[Federal Register Volume 75, Number 113 (Monday, June 14, 2010)]
[Proposed Rules]
[Pages 33534-33553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12771]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 75, No. 113 / Monday, June 14, 2010 /
Proposed Rules
[[Page 33534]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 1000
[Doc. No. AMS-DA-09-0062; AO-14-A73, et al.; DA-03-10]
Milk in the Northeast and Other Marketing Areas; Final Decision
on Proposed Amendments to Marketing Agreements and Orders
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: This final decision maintains the current fluid milk product
definition's compositional standard of 6.5 percent nonfat milk solids
criterion and incorporates an equivalent 2.25 percent true milk protein
criterion for determining if a product meets the compositional
standard. The decision also determines how milk and milk-derived
ingredients should be priced under all Federal milk marketing orders
when used in products meeting the fluid milk product definition. The
decision provides exemptions for drinkable yogurt products containing
at least 20 percent yogurt (by weight), kefir, and products intended to
be meal replacements from the fluid milk product definition. The orders
as amended are subject to producer approval by referendum before they
can be implemented.
FOR FURTHER INFORMATION CONTACT: Henry H. Schaefer, Economist, USDA/
AMS/Dairy Programs, Upper Midwest Milk Market Administrators Office,
Suite 200, 1600 West 82nd Street, Minneapolis, Minnesota 55431-1420,
(952) 831-5292, e-mail address: [email protected]; or William
Francis, Associate Deputy Administrator, USDA/AMS/Dairy Programs, Order
Formulation and Enforcement, Stop 0231-Room 2971-S, 1400 Independence
Avenue, SW., Washington, DC 20250-0231, (202) 720-6274, e-mail address:
[email protected].
SUPPLEMENTARY INFORMATION: This final decision maintains the current
fluid milk product definition's compositional standard of 6.5 percent
nonfat milk solids and incorporates an equivalent 2.25 percent true
milk protein criterion for determining if a product meets the
compositional standard. The decision also determines how milk and milk-
derived ingredients should be priced under all Federal milk marketing
orders when used in products meeting the fluid milk product definition.
The decision exempts drinkable yogurt products containing at least 20
percent yogurt (by weight), kefir, infant formulas, dietary products
(meal replacements) and other products that may contain milk-derived
ingredients from the fluid milk product definition.
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 proposed amendments to the rules herein have been reviewed under
Executive Order 12988, Civil Justice Reform. They are not intended to
have a retroactive effect. The Agricultural Marketing Agreement Act of
1937 (Act), as amended (7 U.S.C. 604-674), 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 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 a habitant, 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.
For the month of June 2005, the month the hearing was held, 52,425
dairy farmers were pooled on the Federal order system. Of the total,
49,160, or 94 percent were considered small businesses. During the same
month, 1,530 plants were regulated by or reported their milk receipts
to their respective Market Administrator. Of the total, 847, or 55
percent were considered small businesses.
The fluid milk product definition sets out the criteria for
determining if the use of producer milk and milk-derived ingredients in
such products should be priced at the Class I price. The established
criteria for the classification of producer milk are applied in an
identical fashion to both large and small businesses and will not have
any different impact on those businesses producing fluid milk products
thus assuring that similarly situated handlers have the same minimum
price as required by Section 608(c)5 of the Act. Therefore, the
amendments will not have a significant economic impact on a substantial
number of small entities. The impact of the proposed amendments on
large and small entities would be negligible. In fact, the amendment
proposing to change the
[[Page 33535]]
classification of kefir and drinkable yogurt is estimated to affect
blend prices by no more than $ 0.0026 per cwt based on record evidence.
The Agricultural Marketing Service is committed to complying with
the E-Government Act to promote the use of the Internet and other
information technologies to provide increased opportunities for citizen
access to Government information and services, and for other purposes.
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 amendments would have no impact on reporting,
recordkeeping, or other compliance requirements because they would
remain identical to the current requirements. No new forms are proposed
and no additional reporting requirements are necessary.
This notice does not require additional information collection that
needs 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. The forms require only a minimal amount of information
that 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 for all handlers
does not significantly disadvantage any handler that is smaller than
the industry average.
Prior Documents in This Proceeding
Notice of Hearing: Issued April 6, 2005; published April 12, 2005
(70 FR 19012).
Recommended Decision: Issued May 12, 2006; published May 17, 2006
(71 FR 28590).
Preliminary Statement
Notice is hereby given of the filing with the Hearing Clerk of this
final decision with respect to the proposed amendments to the marketing
agreements and the orders regulating the handling of milk in the
Northeast and other marketing areas. This notice is issued pursuant to
the provisions of the Agricultural Marketing Agreement Act and
applicable rules of practice and procedure governing the formulation of
marketing agreements and marketing orders (7 CFR Part 900).
A public hearing was held upon proposed amendments to the marketing
agreements and the orders regulating the handling of milk in all
Federal milk marketing areas. The hearing was held pursuant to the
provisions of the Agricultural Marketing Agreement Act of 1937 (AMAA),
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 Pittsburgh, Pennsylvania, on June 20-23, 2005,
pursuant to a notice of hearing issued April 6, 2005 and published
April 12, 2005 (70 FR 19012); and a recommended decision issued May 12,
2006 and published May 17, 2006 (71 FR 28590).
The material issues on the record of the hearing relate to:
1. Amending the fluid milk product definition.
Findings and Conclusions
This final decision maintains the current fluid milk product
definition's compositional standard of 6.5 percent nonfat milk solids
and incorporates an equivalent 2.25 percent true milk protein criterion
for determining whether a product meets the compositional standard. The
decision also determines how milk and milk-derived ingredients should
be priced under all orders when used in products meeting the fluid milk
product definition. The decision exempts drinkable yogurt products
containing at least 20 percent yogurt (by weight), kefir, infant
formulas, dietary products (meal replacements) and other products that
may contain milk-derived ingredients from the fluid milk product
definition.
All Federal milk orders currently state that ``fluid milk product
means any milk products in fluid or frozen form containing less than 9
percent butterfat that are intended to be used as beverages.'' The
fluid milk product definition also contains a non-definitive list of
dairy products that are named fluid milk products. In addition to the
compositional butterfat standard fluid milk products shall not include,
among other products, ``* * * any product that contains by weight less
than 6.5 percent nonfat milk solids * * *'' Dairy products that do not
fall within these limits are not considered fluid milk products and the
milk used to produce these products is classified in Class II, Class
III or Class IV, depending on the form or purpose for which the
products are to be used.
Eleven proposals were published in the hearing notice for this
proceeding. Proposals 1, 3, 4 and 6 were abandoned at the hearing by
their proponents in support of other noticed proposals. No further
reference to these proposals will be made.
A proposal published in the hearing notice as Proposal 2, offered
by Dairy Farmers of America, Inc. (DFA), seeks to amend the fluid milk
product definition to include any dairy ingredient, including whey,
when calculating the milk contained in a product on a protein-
equivalent or nonfat solids equivalent basis. DFA is a dairy farmer-
member owned cooperative and at the time of the hearing had 12,800
member farms located in 49 states whose members' milk is pooled
throughout the Federal order system.
H.P. Hood LLC (H.P. Hood) owns and operates milk processing and
manufacturing plants in the Eastern and Midwest United States and is
the proponent of a proposal published in the hearing notice as Proposal
5 that was modified at the hearing. As modified, Proposal 5 seeks to
amend the fluid milk product definition to include any product that,
based upon substantial evidence as determined by the Department,
directly competes with other fluid milk products and that the
Department must make a written determination before any product can be
classified as a fluid milk product.
A proposal published in the hearing notice as Proposal 7 was
offered by the National Milk Producers Federation (NMPF). At the time
of the hearing NMPF consisted of 33 dairy-farmer member cooperatives
that represented more than 75 percent of U.S. dairy farmers. Proposal 7
seeks to amend the fluid milk product definition by removing the
reference ``6.5 percent nonfat solids standard and whey,'' and adopting
a 2.25 percent true milk protein criterion. During the hearing, DFA
offered a modification to Proposal 7 by seeking to authorize the
Department to make an interim classification determination for new
products that result from new technology. The Department would then
convene a hearing to address the use of the new technology in
classification decisions and make a final classification determination
for the new product within one year.
Proposal 8 seeks to amend the fluid milk product definition by
excluding yogurt-containing beverages from the fluid milk product
definition. This proposal was offered by The Dannon Company, Inc.
(Dannon), a wholly owned subsidiary of The Danone Group that produces
yogurt and fresh dairy products in 40 countries, including the United
States.
Proposal 9 also seeks to amend the fluid milk product definition by
excluding drinkable food products with
[[Page 33536]]
no more than 2.2 percent skim milk protein provided the product
contains at least 20 percent yogurt (nonfat yogurt, lowfat yogurt or
yogurt) by weight from the fluid milk product definition. Proposal 9
was offered by General Mills, Inc. (General Mills), a food manufacturer
that markets such products as Yoplait yogurt and yogurt-containing
products in over 100 countries, including the United States.
A proposal published in the hearing notice as Proposal 10 was
offered by the Novartis Nutrition Corporation (Novartis). Novartis
develops and manufactures a variety of products, including milk-based
products, designed to meet specific nutritional needs. Proposal 10
seeks to amend the fluid milk product definition by excluding formulas
prepared for dietary use by removing the words ``(meal replacement)
that are packaged in hermetically-sealed containers.'' The proposal
would remove the 6.5 percent nonfat milk solids standard.
A proposal published in the hearing notice as Proposal 11 seeks to
amend the fluid milk product definition by excluding health care
beverages distributed to the health care industry. Proposal 11 was
offered by Hormel Foods, LLC (Hormel), a wholly owned subsidiary of
Hormel Foods Corporation and manufacturer of a variety of food products
primarily for the health care industry.
A witness appearing on behalf of NMPF testified in support of
Proposal 7. The witness testified that Proposal 7 would close loopholes
in the current fluid milk product definition that have allowed products
developed as a result of new technology to avoid classification as
fluid milk products. The witness said that the 6.5 percent nonfat
solids standard should be eliminated and replaced with a 2.25 percent
protein standard that would also include whey proteins in determining
if the product meets the protein standard. The witness stressed that
whey proteins should be specifically defined as whey proteins that are
a by-product of the cheese making process. The witness was of the
opinion that adoption of Proposal 7 would not alter the classification
of any product currently being marketed.
The NMPF witness stressed that Federal order regulations have
always adapted to marketing conditions and that the current fluid milk
product definition should be amended to reflect changes in market
conditions brought about by changes in technology. The witness
testified that technology has evolved such that milk can now be
separated into numerous components that can be recombined to create a
vast number of new milk products. The witness argued that new
technology has enabled manufacturers to manipulate milk components,
such as removing lactose or substituting whey for other milk solids, to
create new products that contain less than 6.5 percent nonfat milk
solids. This enables manufacturers of the new products to avoid
classification of the new product as a fluid milk product even though
the form and use does not differ from what is currently considered a
fluid milk product.
The NMPF witness testified that Carb Countdown[supreg], a product
manufactured by the H.P. Hood Company, contains whey and has a reduced
lactose content that results in its composition being below the 6.5
percent nonfat milk solids standard. According to the witness, two
market research studies suggest that the product is similar in form and
use to traditional fluid milk. Relying upon a market study conducted by
IRI, a market research firm, the witness related that 98.4 percent of
Carb Countdown[supreg] sales are purchased as a substitute for fluid
milk while only 1 percent of its sales are represented as an expansion
of the fluid milk market.
The NMPF witness was of the opinion that classifying a product on
the basis of protein is appropriate because protein is the highest
valued skim component in the marketplace. The witness testified that a
2.25 percent protein standard is the appropriate equivalent of the
current 6.5 percent nonfat milk solids standard. The witness asserted
that protein has the most value to producers, processors and consumers
because it contributes nutrition, flavor and texture to milk. While the
witness was of the opinion that all dairy-derived ingredients should be
used in computing the true protein standard of a product, the witness
did not believe whey and whey product ingredients should be priced at
the Class I price. The witness maintained that the use of whey and whey
products should not exclude a product from the fluid milk product
definition because manufacturers are using whey in their new products
to avoid a fluid milk product classification. The witness also noted
that instead of relying upon the Food and Drug Administration (FDA)
standard, the Department should provide its own definition of whey.
A post-hearing brief submitted on behalf of NMPF reiterated the
positions testified to at the hearing. The brief asserted that adoption
of a milk protein standard would close regulatory loopholes that
prevent products developed as a result of new technology from avoiding
classification as a fluid milk product. According to the brief,
adoption of a true protein standard merely changes the way milk
proteins are accounted for and would not change the classification of
any product. However, these changes would capture those products
currently formulated to avoid being classified as fluid milk products.
Comments and exceptions to the Recommended Decision filed by NMPF
supported the proposed adoption of the 2.25 percent milk protein
standard, the inclusion of all nonfat milk ingredients in determining a
product's composition, and the Class I pricing of milk protein
concentrates (MPCs) used in fluid milk products. NMPF strongly opposed
exemption of casein and caseinates used in fluid milk products from
Class I pricing. They view such exemptions as differential treatment
that could cause market disorder and provide incentives for
manufacturers to use these un-priced ingredients in their fluid milk
products. NMPF was of the opinion that casein and caseinates are not
substantially different than MPCs to justify a different pricing
treatment when used in fluid milk products. However, NMPF maintained
that only whey resulting from the production of cheese should be
exempted from Class I pricing when used as an ingredient in fluid milk
products.
NMPF comments and exceptions asserted that manufacturers have
historically relied on the quantitative composition standards contained
in the fluid milk product definition when making decisions regarding
new product development. NMPF expressed opposition to the proposed
reference to ``form and intended use'' in the fluid milk product
definition because, in NMPF's opinion, it could cause manufacturers to
decrease their use of dairy ingredients in order to prevent a product
from being classified and priced as a fluid milk product. NMPF urged
abandoning the ``form and intended use'' standard and relying solely on
the protein and nonfat solids compositional standards in making
classification decisions.
A witness from DFA, appearing on behalf of DFA and Dairylea
Cooperative, Inc., (DLC), testified in support of NMPF's Proposal 7 and
Proposal 2. DLC is a dairy farmer-member owned cooperative with 2,400
member farms located in 7 states at the time of the hearing.
The DFA/DLC witness was of the opinion that the purpose of the
hearing was to refine the fluid milk product definition to reflect
current market conditions brought about by technological innovations to
ensure that
[[Page 33537]]
dairy farmers are equitably paid for their milk. The witness testified
that dairy processing technology, such as ultra filtration and milk
component fractionalization, has enabled new products to be developed
that were not foreseen when the current classification definition was
last considered.
The DFA/DLC witness testified that the current fluid milk product
definition does not recognize the value of dairy proteins in the
development of new products and therefore does not classify and
subsequently price these new products appropriately. The witness
claimed that manufacturers formulate their products to contain less
than 6.5 percent total nonfat milk solids to avoid a Class I use of
milk classification even though these products compete directly with
and are substitutes for fluid milk.
The DFA/DLC witness was of the opinion that the form and use of a
product should be the primary factor in determining product
classification. The witness said that secondary criteria used to make
classification determinations should include such factors as product
composition, a specific but not exclusive list of included and excluded
dairy products, product substitutability and enhancement of producer
revenue. The witness argued that eliminating the current total nonfat
milk solids standard and replacing it with an equivalent milk protein
standard would better reflect the demand for dairy proteins in the
marketplace.
The DFA/DLC witness offered a modification to Proposal 7 that the
witness said would provide the Department with latitude for classifying
future products that are a result of new technology. The witness
explained that the modification would allow the Department to make an
interim classification decision for a new product and then have up to
one year to hold a public hearing to determine the appropriate
permanent classification.
The DFA/DLC witness also testified in support of Proposal 2. The
witness said that its adoption would recognize the importance of dairy
proteins in the marketplace by including all dairy protein sources,
including whey and whey products, in computing the product's protein
content. However, said the witness, while whey and whey products would
be used in classification determinations, those ingredients should not
be priced as Class I.
A post-hearing brief submitted on behalf of DFA/DLC reiterated
support for adopting a protein standard. The brief reiterated the claim
that new technology has enabled some products that contain less than
6.5 percent nonfat milk solids to be classified at a lower use-value
than competitors in the market. The brief maintained that adoption of a
protein standard would more adequately identify products that should be
classified as fluid milk products in light of new fractionation
technology.
A witness appearing on behalf of O-AT-KA Milk Products Cooperative,
Inc. (O-AT-KA) testified in support of Proposals 2 and 7. O-AT-KA, at
the time of the hearing, was a cooperative owned by the dairy farmer-
members of Upstate Farms Cooperative, Inc., Niagara Milk Cooperative,
Inc., and Dairylea Cooperative, Inc. The witness was of the opinion
that the development of new technology necessitates a change to the
fluid milk product definition. However, the witness cautioned that
changes should not capture all beverages which contain milk solids as
fluid milk products because not all milk-containing beverages compete
with fluid milk.
The O-AT-KA witness asserted that Proposal 7 should not be thought
of as a fundamental change to the current standard; rather that the
proposed true protein standard of 2.25 percent is an equivalent to the
current 6.5 percent nonfat milk solids standard and should be
considered as a needed clarification brought about by technological
advances in milk processing. According to the witness, the proposed
2.25 percent standard recognizes protein as a highly valued ingredient
in milk products and those products with less than 2.25 percent protein
would remain exempt from fluid milk product classification. The witness
also advocated the adoption of Proposal 2 that would include whey and
whey products in the computation of the protein percentage of the
product but would not price the whey ingredients at Class I prices.
A post-hearing brief, submitted on behalf of O-AT-KA, reiterated
support for Proposal 7. The brief claimed that the adoption of the
protein standard would increase the use of dairy ingredients in
beverages which are not ``in the competitive sphere of the traditional
milk beverages,'' thus increasing producer revenue. The brief also
supported DFA/DLC's modification to Proposal 7 giving the Department
authority to make an interim classification decision if a new product
is a result of new technology.
Comments and exceptions to the Recommended Decision submitted on
behalf of DFA, DLC, O-AT-KA and Upstate Farms Cooperative Inc.,
hereinafter referred to as ``DFA, et al.'', supported the
recommendation incorporating a 2.25 percent true protein standard as a
proposal in the Recommended Decision and that inclusion of all milk
derived ingredients when computing the 6.5 percent nonfat solids or
2.25 percent true protein criterion. The DFA, et al., comments also
endorsed the comments and exceptions submitted on behalf of NMPF.
DFA, et al., expressed opposition to exempting casein and
caseinates from Class I pricing when used in fluid milk products. The
comments argued that all proteins in a fluid milk product should be
priced the same--at the Class I price. DFA, et al., also abandoned
their position taken at the hearing to not price whey derived from
cheese making at the Class I price when used in fluid milk products.
DFA, et al., was of the opinion that providing exemption for
ingredients will only serve to encourage manufacturers to use price-
exempted ingredients to formulate a finished product that would be
compositionally identical to fluid milk.
DFA, et al., took exception to relying on form and intended use as
the final determinate in classifying fluid milk products. DFA, et al.,
argued that manufacturers rely on the compositional criteria contained
in the fluid milk product definition to decide how to formulate a new
product, assess how their new product would be classified, and
ultimately determine their raw milk ingredient costs. Their exceptions
asserted if form and intended use criteria supersedes compositional
standards, manufacturers would develop fewer dairy based products
because of the perceived uncertainty in how that product's ingredients
could be classified and priced. DFA, et al., argued that the 2.25
percent protein standard should be the ultimate determinate of a fluid
milk product and, if such compositional standard becomes inadequate, a
hearing could be held to establish updated compositional standards.
A post-hearing brief submitted on behalf of Select Milk Producers,
Inc. (Select) and Continental Dairy Products (Continental) expressed
support for adoption of a protein standard as a component of the fluid
milk product definition. According to the brief, Select and Continental
are dairy-farmer owned cooperatives that market milk on various Federal
orders. The brief argued that adoption of a protein standard is a
needed change to reflect changed marketing conditions brought about by
new manufacturing technology without fundamentally altering current
regulations. The brief stressed that milk proteins are valuable
ingredients in drinkable products in the market and
[[Page 33538]]
that classification and pricing determinations should be reflective of
this.
Comments to the Recommended Decision filed on behalf of Select and
Continental specifically supported the proposed adoption of a 2.25
percent true protein standard to the fluid milk product definition and
pricing of MPCs used in fluid milk products at the Class I price.
Select and Continental also endorsed the comments and exceptions filed
by NMPF.
Select and Continental's exceptions asserted that as a result of
new milk-processing technology, there is no barrier to using casein as
a substitute ingredient for MPCs. In this regard, Select and
Continental took exception to exempting casein and caseinates from
Class I pricing because it would serve to provide an incentive to
manufacturers to use them as a substitute for MPCs to avoid Class I
regulation. The brief said relying on form and intended use to override
compositional standards in making classification determinations would
add needless ambiguity and subjectivity.
A witness appearing on behalf of H.P. Hood testified in opposition
to any changes to the fluid milk product definition. The witness was of
the opinion that the fluid milk product definition should not be
amended in a manner that would classify more dairy products as fluid
milk products unless data is provided which would conclude that such
products compete directly with fluid milk and such amendments would
enhance producer revenue.
The H.P. Hood witness asserted that if Proposal 7 was adopted and
resulted in the reclassification of some products as fluid milk
products, the change would only affect a small number of products and
the enhancement of producer revenue would be minimal. If ingredient
substitution for milk occurred as a result of adopting other proposals,
the witness said, producer revenue could actually decrease. The witness
was of the opinion that adoption of proposals that broaden the fluid
milk product definition would stifle product innovation and discourage
the use of dairy-derived ingredients because of the resulting increased
costs to the manufacturer. These results, the witness said, should not
be encouraged by the Federal milk order program.
A post-hearing brief submitted on behalf of H.P. Hood reiterated
opposition to Proposal 7. The brief maintained that no disorderly
marketing conditions exist to warrant a change to the fluid milk
product definition and that proponents of the protein standard failed
to meet the burden of proof required by the AMAA to make a regulatory
change. The H.P. Hood brief reviewed many factors used by the
Department in previous classification decisions to determine the proper
classification of Class I products. The list included, but was not
limited to, demand elasticities, enhancement of producer revenue, and
product competition. The brief stated that proponents failed to provide
adequate data addressing these factors or prove that disorderly
marketing conditions exist to warrant a change, and urged the
Department to terminate the proceeding.
Comments and exceptions filed by H.P. Hood took exception to the
Recommended Decision's proposed adoption of a 2.25 percent protein
standard and its reliance on form and intended use as a primary factor
in making classification determinations. H.P. Hood reiterated its
opinion that the proponents of the protein standard did not provide
adequate justification for its adoption. Furthermore, H.P. Hood was of
the opinion that it is not proper to make regulatory changes as
preventive measures to possible disorderly marketing conditions and is
a major deviation from historical milk order policy. The exceptions
stressed that it is only proper to react to marketing conditions once
they occur. In their exceptions, H.P. Hood also presented a list of
questions regarding the application of how a product's form and
intended use would be determined by the Department. H.P. Hood claimed
that relying on form and intended use would be extremely burdensome and
serve to inhibit new product development.
A witness appearing on behalf of Leprino Foods Company (Leprino)
testified in opposition to the adoption of the 2.25 percent protein
standard contained in Proposal 7. According to the witness, Leprino
operates nine plants in the United States that manufacture mozzarella
cheese and whey products. The witness was of the opinion that a protein
standard would reclassify products such as sport and protein drinks and
yogurt smoothie products (formulated with ingredients such as whey and
whey products) as fluid milk products. The witness stressed that
broadening the fluid milk product definition to account for all dairy
derived ingredients could lessen the demand for such ingredients. The
witness speculated that manufacturers may seek out other less costly
non-dairy ingredient substitutes which would result in decreased
producer revenue.
Exceptions to the Recommended Decision filed by Leprino expressed
opposition to the adoption of a 2.25 true protein standard in the fluid
milk product definition. Leprino argued that this standard should not
be adopted unless it is modified to specifically exclude beverages that
do not resemble or compete with fluid milk. Leprino was of the opinion,
that without such exclusion, to classify products based on form and
intended use could cause many non-traditional products, such as sport
and nutritional beverages, to be classified as fluid milk products. The
end result, argued Leprino, would be a lowered demand for dairy
ingredients that may offset any revenue gains to producers by including
additional products as fluid milk products.
A witness appearing on behalf of Dannon Company, Inc. (Dannon)
testified in opposition to Proposals 2 and 7. Dannon is a wholly owned
subsidiary of the Dannon Group that produces yogurt and fresh dairy
products in 40 countries, including the United States. The witness was
opposed to the adoption of a protein standard and to the inclusion of
whey when calculating the nonfat milk solids content of a product
because, the witness said, it was not the original intent of the fluid
milk product definition to include these milk-derived ingredients. The
witness believed that adoption of a protein standard would cause more
products to be classified as fluid milk products even though they do
not compete with fluid milk. The witness argued that protein is not a
major component of fluid milk products and therefore using a protein
standard would not be appropriate for making classification
determinations. The witness speculated that if a protein standard was
adopted, it could stifle product innovation or cause food processors to
use non-dairy ingredients in their food products. The witness said that
if whey proteins are included, manufacturers may look for less
expensive non-dairy ingredients to be used as a viable substitute.
A post-hearing brief submitted on behalf of Dannon reiterated their
opposition to the adoption of a protein standard claiming that adequate
justification for such a change was not given by proponents at the
hearing and that the mere ability to test for milk proteins does not
justify its adoption.
A post-hearing brief submitted on behalf of the National Yogurt
Association (NYA) expressed opposition to Proposal 7. According to the
brief, NYA is a trade association representing manufacturers of live
and active culture yogurt products and suppliers of the yogurt
industry. The brief claimed that proponent testimony was inconsistent
regarding the proposals' impact on product classification and stated
that if
[[Page 33539]]
the 2.25 percent protein standard was adopted, at least one yogurt-
containing product would be reclassified as a fluid milk product.
The NYA brief also asserted that proponents did not provide a clear
picture of how Proposal 7 would be implemented. Specifically, the brief
noted that the following were not addressed: (1) How wet and dry whey
would be handled; (2) how whey from cheese production would be
differentiated from whey from casein production; and (3) how products
that meet the proposed 2.25 percent true protein standard and contain
whey and other proteins would be classified and priced. The NYA brief
speculated that including whey in the protein calculation would lead to
more products being classified as fluid milk products and cause
manufacturers to seek out less costly non-dairy ingredients. The
potential loss to producer revenue by substitution with non-dairy
ingredients, concluded the brief, is not supported by the record.
A post-hearing brief submitted on behalf of the National Cheese
Institute (NCI) expressed opposition to Proposal 7 and claimed that its
adoption would suppress the use of dairy-derived ingredients,
particularly whey proteins. According to the brief, NCI is a trade
association representing processors, manufacturers, marketers, and
distributors of cheese and related products. NCI claimed that
proponents of Proposal 7 did not identify any specific marketplace
disorder that would be corrected by the adoption of a protein standard
or list any product that would be reclassified if the fluid milk
product definition were amended. The brief reviewed previous rulemaking
decisions where proposals were denied because proponents failed to
demonstrate that disorderly marketing conditions were present.
The NCI brief stressed that use of dairy-derived ingredients in a
product should not automatically qualify a product as a competitor of
fluid milk or that their classification in a lower-valued use
negatively affects producer revenue. The brief further maintained that
proponents did not adequately address why whey proteins should be
included in determining if the product met the proposed protein
standard for a fluid milk product and why whey should be priced at the
Class I price. The brief concluded that whey should be excluded from
the fluid milk product definition because its inclusion would lead to
products being classified as fluid milk products even when they do not
compete with fluid milk.
A post-hearing brief submitted on behalf of Sorrento Lactalis, Inc.
(Sorrento) objected to the adoption of a protein standard. According to
the brief, Sorrento is a manufacturer that operates five cheese plants
throughout the United States. The brief stated that adoption of a milk
protein standard as part of the fluid milk product definition would
reduce the demand for dairy ingredients, especially whey proteins,
which in turn would result in increased costs to manufacturers and
reduced producer revenue.
A witness testifying on behalf of H.P. Hood was of the opinion that
if the Department found that changing the fluid milk product definition
was warranted, adoption of a modified Proposal 5 would be appropriate.
The witness said that adoption of Proposal 5 would provide the
Department with standards to determine if a dairy product with less
than 6.5 percent nonfat milk solids competes with and displaces fluid
milk sales, which would justify classification of the product as a
fluid milk product. The witness also noted that if Proposal 5 was
adopted, a new product with less than 6.5 percent nonfat milk solids
and route distribution in a Federal milk marketing area of less than 3
million pounds would be exempted from classification as a fluid milk
product. This distribution criteria, the witness explained, would allow
manufacturers to test market a new product with the assurance that it
would not be classified as a fluid milk product until the distribution
threshold was exceeded.
A witness appearing on behalf of Leprino testified in support of
Proposal 5. The witness was of the opinion that fluid milk products
should only be those products that meet the FDA standard of identity
for milk and cultured buttermilk and products that compete with milk
and cultured buttermilk. The witness testified that the fluid milk
product definition is currently too broad and as a result, has lessened
the demand for dairy ingredients in new non-traditional dairy products
because of the possibility of being classified as a fluid milk product.
The witness argued that many of these new products do not compete for
sales with fluid milk and their use of dairy-derived ingredients should
not qualify them to be defined as a fluid milk product.
The Leprino witness explained that advances in technology have
allowed the creation of dairy-derived ingredients through milk
fractionation. According to the witness, dairy manufacturers are
avoiding investing in some product innovation because of the regulatory
burden and increased costs that are associated with manufacturing a
fluid milk product.
A witness testifying on behalf of DFA/DLC was opposed to the
adoption of Proposal 5. The witness said that Proposal 5 would place an
undue burden on the Department in making classification determinations
and would also extend Class II classification to more products, neither
of which the witness supported. The post-hearing brief submitted by
DFA/DLC reiterated their opposition.
A witness appearing on behalf of Bravo! Foods International
Corporation; Lifeway Foods, Inc.; PepsiCo; Starbucks Corporation; and
Unilever United States, Inc.; testified in opposition to all proposals
that would reduce or eliminate the 6.5 percent minimum nonfat milk
solids standard, adopt a protein standard, or include whey in
determining the nonfat milk solids content of a product. Hereinafter,
these companies are referred to collectively as ``Bravo!, et al.''
A post-hearing brief submitted on behalf of Bravo!, et al., urged
the termination of the proceeding except for the portion addressing the
exemption of yogurt and kefir products from the fluid milk product
definition. Bravo!, et al., asserted that the hearing record does not
support adoption of a protein standard. The brief stated that decisions
to amend Federal order provisions are not made without clear evidence
of disorderly market conditions, the potential shortage of milk for
fluid use, or lowering of producer revenue. The brief also discussed
letters sent to the Department by producers and manufacturers which
urged that a hearing be postponed because more analysis and market data
was needed to justify amending the current fluid milk product
definition. Bravo!, et al., argued that the hearing was held
prematurely, without allowing for adequate study and market data
research on the proposals that are under consideration. According to
the brief, more time was needed to accurately determine the impact of
new milk products on the marketplace.
The Bravo!, et al., brief summarized hearing testimony from
previous Department rulemaking decisions in which no changes were
recommended due to a lack of evidence to support a regulatory change.
According to Bravo!, et al., proponents did not provide evidence of
disorder in the marketplace nor did they substantiate their claims that
products currently in the market would not be reclassified if a protein
standard was adopted. On the basis of such conditions, the brief
concluded
[[Page 33540]]
that the current fluid milk product definition is adequate.
If the Department did not terminate the proceeding, the Bravo!, et
al., brief recommended that the 6.5 percent nonfat milk solids
standards remain, that the computation of nonfat milk solids not be
made on a milk equivalency basis, and that whey and whey ingredients be
excluded from the computation.
Exceptions to the Recommended Decision filed by Bravo!, et al.,
opposed the proposed adoption of the 2.25 percent protein compositional
standard and reiterated that adoption of a protein standard would have
a negative effect on dairy product innovation as manufacturers would
use lower priced non-dairy proteins as substitutes. Bravo!, et al.,
asserted that the Department did not give enough consideration to the
lowering of producer revenue that could occur due to the predicted
ingredient substitution.
Exceptions filed by Bravo!, et al., also opposed the Department's
use of form and intended use as one of the factors in making
classification determinations. The comments acknowledged that the AMAA
authorized the Federal Milk Marketing Order (FMMO) program to rely on
form and intended use in making classification determinations. However,
Bravo!, et al., asserted that historically the FMMO program applied the
form and use criteria by using compositional standards. Bravo!, et al.,
claimed that by specifically including the form and intended use
criteria in the order language the Department could ignore a product's
composition and arbitrarily classify products as fluid milk products
even though they did not compete with fluid milk. Bravo!, et al.,
predicted that the specific inclusion of form and intended use in the
fluid milk product definition would hamper the development of new
products and the use of dairy ingredients because of the uncertainty
manufacturers could face in how the milk components of their products
would be classified.
A witness appearing on behalf of Fonterra USA, Inc. (Fonterra)
testified in opposition to proposals that would include MPCs in
determining if the product met the protein standard of the fluid milk
product definition. Fonterra at the time of the hearing was a wholly
owned subsidiary of Fonterra Co-operative Group Limited, a New Zealand
based dairy cooperative owned by 12,000 New Zealand dairy farmers.
Fonterra operates plants within the United States that produce, among
other things, MPCs. The witness stressed that changes to the fluid milk
product definition would increase ingredient costs, discourage
manufacturing companies from using dairy ingredients in their products,
and force those companies to seek other less costly substitutes such as
soy and soy products.
A post-hearing brief submitted on behalf of Fonterra reiterated
their objection to changing the nonfat milk solids standard and
predicted that adoption of a protein standard would make classification
decisions unnecessarily complicated without providing additional
benefits to producers. The brief asserted that the hearing record did
not contain a sufficient economic analysis on the possible benefits
that adopting a protein standard would have on producer revenue or its
impact on the dairy industry.
The Fonterra brief speculated that adoption of a milk protein
standard would decrease the market price for milk proteins, discourage
new product development, and encourage the substitution of producer
milk with non-dairy ingredients. The brief noted that the annual growth
rate of soy and soy products in nutritional products from 1999 to 2003
was 16.5 percent, while the growth of milk proteins in nutritional
products only increased 10.1 percent over the same time period. The
brief predicted that if protein prices rise as a result of the adoption
of a milk protein standard, the growth of soy proteins will likely
increase because they could be substituted for more costly milk
proteins.
The Fonterra brief also stated that the hearing record does not
reveal disorder in the market by the application of the current fluid
milk product definition and therefore concluded that amending the fluid
milk product definition is not justified. The Fonterra brief argued
that proponents did not provide adequate reasoning for including whey
proteins in determining if a product met the protein standard but not
pricing whey proteins the same as other milk proteins. Furthermore, the
brief stated that proponents did not propose a method for
differentiating between whey proteins resulting from cheese production
and whey proteins from other sources.
Comments filed on behalf of Fonterra took exception to the
Recommended Decision's proposed adoption of a 2.25 percent true milk
protein compositional standard. Fonterra reiterated that proponents did
not meet the burden of proof needed to substantiate the adoption of a
protein standard. According to the comments, proponents did not
indicate if adoption of the standard would remedy any indications of
market disruption or reclassify some products as fluid milk products.
Fonterra's comments reviewed numerous rulemaking proceedings in
which, Fonterra concluded, the Department declined to adopt proposed
changes to marketing orders because of a lack of evidence that a change
would promote orderly marketing conditions. Fonterra argued that the
Recommended Decision did not adequately consider evidence asserting
that adoption of the milk protein standard would not increase the cost
for dairy ingredients, encourage the substitution of lower cost non-
dairy ingredients, and ultimately lower producer revenue. Fonterra was
of the opinion that before making a Final Decision, further analysis of
the proposals was needed to fully evaluate the possible economic impact
to producers and manufacturers as a result of adoption of the protein
standard.
Fonterra stated that the Department's recommended adoption of an
``either/or'' use of the protein and nonfat solids standard was not
contained in any proposal discussed at the hearing and that the
Department did not adequately explain how the use of both a protein and
nonfat solids standard would provide for the orderly marketing of milk
or increase producer revenue.
The comments filed by Fonterra also argued that the Department uses
this rulemaking proceeding to justify a change in policy that the
Department previously attempted to adopt without undertaking the formal
rulemaking process. Fonterra stated that historical Departmental policy
has been to exempt such products as casein, sodium caseinate, lactose,
whey, and MPCs from use in the nonfat milk solids calculation of a
product. In 2004, Fonterra said, the Department attempted to include
MPCs and other previously exempted dairy ingredients in the nonfat
solids calculation; however, that administrative decision was
overturned by an Administrative Law Judge. Fonterra claimed that
proposing to include all milk derived protein ingredients in the
calculation of a product's nonfat solids or protein composition is an
attempt to change historical policy without adequate analysis or
justification.
Fonterra also took exception to having some ingredients included in
the calculation of a product's composition but would not be priced in a
final product. Fonterra claimed that whey is used in nearly identical
products as MPCs and should therefore be priced the same. Fonterra was
of the opinion that pricing whey and MPCs differently would violate the
United States' World Trade Organization obligations. Fonterra
[[Page 33541]]
characterized whey production as primarily domestic, but that most MPCs
are imported. Accordingly, they concluded that excluding whey from
Class I pricing essentially places an illegal tariff on imported MPCs.
A witness appearing on behalf of the American Beverage Association
(ABA) testified in opposition to all proposals seeking to amend the
fluid milk product definition. ABA is a trade association that
represents beverage producers, distributors, franchise companies, and
their supporting industries. The witness was of the opinion that the
current fluid milk product definition already properly classifies dairy
products and that there is insufficient evidence to warrant any
changes. The witness claimed that any change would broaden the fluid
milk product definition to include products that contain only small
amounts of milk. The witness argued that many new beverage products
which contain small amounts of milk or milk ingredients do not compete
with fluid milk but do compete with soft drinks, juices and bottled
water. The witness asserted that amending the fluid milk product
definition to include some dairy ingredients not currently considered
would increase manufacturers cost of production, result in stifled
innovation of new products and encourage the use of non-dairy
ingredients as substitutes for milk-derived ingredients.
A witness appearing on behalf of Ohio Farmers Union (OFU) testified
in opposition to any change to the fluid milk product definition. OFU
is a nonpartisan, grassroots, general farm organization representing
more than 300,000 family farms nationwide according to their web site.
The witness testified that the primary purpose of the order program was
to provide consumers with a reliable supply of safe and wholesome milk.
The witness asserted that MPCs, caseinates, whey proteins, and other
similar milk-derived ingredients have functional and nutritional
characteristics different than fluid milk. Accounting for those
ingredients in the fluid milk product definition, the witness said,
would undermine the goal of the order program. The witness stressed
that if the fluid milk product definition were amended, consumer
confidence in the long established perception of milk as a fresh, pure
and wholesome beverage would be diminished and would thus threaten the
economic viability of domestic producers.
A witness appearing on behalf of the Milk Industry Foundation (MIF)
testified in opposition to amending the fluid milk product definition.
According to the witness, MIF is an organization with over 100 member
companies that process and market approximately 85 percent of the fluid
milk and fluid milk products consumed nationwide. The witness stated
that simply because a beverage contains milk or other dairy-derived
ingredients does not prove that those products compete with fluid milk
or that such competition lowers producer revenue.
The MIF witness asserted that previous Federal milk order
rulemaking decisions have required data and analysis to prove that an
amendment was warranted. According to the witness, the proponents of
proposals for changing the fluid milk product definition did not
provide such data and analysis. Along this theme, the witness said that
proponents should have provided data such as the market share held by
products that do not fall under the current fluid milk product
definition but would be included under any proposed change, cross price
elasticity of demand analysis of products which meet the existing fluid
milk product definition and of products that would be classified as a
fluid milk product if any of their proposals were adopted, and an own-
price elasticity of demand analysis for products that would be
reclassified.
A post-hearing brief submitted on behalf of MIF reiterated their
opposition to any changes to the current fluid milk product definition.
The brief urged that if the Department does amend the fluid milk
product definition, it should exclude all whey-derived protein products
in determining if a product meets the fluid milk product definition.
The brief stated that MIF has continuously opposed a hearing to
consider amending the fluid milk product definition because not enough
evidence is available to warrant a change. The brief maintained that
proponents did not offer adequate data at the hearing to demonstrate
that there is disorder in the marketplace that can be remedied by
adoption of a protein standard.
The MIF brief expanded its testimony by citing numerous rulemaking
decisions that denied proposals on the basis that adequate evidence was
not presented to warrant amendments to order provisions. MIF stressed
that the mere existence of beverages containing dairy-derived
ingredients is not evidence of marketwide disorder.
Exceptions filed on behalf of International Dairy Foods Association
(IDFA) asserted that because evidence doesn't demonstrate a need for
change, no changes to the fluid milk product definition should be made.
IDFA is a trade organization whose members include MIF, NCI and the
International Ice Cream Association (IICA). According to their
exceptions, IDFA represents more than 85 percent of the milk, cultured
products, cheese and frozen desserts produced and marketed in the
United States. IDFA reiterated arguments expressed by MIF at the
hearing and in MIF's post-hearing brief. Their exception claimed that
the hearing record did not demonstrate that products containing less
than 6.5 percent nonfat solids and more than 2.25 percent protein are
causing disorderly marketing conditions because they are not currently
classified as fluid milk products.
IDFA's comments also opposed the specific inclusion of the form and
intended use criteria in the fluid milk product definition and argued
that the definition should continue to contain only compositional
criteria. IDFA wrote that manufacturers' product development decisions
are in part determined by ingredient costs. Subjective criteria such as
form and intended use, wrote IDFA, could impede new product development
because a manufacturer would be uncertain of ingredient costs until a
final product had been classified. IDFA's exceptions opposed the
inclusion of whey when computing a product's composition because of
inconsistent justification by proponents as to why whey used to produce
fluid milk products should not also be priced as Class I. IDFA
exceptions stated that the proponents of the protein standard did not
demonstrate that disorderly marketing conditions exist in the absence
of the protein standard. IDFA exceptions concluded that the adoption of
amendments proposed in the Recommended Decision would only serve to
lower producer revenue.
Comments filed on behalf of Grande Cheese opposed all the proposed
changes to the fluid milk product definition contained in the
Recommended Decision. Grande Cheese is a cheese manufacturer located in
the State of Wisconsin. Grande Cheese expressed support of the opinions
expressed in the exceptions to the Recommended Decision filed by IDFA.
A witness appearing on behalf of the National Family Farm Coalition
testified in opposition to all proposals that would amend the fluid
milk product definition. The witness testified that MPCs do not meet
FDA's Generally Recognized as Safe (GRAS) standards as legal food
ingredients. Furthermore, the witness said, MPCs have not been
subjected to scientific testing to determine if they are safe for human
[[Page 33542]]
consumption and should not be allowed in milk products.
A witness appearing on behalf of Public Citizen testified in
opposition to proposals that seek to amend the fluid milk product
definition. According to the witness, Public Citizen is a non-profit
consumer advocacy organization with approximately 150,000 members. The
witness was opposed to any change in the fluid milk product definition
that would, in the witness' opinion, encourage the use of MPCs.
Two Pennsylvania dairy farmers testified in opposition to any
change to the fluid milk product definition. The producers opposed all
proposals that would allow the use of caseinates and MPCs in fluid milk
products. They asserted that MPCs are not allowed in the production of
standardized cheese and should also not be allowed in the production of
fluid milk products.
A post-hearing brief submitted on behalf of the American Dairy
Products Institute (ADPI), an association representing manufacturers of
dairy products, offered support for amending the fluid milk product
definition to include milk beverages that compete directly with fluid
milk. However, the brief cautioned against developing a fluid milk
product definition that would include non-traditional beverages and
smoothie type products (yogurt-containing beverages). The brief
recommended that an economic study be conducted to determine the
possible impacts of the proposed changes before action is taken to
amend the fluid milk product definition.
A post-hearing brief submitted on behalf of General Mills contended
that the fluid milk product definition should not be amended because
proponents did not provide sufficient evidence or data to justify a
change. The brief maintained that the hearing record is not clear on
how proposals would be implemented or on the impact to producers,
manufacturers, and consumers if the protein standard was adopted.
General Mills contended that before a change is made, the Department
should conduct an economic analysis to evaluate how protein and dairy
products are competing in the marketplace and how the adoption of a
protein standard would impact the marketplace. If a protein standard
was recommended for adoption, General Mills recommended that whey not
be included in the protein calculation, or if whey is included, that a
2.8 percent protein standard be adopted in order to maintain the status
quo.
Exceptions to the Recommended Decision filed by General Mills
opposed the adoption of the true protein compositional standard.
However, General Mills was of the opinion that if the Department
continued to support the protein standard, then any whey components
should be excluded from determining a final product's protein content.
General Mills purported that the inclusion of whey in the protein
calculation, even if not priced at Class I, may lead manufacturers to
increase their use of non-dairy ingredients as substitutes.
General Mills was also opposed to relying on form and intended use
in classification determinations. According to their exceptions, the
form and use criteria would cause manufacturers to be less certain of a
product's classification which would discourage using dairy ingredients
in new products. General Mills noted that if the Department decides to
not alter its Recommended Decision then it should clarify in a Final
Decision that only products that compete with or are a substitute for
fluid milk would be classified as a fluid milk product.
A post-hearing brief submitted on behalf of New York State Dairy
Foods, Inc. (NYSDF) opposed amending the fluid milk product definition.
According to their brief, NYSDF is a trade association representing
dairy product processors, manufacturers, distributors, retailers, and
producers in the Northeast United States. The brief argued that
products produced with the use of new fractionation technology are a
small portion of the milk beverage market. They were of the opinion
that such products are still too new to determine their impact on Class
I sales and producer revenue. The brief also asserted that the adoption
of a protein standard as part of the fluid milk product definition
would discourage new product development and would increase costs that
would result in reduced sales of dairy-derived ingredients. The brief
urged that the proceeding be terminated.
Comments and exceptions to the Recommended Decision filed on behalf
of Glanbia Foods (Glanbia) opposed the proposed adoption of the true
protein compositional standard and the specific inclusion of form and
intended use as a factor in classification determinations. Glanbia
operates two cheese plants and two whey plants that collectively
process nearly 4 billion pounds of milk annually. Glanbia asserted that
adoption of a true protein standard would lead to stifled innovation of
milk derived ingredients in new products because the manufacturing
industry would increase its use of non-dairy ingredients as
substitutes. Their exceptions claimed that the hearing record does not
contain evidence that adoption of a protein standard would ultimately
benefit producers or remedy a market disorder. Glanbia also argued that
the Department's reliance on form and intended use in classification
determinations would similarly discourage the use of dairy ingredients.
A professor from Cornell University testified regarding a research
study conducted by the Cornell Program on Dairy Markets and Policy that
focused on the demand elasticity's of various dairy products. The
witness did not appear in support of or in opposition to any proposal
presented at the hearing. The witness explained that the goal of the
study was to ascertain the extent to which product innovation and
classification decisions influence producer revenue. The study was
designed to evaluate four hypothetical dairy products and test the
effect that a range of classification determinations would have on
producer revenue. The witness explained the study and concluded that
the impact on producer revenue of a new product being reclassified from
Class II to Class I was likely to be small, plus-or-minus $0.01 per
hundredweight (cwt). However, the witness added, if non-dairy
ingredients were substituted as a result of the reclassification, the
study predicted that producer revenue would be lowered by $0.22 per
cwt. The witness concluded that while the financial returns from
product reclassification could be positive, the resulting ingredient
substitution, which could take place, would result in a significant
negative impact on producer revenue.
The post-hearing brief submitted by NMPF also addressed concerns
articulated at the hearing regarding the need for a demand elasticity
study to address the issue of product substitution before amending the
fluid milk product definition. The brief asserted that a demand
elasticity study would not take into account newly emerging products,
changing consumer preferences, and product innovations that could
change the competitive relationships between products and therefore
would not provide any relevant data. The brief also argued that the
economic model created by Cornell University and discussed at the
hearing contained many incorrect assumptions and thus concluded that
the study results were flawed.
The DFA/DLC brief also rebutted opposition to Proposal 7 which
called for studies of product usage or demand elasticity's before
considering amendments to the fluid milk product definition. The brief
asserted the previous amendments to the classification system have been
made
[[Page 33543]]
without such economic studies and that this proceeding should be
handled in the same manner.
A witness appearing on behalf of Bravo! Foods International
Corporation, Lifeway Foods, Inc. (the principal makers of kefir in the
U.S.), PepsiCo, Starbucks Corporation and Unilever United States, Inc.
(Bravo! et al.), proposed at the hearing that kefir, as well as yogurt-
containing beverages, be exempted from the fluid milk product
definition.
A witness appearing on behalf of Dannon testified in support of
Proposal 8 that would exclude yogurt containing beverages from the
fluid milk product definition. The witness provided a definition of
yogurt containing beverages as any beverage containing at least 20
percent yogurt (which is in concert with Proposal 9). The witness
argued that yogurt containing beverages are not similar in form and use
to fluid milk products and should be excluded from the fluid milk
product definition. The witness testified that Dannon currently
manufactures yogurt containing products which are classified as both
fluid milk products and Class II products. The Dannon witness
maintained that regardless of the classification, none of its products
compete with fluid milk. According to the witness these products should
all be classified as Class II. The witness emphasized that yogurt and
yogurt-containing products use unique cultures, ingredients, and
production technology that differentiate them from fluid milk product
production. Furthermore, the witness said yogurt products' packaging,
taste, mouth feel, shelf-life and marketing placement in grocery stores
distinguishes them from fluid milk.
The Dannon witness presented market research it had conducted. The
witness stated, based on the research, that yogurt-containing beverages
are consumed as a food product and not as an alternative to fluid milk.
The witness claimed that less than one percent of potential consumers
of a Dannon yogurt-containing product consume the product as a
substitute for fluid milk. Additionally, the witness noted that Dannon
advertises its yogurt-containing products as a substitute for snacks,
not fluid milk. The witness concluded from this that yogurt-containing
products are different than fluid milk, do not compete with fluid milk
in the marketplace and therefore should not be classified the same as a
fluid milk product. The witness also testified in opposition to
Proposal 9 but only with respect to the inclusion of a protein
threshold which Dannon does not consider justified. The witness noted
that Dannon does support the proposed 20 percent minimum yogurt content
standard that such products should meet as a condition for being
exempted from the fluid milk product definition.
A post-hearing brief submitted on behalf of Dannon reiterated its
hearing testimony. The brief stated that fluid milk products should
only be those products that are closely related to, or compete with,
fluid milk for sales. That brief stressed that yogurt-containing
beverages are dissimilar to fluid milk beverages and are used as a food
replacement, not as a beverage substitute. The brief noted that in
2004, more than 37 percent of Dannon's sales were from products
developed within the last 5 years and stressed that classifying all
milk drinks with milk-derived ingredients as fluid milk products would
result in decreased innovation for developing additional uses for milk.
A witness appearing on behalf of General Mills testified in support
of Proposal 9. The witness was of the opinion that USDA should classify
products primarily on the basis of form and use. The witness asserted
that drinkable yogurt products, while containing milk ingredients, are
food products and do not compete with fluid milk. The witness explained
that drinkable yogurt products were created to meet a change in
consumer preferences for convenience and portability. The witness
presented market research conducted by Yoplait demonstrating that
consumers view drinkable yogurt products as alternatives to
traditionally packaged yogurt and other nutritional snacks, not fluid
milk. The witness asserted that 80 percent of Yoplait drinkable yogurt
smoothie consumers would substitute another yogurt product for the
smoothie.
The General Mills witness supported the current classification
system contending that its modification raises a host of issues and
questions. However, if USDA determined that a change to the fluid milk
product definition is appropriate, the witness urged adoption of
Proposal 9 to exclude drinkable yogurt products that contain at least
20 percent yogurt by weight and no more than 2.2 percent skim milk
protein from the fluid milk product definition. According to the
witness, including drinkable yogurt products in the fluid milk product
definition would increase costs to manufacturers that would stifle
innovation and result in a shift towards using non-dairy ingredients.
The witness said manufacturers would choose to reformulate products
using less milk and milk proteins resulting in reduced dairy producer
income.
A post-hearing brief submitted on behalf of General Mills
maintained that ample evidence regarding the fundamental differences of
fluid milk and yogurt containing beverages was presented at the hearing
to justify exempting yogurt containing products with more than 20
percent yogurt from classification as a fluid milk product. Comments
and exceptions to the Recommended Decision filed on behalf of General
Mills reiterated this view.
Two witnesses appearing on behalf of the National Yogurt
Association (NYA) testified in support of proposals that would exempt
yogurt containing products from the fluid milk product definition. NYA
is a national trade association representing the producers of yogurt
products and their suppliers. The witnesses testified that previous
regulatory decisions made by USDA emphasized that products classified
as fluid milk products should be intended to be consumed as beverages
and compete with fluid milk. The witnesses expressed disagreement with
a classification decision published in the early 1990's that classified
drinkable yogurt products as fluid milk products. The witnesses were of
the opinion that in both form and use, yogurt and drinkable yogurt
products compete with other food products, not fluid milk, and should
be classified as Class II products. The witnesses explained that yogurt
products are produced and shipped nationally by a few manufacturers,
have a shelf-life averaging 30-60 days, have a texture and taste
distinctly different than fluid milk and are positioned in retail
stores separate from fluid milk. The witnesses noted that yogurt-
containing beverages were developed as a substitute for spoonable
yogurt products, not fluid milk.
The NYA witnesses were of the opinion that the increase in producer
revenue resulting from currently classifying drinkable yogurt products
as fluid milk products isn't and would not overcome the decrease in
revenue due to the loss of sales from an increase in the price of
drinkable yogurt products.
A post-hearing brief submitted on behalf of NYA reiterated support
for excluding all products containing at least 20 percent yogurt
provided that the yogurt meets the standard of identity for yogurt.
According to the brief, the 20 percent content requirement would ensure
that only products whose characterizing ingredient is yogurt would be
excluded from the fluid milk product definition. The brief also
indicated that if USDA determines not to exclude yogurt containing
products,
[[Page 33544]]
then NYA strongly opposes any change to the current fluid milk product
definition.
The NYA brief argued that consumer surveys and marketplace data
provided by Dannon and General Mills that explained how yogurt-
containing products are fundamentally different from fluid milk were
not contradicted at the hearing. The brief also noted that while Dairy
Farmers of America (DFA) and National Milk Producers Federation (NMPF)
testified that consumers are buying low-carbohydrate milk instead of
fluid milk, they did not offer similar evidence for yogurt-containing
products.
Comments and exceptions to the Recommended Decision filed on behalf
of NYA supported the proposed exemption of drinkable yogurt products
from the fluid milk product definition. The NYA comments reiterated
arguments it made at the hearing and in its post-hearing brief, and
asserted that the hearing record contains no evidence to support that
drinkable yogurt products are similar to fluid milk.
A witness appearing on behalf of Bravo!, et al., testified in
support of amendments that would exempt yogurt containing products and
kefir from the fluid milk product definition. The witness argued that
both products are compositionally different than fluid milk and do not
compete for sales with fluid milk. Furthermore, the witness noted that
drinkable yogurt and kefir products are one of the fastest growing
segments in the dairy industry, providing a large opportunity for the
expanded use of dairy-derived ingredients which should not be hampered
by the additional costs of such ingredients being priced at Class I.
Comments and exceptions filed on behalf of Bravo!, et al. and by
Lifeway Foods, separately expressed support for the Recommended
Decision's proposed exemption of kefir, and drinkable yogurt products
that contain at least 20 percent yogurt.
A witness appearing on behalf of Leprino Foods Company (Leprino)
testified that if USDA recommended amending the fluid milk product
definition, then Leprino supported the adoption of Proposal 9 to
exclude products containing at least 20 percent or more yogurt by
weight from the fluid milk product definition. According to the
witness, Leprino operates nine plants in the United States that
manufacture mozzarella cheese and whey products. The witness also was
of the opinion that yogurt containing products do not compete with
fluid milk and should be classified as Class II products. The witness
stressed that if these products are not excluded from the fluid milk
product definition, then Leprino strongly opposed the adoption of a
protein standard to be part of the fluid milk product definition.
Comments and exceptions filed on behalf of Leprino supported the
Recommended Decision's proposed exclusion of yogurt containing
beverages and kefir from the fluid milk product definition.
Comments filed by Fonterra USA, Inc. (Fonterra) supported the
Department's recommendation that yogurt containing beverages should be
exempted from the fluid milk product definition but took exception to
the yogurt content in beverages containing less that 20 percent yogurt
(i.e. Class I) not being subject to an ``upcharge'', as are other milk
ingredients. Fonterra is a wholly owned subsidiary of Fonterra Co-
operative Group Limited, a New Zealand based dairy cooperative owned by
12,000 New Zealand dairy farmers.
The witness appearing on behalf of NMPF testified in opposition to
exempting yogurt-containing beverages from the fluid milk product
definition. The witness was of the opinion that these products are
similar in form and use to other flavored fluid milk products and
should be considered a substitute for fluid milk. In its post-hearing
brief, NMPF maintained its opposition to proposals that would exclude
drinkable yogurt products from the fluid milk product definition.
Comments and exceptions filed by NMPF in response to the
Recommended Decision opposed the exemption of kefir and yogurt
containing beverages from the fluid milk product definition arguing
that an exemption is inconsistent with the principle of form and
intended use. NMPF reiterated arguments made at the hearing and in its
post-hearing brief that kefir and yogurt containing beverages are
almost identical in form to fluid milk and are used as beverages. NMPF
purported that data presented at the hearing by yogurt manufacturers
demonstrating that yogurt containing beverages did not compete with
fluid milk was misleading and the exemption would be difficult to
enforce. NMPF stated that because kefir has no standard of identity (as
does yogurt, for example) manufacturers could name an array of products
as kefir to avoid classification as fluid milk products. NMPF also said
the standard of identity for yogurt was too broad and its identity
standard is currently under review by the FDA. NMPF claimed that
exempting yogurt containing beverages from the fluid milk product
definition could create an enormous regulatory loophole that could be
exploited to avoid classification of new products as fluid milk
products.
The witness appearing on behalf of Dairy Farmers of America and
Dairylea Cooperative Inc. (DFA/DLC) also testified in opposition to the
adoption of Proposals 8 and 9. The witness stated that adoption of
these proposals would allow more products to be classified as Class II
products even though they compete with fluid milk for sales. A post-
hearing brief filed by DFA/DLC further claimed that the growth of
drinkable yogurt products in the marketplace has not been impeded by
previous classification decisions and that such products should not be
excluded from the fluid milk product definition because some hearing
participants claimed it would harm the innovation of new dairy
products.
In its comments to the Recommended Decision, Select Milk Producers,
Inc. (Select)/Continental Dairy Products (Continental) opposed the
exemption of kefir or drinkable yogurt beverages that contained 20
percent or more yogurt from the fluid milk product definition.
According to their brief Select and Continental are dairy-farmer owned
cooperatives that market milk on various Federal orders.
The witness appearing on behalf of Leprino testified in support of
Proposal 10. The witness testified that only products that compete with
fluid milk should be classified as fluid milk products, therefore meal
replacements and nutritional drinks should remain exempted from the
fluid milk product definition. In its exceptions to the Recommended
Decision Leprino opposed the inclusion of the term ``health care
industry'' in the meal replacement exemption. Leprino argued that this
qualifier could cause a product to hold two different classifications
depending on how it is distributed.
A post-hearing brief submitted on behalf of Novartis stated that
the Department should exempt special dietary need and nutritional
beverages from the fluid milk product definition. The brief explained
that Novartis' products are not currently classified as fluid milk
products due to their nutritional nature, the level of nonfat milk
solids contained in their product, and because their products are only
available through foodservice and health care channels. The brief
stressed that Novartis' health care products were never intended to
compete with traditional fluid milk.
The brief predicted that Novartis' products could possibly become
reclassified as fluid milk products if a 2.25 percent protein standard
were adopted as a part of the definition. The
[[Page 33545]]
brief insisted that if these products are reclassified, it would result
in higher costs for patients with special dietary and nutrition needs.
The brief urged the Department to exempt nutritional products consumed
for special dietary use from the fluid milk product definition if a
protein standard was adopted as part of the fluid milk product
definition.
A witness appearing on behalf of Hormel testified in support of
Proposal 11 seeking to exclude health care beverages from the fluid
milk product definition. The witness testified that fluid milk products
designed for the health care industry should be exempted because they
do not compete with fluid milk for sales. The witness explained that
Hormel's distribution is primarily to health care facilities, and they
are targeted to a small segment of the population. The witness argued
that if products designed for the health care industry were classified
as fluid milk products, it would have no effect on producer revenue
because the products have extremely limited distribution. The witness
explained that many products Hormel manufactures are designed to help
counter the effects of malnutrition in adults with a variety of medical
conditions and are not marketed nor labeled as fluid milk. Instead,
those products are considered to be foods for special dietary use, the
witness noted, and should be exempt from the fluid milk product
definition.
The Bravo!, et al., witness also testified in support of the
continued exemption from the fluid milk product definition for products
such as infant formula, meal replacements, products packaged in
hermetically sealed containers, snack replacements, high protein
drinks, and products that contain alcohol or are formulated for animal
use. The witness explained that meal replacements and similar products
have historically been exempted from the fluid milk product definition
and that their regulatory status should not be changed.
Comments received from Bravo!, et al. on the Recommended Decision
supported the continued exemption of meal replacements that are sold to
the health care industry but offered a slight modification to clarify
the intent of the exemption. Bravo!, et al., explained that some
products are considered meal replacements and are sold both in retail
markets and through health care professionals, health care
institutions, and weight management centers. Bravo!, et al., asserted
that a literal reading of the Recommended Decision could lead to one
product holding two different classifications depending on how it is
distributed. Therefore, Bravo!, et al., suggested that the meal
replacement exemption be modified to read ``* * * (meal replacement)
that are intended for use in the health care industry, or products
similar in form and intended use sold to retail customers * * *''
The NMPF witness testified in opposition to Proposal 10 arguing
that its adoption would eliminate important factors in determining if a
product was specially formulated for a specific dietary purpose that
would warrant exemption from the fluid milk product definition. The
witness was also opposed to Proposal 11 because the proposed language--
``nutrient enhanced fortified formulas''--was too broad and would not
clearly distinguish such products from traditional fluid milk products.
In its exceptions to the Recommended Decision, NMPF opposed any
amendments to the exemption of meal replacements from the fluid milk
product definition. NMPF stated that the proposed use of the ``health
care industry'' distribution criteria was vague and open-ended for
interpretation on which entities are a part of the ``health care
industry.'' NMPF was of the opinion that the current packaging criteria
contained in the proposed meal replacement exemption is an appropriate
guideline for what products constitute meal replacements.
The DFA/DLC witness testified in opposition to Proposals 10 and 11.
The witness was of the opinion that amending the fluid milk product
definition to broaden the exemption of products such as infant formulas
and meal replacements was not justified because doing so would
significantly lower Class I use. This position was reiterated in the
DFA/DLC post-hearing brief and exceptions to the Recommended Decision.
DFA, et al., argued that no evidence was presented to support the
removal of the packaging criteria from the meal replacement exemption.
The exceptions asserted that the use of packaging criteria has
historically been a way to distinguish products that do not compete
with fluid milk because the higher cost of hermetically sealed
packaging discouraged manufacturers from using the exemption to
circumvent Class I pricing. DFA, et al., also took exception to the
proposed exemption of nutritional formulas that are prepared for the
health care industry. According to the exceptions, the types of
institutions that comprise the ``health care industry'' are not clearly
defined in the decision. DFA, et al., asserted that the meal
replacement exemption could cause manufacturers to sell their products
to a health care facility for resale in the ``normal marketplace'' to
avoid Class I pricing.
The witness appearing on behalf of O-AT-KA testified that products
packaged in hermetically-sealed containers or that are specialized for
longer shelf life should remain exempt from fluid milk product
classification because those products are used as meal replacements and
meal supplements, not as alternatives to milk. The witness said that
since the term ``meal replacement'' is not defined in the current
definition, no change in the exemption of hermetically sealed
containers should be made. The position was reiterated in their brief.
The Dannon witness testified in opposition to the adoption of
Proposal 10 because it would remove the 6.5 percent nonfat milk solids
standard of the fluid milk product definition.
Exceptions to the Recommended Decision filed by Fonterra opposed
the removal of how a product is packaged in the infant feeding and
dietary use exemption, and the proposed distribution to the ``health
care industry'' as a method for exempting meal replacements. Fonterra
argued that relying on how a product is distributed could cause the
same product to hold two separate classifications. Fonterra offered
that if meal replacements are to be exempt from fluid milk product
classification, then how a product is distributed should not be a
factor in determining whether or not it meets the fluid milk product
definition.
Discussion and Findings
This decision provides that the fluid milk product definition for
all Federal orders defines fluid milk products by: (1) Continuing to
provide a non-exhaustive list of named fluid milk products; (2)
Maintaining a set of compositional standards; and (3) Continuing to
provide exceptions for products that will be exempted from the
definition. This decision maintains the current maximum butterfat limit
of less than nine percent for a product to still be considered a fluid
milk product. The nonfat solids compositional standards will consist of
the current 6.5 percent nonfat milk solids content of a product and a
true milk protein standard of 2.25 percent content of a product. The
nonfat solids standards will be applied independently of each other.
For example, if a product contained 6 percent nonfat solids and 2.30
percent true milk protein and less than 9 percent butterfat the product
would be considered a fluid milk product. These standards either 6.5
percent or more nonfat milk solids or 2.25 percent or
[[Page 33546]]
more true milk protein, or less than nine percent butterfat, will be
the basis for determining if a beverage containing dairy ingredients
meets the compositional standards for being defined as a fluid milk
product.
The calculation of the percent true protein and the percent nonfat
milk solids contained in a product will be performed by measuring the
true protein and nonfat milk solids of all dairy-derived ingredients
contained in the finished product. All non-fluid dairy-derived
ingredients used in a fluid milk product will be classified and priced
in the same manner as nonfat dry milk (or condensed) is currently
classified and priced when used in a fluid milk product.
The record supports exemption of certain drinkable products made
from milk or products containing milk-derived ingredients from the
fluid milk product definition. These exemptions include: Drinkable
yogurt containing at least 20 percent yogurt by weight and kefir;
products especially prepared for infant feeding or dietary use as meal
replacements that are packaged in hermetically sealed containers; and
other products that may otherwise meet the compositional standards of a
fluid milk product but contain no fluid milk products named in the
fluid milk product definition.
The primary goal of Federal milk marketing orders is to establish
and maintain orderly marketing conditions. This is achieved primarily
through the use of classified pricing (pricing milk based on its use)
and the marketwide pooling of the proceeds of milk used in a marketing
area among all producers. These two tools enable Federal orders to
establish minimum prices that handlers must pay for milk based on its
ultimate use and return to producers a weighted average or uniform
price for their milk.
Through classified pricing and marketwide pooling, Federal orders
promote and maintain orderly marketing by equitably pricing milk used
in the same class among competing handlers within a marketing area.
This does not mean that handlers will necessarily have equal costs
since differences in milk tests, procurement costs, and transportation
will impact a handler's final raw milk costs. However, it does allow
handlers to have the same minimum regulated price for milk used in a
particular category of products or class of products for which they
compete for sales. The regulated minimum price is the class price for
the respective class of use. Thus, it is reasonable and appropriate
that milk used in identical or nearly identical products should be
placed in the same class of use. This tends to reduce the incidence of
disorderly marketing that may arise because of price differences
between competing handlers.
Federal milk orders classify producer milk as fluid milk or used to
produce a manufactured product. Producer milk classified as Class I
consists of those products that are intended to be used as beverages
including, but not limited to, whole milk, skim milk, low fat milk, and
flavored milk products such as chocolate milk. Producer milk classified
as Class II includes milk used in the production of soft or spoonable
manufactured products such as sour cream, ice cream, cottage cheese,
yogurt, and milk that is used as ingredients in the manufacture of
other food products. Producer milk classified as Class III includes
milk used in the production of hard cheese products. The Class IV use
of producer milk generally consists of milk used in the production of
canned milk, dried milk products, and butter.
Federal orders provide a definition for ``fluid milk products'' to
identify the types of products that are intended to be consumed as
beverages and to specify that the skim milk and butterfat in these
types of milk products should be classified as Class I and priced
accordingly. The current fluid milk product definition contained in all
Federal milk orders provides a non-exhaustive list of products that are
specifically identified as fluid milk products. The definition also
specifies certain compositional criteria for fluid milk products--any
product containing less than 9 percent butterfat and 6.5 percent or
more nonfat milk solids. The definition also specifically exempts from
the fluid milk product definition products especially prepared for
infant feeding or dietary use (meal replacement) packaged in a
hermetically-sealed container, any product that contains by weight less
than 6.5 percent nonfat milk solids, and whey.
Numerous witnesses were concerned that the definition of milk as
defined by the Food and Drug Administration (FDA) in 21 CFR 131.110 not
be changed. A Federal milk marketing order decision cannot change the
definition of milk. Some witnesses were of the opinion that the
addition of various ingredients to milk would cause the resulting
product to not meet the Grade A standard. This decision does amend the
definition of a fluid milk product in all milk marketing orders for the
purpose of classifying producer milk in accordance with the form in
which or the purpose for which it is used as required by section
608(c)(5)(A) of the Agricultural Marketing Agreement Act. Neither this
decision nor Federal orders in general determine if milk is Grade A or
what ingredients are allowed in milk. Further, Federal orders do not
establish standards of identity for milk. Such standards are
established by other agencies, such as a state board of health or the
FDA.
Testimony given at the hearing and positions taken in post-hearing
briefs extensively discussed the importance of form and intended use in
determining whether a product should be defined as a fluid milk
product. However, comments to the Recommended Decision almost
universally favored the use of specific compositional standards rather
than form and use as first consideration which was proposed in the
Recommended Decision. These comments have merit. Therefore as provided
in this decision, compositional criteria will be the primary basis used
in determining whether the product is defined as a fluid milk product.
The standards of 6.5 percent or more nonfat milk solids or 2.25
percent or more true milk protein are intended to exclude from the
fluid milk product definition those products which contain some milk
solids but that are not closely identified with the dairy industry.
The establishment of nonfat milk solids and true milk protein
standards for classifying milk products is intended to provide the same
classification for products having the same general form and use.
Similar products in different classes defeat the purpose of classified
pricing and results in unequal costs among handlers. It is not the
intent of the Federal order program to bring products that do not
resemble nor are marketed as dairy beverages under the fluid milk
product definition. As stated earlier, the Act requires the Secretary
to classify milk ``in accordance with the form in which or the purpose
for which it is used.'' Currently, some products such as re-hydrating
fruit flavored sport drinks, bottled teas, carbonated soft drinks, or
bottled water may contain some milk-derived ingredients but they do not
resemble nor are they marketed as dairy products.
As discussed in the comments to the Recommended Decision, specific
compositional standards will give the industry clearer standards from
which to determine if a product is or will be defined as a fluid milk
product, superseding reliance on form and intended use. When
formulating new beverage products, the industry will have specific
standards to guide product formulation. The industry will better know
how Federal orders will determine the prices of milk ingredients.
[[Page 33547]]
Based on record evidence, compositional standards should continue
to be relied upon in determining if a product meets the fluid milk
product definition. The revised definition provides that a beverage
should contain by weight less than 9 percent butterfat and contain 6.5
percent or more nonfat milk solids or 2.25 percent or more true milk
protein. The 9 percent butterfat criterion that is currently used as
the maximum butterfat content to differentiate between fluid milk
products and fluid cream products (a Class II use of milk) is
unchanged. The addition of a 2.25 percent true milk protein criterion
serves to provide a sufficient basis to distinguish whether a product
is a Class I or Class II use of milk.
Several parties filed comments in opposition to the inclusion of
the 2.25 percent true milk protein criterion. They argued that its
inclusion in the definition is unnecessary and its adoption may cause
processors to use non-dairy ingredients to avoid products from being
classified as a fluid milk product.
The record of this proceeding clearly supports the addition of a
milk protein standard to the fluid milk product definition. The record
shows that by removing some of the lactose from milk, a product may be
produced that is in all respects (except for the removed lactose)
identical to the form and intended use of fluid milk products. However,
using only the 6.5 percent nonfat standard results in this product
being classified as Class II even though its form and use closely
resembles Class I products.
Including all dairy derived ingredients in the computation of a
product's nonfat solids and true protein content provides a more
complete and comprehensive basis to determine a milk products identity
as a fluid milk product. Record evidence reveals criticism that the
current fluid milk product definition has not changed to reflect the
technological advances in milk processing--especially the fractionation
of milk. Such fractionation technology has created the ability to
produce dairy-based beverages of almost any composition, some of which
are marketed as and directly compete with traditional fluid milk
products.
Several witnesses at the hearing addressed specific composition
criterion that should be used for determining if a product meets the
fluid milk product definition. Proponents of the 2.25 percent true milk
protein criterion explained that with the technology to separate the
lactose from the protein in milk, protein also should be used in
determining if a product should be a fluid milk product because protein
is the highest valued nonfat milk solid and because lactose is most
often not used in the formulation of manufactured dairy-based
beverages. Under current administrative determination of nonfat milk
solids, a dairy-based beverage with lactose removed has generally been
determined not to be a fluid milk product. Further, milk, in either wet
or dry form, that has lactose removed is generalized as ``milk protein
concentrate (MPC)'' and MPC has not been considered a nonfat milk
solid. Thus, with lactose removed, a product closely resembling milk in
form and intended use may contain less than the current 6.5 percent
nonfat milk solids even though the protein content could exceed the
protein content of milk.
Other testimony contended that milk protein is not a significant
component in fluid milk products and incorporating a milk protein
criterion is therefore not appropriate. Contrary to the view that milk
protein is not a significant component in fluid milk products, the
record of the proceeding reveals that in whole milk, protein is the
third most abundant component following lactose and butterfat. In
lowfat milk, protein is the second most abundant component.
Even though the record and post hearing briefs contain considerable
discussion concerning possible new product development and substitution
of nondairy ingredients in fluid milk products, no evidence was
presented at the hearing to indicate at what price level or to what
degree such substitution would take place. Testimony at the hearing
only speculated that processors may use nondairy ingredients if the
fluid milk product definition adopted the proposed 2.25 percent true
milk protein compositional standard. Opponents also suggested that
evidence did not warrant any change to the fluid milk product
definition and that there was no evidence that changing the definition
would be beneficial to dairy farmers. Proponent witnesses argued that
adoption of a 2.25 percent true milk protein compositional standard
would not change the classification of products which currently do not
meet the fluid milk product definition. Neither proponents nor
opponents presented any data to substantiate their claims of benefit or
harm to changing the fluid milk product definition.
While the Class I use of milk is priced on the basis of skim milk
and butterfat, skim milk and butterfat pricing do not distinguish the
components or the level of components that are in the skim fraction.
Even if there is a greater level of protein in the skim fraction, there
is no greater value that will be assigned to the skim fraction.
However, producers may benefit from products being determined as
meeting the fluid milk product definition not because of the adoption
of the protein standard but because the dairy ingredients in these
products are priced as Class I.
The record evidence supports that the true milk protein or nonfat
milk solids contained in a finished product should be used to determine
if the 2.25 percent true milk protein or the 6.5 percent nonfat solids
compositional standard has been met. The composition of the finished
product, including all milk-derived ingredients, will provide a clear
comparison of the product in question to the products listed and
defined in the fluid milk product definition. These ingredients
include, but are not limited to, the specific products listed in the
fluid milk definition, nonfat dry milk, milk protein concentrate,
casein, calcium and sodium caseinate, and whey. Although liquid whey,
which is derived from other manufacturing, may meet the compositional
standards of a fluid milk product in its natural form, it is not a
finished product. The intent is to specifically exclude liquid whey
from the fluid milk product definition and account for it only when
used as an ingredient in the production of a finished product meeting
the fluid milk product definition. The compositional content will be
computed by using the pounds of true protein or nonfat milk solids in
the finished product. For all other purposes, such as pricing and
pooling, the fluid equivalent of all milk ingredients in fluid milk
products, including but not limited to nonfat dry milk, milk protein
concentrate, casein, calcium and sodium caseinate, and whey, will be
used. The addition of a true milk protein criterion will assist in
determining those products that should be considered fluid milk
products. The inclusion of a true milk protein compositional standard
also will assure that products which are comparable to the products
listed in the fluid milk product definition are properly classified as
Class I.
Federal milk orders have consistently been applied to provide and
this decision reaffirms that nonfat dry milk reconstituted to make a
fluid milk product or the volume increase caused by the use of nonfat
dry milk in the fortification of a fluid milk product should be
assessed the Class I value because the integrity of classified pricing
is maintained and the reconstituted or fortified product competes with
fluid uses of milk products. Accordingly, this decision proposes that
other dairy-derived ingredients, such as milk protein
[[Page 33548]]
concentrate, casein, calcium and sodium caseinate, and whey, that are
used or reconstituted to form a fluid milk product or the volume
increase caused by the use of these products to fortify a fluid milk
product be priced as Class I for the same reasons. Handlers will be
charged the current month's Class I price for the additional Class I
volume resulting from the use of these ingredients in fluid milk
products contrasted to the receipt of these products assigned to Class
IV. This reclassification charge (additional cost) is not a separate
charge but is assessed through the increase in the handler's Class I
utilization and is assessed (determined) on the volume of reconstituted
milk or the volume increase in the modified product, above the level of
an unmodified product. This reclassification charge assures equity
between competing handlers on raw product cost, assures producers that
they will receive the Class I value contribution to a marketing order's
blend price for milk marketed as a fluid milk product, and it maintains
the integrity of classified pricing.
Based on the record, all milk-derived ingredients, on a fluid
equivalent basis, contained in a fluid milk product will be included in
the allocation process and the resulting classification and pricing of
producer milk. Whey, as used herein is intended to include whey, dry
whey, and whey protein concentrates. The fluid equivalent for those
products where the relationship between the protein and nonfat milk
solids has not been altered will be computed using nonfat solids, while
the fluid equivalent for those products where the relationship between
the protein and nonfat milk solids has been altered, such as MPCs, will
be determined on a true milk protein basis.
The methodology for computing a handler's cost under Federal milk
orders remains unchanged. Milk-derived products such as nonfat dry
milk, MPC, casein, calcium and sodium caseinates and whey will be used
to determine if the quantity of the fluid milk equivalent in the
modified fluid milk product is greater than the volume of an unmodified
fluid milk product of the same type and butterfat content. The
equivalent volume of the modified product, up to the level of the
volume of an unmodified product, will be considered Class I utilization
and will result in the inherent reclassification charge (additional
cost) in the handler's use value from the Class IV price to the Class I
price. Any fluid milk equivalent in excess of this equivalent volume
will be considered a utilization of other source milk beginning with
Class IV and be priced accordingly. The receipt of these milk-derived
products used in a fluid milk product will be accounted for on a fluid
equivalent basis as Class IV other source receipts.
Comments filed in response to the Recommended Decision, by various
parties representing producers, were in favor of including all nonfat
dairy solids in the computation of the numerical standards as contained
in the Recommended Decision. Their comments reiterated the position
presented in their testimony and briefs. Comments filed by opponents of
including all nonfat milk solids argued that the inclusion of all
nonfat solids is unnecessary because whey and certain other nonfat
solids have not traditionally been included in the definition of fluid
milk. They also maintain that because no disorderly marketing has
occurred, no change is necessary. Opponents assert that the inclusion
of all nonfat dairy solids would capture additional products meeting
the fluid milk definition and in turn processors would substitute
nondairy solids to avoid classification as a fluid milk product.
As record evidence supports and as already discussed in this
decision, the inclusion of all milk-derived ingredients in the
computation of the nonfat solids on true protein content is
appropriate. The use of all milk-derived ingredients used in the
manufacturing of the fluid milk product provides a more complete basis
for comparing the product to the listed fluid milk products and a
clearer indication of the appropriate determination of classification.
In addition, considering all milk-derived ingredients places all
current and future products on the same set of compositional standards.
Opponents maintain that nondairy products will be substituted to
avoid a product being determined to be a fluid milk product. However,
opponents did not present evidence as to the relative prices necessary
for this substitution to occur. Opponents did not quantify any of their
claims that the recommended decision would cause product substitution
in the manufacture of dairy based beverages. Nor did they present any
examples of dairy ingredient substitution. Therefore, it is virtually
impossible to determine if substitution will occur and what the impact,
if any, may be. While there are currently several nondairy ingredient
options available to formulate products, the advantages of using dairy
ingredients, such as their nutrition, physical properties, and taste,
have kept dairy ingredients as a competitive choice for use in the
manufacture of the many new products currently available.
Manufacturers of milk-based products that are intended to be used
for dietary uses (meal replacements) testified that products sold for
such dietary use in hermetically-sealed containers and the same product
sold in other types of containers receive different regulatory
classifications. Some products, such as those intended to be used for
infant feeding and dietary needs (meal replacements), are currently
considered Class II products if they are hermetically-sealed. However,
the same products in a brick-pack or other types of packaging may be
considered fluid milk products. The record evidence indicates that
these products have a limited distribution and in the case of many of
the dietary products, sales are only to health care facilities (such as
hospitals and nursing homes). In addition, these products have a very
long shelf life. The limited distribution and packaging of these
products indicates that they do not directly compete with Class I
products. Their intended use can be generalized as replacements for
meals by infants, the infirm, and the elderly and not for use as a
beverage. These products as used for medical and well-defined
healthcare applications are not fluid milk competitors and are not of a
scale, as record evidence demonstrates, that would cause a change in
marketing conditions for fluid milk products. Accordingly, the term
``meal replacement'' encompasses both those drinkable dairy products
intended to replace meals and categorized products intended for the
health care industry, and may include other products of similar
intended form and use.
This decision, in the narrow context of a highly specialized and
marketed drinkable product sold to the health care industry, continues
to find that packaging is a legitimate criterion for considering some
meal replacement products as Class II products and others as Class I.
When dietary products (meal replacements) are in hermetically sealed
containers such packaging confirms that their intended use is a meal
replacement. When not so packaged, dietary products (meal replacements)
may or may not be used to replace the nutrition of normal meals in the
health care industry or possibly to be used in the same manner as fluid
milk. The dietary products packaged in other than hermetically sealed
containers may or may not have the same form and intended use as those
in hermetically sealed containers. It is therefore not reasonable that
they should automatically be similarly classified.
[[Page 33549]]
Dietary products (meal replacements) should be excluded from the fluid
milk product definition and should be considered Class II products if
they are packaged in hermetically sealed containers or if it is
demonstrated otherwise that the intended use is for specialized health
care purposes or medically required meal substitution.
Based on the record, the products in question have been produced to
help consumers with various dietary or digestive problems achieve
sufficient nutritional intake through a drinkable alternative to solid
foods. These products traditionally have added vitamins, minerals, and
proteins to achieve a nutritional equivalent to a ``typical'' meal. In
addition, these products are packaged in hermetically sealed containers
to maintain a long shelf life for easy handling in nursing homes and
hospitals. These products continue to be Class II products. Similar
meal replacement products not packaged in hermetically sealed
containers (brick packs or gable topped containers) should be
considered as Class II products regardless of where they are marketed
if they can be shown to be intended for the same specialized dietary
use as a product sold in a hermetically sealed container with the same
limited use. However, fortified milk products not intended for dietary
use (meal replacements) that are available for a more generalized use
that would broadly compete with fluid milk will not be exempted from
the fluid milk product definition.
Numerous comments and exceptions were filed in response to the
Recommended Decision that are in opposition to the elimination of
packaging and the addition of ``sold to the health care industry'' as
criteria for excluding milk based dietary use (meal replacement)
products from the definition of a fluid milk product. Much of the
opposition concerned the definition of ``sold to the health care
industry'' and the application of such a criteria. Several comments
suggested that products sold to retail stores might be classified
differently than products sold to nursing homes or hospitals. Based on
the evidence presented in exceptions, this decision removes the
distribution channel reference in the fluid milk product definition to
prevent the potential dual classification of a product.
As noted by DFA, et al., in its exceptions to the Recommended
Decision, USDA did not receive any proposals to change the
classification of supplements for dietary use that contain milk-derived
ingredients such as ready-to-drink high protein products. Beverages
containing milk-derived ingredients, such as high protein drinks, are
typically packaged in hermetically sealed containers and are currently
classified as Class II products. Such beverages may include fruit
flavored re-hydrating sports drinks, bottled teas, carbonated soft
drinks and bottled waters which may contain milk-derived ingredients,
usually in the form of whey proteins. Because this final decision
provides for primary reliance on compositional standards rather than on
intended form and use, products such as these need to be specifically
exempted from the fluid milk product definition even if they otherwise
meet the definition's compositional standards. Such products are
clearly not the same as other named fluid milk products of the
definition and are not used in a manner consistent with beverage milk.
These products may often be used to supplement nutritional needs, but
are not used or considered to be a meal replacement. Such products,
packaged in hermetically sealed containers, will be exempted from the
fluid milk product definition.
Exceptions to the Recommended Decision assert that expanding
exemptions of products from the fluid milk product definition would
result in lower producer revenue. The record of this proceeding lacks
the data to conclude that exempting certain milk-based or milk
containing products, or reclassifying current products from one class
to another, will harm producer revenue.
Proposal 5 called for, in part, retaining the 6.5 percent nonfat
solids criterion and giving the Department the flexibility to include
other dairy-based products that fell below 6.5 percent nonfat solids as
fluid milk products. At the hearing, the proposal was modified to
require the Department to first make other determinations and to
conduct studies before a classification determination is made on
whether the product meets the fluid milk product definition.
Specifically, the modified proposal would require the Department to
determine if a product competes directly and substantially with Food
and Drug Administration defined milk products and also included five
other criteria the Department would have to satisfy before a written
determination of fluid milk product classification could be issued. The
modified proposal further required that more than three million pounds
of the product be sold in a marketing area per month before the product
would be defined as a fluid milk product even if the product met all of
the five criteria.
The multi-criteria features of Proposal 5, as modified, are not
consistent with the adopted primary consideration to compositional
standards and the requirement to classify milk on the basis of form and
intended use as provided for in section 608(c)(5)(A) of the Act and are
not adopted. Requiring a comparison of retail prices and advertising,
and examination of the substitutability between the new product and
already defined fluid milk products does not conform to the primary
reliance on compositional standards or form and intended use in
determining whether a product meets the fluid milk product definition.
No significant improvements to product classification determinations
would be achieved. Therefore Proposal 5 is denied.
A modification to Proposal 7 made at the hearing is not adopted.
This modification sought to require the Department to hold a hearing to
determine the classification of a new product ``made by new
technology.'' Such requirement is not necessary for the same reasons in
determining that Proposal 5 and all of its modifications are not
adopted. The need to incorporate a specific requirement to hold a
hearing is not necessary since it is already available.
A number of opponents of proposals seeking to change the fluid milk
product definition argued that there must necessarily exist a current
problem or the existence of disorderly marketing conditions before
amendments to the provisions of Federal milk marketing orders can be
made. Based on the evidence, this decision disagrees with such
arguments. Actions to preserve the integrity of the regulatory system
have historically been taken to avoid problems with the goal of
maintaining orderly marketing conditions. Amending the orders to
prevent disorderly marketing conditions from arising is reasonable and
consistent with ensuring and maintaining orderly conditions and equity
among producers and handlers. In light of the changing marketing
conditions, it is especially reasonable and appropriate to provide
standards that can address both immediate and future needs of a rapidly
changing industry brought about by new technology.
Some witnesses testified that even if a product meets the fluid
milk product definition, the intended use of that product should be
considered for assigning the product to the most appropriate class use.
In this regard, if the intended use of the product is a food item that
does not compete with traditional fluid milk in the marketplace, the
product should be
[[Page 33550]]
exempted from the fluid milk product definition. The most notable
products of this characteristic are drinkable yogurts that, while
drinkable, are not intended to be used as a beverage. The record
reveals that some products such as drinkable yogurts are marketed as a
food item to supplement or even replace a meal and intended to be used
as a quick and easy way to carry a snack. This differentiates their
intended use from fluid milk products consumed as beverages. The record
indicates that these products are not marketed side-by-side with fluid
milk products in retail outlets. Instead, they are positioned alongside
other Class II products such as spoonable yogurts in cups. It is
reasonable to conclude that drinkable yogurts are yogurt in fluid form
and not flavored drinks and are sufficiently different in intended use
from other fluid milk products to warrant their exemption from the
fluid milk product definition.
A portion of Proposal 9 referred to drinkable yogurt having a
protein standard of ``* * * no more than 2.2 percent skim milk protein
* * *'' given that it contained a minimum amount (20 percent) of
yogurt. As just discussed above, several witnesses testified to the
fact, and the consumer surveys and marketplace data provided by Dannon
and General Mills explained how yogurt containing products (e.g.
drinkable yogurt) are fundamentally different from fluid milk. No
protein standard is adopted for drinkable yogurt because the 20 percent
yogurt content requirement differentiates these products and assures
they are not in competition with fluid milk.
Nevertheless, it is reasonable to establish a minimum level of
yogurt that needs to be contained in the finished product to
differentiate them from flavored beverages while at the same time
identifying the drinkable yogurt as a yogurt product. No record
evidence was presented by manufacturers of yogurt-containing beverages
to demonstrate that a 20 percent minimum yogurt standard would cause
some yogurt beverages to be classified as fluid milk products and
others not. Therefore based on record evidence, it is reasonable to
estimate that the current yogurt content of these products is above the
proposed 20 percent minimum.
Accordingly, drinkable yogurt containing at least 20 percent yogurt
by weight should be considered a yogurt product and as such exempt from
the fluid milk product definition. The yogurt contained in exempted
drinkable yogurt still must meet the yogurt, low-fat yogurt, or fat-
free yogurt standard of identity as defined by the FDA (21 CFR 131.200-
131.206) and the manufacture of the yogurt mass must be an identifiable
and quantifiable step in the formulation process of the drinkable
yogurt.
Opponents of excluding drinkable yogurts from the fluid milk
product definition stressed that drinkable yogurts should not be
excluded because they are beverages and packaged similarly to other
fluid milk products. Opponents are of the opinion that drinkable
yogurts are fluid milk products because they are comparable to flavored
or cultured fluid milk products. Drinkable yogurts do have several
characteristics similar to listed fluid milk products--they can be used
as a beverage and are similarly packaged. There are, however, other
characteristics that differentiate drinkable yogurts from fluid milk
products, as the record indicates. These characteristics include, in
most cases, a different consistency than the fluid milk products, a
significant volume of added yogurt, the addition of fruit and not just
flavorings, and live and active cultures supplied by the yogurt.
The differences between listed fluid milk products and drinkable
yogurts warrant the exclusion of drinkable yogurts containing at least
20 percent yogurt from being defined as a fluid milk product. Drinkable
products with less than 20 percent yogurt will be considered fluid milk
products. The milk ingredients (including the yogurt portion) contained
in those products with less than 20 percent yogurt will be priced at
the Class I price. The Recommended Decision proposed the yogurt portion
of these Class I products not be subject to a Class I ``upcharge.''
Fonterra's exceptions objected to the yogurt content not being priced
as Class I as would other milk ingredients in the fluid milk product.
Since these beverages with less than 20 percent yogurt will be
considered a fluid milk product, it is consistent to price the milk
ingredients in such products the same as other Class I beverages.
Bravo!, et al., which supported excluding drinkable yogurts from
the fluid milk product definition, proposed, as did Lifeway Foods
separately at the hearing, to also exclude kefir. The evidence provided
to support excluding kefir from the fluid milk product definition
identified kefir as a cultured product similar to drinkable yogurt
that, like yogurt, contains live and active cultures. While cultured
beverages are one of the listed products in the fluid milk product
definition, the record shows kefir's several similarities to drinkable
yogurts provide a reasonable basis to conclude that the milk used in
kefir products should be classified in the same way as milk used in
drinkable yogurt products. NMPF argued that kefir should not be exempt
because no standard of identity exists to identify what is and is not
kefir. While kefir has no standard of identity, cultured milk
requirements are described by the U.S. Food and Drug Administration
(FDA) (21 CFR 131.112) and kefir is specifically listed as such a
product. Therefore, as with drinkable yogurts containing at least 20
percent yogurt by weight, kefir should be exempt from the fluid milk
product definition.
Producer groups were concerned about the Recommended Decision's
effect on producer income. The exclusion of certain drinkable yogurts
and kefir from the fluid milk product definition will have a minimal
impact on the resulting uniform prices to producers. According to the
record the volume of drinkable yogurt or kefir type beverages was less
than one-half of one percent of the packaged fluid milk products
distributed in 2004. For 2004, it is estimated that if all of the
current drinkable yogurt and kefir beverages had been Class II, the
impact on producers, either through the uniform price or producer price
differential, would have been a $0.0026 per hundredweight reduction on
the more than 103 billion pounds of producer milk pooled on Federal
orders.
NMPF argued that the form and use of drinkable yogurt is the same
as the products listed in the fluid milk products definition. It could
be asserted that drinkable yogurt is a beverage similar to some of the
listed fluid milk products and it is made in this form with the
intention of people drinking the product. However, the similarity ends
there and the record evidence establishes numerous differences which
support drinkable yogurt and kefir to not be treated as fluid milk
products. As pointed out in the Recommended Decision and by proponents
of both Proposals 8 and 9 in their comments, drinkable yogurt is
marketed with yogurt and competes with yogurt products in the
marketplace and not with fluid milk products. As indicated by a
proponent for exempting drinkable yogurt from the fluid milk product
definition, it is made by blending yogurt into a liquid. This is
significantly different from flavored drinks in which flavoring is
added to a fluid milk product. As a practical point, drinkable yogurts
do not fulfill the same intended use as fluid milk products in the home
or commercially. For example, they are not intended to be added to tea
or coffee, or poured on cereals, fruits and
[[Page 33551]]
other foods, and to be consumed as a beverage.
NMPF, in their exceptions to the Recommended Decision, pointed out
that the FDA may change the standard of identity of yogurt and
therefore it is inappropriate to use the current FDA standard of
identity as a criterion in determining that drinkable yogurt which
contains more than 20 percent yogurt is not a fluid milk product. NMPF
exceptions also opposed the exemption of kefir from the fluid milk
product definition for many of the same reasons for exempting drinkable
yogurt. As NMPF correctly notes, kefir is a cultured fermented
beverage. A cultured fermented beverage such as kefir is equally
dissimilar to the other listed fluid milk products as these described
drinkable yogurts.
After careful review and consideration of the record evidence and
the reasons as stated above, this decision concludes that drinkable
yogurt containing at least 20 percent yogurt by weight, and kefir
should not be defined as fluid milk products. As such, this
determination represents the adoption of Proposal 8, the requirement
that drinkable yogurt products contain at least 20 percent yogurt by
weight to be excluded from the fluid milk product definition as
included in Proposal 9, and the proposal of Bravo!, et al., as well as
Lifeway Foods that kefir be exempt from the fluid milk product
definition. Milk used to produce these products will be classified as a
Class II use of milk.
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 Northeast and other marketing orders were
first issued and when they were amended. The previous findings and
determinations are hereby ratified and confirmed, except where they may
conflict with those set forth herein.
(a) The tentative marketing agreements and the orders, 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 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 marketing areas, and the minimum
prices specified in the tentative marketing agreements and the orders,
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;
(c) The tentative marketing agreements and the orders, 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, marketing
agreements upon which a hearing has been held; and
(d) All milk and milk products handled by handlers, as defined in
the tentative marketing agreements and the orders as hereby proposed to
be amended, are in the current of interstate commerce or directly
burden, obstruct, or affect interstate commerce in milk or its
products.
Rulings on Exceptions
In arriving at the findings and conclusions, and the regulatory
provisions of this decision, each of the exceptions received was
carefully and fully considered in conjunction with the record evidence.
To the extent that the findings and conclusions and the regulatory
provisions of this decision are at variance with any of the exceptions,
such exceptions are hereby overruled for the reasons previously stated
in this decision.
Marketing Agreement and Order
Annexed hereto and made a part hereof are two documents: A
Marketing Agreement regulating the handling of milk, and an Order
amending the orders regulating the handling of milk in the Northeast
and other marketing areas, which has been decided upon as the detailed
and appropriate means of effectuating the foregoing conclusions.
It is hereby ordered that this entire decision and the two
documents annexed hereto be published in the Federal Register.
Referendum Order To Determine Producer Approval; Determination of
Representative Period; and Designation of Referendum Agent
It is hereby directed that a referenda be conducted and completed
on or before the 30th day from the date this decision is published in
the Federal Register, in accordance with the procedures for the conduct
of referenda [7 CFR 900.300-311], to determine whether the issuance of
the orders as amended and hereby proposed to be amended, regulating the
handling of milk in the Northeast, Appalachian, Florida, Southeast,
Upper Midwest, Central, Mideast, Pacific Northwest, Southwest and
Arizona marketing areas is approved or favored 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 areas.
The representative period for the conduct of such referenda is
hereby determined to be June 2009.
The agents of the Secretary of Agriculture to conduct such
referenda are hereby designated to be the respective market
administrators of the aforesaid orders.
List of Subjects in 7 CFR Part 1000
Milk marketing orders.
Order Amending the Orders Regulating the Handling of Milk in the
Northeast and Other Marketing Areas
This 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 orders were first issued and when they
were 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 agreements and to the orders
regulating the handling of milk in the Northeast and other marketing
areas. 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).
[[Page 33552]]
Upon the basis of the evidence introduced at such hearing and the
record thereof, it is found that:
(1) The said orders 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 areas. The
minimum prices specified in the orders 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;
(3) The said orders as hereby amended regulate the handling of milk
in the same manner as, and are 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; and
(4) All milk and milk products handled by handlers, as defined in
the marketing agreements and the orders as hereby amended, are in the
current of interstate commerce in milk or its products.
Order Relative to Handling
It is therefore ordered, that on and after the effective date
hereof, the handling of milk in the Northeast and other marketing areas
shall be in conformity to and in compliance with the terms and
conditions of the order, as amended, and as hereby amended, as follows:
For the reasons set forth in the preamble, 7 CFR part 1000 is
proposed to be amended as follows:
PART 1000--GENERAL PROVISIONS OF FEDERAL MILK MARKETING ORDERS
1. The authority citation for 7 CFR Part 1000 continues to read as
follows:
Authority: 7 U.S.C. 601-674, and 7253.
2. In Sec. 1000.15 paragraphs (a) and (b)(1) are revised to read
as follows:
Sec. 1000.15 Fluid milk product.
(a) Except as provided in paragraph (b) of this section, fluid milk
product shall mean any milk products in fluid or frozen form that are
intended to be used as beverages containing less than 9 percent
butterfat and 6.5 percent or more nonfat solids or 2.25 percent or more
true milk protein. Sources of such nonfat solids/protein include but
are not limited to: Casein, whey protein concentrate, milk protein
concentrate, dry whey, caseinates, lactose, and any similar dairy
derived ingredient. Such products include, but are not limited to:
Milk, fat-free milk, lowfat milk, light milk, reduced fat milk, milk
drinks, eggnog and cultured buttermilk, including any such beverage
products that are flavored, cultured, modified with added or reduced
nonfat solids, sterilized, concentrated, or reconstituted. As used in
this part, the term concentrated milk means milk that contains not less
than 25.5 percent, and not more than 50 percent, total milk solids.
(b) * * *
(1) Any product that contains less than 6.5 percent nonfat milk
solids or contains less than 2.25 percent true milk protein; whey;
plain or sweetened evaporated milk/skim milk; sweetened condensed milk/
skim milk; yogurt containing beverages with 20 or more percent yogurt
by weight and kefir; products especially prepared for infant feeding or
dietary use (meal replacement) that are packaged in hermetically sealed
containers; and products that meet the compositional standards
specified in paragraph (a) of this section but contain no fluid milk
products included in paragraph (a) of this section.
* * * * *
3. In Sec. 1000.40 paragraphs (b)(2)(iii) and (b)(2)(vi) are
revised to read as follows:
Sec. 1000.40 Classes of utilization.
* * * * *
(b) * * *
(2) * * *
(iii) Aerated cream, frozen cream, sour cream, sour half-and-half,
sour cream mixtures containing nonmilk items; yogurt, including yogurt
containing beverages with 20 percent or more yogurt by weight and
kefir, and any other semi-solid product resembling a Class II product;
* * * * *
(vi) Products especially prepared for infant feeding or dietary use
(meal replacements) that are packaged in hermetically sealed containers
and products that meet the compositional standards of Sec. 1000.15(a)
but contain no fluid milk products included in Sec. 1000.15(a);
* * * * *
4. In Sec. 1000.43 paragraph (c) is revised to read as follows:
Sec. 1000.43 General classification rules.
* * * * *
(c) If any of the water but none of the nonfat solids contained in
the milk from which a product is made is removed before the product is
utilized or disposed of by the handler, the pounds of skim milk in such
product that are to be considered under this part as used or disposed
of by the handler shall be an amount equivalent to the nonfat milk
solids contained in such product plus all of the water originally
associated with such solids. If any of the nonfat solids contained in
the milk from which a product is made are removed before the product is
utilized or disposed of by the handler, the pounds of skim milk in such
product that are to be considered under this part as used or disposed
of by the handler shall be an amount equivalent to the nonfat milk
solids contained in such product plus all of the water and nonfat
solids originally associated with such solids determined on a protein
equivalent basis.
* * * * *
Note: The following 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. ------ to ------ \1\ all inclusive, of the
order regulating the handling of milk in the ------------ \2\ marketing
area (7 CFR part ------ \3\); and
---------------------------------------------------------------------------
\1\ First and last section of order.
\2\ Name of order.
\3\ Appropriate part number.
---------------------------------------------------------------------------
II. The following provisions: Sec. ------------ \4\ Record of milk
handled and authorization to correct typographical errors.
---------------------------------------------------------------------------
\4\ Next consecutive section number.
---------------------------------------------------------------------------
(a) Record of milk handled. The undersigned certifies that he/she
handled during the month of ---------- \5\, ---------- hundredweight of
milk covered by this marketing agreement.
---------------------------------------------------------------------------
\5\ Appropriate representative period for the order.
---------------------------------------------------------------------------
(b) Authorization to correct typographical errors. The undersigned
hereby authorizes the Deputy Administrator, or Acting Deputy
[[Page 33553]]
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-----------------------------------------------------------------
Dated: May 21, 2010.
Rayne Pegg,
Administrator, Agricultural Marketing Service.
[FR Doc. 2010-12771 Filed 6-11-10; 8:45 am]
BILLING CODE P