserve to cover variations in production and sales.
    * * * [P]roducer-handlers' milk sales represent a potential 
threat to orderly marketing if producer-handlers are permitted to 
shift their excess burden to other producers. The Central Arizona 
market is composed of large producers delivering nearly one million 
pounds a month. If such large volume producers could market their 
own production entirely as Class I and buy reserve milk to balance 
daily fluctuations in their production and sales, they would be a 
disturbing element in the market.

    The Vice President of Sales for Shamrock Foods, one of the largest 
handlers in the Central Arizona market, testified that Heartland Dairy 
supplied private label milk to the Southwest Supermarket chain in 
December of 1992, when Shamrock was also supplying milk to Southwest 
stores. In addition, he said that from time to time Southwest would 
call Shamrock asking for additional milk when Southwest was not getting 
its orders filled by Heartland Dairy. It was his understanding, he 
testified, that when Southwest was required to buy this extra milk from 
Shamrock, Heartland Dairy would pay the difference in price between 
what it would have charged Southwest and what Shamrock charged 
Southwest for this milk.
    In this market, the annual variation in producer milk from the 
lowest production month to the highest production month has averaged 28 
percent during the past five years. Given this seasonality in 
production, a P-H must find a way to handle its seasonal production 
problem. One method would be to maintain a fluid milk distribution 
level equal to its highest month's production--typically, March--and 
purchase enough supplemental milk during the other eleven months. 
However, unrestricted supplemental purchases are conceptually 
antithetical to the principle of maintaining one's own reserve supply. 
Alternatively, a P-H could maintain a fluid milk product distribution 
level equal to its lowest month's production--typically, August--and 
send the additional production during the other 11 months to a 
manufacturing plant.
    At the present time, the only manufacturing plant within reasonable 
distance of Heartland Dairy is UDA's butter-powder plant at Tempe, 
Arizona. There are no other manufacturing plants in the Central Arizona 
marketing area, except for a cheese plant which is under the same roof 
as UDA's butter-powder plant and which is fully supplied by UDA, and a 
yogurt processing plant, LaCorona Yogurt, which, according to the 
manager of Heartland Dairy, was under contract to buy its milk from 
Shamrock. Consequently, the only surplus outlet available to Heartland 
Dairy in this area is UDA's butter-powder plant.
    The Heartland Dairy manager testified that when Heartland Dairy 
sent surplus milk to the UDA butter-powder plant for manufacturing use, 
it was in the position of having to accept whatever the cooperative was 
willing to pay for the milk. For example, he said that in December 1992 
Heartland sold 427,210 pounds of surplus milk to UDA and was paid 
$10.25 per hundredweight for it, which was $1.09 less than the order's 
Class III price.
    The evidence in the record indicates that Heartland used other ways 
to handle its seasonal production problem. It shared joint Class I 
sales accounts with fully regulated handlers and disposed of fluid milk 
products outside of the marketing area when extra milk was available.
    UDA's proposal to address these practices would require the market 
administrator to closely monitor the P-H's operations and to make 
several subjective judgments regarding whether the P-H was maintaining 
its own reserve supply. Specifically, the market administrator would be 
asked to: (1) Compare weekly volumes sold to accounts serviced by the 
P-H and by other handlers under this or any other Federal milk order; 
(2) determine whether the P-H packaged milk in the same label as 
another handler under this or any other Federal milk order; (3) 
determine if the P-H's pro rata share of Class I route disposition in 
the marketing area during the flush milk production months (March, 
April, May) was substantially the same as during the short milk 
production months (July, August, September); and (4) use any other 
method that would indicate when the P-H was not maintaining the burden 
of its own reserve supply. Under the proposal, the P-H would be fully 
regulated for the next 12 months if the market administrator found that 
the P-H was not maintaining its own reserve supply.
    Another part of the UDA proposal was designed to preclude P-Hs from 
sharing Class I accounts with fully regulated handlers. In this case, 
the order would treat packaged fluid milk that is delivered by a P-H to 
a market outlet which is also serviced by a pool plant (using the same 
label as the P-H) as having been ``acquired for distribution'' by the 
pool plant. In such circumstances, the P-H's milk would be assigned a 
Class III classification at the pool plant. This procedure would force 
an equal amount of ``producer milk'' into Class I and thereby increase 
the pool plant's obligation to the pool.
    In its brief, UDA stated that, based on the evidence in the record, 
a producer-handler should be required to carry 135 percent of its 
monthly Class I sales in its own herd production. To implement 

[[Page 50141]]
this requirement, the cooperative suggested that its proposal be 
amended by inserting a new paragraph in Sec. 1131.10(a), which would 
read as follows:

    (2) Produces in his own herd a rolling average during the 
preceding three months of 135 percent of Class I route disposition. 
If such person's milk production from his own herd falls below 135 
percent of Class I route disposition in any such period, such person 
shall be pooled in the next succeeding month and continue to be 
pooled until production from his own herd equals or exceeds 135 
percent of Class I route disposition for a three month period.

    The UDA proposal should not be adopted. It lacks objective 
standards and instead relies on many subjective judgments, which would 
make it very difficult to administer and enforce. In addition, it would 
penalize P-Hs and fully regulated handlers even when a P-H was 
operating in a totally unobjectionable manner. For example, if a P-H 
serviced an account with a fully regulated handler and each party 
contributed a fixed amount of fluid milk products each month to the 
account, the order, as modified by UDA's proposal, would nonetheless 
treat the P-H's deliveries as receipts of the pool plant and penalize 
the pool plant as described above.
    Although UDA did not include any specific order language to address 
the appropriate size of a P-H, the cooperative attempted to modify the 
language of its proposal to restrict the P-H exemption to a ``family-
type farm operation.'' The Administrative Law Judge presiding at the 
hearing disallowed the modification but permitted the testimony as an 
``offer of proof.'' We concur with the Judge that this modification is 
beyond the scope of the hearing.
    A representative of the National Milk Producers Federation (NMPF) 
appeared at the hearing to present a proposal that was ruled by the 
Administrative Law Judge to be outside the scope of the hearing. The 
NMPF proposal would have limited the size of a P-H. The witness stated 
that the NMPF was offering the proposal as an alternative to the UDA 
proposal because, in his opinion, the UDA proposal would be impossible 
to administer or enforce.
    A consultant for Heartland Dairy testified in support of a modified 
Heartland Dairy proposal that would enable a P-H to purchase unlimited 
supplies of supplemental milk from any source, but which also would 
require the P-H to make a payment into the order's marketwide pool each 
month to compensate the market's producers for carrying Heartland's 
reserve supply of milk. The consultant stated that the goal of the 
Federal order program is to insure minimum prices to dairy farmers. 
This goal, he said, could be accomplished without fully regulating 
producer-handlers.
    The modified proposal of Heartland Dairy calls for the P-H to make 
a payment into the pool each month based on the difference between the 
P-H's production in the current month and its lowest month's production 
during the immediately preceding 12 months. The difference in 
production between the current month and the lowest month would be 
prorated to the P-H's utilization of milk in each class in the current 
month. The payment would then be computed by: (1) Multiplying the 
pounds assigned to Class I by the difference between the Class I price 
and the blend price (a positive value); (2) multiplying the pounds 
assigned to Class II by the difference between the Class II price and 
the blend price (a positive or negative value); (3) multiplying the 
pounds assigned to Class III by the difference between the Class III 
price and the blend price (a negative value); and (4) adding these 
products together. If the current month's production were less than the 
lowest month's production during the preceding 12 months, no payment 
would be required.
    There can be no argument with certain basic facts that must be 
taken into consideration in resolving the problems described in the 
hearing record. First, the seasonal variation in production in this 
market is significant, and this variation in production adversely 
affects the cost of handling and manufacturing the market's reserve 
supply of milk. From the evidence in the record, it would appear that 
this burden falls largely on UDA.
    Second, there is really only one place to economically dispose of 
surplus milk for manufacturing use: UDA's butter-powder plant at Tempe. 
This lack of viable economic alternatives leads to marketing practices 
which some parties in the market deem to be ``disruptive'' and which 
nearly all parties in the market concede result in an unequal sharing 
of the cost of maintaining the market's reserve supply of milk.
    Third, there is really only one place to obtain supplemental 
supplies of milk in this market. UDA accounts for 88 percent of the 
producer milk in the market, and Shamrock Foods accounts for the 
remaining 12 percent, which is largely used for its own use, except for 
the amount which it supplies to LaCorona Yogurt.
    The recommended and revised recommended decisions concluded that 
additional flexibility was needed in the order to permit a P-H to bear 
its pro rata share of the cost of maintaining the market's reserve 
supply while, at the same time, operating in a reasonably efficient 
manner. Those decisions recommended the adoption of a formula for 
computing the degree to which a producer-handler was relying on the 
market to bear its reserve supplies and the imposition of a pool 
payment to remunerate the market for carrying the P-H's reserve supply.
    This final decision abandons that recommendation and substitutes, 
in its place, a far simpler provision which is designed to prevent a 
similar problem from ever occurring rather than to control it once it 
has started. It accomplishes this goal by inserting a new paragraph--
(a)(3)--in the producer-handler definition (Sec. 1131.10) which 
specifically prohibits the type of activity that Heartland Dairy 
engaged in.
    Heartland Dairy was able to manipulate the producer-handler 
provision of the order because Jackson Foremost Foods was willing to 
perform a balancing function for Heartland. Both Heartland and Jackson 
provided Fry's Food Stores with the same fluid milk product in the 
same-sized container with the same label on it. Consequently, 
specifically prohibiting similar types of practices now seems to us to 
be the least burdensome way to amend the order to insure that this 
situation does not arise again.
    While we continue to believe in the viability of the approach taken 
in the recommended decisions, we also recognize that this approach may 
require further ``fine-tuning,'' may be difficult to administer or 
enforce, and surely would complicate the order. Therefore, given the 
changes which have occurred in this market since the time of the 
hearing, we must conclude that a simple provision that bars the 
activity which led to the problem is the most effective and least 
burdensome way to prevent its recurrence.
    This final decision continues to embrace several of the other 
proposed changes adopted in the revised recommended decision. 
Specifically, it amends the order to permit a P-H to obtain 
supplemental fluid milk products by transfer or diversion from pool 
plants and other order plants, and by diversion from a cooperative bulk 
tank handler. However, it limits such receipts to 5,000 pounds or 5 
percent of the P-H's monthly fluid milk product disposition. No other 
sources of supply will be allowed regardless of whether such purchases 
entered the P-H's plant or were acquired elsewhere. 

[[Page 50142]]

    The limit on supplemental purchases will not only apply to bulk or 
packaged fluid milk products that are received by transfer or diversion 
at the P-H's plant, but also will apply equally to packaged fluid milk 
products that are acquired for route disposition to any of the P-H's 
retail outlets. This means that any acquisition of a fluid milk 
product, whether it entered the P-H's plant or retail facility, was 
picked up by the P-H's truck, or was acquired in some other way, will 
still count against the monthly 5,000-pound/5 percent limit.
    Currently, P-Hs are not permitted to purchase milk directly from 
dairy farms. However, as noted previously, UDA accounts for 88 percent 
of the producer milk in the Central Arizona market. Accordingly, the 
cooperative is the likely source for supplemental milk supplies. Even 
if the P-H were to obtain transfers from a pool plant operated by 
another handler, in all likelihood it would be UDA milk since the 
cooperative association supplies all of the pool plants in this market. 
In view of this, it is much more efficient to allow a P-H to obtain 
milk from a cooperative association in its capacity as a handler on 
milk delivered directly from producers' farms. This milk will be 
classified as Class I milk, and the cooperative association handler 
delivering the milk will account to the pool for it.
    While a P-H may now receive transfers from pool plants and other 
order plants, it may not receive diverted milk from these plants. This 
restriction also is removed to allow a P-H to obtain supplemental milk 
by diversion from these plants directly from the farms of producers. 
Under most circumstances, this would be the most efficient way to 
obtain a load of supplemental milk, and there is no reason to preclude 
such shipments. Such receipts will be classified as Class I milk, and 
the diverting handler will account to the pool for this milk.
    This final decision continues the earlier recommendations requiring 
a P-H to file monthly reports with the market administrator and giving 
the market administrator full access to all of a producer-handler's 
records, including all of the milk production and farm pickup records 
pertaining to the dairy operations of each of a P-H's farms. By having 
complete access to a P-H's records, the market administrator will be in 
a better position to enforce the order and to prevent or minimize a 
problem before it gets out of hand.

Exceptions to the Revised Recommended Decision

    Three letters were received in response to the revised recommended 
decision.
    Comment: UDA indicated in its letter that while it continues to 
believe that P-Hs should not be exempt from full regulation, it 
commended the Department ``for taking this first step toward an 
approach to competitive parity between P-Hs and the fully regulated 
handlers with whom they are in daily competition.''
    Response: While some aspects of the revised recommended decision 
have not been carried forward in this final decision, several new 
provisions in the order should strengthen the hand of the market 
administrator to ensure that a similar situation does not again arise 
in this market. In particular, P-Hs will be required to report their 
receipts and utilization to the market administrator monthly. This will 
permit the market administrator to ascertain whether the P-H is 
operating in a manner that qualifies it for its exempt status under the 
order.
    Comment: Sarah Farms, a P-H located in Yuma, Arizona, submitted the 
following comment:

    We feel that this recommended decision and proposed amendment * 
* * was for a particular situation that no longer exists. The P-H 
effectuating this action violated the spirit and intention of the 
laws governing a P-H, was held accountable to these existing 
regulations, failed the criterion, and because of this is no longer 
a P-H today. The order as it is written is correct, it worked, don't 
change a thing.

    Response: At the time of the hearing, Sarah Farms was not fully 
operational and did not participate in the hearing. For this reason, 
there is no information in the record concerning its mode of operation.
    We appreciate Sarah Farms' argument that they could be 
unnecessarily burdened by a provision that was designed for a situation 
that no longer exists. For this reason, we have significantly changed 
this final decision.
    Sarah Farms exhibits an understanding of how Heartland Dairy 
manipulated its P-H exemption. For this reason, the new provision in 
Sec. 1131.10(a)(3) should pose no burden to it. Under the order, as 
amended, Sarah Farms may supply wholesale accounts; they may deliver 
more products to such accounts in one month than in another month 
without penalty; they may even supply a wholesale account when that 
account is also supplied by a fully or partially regulated handler. 
What they may not do, however, is supply the same product (e.g., 2% 
milk) in the same-sized package and with a similar label as is being 
supplied to that customer by a fully or partially regulated handler 
during the same month.
    While Sarah Farms would be subject to the new monthly reporting 
provisions that are contained in Sec. 1131.30(d), this is not an 
unreasonable burden to ensure that it is properly entitled to its 
exemption under the order.
    Comment: Goldenwest Dairies, another P-H under the Central Arizona 
order, suggested that mechanical breakdowns be included with natural 
disasters in computing a P-H's low month of production in 
Sec. 1131.60(J)(4)(i).
    Response: This suggestion is no longer relevant in view of the 
changes made in this final decision.
    2. The definition and treatment of associated producers. A proposal 
by The United Dairymen of Arizona to remove all language from the order 
relating to ``associated producer'' should be adopted. UDA's general 
manager testified that UDA had proposed the associated producer 
provisions at a hearing held on November 9-10, 1982. The purpose of 
these provisions, he explained, was to enable a dairy farmer in the 
Phoenix area to retain ``producer'' status on a portion of his milk 
which he was unable to market to an Order 131 handler.
    The UDA witness stated that the Phoenix producer never availed 
himself of these provisions, but that a dairy farmer from California 
had ``exploited'' the provision during a 21-month period from June 1987 
through February 1989. He said that this dairy farmer had drawn 
$192,340 out of the pool in the form of ``phantom freight'' on more 
than 8 million pounds of milk diverted to a nonpool plant in 
California.
    The ``associated producer'' provision now in the order is not a 
provision that is commonly found in Federal orders. Normally, a pool 
plant operator who regularly receives a dairy farmer's milk will 
willingly serve as the handler for the milk when it is not needed at 
the pool plant and must be diverted to a nonpool plant for 
manufacturing use. In the Central Arizona market, however, a pool plant 
operator who had received a dairy farmer's milk was not willing to bear 
responsibility for the milk when it was diverted to a nonpool plant. 
Accordingly, UDA proposed--and the Secretary adopted, with some 
modifications--the ``associated producer'' provisions.
    The producer for whom the ``associated producer'' provision was 
intended did not appear at the hearing 

[[Page 50143]]
to present any opposition testimony but did submit a brief in which he 
explained that he was unable to attend the hearing because of a 
flooding problem. In his brief, he stated that the associated producer 
provision is needed because ``the pool should service all producers in 
it, not just a select few.'' He suggested, however, that it be modified 
to restrict it to ``producer milk originating in the geographical 
boundaries of Order 131.'' He did not indicate that he has used the 
provision or plans to use it in the future but implied that it should 
be kept as a safeguard.
    Under the associated producer provisions, a producer is permitted 
to divert a certain portion of his/her milk to a nonpool plant for 
Class III use if 50 percent of that person's milk is ``producer milk'' 
in the current month and in each of the immediately preceding two 
months. On the milk diverted to the nonpool plant, the producer draws a 
payment from the pool based on the difference between the order uniform 
price and the Class III price for the month.
    The non-member dairy farmer who inspired the cooperative's 1982 
proposal has never used the associated producer provision and now 
markets his milk through UDA. According to the UDA general manager, the 
California producer who had used the provision for a 21-month period 
joined UDA in the fall of 1989 and stopped using the provision in 
February 1989.
    The associated producer provisions, when used, have been difficult 
to administer. In a letter referenced by the UDA witness at the 
hearing, the Order 131 market administrator is quoted as stating that 
he had ``no handle under the order for determining the volume of milk 
shipped from a producer's farm to a nonpool plant because there were no 
reporting requirements'' with which to verify the information supplied 
by the producer.
    In view of the difficulty of administering the associated producer 
provision, its lack of use during the past three years, the potential 
for its abuse, and the limited opposition to its removal, there is no 
valid reason to keep it in the order. Under these circumstances, it no 
longer effectuates the declared policy of the Act and should be 
removed.
    3. Conforming and non-substantive changes. Certain conforming 
changes are needed to implement the proposed changes adopted above. In 
particular, Sec. 1131.13 (Producer milk) is changed to allow a 
cooperative bulk tank handler or a pool plant operator to divert milk 
for their accounts to a producer-handler; Sec. 1131.30 (Reports of 
receipts and utilization) is modified to report the P-H's own-farm 
production and supplemental milk purchases each month; Sec. 1131.42 
(Classification of transfers and diversions) is modified to provide for 
the classification of milk diverted to a P-H from a cooperative bulk 
tank handler or a pool plant operator; and Sec. 1131.61 (Computation of 
uniform price) is changed to remove obsolete language related to 
``associated producer milk.''
    Other changes of a minor and non-substantive nature have also been 
made to the order to remove obsolete language from the Class I price 
provision and to correct errors in Sec. 1131.44 (i.e., change ``ilk'' 
to ``milk'') and Sec. 1131.72 (i.e., change ``for'' to ``from'' and 
remove obsolete language related to associated producers).

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 Order 1131 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 Central Arizona 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.

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 Central 
Arizona marketing area and an Order amending the order regulating the 
handling of milk in the Central Arizona 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.

Determination of Producer Approval and Representative Period

    August 1995 is hereby determined to be the representative period 
for the purpose of ascertaining whether the issuance of the order, as 
amended and as hereby proposed to be amended, regulating the handling 
of milk in the Central Arizona marketing area is approved or favored by 
producers as defined under the terms of the order (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 Central 
Arizona marketing area.

List of Subjects in 7 CFR Part 1131

    Milk marketing orders.


[[Page 50144]]

    Dated: September 19, 1995.
Shirley R. Watkins,
Acting Assistant Secretary, Marketing and Regulatory Programs.

Order Amending the Order Regulating the Handling of Milk in the Central 
Arizona 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 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) Findings. A public hearing was held upon certain proposed 
amendments to the tentative marketing agreement and to the order 
regulating the handling of milk in the Central Arizona marketing area. 
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 order 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 area. 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 order as hereby amended regulates 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.

Order Relative to Handling

    It is therefore ordered that on and after the effective date 
hereof, the handling of milk in the Central Arizona marketing area 
shall be in conformity to and in compliance with the terms and 
conditions of the order, as amended, and as hereby amended, as follows:

PART 1131-MILK IN THE CENTRAL ARIZONA MARKETING AREA

    1. The authority citation for 7 CFR Part 1131 continues to read as 
follows:

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

    2. Sec. 1131.10, paragraph (a)(3) is redesignated as (a)(4), a new 
paragraph (a)(3) is added, and paragraph (a)(1)(ii) is revised to read 
as follows:


Sec. 1131.10  Producer-handler.

* * * * *
    (a) * * *
    (1) * * *
    (ii) Fluid milk products obtained by transfer or diversion from 
pool plants, other order plants, or from a handler described in 
Sec. 1131.9(b), in an amount not to exceed 5 percent of its fluid milk 
product disposition for the month or 5,000 pounds, whichever is less;
    (2) * * *
    (3) Does not distribute fluid milk products to a wholesale customer 
who also is serviced by a handler described in Sec. 1131.9(a) or (d) 
that supplied the same product in the same-sized package with a similar 
label to the wholesale customer during the month; and
* * * * *


Sec. 1131.13  [Amended]

    3. In Sec. 1131.13 paragraphs (a)(2) and (b)(1), the words ``that 
is not a producer-handler plant'' are removed.


Secs. 1131.21 and 1131.22  [Removed]

    4. Sections 1131.21 and 1131.22 are removed.
    5. In Sec. 1131.30, paragraph (d) is redesignated as paragraph (e), 
in newly designated (e) the words ``(a) through (c)'' are revised to 
read ``(a) through (d)'', and a new paragraph (d) is added to read as 
follows:


Sec. 1131.30  Reports of receipts and utilization.

* * * * *
    (d) Each handler described in Sec. 1131.10 shall report:
    (1) The pounds of milk received from each of the handler's own-farm 
production units, showing separately the production of each farm unit 
and the number of dairy cows in production at each farm unit;
    (2) Fluid milk products and bulk fluid cream products received at 
its plant or acquired for route disposition from pool plants, other 
order plants, and handlers described in Sec. 1131.9(b);
    (3) Receipts of other source milk not reported pursuant to 
paragraph (d)(2) of this section;
    (4) Inventories at the beginning and end of the month of fluid milk 
products and products specified in Sec. 1131.40(b)(1); and
    (5) The utilization or disposition of all milk and milk products 
required to be reported pursuant to this paragraph.
* * * * *


Sec. 1131.33  [Removed]

    6. Section 1131.33 is removed.
    7. In Sec. 1131.42 paragraph (d)(2)(vi), the words ``pursuant to 
Sec. 1131.22 or'' are removed, and the introductory text of paragraph 
(c) and paragraph (c)(1) are revised to read as follows:


Sec. 1131.42  Classification of transfers and diversions.

* * * * *
    (c) Transfers and diversions to producer-handlers. Skim milk or 
butterfat transferred or diverted from a pool plant or diverted from a 
handler described in Sec. 1131.9(b) to a producer-handler under this or 
any other order shall be classified:
    (1) As Class I milk, if transferred or diverted in the form of a 
fluid milk product; and
* * * * *


Sec. 1131.44  [Amended]

    8. In Sec. 1131.44(a)(4), the word ``.ilk'' is revised to read 
``milk''.
    9. In Sec. 1131.50, paragraph (a) is revised to read as follows:


Sec. 1131.50  Class prices.

* * * * *
    (a) The Class I price shall be the basic formula price for the 
second preceding month plus $2.52.

* * * * *
    10. In Sec. 1131.61, paragraph (b) is removed, paragraphs (c) 
through (f) are redesignated as paragraphs (b) through (e), and newly 
redesignated paragraph (d) is amended by removing paragraph (d)(3) and 
revising paragraphs (d)(1) and (2) to read as follows:


Sec. 1131.61  Computation of uniform price.

* * * * *
    (d) * * *
    (1) The total hundredweight of producer milk; and
    (2) The total hundredweight for which a value is computed pursuant 
to Sec. 1131.60(f).
* * * * *


Sec. 1131.72  [Amended]

    11. In Sec. 1131.72, the word ``for'' is revised to read ``from'' 
in the section heading, paragraph (b) is removed, and paragraph (c) is 
redesignated as paragraph (b). 

[[Page 50145]]



Sec. 1131.77  [Amended]

    12. In Sec. 1131.77, the last sentence is removed.


Sec. 1131.85  [Amended]

    13. In Sec. 1131.85, paragraph (b) is removed and reserved.

[FR Doc. 95-23896 Filed 9-27-95; 8:45 am]
BILLING CODE 3410-02-P