[Federal Register Volume 62, Number 97 (Tuesday, May 20, 1997)]
[Proposed Rules]
[Pages 27525-27546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13000]


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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. 62, No. 97 / Tuesday, May 20, 1997 / Proposed 
Rules  

[[Page 27525]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1005, 1007, 1011, and 1046

[Docket No. AO-388-A9, et al.; DA-96-08]


Milk in the Carolina and Certain Other Marketing Areas; Partial 
Final Decision

------------------------------------------------------------------------
 7 CFR                                                                  
  part           Marketing area                     Docket No.          
------------------------------------------------------------------------
1005...  Carolina......................  AO-388-A9                      
1007...  Southeast.....................  AO-366-A38                     
1011...  Tennessee Valley..............  AO-251-A40                     
1046...  Louisville-Lexington-           AO-123-A67                     
          Evansville.                                                   
------------------------------------------------------------------------

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This final decision would modify interim amendments which 
established transportation credit provisions in 4 Federal milk orders 
in the Southeastern United States. The interim amendments were based 
upon proposals that were considered at a public hearing held in 
Charlotte, North Carolina. The proposed modifications to the interim 
amendments are based upon additional testimony heard at a reopened 
hearing held in Atlanta, Georgia. The major modifications would 
increase the maximum assessment by one cent or less in two of the 
orders to pay for transportation costs and eliminate the reduction of 
blend prices to producers to pay for transportation costs. The 
amendments adopted in this decision will become effective if approved 
by the producers in the affected markets.

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 (Tel:202/690-1932; 
E-mail:[email protected]).

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.
    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is not intended to have a retroactive 
effect, and it 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 request 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.

Small Business Consideration

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.), the Agricultural Marketing Service has considered the economic 
impact of this action on small entities and has certified that this 
proposed rule will not have a significant economic impact on a 
substantial number of small entities. No new entities will be regulated 
as a result of the proposed rules, and any changes experienced by 
handlers will be of a minor nature.
    For the purpose of the Regulatory Flexibility Act, a dairy farm is 
considered a ``small business'' if it has an annual gross revenue of 
less than $500,000, and a dairy products manufacturer is a ``small 
business'' if it has fewer than 500 employees. For the purposes of 
determining which dairy farms are ``small businesses,'' the $500,000 
per year criterion was used to establish a production guideline of 
326,000 pounds per month. Although this guideline does not factor in 
additional monies that may be received by dairy producers, it should be 
an inclusive standard for most ``small'' dairy farmers. For purposes of 
determining a handler's size, if the plant is part of a larger company 
operating multiple plants that collectively exceed the 500-employee 
limit, the plant will be considered a large business even if the local 
plant has fewer than 500 employees.
    The milk of approximately 8,600 producers is pooled on the 
Carolina, Southeast, Tennessee Valley and Louisville-Lexington-
Evansville milk orders. Of these producers, 95 percent produce below 
the 326,000-pound production guideline and are considered to be small 
businesses.
    There are 43 handlers operating pool plants under the four orders. 
Of these handlers, 22 have fewer than 500 employees and qualify as 
small businesses.
    The proposed rules amending the transportation credit provisions 
will promote orderly marketing of milk by producers and regulated 
handlers operating within the 4 marketing areas. This decision 
eliminates the provision which provides for the transfer of funds from 
the producer-settlement fund to the transportation credit balancing 
fund when the latter is insufficient to cover the amount of credits to 
be distributed to handlers for a given month. Thus, the possibility of 
a reduction of uniform prices to producers resulting from 
transportation credits will no longer exist.
    This decision also modestly increases the handler assessment from 6 
cents to 6.5 cents per hundredweight of Class I producer milk in the 
Carolina market and to 7 cents per hundredweight in the Southeast 
market, but maintains the current 6-cent assessment in the Tennessee 
Valley and Louisville-Lexington-Evansville markets. A 6-cent per 
hundredweight assessment translates to approximately one-half cent per 
gallon of milk. The one-half to one-cent assessment increase in Federal 
Orders 1005 and 1007 may negatively impact some small businesses, as 
any price increase would, but it may also positively impact other small 
businesses by providing more funds for transportation credits.
    At present, all handlers regulated under the 4 milk orders involved 
in this

[[Page 27526]]

proceeding file a monthly report of receipts and utilization with the 
market administrator. The proposed amendments will not significantly 
add to the amount of information required to be reported by those 
handlers requesting transportation credits. The estimated time to 
collect, aggregate, and report this information will vary directly with 
the amount of milk for which credits are requested, but should not be 
significant.

Prior Documents in This Proceeding

    Notice of Hearing: Issued May 1, 1996; published May 3, 1996 (61 FR 
19861).
    Tentative Partial Final Decision: Issued July 12, 1996; published 
July 18, 1996 (61 FR 37628).
    Interim Amendment of Orders: Issued August 2, 1996; published 
August 9, 1996 (61 FR 41488).
    Extension of Time for Filing Comments: Issued August 16, 1996; 
published August 23, 1996 (61 FR 43474).
    Extension of Time for Filing Comments: Issued October 18, 1996; 
published October 25, 1996 (61 FR 55229).
    Notice of Reopened Hearing: Issued November 19, 1996; published 
November 25, 1996 (61 FR 59843).

Preliminary Statement

    A public hearing was held to consider proposed amendments to the 
marketing agreements and the orders regulating the handling of milk in 
the aforesaid marketing areas. The hearing was held pursuant to the 
provisions of the Agricultural Marketing Agreement Act of 1937, as 
amended (7 U.S.C. 601-674), and the applicable rules of practice (7 CFR 
Part 900), in Charlotte, North Carolina, on May 15-16, 1996, and in 
Atlanta, Georgia, on December 17-18, 1996. Notice of the May hearing 
was issued on May 1, 1996, and published May 3, 1996 (61 FR 19861).
    An interim order amending the orders was issued on August 2, 1996, 
and published on August 9, 1996 (61 FR 41488). The interim amendments 
became effective on August 10, 1996.
    Following 3 months' experience with the interim amendments, the 
industry requested, and the Department agreed, to reopen the hearing to 
receive additional evidence concerning their impact. This hearing was 
held in Atlanta, Georgia, on December 17-18, 1996, following a notice 
of such reopened hearing that was issued on November 19, 1996, and 
published on November 25, 1996 (61 FR 59843).
    Interested parties were given until January 24, 1997, to file post-
hearing briefs on proposals following the reopened hearing.
    The material issues on the record of the hearing relate to:
    1. Transportation credits for supplemental bulk milk received for 
Class I use.
    2. Deductions from the minimum uniform price to producers.
    3. Whether emergency marketing conditions in the 4 regulated 
marketing areas warrant the omission of a recommended decision with 
respect to Issue No. 1 and the opportunity to file written exceptions 
thereto.
    4. The definition of producer.
    This partial final decision only deals with Issue 1. Issue 3 was 
discussed in the tentative partial final decision that was issued July 
12, 1996, and is now moot. Issues 2 and 4 will be handled through 
normal rulemaking procedures in a forthcoming recommended decision.

Summary of Changes to the Interim Amendments

    This final decision differs from the tentative decision in several 
respects. The key changes in the order amendments are as follows:
    1. The provision providing for a transfer of funds from the 
producer-settlement fund to the transportation credit balancing fund 
when the latter fund has an insufficient balance to pay for the month's 
transportation credits has been removed. Instead, the available balance 
in the transportation credit balancing fund each month will be prorated 
to handlers applying for transportation credits for that month. See 
Sec. 100X.82(a).
    2. The assessment for the transportation credit balancing fund has 
been raised from 6 cents to 6.5 cents per hundredweight for the 
Carolina order and to 7 cents per hundredweight for the Southeast 
order. See Secs. 1005.81(a) and 1007.81(a).
    3. The per mile rate for computing the transportation credit has 
been reduced from 0.37 cent to 0.35 cent per hundredweight of milk. See 
Sec. 100X.82(d)(2)(ii) and (d)(3)(iv).
    4. A net shipment provision has been added to each of the 4 orders. 
This provision reduces the pounds of milk eligible for a transportation 
credit at a pool plant by the amount of milk transferred from that pool 
plant to a nonpool plant on the same calendar day the supplemental milk 
was received. See Sec. 100X.82(d)(1).
    5. The computation of the transportation credit for producer milk 
has been changed to more closely match the way the transportation 
credit is computed for milk that is transferred from an other order 
plant. In particular, if the farm ``origination point'' is within 
another Federal order's marketing area, the Class I price at the 
origination point shall be the price that would apply at that location 
under the provisions of the order covering that area. See 
Sec. 100X.82(d)(3)(v). In addition, in computing the credit for farm-
to-plant milk there is a deduction of 85 miles from the distance 
between the farm origination point and the receiving plant. See 
Sec. 100X.82(d)(3)(iii). Finally, the proportion of producer milk that 
is eligible for the transportation credit has been changed to more 
closely reflect the proportion of other order plant milk that would 
receive the credit. See Sec. 100X.82(c)(2)(i).
    6. The restricted area from which producer milk would be considered 
ineligible to receive a transportation credit has been revised to 
include six Kentucky counties--Allen, Barren, Metcalfe, Monroe, 
Simpson, and Warren--in addition to the specified marketing areas of 
Federal Orders 1005, 1007, 1011, or 1046. See Sec. 100X.82(c)(2)(iii).
    7. The months during which the market administrator may extend 
transportation credits have been changed from January through June to 
January and June. See Sec. 100X.82(b).
    8. The limitation on the amount of milk that may be delivered as 
producer milk without being disqualified for transportation credits has 
been changed from 32 days of production to 50 percent of the dairy 
farmer's total production during not more than 2 months of January 
through June when the dairy farmer was a producer. See 
Sec. 100X.82(c)(2)(ii).

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. Transportation Credits for Supplemental Bulk Milk Received for 
Class I Use. The tentative decision issued on July 12, 1996, concluded 
that Federal Milk Orders 1005, 1007, 1011, and 1046 (hereinafter 
referred to as ``the 4 orders'') should be amended to provide 
transportation credits for supplemental bulk milk that is transferred 
from an other order plant to a pool plant and for supplemental bulk 
milk imported directly from producers' farms during the months of July 
through December. Additionally, the decision concluded that a handler 
assessment on the total pounds of Class I producer milk should be added 
to each order to fund the transportation credits.

[[Page 27527]]

    This final decision reaffirms the conclusions of the earlier 
decision, but also recommends changes to that decision based upon the 
testimony of the reopened hearing. This decision consists of four 
parts. Part 1 is a brief summary of the testimony and briefs resulting 
from the initial hearing; part 2 is a summary of the interim amendments 
that were adopted in the July 12, 1996, tentative decision; part 3 is a 
summary of the testimony and briefs resulting from the reopened 
hearing; and part 4 explains why the interim amendments should be 
modified.

A Brief Summary of Testimony and Briefs Resulting From the May 15-16, 
1996 Hearing

    A transportation credit for bulk milk received from an other order 
plant for Class I use was proposed by Mid-America Dairymen, Inc. (Mid-
Am), a cooperative association that represents approximately 50 percent 
of the producers in Orders 5, 7, and 11, and nearly one-third of the 
producers in Order 46. According to Mid-Am, the Southeast States are 
chronically short of milk for fluid use at certain times of the year, 
namely the late summer and fall months. Mid-Am stated that the costs of 
supplying handlers with an adequate supply of fluid milk fall 
disproportionately on cooperative associations serving these markets. 
Arguing that the Agricultural Marketing Agreement Act provides for 
``marketwide service payments'' to provide for greater equity between 
producers and handlers supplying a market with supplemental milk, Mid-
Am testified that the Secretary should immediately amend the 4 orders 
to incorporate transportation credits into the 4 orders on milk that is 
transferred from other order plants.
    Carolina Virginia Milk Producers Association (CVMPA), a cooperative 
association with producers supplying plants regulated under all 4 
orders, stated that the Mid-Am proposal should be expanded to also 
include supplemental milk received directly from producers' farms. 
CVMPA noted that it imported far more supplemental milk directly from 
producers' farms than from other order plants during the months of July 
through December 1995.
    The proposal to include supplemental milk shipped directly from 
producers' farms was endorsed by both handlers and other cooperative 
associations. Receiving milk in this manner, it was argued, would 
encourage hauling efficiencies, improve milk quality, eliminate pump-
over expenses, and reduce product loss due to handling.
    Fleming Dairy, a handler operating in Tennessee and Louisiana, 
supported the transportation credit concept, but argued for a shorter 
transportation credit period than was proposed by Mid-Am. Fleming 
stated that extension of the transportation credit period should be 
removed from the proposal.
    Several witnesses suggested that the rate of 0.39 cent per mile 
that was proposed by Mid-Am for computing a transportation credit was 
too high. Testimony was also given regarding the necessity of 
restricting transportation credits on bulk milk transfers between the 4 
orders.
    Several proprietary handlers testified in opposition to the 
proposed transportation credits by arguing that the assessments would 
create competitive disadvantages among handlers. The record indicated 
that several handlers feared that marketing practices, such as stair-
stepping milk from one market to another, would result in false 
shortages in the shipping market and, thus, that the cost of obtaining 
additional milk supplies would not be shared equitably among handlers.
    Briefs filed by various handlers reiterated their reservations 
regarding transportation credits. It was maintained that the milk 
shortage situation in the Southeast should be dealt with through means 
outside of the order system, such as over-order premiums. Issues such 
as Class III-A pricing and stair-stepping of milk were addressed as 
concerns which could jeopardize the true intent of transportation 
credits to compensate handlers for costs incurred in obtaining 
supplemental supplies of milk for fluid use.
    While acknowledging that sufficient testimony and record evidence 
was offered in support of transportation credits, additional briefs 
submitted by interested parties cautioned the Department against 
potential abuse. Offsetting milk shipments into and out of the 
marketing areas, establishing historical milk movements, and limiting 
the amount of credits available (e.g. deducting the first 100 miles) 
were all addressed as areas of concern.
    One handler opposed the incorporation of transportation credits in 
total, claiming that such credits were money-shifting schemes proposed 
by those who have made no efforts to develop business relationships to 
ensure a steady supply of milk. The brief of another handler suggested 
limiting assessments to Class I sales made within the 4 marketing 
areas.
    Several of the post-hearing briefs argued that supplemental 
producer milk, as well as plant-to-plant milk, should be eligible for 
credits. CVMPA offered a definition of ``supplemental milk'' as the 
milk of dairy farmers which is only pooled during the months of short 
production. Suggestions for supplemental producer ineligibility were 
offered to distinguish such producers from those normally associated 
with subject markets. Recommendations on how to determine an 
origination point for producer milk were also proposed, including 
taking into consideration differences in Class I prices at the 
receiving plant and the origination point.
    In its post-hearing brief, Mid-Am emphasized that cooperatives were 
bearing a disproportionate burden in supplying these markets with 
supplemental milk. It argued that the cost associated with such milk 
cannot be passed along to their customers and that absorbing this cost 
placed their member producers at a competitive disadvantage relative to 
non-member producers who do not share in this cost. Mid-Am also pointed 
out that the incorporation of transportation credits would conform with 
past agency decisions and would facilitate securing adequate supplies 
of milk to meet the markets' fluid needs. It indicated that its 
proposal should be expanded to provide transportation credits for 
producer milk as well as plant milk.

Interim Amendments Effective August 10, 1996

    Following the May hearing, interim amendments providing for 
transportation credits became effective for the 4 orders on August 10, 
1996. The amendments provided transportation credits to pool plant 
operators and cooperative associations for Class I bulk milk received 
from an other order plant and for milk received directly from 
producers' farms and used in Class I.
    Handlers and cooperative associations are required to report to the 
market administrator receipts of bulk milk from other order plants and 
receipts of producer milk, including the identity of individual 
producers, for which transportation credits are requested pursuant to 
Section 30 of the orders.
    For plant milk, the credit is limited to milk that is allocated to 
Class I. It is computed at a rate equal to 0.37 cent per mile per cwt. 
based on the distance from the transferor plant to the transferee 
plant. The resulting number is reduced to the extent that the Class I 
price at the receiving plant exceeds the Class I price at the shipping 
plant to arrive at the transportation credit for that load of milk.
    In the case of milk received directly from producers' farms, the 
origination

[[Page 27528]]

point of a bulk tank truck containing more than one producer's milk is 
either the city closest to the farm from which the last farm pickup was 
made or the location specified on a certified weight receipt obtained 
at an independently-operated truck stop after the last farm pickup has 
been made. The credit is computed by multiplying 0.37 cent times the 
number of miles between the origination point and the location of the 
plant receiving the milk, less any positive difference in the Class I 
prices at the two points under the order receiving the milk.
    Transportation credits are limited to the months of July through 
December; however, an extension may be requested for any of the months 
of January through June. During the months of January through June, the 
market administrator has the authority to expand the transportation 
credit period if market conditions indicate that producer milk for 
Class I use will be in short supply and the marketwide Class I 
utilization is likely to exceed 80 percent. Such a request must be made 
in writing at least 15 days prior to the beginning of the month for 
which it is to be effective and requires the market administrator to 
issue a decision on the request by the first day of the month for which 
it is to be effective.
    Pursuant to the interim amendments, the credits are limited to 
transfers from other order plants that are not regulated under Orders 
5, 7, 11, or 46. This provision was added in response to concerns 
expressed at the hearing that handlers in one of these 4 markets could 
be required to pay for transporting milk into another of these markets 
in the absence of any such restriction.
    Certain location restrictions are also provided for supplemental 
producer milk. Transportation credits do not apply to the milk of any 
producer whose farm is located within any of the 4 marketing areas. In 
addition, the farm must be at least 85 miles away from the plant to 
which the milk is delivered.
    In order to receive credits on producer milk, the producer cannot 
be normally associated with the market in which the credit is 
requested. A producer's milk is eligible to receive such credits as 
long as the dairy farmer was not a producer under the order during more 
than 2 of the immediately preceding months of January through June and 
not more than 32 days' production of such farmer was received as 
producer milk on the market.
    The interim amendments adopted a transportation credit balancing 
fund, as well as a 6-cent per hundredweight (or lesser amount) monthly 
assessment on Class I producer milk to provide revenue for the fund. 
The higher of the hauling credits distributed in the immediately 
preceding 6 months or in the preceding July-December period is used to 
determine the current month's assessment level. The market 
administrator is authorized to maintain the transportation credit 
balancing fund, deposit assessments into it, and distribute 
transportation credits from it. Payments due from a handler are offset 
against payments due to a handler. The assessment for the 
transportation credit balancing fund is announced on the 5th day of the 
month preceding the month to which it applies.
    In the event that the transportation credit balancing fund is 
insufficient to cover the cost of the transportation credits to be 
distributed, the difference is deducted from the producer-settlement 
fund.

Testimony and Briefs Resulting From the Reopened Hearing

    At the reopened hearing, Mid-Am testified that it supports the 
continuation of transportation credits in the 4 orders, but that 
certain modifications should be made to fine-tune the provisions. Mid-
Am testified that changes should be made in the provisions applicable 
to producer milk, but that no changes were needed with respect to the 
provisions applicable to other order plant transfers.
    Mid-Am testified that: (a) the credits applicable to a load of 
producer milk should be comparable to those applicable to milk received 
from an other order plant; (b) the mileage for computing credits should 
be reduced by 85 miles from the origination point to the receiving 
plant; (c) the transportation credit computation on producer milk 
should reflect the difference between the shipping order's Class I 
price at the origination point and the receiving order's Class I price 
at the receiving plant; and (d) the geographic area from which 
producers would be ineligible to receive credits on their milk should 
be further expanded and clarified, including basing points found on the 
edges of the marketing areas. In addition, Mid-Am proposed a revision 
to Section 78, Charges on Overdue Accounts, in the Carolina, Southeast, 
and Louisville-Lexington-Evansville orders to include payments of 
transportation credit assessments due pursuant to Section 81 of the 
orders.
    Carolina-Virginia Milk Producers Association (CVMPA), a cooperative 
association with producers supplying plants regulated under all 4 
orders, testified in support of Mid-Am's proposal to modify the 
transportation credits. CVMPA testified that, like Mid-Am, it believes 
that the interim amendments are in need of some fine-tuning so that the 
credits available on producer milk are comparable to those available on 
plant milk. Also, CVMPA said that Mid-Am's proposed changes will reduce 
the total amount of credits available on producer milk, thereby 
lessening the probability that the value of the credits distributed 
will exceed available funds.
    Associated Milk Producers, Inc. (AMPI), a cooperative association 
representing producers in the South and Southwest which also operates 
manufacturing facilities in various states, testified in support of the 
basic concept proposed by Mid-Am and CVMPA, but stated that certain 
modifications to such proposals should be considered. AMPI testified 
that it supports the proposal regarding the equalization of 
transportation credits granted to producer milk imports and plant milk 
shipments, but opposes the institution of basing points and the 85-mile 
exclusion rule to establish producer milk ineligibility for 
transportation credits. AMPI argued that the ineligibility requirement 
would cause the uneconomical movement of milk because supplemental 
supply sources in relatively close areas, such as eastern Texas, would 
be passed over since supplemental producer milk from that area would 
not receive any transportation credits. AMPI testified that it does not 
oppose other aspects of Mid-Am's proposed modifications, such as 
deducting the first 85 miles from the hauling distance to compute the 
transportation credit value and having the credit cover only that 
portion of a producer's load that is allocated to Class I.
    AMPI also suggested including a net shipment provision as it 
pertains to transportation credits on a daily or monthly basis. AMPI 
argued that transportation credits should not be available on milk 
received by a plant when on the same day the same milk may be diverted 
or transferred to other order plants. While being unaware of any such 
abuse currently, AMPI said that inclusion of such a provision would 
prevent the encouragement of future abuse.
    AMPI also testified that the transportation credits, as currently 
structured, have created disorderly marketing conditions by 
establishing an incentive for handlers to solicit producers away from 
cooperatives during the transportation credit period. Although AMPI 
contended that it had not lost producer membership, AMPI testified that 
other cooperatives had lost some membership.

[[Page 27529]]

    Testimony was also offered by a spokesman on behalf of Piedmont 
Milk Sales, an organization that markets the milk of 277 dairy farmers 
to handlers in the Southeast. Piedmont testified that the provision 
which permits funds to be transferred from the producer-settlement fund 
to the transportation credit balancing fund when the latter fund has an 
insufficient balance to pay the month's transportation credits has been 
detrimental to dairy farmers in the Southeast. Piedmont testified that 
the loss of income to producers reflected in their reduced blend prices 
is contrary to the economic philosophy relied on in half a century of 
Federal order and price support administration.
    Piedmont pointed out that the May 1996 hearing record indicated 
that the impact on the blend price would be less significant than has 
actually occurred, suggesting, perhaps, that abuse of the 
transportation credits has occurred and will continue to occur in the 
absence of any modification of the provision. In order to curtail 
abuse, Piedmont suggested that transportation credits be prorated on 
the basis of available funds collected from handlers and deposited into 
the transportation credit balancing fund.
    Piedmont also called for the restriction of credits on producer 
milk by including a provision which would eliminate credits on milk 
shipped directly from distant farms unless such milk was diverted 
between markets; it should then be treated as if it were plant milk. In 
essence, Piedmont argued for the tightening of the transportation 
credit provisions to prevent the uneconomic movement of milk from 
sources as far as California. The rate of 0.37 cent/mile also was 
criticized as being too high; however, no specific alternative rate was 
offered.
    Piedmont supported a net shipment provision which would reduce the 
amount of transportation credits obtained by a handler if that handler 
shipped milk to a plant not regulated under any of the 4 orders. While 
conceding that some transfers and diversions were justified and did not 
constitute abuse, Piedmont contended that it is the responsibility of 
the handler to demonstrate that supplemental milk actually moved into 
such order(s) if a credit is requested.
    In response to questions regarding the computation of the credits 
for the various orders, Piedmont stated that currently under the 
interim amendments the procedure used to compute such credits is not 
identical for each of the orders with respect to location adjustments. 
In order to promote greater equity, Piedmont suggested that the 
procedures used in Orders 11 and 46 for such computation should be used 
for all 4 orders.
    Several Southeastern dairy farmers testified at the reopened 
hearing to oppose and voice their concerns over the reduction in blend 
prices resulting from the implementation of the transportation credits. 
One dairy farmer stated that he does not understand why Class I 
utilization rates have dropped in his marketing area in recent months, 
while, at the same time, supplemental milk is being imported and is 
eligible for transportation credits. Many of the farmer witnesses 
complained that by deducting the difference between the amount of 
credits to be paid out and the amount of funds available to cover these 
credits from the producer-settlement fund, dairy farmers are penalized 
and handlers are provided an incentive to continue to bring in milk 
whether it is needed or not.
    One dairy farmer stated that the importation of supplemental milk 
would contribute to the demise of the dairy industry in the South. He 
contended that hauling in supplemental milk does not benefit local 
suppliers of feed or fertilizer and will eventually harm the 
Southeastern economy. He also expressed concern about price uncertainty 
which, he said, is exacerbated as a result of the transportation 
credits. One dairy farmer maintained that producers already have to 
contend with a number of variable factors affecting their blend price 
(including the weather and drought) and should not be subject to any 
additional uncertainties which may further reduce their blend price. He 
stated that once the blend price is reduced, the dairy farmer has no 
way to recoup the loss and cannot pass that cost along to anybody else.
    Another dairy farmer testified that it is unfair and illogical to 
reduce the blend price in the Southeast to bring in supplemental milk 
when milk is also moving out of the area. He stated that he welcomes 
competition from dairy farmers outside the Southeast area, but that 
Southeast dairy farmers should not be responsible in any way for 
hauling their distant competitors' milk into the area. He said that, in 
essence, this has occurred with the implementation of the 
transportation credit provisions.
    Kraft, Inc. (Kraft), which operates manufacturing plants in several 
states, testified that it is generally not opposed to ``cautious and 
conservative use of transportation credits where necessary to assure 
that milk required for Class I use is equitably and adequately 
supplied.'' Kraft contended that the transportation credit provisions 
adopted in the interim amendments appear to provide a financial 
incentive to acquire distant supplemental producer milk rather than 
plant milk by absorbing some of the hauling charges that would normally 
be paid by the supplying producer. Kraft testified that the credits 
should be continued, but that there should be an equalization of 
incentives and/or disincentives with respect to plant milk versus 
producer milk.
    Kraft also testified that if a net shipment provision is to be 
incorporated into the transportation credit program, it should only 
include milk which has been transferred or diverted for Class I use to 
another handler.
    Milk Marketing, Inc. (MMI), speaking on behalf of its member 
producers whose milk is pooled under Order 46, testified that it 
supports Mid-Am's and CVMPA's proposal to modify the interim 
amendments. MMI contended that such proposed modifications are needed 
to resolve issues of equity involving producer milk and plant milk. In 
addition, MMI stated that it firmly believes that producer milk 
normally associated with the market should continue to be ineligible to 
receive transportation credits.
    Fleming Dairy, which operates pool distributing plants in 
Nashville, Tennessee, and Baker, Louisiana, testified that it opposes 
any increase of the current 6-cent assessment rate that is charged to 
handlers regulated under the 4 orders. Fleming also addressed the issue 
of net hauling provisions by stating that this is an area which needs 
to be examined more thoroughly.
    When asked about funds taken from the producer-settlement fund to 
supplement the transportation credit balancing fund, Fleming testified 
that Mid-Am's and CVMPA's proposals to reduce the amount of credits 
given out will most likely result in a situation where a 6-cent 
assessment will be enough to cover the value of the credits. Fleming 
testified, however, that transportation credits primarily benefit dairy 
farmers and, for this reason, it is appropriate to have all producers 
supplement the funds available for credits by a reduction in the blend 
price. In conclusion, Fleming testified that without transportation 
credits, it would have had less money available within the company to 
pay premiums to independent dairy farmers. Thus, according to Fleming 
Dairy, dairy farmers have benefited from the incorporation of 
transportation credits.
    A witness representing Dairy Fresh Corp. and Barber Pure Milk Co., 
two handlers operating pool plants regulated under Order 7, also 
supported

[[Page 27530]]

transportation credits as a concept, but opposed increasing the handler 
assessment rate from 6 to 7 cents. Addressing the issue of the credit 
rate, and in response to a question asked earlier at the hearing, the 
witness stated that the 0.37 cent/mile rate should not be decreased as 
the distance hauled increases. He argued that this would not be 
appropriate because at times it is necessary to seek distant sources of 
available milk supplies. Finally, the witness testified that Mid-Am's 
proposal involving the 85-mile ineligibility requirement would 
discourage handlers from obtaining milk directly from producers' farms 
and thereby discourage greater efficiency and better quality milk.
    Post-hearing briefs were filed by various interested parties. While 
changes to the current transportation credit provisions have been 
recommended throughout such briefs, the concept of transportation 
credits was not opposed by any of the submitting parties, with the 
exception of one handler recommending that the credits be eliminated 
from Order 11.
    In its brief, Southern Belle, a handler regulated under Order 11, 
opposes any assessment on Class I producer milk for transportation 
credits in Order 11, reiterating its position following the initial 
hearing. Southern Belle restated the argument that many of its 
competitors are pooled under an order which does not require such 
assessment; therefore, the assessment places Southern Belle at a 
competitive disadvantage. Furthermore, such brief stated the current 6-
cent assessment negatively impacts the Southern Belle's sales of 
bottled milk.
    A brief submitted by Kraft Foods, Inc., stated that Kraft does not 
oppose transportation credits, but suggested that these provisions 
should be modified to equalize the costs of supplying fluid milk 
supplies to the Southeast. The brief stated that Kraft is at a 
disadvantage in procuring milk for Class II use because credits are 
available to those handlers with fluid milk plants which compete with 
Kraft in their ancillary Class II operations. Kraft also expressed 
concern over a net shipments provision and urged the Department to be 
cautious in its adoption of any such provision by having shipment 
limitations apply only when Class I milk (eligible for a transportation 
credit) received in any of the markets has replaced Class I milk 
(ineligible for a transportation credit) shipped out of the same market 
if the receiving plant is not within the 4-market area. Kraft's brief 
also reiterated its recommendation that the incentive and disincentives 
regarding transportation credits on supplemental plant milk versus 
supplemental producer milk should be equalized.
    In its brief, Fleming Companies strongly supported the continuation 
of transportation credits, but stated that a few minor adjustments may 
be necessary. Fleming also restated its position that it opposes any 
increase in the handler assessment rate. Additionally, the brief stated 
that it is not inequitable for producers to share in the cost of the 
transportation credits since such cost provides services of marketwide 
benefit. As long as the contribution of handlers through assessments 
exceeds the amount of contribution by producers, then, according to 
Fleming, no increase in the assessment rate is justified.
    Piedmont Milk Sales also submitted a post-hearing brief on behalf 
of the 277 dairy farmers who ship through Piedmont and regulated 
handlers, Land O'Sun, Inc., Hunter Farms, and Milkco, Inc. In its 
brief, Piedmont conceded that transportation credits are needed in the 
Southeast; however, Piedmont also recommended that certain changes are 
necessary regarding transportation credits in order to curtail abuse or 
potential abuse. According to Piedmont, several areas need to be 
modified, including: (1) Producer milk eligibility, (2) the January 
through June extension period for transportation credits, (3) the 
deduction of funds from the producer-settlement fund resulting in blend 
price reductions, and (4) the inclusion of a net shipment provision.
    Piedmont suggests that credits have been given on milk which was 
imported for Class I use into the 4-market area, while at the same time 
milk was being shipped out of this area into Florida. Handlers and 
producers, it was stated, paid to bring in replacement milk from as far 
away as California when the milk could have been obtained from closer 
sources. Piedmont argued that the current transportation credits create 
an incentive to acquire milk on the basis of the generosity of the 
credits as opposed to the most efficient movement of milk.
    Piedmont's brief also suggested that the market administrator's 
responsibility should be expanded to monitor transportation credit 
requests to determine whether milk that was imported was actually 
supplemental milk. The brief explains that the market administrator 
should be required to verify that the credits due a handler do not 
exceed the actual costs of hauling. In addition, Piedmont reiterated 
its request for a net shipment provision to ensure that shipments from 
these 4 markets to other order plants are not occurring simultaneously 
with the importation of supplemental milk to replace these exports.
    In its brief, Piedmont also strongly opposed any reduction in the 
blend price of producers. A recommendation to prorate the available 
funds to be paid out to handlers was supported.
    According to Piedmont, if the Department does not eliminate 
producer milk from being eligible for transportation credits, certain 
restrictions should be placed on it. While supporting the proposed 
amendment to assign producer milk to Class I in the same manner as 
transferred milk, Piedmont opposes the other proposed changes involving 
producer milk. Piedmont stated in its brief that when computing the 
transportation credit, such credit should be reduced by 125 miles and 
that it should also be reduced by an increment of 5% for each 100 miles 
over 250 miles. In addition, Piedmont supports a reduction in the 
credit rate of 0.37 cent per mile per hundredweight that is used in the 
calculation of the credits. The rate decided upon should ensure that 
handlers have an economic incentive to reduce the cost of transporting 
milk.
    A brief submitted by CVMPA supports a continuation of 
transportation credits for the 4 markets, but also recommended that 
certain modifications be adopted to the current provisions. In its 
brief, CVMPA stated that the marketing situation which prompted the 
need for transportation credits in the Southeast has not changed, and 
any return to the pre-transportation credit situation would result in 
disorderly marketing and irreparable harm to producers in certain 
groups.
    CVMPA stated that the credits available on supplemental producer 
milk should be comparable to credits available on other order plant 
milk. It suggests that one way of accomplishing this is to use the same 
marketwide Class I utilization percentage to determine the proportion 
of transferred milk and producer milk that is eligible for the credit. 
A second change supported by CVMPA involves the adjustment of the 
credit by the difference between the shipping point Class I price and 
the receiving plant Class I price whether it is a producer load or an 
other order plant transferred load. This will further equate the amount 
of credits available on supplemental producer milk versus supplemental 
plant milk.
    In its brief, CVMPA restated its support of the reduction of the 
first 85 miles in computing the transportation credit. Such a 
reduction, CVMPA argued, would serve as a proxy for the

[[Page 27531]]

normal distance milk moves from farm to plant. This reduction is 
appropriate, according to CVMPA, because the producer should be 
responsible for the cost of farm-to-market hauling. This modification, 
it adds, will further equate credits on producer milk and plant milk.
    CVMPA's brief supports the proposal to have a producer's milk 
ineligible for credits if the producer's farm is located within 85 
miles of the plant receiving the milk, is within the 4 marketing areas, 
is within 85 miles of certain cities on the periphery of the 4-market 
area, or is located within certain states in the southeastern United 
States. CVMPA argued that expansion of the geographic area would tend 
to curtail the incentive to move milk uneconomically. CVMPA also 
refuted certain arguments brought up during the reopened hearing which 
maintained that such an expansion would result in the procurement of 
milk from further distances so that credits could be earned. This, 
CVMPA argued, is false logic.
    Regarding the assessment rates, CVMPA argued in its brief that 
assessments should be raised to a level high enough to ensure that 
there will be no insufficiencies in the transportation credit balancing 
fund. No justification exists for reducing the blend price to 
producers, according to CVMPA; therefore, no deductions should be made 
from the producer-settlement fund. CVMPA's brief also stated that any 
other alternative, such as over-order pricing, will result in inequity 
or uncertainty.
    Finally, CVMPA opposed the installation of a net shipment provision 
for reducing transportation credits received by a plant that also ships 
out Class II or Class III milk during the same month that 
transportation credits are received by such plant. In its brief, CVMPA 
argued that seasonal, monthly, and weekly balancing of customer needs 
is very important to a cooperative association such as itself. While 
some operators of supply plants have the ability to reshuffle supplies 
through the week and weekend to help with weekly balancing, 
cooperatives which do not have manufacturing plants lack such 
opportunity. According to CVMPA, it is untenable to reduce 
transportation credits on supplemental milk simply because a 
cooperative is balancing the daily and weekly need of distributing 
plants by diverting producer milk.
    Mid-Am also submitted a post-hearing brief in support of the 
continuation of transportation credits under the 4 orders, but with the 
modifications summarized earlier. Mid-Am reiterated its support for a 
modification of the interim provisions that would ensure that credits 
given on producer milk are comparable to credits given on plant milk.
    Mid-Am pointed out in its brief that if the proposed modifications 
to the interim amendments concerning credits on producer milk are 
adopted, the amount of credits paid out will be significantly reduced; 
therefore, for Orders 5, 11, and 46, the current assessment rate of 6 
cents per hundredweight should be sufficient to cover the costs of 
credits due. However, Mid-Am stated that in order to prevent funds from 
being deducted from the producer-settlement fund, an increase of the 
assessment to 7 cents in Order 7 would be necessary. Mid-Am also 
reiterated its opposition to the adoption of a net shipment provision 
for reducing transportation credits. According to Mid-Am, no 
justification exists for the incorporation of such a provision. Milk 
Marketing Inc. also submitted a brief in support of the continuation of 
transportation credits.
    MMI stated that it fully supports the positions of CVMPA and Mid-Am 
with respect to the modification of the interim amendments. According 
to MMI, the proposed modifications will result in the transportation 
credit provisions being administered in a more equitable and uniform 
manner.
    A brief filed by AMPI also supported modifications of the current 
transportation credit provisions so that the credits available on 
producer milk are more comparable to the credits available on other 
order plant milk. According to AMPI, such modifications would result in 
the elimination of the transportation credit advantage of producer milk 
over plant milk which causes disorderly procurement activities by 
various handlers.
    In its brief, AMPI opposes the modification proposed by Mid-AM and 
CVMPA that would render ineligible for credits that milk shipped from 
producers' farms located outside the 4 marketing areas, but within 85 
miles of certain basing points. AMPI argues that such a restriction 
would result in the uneconomical movement of milk, thereby creating 
additional transportation costs in the Southeast.
    AMPI's brief also recommends the inclusion of a net shipment 
provision to guard against abuse of the transportation credits by 
various handlers. AMPI's brief stated that it is unreasonable to base 
such a net shipment provision on monthly transfers and diversions; it 
suggested that netting shipments that occur within the same 24-hour 
period would be more appropriate.
    Barber Pure Milk Company and Dairy Fresh Corporation also submitted 
a post-hearing brief opposing certain modifications of the current 
transportation credit provisions. Barber and Dairy Fresh stated that 
they are concerned over issues of inequity which may result from any 
changes to the current provisions.
    In their brief, Barber and Dairy Fresh oppose any proposal to have 
credits on supplemental producer milk be contingent upon the lower of 
the marketwide Class I utilization or the Class I utilization of the 
receiving plant. By making the credits on producer milk and plant milk 
comparable, they argue, other inequities would be created. 
Additionally, they note that the proposed modifications, including the 
proposal to subtract 85 miles from the total farm-to-plant mileage, 
would encourage the importation of other order plant milk rather than 
producer milk, which is more efficient.
    According to Barber and Dairy Fresh, the interim orders should 
remain as they are with respect to adjustments involving Class I prices 
applicable at the origination point and the receiving plant. Any 
modification to the current computation would not have sufficient 
justification, according to the commentors. Any change to the 
geographic area from which producers' milk is ineligible to receive 
credits was opposed by Barber and Dairy Fresh because restrictions 
would be placed on producer milk which would not apply to milk from 
other order plants.
    In their brief, Barber and Dairy Fresh also opposed decreasing the 
amount of credits available as the distance increases. This, it was 
argued, would force the uneconomical movement of milk. Any increase in 
the assessment rate was opposed by the commentors also. They maintain 
that producers also must share some responsibility for supplying the 
Class I milk needs of the markets. Finally, Barber and Dairy Fresh 
suggest that a net shipment provision be incorporated in the orders to 
prevent milk from being brought into one order for the transportation 
credit, while simultaneously milk is being shipped by the same handler 
to another market. According to the commentors, the Florida markets are 
benefiting from the transportation credit provisions at the expense of 
the 4 southeastern markets.
    Gold Star Dairy also submitted a post-hearing brief opposing any 
assessments on Class I prices in order to fund transportation credits 
under Order 7 and maintains its position as stated in its brief 
following the May 1996 hearing. Gold Star Dairy also opposes any 
modifications of the orders regarding

[[Page 27532]]

the interim amendments claiming that proper notice had not been given.
    Select Milk Producers, Inc., submitted a brief in support of the 
continuation of transportation credits without modification. In 
addition to reiterating its position from an earlier brief submitted 
after the May 1996 hearing, Select stated that proposals to limit 
transportation credits based on distance would result in an inequitable 
situation by placing the burden of transporting milk from further 
distances on cooperatives servicing the southeast markets. 
Additionally, Select maintained that the small reduction in producer 
pay prices resulting from the credits will end once the funds in the 
transportation credit balancing funds are built up; therefore, these 
past reductions do not justify changing the current provisions. Select 
also argued that proper notice had not been given to interested parties 
prior to the reopened hearing.
    A brief was also filed by a producer from Tennessee who expressed 
concern that transportation credits place southeastern producers at a 
competitive disadvantage. In his brief, he also questioned why 
southeast producers have been paying to have distant milk hauled into 
their markets.

Conclusion

    Testimony and exhibits introduced at both sessions of the hearing 
indicate that the Southeastern United States has a chronic shortage of 
milk for fluid use in the summer and fall months, which often extends 
into the winter months. This shortage has been worsening over time as 
milk production has declined and population has increased. This trend 
is likely to continue, exacerbating the problem of obtaining a 
sufficient supply of milk for fluid use in an orderly and equitable 
manner.
    Under the arrangements that existed in these markets prior to the 
adoption of the interim amendments, the costs of obtaining an 
increasing supply of supplemental milk were not being borne equally by 
all handlers and producers in each of the 4 orders. The record 
indicates that disorderly marketing conditions existed because of the 
significantly different costs that were incurred by handlers who 
provide the additional service versus those who do not. It also 
indicates that the disproportionate sharing of costs was jeopardizing 
the delivery of adequate supplies of milk for fluid use. Thus, based 
upon the record of the first session of the hearing in these matters, 
interim amendments were adopted to restore stability and order in 
providing adequate supplies of milk for fluid use. The reasons for 
adopting the interim amendments were thoroughly explained in the 
tentative decision and the provisions that were adopted have been 
summarized above. Therefore, the discussion that follows will not 
reiterate the reasons for adopting the interim amendments, but instead 
will focus on the reasons for changing them based upon the new 
information presented at the December hearing.
    The interim amendments provided for transportation credits during 
the months of July through December and included all of the months of 
January through June in a ``discretionary transportation credit 
period.'' Under those provisions, a handler may request that 
transportation credits be extended to any of the months of January 
through June by filing such a request with the market administrator 15 
days prior to the beginning of the month for which the request is made. 
After providing notice of such a request to interested parties and 
conducting an independent study of the situation, the market 
administrator has the ultimate authority to grant or deny the request 
but must notify handlers of the decision by the first day of the month. 
The complete procedure to be followed is described in Sec. 100X.82(b) 
of the order language.
    This final decision changes the discretionary period from the 
months of January through June to January and June only. Outside of the 
July through December period, January and June are likely to be the 
months when these markets are most in need of supplemental milk for 
fluid use. Class I utilization generally begins to drop in February and 
milk supplies are usually adequate for fluid use until June.
    The reasons for changing these discretionary months are twofold. 
First, including all of the months of January through June in the 
discretionary period could result in a situation where transportation 
credits are provided on nearly a year-round basis. Were this to happen, 
it would destroy the concept of a supplemental producer because a dairy 
farmer conceivably could be shipping milk to one of these markets on a 
year-round basis. Moreover, under the provisions provided in this 
decision, if a dairy farmer were to supply milk for more than 2 months 
of the January through June period, the producer's milk would be 
ineligible for transportation credits beginning in July. Hence, these 
provisions would be in conflict with each other. A second reason for 
restricting the discretionary period to January and June is to give the 
transportation credit balancing fund a chance to build up so that funds 
will be available when the markets are most in need of supplemental 
milk starting in July.
    The interim amendments provided for a transfer of funds from the 
producer-settlement fund to the transportation credit balancing fund 
when the latter fund had an insufficient balance to pay the month's 
transportation credits. When this provision was adopted, it was assumed 
that it would only be needed for the first year that these provisions 
were in effect and that, thereafter, the transportation credit 
balancing fund would maintain a sufficient balance to preclude such a 
transfer of funds. Experience has indicated otherwise, particularly 
with respect to the Southeast and Carolina markets. Data introduced by 
the market administrators' offices show that all 4 orders had an 
insufficient balance in the transportation credit balancing fund during 
every month that transportation credits have been in effect, with the 
exception of Order 46 in November 1996. The data also show that the 
transfer of funds from the producer-settlement fund to the 
transportation credit balancing fund reduced blend prices to producers 
by varying amounts during the 4-month period of August through November 
1996, ranging from 1 cent for Order 46 to as much as 21 cents in 
October for Order 7.
    To cope with the milk shortage of the past year, action had to be 
taken to provide handlers with adequate milk supplies to meet their 
fluid needs as equitably as possible. Since the transportation credit 
provisions did not become effective until August 10, 1996, there was no 
opportunity to accumulate funds with which to pay all of the 
transportation credits. Therefore, as a short-term measure, provision 
was made for taking funds from the producer-settlement fund. The logic 
behind this provision was that if transportation credits could not be 
paid fully from funds collected from handlers, the next best 
alternative was to have all of a market's producers contribute to 
making up the difference; otherwise, certain producers (i.e., members 
of cooperative associations) would bear a disproportionate share of the 
cost of bringing in supplemental milk.
    Based on the experience with transportation credits during the past 
4 months, it can be concluded with some certainty that, under present 
conditions, the transportation credit balancing fund of Orders 5 and 7 
would contain insufficient funds to pay for all of the transportation 
credits that are likely to be accrued during the months of July through 
December 1997 and that, based upon the current 6-cent assessment rate, 
funds would have to be transferred from

[[Page 27533]]

the producer-settlement fund to the transportation credit balancing 
fund by fall 1997 if these provisions remain unchanged.
    We agree with the proponents of transportation credits that the 
cost of bringing supplemental milk to a market generally should be 
shared among all of a market's handlers. However, from the data for the 
last 4 months, it can now be concluded with reasonable certainty that 
to fully cover handlers' costs for the Southeast and Carolina markets 
under the present provisions, the assessment rate would have to be 
raised significantly. A better approach, we believe, is to address the 
revenue problem from both ends: slightly increase revenue, but more 
significantly reduce payouts. This would ensure that only necessary 
imports are made, and would encourage the most cost effective methods 
of procurement. At the same time, it would provide handlers with 
significant, if not total, recoupment of costs.
    In particular, based upon the record of this hearing and the 
experience with transportation credits during the months of August 
through November 1996, several changes should be made to the 
transportation credit provisions to correct certain problems that have 
become evident.
    First, the transfer of funds from the producer-settlement fund to 
the transportation credit balancing fund should be eliminated. This 
temporary measure is no longer needed. Transportation credits should be 
paid out each month to the extent possible from the available funds in 
the transportation credit balancing fund. If the credits exceed the 
balance in the transportation credit balancing fund, the available 
funds should be prorated to handlers based upon the transportation 
credits that are due to each handler.
    Second, the per mile transportation credit rate should be reduced 
to 0.35 cent per hundredweight per mile from the present level of 0.37 
cent. This reduction is consistent with the testimony of several 
witnesses who warned during the course of the hearings that it is 
better to under-compensate handlers for supplemental milk costs rather 
than overcompensate them. In this way, handlers will only import milk 
that is truly needed because their costs may not be fully covered. This 
argument makes sense and, in view of the need to conserve funds, this 
suggestion should be adopted.
    Third, the proposal by Mid-Am to exclude 85 miles from the mileage 
when computing credits for supplemental producer milk should be 
adopted. Mid-Am is correct in arguing that producers should be expected 
to bear their normal farm to plant hauling cost, and the 85-mile figure 
proposed appears to be a reasonable approximation of the distance used 
in computing such cost. This modification will also help significantly 
to reduce transportation credits.
    Fourth, certain changes should be made in the proportion of 
supplemental producer milk eligible for transportation credits and in 
the formula for computing those credits. These changes are explained 
below.
    Finally, the maximum assessment for the transportation credit 
balancing fund should be increased slightly for Orders 5 and 7. It is 
likely that, even with the changes adopted above and others yet-to-be 
discussed, there will be a shortfall in funds to pay for all of the 
projected transportation credits if production patterns continue as 
they have for the past 3 years. A modest rate increase will help narrow 
this gap. Therefore, the maximum assessment rate for Order 5 should be 
increased to 6.5 cents per hundredweight of Class I producer milk and 
the rate for Order 7 should be increased to 7 cents per hundredweight. 
The rate should remain at 6 cents per hundredweight for Orders 11 and 
46, however.
    This modest increase in the assessment rates for Orders 5 and 7 
will help to avoid having to prorate available funds to handlers in 
these markets. It should be kept in mind that this rate is the maximum 
rate that can be charged. If production increases and/or supplemental 
milk imports decrease and less money is needed for the transportation 
credit balancing fund, these changes will trigger an automatic 
reduction in this assessment.
    The current 6-cent assessment for Orders 11 and 46 is likely to 
meet all of the anticipated transportation credits for 1997. In fact, 
by the first half of 1998 it may be possible to maintain a sufficient 
balance in the transportation credit balancing fund with a rate below 6 
cents per hundredweight for these 2 markets.
    In conjunction with the limit on the disbursement of transportation 
credits, as explained above, a new procedure should be implemented for 
receiving the required information, computing the credits to be 
disbursed, and making final settlement for appropriate adjustments.
    Experience with the transportation credit provisions during the 
months of August through December 1996 has demonstrated a handler/
cooperative association problem in getting complete and accurate 
transportation credit documents to the market administrator by the 7th 
day of the month, when such information must be received for purposes 
of computing the uniform price. Because of difficulties in obtaining 
timely information, the market administrators have accepted late 
submissions of supplementary information.
    Now that the possibility exists that transportation credits may 
have to be disbursed on a prorata basis, fixing the time for the final 
submission of requests and for final payment based upon such requests 
is even more of a necessity. If the submission of supplemental 
information were left open-ended, the procedure for prorating credits 
could get hopelessly complicated with endless recalculations based on 
tardy information. Therefore, the procedure should be clear, 
reasonable, and unalterable once in place.
    When the market administrator receives handlers' reports of 
receipts and utilization by the 7th day of the month, the market 
administrator will determine whether there are sufficient funds in the 
transportation credit balancing fund to cover the requests for 
transportation credits. If there is not a sufficient balance, the 
market administrator will compute a preliminary proration percentage by 
dividing the balance in the fund by the total amount of transportation 
credits requested. The prorated credits so computed will be disbursed 
along with any payments from the producer-settlement fund on or before 
the 13th day of the month with respect to Orders 5, 7, and 11 (16th day 
of the month in the case of Order 46).
    Handlers will be given the opportunity to correct and file complete 
documentation of their initial transportation credit requests for the 
preceding month by filing updated information with the market 
administrator by the 20th day of the month. After such date, the market 
administrator will conduct a preliminary audit of the requests and will 
then compute a final proration percentage based upon the revised 
numbers. Handlers then will be notified of any additional credits due 
them or of any payments due from them and such payments will be 
completed the following month when payments are next due.
    At the May 1996 hearing, Mid-Am proposed permitting transportation 
credits for bulk transfers of milk for Class I use from any other order 
plants. The interim amendments restricted such transfers to plants 
regulated under Federal orders other than Orders 5, 7, 11, and 46. The 
reason for excluding plants under these 4 orders from transportation 
credits was to avoid

[[Page 27534]]

potential abuses from undue movements of milk among the orders to take 
advantage of transportation credits. In particular, handlers were 
concerned that milk could be stair-stepped from Order 46 to Order 7, 
for example, thereby creating a shortage of milk in Order 46. Order 46 
handlers then would have to import replacement milk, and their 
assessments for transportation credits would be used to cover 
transportation costs for such replacement milk when, some argued, Order 
7 handlers should have borne the full cost of importing milk from the 
ultimate source. At the reopened hearing, there were no problems 
mentioned in connection with the provisions applicable to plant 
transfers, except for concern that milk could be moved or stair-stepped 
among orders to obtain credits. As a result, the provisions that 
prohibit credits to receipts of transferred milk among the four orders 
should remain unchanged in the final amendments.
    Currently, producer milk is eligible to receive transportation 
credits as discussed above. At the reopened hearing, there was no 
testimony suggesting that transportation credits be eliminated for 
producer milk. In fact, the available data shows that during the months 
of August through November 1996 far more supplemental milk was received 
directly from producers' farms than from other order plants. Several 
suggestions were made concerning how to compute such credits in a more 
equitable and efficient manner. Since most of these suggestions have 
merit, modifications to the interim amendments involving producer milk 
are provided.
    The thrust of the testimony was that the present method for 
computing transportation credits for producer milk resulted in an 
overly generous credit as compared to the method used for plant milk 
and, therefore, provided an artificial incentive to receive producer 
milk directly from farms rather than milk transferred from an other 
order plant. The testimony, as summarized earlier, was quite 
convincing, with the exception of Mid-Am's proposal to exclude the milk 
of a producer who is within 85 miles of the perimeter of any of the 4 
marketing areas from transportation credit eligibility. Such proposal 
should not be adopted.
    In the interim amendments, producer milk was not eligible for a 
transportation credit if the producer's farm was located within one of 
the 4 marketing areas or if the farm was within 85 miles of the plant 
to which milk from the farm was delivered. The tentative decision 
concluded that it was ``reasonable to conclude that the markets'' 
regular producers are located reasonably close to the plants receiving 
their milk. Thus, such producers' farms are likely to be within the 
geographic marketing areas defined in each order.''
    At the reopened hearing, Mid-Am proposed expanding this restriction 
to include producers whose farms are: (a) Within the States of Florida, 
Georgia, Alabama, Louisiana, Mississippi, Arkansas, Tennessee, South 
Carolina, North Carolina, or Kentucky; or (b) within 85 miles of the 
City Hall in the nearer of Lake Charles or Shreveport, Louisiana; 
Little Rock, Arkansas; Evansville, Indiana; Fulton, Louisville, or 
Lexington, Kentucky; Bristol, Tennessee; or Reidsville, or Roanoke 
Rapids, North Carolina.
    Mid-Am's 10-state exclusion area would randomly exclude many 
counties in Arkansas and Kentucky that are outside of any of the 4 
marketing areas and should not be adopted. It would be difficult to 
justify the exclusion of a county from transportation credits simply 
because of its location within a particular state. For example, under 
the Mid-Am proposal, many counties in northwest Arkansas and northeast 
Kentucky would be excluded from transportation credits. These counties 
may or may not be part of the regular supply for the 4 markets. By 
randomly excluding all territory within a state, certain counties 
outside of the 4 marketing areas may be unfairly excluded. The 
exclusion of territory from transportation credits should be based upon 
whether that territory is a regular source of supply for the markets 
involved in this proceeding. It must be noted, however, that simply 
because a county is within one of the 4 marketing areas does not 
necessarily make it a regular source of supply for these 4 markets. By 
the same token, simply because a county is just outside these marketing 
areas does not mean it is not a regular source of supply either. 
However, it is reasonable and appropriate to use such marketing area 
boundaries to define the exclusionary area since it is apparent that 
most of the producers located within these areas supply plants 
regulated under these orders. Furthermore, other performance measures 
are used to distinguish between producers who are or who are not 
regular suppliers of these markets. Thus, the exclusionary area need 
not be overly restrictive as proposed by Mid-Am.
    The interim amendments excluded the area within the 4 marketing 
areas from transportation credits. However, the use of the marketing 
area definition failed to exclude several unregulated counties within 
the State of Kentucky where producers are located and who could qualify 
for transportation credits. These counties are completely encircled by 
the Order 7 and Order 46 marketing areas and are an integral part of 
the milk supply for those 2 markets. There can be no doubt that these 
counties-- Allen, Barren, Metcalfe, Monroe, Simpson, and Warren--
clearly should be part of the area excluded from transportation credits 
because the surrounding markets are clearly the regular outlets for 
this milk. Accordingly, the order language should be modified to 
include these 6 counties in Sec. 100X.82(c)(2)(iii).
    The proposal of Mid-Am to exclude the territory within 85 miles of 
the cities mentioned above should not be adopted. This proposal would 
exclude many producers who are located in counties adjacent to the 4 
marketing areas. These producers may, for the most part, be regular 
suppliers of other markets. For example, there may be dairy farmers in 
East Texas who are within 85 miles of Lake Charles or Shreveport, 
Louisiana, from whose farms milk is delivered on a supplemental basis 
to other plants within the Southeast market that may be hundreds of 
miles away. It would make no sense to exclude these farms from 
transportation credits and thereby force cooperative associations and 
plant operators to bring in supplemental milk from even farther 
distances when this closer milk is available.
    Not all of the pool distributing plants regulated under these 
orders are located within the 10-state area specified above. For 
example, a pool distributing plant regulated under Order 5 is located 
in Lynchburg, Virginia. The interim amendments dealt with this problem 
by specifying that a farm had to be more than 85 miles from the plant 
to be eligible for a transportation credit. This provision was based 
upon a suggestion made by MMI at the May 1996 hearing restricting 
supplemental producers to those who are more than 85 miles from 
Louisville or Lexington, Kentucky, or Evansville, Indiana.
    As explained above, the amendments provided in this decision would 
subtract 85 miles from the transportation credit computation for 
producer milk. In view of this adjustment, it is no longer necessary to 
specify that a producer must be more than 85 miles from the plant 
because a transportation credit would not be given for that distance 
anyway. In effect, the origination point for producer milk has to be at 
least 85 miles from the plant of receipt before milk from that point 
would receive a transportation credit. Thus, the language now contained 
in Sec. 100X.82(c)(2)(ii) of the interim

[[Page 27535]]

amendments referring to 85 miles has not been carried forward to the 
comparable revised paragraph, Sec. 100X.82(c)(2)(iii), of the attached 
final amendments.
    Mid-Am also proposed certain changes to the way transportation 
credits are computed for producer milk. As provided in the interim 
amendments, all producer milk classified as Class I milk is eligible 
for the credit. At present, the proportion of such milk that receives a 
Class I classification is approximately equal to the utilization of the 
plant receiving the milk. Receipts of transferred milk from other order 
plants, on the other hand, are allocated to Class I based upon the 
lower of the receiving handler's Class I utilization or the marketwide 
Class I utilization. This difference in classifying supplemental milk, 
according to Mid-Am, has provided an incentive for a high Class I 
utilization handler to receive supplemental producer milk rather than 
supplemental milk transferred from an other order plant in order to 
receive credits on a greater proportion of the supplemental milk.
    To correct this bias, Mid-Am proposed that supplemental milk from 
producers should be assigned to Class I in the same proportion as other 
order supplemental milk to determine the proportion of such milk that 
is eligible for the transportation credit. This modification should be 
adopted. Supplemental producer milk should be assigned to Class I, for 
transportation credit purposes, by adding a paragraph--(c)(2)(i)--to 
Section 82 (``Payments from the transportation credit balancing 
fund''). This new paragraph states that the quantity of producer milk 
that is eligible for the transportation credit shall be determined by 
multiplying the total pounds of supplemental producer milk received at 
the plant by the lower of the marketwide Class I utilization of all 
handlers for the month or the Class I utilization of the pool plant 
operator receiving the milk after all of the handler's receipts have 
been allocated to classes of utilization in Section 44 of the 
respective order.
    Another change that should be made to the transportation credit for 
producer milk has to do with the way the gross credit is adjusted by 
the difference in Class I price at the receiving plant and the 
origination point for the load of milk. At the present time, even 
though a farm and an other order plant may be identically located in 
another order's marketing area, there may be a difference in the 
transportation credit that would apply to milk coming from those 
identically-located points under the provisions of Orders 5, 11, and 
46. The Class I price, adjusted for location, under Orders 5, 11, and 
46, applicable to a plant in the marketing area of some other order is 
not necessarily the same as the Class I price, adjusted for location, 
applicable to that plant pursuant to the provisions of that other 
order. For example, the Class I price to any plant under the Eastern 
Ohio-Western Pennsylvania order is $2.00 plus the basic formula price 
under the provisions of the Eastern Ohio-Western Pennsylvania order, 
but the Class I price that would apply to a plant located in the 
Eastern Ohio-Western Pennsylvania marketing area under the provisions 
of the Carolina order would be based upon mileage from specified basing 
points in North Carolina; it could be greater or less than $2.00 plus 
the basic formula price. Under the Southeast order, by contrast, the 
Class I price applicable to a plant that is located in the marketing 
area of some other order is the Class I price that would apply to that 
plant under the provisions of the order covering that marketing area. 
Therefore, under the Southeast order the transportation credit for a 
plant or farm identically located in another Federal order marketing 
area is the same, but for Orders 5, 11, and 46 it may not be.
    In computing transportation credits for plant milk, the gross 
credit (i.e., the mileage times 0.35 cent) is adjusted by subtracting 
the Class I price applicable to the plant under the other order from 
the Class I price applicable to the plant receiving the milk. For 
producer milk, however, the gross credit is adjusted by subtracting 
this order's Class I price at the origination point from this order's 
Class I price at the receiving plant. As a result, there could be a 
difference in the transportation credit applicable to plant milk versus 
producer milk, even though the plant and farm are adjacent to each 
other.
    This can and should be corrected for plants and farms located in 
Federal order marketing areas by changing the way the credit is 
computed for producer milk. The adjustment to the gross credit for 
producer milk should be computed as if the origination point for the 
producer milk were a plant location. Specifically, if the origination 
point is in another order's marketing area, the other order Class I 
price applicable at the origination point should be subtracted from the 
receiving order's Class I price at the receiving plant. This change is 
provided in Sec. 100X.82(d)(3)(v) of the order language.
    A complication arises in the case of an origination point that is 
not located within any Federal order marketing area. While the other 
order Class I price that would apply to an other order plant that is 
located in unregulated territory is known, the same cannot be said for 
a farm location (i.e., an origination point for a load of supplemental 
producer milk). In view of this uncertainty, the most reasonable 
treatment for such milk is to price it under the provisions of the 
order receiving the milk. For example, if an Order 5 plant in Raleigh, 
North Carolina, received supplemental producer milk from a farm in an 
unregulated county in central Pennsylvania, the gross transportation 
credit for that load of milk would be adjusted by subtracting from the 
credit the difference between the Order 5 Class I price at the 
Pennsylvania origination point and the Order 5 Class I price at 
Raleigh.
    Another issue, not addressed at the hearing, must be discussed. It 
is possible that milk may be transferred from an other order plant that 
is located in one Federal order marketing area but is regulated under a 
different order. For example, a plant may be located in the Eastern 
Ohio-Western Pennsylvania marketing area but may be regulated under the 
Ohio Valley order. In such a case, a question may arise concerning 
which order's Class I price to use in computing the transportation 
credit. In this situation, the market administrator should use the 
Class I price that applies at that plant under the order in which the 
plant is regulated. Thus, in the example given, the Class I price at 
the plant would be the applicable Class I price under the Ohio Valley 
order. This treatment will ensure that the transportation credit 
properly reflects the difference in the Class I prices applicable to 
the shipping handler and the receiving handler.
    In addition to considering the geographic location of a dairy farm 
for the purpose of determining whether milk from that farm is 
supplemental to a market's needs, attention should be focused on 
whether milk from that farm is regularly associated with the market or 
is shipped to the market as needed.
    Since the need for supplemental milk generally drops off sharply 
after the month of December or January in all of these markets and does 
not reappear, usually, until the month of July, it is reasonable to 
conclude that the milk of a producer who is located outside of the 
exclusionary areas (the 4 subject marketing areas or the 6 Kentucky 
counties mentioned above) generally would not be needed during the 
months of January through June, but might be needed starting in July. 
It is also logical that the milk of a supplemental producer would not 
be needed each day but perhaps once or twice a week.

[[Page 27536]]

Accordingly, if a dairy farmer was a regular supplier of the market 
during January through June--i.e., a ``producer'' on the market for 
more than 2 of those months--the milk of such a dairy farmer should not 
be considered supplemental milk during the following months of July 
through December.
    It would be unduly restrictive to disqualify a dairy farmer for 
shipping a limited amount of milk during one or two months of the 
January through June period, however, because even the months of 
January and June can be short months in the Southeast, and, in fact, 
these 2 months can be included in the transportation credit period. 
Therefore, the provision should be flexible enough to accommodate some 
shipments to the market during the January through June period. 
Specifically, a dairy farmer should not lose status as a supplemental 
producer if milk is shipped to a market for not more than 2 months of 
the January through June period. However, shipments during this period 
should be of a limited duration. Therefore, not more than 50 percent of 
the dairy farmer's production may be received as producer milk, in 
aggregate, during the 2 months of the January through June period in 
which the dairy farmer was a producer on the market. In addition, if 
January and/or June are months in which transportation credits are 
extended, those months should not be included in the 2-month limit for 
a supplemental producer. The transportation credits would not be 
extended to January or June if milk were not needed during those 
months, and it would be counterproductive to penalize a producer for 
responding to that need. Therefore, if January and June are part of the 
transportation credit period, a dairy farmer may be a producer during 
those months and, in addition, may be a producer during 2 of the months 
of February through May provided that the dairy farmer's producer milk 
during those additional 2 months did not exceed the 50 percent limit.
    The interim amendments provided that 32 days' production of a dairy 
farmer could be delivered during January through June before the dairy 
farmer would lose status as a supplemental producer. This has been 
changed to ``50 percent of the dairy farmer's production'' to simplify 
reporting and administration of this provision.
    The provisions in the interim amendments prescribing the 
determination of an origination point for a load of supplemental 
producer milk are continued in this final decision. No problems were 
noted with this provision and no suggestions were made for changing it 
at the reopened hearing or in the post-hearing briefs. The 2 
alternatives provided for determining a supplemental producer milk 
origination point are contained in Sec. 100X.82(d)(3)(i).
    As noted earlier, there was a great deal of concern expressed at 
both sessions of the hearing about ``stair-stepping'' milk from one 
market to another. Suggestions were made at both sessions of the 
hearing to adopt a net shipment provision to offset transfers from a 
pool plant to other order plants against supplemental milk brought into 
the pool plant within a specified period of time.
    This issue can be quite complex, particularly in large markets, 
such as the Southeast market. It may very well make economic sense to 
ship surplus milk from one part of a market (for example, southern 
Louisiana in the Order 7 marketing area) to another market that is 
short of milk (for example, the Florida markets) at the same time that 
bulk milk is imported for a handler in another part of the Order 7 
marketing area (for example, a handler in Nashville). Also, it is 
entirely possible that milk may be needed at the beginning of a month, 
while by the end of the month milk must be exported out of the market 
for surplus disposal. Finally, since fluid milk processors have 
different bottling needs, extra milk may be needed on certain days but 
not on other days within the same week.
    In response to concerns expressed at both sessions of the hearing, 
the 4 orders should contain a net shipment provision to prevent the 
type of abuses feared by proponents of such a provision. However, in 
view of the varying circumstances surrounding the fluid needs of these 
markets, the provision should be flexible enough to accommodate these 
varying needs. To be effective, the net shipment provision should apply 
to all supplemental milk received, either by transfer or directly from 
producers' farms as producer milk.
    In applying the net shipment provision, bulk transfers to nonpool 
plants that were made on the same day that supplemental milk was 
received at a pool plant should be subtracted from the total receipts 
of supplemental milk for which the pool plant operator or cooperative 
association is requesting a credit. In reducing the supplemental milk 
eligible for the credit pursuant to this net shipment provision, the 
market administrator should first subtract the loads of milk that were 
most distant from the plant and then continue in sequence with less 
distant loads. This procedure, which is described in Sec. 100X.82(d)(1) 
of the orders, will minimize the depletion of funds from the 
transportation credit balancing fund resulting from unwarranted 
receipts of supplemental milk.
    The net shipment provision will require accurate accounting and 
reporting on the part of handlers. Specifically, each pool plant 
operator applying for transportation credits will be required to 
maintain accurate accounting records of daily transfers of bulk milk 
from the plant to nonpool plants. This is provided in 
Sec. 100X.30(a)(7) of the order language for Orders 5, 7, and 46, and 
Sec. 100X.30(a)(8) for Order 11.
    Although specific proposals were made to net outgoing shipments 
from incoming shipments within a 24-hour period, this suggestion could 
prove to be tedious for handlers, as well as for the market 
administrator. Therefore, the attached amendments provide for netting 
based on receipts and shipments occurring the same calendar day.
    The diversion of producer milk to a nonpool plant was not addressed 
at great length at either session of the hearing, although AMPI did 
state in its brief that diversions to nonpool plants should also be 
included in a net shipment provision.
    It is certainly a fact that milk is diverted from pool plants in 
these 4 markets to nonpool plants for Class II and Class III use. Each 
pool plant operator has a regular supply of producer milk for its Class 
I needs and that milk should be utilized to the full extent before 
importing supplemental milk. While diversions could have been 
incorporated into the net shipment provision, as suggested by AMPI, 
there would be numerous obstacles to overcome in doing so. Therefore, 
we concluded, on balance, that any possible benefit of including 
diverted milk would be outweighed by the problems caused by such a 
complicated provision.
    To illustrate one type of problem, for example, not all 
supplemental milk may be needed at a pool plant every day; some days it 
may be diverted to a nonpool plant close to the farm where produced and 
hundreds of miles away from the pool plant where it is received on a 
supplemental basis some of the time. If diversions were included in the 
net shipment provision, the milk that is not needed--i.e., it is 
diverted to a nonpool plant--would have to be subtracted from the 
supplemental milk that was needed that day, which could result in the 
handler getting no transportation credit for supplemental milk received 
on that day. While a provision undoubtedly could be written to 
distinguish ``regular'' or ``close-in'' producer milk that is diverted 
from

[[Page 27537]]

``supplemental'' or ``distant'' producer milk in an attempt to overcome 
these problems, it would likely be a very cumbersome provision. If, at 
some point, it becomes obvious that handlers are diverting local milk 
for manufacturing use while importing supplemental milk for Class I use 
within the same 24-hour period, appropriate action should be taken to 
stop this abuse of the transportation credit provisions. In the 
meantime, however, handlers should be given as much freedom as possible 
to move milk according to their needs.
    At the reopened hearing, Mid-Am proposed an amendment to that 
section of the orders dealing with overdue accounts. Specifically, it 
proposed adding overdue payments to the transportation credit balancing 
fund in the list of late payments to which a late payment charge would 
apply.
    This proposal should be adopted. Although handler compliance with 
the transportation credit balancing fund assessment has been excellent 
thus far, it is possible that late payments may occur in the future. 
Were this to happen, one handler could gain an advantage over competing 
handlers by using money that should have been paid to the market 
administrator. To discourage this from happening, and to rectify the 
situation when it does happen, a late payment charge should apply to 
delinquent payments to the transportation credit balancing fund.
    A conforming change should be made in Order 46 with respect to the 
payment of assessments for the transportation credit balancing fund and 
the payment of transportation credits to handlers. In the interim 
amendments, assessments for the transportation credit balancing fund 
were uniformly due on the 13th day of the month for all 4 orders and, 
similarly, payment of transportation credits to handlers was uniformly 
set at the 12th day of the month for all 4 orders. However, Order 46 
differs from the other 3 orders with respect to payments to and from 
the producer-settlement fund. Under Order 46, payments to the producer-
settlement fund are due on the 15th day of the month and payments from 
the producer-settlement fund are due on the 16th day of the month. For 
the other 3 orders, however, payments into the producer-settlement fund 
must be made by the 12th day of the month and payments out of the 
producer-settlement fund must be made by the 13th day of the month. To 
facilitate the payments of transportation credit assessments and 
payouts under Order 46, the dates in Secs. 1046.81(a) and 1046.82(a) 
should be changed from the 12th and 13th, respectively, to the 15th and 
16th, respectively, to coincide with payments in and out of the 
producer-settlement fund for that order.
    A conforming change also should be made in Sec. 100X.81 with 
respect to how the assessment for the transportation credit balancing 
fund is to be determined. In the interim amendments, the standard used 
for determining how much the handler assessment would be each month was 
based upon the credits disbursed during the preceding July through 
December period or during the immediately preceding 6-month period. 
This paragraph was worded that way because transportation credits 
theoretically could have been in effect every month of the year. 
However, as modified in this final decision, transportation credits can 
only be effective during the months of June through January and the 
months of June and January are subject to a finding by the market 
administrator that supplemental milk is needed for fluid use.
    In view of the change in months for which transportation credits 
may be effective, it is also appropriate to change the benchmark for 
determining the level of such assessments. Specifically, 
Sec. 100X.81(a) should be modified to read ``the total transportation 
credits disbursed during the prior June-January period.'' However, in 
the event that the funds disbursed are prorated based on the available 
funds, the assessment should be based upon the total amount of credits 
that would have been disbursed as determined by the market 
administrator. Although the yardstick for the balance in the fund can 
now be raised to 8 months instead of 6, this change is necessary to 
maintain a balance in the transportation credit balancing fund that is 
sufficient to cover the transportation credits to be disbursed in the 
following short production period. In other words, if the months of 
January and/or June were included in the prior transportation credit 
period, the amount of credits given during these months should also be 
included in the calculation of the assessment rates for the 4 orders.
    Section 100X.77, adjustment of accounts, of the Carolina, Tennessee 
Valley, and Louisville-Lexington-Evansville orders should also be 
amended to conform with the changes adopted above. Presently, the 
orders lack any instruction pertaining to the adjustment of accounts in 
the event that an error has been made either involving payments into 
the transportation credit balancing fund by handlers or payments to 
handlers by the market administrator from such fund. Therefore, it is 
necessary to include such language in section 100X.77 of these 3 orders 
to avoid any ambiguity concerning these matters. In particular, 
transportation credit balancing fund adjustments should be handled in 
the same manner as adjustments to the producer-settlement fund, except 
that additional transportation credits due handlers should be made as 
soon as transportation credit funds become available and not 
necessarily within 15 days of the time that this adjustment is 
discovered. A similar conforming change is not necessary for the 
Southeast order because the language contained in Sec. 1007.77 of that 
order is general enough to accommodate adjustments related to the 
transportation credit balancing fund.

Rulings on Proposed Findings and Conclusions

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

General Findings

    The findings and determinations hereinafter set forth supplement 
those that were made when the aforesaid orders were first issued and 
when they were amended. The previous findings and determinations are 
hereby ratified and confirmed, except where they may conflict with 
those set forth herein.
    (a) The tentative marketing agreements and the orders, as hereby 
proposed to be amended, and all of the terms and conditions thereof, 
will tend to effectuate the declared policy of the Act;
    (b) The parity prices of milk as determined pursuant to section 2 
of the Act are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand for milk in the marketing areas, and the minimum 
prices specified in the tentative marketing agreements and the orders, 
as hereby proposed to be amended, are such prices as will reflect the 
aforesaid factors, ensure a sufficient quantity of pure and wholesome 
milk, and be in the public interest;
    (c) The tentative marketing agreements and the orders, as hereby

[[Page 27538]]

proposed to be amended, will regulate the handling of milk in the same 
manner as, and will be applicable only to persons in the respective 
classes of industrial and commercial activity specified in, marketing 
agreements upon which a hearing has been held; and
    (d) All milk and milk products handled by handlers, as defined in 
the tentative marketing agreements and the orders as hereby proposed to 
be amended, are in the current of interstate commerce or directly 
burden, obstruct, or affect interstate commerce in milk or its 
products.

Marketing Agreement and Order

    Annexed hereto and made a part hereof is an Order amending the 
orders regulating the handling of milk in the Carolina, Southeast, 
Tennessee Valley, and Louisville-Lexington-Evansville marketing areas, 
which has been decided upon as the detailed and appropriate means of 
effectuating the foregoing conclusions. A marketing agreement that 
reflects the attached order verbatim is available upon request from the 
market administrator.
    It is hereby ordered that this entire decision and the order 
amending the orders be published in the Federal Register.

Determination of Producer Approval and Representative Period

    February 1997 is hereby determined to be the representative period 
for the purpose of ascertaining whether the issuance of the orders, as 
amended and as hereby proposed to be amended, regulating the handling 
of milk in the aforesaid marketing areas is approved or favored by 
producers, as defined under the terms of the individual orders (as 
amended and as hereby proposed to be amended), who during such 
representative period were engaged in the production of milk for sale 
within the aforesaid marketing areas.
    It is hereby directed that a referendum be conducted to ascertain 
producer approval in the Louisville-Lexington-Evansville marketing 
area. The referendum must be conducted and completed on or before the 
30th day from the date that this decision is issued in accordance with 
the procedure for the conduct of referenda (7 CFR 900.300-311), to 
determine whether the issuance of the attached order as amended, and as 
hereby proposed to be amended, regulating the handling of milk in the 
Louisville-Lexington-Evansville 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 such representative period 
were engaged in the production of milk for sale within the marketing 
area.
    The agent of the Secretary to conduct such referendum is hereby 
designated to be Arnold M. Stallings.

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

    Milk marketing orders.

    Dated: May 12, 1997.
Michael V. Dunn,
Assistant Secretary, Marketing and Regulatory Programs.

Order Amending the Orders Regulating the Handling of Milk in the 
Carolina, Southeast, Tennessee Valley, and Louisville-Lexington-
Evansville Marketing Areas

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

Findings and Determinations

    The findings and determinations hereinafter set forth supplement 
those that were made when the orders were first issued and when they 
were amended. The previous findings and determinations are hereby 
ratified and confirmed, except where they may conflict with those set 
forth herein.
    (a) Findings. A public hearing was held upon certain proposed 
amendments to the tentative marketing agreements and to the orders 
regulating the handling of milk in the aforesaid marketing areas. The 
hearing was held pursuant to the provisions of the Agricultural 
Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the 
applicable rules of practice and procedure (7 CFR Part 900).
    Upon the basis of the evidence introduced at such hearing and the 
record thereof, it is found that:
    (1) The said orders as hereby amended, and all of the terms and 
conditions thereof, will tend to effectuate the declared policy of the 
Act;
    (2) The parity prices of milk, as determined pursuant to section 2 
of the Act, are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand for milk in the aforesaid marketing areas. The 
minimum prices specified in the orders as hereby amended are such 
prices as will reflect the aforesaid factors, ensure a sufficient 
quantity of pure and wholesome milk, and be in the public interest;
    (3) The said orders, as hereby amended, regulate the handling of 
milk in the same manner as, and are applicable only to persons in the 
respective classes of industrial or commercial activity specified in, 
marketing agreements upon which a hearing has been held; and
    (4) All milk and milk products handled by handlers, as defined in 
the order as hereby amended, are in the current of interstate commerce 
or directly burden, obstruct, or affect interstate commerce in milk or 
its products.

Order Relative to Handling

    It is therefore Ordered, that on and after the effective date 
hereof, the handling of milk in each of the specified orders' marketing 
areas shall be in conformity to and in compliance with the terms and 
conditions of each of the orders, as amended, and as hereby amended.
    Accordingly, the interim rule amending 7 CFR Parts 1005, 1007, 
1011, and 1046, which was published at 61 FR 41488 on August 9, 1996, 
is adopted as a proposed rule with the following changes:
    1. The authority citation for 7 CFR parts 1005, 1007, 1011, and 
1046 continues to read as follows:

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

PART 1005--MILK IN THE CAROLINA MARKETING AREA


Sec. 1005.30  [Amended]

    2. In Sec. 1005.30, paragraphs (a)(7) and (a)(8) are redesignated, 
respectively, as paragraphs (a)(8) and (a)(9), new paragraph (a)(7) is 
added, and paragraphs (a)(5), (a)(6), and (c)(3) are revised to read as 
follows:


Sec. 1005.30  Reports of receipts and utilization.

* * * * *
    (a) * * *
    (5) Receipts of bulk milk from a plant regulated under another 
Federal order, except Federal Orders 1007, 1011, and 1046, for which a 
transportation credit is requested pursuant to Sec. 1005.82, including 
the date that such milk was received;
    (6) Receipts of producer milk described in Sec. 1005.82(c)(2), 
including the identity of the individual producers whose milk is 
eligible for the transportation credit pursuant to that paragraph and 
the date that such milk was received;
    (7) For handlers submitting transportation credit requests, 
transfers of bulk milk to nonpool plants, including the dates that such 
milk was transferred;
* * * * *

[[Page 27539]]

    (c) * * *
    (3) With respect to milk for which a cooperative association is 
requesting a transportation credit pursuant to Sec. 1005.82, all of the 
information required in paragraphs (a)(5), (a)(6), and (a)(7) of this 
section.
* * * * *


Sec. 1005.32  [Amended]

    3. In Sec. 1005.32, a new paragraph (a) is added to read as 
follows:


Sec. 1005.32  Other reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec. 1005.9(a), (b), and (c) shall report to the 
market administrator any adjustments to transportation credit requests 
as reported pursuant to Sec. 1005.30(a)(5), (6), and (7).
* * * * *


Sec. 1005.61  [Amended]

    4. In Sec. 1005.61, paragraph (a)(4) is removed and paragraphs 
(a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5), 
respectively.


Sec. 1005.77  [Amended]

    5. Sec. 1005.77 is revised to read as follows:


Sec. 1005.77  Adjustment of accounts.

    (a) Whenever verification by the market administrator of payments 
by any handler discloses errors made in payments to the producer-
settlement fund pursuant to Sec. 1005.71 or to the transportation 
credit balancing fund pursuant to Sec. 1005.81, the market 
administrator shall promptly bill such handler for any unpaid amount 
and such handler shall, within 15 days, make payment to the market 
administrator of the amount so billed. Whenever verification discloses 
that payment is due from the market administrator to any handler 
pursuant to Sec. 1005.72 or Sec. 1005.82, the market administrator 
shall make payment to such handler within 15 days or, in the case of 
the transportation credit balancing fund, as soon as funds become 
available. If a handler is due additional payment for a month in which 
payments to handlers were prorated pursuant to Sec. 1005.82(a), the 
additional payment pursuant to this section shall be multiplied by the 
final proration percentage computed in Sec. 1005.82(a)(2).
    (b) Whenever verification by the market administrator of the 
payment by a handler to any producer or cooperative association for 
milk received by such handler discloses payment of less than is 
required by Sec. 1005.73, the handler shall pay such balance due such 
producer or cooperative association not later than the time of making 
payment to producers or cooperative associations next following such 
disclosure.


Sec. 1005.78  [Amended]

    6. In the introductory text of Sec. 1005.78, the number 
``1005.81,'' is added following the number ``1005.77,''.


Sec. 1005.81  [Amended]

    7. In Sec. 1005.81, paragraph (c) is removed and paragraphs (a) and 
(b) are revised to read as follows:


Sec. 1005.81  Payments to the transportation credit balancing fund.

    (a) On or before the 12th day after the end of the month, each 
handler operating a pool plant and each handler specified in 
Sec. 1005.9(b) and (c) shall pay to the market administrator a 
transportation credit balancing fund assessment determined by 
multiplying the pounds of Class I producer milk assigned pursuant to 
Sec. 1005.44 by $0.065 per hundredweight or such lesser amount as the 
market administrator deems necessary to maintain a balance in the fund 
equal to the total transportation credits disbursed during the prior 
June-January period. In the event that during any month of the June-
January period the fund balance is insufficient to cover the amount of 
credits that are due, the assessment should be based upon the amount of 
credits that would have been disbursed had the fund balance been 
sufficient.
    (b) The market administrator shall announce publicly on or before 
the 5th day of the month the assessment pursuant to paragraph (a) of 
this section for the following month.


Sec. 1005.82  [Amended]

    8. Sec. 1005.82 is revised to read as follows:


Sec. 1005.82  Payments from the transportation credit balancing fund.

    (a) Payments from the transportation credit balancing fund to 
handlers and cooperative associations requesting transportation credits 
shall be made as follows:
    (1) On or before the 13th day after the end of each of the months 
of July through December and any other month in which transportation 
credits are in effect pursuant to paragraph (b) of this section, the 
market administrator shall pay to each handler that received, and 
reported pursuant to Sec. 1005.30(a)(5), bulk milk transferred from an 
other order plant as described in paragraph (c)(1) of this section or 
that received, and reported pursuant to Sec. 1005.30(a)(6), milk 
directly from producers' farms as specified in paragraph (c)(2) of this 
section, a preliminary amount determined pursuant to paragraph (d) of 
this section to the extent that funds are available in the 
transportation credit balancing fund. If an insufficient balance exists 
to pay all of the credits computed pursuant to this section, the market 
administrator shall distribute the balance available in the 
transportation credit balancing fund by reducing payments prorata using 
the percentage derived by dividing the balance in the fund by the total 
credits that are due for the month. The amount of credits resulting 
from this initial proration shall be subject to audit adjustment 
pursuant to paragraph (a)(2) of this section;
    (2) The market administrator shall accept adjusted requests for 
transportation credits on or before the 20th day of the month following 
the month for which such credits were requested pursuant to 
Sec. 1005.32(a). After such date, a preliminary audit will be conducted 
by the market administrator, who will recalculate any necessary 
proration of transportation credit payments for the preceding month 
pursuant to paragraph (a) of this section. Handlers will be promptly 
notified of an overpayment of credits based upon this final computation 
and remedial payments to or from the transportation credit balancing 
fund will be made on or before the next payment date for the following 
month;
    (3) Transportation credits paid pursuant to paragraph (a)(1) and 
(2) of this section shall be subject to final verification by the 
market administrator pursuant to Sec. 1005.77. Adjusted payments to or 
from the transportation credit balancing fund will remain subject to 
the final proration established pursuant to paragraph (a)(2) of this 
section; and
    (4) In the event that a qualified cooperative association is the 
responsible party for whose account such milk is received and written 
documentation of this fact is provided to the market administrator 
pursuant to Sec. 1005.30(c)(3) prior to the date payment is due, the 
transportation credits for such milk computed pursuant to this section 
shall be made to such cooperative association rather than to the 
operator of the pool plant at which the milk was received.
    (b) The market administrator may extend the period during which 
transportation credits are in effect (i.e., the transportation credit 
period) to the months of January and June if a written request to do so 
is received 15 days prior to the beginning of the month for

[[Page 27540]]

which the request is made and, after conducting an independent 
investigation, finds that such extension is necessary to assure the 
market of an adequate supply of milk for fluid use. Before making such 
a finding, the market administrator shall notify the Director of the 
Dairy Division and all handlers in the market that an extension is 
being considered and invite written data, views, and arguments. Any 
decision to extend the transportation credit period must be issued in 
writing prior to the first day of the month for which the extension is 
to be effective.
    (c) Transportation credits shall apply to the following milk:
    (1) Bulk milk received from a plant regulated under another Federal 
order, except Federal Orders 1007, 1011, and 1046, and allocated to 
Class I milk pursuant to Sec. 1005.44(a)(12); and
    (2) Bulk milk received directly from the farms of dairy farmers at 
pool distributing plants subject to the following conditions:
    (i) The quantity of such milk that shall be eligible for the 
transportation credit shall be determined by multiplying the total 
pounds of milk received from producers meeting the conditions of this 
paragraph by the lower of:
    (A) The marketwide estimated Class I utilization of all handlers 
for the month pursuant to Sec. 1005.45(a); or
    (B) The Class I utilization of all producer milk of the pool plant 
operator receiving the milk after the computations described in 
Sec. 1005.44;
    (ii) The dairy farmer was not a ``producer'' under this order 
during more than 2 of the immediately preceding months of January 
through June and not more than 50 percent of the production of the 
dairy farmer during those 2 months, in aggregate, was received as 
producer milk under this order during those 2 months. However, if 
January and/or June are months in which transportation credits are 
disbursed pursuant to paragraph (a) of this section, these months shall 
not be included in the 2-month limit provided in this paragraph; and
    (iii) The farm on which the milk was produced is not located within 
the specified marketing area of this order or the marketing areas of 
Federal Orders 1007, 1011, or 1046, or within the Kentucky counties of 
Allen, Barren, Metcalfe, Monroe, Simpson, and Warren.
    (d) Transportation credits shall be computed as follows:
    (1) The market administrator shall subtract from the pounds of milk 
described in paragraphs (c)(1) and (2) of this section the pounds of 
bulk milk transferred from the pool plant receiving the supplemental 
milk if milk was transferred to a nonpool plant on the same calendar 
day that the supplemental milk was received. For this purpose, the 
transferred milk shall be subtracted from the most distant load of 
supplemental milk received, and then in sequence with the next most 
distant load until all of the transfers have been offset;
    (2) With respect to the pounds of milk described in paragraph 
(c)(1) of this section that remain after the computations described in 
paragraph (d)(1) of this section, the market administrator shall:
    (i) Determine the shortest hard-surface highway distance between 
the shipping plant and the receiving plant;
    (ii) Multiply the number of miles so determined by 0.35 cent;
    (iii) Subtract the other order's Class I price applicable at the 
shipping plant's location from the Class I price applicable at the 
receiving plant as specified in Sec. 1005.53;
    (iv) Subtract any positive difference computed in paragraph 
(d)(2)(iii) of this section from the amount computed in paragraph 
(d)(2)(ii) of this section; and
    (v) Multiply the remainder computed in paragraph (d)(2)(iv) of this 
section by the hundredweight of milk described in paragraph (d)(2) of 
this section.
    (3) For the remaining milk described in paragraph (c)(2) of this 
section after computations described in paragraph (d)(1) of this 
section, the market administrator shall:
    (i) Determine an origination point for each load of milk by 
locating the nearest city to the last producer's farm from which milk 
was picked up for delivery to the receiving pool plant. Alternatively, 
the milk hauler that is transporting the milk of producers described in 
paragraph (c)(2) of this section may establish an origination point 
following the last farm pickup by stopping at the nearest 
independently-operated truck stop with a certified truck scale and 
obtaining a weight certificate indicating the weight of the truck and 
its contents, the date and time of weighing, and the location of the 
truck stop;
    (ii) Determine the shortest hard-surface highway distance between 
the receiving pool plant and the truck stop or city, as the case may 
be;
    (iii) Subtract 85 miles from the mileage so determined;
    (iv) Multiply the remaining miles so computed by 0.35 cent;
    (v) If the origination point determined pursuant to paragraph 
(d)(3)(i) of this section is in a Federal order marketing area, 
subtract the Class I price applicable at the origination point pursuant 
to the provisions of such other order (as if the origination point were 
a plant location) from the Class I price applicable at the distributing 
plant receiving the milk. If the origination point is not in any 
Federal order marketing area, determine the Class I price at the 
origination point based upon the provisions of this order and subtract 
this price from the Class I price applicable at the distributing plant 
receiving the milk;
    (vi) Subtract any positive difference computed in paragraph 
(d)(3)(v) of this section from the amount computed in paragraph 
(d)(3)(iv) of this section; and
    (vii) Multiply the remainder computed in paragraph (d)(3)(vi) by 
the hundredweight of milk described in paragraph (d)(3) of this 
section.

PART 1007--MILK IN THE SOUTHEAST MARKETING AREA


Sec. 1007.30  [Amended]

    9. In Sec. 1007.30, paragraphs (a)(7) and (a)(8) are redesignated, 
respectively, as paragraphs (a)(8) and (a)(9), new paragraph (a)(7) is 
added, and paragraphs (a)(5), (a)(6), and (c)(3) are revised to read as 
follows:


Sec. 1007.30  Reports of receipts and utilization.

* * * * *
    (a) * * *
    (5) Receipts of bulk milk from a plant regulated under another 
Federal order, except Federal Orders 1005, 1011, and 1046, for which a 
transportation credit is requested pursuant to Sec. 1007.82, including 
the date that such milk was received;
    (6) Receipts of producer milk described in Sec. 1007.82(c)(2), 
including the identity of the individual producers whose milk is 
eligible for the transportation credit pursuant to that paragraph and 
the date that such milk was received;
    (7) For handlers submitting transportation credit requests, 
transfers of bulk milk to nonpool plants, including the dates that such 
milk was transferred;
* * * * *
    (c) * * *
    (3) With respect to milk for which a cooperative association is 
requesting a transportation credit pursuant to Sec. 1007.82, all of the 
information required in paragraphs (a)(5), (a)(6), and (a)(7) of this 
section.
* * * * *


Sec. 1007.32  [Amended]

    10. In Sec. 1007.32, a new paragraph (a) is added to read as 
follows:

[[Page 27541]]

Sec. 1007.32  Other reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec. 1007.9 (a), (b), and (c) shall report to the 
market administrator any adjustments to transportation credit requests 
as reported pursuant to Sec. 1007.30 (a)(5), (6), and (7).
* * * * *


Sec. 1007.61  [Amended]

    11. In Sec. 1007.61, paragraph (a)(4) is removed and paragraphs 
(a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5), 
respectively.


Sec. 1007.78  [Amended]

    12. In the introductory text of Sec. 1007.78, the number 
``1007.81,'' is added following the number ``1007.78,''.


Sec. 1007.81  [Amended]

    13. In Sec. 1007.81, paragraph (c) is removed and paragraphs (a) 
and (b) are revised to read as follows:


Sec. 1007.81  Payments to the transportation credit balancing fund.

    (a) On or before the 12th day after the end of the month, each 
handler operating a pool plant and each handler specified in 
Sec. 1007.9 (b) and (c) shall pay to the market administrator a 
transportation credit balancing fund assessment determined by 
multiplying the pounds of Class I producer milk assigned pursuant to 
Sec. 1007.44 by $0.07 per hundredweight or such lesser amount as the 
market administrator deems necessary to maintain a balance in the fund 
equal to the total transportation credits disbursed during the prior 
June-January period. In the event that during any month of the June-
January period the fund balance is insufficient to cover the amount of 
credits that are due, the assessment should be based upon the amount of 
credits that would have been disbursed had the fund balance been 
sufficient.
    (b) The market administrator shall announce publicly on or before 
the 5th day of the month the assessment pursuant to paragraph (a) of 
this section for the following month.


Sec. 1007.82  [Amended]

    14. Sec. 1007.82 is revised to read as follows:


Sec. 1007.82  Payments from the transportation credit balancing fund.

    (a) Payments from the transportation credit balancing fund to 
handlers and cooperative associations requesting transportation credits 
shall be made as follows:
    (1) On or before the 13th day after the end of each of the months 
of July through December and any other month in which transportation 
credits are in effect pursuant to paragraph (b) of this section, the 
market administrator shall pay to each handler that received, and 
reported pursuant to Sec. 1007.30(a)(5), bulk milk transferred from an 
other order plant as described in paragraph (c)(1) of this section or 
that received, and reported pursuant to Sec. 1007.30(a)(6), milk 
directly from producers' farms as specified in paragraph (c)(2) of this 
section, a preliminary amount determined pursuant to paragraph (d) of 
this section to the extent that funds are available in the 
transportation credit balancing fund. If an insufficient balance exists 
to pay all of the credits computed pursuant to this section, the market 
administrator shall distribute the balance available in the 
transportation credit balancing fund by reducing payments prorata using 
the percentage derived by dividing the balance in the fund by the total 
credits that are due for the month. The amount of credits resulting 
from this initial proration shall be subject to audit adjustment 
pursuant to paragraph (a)(2) of this section;
    (2) The market administrator shall accept adjusted requests for 
transportation credits on or before the 20th day of the month following 
the month for which such credits were requested pursuant to 
Sec. 1007.32(a). After such date, a preliminary audit will be conducted 
by the market administrator, who will recalculate any necessary 
proration of transportation credit payments for the preceding month 
pursuant to paragraph (a) of this section. Handlers will be promptly 
notified of any payment adjustments based upon this final computation 
and remedial payments to or from the transportation credit balancing 
fund will be made on or before the next payment date for the following 
month;
    (3) Transportation credits paid pursuant to paragraph (a)(1) and 
(2) of this section shall be subject to final verification by the 
market administrator pursuant to Sec. 1007.77. Adjusted payments to or 
from the transportation credit balancing fund will remain subject to 
the final proration established pursuant to paragraph (a)(2) of this 
section; and
    (4) In the event that a qualified cooperative association is the 
responsible party for whose account such milk is received and written 
documentation of this fact is provided to the market administrator 
pursuant to Sec. 1007.30(c)(3) prior to the date payment is due, the 
transportation credits for such milk computed pursuant to this section 
shall be made to such cooperative association rather than to the 
operator of the pool plant at which the milk was received.
    (b) The market administrator may extend the period during which 
transportation credits are in effect (i.e., the transportation credit 
period) to the months of January and June if a written request to do so 
is received 15 days prior to the beginning of the month for which the 
request is made and, after conducting an independent investigation, 
finds that such extension is necessary to assure the market of an 
adequate supply of milk for fluid use. Before making such a finding, 
the market administrator shall notify the Director of the Dairy 
Division and all handlers in the market that an extension is being 
considered and invite written data, views, and arguments. Any decision 
to extend the transportation credit period must be issued in writing 
prior to the first day of the month for which the extension is to be 
effective.
    (c) Transportation credits shall apply to the following milk:
    (1) Bulk milk received from a plant regulated under another Federal 
order, except Federal Orders 1005, 1011, and 1046, allocated to Class I 
milk pursuant to Sec. 1007.44(a)(12); and
    (2) Bulk milk received directly from the farms of dairy farmers at 
pool distributing plants subject to the following conditions:
    (i) The quantity of such milk that shall be eligible for the 
transportation credit shall be determined by multiplying the total 
pounds of milk received from producers meeting the conditions of this 
paragraph by the lower of:
    (A) The marketwide estimated Class I utilization of all handlers 
for the month pursuant to Sec. 1007.45(a); or
    (B) The Class I utilization of all producer milk of the pool plant 
operator receiving the milk after the computations described in 
Sec. 1007.44;
    (ii) The dairy farmer was not a ``producer'' under this order 
during more than 2 of the immediately preceding months of January 
through June and not more than 50 percent of the production of the 
dairy farmer during those 2 months, in aggregate, was received as 
producer milk under this order during those 2 months. However, if 
January and/or June are months in which transportation credits are 
disbursed pursuant to paragraph (a) of this section, these months shall 
not be included in the 2-month limit provided in this paragraph; and
    (iii) The farm on which the milk was produced is not located within 
the specified marketing area of this order or the marketing areas of 
Federal Orders 1005, 1011, or 1046, or within the

[[Page 27542]]

Kentucky counties of Allen, Barren, Metcalfe, Monroe, Simpson, and 
Warren.
    (d) Transportation credits shall be computed as follows:
    (1) The market administrator shall subtract from the pounds of milk 
described in paragraphs (c)(1) and (2) of this section the pounds of 
bulk milk transferred from the pool plant receiving the supplemental 
milk if milk was transferred to a nonpool plant on the same calendar 
day that the supplemental milk was received. For this purpose, the 
transferred milk shall be subtracted from the most distant load of 
supplemental milk received, and then in sequence with the next most 
distant load until all of the transfers have been offset;
    (2) With respect to the pounds of milk described in paragraph 
(c)(1) of this section that remain after the computations described in 
paragraph (d)(1) of this section, the market administrator shall:
    (i) Determine the shortest hard-surface highway distance between 
the shipping plant and the receiving plant;
    (ii) Multiply the number of miles so determined by 0.35 cent;
    (iii) Subtract the other order's Class I price applicable at the 
shipping plant's location from the Class I price applicable at the 
receiving plant as specified in Sec. 1007.52;
    (iv) Subtract any positive difference computed in paragraph 
(d)(2)(iii) of this section from the amount computed in paragraph 
(d)(2)(ii) of this section; and
    (v) Multiply the remainder computed in paragraph (d)(2)(iv) of this 
section by the hundredweight of milk described in paragraph (d)(2) of 
this section.
    (3) For the remaining milk described in paragraph (c)(2) of this 
section after computations described in paragraph (d)(1) of this 
section, the market administrator shall:
    (i) Determine an origination point for each load of milk by 
locating the nearest city to the last producer's farm from which milk 
was picked up for delivery to the receiving pool plant. Alternatively, 
the milk hauler that is transporting the milk of producers described in 
paragraph (c)(2) of this section may establish an origination point 
following the last farm pickup by stopping at the nearest 
independently-operated truck stop with a certified truck scale and 
obtaining a weight certificate indicating the weight of the truck and 
its contents, the date and time of weighing, and the location of the 
truck stop;
    (ii) Determine the shortest hard-surface highway distance between 
the receiving pool plant and the truck stop or city, as the case may 
be;
    (iii) Subtract 85 miles from the mileage so determined;
    (iv) Multiply the remaining miles so computed by 0.35 cent;
    (v) If the origination point determined pursuant to paragraph 
(d)(3)(i) of this section is in a Federal order marketing area, 
subtract the Class I price applicable at the origination point pursuant 
to the provisions of such other order (as if the origination point were 
a plant location) from the Class I price applicable at the distributing 
plant receiving the milk. If the origination point is not in any 
Federal order marketing area, determine the Class I price at the 
origination point based upon the provisions of this order and subtract 
this price from the Class I price applicable at the distributing plant 
receiving the milk;
    (vi) Subtract any positive difference computed in paragraph 
(d)(3)(v) of this section from the amount computed in paragraph 
(d)(3)(iv) of this section; and
    (vii) Multiply the remainder computed in paragraph (d)(3)(vi) by 
the hundredweight of milk described in paragraph (d)(3) of this 
section.

PART 1011--MILK IN THE TENNESSEE VALLEY MARKETING AREA


Sec. 1011.30  [Amended]

    15. In Sec. 1011.30, paragraphs (a)(8) and (a)(9) are redesignated, 
respectively, as paragraphs (a)(9) and (a)(10), new paragraph (a)(8) is 
added, and paragraphs (a)(6), (a)(7), and (c)(3) are revised to read as 
follows:


Sec. 1011.30  Reports of receipts and utilization.

* * * * *
    (a) * * *
    (6) Receipts of bulk milk from a plant regulated under another 
Federal order, except Federal Orders 1005, 1007, and 1046, for which a 
transportation credit is requested pursuant to Sec. 1011.82, including 
the date that such milk was received;
    (7) Receipts of producer milk described in Sec. 1011.82(c)(2), 
including the identity of the individual producers whose milk is 
eligible for the transportation credit pursuant to that paragraph and 
the date that such milk was received;
    (8) For handlers submitting transportation credit requests, 
transfers of bulk milk to nonpool plants, including the dates that such 
milk was transferred;
* * * * *
    (c) * * *
    (3) With respect to milk for which a cooperative association is 
requesting a transportation credit pursuant to Sec. 1011.82, all of the 
information required in paragraphs (a)(6), (a)(7) and (a)(8) of this 
section.
* * * * *


Sec. 1011.32  [Amended]

    16. In Sec. 1011.32, a new paragraph (a) is added to read as 
follows:


Sec. 1011.32  Other reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec. 1011.9(a), (b), and (c) shall report to the 
market administrator any adjustments to transportation credit requests 
as reported pursuant to Sec. 1011.30(a)(6), (7), and (8).
* * * * *


Sec. 1011.61  [Amended]

    17. In Sec. 1011.61, paragraph (a)(4) is removed and paragraphs 
(a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5), 
respectively.


Sec. 1011.77  [Amended]

    18. Sec. 1011.77 is revised to read as follows:


Sec. 1011.77  Adjustment of accounts.

    (a) Whenever verification by the market administrator of payments 
by any handler discloses errors made in payments to the producer-
settlement fund pursuant to Sec. 1011.71 or to the transportation 
credit balancing fund pursuant to Sec. 1011.81, the market 
administrator shall promptly bill such handler for any unpaid amount 
and such handler shall, within 15 days, make payment to the market 
administrator of the amount so billed. Whenever verification discloses 
that payment is due from the market administrator to any handler 
pursuant to Sec. 1011.72 or Sec. 1011.82, the market administrator 
shall make payment to such handler within 15 days or, in the case of 
the transportation credit balancing fund, as soon as funds become 
available. If a handler is due additional payment for a month in which 
payments to handlers were prorated pursuant to Sec. 1011.82(a), the 
additional payment pursuant to this section shall be multiplied by the 
final proration percentage computed in Sec. 1011.82(a)(2).
    (b) Whenever verification by the market administrator of the 
payment by a handler to any producer or cooperative association for 
milk received by such handler discloses payment of less than is 
required by Sec. 1011.73, the handler shall pay such balance due such 
producer or cooperative association not later than the time of making 
payment to

[[Page 27543]]

producers or cooperative associations next following such disclosure.


Sec. 1011.81  [Amended]

    19. In Sec. 1011.81, paragraph (c) is removed and paragraphs (a) 
and (b) are revised to read as follows:


Sec. 1011.81  Payments to the transportation credit balancing fund.

    (a) On or before the 12th day after the end of the month, each 
handler operating a pool plant and each handler specified in 
Sec. 1011.9(b) and (c) shall pay to the market administrator a 
transportation credit balancing fund assessment determined by 
multiplying the pounds of Class I producer milk assigned pursuant to 
Sec. 1011.44 by $0.06 per hundredweight or such lesser amount as the 
market administrator deems necessary to maintain a balance in the fund 
equal to the total transportation credits disbursed during the prior 
June-January period. In the event that during any month of the June-
January period the fund balance is insufficient to cover the amount of 
credits that are due, the assessment should be based upon the amount of 
credits that would have been disbursed had the fund balance been 
sufficient.
    (b) The market administrator shall announce publicly on or before 
the 5th day of the month the assessment pursuant to paragraph (a) of 
this section for the following month.


Sec. 1011.82  [Amended]

    20. Sec. 1011.82 is revised to read as follows:


Sec. 1011.82  Payments from the transportation credit balancing fund.

    (a) Payments from the transportation credit balancing fund to 
handlers and cooperative associations requesting transportation credits 
shall be made as follows:
    (1) On or before the 13th day after the end of each of the months 
of July through December and any other month in which transportation 
credits are in effect pursuant to paragraph (b) of this section, the 
market administrator shall pay to each handler that received, and 
reported pursuant to Sec. 1011.30(a)(6), bulk milk transferred from an 
other order plant as described in paragraph (c)(1) of this section or 
that received, and reported pursuant to Sec. 1011.30(a)(7), milk 
directly from producers' farms as specified in paragraph (c)(2) of this 
section, a preliminary amount determined pursuant to paragraph (d) of 
this section to the extent that funds are available in the 
transportation credit balancing fund. If an insufficient balance exists 
to pay all of the credits computed pursuant to this section, the market 
administrator shall distribute the balance available in the 
transportation credit balancing fund by reducing payments prorata using 
the percentage derived by dividing the balance in the fund by the total 
credits that are due for the month. The amount of credits resulting 
from this initial proration shall be subject to audit adjustment 
pursuant to paragraph (a)(2) of this section;
    (2) The market administrator shall accept adjusted requests for 
transportation credits on or before the 20th day of the month following 
the month for which such credits were requested pursuant to 
Sec. 1011.32(a). After such date, a preliminary audit will be conducted 
by the market administrator, who will recalculate any necessary 
proration of transportation credit payments for the preceding month 
pursuant to paragraph (a) of this section. Handlers will be promptly 
notified of an overpayment of credits based upon this final computation 
and remedial payments to or from the transportation credit balancing 
fund will be made on or before the next payment date for the following 
month;
    (3) Transportation credits paid pursuant to paragraph (a)(1) and 
(2) of this section shall be subject to final verification by the 
market administrator pursuant to Sec. 1011.77. Adjusted payments to or 
from the transportation credit balancing fund will remain subject to 
the final proration established pursuant to paragraph (a)(2) of this 
section; and
    (4) In the event that a qualified cooperative association is the 
responsible party for whose account such milk is received and written 
documentation of this fact is provided to the market administrator 
pursuant to Sec. 1011.30(c)(3) prior to the date payment is due, the 
transportation credits for such milk computed pursuant to this section 
shall be made to such cooperative association rather than to the 
operator of the pool plant at which the milk was received.
    (b) The market administrator may extend the period during which 
transportation credits are in effect (i.e., the transportation credit 
period) to the months of January and June if a written request to do so 
is received 15 days prior to the beginning of the month for which the 
request is made and, after conducting an independent investigation, 
finds that such extension is necessary to assure the market of an 
adequate supply of milk for fluid use. Before making such a finding, 
the market administrator shall notify the Director of the Dairy 
Division and all handlers in the market that an extension is being 
considered and invite written data, views, and arguments. Any decision 
to extend the transportation credit period must be issued in writing 
prior to the first day of the month for which the extension is to be 
effective.
    (c) Transportation credits shall apply to the following milk:
    (1) Bulk milk received from a plant regulated under another Federal 
order, except Federal Orders 1005, 1007, and 1046, and allocated to 
Class I milk pursuant to Sec. 1011.44(a)(12); and
    (2) Bulk milk received directly from the farms of dairy farmers at 
pool distributing plants subject to the following conditions:
    (i) The quantity of such milk that shall be eligible for the 
transportation credit shall be determined by multiplying the total 
pounds of milk received from producers meeting the conditions of this 
paragraph by the lower of:
    (A) The marketwide estimated Class I utilization of all handlers 
for the month pursuant to Sec. 1011.45(a); or
    (B) The Class I utilization of all producer milk of the pool plant 
operator receiving the milk after the computations described in 
Sec. 1011.44;
    (ii) The dairy farmer was not a ``producer'' under this order 
during more than 2 of the immediately preceding months of January 
through June and not more than 50 percent of the production of the 
dairy farmer during those 2 months, in aggregate, was received as 
producer milk under this order during those 2 months. However, if 
January and/or June are months in which transportation credits are 
disbursed pursuant to paragraph (a) of this section, these months shall 
not be included in the 2-month limit provided in this paragraph; and
    (iii) The farm on which the milk was produced is not located within 
the specified marketing area of this order or the marketing areas of 
Federal Orders 1005, 1007, or 1046, or within the Kentucky counties of 
Allen, Barren, Metcalfe, Monroe, Simpson, and Warren.
    (d) Transportation credits shall be computed as follows:
    (1) The market administrator shall subtract from the pounds of milk 
described in paragraphs (c) (1) and (2) of this section the pounds of 
bulk milk transferred from the pool plant receiving the supplemental 
milk if milk was transferred to a nonpool plant on the same calendar 
day that the supplemental milk was received. For this purpose, the 
transferred milk shall be subtracted from the most distant load of 
supplemental milk received, and then in sequence with the next most 
distant

[[Page 27544]]

load until all of the transfers have been offset;
    (2) With respect to the pounds of milk described in paragraph 
(c)(1) of this section that remain after the computations described in 
paragraph (d)(1) of this section, the market administrator shall:
    (i) Determine the shortest hard-surface highway distance between 
the shipping plant and the receiving plant;
    (ii) Multiply the number of miles so determined by 0.35 cent;
    (iii) Subtract the other order's Class I price applicable at the 
shipping plant's location from the Class I price applicable at the 
receiving plant as specified in Sec. 1011.52;
    (iv) Subtract any positive difference computed in paragraph 
(d)(2)(iii) of this section from the amount computed in paragraph 
(d)(2)(ii) of this section; and
    (v) Multiply the remainder computed in paragraph (d)(2)(iv) of this 
section by the hundredweight of milk described in paragraph (d)(2) of 
this section.
    (3) For milk described in paragraph (c)(2) of this section, the 
market administrator shall:
    (i) Determine an origination point for each load of milk by 
locating the nearest city to the last producer's farm from which milk 
was picked up for delivery to the receiving pool plant. Alternatively, 
the milk hauler that is transporting the milk of producers described in 
paragraph (c)(2) of this section may establish an origination point 
following the last farm pickup by stopping at the nearest 
independently-operated truck stop with a certified truck scale and 
obtaining a weight certificate indicating the weight of the truck and 
its contents, the date and time of weighing, and the location of the 
truck stop;
    (ii) Determine the shortest hard-surface highway distance between 
the receiving pool plant and the truck stop or city, as the case may 
be;
    (iii) Subtract 85 miles from the mileage so determined;
    (iv) Multiply the remaining miles so computed by 0.35 cent;
    (v) If the origination point determined pursuant to paragraph 
(d)(3)(i) of this section is in a Federal order marketing area, 
subtract the Class I price applicable at the origination point pursuant 
to the provisions of such other order (as if the origination point were 
a plant location) from the Class I price applicable at the distributing 
plant receiving the milk. If the origination point is not in any 
Federal order marketing area, determine the Class I price at the 
origination point based upon the provisions of this order and subtract 
this price from the Class I price applicable at the distributing plant 
receiving the milk;
    (vi) Subtract any positive difference computed in paragraph 
(d)(3)(v) of this section from the amount computed in paragraph 
(d)(3)(iv) of this section; and
    (vii) Multiply the remainder computed in paragraph (d)(3)(vi) by 
the hundredweight of milk described in paragraph (d)(3) of this 
section.

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


Sec. 1046.30  [Amended]

    21. In Sec. 1046.30, paragraphs (a)(7) and (a)(8) are redesignated, 
respectively, as paragraphs (a)(8) and (a)(9), new paragraph (a)(7) is 
added, and paragraphs (a)(5), (a)(6), and (c)(3) are revised to read as 
follows:


Sec. 1046.30  Reports of receipts and utilization.

* * * * *
    (a) * * *
    (5) Receipts of bulk milk from a plant regulated under another 
Federal order, except Federal Orders 1005, 1007, and 1011, for which a 
transportation credit is requested pursuant to Sec. 1046.82, including 
the date that such milk was received;
    (6) Receipts of producer milk described in Sec. 1046.82(c)(2), 
including the identity of the individual producers whose milk is 
eligible for the transportation credit pursuant to that paragraph and 
the date that such milk was received;
    (7) For handlers submitting transportation credit requests, 
transfers of bulk milk to nonpool plants, including the dates that such 
milk was transferred;
* * * * *
    (c) * * *
    (3) With respect to milk for which a cooperative association is 
requesting a transportation credit pursuant to Sec. 1046.82, all of the 
information required in paragraphs (a)(5), (a)(6), and (a)(7) of this 
section.
* * * * *


Sec. 1046.32  [Amended]

    22. In Sec. 1046.32, paragraph (c) is redesignated as paragraph (d) 
and a new paragraph (c) is added to read as follows:


Sec. 1046.32  Other reports.

* * * * *
    (c) On or before the 20th day after the end of each month, each 
handler described in Sec. 1046.9(a), (b), and (c) shall report to the 
market administrator any adjustments to transportation credit requests 
as reported pursuant to Sec. 1046.30(a)(5), (6), and (7).
* * * * *


Sec. 1046.61  [Amended]

    23. In Sec. 1046.61, paragraph (a)(4) is removed and paragraphs 
(a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5), 
respectively.


Sec. 1046.77  [Amended]

    24. Sec. 1046.77 is revised to read as follows:


Sec. 1046.77  Adjustment of accounts.

    (a) Whenever verification by the market administrator of payments 
by any handler discloses errors made in payments to the producer-
settlement fund pursuant to Sec. 1046.71 or to the transportation 
credit balancing fund pursuant to Sec. 1046.81, the market 
administrator shall promptly bill such handler for any unpaid amount 
and such handler shall, within 15 days, make payment to the market 
administrator of the amount so billed. Whenever verification discloses 
that payment is due from the market administrator to any handler 
pursuant to Sec. 1046.72 or Sec. 1046.82, the market administrator 
shall make payment to such handler within 15 days or, in the case of 
the transportation credit balancing fund, as soon as funds become 
available. If a handler is due additional payment for a month in which 
payments to handlers were prorated pursuant to Sec. 1046.82(a), the 
additional payment pursuant to this section shall be multiplied by the 
final proration percentage computed in Sec. 1046.82(a)(2).
    (b) Whenever verification by the market administrator of the 
payment by a handler to any producer or cooperative association for 
milk received by such handler discloses payment of less than is 
required by Sec. 1046.73, the handler shall pay such balance due such 
producer or cooperative association not later than the time of making 
payment to producers or cooperative associations next following such 
disclosure.


Sec. 1046.78  [Amended]

    25. In the introductory text of Sec. 1046.78, the number 
``1046.81,'' is added following the number ``1046.77,''.


Sec. 1046.81  [Amended]

    26. In Sec. 1046.81, paragraph (c) is removed and paragraphs (a) 
and (b) are revised to read as follows:


Sec. 1046.81  Payments to the transportation credit balancing fund.

    (a) On or before the 15th day after the end of the month, each 
handler

[[Page 27545]]

operating a pool plant and each handler specified in Sec. 1046.9(b) and 
(c) shall pay to the market administrator a transportation credit 
balancing fund assessment determined by multiplying the pounds of Class 
I producer milk assigned pursuant to Sec. 1046.44 by $0.06 per 
hundredweight or such lesser amount as the market administrator deems 
necessary to maintain a balance in the fund equal to the total 
transportation credits disbursed during the prior June-January period. 
In the event that during any month of the June-January period the fund 
balance is insufficient to cover the amount of credits that are due, 
the assessment should be based upon the amount of credits that would 
have been disbursed had the fund balance been sufficient.
    (b) The market administrator shall announce publicly on or before 
the 5th day of the month the assessment pursuant to paragraph (a) of 
this section for the following month.


Sec. 1046.82  [Amended]

    27. Sec. 1046.82 is revised to read as follows:


Sec. 1046.82  Payments from the transportation credit balancing fund.

    (a) Payments from the transportation credit balancing fund to 
handlers and cooperative associations requesting transportation credits 
shall be made as follows:
    (1) On or before the 16th day after the end of each of the months 
of July through December and any other month in which transportation 
credits are in effect pursuant to paragraph (b) of this section, the 
market administrator shall pay to each handler that received, and 
reported pursuant to Sec. 1046.30(a)(5), bulk milk transferred from an 
other order plant as described in paragraph (c)(1) of this section or 
that received, and reported pursuant to Sec. 1046.30(a)(6), milk 
directly from producers' farms as specified in paragraph (c)(2) of this 
section, a preliminary amount determined pursuant to paragraph (d) of 
this section to the extent that funds are available in the 
transportation credit balancing fund. If an insufficient balance exists 
to pay all of the credits computed pursuant to this section, the market 
administrator shall distribute the balance available in the 
transportation credit balancing fund by reducing payments prorata using 
the percentage derived by dividing the balance in the fund by the total 
credits that are due for the month. The amount of credits resulting 
from this initial proration shall be subject to audit adjustment 
pursuant to paragraph (a)(2) of this section;
    (2) The market administrator shall accept adjusted requests for 
transportation credits on or before the 20th day of the month following 
the month for which such credits were requested pursuant to 
Sec. 1046.32(c). After such date, a preliminary audit will be conducted 
by the market administrator, who will recalculate any necessary 
proration of transportation credit payments for the preceding month 
pursuant to paragraph (a) of this section. Handlers will be promptly 
notified of an overpayment of credits based upon this final computation 
and remedial payments to or from the transportation credit balancing 
fund will be made on or before the next payment date for the following 
month;
    (3) Transportation credits paid pursuant to paragraph (a) (1) and 
(2) of this section shall be subject to final verification by the 
market administrator pursuant to Sec. 1046.77. Adjusted payments to or 
from the transportation credit balancing fund will remain subject to 
the final proration established pursuant to paragraph (a)(2) of this 
section; and
    (4) In the event that a qualified cooperative association is the 
responsible party for whose account such milk is received and written 
documentation of this fact is provided to the market administrator 
pursuant to Sec. 1046.30(c)(3) prior to the date payment is due, the 
transportation credits for such milk computed pursuant to this section 
shall be made to such cooperative association by the pool plant 
operator pursuant to Sec. 1046.73(f)(2).
    (b) The market administrator may extend the period during which 
transportation credits are in effect (i.e., the transportation credit 
period) to the months of January and June if a written request to do so 
is received 15 days prior to the beginning of the month for which the 
request is made and, after conducting an independent investigation, 
finds that such extension is necessary to assure the market of an 
adequate supply of milk for fluid use. Before making such a finding, 
the market administrator shall notify the Director of the Dairy 
Division and all handlers in the market that an extension is being 
considered and invite written data, views, and arguments. Any decision 
to extend the transportation credit period must be issued in writing 
prior to the first day of the month for which the extension is to be 
effective.
    (c) Transportation credits shall apply to the following milk:
    (1) Bulk milk received from a plant regulated under another Federal 
order, except Federal Orders 1005, 1007, and 1011, and allocated to 
Class I milk pursuant to Sec. 1046.44(a)(12); and
    (2) Bulk milk received directly from the farms of dairy farmers at 
pool distributing plants subject to the following conditions:
    (i) The quantity of such milk that shall be eligible for the 
transportation credit shall be determined by multiplying the total 
pounds of milk received from producers meeting the conditions of this 
paragraph by the lower of:
    (A) The marketwide estimated Class I utilization of all handlers 
for the month pursuant to Sec. 1046.45(a); or
    (B) The Class I utilization of all producer milk of the pool plant 
operator receiving the milk after the computations described in 
Sec. 1046.44;
    (ii) The dairy farmer was not a ``producer'' under this order 
during more than 2 of the immediately preceding months of January 
through June and not more than 50 percent of the production of the 
dairy farmer during those 2 months, in aggregate, was received as 
producer milk under this order during those 2 months. However, if 
January and/or June are months in which transportation credits are 
disbursed pursuant to paragraph (a) of this section, these months shall 
not be included in the 2-month limit provided in this paragraph; and
    (iii) The farm on which the milk was produced is not located within 
the specified marketing area of this order or the marketing areas of 
Federal Orders 1005, 1007, or 1011, or within the Kentucky counties of 
Allen, Barren, Metcalfe, Monroe, Simpson, and Warren.
    (d) Transportation credits shall be computed as follows:
    (1) The market administrator shall subtract from the pounds of milk 
described in paragraphs (c) (1) and (2) of this section the pounds of 
bulk milk transferred from the pool plant receiving the supplemental 
milk if milk was transferred to a nonpool plant on the same calendar 
day that the supplemental milk was received. For this purpose, the 
transferred milk shall be subtracted from the most distant load of 
supplemental milk received, and then in sequence with the next most 
distant load until all of the transfers have been offset;
    (2) With respect to the pounds of milk described in paragraph 
(c)(1) of this section that remain after the computations described in 
paragraph (d)(1) of this section, the market administrator shall:
    (i) Determine the shortest hard-surface highway distance between 
the shipping plant and the receiving plant;

[[Page 27546]]

    (ii) Multiply the number of miles so determined by 0.35 cent;
    (iii) Subtract the other order's Class I price applicable at the 
shipping plant's location from the Class I price applicable at the 
receiving plant as specified in Sec. 1046.52;
    (iv) Subtract any positive difference computed in paragraph 
(d)(2)(iii) of this section from the amount computed in paragraph 
(d)(2)(ii) of this section; and
    (v) Multiply the remainder computed in paragraph (d)(2)(iv) of this 
section by the hundredweight of milk described in paragraph (d)(2) of 
this section.
    (3) For milk described in paragraph (c)(2) of this section, the 
market administrator shall:
    (i) Determine an origination point for each load of milk by 
locating the nearest city to the last producer's farm from which milk 
was picked up for delivery to the receiving pool plant. Alternatively, 
the milk hauler that is transporting the milk of producers described in 
paragraph (c)(2) of this section may establish an origination point 
following the last farm pickup by stopping at the nearest 
independently-operated truck stop with a certified truck scale and 
obtaining a weight certificate indicating the weight of the truck and 
its contents, the date and time of weighing, and the location of the 
truck stop;
    (ii) Determine the shortest hard-surface highway distance between 
the receiving pool plant and the truck stop or city, as the case may 
be;
    (iii) Subtract 85 miles from the mileage so determined;
    (iv) Multiply the remaining miles so computed by 0.35 cent;
    (v) If the origination point determined pursuant to paragraph 
(d)(3)(i) of this section is in a Federal order marketing area, 
subtract the Class I price applicable at the origination point pursuant 
to the provisions of such other order (as if the origination point were 
a plant location) from the Class I price applicable at the distributing 
plant receiving the milk. If the origination point is not in any 
Federal order marketing area, determine the Class I price at the 
origination point based upon the provisions of this order and subtract 
this price from the Class I price applicable at the distributing plant 
receiving the milk;
    (vi) Subtract any positive difference computed in paragraph 
(d)(3)(v) of this section from the amount computed in paragraph 
(d)(3)(iv) of this section; and
    (vii) Multiply the remainder computed in paragraph (d)(3)(vi) by 
the hundredweight of milk described in paragraph (d)(3) of this 
section.

[FR Doc. 97-13000 Filed 5-19-97; 8:45 am]
BILLING CODE 3410-02-P