[Federal Register Volume 62, Number 104 (Friday, May 30, 1997)]
[Rules and Regulations]
[Pages 29626-29646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14274]



[[Page 29625]]

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Part VI





Northeast Dairy Compact Commission





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7 CFR Chapter XIII



Compact Over-Order Price Regulation and Results of Producer Referendum; 
Final Rules

  Federal Register / Vol. 62, No. 104 / Friday, May 30, 1997 / Rules 
and Regulations  

[[Page 29626]]


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NORTHEAST DAIRY COMPACT COMMISSION

7 CFR Chapter XIII


Compact Over-Order Price Regulation

AGENCY: Northeast Dairy Compact Commission.

ACTION: Final rule.

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SUMMARY: This rule establishes a compact over-order price regulation 
(``price regulation'') for all Class I, fluid milk route distributions 
in the territorial region of the six New England states, in the 
combined, Federal Milk Market Order #1 and compact over-order, amount 
of $16.94 (Zone 1). The price regulation is established for a six-month 
duration. The Northeast Dairy Compact Commission (``Compact 
Commission'') establishes this price regulation based on its findings 
that it is necessary to assure the viability of dairy farming in New 
England and to assure the region's consumers of a continued, adequate, 
local supply of fresh and wholesome milk, reasonably priced, and that 
it is otherwise in the public interest. The Compact Commission also 
establishes the price regulation based on the finding that the 
regulation has been approved by producer referendum pursuant to Article 
V, section 13 of the Northeast Interstate Dairy Compact. Certification 
of notice of approval by referendum is published separately in this 
Federal Register.
    The price regulation applies to all route dispositions of Class I 
fluid milk in the territorial region of the six New England states by 
compact ``pool plants'', or fluid processing plants located in New 
England, and by compact ``partially regulated plants'', or fluid 
processing plants located outside New England with such route 
dispositions in the region. The specific amount of the compact over-
order price will be announced each month in coordination with the 
established procedure for price announcement by the Market Order #1 
Administrator.
    The price regulation provides for a reimbursement to the Women, 
Infants and Children Special Supplement Nutrition Program under the 
United States Child Nutrition Act of 1966. (WIC Program). The 
reimbursement is in the entire amount of the compact over-order price, 
or the difference between $16.94 and the Market Order #1 price (Zone 1) 
as announced monthly, for all milk purchases made by each of the six 
State WIC programs.
    The Compact Commission will monitor production levels regionally 
and nationally to determine whether action is necessary to assure 
compliance with the provisions of 7 U.S.C. 7256(5), relating to 
compensation of the Commodity Credit Corporation (CCC). Finally, the 
price regulation establishes an administrative assessment of 3.2 cents 
per hundredweight of milk on all route dispositions of Class I, fluid 
milk in the territorial region of the six New England states.

EFFECTIVE DATE: July 1, 1997.

ADDRESSES: Northeast Dairy Compact Commission, 43 State Street, P.O. 
Box 1058, Montpelier, VT 05601.

FOR FURTHER INFORMATION CONTACT: Daniel Smith, Executive Director, 
Northeast Dairy Compact Commission at the above address or by telephone 
at (802) 229-1941 or by facsimile at (802) 229-2028.

SUPPLEMENTARY INFORMATION:

Background

    The Compact Commission was established under authority of the 
Northeast Interstate Dairy Compact (``Compact''). The Compact was 
enacted into law by each of the six participating New England states as 
follows: Connecticut--Pub. L. 93-320; Maine--Pub. L. 89-437, as 
amended, Pub. L. 93-274; Massachusetts--Pub. L. 93-370; New Hampshire--
Pub. L. 93-336; Rhode Island--Pub. L. 93-106; Vermont--Pub. L. 89-95, 
as amended, 93-57. Consistent with Article I, Section 10 of the United 
States Constitution, Congress consented to the Compact in Pub. L. 104-
127 (FAIR ACT), Section 147, codified at 7 U.S.C. Sec. 7256. 
Subsequently, the United States Secretary of Agriculture, pursuant to 7 
U.S.C. Sec. 7256(1), authorized implementation of the Compact.
    Section 8 of the Compact empowers the Compact Commission to engage 
in a broad range of activities designed to ``promote regulatory 
uniformity, simplicity and interstate cooperation.'' For example, the 
Compact authorizes the Compact Commission to engage in a range of 
inquiries into the existing milk programs of both the participating 
states and the federal milk marketing system, to make recommendations 
to participating states, and to work to improve industry relations as a 
whole. See Compact, Art. IV, Section 8.
    In addition to the powers conferred by Section 8, the Compact also 
authorizes the Compact Commission to consider adopting a compact over-
order price regulation. See Compact, Art. IV, Section 9. A ``compact 
over-order price'' is defined as:

    A minimum price required to be paid to producers for Class I 
milk established by the Commission in regulations adopted pursuant 
to sections nine and ten of this compact, which is above the price 
established in federal marketing orders or by state farm price 
regulation in the regulated area. Such price may apply throughout 
the region or in any part or parts thereof as defined in the 
regulations of the commission.

See Compact, Art. II, Section 2(8).
    The regulated price established by the Compact Commission is 
actually an incremental amount above, or ``over-order'' (Federal Milk 
Market Order) the minimum price for the same milk established by 
Federal Milk Market Order #1. Price regulation provides for payment of 
a uniform, ``over-order'' price, out of the proceeds of the price 
regulation, to dairy farmers making up the New England milkshed, 
regardless of the utilization of their milk. Such price regulation also 
establishes the minimum procurement price to be paid by fluid milk 
processors for milk that is ultimately utilized for fluid milk 
consumption in the New England region. See Compact, Art. IV, Section 9 
(``The Commission is hereby empowered to establish the minimum price 
for milk to be paid by pool plants, partially regulated plants and all 
other handlers receiving milk from producers located in a regulated 
area.'')
    Section 11 of the Compact delineates the administrative procedure 
the Compact Commission must follow in deciding whether to promulgate a 
price regulation:

    Before promulgation of any regulations establishing a compact 
over-order price or commission marketing order, including any 
provision with respect to milk supply under subsection 9(f), or 
amendment thereof, as provided in Article IV, the commission shall 
conduct an informal rulemaking proceeding to provide interested 
persons with an opportunity to present data and views. Such 
rulemaking proceeding shall by governed by section four of the 
Federal Administrative Procedures Act, as amended (5 U.S.C. 
Sec. 553). In addition, the commission shall, to the extent 
practicable, publish notice of rulemaking proceedings in the 
official register of each participating state. Before the initial 
adoption of regulations establishing a compact over-order price or a 
commission marketing order and thereafter before any amendment with 
regard to prices or assessments, the commission shall hold a public 
meeting. The Commission may commence a rulemaking proceeding on its 
own initiative or may in its sole discretion act upon the petition 
of any person including individual milk producers, any organization 
of milk producers or handlers, general farm organizations, consumer 
or public interest groups, and local, state or federal officials.

    Pursuant to Section 11 of the Compact, the Compact Commission 
issued a Notice of Hearing on December 13, 1996,1 and held 
public hearings on

[[Page 29627]]

December 17 and 19, 1996. The Notice also invited the public to submit 
written comments through January 2, 1997. Following the close of this 
comment period, the Commission met on January 16, 1997 and established 
three working groups to consider the testimony and data submitted. The 
Commission issued a Notice of Additional Comment Period on March 14, 
1997.2 This comment period closed on March 31, 1997; the 
reply comment period closed April 9, 1997.
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    \1\ 61 FR 65604 (December 13, 1996).
    \2\ 62 FR 12252 (March 14, 1997).
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    Based on the testimony and comment received, the Compact Commission 
issued a Proposed Rule on April 28, 1997 to adopt price 
regulation.3 As part of the proposed rule, the Commission 
published for comment technical regulations to be codified at 7 CFR 
1300, et seq. Minor corrections to the proposed rule were published on 
May 8, 1997,4 to provide clarification and correct errors.
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    \3\ 62 FR 23032 (April 28, 1997).
    \4\ 62 FR 25140 (May 8, 1997).
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    In response to the Proposed Rule issued April 28, 1997, the Compact 
Commission received additional comment to which it responds below. The 
Commission also summarizes the findings regarding adoption of the price 
regulation which were set forth in the Proposed Rule, and provides 
further discussion of its conclusions. For the reasons stated in the 
discussion of the Proposed Rule, 62 FR 23032-62, and for the reasons 
stated in this Final Rule, the Commission hereby adopts the Final Rule.

I. Comments Received in Response to the Proposed Rule and 
Commission's Response

    Comments received by the Commission's published deadline of May 12, 
1997 were duly considered by the Commission. The Commission met on May 
14, 1997 to consider and act on the comment received. Public notice of 
this meeting was published on May 7th in the Federal 
Register.5
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    \5\ 62 FR 24849 (May 7, 1997).
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Summary and Analysis of Comments

    Nineteen comments were received during the comment period. Eight 
comments were received from dairy farmers, seven of whom expressed 
support for the proposed rule. The remaining farmer suggested an 
alternative approach to price regulation. Four comments were received 
from officials of dairy cooperatives. Three of these comments expressed 
support for the proposed rule, with recommendations for some 
modification of the technical provisions proposed for codification in 
the Federal Register. The remaining comment did not express an opinion 
on the regulation, but raised some questions about the technical 
provisions. One commenter, author of one of the studies cited in the 
proposed rule, provided some clarification about that study. One 
commenter, the Director of a State WIC Program, proposed some minor 
modification to the joint proposal presented by the six New England 
State WIC Directors adopted and incorporated into the Proposed Rule. 
One commenter, a private attorney, expressed strong reservations about 
certain aspects of the Proposed Rule. One commenter, the President of a 
Vermont bank, expressed concern about the sufficiency of the proposed 
administrative assessment. One commenter, Manager of Public Affairs for 
the Northeast Farm Credit Associations, expressed support for the 
proposed rule. One commenter, representing a fluid milk processor, 
sought an exemption from operation of the price regulation for a 
certain class of such processors. The final commenter suggested an 
additional rationale for the cost of production study recommended in 
the proposed rule.

Dairy Farmer Comment and Reply

    Seven of the eight dairy farmers submitting comment expressed 
general support for the proposed rule, and indicated that New England 
dairy farming is in severe distress. Most of the commenters indicated 
that the price they received for their milk does not cover their costs 
of production. Following is a representative statement of the comment 
received:

    How do we make farming attractive to our children, when all they 
see is our struggle to make ends meet, and the constant stress these 
times put us through. How do we plan for a retirement if we have to 
borrow more money that eventually eats up our equity in the farm? 
\6\
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    \6\ Roy and Brenda Patterson, May 9, 1997.

    The one farmer who did not express support for the approach of the 
Proposed Rule indicated that the proposed price regulation would not be 
sufficient to show improved financial performance of farming 
operations, because the likely price increase will still not be 
sufficient to provide for costs of production.\7\ She indicated that 
financial losses and attrition would continue, only at a slower rate. 
In response, the Commission notes that the level of price adopted 
reflects the dual scrutiny of the inquiry into the price needed to 
assure an adequate supply of milk along that with assessing costs of 
production. The price level adopted also reflects a balancing of the 
numerous elements comprising the ``public interest'' in price 
regulation. It is also noted that the establishment of a ``flat'', 
combined federal Market Order and Compact Over-order Price Regulation 
is designed to improve economic performance through price stabilization 
as well as income enhancement. The Commission nonetheless recognizes 
the on-going need to monitor the impact of price regulation to 
determine if it is achieving the desired goal with respect to 
improvement of dairy farm viability.
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    \7\ Rosemarie A. Jeleniewski, May 1, 1997.
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    The commenter indicated an apparent, personal, willingness to cut 
production so as to provide only for the Class I market subject to 
regulation under the Compact, with the remainder of any production to 
receive the price for milk utilized for manufactured products. Assuming 
the commenter is proposing something more than a personal option as a 
general alternative for implementation of price regulation, the 
Commission responds that such an approach is beyond the Commission's 
authority. The Commission has no authority over the pricing of milk 
utilized for manufactured purposes. See 7 U.S.C. Sec. 7256(2). The 
commenter's approach is therefore not a workable alternative. The 
Commission does note the commenter's further suggestion of the need to 
monitor production levels in response to price regulation. A mechanism 
for tracking production levels is included in the Final Rule.

Comment on the WIC Proposal and Reply

    One of the State WIC Program Directors submitted comment providing 
minor modification of the joint proposal for the WIC Program 
reimbursement adopted as part of the Proposed Rule. In view of the 
importance of the WIC Program to the overall context of price 
regulation, the joint proposal is again incorporated in full text, 
including the minor modifications provided by the commenter: \8\
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    \8\ Typographical corrections submitted by Sally Beach have also 
been incorporated.
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About the WIC Program

    The Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC) is a unique health and nutrition program serving women 
and children with--or at risk of developing--nutrition-related health 
problems. WIC provides access to healthcare, free nutritious food, and 
nutrition information to help keep low to moderate income pregnant 
women,

[[Page 29628]]

infants and children under five healthy and strong.
    WIC provides a monthly ``prescription'' for nutritious foods 
tailored to supplement the individual dietary needs of each 
participant. Foods include milk, cheese, eggs, cereal, fruit juice and 
peanut butter. Included foods are specifically chosen to provide high 
levels of protein, iron, calcium, and Vitamins A and C--nutrients that 
have been scientifically shown to be lacking of needed in extra amounts 
in the diets of the WIC-eligible population. These five nutrients--plus 
calories and other essential nutrients provided by the WIC food 
prescription--are critical for good health during periods of growth and 
development. Milk and other dairy products play a large and important 
role in every participant's food package. WIC also distributes coupons 
for fresh produce--redeemable at local farmers' markets--in conjunction 
with State Departments of Agriculture.
    WIC is a prevention program designed to influence lifetime 
nutrition and health behaviors. Ongoing nutrition education--the 
centerpiece of WIC--is designed to ensure that program participants 
continue to make healthy choices at the grocery store even when they 
are no longer eligible.

WIC Works

    WIC is widely acknowledged to be effective in the prevention of 
immediate health problems and in the improvement of long-term health 
outcomes. More than 70 evaluation studies have demonstrated the 
effectiveness of WIC and documented medical, health and nutrition 
successes for women, infants, and children: WIC also saves money. 
Studies have also shown that WIC is cost effective. Every WIC dollar 
spent on pregnant women produces $1.92 to $4.21 in Medicaid savings for 
newborns and their mothers.

How WIC Works

    The WIC Program is a Federally funded program carried out according 
to provisions of the Federal Child Nutrition Act. The Program is funded 
through the Food and Consumer Service of the United States Department 
of Agriculture (USDA).
    The Program is administered on the local level by State WIC 
Programs in the Connecticut, Maine, Massachusetts, New Hampshire, Rhode 
Island, and the Vermont State Departments of Public Health (the 
States). State funds are also provided in Massachusetts. Participants 
are issued WIC checks or vouchers at local agencies for WIC authorized 
foods. The checks or vouchers--which do not have a predetermined 
value--are redeemed at authorized retail stores at current store prices 
in accordance with posted prices. Prepayment edits are performed on 
each check to ensure that specific food purchasing, pricing and payment 
requirements are met.
    The average number of women and children provided WIC benefits and 
services in August, 1996 in the New England States was 212,760. 
Individual State WIC participation was: Connecticut 47,673, 
Massachusetts 99,643; Maine 20,243; New Hampshire 14,700; Rhode Island 
17,360; and Vermont 13,141 (Final August, 1997 FSC 298 Reports). These 
numbers do not include infants also served by the WIC Program.
    WIC is not an entitlement program. The number of participants that 
WIC is able to serve at any time is dependent upon availability of 
funds from Federal and State sources, and the costs of WIC food items. 
The national appropriation for WIC is capped by Congress. The amount of 
USDA funding each State receives is determined through complex formulae 
taking into account such factors as the number of people served and the 
funding level of the previous year. The grant level and food costs 
determine the number of people who can be serviced--not the number of 
people in need.
    Since the amount of funds is fixed, any increase in the price of 
WIC foods has the effect of reducing the number of women and children 
the available grant dollars can serve.
    USDA estimated that there are 9.4 million women, infants, and 
children in the U.S. who meet WIC's income eligibility guidelines (185% 
of the Federal poverty level). The national WIC fiscal year 1997 
Federal appropriation is approximately $4 billion. This sum would serve 
only about 5.5 million at full retail prices, about 60% of the eligible 
persons.
    All the States have instituted measures to stretch food funds to 
the maximum, including restrictions on container size, brands and 
product price, requiring store or least expensive brands, competitive 
store selection procedures, and manufacturers' rebates on infant 
formula and infant cereal. Nationally, these measures have brought over 
$1 billion in savings, which are then used to provide services to an 
additional 1.9 million needy mothers and children. In New England, over 
75,000 women and children receive WIC services as a direct result of 
these cost savings measures, the most significant of which are the 
result of cooperative projects of State WIC directors working together 
on an interstate basis.
    Still, more than 20% of eligible women and children remain 
unserved. WIC's current funding is estimated to be $100 million short 
for this year, with several States reducing caseloads. Funding 
prospects for next year are not any better, and State WIC programs in 
New England are not eligible to receive funding to offset the impact of 
an Over-order Price Regulation.
    As such, it is imperative that WIC's funds be held harmless from 
adverse impact due to price regulation.

The WIC Program and the Milk Over-Order Price Regulation

    New England State WIC Programs recognize the important role that 
farms and farmers play in New England, including ensuring an ongoing 
supply of fresh milk at competitive prices, keeping important 
industry--and jobs--in our area, and providing open space that 
increases quality of life for all New England residents. The New 
England WIC Programs also understand the need for dairy farmers' 
relief.
    WIC is a major purchaser of locally produced dairy products in the 
New England region. Because WIC recognizes the importance of dairy 
products at critical times of child development and therefore must 
continue its milk purchases, the Program must be concerned with the 
fact that food cost increases have a direct, inverse effect on the 
number of participants WIC is able to serve. An increase in milk prices 
is of particular concern because of the large quantity of milk WIC 
purchases each month.
    Milk purchases are some 35% of WIC food dollars spent by 
participants. The number of quarts of Class 1 fluid milk purchased by 
WIC participants in New England in August 1996 was 3,779,015, which 
represents approximately 3.7% of the total amount sold by New England 
producers in the Region. WIC Class 1 fluid milk purchases in quarts by 
State were: Connecticut 1,100,000; Massachusetts 1,481,163; Maine 
457,852; New Hampshire 230,000; Rhode Island 300,000; and Vermont 
210,000.
    Given current WIC participation levels, a 1 cent per quart 
wholesale price increase in Class 1 Fluid milk reflected at the retail 
level would translate into an increase in monthly WIC program 
expenditures of $37,790 for New England as a whole. This increase would 
necessitate a decrease in monthly program funded participation of 
1,260. A 5 cent per quart milk retail price increase would result in an 
increase in monthly WIC expenditures

[[Page 29629]]

of $189,950 and a participation decrease of 6,302.
    In order to maintain services to eligible persons, without 
compromising the nutritional health effectiveness of its food benefits 
if food costs rise, WIC managers must achieve offsets to increased food 
benefit expenditures and use those offsets to serve a significant 
portion of the eligible women and children in need. Further, if the 
States in New England must reduce or limit participation levels due to 
higher Class 1 fluid milk costs, there will be a negative impact on 
Federal WIC funding to the New England Region--and on the amount of 
milk purchased.
    As important, low income women and children who WIC is not able to 
serve because of increased food costs will not receive the essential 
medical, health and nutritional benefits of WIC participation. It is 
critical, then, that the intended benefits to the regional economy and 
the continuation of dairy farming in New England not accrue at the cost 
of a significant risk to maternal and child health stemming from 
Regulation-related costs to WIC.

Retail Price Impact of Price Regulation

    The Northeast Interstate Dairy Compact enables participating States 
collectively to regulate the New England farm price for Class 1 fluid 
milk, thereby enhancing and stabilizing dairy farmer income. This 
Regulation may have the effect of increasing the price paid for Class 1 
fluid milk by WIC participants at retail stores, if the regulated farm 
price increase translates directly into an increase at the retail 
level. Other goals are to stabilize processor and retailer costs and 
consumer prices.
    Concomitantly, the findings of Hansen, et al 9 with 
regard to the variability of milk farm prices and asymmetric price 
transmission are the basis for the theory that an Over-order Price 
Regulation on Class 1 fluid milk which brings about stable farm prices 
for Class 1 fluid milk will result in price stability--and potential 
price decreases--in Class 1 milk at the retail level for consumers over 
a period of time. Testing this concept, presented by US Senator Patrick 
Leahy of Vermont in public comment before the Northeast Dairy Compact 
Commission, would appear viable with regard to the impact of a price 
regulation on consumer milk prices.
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    \9\ Hahn, et al, ``Determinants of the Farm-to Retail Milk Price 
Spread'', Agriculture Information Bulletin #693, March 1994.
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Demonstration Period and Continuing Assessment of Impact

    The New England State WIC Programs understand that the Compact is 
considering an Over-order Price Regulation on Class 1 fluid milk for a 
specific period of time. The State Directors believe it appropriate 
that any initial price regulation be in effect for a limited period, 
such as six months. A potential outcome of such a demonstration could 
provide evidence which supports that milk farm price stability due to a 
price regulation will result in price stability, and perhaps decreases 
and related savings, on Class 1 fluid milk purchases by consumers--
including WIC participants--over time.
    To measure and document the impact of a price regulation, the 
Commission will need to develop systems and methodologies to gather, 
track and analyze Class 1 fluid milk retail price data in order to 
accurately assess and evaluate any regulation-related adverse or 
beneficial impact on costs to consumers and WIC, and to make related 
adjustments to assure that the public interest is served and consumers 
and the WIC Program and its participants are protected.
    Such an analytical framework should include information which is 
appropriate to milk purchasing and pricing at both the New England 
Regional and individual State levels--including each State's WIC 
programs--comprising representative samples of market areas and retail 
store types, proportion of sales by package size (quarts, half gallons 
and gallons), and the degrees to which retail price fluctuations differ 
for package sizes in relation to each other, since data reflect WIC 
operations and purchasing patterns in each State. WIC participants 
often purchase 2 half gallon containers, and the majority do not have 
ready access to supermarkets, especially for frequent purchase of a 
perishable product such as milk.
    As important, analysis should include development of a baseline by 
which changes over time will be measured, as well as evaluation of the 
relationship between changes in the price regulation and Class 1 fluid 
milk prices at retail levels over time and the cost impact to WIC. WIC 
does not specify the fat content of milk purchased. Tracking and 
measuring product differentials based on fat content, therefore, is not 
necessary to any WIC cost impact methodology.

Post Demonstration Reimbursement System

    Given such analysis and evaluation and sufficient evidence, 
Commission reimbursement to WIC could be then based upon the over-order 
price regulation and--specifically, on the amount of any portion of the 
retail cost for Class 1 fluid milk to WIC attributable to the 
regulation which would encompass and respond to individual state WIC 
programs.

Demonstration Period Reimbursement System

    State WIC Programs recognize, however, that the theory and data 
which may justify the adoption of a demonstration period regulation 
does not provide demonstrated, proven assurance that there would be no 
cost increase to WIC on its Class 1 fluid milk purchases. 
Notwithstanding any public interest or other justification for a 
regulation, in the absence of such current evidence that a regulation 
would be either cost neutral or beneficial to WIC's present year 
funding, the Commission should provide a way to protect and hold 
harmless the WIC Program--and its participants--in the New England 
States from potential increases in the Class 1 fluid milk retail price 
during a period of a demonstration over-order price regulation, for at 
least the period of any demonstration regulation. It is clearly a part 
of the public interest under any regulation to protect WIC's limited 
funds and the full number of women and children WIC would otherwise 
serve. Price regulation must not leave women's and children's health 
and nutritional status at risk because appropriated WIC funds were 
diverted to pay higher milk prices, rather than remaining with the WIC 
Program to provide benefits to participants.
    Given that State WIC Programs have a September 30th fiscal year 
end, the Compact Commission can not make the Program whole after the 
fact. Further, WIC must operate in a funding ``limbo'' between October 
and January when its State Program grants are announced. Uncertainty 
regarding the potential effect of price regulation, or reimbursements 
to states made by the Compact Commission at a later date, would force 
State WIC managers to lower first quarter participation levels.
    As such, the State WIC Programs in New England propose a method by 
which the WIC Program will be held harmless from any impact related to 
a demonstration of a compact over-order price regulation for Class 1 
fluid milk. The Commission would reimburse each

[[Page 29630]]

respective State WIC Program. The amount of reimbursement would be 
based on (1) the quantities of milk purchased with WIC checks and (2) 
the amount of any compact over-order price regulation.
    This would allow the Commission to implement a Compact 
demonstration regulation, providing essential relief to dairy farmers, 
and WIC could continue to serve the maximum number of participants in 
each State allowed by the grants during price regulation demonstration. 
This would also allow the Commission a period of time to develop a more 
finely attuned analysis of the impact of the regulation, and to develop 
methods to most accurately ascertain any cost to WIC and the most 
appropriate reimbursement levels.
    The principles of the interim mechanism proposed by the State 
Directors are:

    1. The Commission should establish a Reserve Account, to assure 
that funds are on hand for timely reimbursement by the Commission to 
the States. This account will be funded from the Compact Over-order 
price regulation based on the recent percentage of total milk sold 
in New England purchased by WIC participants and the amount of the 
Over-order price regulation.
    2. Any Commission Over-order Price Regulation in a given month 
will result in a cent for cent reimbursement for Class 1 fluid milk 
paid for by each State WIC Program in that month. The amount of 
reimbursement will be based on the quantities of milk actually paid 
for by each WIC State Program. Funds in the Reserve Account will 
only be drawn by individual States in proportion to the price 
regulation. Unused funds would return to the Commission.
    3. Each State WIC Program will invoice the Commission on a 
monthly basis for reimbursement due. When the refund amounts are 
small, individual States may elect to bill up to 3 months in one 
invoice to avoid unnecessary administrative costs for both parties.

Formal Agreement

    Implementation will take place under the terms and conditions of a 
formal agreement between the Commission and the States, entered into by 
the State WIC Programs acting as a single entity. Such an agreement 
must contain the above provisions for interim reimbursement 
determination and procedures, continuing assessment of impact, how the 
parties will change to any post demonstration reimbursement system, 
conditions for mutual agreement for modifications to the agreement, 
term of the agreement and conditions for mutual or either party 
termination prior to expiration of the agreement.
    The above proposal by the State WIC Programs in New England and any 
subsequent agreement are subject to approval by the Food and Consumer 
Service of the USDA. The State WIC Programs will collaborate with the 
Compact Commission and USDA Food and Consumer Service to develop and 
implement agreement provisions and operating procedures for any 
reimbursement system which meet the requirements of Compact legislation 
and Federal WIC guidance, rules and regulations.

Comment on the Technical Provisions and Reply

    Two commenters 10 indicated that the definition of 
``Producer'' under proposed 7 CFR Sec. 1301.11 required clarification. 
Specifically, the commenters sought clarification of the definition's 
requirement that a producer's milk ``* * * must move to a pool plant 
during the current month and must have been moved to a pool plant for 
(5) months subsequent to July of the preceding calendar year. * * *'' 
They indicated the provision is not clear as to the minimum number of 
shipments each month that would satisfy the requirement. They also 
indicated that requiring shipments for every day of each month would be 
overly restrictive and cause market distortion. They propose instead 
reliance upon the requirement that shipments occur during a 
representative period for the subject months.
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    \10\ Berthiaume, May 9, 1997 (Also on behalf of Sally Beach); 
Wellington, May 12, 1997.
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    The Commission agrees with the commenters. Such representative time 
periods appear elsewhere in the regulation as well as in the regulatory 
pattern of the underlying federal Market Order. Accordingly, the 
movement of milk required under 7 CFR 1301.11 shall be required for at 
least one half of the days of each applicable month called for by the 
section. The section has been amended to conform to this change.
    One commenter 11 inquired with respect to the relative 
treatment of diverted milk by cooperative handlers and handlers 
operating pool plants. This comment revealed the need for correction of 
a clerical error to ensure uniform treatment. Accordingly, the 
reference in 7 CFR 1301.23(b) to a ``partially regulated pool plant'' 
is corrected to read ``plant other than a pool plant''.
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    \11\ Gallagher, May 12, 1997.
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    The same commenter inquired specifically whether a cooperative is 
considered a producer in its receipt of the proceeds of the price 
regulation. In response, the Commission responds in the affirmative. 
The same commenter inquired specifically with regard to a cooperative's 
responsibility to collect the Over-order obligation and the 
administrative assessment from the cooperative's Class I customers. In 
response, the Commission notes that cooperatives have no such 
responsibility.
    This commenter also indicated general concern with regard to how 
the technical provisions would be administered in practice, given the 
lack of a narrative description in the Proposed Rule. The Commission 
indicates that the technical provisions are drawn in principle part 
from the underlying Market Order #1, and uniformity in substance as 
well as text was established to the degree possible. The Commission 
also notes that the Market Order #1 Administrator will be providing for 
the substantial administration of the Compact price regulation, to 
ensure uniformity and consistency between operation of the underlying 
Market Order and the Compact Over-order price regulation.
    The commenter also inquired with regard to the impact of price 
regulation on New York's voluntary handling and premium structure. In 
response, the Commission notes the Compact has no regulatory authority 
over such payments, and that they are subject only to response of the 
marketplace.
    Two commenters \12\ sought specific clarification with regard to 
payments to those producers supplying pool plants and those producers 
supplying partially regulated pool plants. In response, the Commission 
observes that the commenters correctly noted that producers supplying 
pool plants will receive payment of the pool price, regardless of farm 
location, for all milk supplied to the pool plant. Producers supplying 
partially regulated pool plants will receive payment of a prorated 
amount of the pool price, based on the plant's dispositions of fluid 
milk sales in New England.
---------------------------------------------------------------------------

    \12\ Berthiaume and Beach, May 12, 1997.
---------------------------------------------------------------------------

    These commenters also sought clarification with regard to the 
definition of route dispositions. Specifically, they wished to ensure 
that milk sold in New England is traced to the original processing 
plant. In response, the Commission indicates that the commenters have 
accurately described the treatment of all such milk under the 
regulations. See 7 CFR 1304.4(ii).
    One commenter \13\ indicated the filing date for reports of 
receipts and utilization under 7 CFR 1303.1 is earlier than the similar 
report date for the

[[Page 29631]]

Federal Market Order, and will be difficult for handlers to meet. In 
response, the Commission notes that the date was specifically selected 
to ensure sufficient time for the Market Order Administrator to conduct 
the dual, coordinated calculations required by the Compact price 
regulation and the Federal Milk Market Order and all subsequent, 
coordinated, reports and price announcements. This coordinated process 
is necessary to ensure that payments to farmers can be made according 
to the same schedule as under the Federal Market Order.
---------------------------------------------------------------------------

    \13\ Wellington, May 12, 1997.
---------------------------------------------------------------------------

    Three commenters \14\ indicated that 7 CFR 1308.1, relating to the 
Administrative Assessment, suggests that the assessment is due on milk 
marketed by cooperatives for non-Class I purposes, or beyond the scope 
of this price regulation. The Commission agrees the section requires 
clarification to remove such an ambiguity. The applicable provision, 7 
CFR 1308.1(b) has been so modified.
---------------------------------------------------------------------------

    \14\ Berthiaume, Beach, and Wellington, May 12, 1997.
---------------------------------------------------------------------------

    One commenter \15\ indicated the assessment incorrectly denotes the 
intended amount because of a typographical error. The Commission also 
agrees with this comment. The correct amount is 3.2 cents per cwt. The 
applicable provision, 7 CFR 1308.1(b) has been so modified.
---------------------------------------------------------------------------

    \15\ Berthiaume and Beach, May 12, 1997.
---------------------------------------------------------------------------

    One commenter \16\ expressed concern that the amount of the 
proposed administrative assessment is not sufficient to allow the 
Commission to recoup all of the costs incurred during 1996-97 
associated with administration of the price regulation. The Commission 
responds by accepting the comment with the intent to examine further 
the proper calculation of the ``assessment for the specific purpose'' 
of administration of price regulation, within the meaning of Compact 
Article VII, section 18(b).
---------------------------------------------------------------------------

    \16\ Perine, May 12, 1997.
---------------------------------------------------------------------------

    One commenter \17\ indicated that fluid processing companies 
providing over-order prices ``both at the blend and Class I constantly 
throughout the year, not for example when milk is in short supply or 
when it is a means to solicit more farmers'' should be exempt from 
price regulation. The Commission appreciates the concern of the 
commenter. The Commission responds by noting that the price regulation 
is designed to mirror operation of the Market Order in substantial form 
to the degree possible. An exemption from regulation based on payment 
of market-based premiums is not recognized under the Federal Market 
Order System. Accordingly, to provide such an exemption would disrupt 
the complimentary function of the Compact and underlying Market Order.
---------------------------------------------------------------------------

    \17\ Flint, May 12, 1997.
---------------------------------------------------------------------------

General Comment and Reply

    One private commenter expressed concern with reliance on cost of 
production analysis as a basis of price regulation.18 
According to this commenter, existing milk prices already have a 
``close relationship'' with production costs. The commenter cited 
analysis in an accompanying article 19 which indicates that 
costs of production increase when milk prices rise and decline when 
milk prices fall, based on business decisions made by farmers in 
response to changing milk prices. The commenter indicated that reliance 
on cost of production calculations as the basis for price regulation is 
made further suspect given that cash operating costs ``by every 
measure'' are significantly below milk prices, and it is only when non-
cash costs are factored in that milk prices emerge as lower than 
operating costs. Taking his concerns together, according to the 
commenter, price regulation premised on a higher calculation of costs 
of production will serve only ``to produce a one-way price ratchet, 
never again allowing significant reductions in cost of production as 
occurred in the past.'' The commenter concludes by warning that 
``[t]his illustrates the danger of looking beyond the sufficiency of 
the volume of milk available to the market in making any judgment 
concerning whether the price to produce such milk is adequate.''
---------------------------------------------------------------------------

    \18\ Vetne, May 9, 1997.
    \19\ Mark Stephenson, ``The Problem of Declining Milk Prices and 
The Economic Consequences of a Geographically Isolated Solution'' 
(Undated) The commenter cites to another article by the same author, 
``The Problem of Using Cost of Production as a Basic Formula 
Price'', Undated) submitted with his testimony on December 19, 1996. 
This latter article presents a similar argument with regard to 
prices and costs of production.
    The Compact Commission notes that the article titled ``The 
Problem of Declining Milk Prices and The Economic Consequences of a 
Geographically Isolated Solution'' expresses concern with price 
regulation in a single-state format. The author's stated concern, 
however, is mitigated by an express reference to the Northeast 
Interstate Dairy Compact:
    It is my understanding that several other states in the 
Northeast are currently considering legislation of higher prices. 
Although I favor the efficiency of unrestricted markets, uniformly 
adopted price increases would not be as disruptive to orderly milk 
movements and manufacturing patterns as geographically isolated 
augmentations. (At 16)
---------------------------------------------------------------------------

    In response, the Commission notes first that the Compact explicitly 
requires the Compact Commission to make an express finding with regard 
to ``what level of prices will assure that producers receive a price 
sufficient to cover their costs of production'' as the basis of any 
price regulation. Compact Art. V Section 13. The same finding requires 
inquiry into the level of price sufficient to ``elicit an adequate 
supply of milk'' for the region, or an analysis along the lines 
suggested by the commenter. The inquiry required by the Compact, 
however, is a dual one of these two issues, rather than the single 
analysis presented by the commenter.
    The Commission agrees with the commenter that proper accounting for 
cash and non-cash costs creates complexity for the accurate 
determination of whether farm prices are covering costs of production. 
The Proposed Rule noted this complexity, yet indicated that the 
diversity of methodology does not compromise the quality of the 
extensive data presented or the conclusion that such costs are not 
being covered by pay prices. The Compact Commission also found in the 
Proposed Rule, and consistent with the commenter's assertion, that 
costs of production move in relation to prices.20 It is for 
both these reasons that the Commission identified that there exists a 
range of cost of production rather than a single, precise amount. 
Again, however, the record nonetheless strongly supports the 
Commission's conclusion that costs of production, however calculated, 
are not being covered by pay prices and that this is a primary cause of 
the loss of dairy farms in New England which must be addressed.
---------------------------------------------------------------------------

    \20\ In making this determination, the Commission cited the 
comment of DeGeus: In good years, we find that the cost of 
production tends to rise with the price of milk. With the extra cash 
farmers replace worn out equipment and make repairs that may have 
been delayed for years. When the price of milk drops below cost, 
they consume some of the equity in their farms to meet family living 
expenses and cash flow demands. De Geus, 1/2/97 Written Comment at 
75.
---------------------------------------------------------------------------

    In further response to the commenter, the Commission notes that the 
failure of milk prices to cover costs of production is only one factor 
relied upon by the Compact Commission in conducting the inquiry 
mandated by the first finding into the farm-based need to establish 
price regulation. Responses to the persistent, adverse impact of price 
volatility and to the failure of milk prices to account for inflation 
over time are also bases for the stated amount of price regulation.
    This same commenter suggests the Commission should utilize its 
authority under Section 8 of the Compact to explore ways to enhance 
producer income by means other than price

[[Page 29632]]

regulation.21 This comment is beyond the scope of the 
Proposed Rule.22
---------------------------------------------------------------------------

    \21\ Article IV, Section 8 of the Compact establishes Commission 
``Powers to Promote Regulatory Uniformity, Simplicity, and 
Interstate Cooperation''.
    \22\ The commenter stated that Connecticut regulations fail to 
conform to Interstate Milk Shippers (IMS) standards. The Commission 
notes that Connecticut has been accepted by IMS and, in addition, 
Connecticut's legislature has adopted the Federal Pasteurized Milk 
Ordinance (PMO) regulations.
---------------------------------------------------------------------------

    The same commenter expressed reservation about the Compact 
Commission's legal authority to regulate the price of milk which is 
marketed in the New England region but produced outside the region, 
other than by assessment of so-called ``compensatory payments'' on such 
milk. See 7 U.S.C. 7256(7).
    The Commission responds by identifying its authority to regulate 
the price of milk marketed in New England but produced outside the 
region, which is derived from the basic definitional and operational 
provisions of the Compact. This authority is not limited to the 
imposition of compensatory payments. Rather, the Commission is 
authorized further to regulate such milk by the establishment of a 
``pool'' of the proceeds of price regulation on such milk. This pool is 
used further as the basis for payment back to producers supplying the 
milk.
    Section 9(d) of the Compact authorizes the Commission:

    [T]o establish the minimum price for milk to be paid by pool 
plants, partially regulated plants and all other handlers receiving 
milk from producers located in a regulated area. (Emphasis 
supplied.)

    Compact, Article IV, Section 9(d). ``Partially regulated plants'' 
are defined as those milk plants

    Not located in a regulated area but having Class I distribution 
within such area, or receipts from producers located in such area.

    Compact Art. II, Section 2(7). Compact Section 10(7) authorizes the 
Commission to adopt

    Provisions specially governing the pricing and pooling of milk 
handled by partially regulated plants. (Emphasis supplied.)

    Compact Art. IV, Section 10(7). The Compact accounts for the 
establishment of this pooling mechanism for partially regulated plants 
because such regulatory authority is critical to the uniform and 
equitable administration of the Compact with regard to milk processors 
and dairy farmers located both inside and beyond the Compact region.
    One commenter 23 expressed the need to complete rather 
than initiate the cost of production study cited in the Proposed Rule 
by the date of expiration of the price regulation established by this 
Final rule. See 62 FR 23034 (Monday, April 28, 1997). As per the 
comment in the record by the same author the existence of differing 
costs of production in the region and the potential for resulting 
disbursements to producers accordingly is cited as the basis for the 
suggested need to complete the study in the described 
timeframe.24
---------------------------------------------------------------------------

    \23\ Gillmeister, May 12, 1997.
    \24\ A similar concern was raised by Rosenfeld,--Hearing 
transcript, December 19, 1996.
---------------------------------------------------------------------------

    In response, the Commission reaffirms its understanding of the need 
to conduct a cost of production study as part of the process of 
determining the potential benefits and other impacts of price 
regulation. The Commission will initiate the procedure for conducting 
the study with adoption of the Final Rule, with the goal of its 
completion by the date of expiration of the price regulation.

II. Summary and Further Explanation of Findings Regarding Adoption of 
Over-Order Price

    Section 12(a) of the Compact directs the Commission to make four 
findings of fact before an over-order price regulation can become 
effective. Specifically, the Commission shall make findings of fact 
with respect to:

    (1) Whether the public interest will be served by the 
establishment of minimum milk prices to dairy farmers under Article 
IV.
    (2) What level of prices will assure that producers receive a 
price sufficient to cover their costs of production and will elicit 
an adequate supply of milk for the inhabitants of the regulated area 
and for manufacturing purposes.25
---------------------------------------------------------------------------

    \25\ The Commission limited its assessment to issues relating to 
the fluid milk market, given the limitations on its authority to 
regulate the price of milk used for manufacturing purposes. See 
Compact, Section 9(a); see also 7 U.S.C. 7256(2).
---------------------------------------------------------------------------

    (3) Whether the major provisions of the order, other than those 
fixing minimum milk prices, are in the public interest and are 
reasonably designed to achieve the purposes of the order.
    (4) Whether the terms of the proposed regional order or 
amendment are approved by producers as provided in section thirteen.

Compact, Art. V. Section 12.
    The Commission's findings of fact regarding the first three topics 
are set forth in the Proposed Rule and reaffirmed and further discussed 
here. As in the Proposed Rule, the second finding required by the 
Compact (the level of prices needed to assure a sufficient price to 
producers and an adequate supply of milk) is discussed first. The 
Commission finds that a price of $16.94/cwt is needed to achieve these 
dual goals. As in the Proposed Rule, the first finding required by the 
Compact (whether the public interest will be served by the 
establishment of minimum milk prices) is discussed next. The Commission 
finds that the public interest will be served by establishment of an 
over-order price of $16.94/cwt. With respect to both of these findings, 
the Commission's inquiry has been guided by Section 9(e) of the 
Compact, which sets forth several factors which the Commission must 
consider in determining the amount of an over-order price, should it 
decide to adopt a price regulation:

    In determining the price, the commission shall consider the 
balance between production and consumption of milk and milk products 
in the regulated area, the costs of production, including, but not 
limited to the price of feed, the cost of labor including the 
reasonable value of the producer's own labor and management, 
machinery expense, and interest expense, the prevailing price for 
milk outside the regulated area, the purchasing power of the public 
and the price necessary to yield a reasonable return to the producer 
and the distributor.

    As in the Proposed Rule, the third finding required by the Compact 
is then discussed; the Commission concludes that the major provisions 
of this order, other than those fixing minimum milk prices, are in the 
public interest and reasonably designed to achieve the purposes of the 
order.
    In this Final Rule, the Commission makes the fourth finding, 
premised on the approval of the price regulation by producer referendum 
pursuant to Article IV, Section 12 of the Compact. Certification of 
this finding is published separately in this Federal Register.

A. What Level of Prices Will Assure That Producers Receive a Price 
Sufficient to Cover Their Costs of Production and Elicit an Adequate 
Local Supply of Milk

    With regard to the second finding required by the Compact, the 
Compact Commission sought comment on a wide range of issues. The 
Commission's deliberations regarding costs of production and the 
adequacy of farmer pay prices focused on three areas of concern:
    (1) The failure, over an extended period of time, of farmer pay 
prices to adequately cover the costs of production (``price 
insufficiency'').
    (2) Wide swings in farmer pay prices cause farm financial stress 
and make it difficult for farmers to plan financially (``price 
instability'').
    (3) The failure of farmer pay prices to keep up with inflation.
Failure of Farmer Pay Prices to Cover Costs of Production
    With regard to the first topic addressed by the Commission in its

[[Page 29633]]

Proposed Rule (whether prices are sufficient to cover the cost of 
production), the Commission's inquiry was guided by Section 9(e) of the 
Compact, which directs the Commission to consider cash costs of 
production, including feed, machinery expense, labor, and interest, as 
well as the non-cash costs of value for the farmer's own labor and a 
reasonable return on the farmer's investment. 62 FR 23033. Although the 
Commission found that estimates regarding costs of production vary, 
id., the Commission concluded that the total costs of production exceed 
prices paid to farmers, regardless of the measure of costs of 
production, id. at 23034.
    In addition to this overall conclusion, the Commission considered 
various specific components of cash and non-cash costs. The Commission 
found that feed costs can account for as much as 50 percent of a 
farmer's cost of production. 62 FR 23034. Farmers indicated that feed 
costs had risen beyond their means. id. at 23035-36. In 1996, in 
particular, feed costs increased by some 29 percent. id. at 
23034.26 The Commission concludes that feed costs are a 
major factor in the failure of farmer pay prices to cover costs of 
production.
---------------------------------------------------------------------------

    \26\ In addition, a cost-of-production study conducted by 
Wackernagel and relied upon by the Commission (62 FR 23034) 
indicated that feed and crop expenses together can account for some 
39% of a farmer's cash operating expenses.
---------------------------------------------------------------------------

    Machinery expense as a factor in the cost of production arises 
primarily in the context of depreciation; that is, depreciation must be 
covered by replacing old and worn out equipment. Farmers indicated that 
pay prices are too low to permit them to make these investments. 62 FR 
23034, 23036-37.27 The ability of farmers to pay machinery 
expenses is further diminished by price instability because farmers are 
unable to invest (e.g., in new machinery or in upgrading their 
facilities), given the wide fluctuations in the price of milk. 62 FR 
23035. The Commission concludes that this inability to reinvest 
threatens the continued viability of the New England dairy industry and 
the local milk supply for inhabitants.
---------------------------------------------------------------------------

    \27\ Economist Reenie DeGeus noted in record testimony that 
expenditures on machinery and other depreciation expenses tend to 
rise in the good years and are delayed in the bad years. Reenie 
DeGeus, WC 75.
---------------------------------------------------------------------------

    Section 9(e) also directs the Commission to consider interest and 
labor costs in assessing the sufficiency of farmer pay prices. As 
stated above, the Commission concluded that regardless of how the 
separate components of costs of production are measured, pay prices are 
inadequate to cover them. Moreover, comments submitted for the record 
indicate that both interest and non-family labor expenses constitute a 
significant proportion of costs of production: from $0.50 to $1.18 per 
hundredweight for interest expenses, and $1.08 to $1.92 per 
hundredweight for labor expenses.28
---------------------------------------------------------------------------

    \28\ See Wackernagel, which analyzed Agrifax and ELFAC farms 
over a 3-year period; Maine cost-of-production studies; and Pelsue 
and ERS-USDA studies submitted by Smith.
---------------------------------------------------------------------------

    Section 9(e) also directs the Commission to consider certain non-
cash costs, including a reasonable value for the farmer's own labor and 
a reasonable return on the farmer's investment. In considering whether 
pay prices provide a reasonable value for the farmer's labor, the 
Commission determined that dairy farms in New England are still 
predominately family operated. 62 FR 23036. The Commission concluded 
that in light of farmer pay prices, much of this family labor is 
completely uncompensated, or significantly undercompensated. id. at 
23036-37. The Commission concludes that this failure to compensate for 
family labor discourages entry into the dairy industry. See also id. at 
23035.
    As Section 9(e) directs, the Commission also considered whether pay 
prices provide a reasonable return on the farmer's investment. Several 
comments were received indicating that a reasonable return ranges 
between 4% and 5%.29 The Commission determined that, for an 
extended period of time, pay prices have been insufficient to provide a 
rate of return on equity that reaches these levels. 62 FR 23034.
---------------------------------------------------------------------------

    \29\ Robert Smith of the Yankee Farm Credit System suggested a 
4% rate of return was reasonable. 62 FR 23033. The Maine cost-of-
production studies, which analyze southern New England, used a 5% 
return on equity. id. at 23034. In addition, Michael Sciabarrasi of 
University of New Hampshire Cooperative Extension Service, suggested 
that 5% was a minimal rate of return.
---------------------------------------------------------------------------

    In summary, the Commission found that while the studies it 
considered used different methods for determining costs of production, 
particularly with respect to non-cash costs, all indicated that over an 
extended period of time, farmer pay prices have failed to cover the 
full costs of production, however measured. 62 FR 23040-41. Based on 
these studies, the Commission concluded that the range of the costs of 
production for New England is somewhere between $14.06 and $16.46. id. 
The Commission further concluded that the costs of production have 
exceeded the farm pay price by an amount in the range of $0.46-$1.90. 
id. at 23041. Accordingly, the Commission finds that pay prices have 
failed to cover the costs of production.

Effects of Price Instability

    The Commission received a wealth of testimony and comment 
indicating that wide fluctuations in the price of milk caused farm 
financial stress and made it difficult for farmers to plan financially. 
62 FR 23035. One comment indicated that the price volatility of the 
last year was triple that experienced in 1981, and much larger than 
most of the 1980's. id. Farmers were reluctant to make long-term 
investments in their farming operations, and when prices dropped 
precipitously they were unable to meet their most basic obligations. 
id. The Commission concluded that providing price stability is 
essential to the continued viability of the dairy industry in New 
England. id.

Failure of Farmer Pay Prices to Keep Up With Inflation

    The Commission relied on testimony by both economists and farmers 
in determining that the failure of farmer pay prices to keep up with 
inflation is a significant factor contributing to chronic price 
insufficiency and farm financial stress. 62 FR 23035. The analysis of 
economist Rick Wackernagel regarding the potential impact of price 
regulation under the Compact was the most persuasive comment submitted 
in this regard. id.30
---------------------------------------------------------------------------

    \30\ The Commission is here responding to the comments of 
Berthiaume and Beach.
---------------------------------------------------------------------------

    Wackernagel analyzed three potential ``price trajectories'' based 
on a 1997 economic model developed by the Food and Agriculture Policy 
Research Institute (FAPRI), modified for conditions in the northeast. 
id. Important trends emerged from this analysis. id.
    The first price trajectory was the ``base'' model, or what would 
happen if the Commission did nothing. The second price trajectory 
removed much of the price instability factor by holding the Class I 
price constant. Id. The third trajectory raises the Class I price and 
thereafter increased it by \1/2\ the rate of inflation in subsequent 
years. Id.
    The results of this last price trajectory, based on Wackernagel's 
inflation adjustment, revealed a markedly positive impact on net farm 
income, equity retention, and ultimate farm survivability. The study 
thereby confirmed the abundant comments of farmers with regard to the 
continued failure of farmer pay prices to respond to increases in cost 
attributable to inflation. 62 FR 23035-36.
    With regard to the appropriate adjustment to be made, the 
Commission was persuaded by the reasoning of economists Reenie DeGeus 
and Bill

[[Page 29634]]

Gillmeister, dairy economists for the Vermont and Massachusetts 
Departments of Agriculture, respectively. They jointly proposed, and 
the Commission adopted, an over-order price regulation based in part on 
an inflation adjustment. Using the Class I, Zone 1 price for 1991 as 
the base year (a year in which prices were markedly low), and adjusting 
forward using the 1990 Consumer Price Index (CPI) at Boston as the base 
CPI index, yielded the amount of $16.94. 62 FR 23041.
    The Commission remains mindful of the concern expressed by several 
commenters that an inflation adjustment not be built in as a permanent, 
automatic adjustment. 62 FR 23041. These commenters called for 
continuing evaluation of broader market conditions. The Commission 
concluded that adoption of a price regulation for limited duration of 
six months will allow for such an evaluation. Id.
    After concluding that farmer pay prices have been insufficient to 
cover costs of production, the Commission considered several other 
issues relevant to its finding regarding the level of prices needed to 
assure that producers receive a sufficient price and elicit an adequate 
supply of local milk.
    The Commission first reviewed statistical data and comments 
regarding prevailing pay prices received by dairy farmers in New 
England. 62 FR 23037-38. The Commission then considered the balance 
between production and consumption of fluid milk products, and 
concluded that while the balance was currently stable, it was 
``operating in a balance that is under tremendous stress.'' Id. at 
23039-40.
    The Commission then summarized its analysis of the costs of 
production. It concluded that ``price regulation is necessary to 
address the chronic pricing problems and to continue the assurance of 
an adequate, local supply of milk for the region.'' 62 FR 23040. The 
Commission further found that an over-order price of $16.94/cwt serves 
the goals set forth in the Compact. Id. at 23041.
    The Commission received written testimony from the President of the 
Milk Industry Foundation, a trade association representing milk 
processors.31 The testimony suggested that the ``economic 
status of New England dairy farmers is already robust,'' and cited a 
study by the Farm Credit Bank of Springfield indicating that the 
average New England Dairy farmer held assets worth 1.1 million and had 
an average net worth of $822,000 in 1993.
---------------------------------------------------------------------------

    \31\ Tipton, Additional Written Comment, January 2, 1997.
---------------------------------------------------------------------------

    In response, the Commission cites a study submitted for the record 
by the Springfield Farm Credit Services indicating that the average net 
worth of Agrifax dairy farmers in the Northeast (generally considered 
to be the larger and more financially stable operations), was $686,607 
in 1995 with some $448,201 held in real estate and buildings. This net 
worth calculation is up from an average net worth of $588,708 in 1991, 
with nearly 30% of the increase attributable to an increase in the 
value of land assets held.
    These figures reflect the fact that dairy farming is a capital and 
land intensive enterprise. Moreover, land values in the Northeast 
frequently reflect urban pressures rather than the value of land as 
farmland or the amount a farmer could actually pay for the land by 
farming it.
    Most significantly this thin snapshot of net worth belies other 
data presented to the Commission by the Springfield Farm Credit System:
    1. Forty-two percent of the farmers in their survey had negative 
cash margins in 1995.
    2. The average cost of production on these farms averaged $15.37 
per hundredweight while the average price received by farmers was 
$13.70 per hundredweight.
    3. The number of dairy farms in New England declined by 41% over 
the past 10 years.
    4. The number of cows has declined by 24% and total production has 
declined by 4%.
    5. Land used in farms fell by nearly 600,000 acres.
    The same testimony argued that milk production increased by 1.94% 
in the six state Compact region from 1994 to 1995 and therefore 
production was adequate to meet local needs. Citation for this data is 
presented only as ``according to USDA data''. Data cited above, as 
submitted by Springfield Farm Credit, however, is directly contrary to 
the testimony's assertion. Data in the record compiled by New England 
Agricultural Statistics corroborates the market description of 
Springfield Farm Credit.32
---------------------------------------------------------------------------

    \32\ Submitted by William Zweigbaum, Univ. of New Hampshire 
Cooperative Extension, Additional Written Comment, March 31, 1997.
---------------------------------------------------------------------------

    The testimony also argues that Blend prices received by farmers in 
the New England region were occasionally higher in 1986 than the 
national average and therefore there was nothing ``unique'' about the 
condition of the New England dairy industry to justify implementation 
of the Compact. In response, the Commission observes the relative 
competitive, national, position of the New England industry is not 
significant to the Commission's charge under the Compact. According to 
the Compact's Statement of Purpose, the Commission is concerned with 
stability in the region's industry. See Compact Article I, Sec. 1.
    The Commission would further note that, as explained in the 
Proposed Rule, the blend price is only one component of the actual pay 
price or ``mail box'' price paid to farmers.33 Detailed 
analysis provided by another witness indicated that when processor 
premiums and other price components of mail box prices are considered, 
pay prices received by farmers in New England are comparable if not 
less than most other regions of the country.34
---------------------------------------------------------------------------

    \33\ See 62 FR 23037 (Monday, April 28, 1997).
    \34\ See Leon Berthiaume, HT 12/17, WC 319
---------------------------------------------------------------------------

    Another commenter 35 submitting written testimony 
indicated, without support, that price regulation would primarily help 
the larger and generally more financially healthy dairy producers and 
would help the smaller and financially stressed producers the least. 
The Commission responds that the study by Professor Wackerngel cited at 
length in both the Proposed Rule and in this Final Rule analyzed in 
detail the impact of Compact price enhancement and price stabilization 
upon two different farm sizes--an 80 cow herd and a 350 cow herd. In 
contrast to the assertion of the testimony, the financial viability of 
both farms improved substantially, according to Professor Wackernagel's 
analysis.
---------------------------------------------------------------------------

    \35\ Schnittker, Written Comment, January 2, 1997.
---------------------------------------------------------------------------

B. Whether the Public Interest Will Be Served by the Establishment of 
Minimum Milk Prices to Dairy Farmers

    With regard to the first finding required by the Compact, the 
Compact Commission sought comment on a wide range of subjects and 
issues. Certain of these subjects and issues were drawn from the 
inquiry mandated by Section 9(e) of the Compact.36
---------------------------------------------------------------------------

    \36\ The Commission focused specifically on the producer-related 
inquiry of Section 9(e) in making the second finding required by the 
Compact (discussed first, in Part A) and then referred to the 
conclusions there determined in making the first, broader ``public 
interest finding'' required by the Compact (discussed second, in 
Part B).
---------------------------------------------------------------------------

    Based on the comment received, the Compact Commission determined 
that production and consumption of fluid, or beverage milk, in the 
region are presently in balance, but in a balance of pronounced and 
unsustainable stress that must be alleviated. 62 FR 23040.

[[Page 29635]]

The Commission concluded that overall milk production was in decline in 
the New England region and in the portion of New York state which has 
traditionally been a supplemental part of the New England milkshed. 62 
FR 23039-40. The Commission also found that supplies of milk are being 
transported increasing distances from the region's population centers 
and associated processing plants. 62 FR 23040. While approximately 
fifty percent of the milk produced in the New England milkshed is 
presently utilized in a variety of manufactured dairy products, 62 FR 
23039, the Commission concludes that substitution of such milk cannot 
be relied upon to provide an alternative supply for fluid utilization 
purposes. In sum, the Compact Commission concluded that the balance of 
production and consumption in the region depended on at least 
stabilizing, if not increasing, the present, local supply. 62 FR 23040.
    With regard to the Compact's emphasis on the ``prevailing price for 
milk outside the regulated area'' and the first ``public interest'' 
finding, the Compact Commission determined this data to be relevant 
with regard to the retail price of milk outside the region, and 
specifically sought comment on such prices.37 Based on the 
comments received, the Commission identified the retail prices in two 
separate markets outside the Compact region, 62 FR 23046-47, and used 
the data to establish a benchmark for the subsequent comparative 
analysis it intends to conduct of retail prices in the Compact region 
and beyond. The Commission will utilize the results of this inquiry to 
track the impact of price regulation on retail prices in the region, 
and to compare ``the current, relative alignment in prices between the 
New England and New York regions against the relative alignments once 
price regulation is in place.'' 62 FR 23048.
---------------------------------------------------------------------------

    \37\ Inquiry into the prevailing farm price is also relevant to 
the second finding. See infra.
---------------------------------------------------------------------------

    With regard to ``the purchasing power of the public,'' Compact, 
Sec. 9(e), the Compact Commission has previously determined that this 
inquiry was relevant to the impact of an over-order price regulation on 
the consumer market, which itself is ``a critical part of the Compact 
Commission's assessment of the public interest under this finding 
section.'' 62 FR 23045. This inquiry focuses ``primary concern on the 
consumer interest because milk is a staple product.'' Id.
    Accordingly, the Commission sought and received comment on a range 
of issues it deemed relevant to this broader inquiry, including: (1) 
the elasticity of demand for fluid milk products, (2) the costs of 
retailing Class I fluid milk in the New England region, (3) the 
prevailing retail prices for Class I fluid milk inside and outside the 
region, (4) the costs of retailing fluid milk products, and (5) the 
potential impact of a flat, combined regulated and Compact over-order 
price, on the retail market--including the National School Lunch 
Program and the WIC Program. 62 FR 23045.
    The comments received support the Commission's determination that 
the continuing erosion of the region's milkshed has had a direct--and 
adverse--impact on retail prices, and hence on the purchasing power of 
the public, in part because of the increased transportation costs 
associated with an expanding milkshed. 62 FR 23049. The Commission 
similarly determined that farm/wholesale price volatility had also 
likely had an adverse impact on retail prices over time, and that 
stabilization of the farm/wholesale price through a Compact over-order 
price regulation, traced through to the endpoint retail market, likely 
will manifest as a corresponding positive impact on retail prices. 62 
FR 23048-49. Accordingly, the foregoing analysis supports the 
conclusion that the purchasing power of the public likely will be 
enhanced, rather than diminished, as a result of the stabilizing 
effects of the over-order price regulation.
    With regard to the ``price necessary to yield a reasonable rate of 
return to the distributor,'' Compact, Sec. 9(e), the Compact Commission 
has previously determined that ``[t]he focus of this inquiry is the 
determination of a price that ensures a reasonable rate of return,'' 
and, more specifically, ``whether processing plants are currently 
covering costs of production,'' including the distributors' rate of 
return on capital. 62 FR 23045.
    Working from this framework, the Compact Commission sought and 
received comment on wholesale costs and prices. The data received 
persuaded the Compact Commission to conclude that processors are in 
fact covering their margins, including a return on capital of $0.06 per 
gallon.38 The Commission further determined that 
``minimization of such persistent fluctuations in price can only serve 
as a benefit to stability of firm participants in the wholesale 
market.'' 62 FR 23048.39 The Compact Commission determines 
that the benefits of price stabilization in the wholesale market 
parallel the benefits of price stabilization at the farm level, namely, 
allowing processors to engage in long-term economic planning and 
investment, and thereby improve their economic efficiency and 
performance. C.f. 62 FR 23035.
---------------------------------------------------------------------------

    \38\ The comment received and used for this analysis included a 
study by R. Aplin, E. Erba, M. Stephenson, ``An Analysis of 
Processing and Distribution Productivity and Costs in 35 Fluid Milk 
Plants,'' February 1997, R.B. 97-03, Cornell University, and an 
extract by the same authors, entitled ``Presentation at IDFA Annual 
Meeting in Dallas, Texas (October 1996). (This extract provides 
``estimated costs of marketing 2% lowfat milk through supermarkets, 
New York Metro Area, $ per gallon, 1995). In comment received on the 
proposed rule, Professor Aplin indicates that the extract was based 
on identified costs of the northeast plants that were part of the 
broader, overall study group. The Commission also relied upon a 
study by the Economic Research Service (ERS) of the United States 
Department of Agriculture, Food Cost Review/AER-729. The Commission 
found the Aplin et al. study more representative, given its 
identified inclusion of a significant percentage of northeast 
plants. Moreover, the ERS study incorporated data drawn from 
vertically integrated, or combined, processing/retailing facilities. 
The Compact region only includes one such operation.
    \39\ The Commission received comment from E. Linwood Tipton, 
President of the Milk Industry Foundation, the national trade 
organization for fluid milk processors. This Comment expressed 
opposition to price regulation on the grounds that it is unneeded 
and would have an adverse impact on consumers. With regard to the 
impact of price regulation, see the Commission's discussion of the 
public's purchasing power, supra, and its discussion of the likely 
impact of price regulation on retail prices, infra. The Tipton 
comment does not provide analysis likely to indicate contrary 
conclusions than those reached by the Commission with regard to the 
continuing ability of processors to receive a reasonable return 
under price regulation.
---------------------------------------------------------------------------

    One commenter raised a concern that higher retail prices 
attributable to price regulation could reduce sales, and thereby harm 
the profitability of processing operations.40 As noted 
below, however, the Commission found that price regulation was instead 
likely to have a downward pressure on retail prices. 62 FR 23048-50. 
Such an impact would result in the opposite effect of that described by 
the commenter, or result in increased sales and thereby enhanced 
profitability. Accordingly, the Commission is not persuaded by the 
aspects of this comment regarding profitability, because the comment 
rests on a premise that the Commission has previously rejected.
---------------------------------------------------------------------------

    \40\ Marcus, Additional Written Comment, Jan. 2, 1997.
---------------------------------------------------------------------------

    The commenter also expressed concern that increased retail prices 
in stores on the borders of New England could force sales outside the 
Compact area and thereby reduce the wholesale sales of those processing 
plants supplying the Compact area retailers. The Commission's 
determination that price regulation likely would have the contrary, 
downward pressure on retail prices responds to this comment, as well.

[[Page 29636]]

    The ultimate finding required by Section 12 of the Compact--whether 
``the public interest will be served by the establishment of minimum 
milk prices to dairy farmers''--necessitates consideration of a broader 
range of subjects and issues than those reviewed under Section 9(e) of 
the Compact. Accordingly, the Compact Commission sought comment 
regarding the potential impact of price regulation on each of the farm, 
wholesale and retail sub-markets which comprise the overall market for 
fluid milk. 62 FR 23042. These inquiries were broken down further into 
the individual components of these respective sub-markets, including 
some of the components specifically listed in Section 9(e) of the 
Compact, as discussed above. This broad-ranging inquiry, focusing on 
all phases of the fluid milk market, allowed the Commission to gather 
substantial data and make an informed determination that an over-order 
price regulation would be in the public interest, overall and with 
regard to its specific impact on each of the three discrete sub-
markets--farm, wholesale and retail. 62 FR 23048-50.
    Farm Sub-market--The Compact Commission previously conducted a 
comprehensive analysis of the likely impact of price regulation on the 
farm sub-market under the separate finding inquiry required by Section 
9(e) of the Compact. See Section II A supra; 62 FR 23033-38, 23040-41. 
This determination was then taken into account as part of the first 
finding required by the Commission (whether the public interest would 
be served by establishment of minimum milk prices).
    Wholesale Sub-market--The Commission assessed the impact of price 
regulation on the wholesale market by considering the issue of rate of 
return to processors, as discussed above, 62 FR 23045, and by assessing 
whether price regulation would result in market distortion with regard 
to wholesale price, and thereby contravene the public interest. 62 FR 
23048. In assessing the concern with market distortion, the Commission 
carefully reviewed present patterns of supply for the region's 
wholesale needs. The Commission determined that the wholesale market 
presently is supplied almost totally in the form of raw, bulk product 
transported from areas of concentration of dairy farms in the rural 
part of the region to the fluid processing plants located in close 
proximity to the region's cities. 62 FR 23045. The Commission also 
determined that the marginal, remainder of the wholesale market is 
supplied by finished, packaged milk transported from processing plants 
located some distance away from the region's cities. Id.
    With regard to the primary bulk supply component of the wholesale 
market, the Compact Commission determined that there was unlikely to be 
market distortion caused by price regulation that could adversely 
affect the wholesale price. According to the comment received, present 
patterns of raw product supply between processors and independent 
farmers or cooperative organizations of farmers are relatively stable 
and are unlikely to be affected by a regulated price increase in the 
amount and for the duration established by the price regulation. 62 FR 
23048.
    The Compact Commission also concluded that price regulation was 
unlikely to cause market distortion with regard to the secondary 
packaged product component of the market. The concern here is whether 
price regulation can be administered uniformly with regard to raw 
product and, as identified and addressed in the Proposed Rule, packaged 
milk supplies. If a significant portion of the packaged milk supplies 
is left unregulated, this might distort the market by creating a 
competitive advantage for such packaged products, encouraging their 
substitution as a source of wholesale supply. 62 FR 23048. Given that 
packaged milk as wholesale supply is more expensive than raw product 
supply, such substitution resulting from market distortion would 
increase retail prices and be contrary to the public 
interest.41
---------------------------------------------------------------------------

    \41\ The president of a Connecticut fluid milk processing firm 
raised a concern about the stimulus of such distorted substitution 
in the market with regard to the potential for loss of market share 
by this firm. Marcus, December 19, 1996 Hearing Transcript at 81, et 
seq.; Additional Written Comment, January 2, 1997. This non-price 
concern is addressed under the third finding analysis, infra.
---------------------------------------------------------------------------

    As discussed in the third finding section (whether the non-price 
provisions of the regulation established by this rule are in the public 
interest) the Commission concludes that raw product and packaged 
product supplies can be regulated uniformly. This uniform regulation 
will prevent market distortion, including indirect impact on price. 
Additionally, as both the Commission and commenters have noted, the 
limited six-month duration of the initial price regulation will 
minimize the potential for market distortion. 62 FR 23048. Accordingly, 
the Compact Commission determines that distortion of the relative 
patterns of supply is not likely to occur, and therefore unlikely to 
have any adverse impact on price contrary to the public interest.
    Retail Sub-market--With regard to the retail market, as noted 
above, the Compact Commission concluded that price regulation, overall 
was likely to have a positive impact, and thereby to be distinctly in 
the public interest. 62 FR 23048. The Commission concluded that 
stabilizing the milk supply and removing variability in the federally 
regulated, farm/wholesale, pricing structure would likely combine to 
have a positive, downward impact on retail prices. 62 FR 23048-50.
    In reaching this conclusion, the Commission declined to adopt the 
directly contrary assertions submitted by some commenters.42 
62 FR 23049. These commenters indicated their opinion that retail 
prices would reflect a direct ``pass-through'' of any increase in 
wholesale cost attributable to compact over-order price regulation. The 
commenters described quite dramatic increases in retail prices likely 
to occur if price regulation is imposed.
---------------------------------------------------------------------------

    \42\ Rosenberg, December 19, 1996 Hearing Transcript at 181, et 
seq; Schnitker, Additional Comment, January 2, 1997; Tipton, 
Additional Comment, January 2, 1997.
---------------------------------------------------------------------------

    The commenters presented only a simple arithmetic calculation of 
the impact on retail prices which could occur if the entire amount of 
the projected difference in wholesale cost attributable to compact 
price regulation were passed through. No explanation was provided for 
the underlying assumption that there would be, necessarily, such a 
direct pass through of the price increase. The Commission declined to 
adopt this approach in view of the lack of explanation, and given that 
it is directly contrary to the developed literature on this issue. As 
included in the record, and which suggests a contrary 
conclusion.43 As the Commission determined in its Proposed 
Rule, price stabilization eliminates the need for retailers to retain 
significant margins in order to protect against the uncertainty in 
wholesale costs that exists when prices are volatile. 62 FR 23049 
(citing Hahn, et al.). Because retailers will not have to engage in 
this ``risk response'' pricing strategy to

[[Page 29637]]

ensure cost recovery, the Commission disagrees with the commenters 
conclusory remarks regarding the impact of price regulation on retail 
prices.
---------------------------------------------------------------------------

    \43\ Brorsen, Chavas, Grant and Schnake, ``Marketing Margins and 
Price Uncertainty: The Case of the U.S. Wheat Market,'' Amer. J. 
Agr. Econ., (August, 1985) 521-527. The analysis is confirmed with 
regard to market conduct and performance in the beef industry. Holt, 
``Risk Response in the Beef Marketing Channel: A Multivariate 
Generalized ARCH-M Approach'', Amer. J. Agr. Econ. (August, 1993) 
559-571. See also Hansen, Hahn, and Weimar, ``Determinants of the 
Farm-to-Retail Milk Price Spread'', Agriculture Information Bulletin 
Number 693 (March 1994). See also Kinnucan and Forker, ``Asymmetry 
in Farm-Retail Price Transmission for Major Dairy Products'', Amer. 
J. Ag. Econ., 285-292 (May, 1987). As noted in the text, each of 
these articles are contained in the record.
---------------------------------------------------------------------------

    The Compact Commission made its determination about the potential, 
positive impact of price regulation with essential regard to the broad, 
consumer-based market. The Commission similarly concludes that price 
regulation will not have a negative impact on government supplemental 
nutrition programs such as the National School Lunch Program. The 
Commission makes this further determination based on its assessment 
that the pricing patterns of such programs are premised on essentially 
the competitive patterns of the broader, consumer-based market. 62 FR 
23050. According to a General Accounting Office description of the 
program, which the Commission discussed in its Proposed Rule:

    The National School Lunch Act of 1946 (P.L. 79-396) and the 
Child Nutrition Act of 1966 (P.L. 89-642) authorize USDA to 
reimburse state and local school authorities--under grant 
agreements--for some or all of the costs of these programs. 
Reimbursements are based on either the number of meals served or the 
number of half pints served. The schools use these funds, as well as 
state and local funds and moneys collected from students, to 
purchase food, including milk, for these programs. These purchases 
are made through either sealed bid or negotiated procurements. 
USDA's regulations require that these procurements be conducted in a 
manner that provides for the maximum amount of open and free 
competition.44
---------------------------------------------------------------------------

    \44\ GAO Report 13-239877 at 2 (October 16, 1992), submitted by 
Jeffords as Additional Reply Comment, April 9, 1997; see also 62 FR 
23050.
    The Commission further notes that the purchasing patterns of 
other institutional buyers such as the military and hospitals, as 
described in the GAO study similarly mirror the broader, competitive 
market. The Commission concludes that these institutional buyers 
will also benefit from the impact of price regulation on the 
competitive market.
---------------------------------------------------------------------------

    The Commission did determine that pricing and reimbursement 
patterns for one government supplemental nutrition program, the WIC 
Program, are not configured according to the same pattern as the 
broader consumer-based retail market. 62 FR 23050. Accordingly, the 
Commission exempted the WIC program from operation of the price 
regulation. Id. at 23050-53.
    The Compact Commission also determined that price regulation was 
not likely to have an adverse impact on the retailers, themselves. In 
similar manner as with its assessment of the wholesale market, the 
Commission reviewed retail costs and prices to determine if retailers 
are covering costs, including return on capital, under present market 
conditions. 62 FR 23045, 23046-48. The Commission concluded that such 
margins are presently being covered. Id. at 23048.45 The 
Commission further concludes that price regulation will not adversely 
affect the ability of retail outlets to continue to cover their 
margins.
---------------------------------------------------------------------------

    \45\ The comment received and used for the cost analysis relied 
upon the study by Aplin et al, ``An Analysis of Processing and 
Distribution Productivity and Costs in 35 Fluid Milk Plants'', 
February 1997, R.B. 97-03, Cornell University and the extract by the 
same authors, entitled ``Presentation at IDFA Annual Meeting in 
Dallas, Texas (October 1996). (This extract provides ``estimated 
costs of marketing 2% lowfat milk through supermarkets, New York 
Metro Area, $ per gallon, 1995). In comment received on the proposed 
rule, Professor Aplin indicates that the represented supermarket 
costs were representative of New England supermarkets, as well.
    The Commission also relied on the study in Food Cost Review/AER-
729. For the reasons identified in Footnote 38, the Commission 
determined the Aplin et al. study to be more representative of costs 
than the ERS study.
    The Commission notes that these studies focus on supermarket 
costs. Supermarkets represent the primary retail outlet for fluid 
milk in the marketplace.
---------------------------------------------------------------------------

C. Whether the Major Provisions of the Order, Other Than Those Fixing 
Minimum Prices, Are Reasonably Designed To Achieve the Purposes of the 
Order

    The third Compact finding required the Compact Commission to 
determine whether the non-price provisions of the proposed rule would 
also be in the public interest, and the Commission so found. The 
Commission's assessment here focused on two issues: The analysis under 
this finding centered on the technical provisions the Commission 
proposed to codify in 7 CFR parts 1300, 1301, and 1303-1307. These 
provisions establish the procedures for the assessment of price 
regulation, collection from processors and disbursement to farmers.
    The Compact Commission determined these provisions would ensure 
uniform and equitable administration of the price regulation. 62 FR 
23054. The provisions are patterned closely upon the underlying federal 
Milk Market Order #1, and are designed to work in complement with the 
Market Order. Moreover, the regulation will be administered with the 
direct, technical assistance of the Market Order #1 Administrator, 
which provides further assurance of its proper administration.
    In response to the Compact Commission's original Subjects and 
Issues Notice of Comment,46 one commenter correctly noted 
that some packaged milk subject to price regulation is marketed by 
plants outside of the underlying regulatory supervision of the Market 
Order #1 Administrator. 62 FR 23048. This commenter expressed concern 
that such milk could not be properly regulated without the assistance 
of those Market Order Administrators having regulatory supervision of 
the milk. The Commission determines that these milk sales are in fact 
reported by the other, applicable, Market Order Administrators to the 
Market Order #1 Administrator, so that the Market Order #1 
Administrator can in fact audit such sales.
---------------------------------------------------------------------------

    \46\ 61 FR 65604 (December 13, 1996).
---------------------------------------------------------------------------

    The commenter also expressed concern that some milk is marketed in 
the New England region in a manner so as to be completely unreported. 
The Compact Commission determined, however, that technical provisions 
could be administered so as to ensure that all packaged milk marketed 
in the Compact region is properly reported by joint operation of the 
federal Market Order and Compact Commission regulatory processes.
    The commenter also expressed concern about the appropriate 
distribution pattern of the proceeds of the price regulation between 
those producers supplying Compact ``pool plants'' and those supplying 
Compact ``partially regulated pool plants.'' In response, the Compact 
Commission determined that a distinction was properly made based on the 
geographic location of the plants and their relative provision of 
supply of fluid milk for the Compact region. 62 FR 23055. ``Pool 
plants'', or those located in the Compact region, provide the primary 
supply of fluid milk for the region. Id. ``Partially regulated plants'' 
or those outside the region, provide primary supply to those regions 
where they are located, and only secondary supply to the Compact 
region. Id. Accordingly, the producers providing milk to pool plants 
properly share fully in the overall, pooled, proceeds of sales in the 
Compact region, whereas producers supplying partially regulated plants 
share only pro rata in the benefit attributable to the sales in the 
Compact region by those plants.
    The Commission also considered the provisions relating to the 
generation of additional supplies of milk as required by Section 9(f) 
of the Compact 47 and potential CCC purchase under 7 U.S.C. 
Sec. 7256(5).48 62 FR 23053-54. The

[[Page 29638]]

Commission determined that neither additional supplies nor surplus 
production contemplated by these statutory provisions was likely to 
result from price regulation. Id. The Commission did establish a 
tracking procedure to monitor production, so as to allow appropriate 
action should an unanticipated change in production patterns occur. 62 
FR 23054.49
---------------------------------------------------------------------------

    \47\ ``When establishing a compact over order price, the 
commission shall take such action as necessary and feasible to 
ensure that the over-order price does not create an incentive for 
producers to generate additional supplies of milk.'' Compact, 
Sec. 9(f).
    \48\ ``Before the end of each fiscal year that a Compact price 
regulation is in effect, the Northeast Interstate Dairy Compact 
Commission shall compensate the Commodity Credit Corporation for the 
cost of any purchases of milk and milk products by the Corporation 
that result from the projected rate of increase in milk production 
for the fiscal year within the Compact region in excess of the 
projected national average rate of the increase in milk production, 
as determined by the Secretary [of Agriculture].'' 7 U.S.C. 
Sec. 7256(5).
    \49\  The Commission notes that the triggering amount identified 
in the Proposed Rule requires clarification. The Commission will 
monitor production to determine whether regional production has 
increased at a rate within or exceeding 0.25 percent of the national 
rate of increased production.
---------------------------------------------------------------------------

    Finally, in each of its findings, and overall, the Commission noted 
the significance of its establishment of a price regulation limited to 
six months. This limited duration at once allows price regulation to be 
implemented based on the perceived need while limiting, by definition, 
the potential impact of any unforeseen, adverse impacts. The Commission 
also identified a series of tracking mechanisms, designed to assess and 
measure the impact of price regulation on all sectors of the 
marketplace, from farm to retail outlet.

III. Required Findings of Fact

    Pursuant to Compact Art. V. Section 12, the Compact Commission 
Hereby Finds:
    (1) That the public interest will be served by the establishment of 
minimum milk prices to dairy farmers under Article IV.
    (2) That, for purposes of this initial regulation, a level of price 
in the amount of $16.94 will assure that producers receive a price 
sufficient to cover their costs of production and will elicit an 
adequate supply of milk for the inhabitants of the regulated area and 
for manufacturing purposes.
    (3) That the major provisions of the order, other than those fixing 
minimum milk prices, are in the public interest and are reasonably 
designed to achieve the purposes of the order.
    (4) That the terms of the proposed price regulation were approved 
by producers by referendum.

IV. List of Subjects in 7 CFR Parts 1300, 1301, 1303-1307

    Milk.

V. Codification in Code of Federal Regulation

    For the reasons set forth in the preamble, the Commission 
establishes in title 7 of the Code of Federal Regulations a new chapter 
XIII to read as follows:

Chapter XIII--Northeast Dairy Compact Commission

Part

1300  Over-order price regulations.
1301  Definitions.
1303  Handlers reports.
1304  Classification of milk.
1305  Class price.
1306  Compact over-order producer price.
1307  Payments for milk.
1308  Administrative assessment.

PART 1300--OVER-ORDER PRICE REGULATIONS

Sec.
1300.1  Compact Commission.
1300.2  Continuity and separability of provisions.
1300.3  Handler responsibility for records and facilities.
1300.4  Termination of obligation.

    Authority: 7 U.S.C. 7256.


Sec. 1300.1  Compact Commission.

    (a) Designation. The agency for the administration of the Pricing 
Regulation shall be the compact commission.
    (b) Powers. The compact commission shall have the following powers:
    Administer the pricing regulation in accordance with its terms and 
provisions;
    (2) Make rules and regulations to effectuate the terms and 
provisions of the pricing regulation;
    (3) Receive and investigate complaints of violations;
    (4) Recommend amendments.
    (c) Duties: The compact commission shall perform all the duties 
necessary to administer the terms and provisions of the pricing 
regulation, including, but not limited to the following:
    (1) Employ and fix the compensation of persons necessary to enable 
them to exercise their powers and perform their duties;
    (2) Pay out of funds provided by the administrative assessment all 
expenses necessarily incurred in the maintenance and functioning of 
their office and in the performance of their duties;
    (3) Keep records which will clearly reflect the transactions 
provided for in the pricing regulation;
    (4) Announce publicly at its discretion, by such means as it deems 
appropriate, the name of any handler who, after the date upon which he 
is required to perform such act, has not:
    (i) Made reports required by the pricing regulation;
    (ii) Made payments required by the pricing regulation; or
    (iii) Made available records and facilities as required pursuant to 
Sec. 1300.3;
    (5) Prescribe reports required of each handler under the pricing 
regulation. Verify such reports and the payments required by the 
pricing regulation by examining records (including such papers as 
copies of income tax reports, fiscal and product accounts, 
correspondence, contracts, documents or memoranda,) of the handler, and 
the records of any other person that are relevant to the handler's 
obligation under the pricing regulation, by examining such handler's 
milk handling facilities; and by such other investigation as the 
compact commission deems necessary for the purpose of ascertaining the 
correctness of any report or any obligation under the pricing 
regulation. Reclassify fluid milk product received by any handler if 
such examination and investigation discloses that the original 
classification was incorrect;
    (6) Furnish each regulated handler a written statement of such 
handler's accounts with the compact commission promptly each month. 
Furnish a corrected statement to such handler if verification discloses 
that the original statement was incorrect; and
    (7) Prepare and disseminate publicly for the benefit of producers, 
handlers, and consumers such statistics and other information covering 
operation of the pricing regulation and facts relevant to the 
provisions thereof (or proposed provisions) as do not reveal 
confidential information.


Sec. 1300.2  Continuity and separability of provisions.

    (a) Effective time. The provisions of this pricing regulation or 
any amendment to the pricing regulation shall become effective at such 
time as the compact commission may declare and shall continue in force 
until suspended or terminated.
    (b) Suspension or termination. The compact commission shall suspend 
or terminate any or all of the provisions of the pricing regulation 
whenever they find that such provision(s) obstructs or does not tend to 
effectuate the declared policy of the compact. The pricing regulation 
shall terminate whenever the provisions of the compact authorizing it 
cease to be in effect.
    (c) Continuing obligations. If upon the suspension or termination 
of any or all of the provisions of the pricing regulation there are any 
obligations arising under the pricing regulation, the final accrual or 
ascertainment of which

[[Page 29639]]

requires acts by any handler, by the compact commission, or by any 
other person, the power and duty to perform such further acts shall 
continue notwithstanding such suspensions or termination.


Sec. 1300.3  Handler responsibility for records and facilities.

    Each handler shall maintain and retain records of his operations 
and make such records and his facilities available to the compact 
commission. If adequate records of a handler, or of any other person, 
that are relevant to the obligation of such handler are not maintained 
and made available, any fluid milk product required to be reported by 
such handler for which adequate records are not available shall not be 
considered accounted for or established as used in a class other than 
the highest price class.
    (a) Records to be maintained. (1) Each handler shall maintain 
records of his operations (including, but not limited to, records of 
purchases, sales, processing, packaging and disposition) as are 
necessary to verify whether such handler has any obligation under the 
pricing regulation and if so, the amount of such obligation. Such 
records shall be such as to establish for each plant or other receiving 
point for each month:
    (i) The quantities of fluid milk product contained in, or 
represented by, products received in any form, including inventories on 
hand at the beginning of the month, according to form, time and source 
of each receipt;
    (ii) The utilization of all fluid milk product showing the 
respective quantities of such fluid milk product in each form disposed 
of or on hand at the end of the month; and
    (iii) Payments to producers, dairy farmers and cooperative 
associations, including the amount and nature of any deductions and the 
disbursement of money so deducted.
    (2) Each handler shall keep such other specific records as the 
compact commission deems necessary to verify or establish such 
handler's obligation under the pricing regulation.
    (b) Availability of records and facilities.
    Each handler shall make available all records pertaining to such 
handler's operation and all facilities the compact commission finds are 
necessary to verify the information required to be reported by the 
pricing regulation and/or to ascertain such handler's reporting, 
monetary or other obligation under the pricing regulation. Each handler 
shall permit the compact commission to observe plant operations and 
equipment and make available to the compact commission such facilities 
as are necessary to carry out their duties.
    (c) Retention of records.
    All records required under the pricing regulation to be made 
available to the compact commission shall be retained by the handler 
for a period of three years to begin at the end of the month to which 
such records pertain. If, within such a three year period, the compact 
commission notifies the handler in writing that the retention of such 
records, or of specified records, is necessary in connection with a 
proceeding or court action specified in such notice, the handler shall 
retain such records, or specified records, until further written 
notification from the compact commission. The compact commission shall 
give further written notification to the handler promptly upon the 
termination of the litigation or when the records are no longer 
necessary in connection therewith.


Sec. 1300.4  Termination of obligation.

    The provision of this section shall apply to any obligation under 
the pricing regulation for the payment of money:
    (a) Except as provided in paragraphs (b) and (c) of this section, 
the obligation of any handler to pay money required to be paid under 
the terms of the pricing regulation shall terminate two years after the 
last day of the month during which the compact commission receives the 
handler's report of receipts and utilization on which such obligation 
is based, unless within such a two year period, the compact commission 
notifies the handler in writing that such money is due and payable. 
Service of such written notice shall be complete upon mailing to the 
handler's last known address and it shall contain but need not be 
limited to the following information:
    The amount of the obligation;
    (2) The month(s) on which such obligation is based; and
    (3) If the obligation is payable to one or more producers or to a 
cooperative association, the name of such producer(s) or such 
cooperative association, or if the obligation is payable to the compact 
commission, the account for which it is to be paid;
    (b) If a handler fails or refuses, with respect to any obligation 
under the pricing regulation, to make available to the compact 
commission all records required by the pricing regulation to be made 
available, the compact commission may notify the handler in writing, 
within the two year period provided for in paragraph (a) of this 
section, of such failure or refusal. If the compact commission so 
notifies a handler, the said two year period with respect to such 
obligation shall not begin to run until the first day of the month 
following the month during which all such records pertaining to such 
obligation are made available to the compact commission;
    (c) Notwithstanding the provisions of paragraphs (a) and (b) of 
this section, a handler's obligation under the pricing regulation to 
pay money shall not be terminated with respect to any transaction 
involving fraud or willful concealment of a fact, material to the 
obligation, on the part of the handler against whom the obligation is 
sought to be imposed; and
    (d) Unless the handler files a petition to the compact commission 
to commence litigation within the applicable two year period indicated 
below, the obligation of the compact commission:
    (1) To pay a handler any money which such handler claims to be due 
him under the terms of the pricing regulation shall terminate two years 
after the end of the month during which the fluid milk product involved 
in the claim were received; or
    (2) To refund any payment made by a handler (including a deduction 
or offset by the compact commission) shall terminate two years after 
the end of the month during which payment was made by the handler.

PART 1301--DEFINITIONS

Sec.
1301.1  Compact.
1301.2  Commission.
1301.3  Northeast Dairy Compact Regulated Area.
1301.4  Plant.
1301.5  Pool plant.
1301.6 Partially regulated plant.
1301.7 Non pool plant.
1301.8 Milk.
1301.9 Handler.
1301.10 Producer-handler.
1301.11 Producer.
1301.12 Producer milk.
1301.13 Exempt milk.
1301.14 Fluid milk product.
1301.15 Fluid cream product.
1301.16 Filled milk.
1301.17 Cooperative association.
1301.18 Person.
1301.19 Route disposition.
1301.20 Distributing plant.
1301.21 Supply plant.
1301.22 State dairy regulation.
1301.23 Diverted milk.

    Authority: 7 U.S.C. 7256.

Sec. 1301.1  Compact.

    Compact means the Northeast Dairy Compact as approved by section 
147 of the Federal Agriculture Improvement

[[Page 29640]]

and Reform Act (Fair Act), Pub. L. 104-127.


Sec. 1301.2  Commission.

    Commission means the commission established by the Northeast Dairy 
Compact.


Sec. 1301.3  Northeast Dairy Compact Regulated Area.

    Northeast Dairy Compact Regulated Area hereinafter called the 
Regulated Area means all territory within the boundaries of the states 
of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and 
Vermont. All waterfront facilities connected therewith and craft moored 
thereat, and all territory therein occupied by any governmental 
installation, institution, or other similar establishment.


Sec. 1301.4  Plant.

    Plant means the land and buildings, together with their 
surroundings, facilities and equipment, whether owned or operated by 
one or more persons, constituting a single operating unit or 
establishment for the receiving, processing or packaging of milk or 
milk products. The term plant shall not include:
    (a) Distribution points (separate premises used primarily for the 
transfer to vehicles of packaged fluid milk products moved there from 
processing and packaging plants); or
    (b) Bulk reload points (separate premises used for the purpose of 
transferring bulk milk from one tank truck to another tank truck while 
en route from dairy farmers' farms to a plant). If stationary storage 
tanks are used for transferring milk at the premises, the operator of 
the facility shall make an advance written request to the compact 
commission that the facility be treated as a reload point; otherwise it 
shall be a plant. The cooling of milk, collection or testing of 
samples, and washing and sanitizing of tank trucks at the premises 
shall not disqualify it as a bulk reload point.


Sec. 1301.5  Pool Plant.

    Pool Plant means any milk plant located in the regulated area.


Sec. 1301.6  Partially Regulated Plant.

    Partially Regulated Plant means a milk plant not located in the 
regulated area but having Class I distribution in the regulated area, 
or receipts from producers located in the regulated area.


Sec. 1301.7  Non Pool Plant.

    Non Pool Plant means any milk plant that is not a pool plant 
pursuant to section 1301.5 and not a partially regulated plant pursuant 
to section 1301.6.


Sec. 1301.8  Milk.

    Milk means the lacteal secretion of cows and includes all skim, 
butterfat, or other constituents obtained from separation or any other 
process and as defined pursuant to prevailing standards of identity.


Sec. 1301.9  Handler.

    Handler means:
    (a) Any person, except a producer-handler, who operates a pool 
plant;
    (b) Any person who operates a partially regulated plant;
    (c) Any person who operates any other plant, or a pool bulk tank 
unit as defined under the Federal order, from which fluid milk products 
are disposed of, directly or indirectly, in the regulated area;
    (d) Any cooperative association with respect to the milk that is 
moved from farms in tank trucks operated by, or under contract to, the 
association to pool plants or as diverted milk to non pool plants for 
the account of, and at the direction of, the association. The 
association shall be considered as the handler who received the milk 
from the dairy farmers. However, the cooperative association shall not 
be the handler with respect to the milk moved from any farm if the 
association and the operator of the pool plant to which milk from such 
farm is moved both submit a request in writing, on or before the due 
date for filing the monthly reports of receipts and utilization, that 
the operator of the pool plant be considered as the handler who 
received the milk from the dairy farmer, and the pool plant operator's 
request states that the pool plant operator is purchasing the milk from 
such farm on the basis of the farm bulk tank measurement readings and 
the butterfat tests of samples of the milk taken from the farm bulk 
tank; or
    (e) Any person who does not operate a plant but who engages in the 
business of receiving fluid milk products for resale and distributes to 
retail or wholesale outlets packaged fluid milk products received from 
any plant described in paragraph (a), (b) or (c) of this section.


Sec. 1301.10  Producer-handler.

    Producer-handler means any person who, during the month is both a 
dairy farmer and a handler and who meets all of the following 
conditions:
    (a) Provides as the person's own enterprise and at the person's own 
risk the maintenance, care, and management of the dairy herd and other 
resources and facilities that are used to produce milk, to process and 
package such milk at the producer-handler's own plant, and to 
distribute it as route disposition.
    (b) The person's own route disposition constitutes the majority of 
the route disposition from the plant.
    (c) The producer-handler receives no fluid milk products except 
from such handler's own production and from pool handlers, either by 
transfer or diversion.


Sec. 1301.11  Producer.

    Producer means:
    (a) A dairy farmer who produces milk in the regulated area that is 
moved to a pool plant or a partially regulated plant, having Class I 
distribution in the regulated area;
    (b) A dairy farmer who produces milk outside of the regulated area 
that is moved to a pool plant; provided that on more than half of the 
days on which the handler caused milk to be moved from the dairy 
farmer's farm during December 1996, all of that milk was physically 
moved to a pool plant in the regulated. Or: to be considered a 
qualified producer, on more than half of the days on which the handler 
caused milk to be moved from the dairy farmer's farm during the current 
month and for five (5) months subsequent to July of the preceding 
calendar year, all of that milk must have moved to a pool plant;
    (c) A dairy farmer who produces milk outside of the regulated area 
that is moved to a partially regulated plant and allocated to Class I 
pursuant to Section 1304.5. However, the term shall not include:
    (1) A producer handler;
    (2) A dairy farmer who is a local or state government that has non-
producer status for the month under section Sec. 1301.13(c);
    (3) A dairy farmer who is a governmental agency that is operating a 
plant from which there is route disposition in the regulated area;
    (4) Dairy farmer milk received at a pool plant or a partially 
regulated plant which is rejected and segregated in the handler's 
normal operations for receiving milk and which receipts are accepted 
and disposed of by the handler as salvaged product rather than milk.


Sec. 1301.12  Producer milk.

    Producer milk means milk that the handler has received from 
producers. The quantity of milk received by a handler from producers 
shall include any milk of a producer that was not received at any plant 
but which the handler or an agent of the handler has accepted, 
measured, sampled, and transferred from the producer's farm tank into a 
tank truck during the month.

[[Page 29641]]

Such milk shall be considered as having been received at the pool plant 
at which other milk from the same farm of that producer is received by 
the handler during the month, except that in the case of a cooperative 
association in its capacity as a handler under Sec. 1301.9(d), the milk 
shall be considered as having been received at a plant in the zone 
location of the pool plant, or pool plants within the same zone, to 
which the greatest aggregate quantity of the milk of the cooperative 
association in such capacity was moved during the current month or the 
most recent month.


Sec. 1301.13  Exempt milk.

    Exempt milk means:
    (a) Fluid milk products received at a pool plant in bulk from a non 
pool plant to be processed and packaged, for which an equivalent 
quantity of package fluid milk products is returned to the operator of 
the non pool plant during the same month, if the receipt of bulk fluid 
milk products and return of packaged fluid milk products occur during 
an interval in which the facilities of the non pool plant at which the 
fluid milk products are usually processed and packaged are temporarily 
unusable because of fire, flood, storm or similar extraordinary 
circumstances completely beyond the non pool plant operator's control;
    (b) Packaged fluid milk products received at a pool plant from a 
non pool plant in return for an equivalent quantity of bulk fluid milk 
products moved from a pool plant for processing and packaging during 
the same month, if the movement of bulk fluid milk products and receipt 
of package fluid milk products occur during an interval in which the 
facilities of the pool plant at which the fluid milk products are 
usually processed and packaged are temporarily unusable because of 
fire, flood, storm, or similar extraordinary circumstances completely 
beyond the pool plant operator's control;
    (c) Milk received at a pool plant in bulk from the dairy farmer who 
produced it, to the extent of the quantity of any packaged fluid milk 
products returned to the dairy farmer, if:
    (1) The dairy farmer is a State or local government that is not 
engaged in the route disposition of any of the returned products, and
    (2) The dairy farmer has by written notice to the compact 
commission and the receiving handler, elected non-producer status for a 
period of not less than 12 months beginning with the month in which the 
election was made and continuing for each subsequent month until 
canceled in writing, and the election is in effect for the current 
month.
    (d) All fluid milk product disposed outside of the regulated area.


Sec. 1301.14  Fluid milk product.

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


Sec. 1301.15  Fluid cream product.

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


Sec. 1301.16  Filled milk.

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


Sec. 1301.17  Cooperative association.

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


Sec. 1301.18  Person.

    Person means any individual, partnership, corporation, association, 
or other business unit.


Sec. 1301.19  Route disposition.

    Route disposition means distribution of Class I milk by a handler 
to retail or wholesale outlets, which include vending machines but do 
not include plants or distribution points. The route disposition of a 
handler shall be attributed to the processing and packaging plant from 
which the Class I milk is moved to retail or wholesale outlets without 
intermediate movement to another processing and packaging plant.


Sec. 1301.20  Distributing plant.

    Distributing plant means a processing and packaging plant.


Sec. 1301.21  Supply plant.

    Supply plant means a plant at which facilities are maintained and 
used for washing and sanitizing cans and to which milk is moved from 
dairy farmers' farms in cans and is there accepted, weighed or 
measured, sampled, and cooled, or it is a plant to which milk is moved 
from dairy farmers' farms in tank trucks.


Sec. 1301.22  State dairy regulation.

    State dairy regulation means any state regulation of dairy prices, 
and associated assessments, whether by statute, marketing order or 
otherwise.


Sec. 1301.23  Diverted milk.

    Diverted milk means milk, other than that excluded under 
Sec. 1301.11 from being considered as received from a producer, that 
meets the conditions set forth in paragraph (a) or (b) of this section 
and is not excluded from diverted milk under paragraph (c) of this 
section.
    (a) Milk that a handler in its capacity as the operator of a pool 
plant reports as having been moved from a dairy farmer's farm to the 
pool plant, but which the handler caused to be moved from the farm to 
another plant, if the handler specifically reports such movement to the 
other plant as a movement of diverted milk, and the conditions of 
paragraph (a) (1) or (2) of this section have been met. Milk that is 
diverted milk under this paragraph shall be considered to have been 
received at

[[Page 29642]]

the pool plant from which it was diverted.
    (1) During any two (2) months subsequent to July of the preceding 
calendar year, or during the current month, on more than half of the 
days on which the handler caused milk to be moved from the dairy 
farmer's farm during the month, all of the milk that the handler caused 
to be moved from that farm was physically received as producer milk at 
the handler's pool plant or at another of the handler's pool plants 
that is not longer operated as a plant.
    (2) During the current month and not more than five (5) other 
months subsequent to July of the preceding calendar year, milk from the 
dairy farmer's farm was received at or diverted from the handler's pool 
plant as producer milk, and during the current month all of the milk 
from that farm that the handler reported as diverted milk was moved 
from the farm in a tank truck in which it was intermingled with milk 
from other farms, the milk from a majority of which farms was diverted 
from the same pool plant in accordance with the preceding provisions of 
this paragraph.
    (b) Milk that a cooperative association in its capacity as a 
handler under Sec. 1301.9 (d) caused to be moved from a dairy farmer's 
farm to a plant other than a pool plant if the association specifically 
reports the movement to such plant as a movement of diverted milk, and 
the conditions of paragraph (b) (1) or (2) or this section have been 
met. Milk that is diverted under this paragraph shall be considered to 
have been received by the cooperative association in its capacity as a 
handler under Sec. 1301.9 (d).
    (1) During any two (2) months subsequent to July of the preceding 
calendar year, or during the current month, on more than half of the 
days on which the cooperative association in its capacity as a handler 
under Sec. 1301.9 (d) caused milk to be moved from the farm as producer 
milk during the month, all of the milk that the association caused to 
be moved from the farm was physically received at a pool plant.
    (2) During the current month and not more than five (5) other 
months subsequent to July of the preceding calendar year, the 
cooperative association in its capacity as a handler under 
Sec. 1301.9(d) caused milk to be moved from the dairy farmer's farm as 
producer milk, and during the current month all of the milk from that 
farm that the cooperative association in its capacity as a handler 
under Sec. 1301.9(d) reported as diverted milk was moved from the farm 
in a tank truck in which it was intermingled with milk from other 
farms, the milk from a majority of which farms was diverted by the 
association in accordance with the preceding provisions of this 
paragraph.
    (c) Milk moved, as described in paragraphs (a) and (b) of this 
section, from dairy farmer's farms to partially regulated plants in 
excess of 35 percent in the months of September through November and 45 
percent in other months, of the total quantity of producer milk 
received (including diversions) by the handler during the month shall 
not be diverted milk. Such milk, and any other milk reported as 
diverted milk that fails to meet the requirements set forth in this 
section, shall be considered as having been moved directly from the 
dairy farmers' farms to the plant of physical receipt, and if that 
plant is a nonpool plant the milk shall be excluded from producer milk.

PART 1303--HANDLERS REPORTS

Sec.
1303.1 Reports of receipts and utilization
1303.2 Other reports of receipts and utilization
1303.3 Reports regarding individual producers and dairy farmers
1303.4 Notices to producers

    Authority: 7 U.S.C. 7256.


Sec. 1303.1  Reports of receipts and utilization.

    On or before the eighth day after the end of each month, each 
handler shall report for such month to the compact commission, in the 
detail and on the forms prescribed by the compact commission as 
follows:
    (a) Each handler, with respect to each of the handler's pool plants 
shall report the quantities of fluid milk products contained in or 
represented by:
    (1) Receipts of producer milk (including the specific quantities of 
diverted milk and receipts from the handler's own production);
    (2) Receipts of milk from cooperative association in their capacity 
as handlers under Sec. 1301.9(d);
    (3) Receipts of fluid milk products from other pool plants;
    (4) Receipts of fluid milk products from partially regulated 
plants;
    (5) Inventories at the beginning and end of the month of fluid milk 
products;
    (6) All Class I utilization or disposition of milk, filled milk, 
and milk products required to be reported pursuant to this paragraph.
    (b) Each handler operating a partially regulated plant shall report 
with respect to such plant in the same manner as prescribed for reports 
required by paragraph (a) of this section. Receipts of milk that would 
have been producer milk if the plant had been fully regulated shall be 
reported in lieu of producer milk.
    (c) Each handler described in Sec. 1301.9 (d) shall report:
    (1) The quantities of all fluid milk product contained in receipts 
of milk from producers; and
    (2) The utilization or disposition of all such receipts.
    (d) Each handler shall report bulk milk received at a handler's 
pool plant from a cooperative association in its capacity as the 
operator of a pool plant or as a handler under Sec. 1301.9 (d), if such 
milk was rejected by the handler subsequent to such handler's receipt 
of the milk on the basis that it was not of marketable quality at the 
time the milk was delivered to the handler's plant, and such milk was 
removed from the plant in bulk form by the cooperative association and 
was replaced in the other milk from the association. Except for 
purposes of this paragraph and Sec. 1303.2 (a), such milk that was so 
removed from the handler's plant shall be treated for all other 
purposes of the pricing regulation as though it had not been delivered 
to and received at the handler's plant.
    (e) Each handler not specified in paragraphs (a) through (c) of 
this section shall report with respect to the handler's receipts and 
utilization of milk, filled milk, and milk products in such manner as 
the compact commission may prescribe.
    (f) Any handler who operates a pool plant which has no Class I 
disposition and receives no milk from producers is exempted from 
reporting to the compact commission under this section.


Sec. 1303.2  Other reports of receipts and utilization.

    (a) Each handler who intends to have a receipt of unmarketable milk 
replaced with the other milk in the manner described under Sec. 1303.1 
shall give the compact commission, at the request and in accordance 
with instructions of the compact commission, advance notice of the 
handler's intention to have such milk replaced.
    (b) In addition to the reports required pursuant to paragraph (a) 
of this section and Sec. 1303.1 and Sec. 1303.3 each handler shall 
report such other information as the compact commission deems necessary 
to verify or establish such handler's obligation under the order.


Sec. 1303.3  Reports regarding individual producers and dairy farmers.

    (a) Each handler shall report on or before the 15th day after the 
end of each month the information required by the compact commission 
with respect to

[[Page 29643]]

producer additions, producer withdrawals, changes in farm locations, 
and changes in the name of farm operators.
    (b) Each handler that is not a cooperative association, upon 
request from any such association, shall furnish it with information 
with respect to each of its producer members from whose farm the 
handler begins, resumes, or stops receiving milk at his pool plant. 
Such information shall include the applicable date, the producer-
member's post office address and farm location, and, if known, the 
plant at which his milk was previously received, or the reason for the 
handler's failure to continue receiving milk from his farm. In lieu of 
providing the information directly to the association, the handler may 
authorize the compact commission to furnish the association with such 
information, derived from the handler's reports and records.
    (c) Each handler shall submit to the compact commission within ten 
(10) days after their request made not earlier than twenty (20) days 
after the end of the month, his producer payroll for the month, which 
shall show for each producer:
    (1) The daily and total pounds of milk delivered and its average 
butterfat test; and
    (2) The net amount of the handler's payments to the producer, with 
the prices, deductions, and charges involved.


Sec. 1303.4  Notices to producers.

    Each handler shall furnish each producer from whom he receives milk 
the following information regarding the weight and butterfat test of 
the milk:
    (a) Whenever he receives milk from the producer on the basis of 
farm bulk tank measurements, the handler shall give the producer at the 
time the milk is picked up at the farm a receipt indicating the 
measurement and the equivalent pounds of milk received;
    (b) Whenever he receives milk from the producer on a basis other 
than farm bulk tank measurements, the handler shall give the producer 
within three (3) days after receipt of the milk a written notice of the 
quantity so received;
    (c) If butterfat tests of the producer's milk are determined from 
fresh milk samples, the handler shall give the producer within ten (10) 
days after the end of each month a written notice of the producer's 
average butterfat test for the month. Such notice shall not be required 
if the handler has given the producer a written notice of the butterfat 
test for each of the sampling periods within the month; and
    (d) If butterfat tests of the producer's milk are determined from 
composite milk samples, the handler shall give the producer within 
seven (7) days after the end of each sampling period a written notice 
of the producer's average butterfat test for the period.

PART 1304--CLASSIFICATION OF MILK

Sec.
1304.1  Classification of milk.
1304.2  Classification of transfers and diversions.
1304.3  General classification rules.
1304.4  Classification of producer milk at a pool plant.
1304.5  Classification of producer milk at a partially regulated 
plant.

    Authority: 7 U.S.C. 7256.


Sec. 1304.1  Classification of milk.

    All fluid milk products required to be reported by a handler 
pursuant to this section shall be classified as follows:
    (a) Class I milk shall be all fluid milk products disposed of in 
the regulated area, and in packaged inventory of fluid milk products at 
the end of the month, except as otherwise provided in paragraphs (b), 
(c), and (d) of this section;
    (b) Fluid Milk Products:
    (1) Disposed of in the form of a fluid cream product or any product 
containing artificial fat, fat substitutes, or six percent or more 
nonmilk fat (or oil) that resembles a fluid cream product, except as 
otherwise provided in paragraph (c) of this section;
    (2) In packaged inventory at the end of the month of the products 
specified in paragraph (b) (1) of this section and in bulk concentrated 
fluid milk products in inventory at the end of the month;
    (3) In bulk fluid milk products and bulk fluid cream products 
disposed of or diverted to a commercial food processor if the compact 
commission is permitted to audit the records of the commercial food 
processing establishment for the purpose of verification. Otherwise, 
such uses shall be Class I;
    (4) Used to produce:
    (i) Cottage cheese, lowfat cottage cheese, dry curd cottage cheese, 
ricotta cheese, pot cheese, Creole cheese, and any similar soft, high 
moisture cheese resembling cottage cheese in form or use;
    (ii) Milkshake and ice milk mixes (or bases), frozen desserts, and 
frozen dessert mixes distributed in one-quart containers or larger and 
intended to be used in soft or semi-solid form:
    (iii) Aerated cream, frozen cream, sour cream and sour half-and-
half, sour cream mixtures containing nonmilk items, yogurt and any 
other semi-solid product;
    (iv) Eggnog, custards, puddings, pancake mixes, buttermilk biscuit 
mixes, coatings, batter and similar products;
    (v) Formulas especially prepared for infant feeding or dietary use 
(meal replacement) that are packaged in hermetically sealed containers;
    (vi) Candy, soup, bakery products and other prepared foods which 
are processed for general distribution to the public, and intermediate 
products, including sweetened condensed milk, to be used in processing 
such prepared food products; and
    (vii) Any product not otherwise specified in this section.
    (c) All fluid milk products:
    (1) Used to produce:
    (i) Cream cheese and other spreadable cheeses, and hard cheeses of 
types that may be shredded, grated, or crumbled, and are not included 
in paragraph (b)(4)(i) of this section;
    (ii) Butter, plastic cream, anhydrous milkfat and butteroil;
    (iii) Any milk product in dry form, except nonfat dry milk;
    (iv) Evaporated or sweetened condensed milk in a consumer-type 
package and evaporated or sweetened condensed skim milk in a consumer-
type package; and
    (2) In inventory at the end of the month of unconcentrated fluid 
milk products in bulk form and products in bulk form and products 
specified in paragraph (b)(1) of this section in bulk form;
    (3) In fluid milk products, products specified in paragraph (b)(1) 
of this section, and products processed by the disposing handler that 
are specified in paragraphs (b)(4) (i)-(iv) of this section, that are 
disposed of by a handler for animal feed;
    (4) In fluid milk products, products specified in paragraph (b)(1) 
of this section, and products processed by the disposing handler that 
are specified in paragraphs (v)(4) (i)-(iv) of this section, that are 
dumped by a handler. The compact commission may require notification by 
the handler of such dumping in advance for the purpose of having the 
opportunity to verify such disposition. In any case, classification 
under this paragraph requires a handler to maintain adequate records of 
such use, if advance notification of such dumping is not possible, or 
if the compact commission so requires, the handler must notify the 
compact commission on the next business day following such use;

[[Page 29644]]

    (5) In fluid milk products and products specified in paragraph 
(b)(1) of this section that are destroyed or lost by a handler in a 
vehicular accident, flood, fire, or in a similar occurrence beyond the 
handler's control, to the extent that the quantities destroyed or lost 
can be verified from records satisfactory to the compact commission.
    (6) In skim milk in any modified fluid milk product or in any 
product specified in paragraph (b)(1) of this section that is in excess 
of the quantity of skim milk in such product that was included within 
the fluid milk product definition pursuant to Sec. 1301.14 and the 
fluid cream product definition pursuant to Sec. 1301.15.
    (d) All fluid milk products used to produce nonfat dry milk.


Sec. 1304.2  Classification of transfers and diversions

    (a) Transfers and diversions to pool plants. Fluid milk products 
transferred or diverted from a pool plant to another pool plant or 
partially regulated plant shall be classified as Class I milk unless 
the operators of both plants request not to classify it Class I. In 
either case, the classification of such transfers or diversion shall be 
subject to the following conditions;
    (1) The fluid milk products classified in Class I shall be limited 
to the amount of fluid milk products, respectively, remaining in Class 
I at the transferee-plant or diverted-plant.
    (b) Transfers and diversions to producers-handlers. Fluid milk 
products transferred or diverted from a pool plant to a producer-
handler shall be classified as Class I.


Sec. 1304.3  General classification rules.

    In determining the classification of producer milk pursuant to 
Sec. 1304.4, the following rules shall apply:
    (a) Each month the compact commission shall correct for 
mathematical and other obvious errors all reports filed pursuant to 
Sec. 1303.1 and shall compute separately for each pool plant and for 
each cooperative association with respect to milk for which it is the 
handler pursuant to Sec. 1301.9(d) the pounds of skim milk and 
butterfat, respectively, in Class I in accordance with Secs. 1304.1 and 
1304.2;
    (b) The classification of producer milk for which a cooperative 
association is the handler pursuant to Sec. 1301.9(d) shall be 
determined separately from the operations of any pool plant operated by 
such cooperative; and
    (c) If receipts from more than one pool plant are to be assigned, 
the receipts shall be assigned in sequence according to the zone 
locations of the plants, beginning with the plant in the lowest-
numbered zone for assignments to Class I milk.


Sec. 1304.4  Classification of producer milk at a pool plant.

    For each month the compact commission shall determine the 
classification of producer milk of each handler described in 
Sec. 1301.9(a) for each of the handler's pool plants separately and of 
each handler described in Sec. 1301.9(d) by allocating the handler's 
receipts of fluid milk products to the handler's utilization pursuant 
to paragraphs (a) and (b) of this section.
    (a) Fluid milk products shall be allocated in the following manner:
    (1) Subtract from the total pounds of fluid milk products in Class 
I the pounds of fluid milk products in:
    (i) Beginning inventory packaged fluid milk products;
    (ii) Receipts of Class I fluid milk products from other pool plants 
and partially regulated plants;
    (iii) Disposition of Class I fluid milk products outside of the 
regulated area;
    (iv) Receipts of exempt fluid milk products pursuant to section 
1301.13 (a), (b), and (c).
    (b) The quantity of producer milk in Class I shall be the combined 
pounds of fluid milk product remaining in Class I.


Sec. 1304.5  Classification of producer milk at a partially regulated 
plant.

    For each month the compact commission shall determine the 
classification of producer milk of each handler described in 
Sec. 1301.9(b) for each of the handler's partially regulated plants 
separately by allocating the handler's receipts of fluid milk products 
to the handler's utilization pursuant to paragraphs (a) through (c) of 
this section.
    (a) Fluid milk products shall be allocated in the following manner:
    (1) Subtract from the total pounds of fluid milk product in Class I 
the pounds of fluid milk products in:
    (i) Beginning inventory packaged fluid milk products;
    (ii) Receipts of Class I fluid milk products from other pool plants 
and partially regulated plants;
    (iii) Disposition of Class I fluid milk products outside of the 
regulated area;
    (iv) Receipts of exempt fluid milk product pursuant to Sec. 1301.13 
(a), (b), and (c).
    (b) The quantity of producer milk in Class I shall be the combined 
pounds of fluid milk product remaining in Class I, not to exceed the 
total pounds of fluid milk products disposed of in the regulated area.
    (c) Producer milk will be allocated pursuant to paragraph (b) of 
this section in the following manner:
    (1) Receipts from producers located in the regulated area;
    (2) Receipts of diverted pool milk;
    (3) Receipts from producers not located in the regulated area shall 
then be assigned to any remaining Class I in the regulated area.

PART 1305--CLASS PRICE

Sec.
1305.1  Compact over-order class I price and compact over-order 
obligation.
1305.2  Announcement of compact over-order class I price and compact 
over-order obligation.
1305.3  Equivalent price.

    Authority: 7 U.S.C. 7256.


Sec. 1305.1  Compact over-order class I price and compact over-order 
obligation.

    The compact over-order Class I price per hundredweight of milk 
shall be as follows:
    (a) The Class I price shall be announced pursuant to Sec. 1305.2.
    (b) The compact over-order obligation shall be computed as follows:
    (1) The compact Class I price;
    (2) Deduct Federal Order #1, Zone 1 price;
    (3) The remainder shall be the compact over-order obligation.


Sec. 1305.2  Announcement of compact over-order class I price and 
compact over-order obligation.

    The compact commission shall announce publicly on or before the 5th 
day of each month the Class I over-order price and the compact over-
order obligation for the following month.


Sec. 1305.3  Equivalent price.

    If, for any reason, a price specified in this part for use in 
computing class prices or for other purposes is not reported or 
published in the manner described in this part, the compact commission 
shall use one determined by the commission to be equivalent to the 
price that is specified.

PART 1306--COMPACT OVER-ORDER PRODUCER PRICE

Sec.
1306.1  Handler's value of milk for computing basic over-order 
producer price.
1306.2  Partially regulated plant operator's value of milk for 
computing basic over-order producer price.
1306.3  Computation of basic over-order producer price.
1306.4  Announcement of basic over-order producer price.

    Authority: 7 U.S.C. 7256.

[[Page 29645]]

Sec. 1306.1  Handler's value of milk for computing basic over-order 
producer price.

    For the purpose of computing the basic over-order producer price, 
the compact commission shall determine for each month the value of milk 
of each handler with respect to each of the handler's pool plants and 
of each handler described in Sec. 1301.9(d) with respect to milk that 
was not received at a pool plant, as directed in this section:
    (a) Multiply the pounds of Class I fluid milk products as 
determined pursuant to Sec. 1304.1(a) by the compact over-order 
obligation.


Sec. 1306.2  Partially regulated plant operator's value of milk for 
computing basic over-order producer price.

    For the purpose of computing the basic over-order producer price, 
the compact commission shall determine for each month the value of milk 
disposition in the regulated area by the operator of a partially 
regulated plant, as follows:
    (a) Multiply the pounds of Class I fluid milk products as 
determined pursuant to Sec. 1304.1(a) by the compact over-order 
obligation.


Sec. 1306.3  Computation of basic over-order producer price.

    The compact commission shall compute the basic over-order producer 
price per hundredweight applicable to milk received at plants as 
follows:
    (a) Combine into one total the values computed pursuant to 
Sec. 1306.1 and Sec. 1306.2 for all handlers from whom the compact 
commission has received at the compact commission's office prior to the 
9th day after the end of the month the reports for the month prescribed 
in Sec. 1303.1 and the payments for the preceding month required under 
Sec. 1307.3(a).
    (b) Add an amount equal to not less than one-half of the 
unobligated balance of the producer-settlement fund at the close of 
business on the 8th day after the end of the month;
    (c) Divide the resulting amount by the sum of the following for all 
handlers included in these computations:
    (1) The total hundredweight of producer milk;
    (2) The total hundredweight for which a value is computed pursuant 
to Sec. 1306.2 (a); and
    (d) Subtract not less than four (4) cents nor more than five (5) 
cents for the purpose of retaining a cash balance in the producer-
settlement fund. The result shall be the basic over-order producer 
price for the month.


Sec. 1306.4  Announcement of basic over-order producer price.

    The compact commission shall announce publicly on or before: The 
13th day after the end of each month the over-order producer price 
resulting from the adjustment of the basic over-order producer price 
for such month, as computed under Sec. 1306.3.

PART 1307--PAYMENTS FOR MILK

Sec.
1307.1  Producer-settlement fund.
1307.2  Handler's producer-settlement fund debits and credits.
1307.3  Payments to and from the producer-settlement fund.
1307.4  Payments to producers.
1307.5  [Reserved].
1307.6  Statements to producers.
1307.7  Adjustment of accounts.
1307.8  charges on overdue accounts.

    Authority: 7 U.S.C. 7256.


Sec. 1307.1  Producer-settlement fund.

    (a) The compact commission shall establish and maintain a separate 
fund known as the producer-settlement fund. They shall deposit into the 
fund all amounts received from handlers under Secs. 1307.3, 1307.7, and 
1307.8 and the amount subtracted under Sec. 1306.3(d). They shall pay 
from the fund all amounts due handlers under Secs. 1307.3, 1307.7, and 
1307.8 and the amount added under Sec. 1306.3(b) subject to their right 
to offset any amounts due from the handler under these sections and 
under Sec. 1308.1.
    (b) All amounts subtracted under Sec. 1306.3(d), including interest 
earned thereon, shall remain in the producer-settlement fund as an 
obligated balance until it is withdrawn for the purpose of effectuating 
Sec. 1306.3(b).
    (c) The compact commission shall place all monies subtracted under 
Sec. 1306.3(d) in an interest-bearing bank account or accounts in a 
bank or banks duly approved as a Federal depository for such monies, or 
invest them in short-term U.S. Government securities.


Sec. 1307.2  Handlers' producer-settlement fund debits and credits.

    On or before the 15th day after the end of the month, the compact 
commission shall render a statement to each handler showing the amount 
of the handler's producer-settlement fund debit or credit, as 
calculated in this section.
    (a) The producer-settlement fund debit for each plant and each 
cooperative association in its capacity as a handler under 
Sec. 1301.9(d) shall be the value computed pursuant to Sec. 1306.1 and 
Sec. 1306.2.
    (b) The producer-settlement fund credit for each plant and each 
cooperative association in its capacity as a handler under 
Sec. 1301.9(d) shall be computed as specified in this paragraph.
    (1) Multiply the quantities of producer milk that were allocated to 
Class I pursuant to Sec. 1304.4 and the quantities of route disposition 
in the marketing area by partially regulated plants for which a value 
was determined pursuant to Sec. 1306.2(a) by the basic over-order 
producer price computed under Sec. 1306.3.
    (2) For any cooperative association in its capacity as a handler 
under Sec. 1301.9(d), multiply the quantities of milk moved to each 
pool plant by the basic over-order blended price computed under 
Sec. 1306.3; and to the result add the value determined under 
Sec. 1306.1.
    (c) The producer-settlement fund debit or credit of any handler 
shall be the net of the producer-settlement fund debits and credits as 
computed for all of its operations under paragraphs (a) and (b) of this 
section.


Sec. 1307.3  Payments to and from the producer-settlement fund.

    (a) On or before the 18th day after the end of the month, each 
handler shall pay to the compact commission the handler's producer-
settlement fund debit for the month as determined under Sec. 1307.2(a).
    (b) On or before the 20th day after the end of the month, the 
compact commission shall pay to each handler the handler's producer-
settlement fund credit for the month as determined under 
Sec. 1307.2(b). If the unobligated balance in the producer-settlement 
fund is insufficient to make such payments, the compact commission 
shall reduce uniformly such payments and shall complete them as soon as 
the funds are available.


Sec. 1307.4  Payments to producers.

    (a) On or before the 20th day after the end of the month, each 
handler shall make payment to each producer for the milk received from 
him during the month at not less than the basic over-order producer 
price per hundredweight computer under Sec. 1306.3. If the handler has 
not received full payment for the compact commission under 
Sec. 1307.3(b) by the date payments are due under this paragraph, he 
may reduce pro rata his payments to producers by an amount not to 
exceed such underpayment. Such payments shall be completed after 
receipt of the balance due from the compact commission by the next 
following date for making payments under this paragraph.
    (b) If the handler's net payment to a producer is for an amount 
less than the

[[Page 29646]]

total amount due the producer under this section, the burden shall rest 
upon the handler to prove to the compact commission that each deduction 
from the total amount due is properly authorized and properly 
chargeable to the producer.
    (c) In making payment to producers under paragraph (b) of this 
section for milk diverted from a pool plant the handler may elect to 
pay such producers at the price of the plant from which the milk was 
diverted, if the resulting net payment to each producer is not less 
than the otherwise required under this section and the rate of payment 
and the deduction shown on the statement required to be furnished under 
Sec. 1307.6 are those used in computing the payment.
    (d) If a handler claims that the required payment cannot be made 
because the producer is deceased or cannot be located, such payment 
shall be made to the producer-settlement fund, and in the event that 
the handler subsequently locates and pays the producer or a lawful 
claimant, or in the event that the handler no longer exists and a 
lawful claim is later established, the compact commission shall make 
such payment from the producer-settlement fund to the handler or to the 
lawful claimant, as the case may be.
    (e) If not later than the date when such payment is required to be 
made, legal proceedings have been instituted by the handler for the 
purpose of administrative or judicial review of the compact commission 
findings upon verification as provided above such payment shall be made 
to the producer-settlement fund and shall be held in reserve until such 
time as the above-mentioned proceedings have been completed or until 
the handler submits proof to the compact commission that the required 
payment has been made to the producer in which latter event the payment 
shall be refunded to the handler.
    (f) At a partially regulated plant each handler shall make 
payments, on a pro rata basis, to all producers and dairy farmers for 
milk received from them during the month, the payment received pursuant 
to Sec. 1307.3(b).


Sec. 1307.5  [Reserved]


Sec. 1307.6  Statements to producers.

    In making the payments to producers required under Sec. 1307.4, 
each handler and each cooperative shall furnish each producer, in 
addition to the information required under Federal and State 
regulations, a supporting statement, in such form acceptable to the 
commission, which shall show: The rate and amount of the compact over-
order producer price.


Sec. 1307.7  Adjustment of accounts.

    (a) Whenever the compact commission verification of a handler's 
reports or payments discloses an error in payments to or from the 
compact commission under Sec. 1307.3 or Sec. 1308.1, the compact 
commission shall promptly issue to the handler a charge bill or a 
credit, as the case may be, for the amount of the error. Adjustment 
charge bills issued during the period beginning with the 10th day of 
the prior month and ending with the 9th day of the current month shall 
be payable by the handler to the market administrator on or before the 
18th day of the current month. Adjustment credits issued during that 
period shall be payable by the compact commission to the handler on or 
before the 20th day of the current month.
    (b) Whenever the compact commission's verification of a handler's 
payments discloses payment to a producer or a cooperative association 
of an amount less than is required by Sec. 1307.4, the handler shall 
make payment of the balance due the producer not later than the 20th 
day after the end of the month in which the handler is notified of the 
deficiency.


Sec. 1307.8  Charges on overdue accounts.

    Any producer-settlement fund account balance due from or to a 
handler under Sec. 1307.3, Sec. 1307.7 or Sec. 1307.8 for which 
remittance has not been received in or paid from the compact commission 
office by close of business on the 18th day of any month, shall be 
increased one percent effective the following day.

PART 1308--ADMINISTRATIVE ASSESSMENT

    Authority: 7 U.S.C. 7256.


Sec. 1308.1  Assessment for pricing regulations administration.

    On or before the 18th day after the end of the month, each handler 
shall pay to the compact commission his pro rata share of the expense 
of administration of this pricing regulation. The payment shall be at 
the rate of 3.2 cents per hundredweight. The payment shall apply to:
    (a) The quantity of fluid milk products disposed in the regulated 
area from a pool plant for which a value is determined under 
Sec. 1306.1;
    (b) The quantity of fluid milk products disposed in the regulated 
area from a cooperative association in its capacity as a handler under 
Section 1301.9(d) for which a value is determined under Section 1306.1; 
and
    (c) The quantity distributed as route disposition in the regulated 
area from a partially regulated plant for which a value is determined 
under Sec. 1306.2.
Daniel Smith,
Executive Director.
[FR Doc. 97-14274 Filed 5-29-97; 8:45 am]
BILLING CODE 1650-01-P