[Federal Register Volume 63, Number 139 (Tuesday, July 21, 1998)]
[Proposed Rules]
[Pages 39039-39044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19390]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Parts 1005, 1007, and 1046
[Docket No. AO-338-A9, et al.; DA-96-08]
Milk in the Carolina and Certain Other Marketing Areas; Final
Decision and Order To Terminate Proceeding on Proposed Amendments to
Marketing Agreements and Orders
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7 CFR part Marketing area Docket No.
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1005............. Carolina................ AO-388-A9.
1007............. Southeast............... AO-366-A38.
1046............. Louisville-Lexington- AO-123-A67.
Evansville.
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AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final decision and termination of proceeding.
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SUMMARY: This document denies proposed amendments to 3 Federal milk
orders in the Southeastern United States and terminates the rulemaking
proceeding. The proposals involve deductions from the minimum uniform
price to producers and the definition of ``producer'' specified in each
of the orders. The decision to deny the proposals is based upon 2
public hearings, and upon comments and exceptions filed in response to
a subsequent recommended decision issued by the Department.
FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,
USDA/AMS/Dairy Division, Order Formulation Branch, Room 2971, South
Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1932, e-
mail address: Nicholas__M[email protected].
SUPPLEMENTARY INFORMATION: This administrative action is governed by
the provisions of Sections 556 and 557 of Title 5 of the United States
Code and therefore is excluded from the requirements of Executive Order
12866.
This partial final decision denies the proposed amendments to the
Carolina, Southeast, and Louisville-Lexington-Evansville Federal milk
orders,1 and terminates this rulemaking proceeding.
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\1\ The Tennessee Valley Federal milk order, an order involved
in this rulemaking proceeding, was terminated as of October 1, 1997.
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Small Business Consideration
In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.), the Agricultural Marketing Service has considered the economic
impact of this action on small entities. The Act seeks to ensure that,
within the statutory authority of a program, the regulatory and
informational requirements are tailored to the size and nature of small
businesses. For the purpose of the Regulatory Flexibility Act, a dairy
farm is considered a ``small business'' if it has an annual gross
revenue of less than $500,000, and a dairy products manufacturer is a
``small business'' if it has fewer than 500 employees. For the purposes
of determining which dairy farms are ``small businesses,'' the $500,000
per year criterion was used to establish a production guideline of
326,000 pounds per month. Although this guideline does not factor in
additional monies that may be received by dairy producers, it should be
an inclusive standard for most ``small'' dairy farmers. For purposes of
determining a handler's size, if the plant is part of a larger company
operating multiple plants that collectively exceed the 500-employee
limit, the plant will be considered a large business even if the local
plant has fewer than 500 employees.
The milk of approximately 7,600 producers is pooled on the
Carolina, Southeast, and Louisville-Lexington-Evansville milk orders.
Of these producers, 97 percent produce below the 326,000-pound
production guideline and are considered to be small businesses.
There are 48 handlers operating pool plants under the 3 orders. Of
these handlers, 22 have fewer than 500 employees and qualify as small
businesses.
The Agricultural Marketing Service has determined, as set forth in
the recommended decision, that neither the denial, nor the adoption, of
proposed amendments involving deductions from the minimum payments to
producers will have a significant economic impact on a substantial
number of small entities under current marketing conditions. Dairy
farmers are presently receiving the minimum order prices and should
continue to do so given the current level of over-order premiums now in
effect. Similarly, neither adoption nor denial of the proposed
amendments will have any effect on handlers' costs under the orders
because, currently, handlers are voluntarily paying producer prices in
excess of the minimum prices specified in the orders. Furthermore, for
the long term, the issue of deductions from minimum payments will be
considered as part of the Federal order reform in connection with the
Federal Agriculture Improvement and Reform Act of 1996 which requires
an examination of the Federal milk order system. The concerns of small
businesses will be addressed throughout the review process.
Additionally, neither the denial nor the adoption of the proposal
to modify the definition of ``producer'' under the 3 orders will have a
significant economic impact on a substantial number of small entities.
Standards already exist in the 3 orders to assure an adequate
association by producers in meeting the fluid milk needs of the
markets. The denial of the proposal to incorporate additional producer
qualification standards maintains the existing regulatory burden, and
will not place any additional responsibilities on handlers operating
under the orders.
Prior Documents in This Proceeding
Notice of Hearing: Issued May 1, 1996; published May 3, 1996 (61 FR
19861).
Tentative Partial Final Decision: Issued July 12, 1996; published
July 18, 1996 (61 FR 37628).
Interim Amendment of Orders: Issued August 2, 1996; published
August 9, 1996 (61 FR 41488).
Extension of Time for Filing Comments to the Tentative Decision:
Issued August 16, 1996; published August 23, 1996 (61 FR 43474).
Extension of Time for Filing Comments to the Tentative Decision:
Issued October 18, 1996; published October 25, 1996 (61 FR 55229).
Notice of Reopened Hearing: Issued November 19, 1996; published
November 25, 1996 (61 FR 59843).
[[Page 39040]]
Partial Final Decision: Issued May 12, 1997; published May 20, 1997
(62 FR 27525).
Order Amending the Orders: Issued July 17, 1997; published July 23,
1997 (62 FR 39738).
Partial Recommended Decision: Issued July 17, 1997; published July
23, 1997 (62 FR 39470).
Preliminary Statement
Public hearings were held upon proposed amendments to the marketing
agreements and the orders regulating the handling of milk in the
aforesaid marketing areas. The hearings were held, pursuant to the
provisions of the Agricultural Marketing Agreement Act of 1937, as
amended (7 U.S.C. 601-674), and the applicable rules of practice (7 CFR
Part 900), in Charlotte, North Carolina, on May 15-16, 1996, and in
Atlanta, Georgia, on December 17-18, 1996. Notice of the initial
hearing was issued on May 1, 1996, and published May 3, 1996 (61 FR
19861).
The material issues on the record of the hearings relate to:
1. Transportation credits for supplemental bulk milk received for
Class I use.
2. Deductions from the minimum uniform price to producers.
3. Whether emergency marketing conditions in the 4 regulated
marketing areas warrant the omission of a recommended decision with
respect to Issue No. 1 and the opportunity to file written exceptions
thereto.
4. The definition of producer.
An interim order amending the orders with regard to transportation
credits was issued on August 2, 1996, and published August 9, 1996 (61
FR 41488). The interim amendments became effective on August 10, 1996.
The Department reopened the hearing to hear additional evidence
regarding the transportation credit issue and also to hear a related
``producer'' definition proposal. This hearing was held on December 17-
18, 1996, in Atlanta, Georgia, following the notice of such reopened
hearing issued on November 19, 1996, and published in the Federal
Register on November 25, 1996 (61 FR 59843).
Interested parties were given until June 17, 1996, to file post-
hearing briefs regarding the deductions from the minimum price proposal
as published in the Federal Register and as modified at the hearing.
Regarding the additional proposal concerning the definition of a
``producer'' heard at the reopened hearing, interested parties were
given until February 7, 1997, to file post-hearing briefs.
A partial recommended decision involving minimum payments to
producers and the ``producer'' definition was issued on July 17, 1997,
and published in the Federal Register on July 23, 1997 (62 FR 39470).
Issue 1 was discussed in a separate partial final decision issued
on May 12, 1997 (62 FR 27525). Issue 3 was discussed in the tentative
partial final decision, and is now moot.
Following the final decision issued on May 12, 1997, producers were
polled in each of the 4 markets involved in this proceeding to
ascertain whether producers approved of the orders, as amended. An
insufficient vote was obtained for the Tennessee Valley order, as
amended. Consequently, that order was terminated effective October 1,
1997.
Rulings on Proposed Findings and Conclusions
Briefs and proposed findings and conclusions were filed on behalf
of certain interested parties. These briefs, proposed findings and
conclusions and the evidence in the record were considered in making
the findings and conclusions set forth:
Material Issue # 2--Deductions From the Minimum Uniform Price to
Producers
A proposal by Hunter Farms and Milkco, Inc., which seeks to clarify
the minimum payment to producers for Federal milk marketing orders
1005, 1007, and 1046, should be denied. Under the proposal, a handler
(except a cooperative acting in its capacity as a handler pursuant to
paragraph 9(b) or 9(c)) may not reduce its obligations to producers or
cooperatives by permitting producers or cooperatives to provide
services which are the responsibility of the handler. According to the
proposal, such services include: (1) Preparation of producer payroll;
(2) conduct of screening tests of tanker loads of milk required by duly
constituted regulatory authorities before milk may be transferred to
the plant's holding tanks and any other tanker load tests required to
establish the quantity and quality of milk received; and (3) any
services for processing or marketing of raw milk or marketing of
packaged milk by the handler.
A Brief Summary of Testimony and Briefs Resulting From the May 15-16,
1996 Hearing
The Vice President of Hunter Farms (Hunter), which operates plants
regulated under Order 5 at High Point and Charlotte, North Carolina,
testified that Hunter purchases milk from Piedmont Milk Sales,
Carolina-Virginia Milk Producers Association (CVMPA), Mid-America
Dairymen, Inc. (Mid-Am), 2 and Cooperative Milk Producers
Association. The witness explained that CVMPA and Mid-Am are
cooperative associations, while Piedmont Milk Sales is a marketing
agent handling the milk of independent producers. Due to competitive
marketing conditions in the Southeast in late 1994 and early 1995,
handlers were able to purchase milk supplies at Federal order minimum
prices without any over-order premiums being charged. As a result of
the absence of over-order premiums, Hunter received underpayment
notices from the market administrator on milk that it had received from
Piedmont Milk Sales. The underlying question was who must pay for
certain services associated with the receipt of milk at regulated
plants. Hunter argued that during the period of December 1994 through
September 1995, competing handlers who received milk from cooperative
associations at the minimum order price did not fully compensate the
cooperatives for similar services that were provided.
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\2\ Mid-America Dairymen, Inc., Western Dairymen Cooperative,
Milk Marketing Inc., and Associated Milk Producers, Inc., Southern
Region, merged to form ``Dairy Farmers of America'' effective
January 1, 1998.
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Despite the fact that over-order premiums returned to the Carolina
market, Hunter contends, the problem of what constitutes a minimum
payment to producers should be clarified in the event that premiums may
be reduced or disappear entirely in the future. For this reason,
according to the proponent, it is important to resolve this issue.
In the event that this situation is not rectified, according to
Hunter, a loss of milk sales and lower prices to producers will be
evident. Hunter stated that current policy is discriminatory and
unfair. Furthermore, Hunter stated that all would benefit from a
clarification of the rules defining Federal order minimum prices.
Milkco Inc. (Milkco), a fluid milk processing plant located in
Asheville, North Carolina, regulated under Order 5, receives milk from
cooperative associations as well as independent producers marketing
their milk through Piedmont Milk Sales. Milkco supported Hunter's
position and stated that Milkco also received underpayment notices from
the market administrator for the December 1994 through October 1995
period on milk received from independent dairy farmers, but did not
receive underpayment notices on milk received under the same or similar
conditions from cooperative associations.
[[Page 39041]]
A witness representing Hunter and Milkco described the categories
that should be defined as a handler responsibility, including
preparation of a producer payroll, the testing of incoming tanker loads
of milk, and any costs associated with processing raw milk or marketing
milk in bulk or packaged form. The witness stressed that the thrust of
the proposal is to ensure equality in the cost of milk among regulated
handlers. According to the witness, current administrative practice in
this area requires handlers receiving milk from independent producers
to absorb the cost of a variety of services which are provided at no
extra charge to handlers receiving milk from cooperative associations
and result in an inequitable situation.
The General Manager of Carolina-Virginia Milk Producers Association
or CVMPA offered qualified support for the Hunter-Milkco proposal. He
said that from a philosophical point of view CVMPA would agree that if
producers provide the services specified by the proponents--plus any
additional services that are provided to a handler by a cooperative
association--handlers should be charged the costs associated with these
services. He said that, with these modifications, CVMPA could support
the proposal. Additionally, CVMPA suggested expanding the proposed list
of handlers' responsibilities to include tanker washing and tagging,
supplying milk to handlers on an irregular delivery schedule, field
work, disposing of surplus milk during months when the supply is above
local needs, and importing supplemental milk for Class I use during
periods of short production.
Additional testimony was also offered by a representative of Mid-
America Dairymen, Inc. (Mid-Am) involving Hunter's proposal. Mid-Am
objected to hearing the proposal and also to the narrowness of Hunter-
Milkco's proposal. Mid-Am argued that the issue of minimum payments to
producers is national in scope and should not be limited to the orders
involved in this proceeding. It suggested that the issue be addressed
by the Secretary within the context of the Federal order reform as
required by the 1996 Farm Bill on a national basis. In addition, the
Mid-Am representative objected to the proposal on grounds of lack of
notice to interested parties.
The administrative law judge presiding over the hearing overruled
Mid-Am's objection to hearing the proposal, noting that the Secretary
had given interested parties the minimum 3-day notice requirement
specified in 7 CFR 900.4(a). He also indicated that this proposal was
being considered on a non-emergency basis and that, accordingly,
interested parties had more than adequate time to brief it, discuss it,
and consider it.
Briefs were submitted by interested parties both in support of and
in opposition to this proposal. Proponents, Hunter and Milkco,
submitted a brief in support of their proposal, emphasizing the points
made on the hearing record. Hunter and Milkco maintain that uniform
applicability in the treatment of handlers is essential, and any lack
of uniformity is in violation of the Agricultural Marketing Agreement
Act, as amended. According to the proponents, issuance of underpayment
notices only on that milk which was received from independent producers
who contracted with a specific marketing agency does not promote
uniformity and is discriminatory.
Hunter and Milkco's brief also addresses the objections made by
Mid-Am to this proposal. The proponents maintain that Mid-Am's
objection to their proposal based on grounds of lack of notice is
unfounded because the notice given was adequate. In addition, Hunter
and Milkco argue that the suggestion by Mid-Am that this proposal be
considered on a national basis is unjustified. Proponents maintain that
the problem which has prompted this proposal is specific to the Federal
order under consideration, and no evidence was presented to show that
this problem exists in other regions of the United States.
Fleming Companies, Inc. (Fleming),3 also filed a brief
in support of this proposal. Fleming states that ``* * * To the extent
such services primarily benefit producers, it is appropriate that
producers be authorized to contract for such services, and to allow a
deduction for the reasonable value of such services.'' Fleming also
expressed concern that without the clarification offered by the
proposal, equity among member producers and non-member producers may be
jeopardized and price uniformity may not be maintained if cooperative
associations are able to assume the cost of producer-oriented services,
while handlers receiving independent milk are not permitted to make a
deduction for these services even if authorized by the producer.
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\3\ During summer 1997, the dairy operations of Fleming was
acquired by Suiza Foods. The fluid milk processing business of
Fleming has been reorganized and is now Country Delite Farms, Inc.
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A brief filed by Mid-America Dairymen, Inc., reiterated the
cooperative's strong opposition to the proposal and its position that
this issue should be addressed on a national basis in the context of
Federal order reform. Furthermore, Mid-Am states that it is clear that
the costs for butterfat testing are borne by all producers, and the
costs of testing milk in tankers for antibiotics are borne by all
handlers regardless of their source of supply. According to Mid-Am, no
confusion exists as to who is responsible for these tests and,
therefore, they should not be included in the proposed amendments.
The Kroger Co. states in its brief that proposal 2 is worthy of
study and should be considered by the Secretary for all Federal milk
marketing orders within the context of Federal milk order reform.
Summary of the Partial Recommended Decision Issued July 17, 1997
The Department issued a partial recommended decision on July 17,
1997 (62 FR 39470), which recommended denial of Hunter/Milkco's
proposal to amend the 4 southeastern milk orders. On the basis of the
testimony heard and the briefs filed, the Department determined that
the issue should be addressed in the context of Federal order reform.
Under orders, the Department explained, payment for milk received
from producers may not be less than the uniform price as announced each
month by the market administrator, except to producers who receive
payment from their cooperative association. The Department stated a
cooperative association under the authorizing legislation may blend the
net proceeds of its sales of milk for payment to its member producers.
However, payments to a producer by a handler, the Department asserted,
can be reduced to reflect ``proper deductions authorized in writing by
the producer.'' Historically, it noted, such deductions from minimum
milk prices of only two basic types have been permitted.
The Department indicated that the two types of deductions permitted
are (1) payments that are made by a handler on behalf of the producer
to creditors of the producer, and (2) payments that are obligations of
the producer in the production of milk and the transportation costs for
delivery to the handler's plant. Accordingly, the Department stated,
handlers are not required to make payments to creditors on behalf of
producers but are permitted to do so if the deductions are proper and
authorized. It stated such permission recognizes that handlers
frequently make payments to producers' creditors as a service to the
producers. Thus, the Department concluded, the term ``proper'' is
included to prevent
[[Page 39042]]
unwarranted deductions from minimum prices for milk.
The Department went on to state that the authorization by a
producer of a certain deduction may not be proper and thus disallowed
by the market administrator. Additionally, it indicated, producers
cannot give up their rights to receive the uniform price by a deduction
that is not of the two types described above.
The Department concluded that there were extensive conceptual
differences among market participants concerning what constitutes
minimum prices to producers. The decision stated that the lack of
evidence and conflicting opinions made it extremely difficult to
delineate in Federal milk orders those services which are the
responsibility of handlers and those which lie within the domain of
producers. Furthermore, even if a decision could be reached on this
point it would be very difficult to establish uniform rates for the
services suggested by the various parties on the basis of the record
before the Department. The Department, therefore, concluded that the
proposal should be denied and the matter considered in the Federal
order reform proceeding where nationwide input and a more extensive
evidentiary record could be obtained.
The decision stated that the underpayment problem which Milkco and
Hunter experienced has been rendered moot with the return of over-order
premiums. Although these premiums could again disappear, bringing the
uniform pricing issue to the fore once again, the Department
anticipates this is not likely to happen in the near future.
Nevertheless, the decision stated, if this should happen, proponents
could request relief through other means pending final resolution of
this matter.
Exceptions to the Partial Recommended Decision
Hunter and Milkco, Inc., filed an exception to the Department's
partial recommended decision and urged adoption of their proposal.
These handlers stated that their proposal would specify the
responsibility of all handlers with respect to producer milk and
thereby rectify any inconsistency that may currently exist in order
language concerning this issue.
Hunter and Milkco also stated that any disagreement within the
industry concerning which services are the responsibility of the
handler is secondary to the issue under review and does not warrant the
denial of their proposal. The handlers contend that the central
principle surrounding this issue is uniformity in the treatment of
handlers purchasing milk supplies from cooperatives or independent
producers. The precise list of services is of secondary importance,
they state, and industry disagreement concerning these services should
not prevent the Department from embracing the central thrust of their
proposal.
Conclusion
The Milkco/Hunter's minimum payment proposal should be denied. It
is the Department's determination that the Hunter/Milkco proposal would
not have solved the handler equity problem but instead would have
created a host of additional problems.
Proponents would have us specify that certain services, are a
handler's responsibilities and, therefore, should be at handler's
expense. Thus, if a cooperative association were providing one of these
services for a handler, the cooperative association would be required
to bill the handler for this service. However, the Department cannot
adopt order provisions without substantial record evidence. The record
contains little evidence as to which specific services should be
included and even that evidence is conflicting. Furthermore, neither
proponents, nor any other participant, provided guidance in the record
concerning the cost of these services, which, we suspect, vary
considerably from organization to organization.
In addition, the Department is engaged in congresionally regulated
order consolidation 4 in which greater uniformity in order
provisions is a stated goal. The record in this proceeding demonstrates
no basis why the minimum payments provisions should be different in
just these three orders. Instead, it appears that the provisions should
be based upon the same considerations, and should not differ from one
order to another. This issue regarding minimum payments to producers
should, therefore, be considered as part of the Federal order reform.
Thus, for the reasons stated above, the record evidence of the public
hearing and the comments and exceptions received in response to the
partial recommended decision do not support adoption of the Milkco/
Hunter proposal.
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\4\ The 1996 Farm Bill requires the Secretary of Agriculture to
merge the existing 33 Federal milk orders (currently 31 orders) into
no more than 14, and no less than 10, milk orders by April 1, 1999.
A proposed rule was issued on January 23, 1998, and published in the
Federal Register on January 30, 1998 (63 FR 4802). Interested
parties had until April 30, 1998, to file comments. A discussion of
minimum payments to producers is included in the proposed rule (63
FR 4942).
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Material Issue #4--Definition of Producer
A proposal to modify the definition of producer for Federal milk
orders 5, 7, and 46 should also be denied on the basis of the testimony
and evidence received at the reopened hearing. Mid-America Dairymen,
Inc. (Mid-Am), Carolina-Virginia Milk Producers Association (CVMPA),
and Maryland-Virginia Milk Producers Association, proponents of the
proposal, stated that the objective of the proposal is to further
define producer qualification to minimize the pooling of milk not
historically associated with these 3 southeastern markets.
A Brief Summary of Testimony and Briefs Resulting From the December 17-
18, 1996 Hearing
A spokesman for the proponents offered testimony explaining that
base-excess plans (included in each of the orders at the time of the
reopened hearing, but terminated from each order effective January 1,
1997, as a result of the expiration of legislative authority to include
such plans in Federal milk orders) have substantially removed the
incentive for a dairy farmer who was associated with another market
during the base-building months to become a producer under one of these
orders during the base-paying months. He expressed concern that with
the elimination of such plans, no provisions would exist to prevent a
dairy farmer from pooling any milk diverted or delivered within limits
to pool plants under the orders during the former base-paying months.
The witness stated that the proposed provisions for the orders will
exclude from the producer definition, during the flush production
months of February through May, any dairy farmer who delivered more
than 40 percent of his or her milk to plants as other than ``producer
milk'' during the months of August through November. The proposed
provisions, according to the witness, are designed to restrict those
producers not normally associated with such orders from pooling their
milk during the flush production months when it is not needed to supply
fluid needs if they have not pooled such milk during the prior short
months when supplies were needed.
In addition, the spokesman stated that for the purpose of
determining the percentage of a producer's milk that was pooled during
the prior August through November period, deliveries to plants as
producer milk under the orders should be considered deliveries under
the applicable order. He testified that this
[[Page 39043]]
proviso is necessary to accommodate: (1) The historical shifting of
producers between the orders; (2) the shifting of pool distributing
plants; and (3) the shifting of producer milk due to the opening and
closing of pool plants in the orders' area.
The witness also testified that the proposal, as found in the
notice of hearing, should be modified to define the classification of
the milk received and specify the pricing of the milk as classified in
each of the orders. According to the spokesman, the changes to the
order language would require the receiving handler to pay into the pool
the difference between the Class I price and the Class III price.
Regarding the administrative costs associated with the relevant
proposal, the witness contended that there should be no noticeable
difference between costs associated with the producer qualification
proposal and costs associated with the base-excess plan. In conclusion,
the spokesman testified that the adoption of such proposal is necessary
to foster orderly marketing in the area and protect producer pools of
the southeastern orders involved in this proceeding.
A representative of CVMPA testified that CVMPA fully supports the
producer qualification proposal to make sure that high Class I
utilization markets in the Southeast do not carry surplus from other
surrounding markets resulting in low Class I utilization rates during
the flush months of production. He maintained that the proposal
benefits producers, processors, and consumers by maintaining fluid
supplies, while encouraging the survival of local producers.
A representative from Associated Milk Producers, Inc. (AMPI),
Southern Region, a cooperative association representing over 2,500
dairy farmers in the South and Southwest, testified in opposition to
Mid-Am's proposal to modify the producer definition of the orders. The
witness also maintained that such proposal is not related to the issue
of transportation credits, and should, therefore, not be included in
the reopened hearing.
According to the spokesman, the current producer pooling
requirements under Order 7 are more restrictive than the proposed
producer qualification requirements; thus, the proposal actually
constructs an additional layer of unnecessary pooling requirements. The
witness claimed that no handlers are currently abusing the order by
diverting the maximum amount allowable under the provisions of Order 7;
otherwise, he argued, such a high percentage of Class I utilization
would not be maintained.
AMPI's witness also testified that it is apparent that the
proponents intend to replace the base-excess plans in the orders
involved in this proceeding. However, such an alternative is not
viable, he argued, because sufficient protection for local producers
already exists. While acknowledging the existence of such ``dairy
farmers for other market'' provisions in other Federal orders, the
spokesman testified that the Southeast markets will not benefit from
such a provision. If the proposal is nevertheless adopted, he said,
AMPI recommends a modification to the proposal such that milk imported
from outside the marketing area that is received at a fully or ly
regulated plant during any month of the year must be allocated to Class
I and the handler of origin must be compensated at the receiving
plant's Class I price.
Another AMPI representative testified that administration of Mid-
Am's proposal would create additional costs and place a more serious
burden on the cooperative. According to the witness, additional time
and resources would be necessary to adapt AMPI's procedures to the new
provision, including greater technical and manual assistance.
A representative of Piedmont Milk Sales testified that Piedmont
supports the concept that a producer must make his milk available to
the Class I market when it is needed in the fall or short period in
order to be allowed to pool his milk in the same market during the
spring or flush months. He contended that such a limitation assures
that the producer who receives the blend price enhanced by the Class I
value in those markets has actually earned it.
A spokesman for Fleming Dairy, which operates pool distributing
plants in Nashville, Tennessee, and Baker, Louisiana, testified in
support of Mid-Am's proposal, but suggested that the producer
qualification period should be July through November, rather than
August through November.
Additionally, a representative of Barber Pure Milk Co., a pool
plant operator in Birmingham, Alabama, and Dairy Fresh Corporation, a
pool plant operator in Greensboro, Alabama, testified in support of
Mid-Am's producer qualification proposal. He suggested that any milk
which is delivered directly from the farm and is received at a pool
plant should qualify as producer milk, but any milk which is diverted
should not.
Select Milk Producers submitted a brief in opposition to the
proposed changes in the producer definition. According to Select, a
similar proposal was introduced during the Southeast merger proceedings
and was subsequently denied due to the lack of justification for such a
provision. Select's brief indicated that the pooling standards and
diversion limitations provided in the orders give the market
administrator enough flexibility to prevent distant milk from being
associated with the markets; therefore, a ``dairy farmer for other
markets'' provision is not needed in these orders.
A brief filed on behalf of AMPI argued that the ``dairy farmer for
other markets'' proposal submitted by Mid-Am and CVMPA and heard at the
reopened hearing was in violation of the rules of practice and
procedure governing the proceedings of marketing agreements and orders.
AMPI maintains that this proposal does not qualify as an issue related
to transportation credits, and therefore, should not have been
discussed at the reopened hearing. Additionally, AMPI argued that the
hearing record lacks the necessary evidence that would support adoption
of such proposal. While reiterating its opposition to the additional
work associated with implementation of the proposal as testified to at
the reopened hearing, AMPI's brief also opposed the notion that in Mid-
Am and CVMPA's proposal determination of a producer's eligibility would
not only be dependent upon the amount of milk pooled under the order in
which the producer is seeking producer status, but also upon the volume
of milk pooled by that producer for the subject months in all of the
orders involved in this proceeding. According to AMPI, there is no
justification or evidence which supports the proposed ``dairy farmer
for other markets'' provision.
CVMPA, one of the proponents of the producer qualification
proposal, filed a brief in support of its proposal reiterating the
arguments presented during the reopened hearing. In its brief, CVMPA
pointed out that its proposal would not create a barrier to entry into
these markets as was testified to by a representative of AMPI. CVMPA
argued that such a proposal would actually encourage milk to be pooled
when local supplies are inadequate to meet Class I needs. While
acknowledging that diversion limitations and producer touch-base
provisions currently in effect under the subject orders do provide
limited Class I utilization protection for the markets, CVMPA argued
that these limitations are insufficient to protect producers who have
pooled their milk during the fall months from being displaced by
producers entering those markets during the spring flush months in
order to take advantage of the high
[[Page 39044]]
Class I utilization percentages reflected in the high blend prices of
these southeastern markets.
CVMPA also addressed the argument made by AMPI that the proposal
would create an additional administrative burden for both the market
administrators' offices and reporting handlers. According to CVMPA, no
additional work would be created by the proposal, and the
administration of the proposed provision would be easier than that
associated with the former base-paying plans. CVMPA also expanded the
proposal to allow a producer to qualify as a producer in the spring if
his/her farm had not delivered Grade A milk from such farm during the
previous August through November period. Furthermore, CVMPA stated that
the producer's eligibility should be based upon the proportion of Grade
A milk delivered from the farm in the previous fall in order to prevent
a producer who is converting from Grade B to Grade A or a producer who
lost his/her Grade A permit from being penalized.
A brief was also filed by Mid-Am in support of the proposal to
modify the producer definition. In addition to reiterating the
arguments testified to during the reopened hearing, Mid-Am's brief
stated that the proposed producer qualification provisions are
necessary to foster orderly marketing in the area and also to protect
the producer pools of the orders involved in this proceeding. In its
brief, Mid-Am also contends that the only opposition to the proposal
testified to during the hearing was made by AMPI, which would be
prevented from rotating their producers' milk in order to receive
transportation credits. Mid-Am requests that the proposed provisions be
implemented at the earliest possible date. No exceptions were received
in response to the partial recommended decision.
Conclusion
The record of the reopened hearing does not clearly demonstrate the
need to amend the producer definition of Orders 5, 7, and 46. Current
safeguards exist to ensure that sufficient supplies of milk are made
available for fluid use without the unwarranted pooling of additional
supplies of milk that are not associated with serving the fluid market.
Proponents of this proposal believe that the termination of
seasonal base plans will create disorderly marketing conditions in the
3 orders. However, the testimony and evidence received at the December
17-18, 1996, hearing do not sufficiently support this argument.
According to the proponents, the termination of seasonal base plans,
effective January 1, 1997, removes the incentive for producers to pool
their milk during the short months when milk is needed in the Southeast
because they will no longer receive the higher base prices for their
milk during the following flush months. While it is feared by the
proponents that the termination will open up the 3 Southeast markets to
those producers not normally associated with such markets, but who seek
to take advantage of the high Class I utilization rates, the record was
unconvincing in its need for modification of the producer definition
for this reason.
It is apparent that the proposal was initiated in response to the
elimination of seasonal base plans in Federal milk orders. In other
words, the proposed modification of the producer definition is intended
to fill the void left by the removal of the base-excess plans. However,
changing the producer definition should not be compared to the
incorporation of base plans in the orders. Base plans are instituted in
order to level out production throughout the year so that adequate milk
supplies are ensured during the short production months, while
discouraging surplus supplies in the flush production months. The base
plans also did have the effect of preventing producers not normally
associated with a market from entering such market during the flush
production months because they would have received the low, excess
price for their milk. Nevertheless, the removal of base plans does not
by itself necessitate amending the orders.
The orders currently have strict pooling requirements. For example,
as was testified to at the reopened hearing by AMPI's spokesman, the
pooling requirements for Order 7 specify that a producer's milk must be
received at least 4 days at a pool plant to be eligible to be pooled
during the months of December through June. Additionally, there is a 50
percent diversion limitation in Order 7 to nonpool plants for those
same months. The Carolina order has diversion limitations for
cooperative associations during most months of 25 percent of the total
quantity of producer milk. The order also maintains pooling
requirements specifying how many days a month producer milk must be
received at pool plants. The Louisville-Lexington-Evansville order
specifies a diversion limitation based upon the number of days that a
producer's milk is diverted during a month. The evidence in this
proceeding is insufficient to conclude that the current pooling
standards will not recognize the seasonally varying needs for milk for
fluid use. The creation of additional producer pooling standards is
unnecessary and unwarranted on the basis of the record herein and,
therefore, the proposal should be denied.
To the extent that the suggested findings and conclusions filed by
interested parties on either issue are inconsistent with the findings
and conclusions set forth herein, the requests to make such findings or
reach such conclusions are denied for the reasons previously stated in
this decision.
Rulings on Exceptions
In arriving at the findings and conclusions, and the regulatory
provisions of this decision, each of the exceptions received was
carefully and fully considered in conjunction with the record evidence.
To the extent that the findings and conclusions and the regulatory
provisions of this decision are at variance with any of the exceptions,
such exceptions are hereby overruled for the reasons previously stated
in this decision.
Determination
The findings and conclusions of this partial final decision do not
require any changes in the regulatory provisions of the three
respective orders regulating the handling of milk in the Carolina,
Southeast, and Louisville-Lexington-Evansville marketing areas.
Termination Order
In view of the foregoing, it is hereby determined that the
proceeding with respect to proposed amendments to the three specified
marketing orders should be and is hereby terminated.
List of Subjects in 7 CFR Parts 1005, 1007, and 1046
Milk marketing orders.
The authority citation for 7 CFR Parts 1005, 1007, and 1046 of
Title 7, chapter X continues to read as follows:
Authority: 7 U.S.C. 601-674.
Dated: July 16, 1998.
Michael V. Dunn,
Assistant Secretary, Marketing & Regulatory Programs.
[FR Doc. 98-19390 Filed 7-20-98; 8:45 am]
BILLING CODE 3410-02-P