[Federal Register Volume 64, Number 21 (Tuesday, February 2, 1999)]
[Rules and Regulations]
[Pages 4957-4959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2430]



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  Federal Register / Vol. 64, No. 21 / Tuesday, February 2, 1999 / 
Rules and Regulations  

[[Page 4957]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1065

[DA-98-10]


Milk in the Nebraska-Western Iowa Marketing Area; Suspension of 
Certain Provisions of the Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Suspension of rule.

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SUMMARY: This document suspends 11 counties from the marketing area 
definition of the Nebraska-Western Iowa Federal milk marketing order 
(Order 65) beginning on February 1, 1999, and extending for an 
indefinite period until the implementation of a final rule 
consolidating Federal milk orders, as required by the 1996 Farm Bill, 
or an action to subsequently terminate the suspension. The action was 
requested by Gillette Dairy (Gillette) of Rapid City, South Dakota, 
which contends the suspension is necessary to maintain its milk supply 
and to remain competitive in selling fluid milk products in the 
marketing area.

EFFECTIVE DATE: February 1, 1999.

FOR FURTHER INFORMATION CONTACT: Clifford M. Carman, Marketing 
Specialist, USDA/AMS/Dairy Programs, Order Formulation Branch, Room 
2971, South Building, P.O. Box 96456, Washington, DC 20090-6456; 
telephone: (202) 720-9368; e-mail address: 
[email protected].

SUPPLEMENTARY INFORMATION: Prior document in this proceeding:
    Notice of Proposed Suspension: Issued September 23, 1998; published 
October 9, 1998 (63 FR 54383).
    The Department is issuing this rule in conformance with Executive 
Order 12866.
    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is not intended to have a retroactive 
effect. This rule will not preempt any state or local laws, 
regulations, or policies, unless they present an irreconcilable 
conflict with this rule.
    The Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674), provides that administrative proceedings must be 
exhausted before parties may file suit in court. Under section 
608c(15)(A) of the Act, any handler subject to an order may request 
modification or exemption from such order by filing with the Secretary 
a petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with the law. A handler is afforded the opportunity for a hearing on 
the petition. After a hearing, the Secretary would rule on the 
petition. The Act provides that the district court of the United States 
in any district in which the handler is an inhabitant, or has its 
principal place of business, has jurisdiction in equity to review the 
Secretary's ruling on the petition, provided a bill in equity is filed 
not later than 20 days after the date of the entry of the ruling.

Small Business Consideration

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.), the Agricultural Marketing Service has considered the economic 
impact of this action on small entities and has certified that this 
rule will not have a significant economic impact on a substantial 
number of small entities. 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.
    For the month of April 1998, which is the most recent 
representative month with data including Gillette Dairy, 1,649 dairy 
farmers were producers under Order 65. Of these producers, 1,573 
producers (i.e., 95 percent) were considered small businesses having 
monthly milk production under 326,000 pounds. A further breakdown of 
the monthly milk production of the producers on the order during April 
1998 was as follows: 1,001 produced less than 100,000 pounds of milk; 
445 produced between 100,000 and 200,000; 127 produced between 200,000 
and 326,000; and 76 produced over 326,000 pounds. During the same 
month, 8 handlers were pooled under the order. One was considered a 
small business.
    Pursuant to authority contained in the Agricultural Marketing 
Agreement Act of 1937, as amended, (7 U.S.C. 601-674), this suspension 
will remove 11 counties in the western panhandle of Nebraska from the 
marketing area definition of Order 65. The Nebraska counties are 
Banner, Box Butte, Cheyenne, Dawes, Deuel, Garden, Kimball, Morrill, 
Scotts Bluff, Sheridan, and Sioux.
    Gillette, the proponent of this suspension, estimates that its 
sales in the counties represent 65 to 70 percent of total fluid milk 
sales in the 11 counties. Gillette explains that a loss of sales in an 
unregulated marketing area has resulted in its regulation under Order 
65 without any appreciable increase in sales in the Order's marketing 
area. The handler contends the suspension is necessary to maintain its 
milk supply and to remain competitive in selling fluid milk products in 
the marketing area.
    The July 1996 population estimate and the December 1992 fluid milk 
per capita consumption data show that the 11 Nebraska counties 
represent a small amount of the population and fluid milk consumption 
in the State of Nebraska and in the entire Order 65 marketing area. The 
11 counties represent about 6 percent of the population and fluid milk 
consumption in the State of Nebraska and about 5 percent of the 
population and fluid milk consumption in the Order 65 marketing area.
    There are three handlers other than Gillette that possibly have 
sales into the 11 Nebraska counties. The handlers are

[[Page 4958]]

Meadow Gold of Lincoln, Nebraska; Roberts Dairy in Omaha, Nebraska; and 
Meadow Gold in Greeley, Colorado. Roberts Dairy hauls milk for Nebraska 
Dairy, Inc., which is a distribution facility that is owned by the same 
principal company that owns Gillette. However, the dairy appears to be 
a separate entity from Gillette. Market information indicates that if 
these three handlers have sales into the 11 counties the volume is 
relatively small.
    The suspension should not have a significant economic impact on 
handlers because of the relatively small number of sales by handlers 
other than Gillette in this 11-county area. In addition, the population 
in the 11-county area constitutes a small percentage of the population 
and fluid milk consumption in the State of Nebraska. This milk has not 
been historically associated with Order 65. Therefore, the removal of 
the 11 counties from the marketing area definition of Order 65 should 
not have a significant adverse impact on other order producers and 
other handlers.
    A review of the current reporting requirements was completed 
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), 
and it was determined that this suspension will have little impact on 
reporting, recordkeeping, or other compliance requirements because 
these would remain almost identical to the current system. No new forms 
will need to be proposed.
    No other burdens are expected to fall upon the dairy industry as a 
result of overlapping Federal rules. This regulation does not 
duplicate, overlap or conflict with any existing Federal rules.

Statement of Consideration

    This suspension is issued pursuant to the provisions of the 
Agricultural Marketing Agreement Act and of the order regulating the 
handling of milk in the Nebraska-Western Iowa marketing area. The 
action suspends 11 counties in the western panhandle of Nebraska from 
the marketing area definition of Order 65. The Nebraska counties are 
Banner, Box Butte, Cheyenne, Dawes, Deuel, Garden, Kimball, Morrill, 
Scotts Bluff, Sheridan, and Sioux.
    The July 1996 population estimate, which represents the most recent 
population statistics, shows that the total population for the Order 65 
marketing area is 2,000,529 (i.e., 412,167 for Iowa counties and 
1,588,362 for Nebraska counties). The population estimate for the 
entire State of Nebraska is 1,652,093, while the population for the 11 
Nebraska counties is 91,194. In addition, the December 1992 Federal 
Milk Order Statistics Report (Per Capita Sales of Fluid Milk Products 
in Federal Order Markets) indicates that the Nebraska fluid milk per 
capita consumption is about 20 pounds per person per month. It is 
estimated that the fluid milk consumption per month within the 11 
Nebraska counties is 1,823,880 (20 lbs. * 91,194).
    The July 1996 population estimate and the December 1992 fluid milk 
per capita consumption data show that the 11 Nebraska counties 
represent about 6 percent of the population and fluid milk consumption 
in the State of Nebraska and about 5 percent of the population and 
fluid milk consumption in the Order 65 marketing area.
    Gillette Dairy, the proponent of this suspension, was a fully 
regulated handler under the Black Hills, South Dakota, Federal milk 
marketing order prior to its termination (effective October 1, 1996) at 
the request of the Black Hills Milk Producers. After termination of the 
Black Hills order, Gillette for some time was a partially regulated 
handler under 3 Federal milk marketing orders: Eastern South Dakota 
(Order 76), Eastern Colorado (Order 137), and Order 65. From January 
1998 through May 1998, Gillette was a fully regulated handler under 
Order 65 because its fluid milk sales in the marketing area represented 
more than 15 percent of its receipts. In recent months (i.e., June 
through November 1998), Gillette has been a partially regulated plant 
under Order 65 due to an increase in total milk receipts. During this 
period, Gillette has reduced its distribution in the 11-county area in 
an effort to avoid reducing the amount it pays its supplier, the Black 
Hills Milk Producers.
    As a partially regulated handler, Gillette pays to the producers 
supplying its plant at least the full class-use value of its milk each 
month. Thus, Gillette has no further obligation to the producer-
settlement fund of the orders under which it was a partially regulated 
handler. However, as a fully regulated handler, Gillette is required to 
pay the difference between its class-use value and the marketwide 
class-use value to the Order 65 producer-settlement fund. This payment, 
Gillette contends, increases its cost for milk and reduces the amount 
it can pay its producers.
    Gillette was pooled under Order 65 during the months of January 
through May 1998. For the period of February through May 1998, Order 65 
price data shows that the average uniform price to producers was $13.34 
per hundredweight. If Gillette had not been a regulated handler under 
Order 65 during this period, the average uniform price to producers 
would have been about $13.31 per hundredweight. Thus, the regulation of 
Gillette for the February through May 1998 period resulted in an 
increase in the average uniform price of 3 to 4 cents per 
hundredweight.
    According to Gillette, marketing conditions in Order 65 have 
changed significantly since the order was promulgated. Gillette 
estimates that its sales in the 11 counties represent 65 to 70 percent 
of total fluid milk sales in the counties. Gillette explains that a 
loss of sales in an unregulated marketing area has resulted in its 
regulation under Order 65 because such sales represented at least 15 
percent of its receipts, but without any appreciable increase in sales 
in the Order's marketing area. Furthermore, the handler states that 
since its milk supply comes from the Black Hills Milk Producers there 
is no balancing of milk supply for the plant from Order 65 or any other 
Federal milk marketing order.
    Black Hills Milk Producers also requested that the counties be 
removed from the Order 65 marketing area definition. The cooperative 
representing the producers explained that it is dependent on Gillette's 
survival. It states that the regulation of Gillette under Order 65 has 
caused its producers hardship by costing them as much as $1.00 per 
hundredweight during some months. According to the cooperative, this 
cost results from an agreement that it has with Gillette in which it 
refunds to Gillette an amount equal to half of the handler's obligation 
to the producer-settlement fund when Gillette is fully regulated. 
Although the producers pay this amount to Gillette, Order 65 price data 
for the February through May 1998 period indicates that their monthly 
pay prices were above the Order 65 uniform price.
    Notice was published in the Federal Register on October 9, 1998 (63 
FR 54383) concerning the proposed suspension of part of the marketing 
area definition of Order 65. Interested persons were afforded an 
opportunity to file written data, views, and arguments thereon. Six 
comments were received in support of the proposed suspension; two were 
received in opposition to it.
    Gillette and Black Hills Milk Producers reiterated their support 
for the proposed suspension. Gillette anticipates that in the months 
ahead, as milk prices decline and milk production increases seasonally, 
the price spread between the Class I price and the blend price will 
increase. The handler states the impact will cause it to pay more into 
the producer-settlement fund while reducing its payment to Black Hills 
Milk

[[Page 4959]]

Producers. The cooperative states that the sharing of the cost of 
regulation with Gillette in addition to the low milk prices and high 
feed costs has caused several dairymen to discontinue dairying.
    Associated Milk Producers, Inc. (North Central Region), in its 
comment letter, stated that because population, consumption, and milk 
supply in the 11 counties is fairly evenly balanced the proposed action 
would have a marginal effect on Order 65 blend prices. In addition, the 
other supporters who filed comments (i.e, the South Dakota Department 
of Agriculture, 5 United States Senators, and the Rapid City Area 
Chamber of Commerce) state that the action would eliminate the payments 
by Gillette into the producer-settlement fund (i.e., $500,000 during 
the first 6 months of 1998 or $83,000 per month) when regulated under 
Order 65. Thus, they claim that this cost directly affects the 
producers supplying the dairy and has been a contributing factor to 
producers discontinuing their dairy farm operations.
    Dairy Farmers of America (DFA) and Meadow Gold Dairies expressed 
opposition to the proposed action and contend that it would create an 
inequitable marketing situation between handlers and producers. DFA is 
a cooperative that represents about 39 percent of the producers on 
Order 65 and 927 producers in other affected markets. DFA argues that 
the proposal would lower the returns of DFA member producers supplying 
the handlers affected by this action. The cooperative also contends 
that the proposal would lower the blend prices to these DFA producers 
in Order 65.
    According to DFA, the proposal would provide Gillette with a 
financial advantage over competing handlers because Gillette competes 
with handlers over a broad geographic area (in counties in Nebraska, 
Colorado, and Wyoming). DFA asserts that the action would prohibit the 
sharing of revenues from the sale of milk by Gillette to DFA members 
and the Federal Order 65 producers. In addition, the cooperative claims 
that the action would assist Gillette in expanding its business further 
into Order 65 and the Eastern Colorado order (Order 137). The proposed 
action, it concludes, would adversely impact cooperatives' ability to 
negotiate over-order premiums in the future due to the perceived 
inequity in the marketplace.
    Two additional letters were submitted after the comment period 
ended. Sinton Dairy filed a comment in opposition to the proposed 
action and Gillette submitted another letter in response to the issues 
addressed by DFA. Both comment letters were dated and received after 
the comment expiration date and cannot be given due consideration.
    After careful consideration of the comments submitted, it is 
concluded that there is sufficient basis to grant the request for 
suspension of the 11 counties from the Order 65 marketing area for an 
indefinite period of time until the implementation of Federal order 
reform. Statistics clearly show that the majority (i.e., 65 to 70 
percent) of the fluid milk sales into the 11-county area is by 
Gillette. Moreover, the 11 counties represent about 6 percent of the 
population and fluid milk consumption in the State of Nebraska and 
about 5 percent of the population and fluid milk consumption in the 
Order 65 marketing area. In addition, this milk has not been 
historically associated with the Order 65. Therefore, the removal of 
the 11 counties from the marketing area definition of Order 65 should 
not have an adverse impact on other order producers and other handlers. 
However, if the counties were to remain as part of the Order 65 
marketing area definition, the effect could be severely disruptive for 
the Black Hills Milk Producers.
    At this time, the Federal order reform process is expected to be 
completed by October 1, 1999. In the proposed federal order reform rule 
that was issued on January 21, 1998 (63 FR 4802), the proposed Central 
order marketing area, which included most of the existing Order 65 
marketing area, did not include the 11 counties suspended in this 
action. However, this recommendation, together with all of the 
provisions in the proposed rule, is currently under consideration.
    After consideration of all relevant material, including the 
proposal in the notice, the comments received, and other available 
information, it is hereby found and determined that for the period of 
February 1, 1999, and extending for an indefinite period until the 
implementation of a final rule consolidating Federal milk orders as 
required by the 1996 Farm Bill, or a subsequent action to terminate the 
suspension, the following provisions of the order do not tend to 
effectuate the declared policy of the Act:
    In Sec. 1065.2(a), the words ``Banner, Box Butte, Cheyenne, Dawes, 
Deuel, Garden, Kimball, Morrill, Scotts Bluff, Sheridan, and Sioux.''
    It is hereby found and determined that 30 days' notice of the 
effective date hereof is impractical, unnecessary, and contrary to the 
public interest in that:
    (a) The suspension is necessary to reflect current marketing 
conditions and to assure orderly marketing conditions in the marketing 
area;
    (b) This suspension does not require of persons affected 
substantial or extensive preparation prior to the effective date; and
    (c) Notice of the proposed suspension was given interested parties 
and they were afforded opportunity to file written data, views or 
arguments concerning this suspension. Several comments supporting the 
suspension, and one comment opposing it, were received.
    Therefore, good cause exists for making this suspension effective 
less than 30 days from the date of publication in the Federal Register.

List of Subjects in 7 CFR Part 1065

    Milk marketing orders.

    For the reasons set forth in the preamble, 7 CFR Part 1065 is 
amended as follows:

PART 1065--MILK IN THE NEBRASKA-WESTERN IOWA MARKETING AREA

    1. The authority citation for 7 CFR Part 1065 continues to read as 
follows:

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


Sec. 1065.2  [Suspended in part]

    2. In Sec. 1065.2(a), the words ``Banner, Box Butte, Cheyenne, 
Dawes, Deuel, Garden, Kimball, Morrill, Scotts Bluff, Sheridan, Sioux'' 
are suspended.

    Dated: January 26, 1999.
Enrique E. Figueroa,
Administrator, Agricultural Marketing Service.
[FR Doc. 99-2430 Filed 2-1-99; 8:45 am]
BILLING CODE 3410-02-P