[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Proposed Rules]
[Pages 43335-43343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-14769]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1033

[Docket No. AO-166-A72; DA-05-01-A]


Milk in the Mideast Marketing Area; Tentative Partial Decision on 
Proposed Amendments and Opportunity To File Written Exceptions to 
Tentative Marketing Agreement and 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 proposals that would amend certain features of the 
pooling standards of the Mideast milk marketing order. Specifically, 
this decision will: (1) Prohibit the ability to simultaneously pool the 
same milk on the Mideast Federal milk order and on a marketwide 
equalization pool administered by another government entity; (2) lower 
the diversion limit standards; and (3) increase the performance 
standards for supply plants. A separate decision will be issued that 
will address proposals to deter the de-pooling of milk, adopt 
transportation credits and clarify the Producer definition of the 
order. This decision requires determining if producers approve the 
issuance of the amended order on an interim basis.

DATES: Comments should be submitted on or before September 26, 2005.

ADDRESSES: Comments (6 copies) should be filed with the Hearing Clerk, 
STOP 9200--Room 1031, United States Department of Agriculture, 1400 
Independence Avenue, SW., Washington, DC 20250-9200. You may send your 
comments by the electronic process available at the Federal e-
Rulemaking portal: http://

[[Page 43336]]

www.regulations.gov or by submitting comments to 
[email protected]. Reference should be made to the title of 
action and docket number.

FOR FURTHER INFORMATION CONTACT: Gino Tosi, Marketing Specialist, Order 
Formulation and Enforcement Branch, USDA/AMS/Dairy Programs, STOP 
0231--Room 2971, 1400 Independence Avenue, SW., Washington, DC 20250-
0231, (202) 690-3465, e-mail address: [email protected].

SUPPLEMENTARY INFORMATION: This tentative partial decision proposes to 
adopt amendments which would prohibit the ability to simultaneously 
pool the same milk on the Mideast Federal milk order and on a 
marketwide pool administered by another government entity. 
Additionally, this decision proposes to adopt amendments that would 
increase supply plant shipping standards and lower diversion limits.
    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 amendments to the rules proposed herein have 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 (the Act), 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 (USDA) 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 USDA 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 USDA'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 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 
production 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 March 2005, the month during which the hearing occurred, 
there were 9,767 dairy producers pooled on, and 36 handlers regulated 
by, the Mideast order. Approximately 9,212 producers, or 94.3 percent, 
were considered small businesses based on the above criteria. On the 
processing side, approximately 26 handlers, or 72.2 percent, were 
considered small businesses.
    The adoption of the proposed pooling standards serve to revise 
established criteria that determine those producers, producer milk and 
plants that have a reasonable association with and are consistently 
serving the fluid needs of the Mideast milk marketing area. Criteria 
for pooling are established on the basis of performance levels that are 
considered adequate to meet the Class I fluid needs and, by doing so, 
determine those producers who are eligible to share in the revenue that 
arises 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 
identical 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 amendments 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 these proposed amendments 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. This 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 Documents in This Proceeding

    Amendment to Public Hearing on Proposed Rulemaking: Issued March 1, 
2005; published March 3, 2005 (70 FR 10337).
    Notice of Hearing: Issued February 14, 2005; published February 17, 
2005 (70 FR 8043).

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
tentative partial decision with respect to the proposed amendments to 
the tentative marketing agreement and the order regulating the handling 
of milk in the Mideast 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

[[Page 43337]]

marketing agreements and marketing orders (7 CFR part 900).
    Interested parties may file written exceptions to this decision 
with the Hearing Clerk, United States Department of Agriculture, Room 
1031-Stop 9200, 1400 Independence Avenue, SW., Washington, DC 20250-
9200, by September 26, 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 the proposals on small businesses. While no evidence was 
received that specifically addressed these issues, some of the evidence 
encompassed entities of various sizes.
    A public hearing was held upon proposed amendments to the marketing 
agreement and the order regulating the handling of milk in the Mideast 
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 governing the 
formulation of marketing agreements and marketing orders (7 CFR part 
900).
    The proposed amendments set forth below are based on the record of 
a public hearing held in Wooster, Ohio, on March 7-10, 2005, pursuant 
to a notice of hearing issued February 14, 2005, published February 17, 
2005 (70 FR 8043), and an amendment to the hearing notice issued March 
1, 2005, published March 3, 2005 (70 FR 10337).
    The material issues on the record of the hearing relate to:

1. Pooling Standards
    A. Standards for Producer Milk.
    a. Simultaneous pooling of milk on the order and on a marketwide 
pool administered by another government entity.
    b. Diversion Limit Standards.
    B. Supply Plant Performance Standards.
2. Determination as to whether emergency marketing conditions exist 
that warrant the omission of a recommended decision and the 
opportunity to file written exceptions.

Findings and Conclusions

    This tentative partial decision specifically addresses proposals, 
published in the hearing notice as Proposals 1 and 2, along with a 
portion of Proposal 3, seeking to change the performance standards and 
producer milk provisions of the order. The portion of Proposal 3, that 
would provide a definition of ``temporary loss of Grade A approval'', 
Proposals 4-8, that would establish provisions to deter the ``de-
pooling'' of milk, and Proposal 9 that would establish transportation 
credits will be addressed in a separate decision. The following 
findings and conclusions on the material issues are based on evidence 
presented at the hearing and the record thereof:

1. Pooling Standards

A. Standards for Producer Milk
    Three proposals were presented at the hearing that would amend 
certain features of the Producer milk provision of the Mideast order. A 
proposal, published in the hearing notice as Proposal 1, seeking to 
eliminate the ability to simultaneously pool the same milk on the 
Mideast Federal milk order and on a marketwide equalization pool 
administered by another government entity, commonly referred to as 
``double dipping,'' should be adopted immediately. Additionally, a 
portion of a proposal published in the hearing notice as Proposal 2, 
seeking to seasonally adjust the percentage of total receipts a pool 
plant could divert to nonpool plants to 50 percent for the months of 
August through February and to 60 percent for the months of March 
through July should be adopted immediately. Proposal 3, which sought to 
adjust the number of days of the milk production of a producer that 
must be physically received at a Mideast order pool plant before being 
eligible for diversion to a nonpool plant, commonly referred to as 
``touching base'', was abandoned at the hearing and will no longer be 
referenced in this proceeding.
    Proponents contend that milk has been simultaneously pooled on the 
Mideast order and on a marketwide pool administered by another 
government entity since January of 2000, and although no milk is 
currently simultaneously pooled on the Mideast order and a marketwide 
pool administered by another government entity, the possibility exists 
and provisions should be adopted to eliminate its occurrence. 
Additionally, proponents contend that inadequate limits on the amount 
of milk that pool plants can divert to non-pool plants is allowing 
large volumes of milk to be pooled on the Mideast order that does not 
demonstrate a reliable and consistent service to the fluid milk needs 
of the order.
    The Mideast order currently does not prohibit the simultaneous 
pooling of the same milk on the order and on a marketwide equalization 
pool operated by another government entity. Although no milk is 
currently simultaneously pooled on the Mideast order and a marketwide 
equalization pool operated by another government entity, the situation 
has occurred in the past.
    The current Producer milk provision of the Mideast order considers 
the milk of a dairy farmer to be producer milk when the milk has been 
delivered to a pool plant of the order. As a condition for pooling the 
milk of a producer diverted to a nonpool plant on the Mideast order, a 
dairy farmer must ship two days' milk production to a pool plant during 
each of the months of December through July. This standard is 
applicable only if two days' milk production was not shipped to a 
Mideast pool plant in each of the previous months of August through 
November. A producer must also deliver two days' milk production to a 
pool plant during the months of August through November in order for 
the milk diverted to nonpool plants to be pooled. A pool handler may 
not divert more than 60 percent of its total receipts to a nonpool 
plant during the months of August through February and no more than 70 
percent of its total receipts during the months of March through July.
    Proposals 1 and 2 were submitted by Dairy Farmers of America (DFA), 
Michigan Milk Producers Association (MMPA), Dairylea Cooperative Inc. 
(Dairylea) and the National Farmers Organization (NFO). DFA is a member 
owned Capper-Volstead cooperative of 13,500 farms that produce milk in 
49 states. MMPA is a member owned Capper-Volstead cooperative of 1,350 
farms producing milk in four states. Dairylea is a member owned Capper-
Volstead cooperative of 2,400 farms producing milk in seven states. NFO 
is a member owned Capper-Volstead cooperative with over 1,500 members 
in 18 states. Hereinafter, this decision will refer to DFA, MMPA, 
Dairylea and NFO collectively as the ``Cooperatives.''
    A witness appearing on behalf of the Cooperatives testified that 
adoption of Proposal 1 would eliminate the potential for the same milk 
to be simultaneously pooled on the Mideast Federal milk order and on a 
marketwide pool administered by another government entity. The witness 
referred to this practice as ``double dipping'' and as a practice 
resulting in disorderly marketing conditions. The witness noted that 
regulatory action has been taken in the Northeast, Central, Upper 
Midwest, Pacific Northwest and Arizona-Las Vegas Federal milk marketing 
orders to prohibit the practice. The witness testified that little milk 
is currently associated with the

[[Page 43338]]

Mideast marketing order that is simultaneously pooled by another 
government entity, but should be prohibited in the same manner as in 
other Federal milk marketing order areas. The Cooperatives noted in 
their post-hearing briefs that no opposition to adoption of Proposal 1 
was received at the hearing.
    A witness appearing on behalf of Dean Foods (Dean) testified in 
support of Proposal 1. Dean Foods owns and operates several 
distributing plants regulated by the Mideast order. The witness 
testified that double dipping should be prohibited in the Mideast order 
in the same manner as in other Federal orders. In their post-hearing 
brief, Dean added that if the ability to simultaneously pool milk is 
eliminated, the wording of the order language should be similar to the 
order language used to prohibit simultaneous pooling in the Central and 
Upper Midwest orders.
    Continental Dairy Products (Continental) noted support for adoption 
of Proposal 1 in their post-hearing brief. Continental is a member 
owned Capper-Volstead cooperative that pools milk on the Mideast order. 
Continental was of the opinion that double dipping should be prohibited 
for the Mideast marketing area as it has been in other Federal milk 
marketing orders.
    A witness appeared on behalf of the Cooperatives in support of the 
portion of Proposal 2 that would lower the diversion limit standards. 
The witness was of the opinion that current diversion limit standards 
are inadequate and have resulted in milk pooled on the order which does 
not demonstrate regular and consistent performance in supplying the 
Class I needs of the marketing area. The witness cited market 
administrator data showing that during the months of January through 
February and August through December of 2004, many pool distributing 
plants and cooperative handlers diverted more than 50 percent of their 
total milk receipts to nonpool plants. Adoption of the portion of 
Proposal 2 to limit diversions to no more than 50 percent of total milk 
receipts in August through February and 60 percent in March through 
July for distributing plants and cooperative handlers would increase 
shipments to distributing plants and raise returns for Mideast 
producers, the witness noted.
    A witness for MMPA appeared on behalf of the Cooperatives in 
support of the portion of Proposal 2 that would lower diversion limit 
standards. The witness was of the opinion that an adjustment to the 
diversion limit standards will serve to decrease market reserves and 
increase proceeds for producers servicing the needs of the fluid market 
on a regular and consistent basis.
    Several independent and cooperative member dairy farmers whose milk 
is pooled in the Mideast order also testified in support of the portion 
of Proposal 2 that would adjust diversion limit standards. Most were of 
the opinion that adjusting diversion limit standards will serve to more 
adequately identify the milk that is serving the needs of the Mideast 
order fluid market.
    A witness appearing on behalf of Prairie Farms Dairy (Prairie 
Farms) testified that they were not in support of, nor in opposition 
to, adoption of the portion of Proposal 2 that would adjust diversion 
limits. Prairie Farms is a member owned Capper-Volstead cooperative 
that pools milk on the Mideast order.
    A witness appeared on behalf of White Eagle Cooperative Federation 
(White Eagle) and ``constituent members'' in opposition to the portion 
of Proposal 2 that would lower diversion limit standards. The members 
of White Eagle Cooperative Federation include White Eagle Cooperative 
Association, Alto Dairy Cooperative, Scioto Cooperative, and Erie 
Cooperative Association. White Eagle Cooperative Federation also 
identified Superior Dairy, United Dairy, Family Dairies USA, Dairy 
Support Inc., Guggisberg Cheese and Brewster Cheese as constituent 
members.
    The White Eagle witness testified that lowering diversion limit 
standards will decrease the volume of milk that manufacturing plants 
can pool, and will remove milk located in Wisconsin, Illinois, 
Minnesota and Iowa from pooling on the Mideast order. The witness was 
of the opinion that when the volume of milk pooled in manufacturing 
uses is decreased, producer milk that supplies manufacturing plants can 
face decreased returns. In their post-hearing brief White Eagle 
reiterated that lowering diversion limit standards will decrease 
returns to producers whose milk is marketed through White Eagle.
    A consultant witness provided additional testimony on behalf of 
White Eagle in opposition to lowering the diversion limit standards of 
the order. The witness testified that reducing the diversion limit 
standards would disadvantage small cooperatives that pool milk on the 
Mideast order. The witness was of the opinion that lowering the 
diversion limit standards would increase the market power of large 
cooperatives and milk processors over small cooperatives and milk 
processors.
    The consultant White Eagle witness relied on Market Administrator 
data to demonstrate the effects of a 10 percent reduction in the 
diversion limit standards for the period of 2003-2004. The witness 
stated that if the proposed diversion limit standards had been 
effective for the month of October 2004, the total volume of milk 
pooled in the Mideast market would have been reduced by 4.1 percent. 
The witness hypothesized that the reduction in milk volume pooled would 
have increased the PPD by about 2 cents per hundredweight (cwt.) for 
milk remaining pooled, but would have decreased the relative PPD by 
about $0.73 per cwt. on the milk that was not able to be pooled because 
of lowered diversion limit standards. The witness noted that the 
majority of the milk not pooled would have been milk usually pooled by 
small cooperatives. Accordingly, the witness was of the opinion that 
lowering the diversion limit standards of the Mideast order should not 
be adopted until additional analysis is done on the possible negative 
effects on small cooperatives and processors.
B. Supply Plant Performance Standards
    Several proposed changes to the supply plant pooling provisions of 
the Mideast order, contained in Proposal 2, should also be adopted 
immediately. The lack of adequate performance standards in the current 
supply plant pooling provisions allow large volumes of milk to be 
pooled on the order that do not demonstrate a regular service to the 
Class I needs of the market causing an unwarranted decrease in the 
order's blend price.
    Specifically, the following amendments should be adopted 
immediately: (1) Increasing supply plant performance standards for 
Sec.  1033.7(c) by 10 percentage points, from 30 percent to 40 percent, 
for all months, (2) increasing performance standards for supply plants 
operated by a cooperative association under Sec.  1033.7(d) by five 
percentage points, from 30 percent to 35 percent, for the month of 
August, and by 10 percentage points, from 30 percent to 40 percent, for 
the months of September through November, and (3) increasing 
performance standards for a supply plant with a marketing agreement 
with a cooperative under Sec.  1033.7(e) by 10 percentage points, from 
35 percent to 45 percent, for the months of August through November.
    Currently, the Mideast order provides that a supply plant must ship 
30 percent of its total monthly receipts to a pool

[[Page 43339]]

distributing plant in order for the plant and all of the receipts of 
the plant to be pooled for the month. This same standard applies to 
supply plants owned and operated by a cooperative association. A supply 
plant operated under a marketing agreement with a cooperative, however, 
must ship 35 percent of total receipts to a pool distributing plant in 
every month of the year in order for the plant and all the receipts of 
the plant to be pooled.
    A witness appeared on behalf of the Cooperatives in support of the 
portion of Proposal 2 that raises the performance standards for supply 
plants. The Cooperatives witness was of the opinion that supply plant 
performance standards are inadequate and in need of review and 
adjustment. Current supply plant performance standards, the witness 
testified, allow for more milk to be associated with the Mideast pool 
than is needed. Relying on market administrator data, the witness noted 
that the projected Class I utilization of the Mideast order of 58.9 
percent, specified during Federal order reform, had only been achieved 
in one month since January 2000. The witness stressed that the Mideast 
order has ample reserve milk supplies located within the marketing 
area, but that milk located outside of the marketing area that is being 
pooled on the order is lowering the proceeds of producers who are 
consistently serving the fluid needs of the market.
    The Cooperatives witness was of the opinion that increasing supply 
plant performance standards will provide greater incentive to deliver 
local milk supplies to the Class I market than the current standards. 
The witness was of the opinion that returns to producers are increased 
the shorter the distance milk must travel to distributing plants 
because transportation costs are lower.
    The Cooperatives witness testified that the costs of transporting 
and procuring milk for Class I use is not being borne equally by all 
producers whose milk is pooled on the order even though Class I returns 
are shared by all. The witness added that increasing supply plant 
performance standards would prevent milk that does not service the 
fluid needs of the market from sharing in the additional proceeds 
generated from fluid sales in the marketing area.
    The Cooperatives witness relied on market administrator data which 
showed an increase in the volume of milk pooled on the Mideast order 
from states outside the marketing area including Illinois, Iowa, 
Minnesota and Wisconsin. The witness testified that although the volume 
of milk pooled from states outside of the Mideast marketing area has 
increased, the volume of milk pooled from states within the marketing 
area has remained constant. The witness added that the increase in the 
volume of milk pooled from states outside of the marketing area has not 
resulted in increased volumes of milk shipped to the order's pool 
distributing plants. When milk that does not service the needs of the 
Mideast fluid market is pooled from areas outside the states comprising 
the Mideast marketing area, the witness stressed, the blend price 
received by Mideast order producers who regularly demonstrate service 
to the fluid market is lowered.
    The Cooperatives witness relied on market administrator data to 
illustrate that supply-demand relationships for milk in five different 
regions of the Mideast marketing area--Northern Ohio, Southern Ohio, 
Michigan, Indiana and Pennsylvania indicate that there is sufficient 
locally produced milk to meet the needs of the fluid market. According 
to the witness, only in the Southern Ohio/Southern Indiana region do 
total Class I sales exceed the total amount of milk locally supplied. 
The witness attributed the deficit local milk supply in Southern Ohio/
Southern Indiana to local milk being shipped to the Appalachian milk 
marketing area.
    The Cooperatives witness was also of the opinion that a ``hard'' 40 
percent standard on cooperative owned supply plant shipments to 
distributing plants during the fall months is superior to using the 
``rolling annual average'' method currently provided by the order. The 
witness added that if a cooperative owned supply plant shipped 40 
percent of its total receipts to distributing plants during the fall 
months, the ``rolling annual average'' method could be used during the 
remainder of the year.
    The Cooperatives witness testified that the performance standards 
for supply plants in the Mideast order were increased as a result of a 
previous Federal order hearing in 2001, but was of the opinion that the 
market is in need of further refinement. The witness emphasized that 
while there is a seasonal need for supplemental milk across certain 
regions of the Mideast market, the current standards allow far more 
milk to associate with the market than is reasonably warranted. The 
witness added that increasing supply plant performance standards will 
increase returns for Mideast dairy farmers who do regularly and 
consistently service the needs of the fluid market.
    A witness appearing on behalf of Dean was also in support of 
increasing supply plant performance standards. Dean testified at the 
hearing, and reiterated in their post-hearing brief, that increasing 
supply plant performance standards will serve to better identify the 
milk that demonstrates a consistent ability to service the fluid milk 
needs of the market.
    In their post-hearing brief, Dean proposed a modification to 
Proposal 2 regarding cooperative owned supply plants. Specifically, 
Dean suggested that a cooperative owned supply plant should be located 
within the geographic boundaries of the Mideast marketing area and that 
qualifying shipments to distributing plants or nonpool plants must be 
classified as Class I.
    A witness from MMPA appearing on behalf of the Cooperatives 
modified a portion of Proposal 2 at the hearing. The witness testified 
that Proposal 2 should increase the performance standards for a 
cooperative owned supply plant by 5 percentage points, from 30 to 35 
percent of total receipts, for the month of August, and by 10 
percentage points, from 30 to 40 percent of total receipts for the 
months of September through November. The witness was of the opinion 
that an increase in performance standards are needed in order to ensure 
that the proceeds generated from Class I sales are shared among those 
who regularly supply the needs of the fluid market.
    The MMPA witness testified that their cooperative exceeded the 
current 30 percent performance standard (from 35 percent to 41 percent 
of total receipts) during the preceding months of August through 
November. The MMPA witness testified that they are in support of a 
``hard'' performance standard during the August through November 
period, rather than the use of the annual rolling average provision 
currently provided for in all months by the order for cooperative owned 
supply plants. The witness also noted that if market conditions warrant 
a higher degree of performance, the Market Administrator has the 
authority to increase the performance standard.
    Several independent and cooperative member dairy farmers whose milk 
is pooled in the Mideast order also testified in support of increasing 
supply plant performance standards. Most were of the opinion that 
increasing supply plant performance standards will more adequately 
identify what milk is consistently serving the needs of the Mideast 
fluid market.
    A witness appeared on behalf of Smith Dairy in general support of 
any proposal that would serve to address the reduction of producer pay 
prices in the

[[Page 43340]]

Mideast order and any proposals that will better identify milk that 
provides service to the Mideast fluid market. Smith Dairy operates two 
distributing plants regulated by the Mideast order that are primarily 
supplied by independent dairy farmers.
    A witness appearing on behalf of White Eagle testified in 
opposition to increasing supply plant performance standards at the 
hearing and reiterated this position in their post-hearing brief. White 
Eagle is of the opinion that increasing supply plant shipping standards 
will displace milk from outside of the geographic boundaries of the 
Mideast marketing area that has historically supplied the milk needs of 
the Mideast market.

Discussion/Findings

    The record of this proceeding finds that several amendments to the 
pooling standards of the Mideast order should be adopted immediately to 
better identify the milk of producers that should share in the order's 
marketwide pool proceeds and to establish more appropriate performance 
measures for providing regular and consistent service in meeting the 
market's fluid needs. Currently, milk located outside the Mideast 
marketing area that does not demonstrate regular and consistent 
performance in supplying the needs of the Class I market is able to 
qualify for pooling on the Mideast order and share in the increased 
revenues arising from Class I sales in the marketing area. The vast 
majority of this milk is pooled on the order at low classified use-
values and in turn lowers the blend price to those producers who 
regularly and consistently supply the Class I needs of the Mideast 
market. Such milk is not demonstrating a reasonable level of 
performance in servicing the Class I market to receive the additional 
revenue arising from Class I use of the Mideast marketing area and 
therefore should not be pooled.
    The pooling standards of all Federal milk marketing orders, 
including the Mideast order, are intended to ensure that an adequate 
supply of milk is available to meet the Class I needs of the market and 
to provide the criteria for identifying the milk of those producers who 
are reasonably associated with the market as a condition for receiving 
the order's blend price. The pooling standards of the Mideast order are 
represented in the Pool Plant, Producer, and the Producer milk 
provisions of the order and are performance based. Taken as a whole, 
these provisions are intended to ensure that an adequate supply of milk 
is available to meet the Class I needs of the market and provide the 
criteria for determining the producer milk that has demonstrated 
reasonable measures of service to the Class I market and thereby should 
share in the marketwide distribution of pool proceeds.
    Pooling standards that are performance based provide the only 
viable method for determining those eligible to share in the marketwide 
pool. It is primarily the additional revenue generated from the higher-
valued Class I use of milk that adds additional income, and it is 
reasonable to expect that only those producers who consistently bear 
the costs of supplying the market's fluid needs should be the ones to 
share in the returns arising from higher-valued Class I sales.
    Pooling standards are needed to identify the milk of those 
producers who are providing regular and consistent service in meeting 
the Class I needs of the market. If a pooling provision does not 
reasonably accomplish this end, the proceeds that accrue to the 
marketwide pool from fluid milk sales are not properly shared with the 
appropriate producers. The result is the unwarranted lowering of 
returns to those producers who actually incur the costs of servicing 
the fluid needs of the market.
    Pool plant standards, specifically standards that provide for the 
pooling of milk through supply plants, need to reflect the supply and 
demand conditions of the marketing area. This is important because 
producers whose milk is pooled, regardless of utilization, receives the 
order's blend price. When the pooling provisions of the order result in 
pooling milk that cannot reasonably be considered as regularly and 
consistently serving the fluid needs of the market, it is appropriate 
to re-examine those standards.
    The geographic boundaries of the Mideast order are not intended to 
limit or define which producers, which milk of those producers, or 
which handlers should enjoy the benefits of being pooled on the order. 
What is important and fundamental to all Federal orders, including the 
Mideast order, is the proper identification of those producers, the 
milk of those producers, and handlers that should share in the proceeds 
arising from Class I sales in the marketing area. The Mideast order's 
current pooling standards, specifically supply plant performance 
standards and diversion limit standards for producer milk do not 
reasonably accomplish this fundamental objective.
    Since the 1960's, the Federal milk order program has recognized the 
harm and disorder that results to both producers and handlers when the 
same milk of a producer is simultaneously pooled on more than one 
Federal order, commonly referred to as ``double-dipping''. In the past, 
this situation caused price differences between producers and gave rise 
to competitive equity issues. The need to prevent ``double-dipping'' 
became critically important as distribution areas expanded and orders 
merged.
    When the same milk can be simultaneously pooled on a marketwide 
equalization pool operated by a government entity and on a Federal milk 
marketing order, it has the same undesirable outcomes as pooling the 
same milk on two Federal orders which was corrected many years ago. The 
Mideast order recently has experienced ``double-dipping'' and it is 
clear that the Mideast order should be amended to prevent the ability 
to pool the same milk on the order and on a marketwide equalization 
pool operated by another government entity. This action is consistent 
with other recent Federal order amendatory actions regarding the 
simultaneous pooling of the same milk on a Federal order and on other 
government operated programs.
    The hearing record clearly indicates that the milk of producers 
that does not regularly and consistently service the needs of the fluid 
market is able to pool on and receive the Mideast order's blend price. 
Inadequate diversion limit standards are allowing large volumes of milk 
to be diverted to non-pool manufacturing plants located far from the 
marketing area; and inadequate supply plant performance standards also 
enable milk which has insufficient physical association with the market 
and which does not demonstrate regular and consistent service to the 
Class I needs of the marketing area to be pooled on the Mideast order.
    The Federal milk order system has consistently recognized that 
there is a cost incurred by producers in servicing an order's Class I 
market, and the order's blend price is the compensation to producers 
for performing such services. The amended pooling provisions will 
ensure that milk seeking to be pooled and receive the order's blend 
price will regularly and consistently service the marketing area's 
Class I needs. Consequently, the adopted pooling provisions will ensure 
the more equitable sharing of revenue generated from Class I sales 
among the appropriate producers.
    Accordingly, supply plant performance standards should be increased 
by 10 percentage points, from 30 percent to 40 percent of total 
receipts, for all months; cooperative owned supply plant performance

[[Page 43341]]

standards should be increased by 10 percentage points, from 30 percent 
to 40 percent of total receipts, for the months of September through 
November.
    Additionally, cooperative owned supply plant performance standards 
for the month of August should be increased by five percentage points, 
from 30 percent to 35 percent of total receipts, as proposed in MMPA's 
modification of Proposal 2. These standards will be met using the 
``rolling annual average'' standard during December through July and 
the ``hard'' standard during August through November as proposed in 
Proposal 2. Also, as suggested by Dean in their post-hearing brief, a 
cooperative owned supply plant must be located in the marketing area. 
Limiting a cooperative owned supply plant to only those that are 
located within the marketing area is consistent with other pooling 
conveniences afforded to other supply plants. For example, system 
pooling of supply plants that regularly and consistently perform in 
supplying the Class I needs of the marketing area are a legitimate 
reserve supply source of milk and are restricted to supply plants 
located within the marketing area. Qualifying shipments, as already 
specified in the order, may only include shipments of Class I milk to 
distributing plants or non-pool plants.
    Performance standards for a supply plant with a marketing agreement 
with a cooperative should be increased by 10 percentage points, from 35 
percent to 45 percent of total receipts, for the months of August 
through November.
    Changes are necessary in the standards of the amount of milk that 
can be diverted from pool plants to nonpool plants to ensure that milk 
pooled on the order is part of the legitimate reserve supply of Class I 
handlers. The hearing record evidence clearly reveals that large 
volumes of milk that are not part of the legitimate reserve supply of 
the pooling handler can be reported as diverted milk by the pooling 
handler and receive the order's blend price.
    Providing for the diversion of milk is a desirable and needed 
feature of an order because it facilitates the orderly and efficient 
disposition of milk when not needed for fluid use. However, it is 
necessary to safeguard against excessive milk supplies becoming 
associated with the market through the diversion process. Associating 
more milk than is actually part of the legitimate reserve supply of the 
pooling handler unnecessarily reduces the potential blend price paid to 
dairy farmers who regularly and consistently service the market's Class 
I needs. Without reasonable diversion limit provisions, the order's 
performance standards are weakened and give rise to disorderly 
marketing conditions. Accordingly, diversion limit standards for pool 
plants should be lowered by ten percentage points, from 60 percent to 
50 percent for the months of August through February, and from 70 
percent to 60 percent for the months of March through July.

3. Determination of Emergency Marketing Conditions

    Evidence presented at the hearing and in post-hearing briefs 
establishes that current pooling standards of the Mideast order are 
inadequate and are eroding the blend price received by producers who 
are regularly and consistently serving the Class I needs of the Mideast 
marketing area and should be amended on an emergency basis. The 
unwarranted erosion of the blend price stems from inadequate supply 
plant standards and the lack of appropriate limits on diversions of 
milk. Additionally, the ability of a handler to pool the same milk on 
the Mideast Federal milk order and on a marketwide equalization pool 
administered by another government entity serves to potentially further 
erode the order's blend price.
    Consequently, it is determined that emergency marketing conditions 
exist and the issuance of a recommended decision is being omitted. The 
record clearly establishes a basis as noted above for amending the 
order on an interim basis and the opportunity to file written 
exceptions to the proposed amended order remains.
    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.

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 Mideast 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 Mideast 
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 March, 2005 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 Mideast 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

[[Page 43342]]

engaged in the production of milk for sale within the aforesaid 
marketing area.
    It is hereby directed that a referendum be conducted and completed 
on or before the 30th day from the date this decision is issued, in 
accordance with the procedure for the conduct of referenda (7 CFR 
900.300-311), to determine whether the issuance of the order, as 
amended and as hereby proposed to be amended, regulating the handling 
of milk in the Mideast marketing area is approved by producers, as 
defined under the terms of the order (as amended and as hereby proposed 
to be amended), who during such representative period were engaged in 
the production of milk for sale within the aforesaid marketing area.
    The representative period for the conduct of such referendum is 
hereby determined to be March, 2005.
    The agent of the Department to conduct such referendum is hereby 
designated to be David Z. Walker, Market Administrator.

List of Subjects in 7 CFR Part 1033

    Milk Marketing order.

    Dated: July 21, 2005.
Kenneth C. Clayton,
Acting Administrator, Agricultural Marketing Service.

Interim Order Amending the Order Regulating the Handling of Milk in the 
Mideast Marketing Area

    This interim order shall not become effective 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 Mideast 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 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 Mideast 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 1033 continues to read as 
follows:

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

PART 1033--MILK IN THE MIDEAST AREA

    1. Section 1033.7 is amended by:
    (a) Revising paragraph (c) introductory text.
    (b) Revising the introductory text to paragraph (d).
    (c) Revising paragraph (d)(2).
    (d) Revising paragraph (e)(1).
    The revisions read as follows:


Sec.  1033.7  Pool plant.

* * * * *
    (c) A supply plant from which the quantity of bulk fluid milk 
products shipped to, received at, and physically unloaded into plants 
described in paragraph (a) or (b) of this section as a percent of the 
Grade A milk received at the plant from dairy farmers (except dairy 
farmers described in Sec.  1033.12(b)) and handlers described in Sec.  
1000.9(c), as reported in Sec.  1033.30(a), is not less than 40 percent 
of the milk received from dairy farmers, including milk diverted 
pursuant to Sec.  1033.13, subject to the following conditions:
* * * * *
    (d) A plant located in the marketing area and operated by a 
cooperative association if, during the months of December through July 
30 percent, during the month of August 35 percent and during the months 
of September through November 40 percent or more of the producer milk 
of members of the association is delivered to a distributing pool 
plant(s) or to a nonpool plant(s) and classified as Class I. Deliveries 
for qualification purposes may be made directly from the farm or by 
transfer from such association's plant, subject to the following 
conditions:
    (1) * * *
    (2) The 30 percent delivery requirement for the months of December 
through July may be met for the current month or it may be met on the 
basis of deliveries during the preceding 12-month period ending with 
the current month.
* * * * *
    (e) * * *
    (1) The aggregate monthly quantity supplied by all parties to such 
an agreement as a percentage of the producer milk receipts included in 
the unit during the months of August through November is not less than 
45 percent and during the months of December through July is not less 
than 35 percent;
* * * * *
    2. Section 1033.13 is amended by:
    (a) Revising paragraph (d)(4).
    (b) Adding paragraph (e).
    The revisions read as follows:


Sec.  1033.13  Producer milk.

* * * * *
    (d) * * *
    (4) Of the total quantity of producer milk received during the 
month (including diversions but excluding the quantity of producer milk 
received from a handler described in Sec.  1000.9(c) or which is 
diverted to another pool plant), the handler diverted to nonpool plants 
not more than 50 percent in each of the months of August through 
February and 60 percent in each of the months of March through July.
* * * * *
    (e) Producer milk shall not include milk of a producer that is 
subject to inclusion and participation in a marketwide equalization 
pool under a milk classification and pricing plan imposed under the 
authority of another government entity.

Marketing Agreement Regulating the Handling of Milk in the Mideast 
Marketing Area

    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

[[Page 43343]]

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.  1033.1 to 1033.86 all inclusive, of the 
order regulating the handling of milk in the Mideast marketing area (7 
CFR part 1033) 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 ----, 2005, ------ 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. 05-14769 Filed 7-26-05; 8:45 am]
BILLING CODE 3410-02-P