[Federal Register Volume 69, Number 250 (Thursday, December 30, 2004)]
[Proposed Rules]
[Pages 78355-78359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-28630]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1131

[Docket No. AO-271-837; DA-03-04-A]


Milk in the Arizona-Las Vegas Marketing Area; Tentative Partial 
Decision on Proposed Amendment and Opportunity To File Written 
Exceptions to Tentative Marketing Agreement and to Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This tentative partial decision adopts on an interim final and 
emergency basis, a proposal that would eliminate the ability to 
simultaneously pool the same milk on the Arizona-Las Vegas milk order 
and any State-operated milk order that has marketwide pooling. This 
decision requires determining if producers approve the issuance of the 
amended order on an interim basis. Other proposals considered at the 
public hearing regarding producer-handlers will be addressed in a 
separate decision.

DATES: Comments should be submitted on or before February 28, 2005.

ADDRESSES: Comments (6 copies) should be filed with the Hearing Clerk, 
Room 1083-STOP 9200, United States Department of Agriculture, 1400 
Independence Avenue, SW., Washington, DC 20250-9200, and you may also 
send your comments by the electronic process available at Federal 
eRulemaking portal at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Jack Rower, Marketing Specialist, 
Order Formulation and Enforcement Branch, USDA/AMS/Dairy Programs, Room 
2971-STOP 0231, 1400 Independence Avenue, SW., Washington, DC 20250-
0231, (202) 720-2357, e-mail address: [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.
    The amendment to the rules proposed herein has been reviewed under 
Executive Order 12988, Civil Justice Reform. It is not intended to have 
a retroactive effect. If adopted, the proposed rule would 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 Department 
of Agriculture (Department) 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 
Department 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 Department'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.

Regulatory Flexibility Act and Paperwork Reduction Act

    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

[[Page 78356]]

action on small entities and has certified that this proposed rule will 
not have a significant economic impact on a substantial number of small 
entities. 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 $750,000, 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 $750,000 
per year criterion was used to establish a milk marketing guideline of 
500,000 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.
    During September 2003, the month during which the hearing began, 
there were 106 dairy producers pooled on, and 22 handlers regulated by, 
the Arizona-Las Vegas order. Approximately 18 producers, or 17 percent, 
were small businesses based on the above criteria. On the handler side, 
7, or 32 percent were ``small businesses''.
    The adoption of the proposed producer milk provision, a part of the 
order's pooling standards, serves to revise established criteria that 
determine the producer milk that has a reasonable association with the 
Arizona-Las Vegas milk marketing area and is not associated with other 
marketwide pools concerning the same milk. Criteria for pooling milk 
are also established on the basis of performance standards that are 
considered adequate to meet the Class I fluid needs of the market and 
determine those that are eligible to share in the revenue arising from 
the classified pricing of milk. Criteria for pooling are established 
without regard to the size of any dairy industry organization or 
entity. The criteria established are applied in an equal fashion to 
both large and small businesses and do not have any different economic 
impact on small entities as opposed to large entities. Therefore, the 
proposed amendment will not have a significant economic impact on a 
substantial number of small entities.
    A review of reporting requirements was completed under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was 
determined that the proposed amendment would have no impact on 
reporting, record keeping, or other compliance requirements because 
they would remain identical to the current requirements. No new forms 
are proposed and no additional reporting requirements would be 
necessary.
    This tentative partial decision does not require additional 
information collection that requires clearance by the Office of 
Management and Budget (OMB) beyond currently approved information 
collection. The primary sources of data used to complete the forms are 
routinely used in most business transactions. Forms require only a 
minimal amount of information, which can be supplied without data 
processing equipment or a trained statistical staff. Thus, the 
information collection and reporting burden is relatively small. 
Requiring the same reports from all handlers does not significantly 
disadvantage any handler that is smaller than the industry average.
    No other burdens are expected to fall on the dairy industry as a 
result of overlapping Federal rules. The rulemaking proceeding does not 
duplicate, overlap, or conflict with any existing Federal rules.
    Interested parties are invited to submit comments on the probable 
regulatory and informational impact of this proposed rule on small 
entities. Also, parties may suggest modifications of this proposal for 
the purpose of tailoring their applicability to small businesses.

Prior Document in This Proceeding

    Notice of Hearing: Issued July 31, 2003; published August 6, 2003 
(68 FR 46505).
    Correction to Notice of Hearing: August 20, 2003; published August 
26, 2003 (68 FR 51202).
    Notice of Reconvened Hearing: Issued October 27, 2003; published 
October 31, 2003 (68 FR 62027).
    Notice of Reconvened Hearing: Issued December 18, 2003; published 
December 29, 2003 (68 FR 74874).

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
tentative partial decision with respect to the proposed amendment to 
the tentative marketing agreement and the order regulating the handling 
of milk in the Arizona-Las Vegas marketing area. This notice is issued 
pursuant to the provisions of the Agricultural Marketing Agreement Act 
and the applicable rules of practice and procedure governing the 
formulation of marketing agreements and marketing orders (7 CFR part 
900).
    Interested parties may file written exceptions to this decision 
with the Hearing Clerk, U.S. Department of Agriculture, Room 1083-STOP 
9200, 1400 Independence Avenue, SW., Washington, DC 20250-9200, by 
February 28, 2005. Six (6) copies of the exceptions should be filed. 
All written submissions made pursuant to this notice will be made 
available for public inspection at the office of the Hearing Clerk 
during regular business hours (7 CFR 1.27(b)).
    The hearing notice specifically invited interested persons to 
present evidence concerning the probable regulatory and informational 
impact of proposals on small businesses. While no evidence was received 
that specifically addressed this issue, some of the evidence 
encompassed entities of various size.
    The proposed amendment set forth below is based on the record of a 
public hearing held at Tempe, Arizona, on September 23-25, 2003, 
pursuant to a notice of hearing issued July 31, 2003, and published 
August 6, 2003 (68 FR 46505); reconvened at Seattle, Washington, on 
November 17-21, 2003, pursuant to a notice of reconvened hearing issued 
October 27, 2003, and published October 31, 2003 (68 FR 62027); and 
reconvened at Alexandria, Virginia, on January 20-22, 2004, pursuant to 
a notice of reconvened hearing issued December 18, 2003, and published 
December 29, 2003 (68 FR 74874).
    The material issues on the record of the hearing relate to:
    1. Simultaneous pooling of milk on the order and on a State-
operated milk order providing for marketwide pooling.
    2. Determination as to whether emergency marketing conditions exist 
that would warrant the omission of a recommended decision and the 
opportunity to file written exceptions.

Finding and Conclusions

    The following findings and conclusions on the material issues are 
based on evidence presented at the hearing and the record thereof:

1. Simultaneous Pooling on a Federal and State-Operated Milk Order

    A proposal, published in the hearing notice as Proposal 4, seeking 
to exclude the same milk from being simultaneously pooled on the 
Arizona-Las Vegas order and any State-operated order which provides for 
marketwide pooling, should be adopted immediately. The practice of 
pooling milk on a Federal order and simultaneously pooling the same 
milk on a State-operated order has come to be

[[Page 78357]]

referred to as double-dipping. The Arizona-Las Vegas order does not 
currently prohibit milk from being simultaneously pooled on the order 
and a State-operated order that provides for marketwide pooling. 
Proposal 4 was offered by United Dairymen of Arizona, a cooperative 
association that markets the milk of their members in the Arizona-Las 
Vegas marketing area.
    A witness appearing on behalf of the Alliance of Western Milk 
Producers, testified in support of Proposal 4. The witness testified 
that double-dipping creates a competitive advantage in both procuring 
milk and competing for markets for milk.
    A witness appearing on behalf of Northwest Dairy Association (NDA), 
testified in support of Proposal 4, saying that double-dipping not only 
creates disorderly conditions in California, it also results in 
competitive inequities in Federal milk order areas. The NDA witness 
explained that once minimal pool qualification standards are met, milk 
pooled in this manner rarely is delivered to a Federal order marketing 
area. The witness noted that the implementation of similar provisions 
in Orders 30, 32, and 124, which effectively prevents the simultaneous 
pooling of milk in the California State-wide pool and in the Federal 
order, should also be adopted for the Arizona-Las Vegas order.
    A witness testifying on behalf of Dairy Farmers of America (DFA), a 
dairy farmer cooperative that markets the milk of their members in 
Arizona-Las Vegas and in most of the other Federal milk orders, 
supported adoption of Proposal 4. The witness indicated that the 
regulatory language for this proposal is identical to what has been 
adopted for Orders 30, 32, 33, and 124. A witness representing Sarah 
Farms, a producer-handler located in Arizona, testified in opposition 
to adopting Proposal 4. The witness was of the opinion that the 
adoption of Proposal 4 would be a trade restriction and that Sarah 
Farms preferred freer trade rather than more restricted trade. The 
witness concluded by hypothesizing that Proposal 4 was proposed to hurt 
Sarah Farms.
    A witness representing Edaleen Dairy, a producer-handler located in 
Lynden, Washington, also testified in opposition to adopting Proposal 
4. The witness indicated that since Sarah Farms was opposed to Proposal 
4, they would also be opposed to it.
    The witness explained that California operates a quota and overbase 
payment system. Under this system, all producers receive a uniform 
blend price in the form of the overbase. Other producers are entitled 
to an additional payment of $1.70 per hundredweight for their ``quota'' 
milk. The witness noted that producers who have moved California milk 
into the Arizona market have lost their quota and if they were to 
participate in California again they would only be entitled to the 
overbase price. The witness indicated that the California Department of 
Food and Agriculture had issued a decision that required a producer 
participating in the state order to do so for a period of twelve months 
at a time, preventing participation in the Federal order program 
because California does not permit dual participation. As a result, the 
witness noted that benefits can not be obtained by double-dipping.
    In post hearing briefs, Edaleen Dairy, Mallorie's Dairy, Smith 
Brothers Farm, and Sarah Farms concurred that a producer located in 
California, pooling milk in Arizona, would not be considered double-
dipping.
    For nearly 70 years, the Federal government has operated the milk 
marketing order program. The law authorizing the use of milk marketing 
orders, the Agricultural Marketing Agreement Act of 1937 (AMAA), as 
amended, provides authority for milk marketing orders as an instrument 
which dairy farmers may voluntarily use to achieve objectives 
consistent with the AMAA and that are in the public interest. An 
objective of the AMAA, as it relates to milk, was the stabilization of 
market conditions in the dairy industry. The declaration of the AMAA is 
specific: ``the disruption of the orderly exchange of commodities in 
interstate commerce impairs the purchasing power of farmers and 
destroys the value of agricultural assets which support the national 
credit structure and that these conditions affect transactions in 
agricultural commodities with a national public interest, and burden 
and obstruct the normal channels of interstate commerce.''
    The AMAA provides authority for employing several methods to 
achieve more stable marketing conditions. Among these is classified 
pricing, which entails pricing milk according to its use by charging 
processors differing prices on the basis of form and use. In addition, 
the AMAA provides for specifying when and how processors are to account 
for and make payments to dairy farmers. Plus, the AMAA requires that 
milk prices established by an order be uniform to all processors and 
that the price charged can be adjusted by, among other things, the 
location at which milk is delivered by producers (section 608c(5)).
    As these features and constraints provided for in the AMAA were 
employed in establishing prices under Federal milk orders, some 
important market stabilization goals were achieved. The most often 
recognized goal was the near elimination of ruinous pricing practices 
of handlers competing with each other on the basis of the price they 
paid dairy farmers for milk and in price concessions made by dairy 
farmers. The need for processors to compete with each other on the 
price they paid for milk was significantly reduced because all 
processors are charged the same minimum amount for milk, and processors 
had assurance that their competitors were paying the same value-
adjusted minimum price.
    The AMAA also authorizes the establishment of uniform prices to 
producers as a method to achieve stable marketing conditions. 
Marketwide pooling has been adopted in all Federal orders because it 
provides equity to both processors and producers, thereby helping to 
prevent disorderly marketing conditions. A marketwide pool, using the 
mechanism of a producer settlement fund to equalize the use-value of 
milk pooled on an order, meets that objective of the AMAA, ensuring 
uniform prices to producers supplying a market.
    Since the 1960's the Federal milk order program has recognized the 
harm and disorder that resulted to both producers and handlers when the 
same milk of a producer was simultaneously pooled on more than one 
Federal order. When this occurs, producers do not receive uniform 
minimum prices, and handlers receive unfair competitive advantages. The 
need to prevent ``double pooling'' became critically important as 
distribution areas expanded and orders merged. Milk already pooled 
under a State-operated program and able to simultaneously be pooled 
under a Federal order has essentially the same undesirable outcomes 
that Federal orders once experienced and subsequently corrected.
    There are other State-operated milk order programs that provide for 
marketwide pooling. For example, New York operates a milk order program 
for the western region of that State. A key feature explaining why this 
State-operated program has operated for years alongside the Federal 
milk order program is the exclusion of milk from the State pool when 
the same milk is already pooled under a Federal order. Because of the 
impossibility of the same milk being pooled simultaneously, the Federal 
order program has had no reason to specifically address ``double 
dipping'' or ``double pooling'' issues,

[[Page 78358]]

the disorderly marketing conditions that arise from such practice, or 
the primacy of one regulatory program over another. The other States 
with marketwide pooling similarly do not allow double-pooling of 
Federal order milk.
    The record supports that the Arizona-Las Vegas order should be 
amended to preclude the ability to simultaneously pool the same milk on 
the order if the same milk is already pooled on a State-operated order 
that provides for marketwide pooling.
    Proposal 4 offers a reasonable solution for prohibiting the same 
milk to draw pool funds from Federal and State marketwide pools 
simultaneously. It is consistent with the current prohibition against 
allowing the same milk to participate simultaneously in more than one 
Federal order pool. Adoption of Proposal 4 will not establish any 
barrier to the pooling of milk from any source that actually 
demonstrates performance in supplying the Arizona-Las Vegas market's 
Class I needs.

2. Determination of Emergency Marketing Conditions

    Evidence presented at the hearing establishes that California milk 
that can be pooled simultaneously on a State-operated order and a 
Federal order, a practice commonly referred to as double-dipping, would 
render the Arizona-Las Vegas milk order unable to establish prices that 
are uniform to producers and to handlers. This shortcoming of the 
pooling provisions could allow milk not providing a reasonable or 
consistent service to meeting the needs of the Class I market to be 
pooled on the Arizona-Las Vegas order.
    In view of these findings, an interim final rule amending the order 
will be issued as soon as the procedures are completed to determine the 
approval of producers whose milk is pooled in the Arizona-Las Vegas 
order. Consequently, it is determined that emergency marketing 
conditions exist and the issuance of a recommended decision is 
therefore being omitted. The record clearly establishes a basis as 
noted above for amending the order on an interim basis. Other proposals 
considered at the public hearing regarding producer-handlers will be 
issued in a separate decision.

Rulings on Proposed Findings and Conclusions

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

General Findings

    The findings and determinations hereinafter set forth supplement 
those that were made when the Arizona-Las Vegas order was first issued 
and when it was amended. The previous findings and determinations are 
hereby ratified and confirmed, except where they may conflict with 
those set forth herein.
    The following findings are hereby made with respect to the 
aforesaid marketing agreement and order:
    (a) The interim marketing agreement and the order, as hereby 
proposed to be amended, and all of the terms and conditions thereof, 
will tend to effectuate the declared policy of the Act;
    (b) The parity prices of milk as determined pursuant to section 2 
of the Act are not reasonable with respect to the price of feeds, 
available supplies of feeds, and other economic conditions which affect 
market supply and demand for milk in the marketing area, and the 
minimum prices specified in the interim marketing agreement and the 
order, as hereby proposed to be amended, are such prices as will 
reflect the aforesaid factors, insure a sufficient quantity of pure and 
wholesome milk, and be in the public interest; and
    (c) The interim marketing agreement and the order, as hereby 
proposed to be amended, will regulate the handling of milk in the same 
manner as, and will be applicable only to persons in the respective 
classes of industrial and commercial activity specified in, the 
marketing agreement upon which a hearing has been held.

Interim Marketing Agreement and Interim Order Amending the Order

    Annexed hereto and made a part hereof are two documents: an Interim 
Marketing Agreement regulating the handling of milk, and an Interim 
Order amending the order regulating the handling of milk in the 
Arizona-Las Vegas marketing area, which have been decided upon as the 
detailed and appropriate means of effectuating the foregoing 
conclusions.
    It is hereby ordered, that this entire tentative partial decision 
and the interim order and the interim marketing agreement annexed 
hereto be published in the Federal Register.

Determination of Producer Approval and Representative Period

    The month of May 2004 is hereby determined to be the representative 
period for the purpose of ascertaining whether the issuance of the 
order, as amended and as hereby proposed to be amended, regulating the 
handling of milk in the Arizona-Las Vegas marketing area is approved or 
favored by producers, as defined under the terms of the order as hereby 
proposed to be amended, who during such representative period were 
engaged in the production of milk for sale within the aforesaid 
marketing area.

List of Subjects in 7 CFR Part 1131

    Milk marketing orders.

    Dated: December 23, 2004.
A.J. Yates,
Administrator, Agricultural Marketing Service.

Interim Order Amending the Order Regulating the Handling of Milk in the 
Arizona-Las Vegas Marketing Area

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

Findings and Determinations

    The findings and determinations hereinafter set forth supplement 
those that were made when the order was first issued and when it was 
amended. The previous findings and determinations are hereby ratified 
and confirmed, except where they may conflict with those set forth 
herein.
    (a) Findings. A public hearing was held upon certain proposed 
amendments to the tentative marketing agreement and to the order 
regulating the handling of milk in the Arizona-Las Vegas marketing 
area. The hearing was held pursuant to the provisions of the 
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-
674), and the applicable rules of practice and procedure (7 CFR part 
900).
    Upon the basis of the evidence introduced at such hearing and the 
record thereof, it is found that:
    (1) The said order as hereby amended, and all of the terms and 
conditions thereof, will tend to effectuate the declared policy of the 
Act;
    (2) The parity prices of milk, as determined pursuant to section 2 
of the Act, are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand

[[Page 78359]]

for milk in the aforesaid marketing area. The minimum prices specified 
in the order as hereby amended are such prices as will reflect the 
aforesaid factors, insure a sufficient quantity of pure and wholesome 
milk, and be in the public interest; and
    (3) The said order as hereby amended regulates the handling of milk 
in the same manner as, and is applicable only to persons in the 
respective classes of industrial or commercial activity specified in, a 
marketing agreement upon which a hearing has been held.

Order Relative to Handling

    It is therefore ordered, that on and after the effective date 
hereof, the handling of milk in the Arizona-Las Vegas marketing area 
shall be in conformity to and in compliance with the terms and 
conditions of the order, as amended, and as hereby amended, as follows:
    The authority citation for 7 CFR part 1131 continues to read as 
follows:

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

PART 1131--MILK IN THE ARIZONA--LAS VEGAS MARKETING AREA

    1. Section 1131.13 is amended by adding a new paragraph (e) to read 
as follows:


Sec.  1131.13  Producer milk.

* * * * *
    (e) Producer milk shall not include milk of a producer that is 
subject to a marketwide equalization pool under a milk classification 
and pricing plan under the authority of a State government.

[This marketing agreement will not appear in the Code of Federal 
Regulations.]

Marketing Agreement Regulating the Handling of Milk in Certain 
Marketing Areas

    The parties hereto, in order to effectuate the declared policy 
of the Act, and in accordance with the rules of practice and 
procedure effective thereunder (7 CFR Part 900), desire to enter 
into this marketing agreement and do hereby agree that the 
provisions referred to in paragraph I hereof as augmented by the 
provisions specified in paragraph II hereof, shall be and are the 
provisions of this marketing agreement as if set out in full herein.
    I. The findings and determinations, order relative to handling, 
and the provisions of Sec. Sec.  1131.1 to 1131.86 all inclusive, of 
the order regulating the handling of milk in the Arizona-Las Vegas 
marketing area (7 CFR Part 1131) which is annexed hereto; and
    II. The following provisions: Record of milk handled and 
authorization to correct typographical errors.
    (a) Record of milk handled. The undersigned certifies that he/
she handled during the month of------------2004, ------hundredweight 
of milk covered by this marketing agreement.
    (b) Authorization to correct typographical errors. The 
undersigned hereby authorizes the Deputy Administrator, or Acting 
Deputy Administrator, Dairy Programs, Agricultural Marketing 
Service, to correct any typographical errors which may have been 
made in this marketing agreement.
    Effective date. This marketing agreement shall become effective 
upon the execution of a counterpart hereof by the Department in 
accordance with Section 900.14(a) of the aforesaid rules of practice 
and procedure.
    In witness whereof, The contracting handlers, acting under the 
provisions of the Act, for the purposes and subject to the 
limitations herein contained and not otherwise, have hereunto set 
their respective hands and seals.
Signature

By (Name)--------------------------------------------------------------

(Title)----------------------------------------------------------------

(Address)--------------------------------------------------------------

(Seal)
Attest

[FR Doc. 04-28630 Filed 12-29-04; 8:45 am]
BILLING CODE 3410-02-P