[Federal Register Volume 88, Number 163 (Thursday, August 24, 2023)]
[Rules and Regulations]
[Pages 57861-57873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18148]



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 Rules and Regulations
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  Federal Register / Vol. 88, No. 163 / Thursday, August 24, 2023 / 
Rules and Regulations  

[[Page 57861]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1146 and 1147

[Doc. No. AMS-DA-21-0013]
RIN 0581-AE00


Dairy Donation Program

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule finalizes establishment of the Dairy Donation 
Program as required by the Consolidated Appropriations Act of 2021. 
Under the program, eligible dairy organizations that account to a 
Federal milk marketing order and incur a qualified expense related to 
certain dairy product donations may apply for and receive 
reimbursements for those donations. The program facilitates dairy 
product donations and minimizes food waste. The program works in tandem 
with the Milk Donation Reimbursement Program, and thus this rule also 
makes corresponding changes to those regulations.

DATES: This final rule is effective August 25, 2023.

FOR FURTHER INFORMATION CONTACT: Erin Taylor, Director, Order 
Formulation and Enforcement, AMS Dairy Program, USDA; 1400 Independence 
Avenue SW, Room 2524-S, Washington, DC 20250; telephone: (202) 720-
7311; email: [email protected]; web address: www.ams.usda.gov/ddp.

SUPPLEMENTARY INFORMATION: Section 762 of the Consolidated 
Appropriations Act of 2021 (CAA) (Pub. L. 116-260) authorizes the 
Secretary of Agriculture (Secretary) to establish a program to 
reimburse dairy organizations for donated dairy products to non-profit 
organizations for distribution to recipient individuals and families. 
The Secretary delegated authority to establish and administer this 
program to the Agricultural Marketing Service (AMS). The program was 
implemented on September 1, 2021, through an interim final rule (86 FR 
48887). This rule finalizes and makes minor changes to the provisions 
of the Dairy Donation Program (DDP) codified at 7 CFR part 1147. 
Program provisions are intended to encourage the donation of dairy 
products and to prevent and minimize food waste.
    The DDP is an additional donation program that overlays existing 
United States Department of Agriculture (``USDA'' or ``Department'') 
dairy milk donation activities, such as the Milk Donation Reimbursement 
Program (MDRP). The MDRP was established as part of the 2018 Farm Bill 
to facilitate the donation of fluid milk products and avoid food waste. 
The program was funded with $9 million in fiscal year 2019, and $5 
million per fiscal year thereafter. DDP and MDRP are separate from USDA 
purchase programs. These donation programs provide for reimbursement of 
certain costs for donations made between two private entities. Food 
purchases under USDA's The Emergency Food Assistance Program (TEFAP) 
and Section 32 programs are made through a bid process where USDA 
purchases the product and arranges for delivery to the distribution 
point.
    DDP and MDRP are separate and distinct from USDA's Dairy Margin 
Coverage (which acts as a safety net program), indemnity and disaster 
assistance programs, risk management tools through the public-private 
partnership of the Federal Crop Insurance Program, or USDA purchases of 
commodities, which may include dairy products depending on the market 
conditions and demand from school lunch or nutrition programs.
    This rule also makes corresponding minor changes to the MDRP 
provisions (codified at 7 CFR part 1146) previously amended by the 
interim final rule. In this rule, AMS is making minor changes to the 
DDP information collection forms, which also apply to MDRP, to gain 
administrative efficiencies and lessen the burden for entities 
participating in the two programs. The form changes include adding 
distribution center as an additional entity type and allowing for the 
Dairy Donation and Distribution Plan to include multiple partnerships 
per eligible dairy organization. These changes will be discussed in 
more detail later in the rule.

Background

    In 2020, the COVID-19 pandemic disrupted dairy supply chains and 
displaced significant volumes of milk normally used in food service 
channels. This led to milk being dumped or fed to animals across the 
United States. AMS estimates that the volume of milk dumped due to 
pandemic-related supply chain issues was almost triple what is 
typically observed during normal market conditions.\1\ At the same 
time, amidst surging unemployment and economic hardship nationwide, an 
increasing number of individuals needed nutrient-dense foods such as 
dairy products. Throughout 2020 and 2021, milk and dairy products were 
included in food donations authorized under the Coronavirus Aid, 
Relief, and Economic Security Act (CARES) and through the Commodity 
Credit Corporation (CCC). In December 2020, Congress authorized an 
additional $400 million until expended to establish the DDP, designed 
to encourage the timely and efficient distribution of dairy products to 
families and individuals while reducing food waste.
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    \1\ USDA Federal Milk Marketing Order Statistics, Other Use 
Volumes, March and April, 2015 through 2021.
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    While the DDP was intended to assist in balancing the supply chain 
during the pandemic recovery, it also provides the benefit of creating 
an incentive to donate dairy products during the normal spring flush of 
milk production. During normal marketing years (pre-pandemic), daily 
milk production in the spring averaged 6 to 7 percent more than in the 
lower production months of the fall.\2\ USDA's Economic Research 
Service (ERS), using 2020 and 2021 food security data, estimates that 
10.5 and 10.2 percent, respectively, of U.S. households were food 
insecure.\3\ The United States remains in the midst of the recovery, 
and even while employment is returning to normal levels, there 
continues to be food insecurity. The persistent need for

[[Page 57862]]

nutrient-dense foods such as dairy products can be met, in part, 
through donations encouraged by the DDP.
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    \2\ USDA, National Agricultural Statistics Service, Monthly Milk 
Production data, 2012 through 2020. https://usda.library.cornell.edu/concern/publications/h989r321c?locale=en.
    \3\ Trends in U.S. Food Security, 2020 and 2021; Update for 
October 18, 2022. https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/interactive-charts-and-highlights/#childtrends, accessed August 23, 2021.
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    An interim final rule was published in the Federal Register on 
September 1, 2021 (86 FR 48887). Copies of the rule were made available 
through the internet by the Department and the Office of the Federal 
Register. The rule provided a 60-day comment period which ended 
November 1, 2021. Four comments were received, which are discussed in 
the applicable sections of this final rule. While all comments 
supported the program, some requested consideration of changes to 
specific program provisions.
    The program was initially established through an interim final 
rule, with regulations set to expire on September 1, 2023, unless 
program provisions are finalized. Congress rescinded current program 
funding through the Financial Responsibility Act of 2023,\4\ enacted on 
June 3, 2023. However, this final rule completes the DDP rulemaking by 
addressing relevant public comments, making minor administrative 
changes to reduce burden on the industry, and removing the program's 
sunset provision.
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    \4\ Public Law 118-5.
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    The following paragraphs give a general overview of how the DDP 
operates. Detailed explanations of program provisions can be found 
later in the Program Provisions section.

Who is eligible to participate?

    Program eligibility continues to be open to eligible dairy 
organizations (EDOs), defined as dairy farmers (either individually or 
as part of a cooperative) or dairy processors that meet the following 
conditions: (1) account to a Federal Milk Marketing Order (FMMO) 
marketwide pool; and (2) incur a qualified expense. Although the 
definition of EDO includes individual dairy farmers, most farmers might 
not meet the other specified provisions to qualify as EDOs. For 
example, most farmers would not incur qualified expenses since they do 
not have the infrastructure to process raw milk into donated eligible 
dairy products. Those individual dairy farmers who do meet the required 
provisions would qualify as EDOs under statutes and this rule for both 
the DDP and MDRP.
    The DDP and MDRP refer to the same statutory EDO definition; 
interpretation of that definition contained in the interim final rule 
was adopted by both programs. This final rule amends that 
interpretation, as explained below, to lessen the burden on 
participants and gain administrative efficiencies.
(1) Account to an FMMO Marketwide Pool
    The DDP authorizing statute \5\ adopts the EDO definition contained 
in the statute establishing the MDRP.\6\ When AMS implemented the MDRP, 
it interpreted the statutory language, ``account to an FMMO marketwide 
pool,'' to apply to entities regulated by, and therefore filing reports 
with, an FMMO. Participation in the MDRP was limited, partly due to the 
requirement to be regulated.
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    \5\ Sec. 762(a)(1) of the Consolidated Appropriations Act of 
2021.
    \6\ Sec. 1431 of the Agricultural Act of 2014 (7 U.S.C. 
9071(a)). Implementing regulations are codified at 7 CFR part 1147.
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    The COVID-19 pandemic and its impacts affected the entire United 
States. Supply chain disruptions described earlier were not limited to 
only those regulated by an FMMO. Consequently, Congress authorized the 
DDP through a broad relief package. In reviewing Congressional intent 
to encourage dairy product donation across the country, AMS determined 
the interpretation of ``account to'' as requiring regulation by an FMMO 
to be too narrow. Instead, a broader definition allowing for an EDO to 
``account to'' an FMMO marketwide pool by filing a report with an FMMO 
office was deemed more appropriate. Consequently, the interim final 
rule revised the definition of ``eligible dairy organization'' for MDRP 
by removing the requirement that the EDO be regulated under an FMMO. It 
also adopted the same definition for the DDP.
    In the interim final rule, USDA determined that the specific report 
that an EDO must submit to ``account to'' an FMMO marketwide pool was a 
monthly report that lists its fresh fluid products and/or bulk dairy 
commodity products purchased and how they were utilized to produce 
donated eligible dairy products. A comment from a Puerto Rican dairy 
processor explained that the industry, as well as consumers, suffered 
severe economic losses due to the pandemic, which were exacerbated in 
Puerto Rico due to its isolation from major US markets. The commenter 
suggested that the program provide more reporting flexibility in non-
FMMO regions to make program impacts more equitable.
    AMS agrees with this commenter. To receive a reimbursement for 
donations under the DDP, an EDO is required to submit a Reimbursement 
Claim Form. Requiring entities not regulated by an FMMO to submit a 
monthly report in addition to the Reimbursement Claim Form is overly 
burdensome for participants because both forms contain duplicative 
information.
    The filing of the initial report serves to establish a relationship 
between the EDO and the FMMO office that will be auditing its DDP 
reimbursements. All other information needed to administer the program 
is submitted through the application and reimbursement process. There 
is no additional need to collect duplicative information through a 
monthly report filing with the FMMO office. Therefore, this final rule 
finds that accounting to an FMMO marketwide pool can be satisfied by an 
entity submitting a report once to any FMMO office. EDOs can contact 
their local FMMO office or access the DDP website to determine the 
applicable FMMO office where the report should be filed. The filing of 
this report for the purpose of participating in the DDP does not cause 
the EDO to become regulated by the FMMO. For the reasons so stated, 
USDA is amending the definition in this final rule as requested by the 
commenter.
(2) Incur a Qualified Expense
    The statute further specifies that an EDO must incur a qualified 
expense. Since only Class I fluid products are donated through the MDRP 
and most Class I processors are regulated by an FMMO, incurring a 
qualified expense in the MDRP was originally interpreted as paying 
minimum classified values into an FMMO pool because that is the 
requirement for processors regulated by an FMMO. The interim final rule 
found that an EDO no longer needed to be regulated under an FMMO and 
added a definition of ``qualified expense'' to MDRP regulations to 
specify that a qualified expense is not tied to the FMMO regulatory 
requirement of paying minimum classified values. The DDP adopted the 
same definition in the interim final rule. This final rule continues to 
find those provisions appropriate.
    EDOs incur a qualified expense by either purchasing a fluid milk 
product (raw milk, skim milk, cream, or concentrated fluid milk 
products) for processing into an eligible dairy product or purchasing 
bulk dairy commodity product for further processing into an eligible 
dairy product.
    Dairy processors often buy fluid milk products for processing into 
dairy products. Dairy processors also purchase bulk dairy commodity 
products for further processing into retail packages. For example, a 
processor buys 40-pound cheese blocks to further process and package 
into 8-ounce blocks or bags of shredded cheese

[[Page 57863]]

typically preferred by consumers and eligible distributors alike. The 
DDP is intended to facilitate these types of product donations. 
Therefore, in addition to processors who buy fluid milk products for 
processing, the DDP allows secondary processors who purchase and 
further process bulk commodities for donation to qualify as an EDO. To 
be considered an EDO, a secondary processor also needs to account to an 
FMMO marketwide pool as described earlier.
    Once these two above conditions--accounting to an FMMO and 
incurring a qualified expense--are met, EDOs participate in the program 
by forming partnerships with eligible distributors and then submitting 
a Dairy Donation and Distribution Plan (Plan) to AMS for approval. If 
an EDO or eligible distributor is looking for a partner, they may 
contact the DDP Office ([email protected]) for assistance.

What is reimbursed?

    Upon Plan approval, EDOs can submit a Reimbursement Claim Form 
(Claim Form) to receive reimbursement for donations. The DDP reimburses 
EDOs for some of the following: a. input costs: milk equivalent of 
either a fluid milk product or a bulk dairy commodity product used in 
the eligible dairy product; b. manufacturing costs; and c. 
transportation costs.
a. Input Costs--Fresh Fluid Milk or Bulk Dairy Commodity Product Milk 
Equivalent
    In the FMMO system, milk is priced based on its end use. FMMO 
classifications are generally: Class I--traditionally the highest-class 
price--for beverage fluid milk products such as whole, skim, nonfat, 
and flavored milks; Class II for soft products such as yogurt, ice 
cream, and packaged fluid cream; Class III for spreadable and hard 
cheeses; and Class IV for butter and dried milk products. Announced 
monthly, FMMO-minimum classified prices reflect surveyed end-product 
wholesale market prices. Under an FMMO, regulated processors are 
required to pay at least minimum classified values based on how they 
use their milk.
    This final rule continues to find that for processors purchasing 
and processing fresh fluid milk products (raw milk, skim milk, cream, 
or concentrated fluid products), the DDP will reimburse for the FMMO-
minimum classified value applicable on the date of production for fresh 
fluid milk products used to make donated eligible dairy products. FMMO 
prices are a good approximation of what the processor paid for the 
fresh fluid milk products because they represent observed market values 
paid for product at the time of purchase.
    The DDP does not reimburse for powders and other dry dairy products 
used as an ingredient in eligible dairy products (for example, powder 
used to fortify cheeses or ice cream.) Reimbursement is not extended to 
these ingredients because the DDP is designed to encourage the use of 
excess fresh fluid milk for donation, rather than being dumped. Dry 
milk powders in retail packaging--such as 10-ounce containers of nonfat 
dry milk, which are made directly from fresh fluid milk--continue to be 
considered eligible dairy products under this program, as surplus milk 
is likely manufactured into dry milk powder as opposed to being dumped.
    Since FMMO minimum classified prices are stated on a hundredweight 
basis, EDOs should continue to report donations in the quantity and 
size of the donated product, which is converted to hundredweights with 
a yield factor (how much product can be made from 100 pounds of milk). 
Applicable announced minimum class skim and butterfat prices are used 
in determining the input cost of the donated dairy product. EDOs have 
the ability to provide an actual product yield factor, or the EDO can 
use a standard yield factor. Standard yield factors are posted on the 
DDP website.
    Secondary processors buying bulk dairy commodity products for 
further processing and donation, as described earlier, will continue to 
be reimbursed at the classified use value applicable for the month the 
eligible dairy product was processed into the consumer-type package. 
The reimbursed value represents the milk-equivalent market price of the 
bulk dairy product at the time of conversion into an eligible dairy 
product.
b. Manufacturing Costs
    Processors incur expenses beyond input costs to make dairy 
products. To encourage dairy product donations, this final rule 
continues to reimburse for some of the manufacturing costs incurred to 
convert fluid milk products into eligible dairy products. These 
manufacturing costs are reimbursed at the manufacturing (make) 
allowance levels contained in the FMMO uniform pricing formulas, which 
are generally accepted by the industry as representative costs of 
manufacturing dairy products from raw milk.
    The interim final rule found it appropriate for the Class IV make 
allowance contained in the Class IV price formula to apply to Class I 
and II products. USDA lacked data on Class I and II manufacturing costs 
and asked for public comment on this issue in the interim final rule. A 
comment submitted from a dairy trade association included average 
ranges for Class I and II manufacturing costs for its members that 
produced such products. Submitted information concluded Class I costs 
ranged from $4.50-$10 per hundredweight (cwt) and Class II costs ranged 
from $5-$6 per cwt. While the cost ranges provided a general 
approximation of those experienced by its members, the comment lacked 
details on the underlying data needed to determine what the average 
cost ranges represented. For example, the submission did not include 
the specific products represented, the data collection timeframe, types 
of costs incurred, geographic disbursement of plants, size of plants, 
or how much of the Class I or II markets were represented. No other 
comments on Class I and II manufacturing costs were received.
    While the data provided lacked detail, it is reasonable to conclude 
the Class IV manufacturing allowance, which equates to $2.16 per cwt, 
is significantly lower than the actual cost experienced by Class I 
plants. This final rule continues to find that while the DDP should not 
reimburse for all manufacturing costs, it should strive to reimburse at 
a level adequate for processors to choose to process and donate dairy 
products instead of dumping milk.
    During the first year of administering the DDP, USDA experienced 
fluid milk processors choosing not to participate because the 
reimbursement rate was too low. As the statutory objective of the 
program is to encourage the donation of milk and dairy products to 
individuals and families, this final rule finds that the manufacturing 
cost reimbursement for Class I products should be increased.
    As the input cost reimbursed through the DDP aligns with the 
product's classification, this final rule finds manufacturing costs 
should be similarly aligned. Under FMMOs, the base raw skim milk value 
of Class I products is the average of the Class III and Class IV skim 
milk price formulas, plus $0.74. Implicitly, this means Class I 
handlers regulated by the FMMO system receive a Class I manufacturing 
allowance that is the average of the Class III and Class IV 
manufacturing allowances. Therefore, this final rule finds the 
manufacturing cost reimbursement for Class I products donated through 
the DDP should likewise be the average of the Class III and Class IV 
manufacturing

[[Page 57864]]

allowances. Currently those manufacturing allowances equate to $3.17 
per cwt and $2.16 per cwt, respectively, resulting in an average of 
$2.67 per cwt.
    Recognizing Class II products are priced off the Class IV advanced 
skim milk pricing factor, Class II manufacturing costs reimbursed 
through the DPP will remain at the Class IV level, currently $2.16 per 
cwt.
    This final rule makes no changes to the manufacturing cost 
reimbursement for Class III and IV products, which equates to $3.17 and 
$2.16 per hundredweight, respectively, for milk containing 3.5 percent 
butterfat. If the FMMO make allowances are updated in the future, DDP 
regulations referencing the FMMO regulations will be automatically 
adjusted.
    The public comment submitted by the dairy trade association also 
suggested DDP manufacturing cost reimbursement be adjusted to more 
accurately reflect actual component tests of raw milk. The current FMMO 
make allowances, and therefore the DDP manufacturing reimbursement 
levels, reflect standard component levels--3.5% butterfat, 2.99% 
protein, and 5.69% other solids. According to the commenter, actual 
component tests of raw milk are higher (4% butterfat, for example). The 
comment states that incorporating these higher component levels would 
increase the manufacturing reimbursement under the DDP. This final rule 
finds the factors contained in the manufacturing allowances used in 
both the FMMO program and the DDP should be consistent. If FMMO make 
allowances are amended, this final rule allows for DDP manufacturing 
cost reimbursements to change automatically.
c. Transportation Costs
    Transportation costs from the processor to a distribution outlet 
are often cost prohibitive. Absent reimbursement, processors may not be 
willing to incur additional transportation costs, and feeding 
organizations may lack the funding to cover these costs to facilitate 
the donation. The DDP aims to facilitate timely donations and reduce 
food waste. Therefore, this final rule continues to find the DDP should 
cover part of the transportation costs from the EDO to the eligible 
distributor. This may be especially beneficial to rural communities 
whose donation sites are often far from plants serving them and who may 
not receive assistance from other government feeding programs with 
distribution points closer to urban centers.
    As the reimbursement value is paid to the EDO, the DDP only 
reimburses for transportation if the EDO incurred the expense. If 
donated eligible dairy products are picked up from the plant by the 
eligible distributor, no transportation reimbursement will be paid. 
Details of the transportation cost reimbursement rate are explained 
later in this rule.

Total Reimbursement Value

    Section 762(d)(2)(A) of the CAA specifies that total 
reimbursement--the sum of input, manufacturing, and transportation 
costs--must be set neither too high to ``interfere with the commercial 
marketing of milk or dairy products'' nor too low to ``be sufficient to 
avoid food waste.'' The statute further requires total reimbursement to 
be between the highest and lowest of the classified milk values. To 
ensure costs can be sufficiently covered for most donations, the 
interim final rule capped the total reimbursement payment, on a per cwt 
basis, at the Class I value for the highest FMMO differential zone 
(Dade County, Florida). Capping at the highest FMMO zone allowed for 
Class I handlers to obtain some reimbursement for manufacturing and 
transportation costs.
    Section 762(d)(2)(B)(iv) of the CAA further allows the Secretary to 
maintain traditional price relationships--Class I being the highest, 
followed in sequence by II, III and IV--in setting the reimbursement 
rate. In 2020, dairy markets experienced pronounced class price 
inversions, where the Class III price was significantly higher than the 
Class I price in many areas of the country. However, the Class III 
price has been above the Class I price in Dade County, Florida, only 
three times since the current pricing system was adopted on January 1, 
2000.\7\ No extreme price inversions have occurred since the interim 
final rule was published, and such extreme inversions are not 
anticipated in the foreseeable future. While the DDP does not directly 
determine classified prices and price relationships, the interim final 
rule found that program rules should not exacerbate price inversions if 
they occur. In times of price inversion, where the Class I price is not 
the highest-class price, the interim final rule continued to cap total 
reimbursements at the Class I price for Dade County, Florida. This 
final rule continues to find the reimbursement cap appropriate.
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    \7\ USDA, Federal Milk Marketing Order Statistics, Final Class 
and Component Prices by Order. https://www.ams.usda.gov/resources/marketing-order-statistics/final-class-and-component-prices-order.
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When do plans and reimbursement claims need to be submitted?

    Entities must submit Plan and Eligible Distributor Certification 
Forms (Certification Forms) to AMS for approval before they can submit 
Claim Forms for reimbursement. Reimbursement Claim Forms, along with 
supporting documentation, can be filed any time after the Plan is 
approved and the donation is made. AMS uses the supporting 
documentation to verify program requirements were met. Plans only need 
to be submitted once for approval. The DDP does not require annual Plan 
renewal.

How does AMS handle both the DDP and MDRP?

    Although program funds for the DDP and MDRP are statutorily 
prohibited from being consolidated, the two programs operate as one 
from a stakeholder standpoint. EDOs making Class I fluid milk product 
donations which are covered by both programs are reimbursed through 
MDRP funds at the difference between the Class I and lowest classified 
price and receive a supplemental reimbursement of the lowest classified 
price plus the manufacturing and transportation cost reimbursement 
through DDP funds. Total combined reimbursement is capped at the Class 
I price in Dade County, Florida.
    EDOs already enrolled in MDRP were automatically enrolled in the 
DDP when the interim final rule became effective. Subsequently, they 
received supplementary payments for fluid milk products donated under 
their currently approved MDRP Plans.

Is there a retroactive period for reimbursement?

    Section 762(h) of the CAA requires supplementary payments be made 
to EDOs participating in the MDRP for donations made on or after 
January 1, 2020. Since the statute allows for retroactive reimbursement 
to those participating in the DDP, a retroactive date of January 1, 
2020, was adopted in the interim final rule to apply to the DDP to 
streamline administration of the two programs. To ensure adequate 
availability of funds for donations made before enactment of the CAA, 
total program expenditures for eligible dairy product donations made 
from January 1, 2020, to December 27, 2020, were limited to no more 
than $50 million under the interim final rule.\8\ A deadline

[[Page 57865]]

for requesting retroactive reimbursement was posted on the AMS web page 
for the DDP, and roughly $712,000 in retroactive claims were submitted.
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    \8\ As indicated in the Economic Analysis contained in the 
interim final rule, USDA expected the DDP to expend $68 million 
annually. In determining funds available for this retroactive 
period, USDA limited expenditures to approximately 80 percent ($50 
million), consistent with other USDA COVID-19 recovery programs (7 
CFR part 9--Coronavirus Food Assistance Program).
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Program Provisions

    The following details the DDP provisions and amendments to the 
MDRP, where applicable.

Definitions

    The statute includes definitions for terms used. Section 1147.1 
provides definitions for terms as they are used in the new program. Key 
terms are ``eligible dairy organization,'' ``eligible dairy product,'' 
``eligible distributor,'' ``eligible partnership,'' and ``qualified 
expense.'' This final rule makes no changes to these definitions.
    Eligible dairy organization (EDO). As explained in the Background 
section, section 762(a)(1) of the CAA adopts the same EDO definition 
contained in the statute establishing the MDRP. See Sec. 1431(a) and 
(b) of the Agricultural Act of 2014 (7 U.S.C. 9071(a)). The regulatory 
definition matches the statutory definition, which specifies that a 
dairy organization eligible to participate in the program is a dairy 
farmer, either individually or as part of a cooperative, or a dairy 
processor that: (1) accounts to an FMMO marketwide pool; and (2) incurs 
qualified expenses. See id.
    Eligible dairy product. Section 762(a)(2) of the CAA specifies that 
only dairy products primarily made from milk, including fluid milk, 
produced and processed in the United States are eligible for donation 
and reimbursement under the DDP. Additional standards defining further 
requirements for eligible dairy products are described in the commodity 
specification provisions. Accordingly, Sec.  1147.1 defines ``eligible 
dairy product'' as a dairy product meeting the commodity specifications 
referenced in Sec.  1147.3.
    Eligible distributor. Section 762(a)(3) of the CAA defines 
``eligible distributor'' as ``a public or private nonprofit 
organization that distributes donated eligible dairy products to 
recipient individuals and families.'' Section 1147.1 likewise defines 
``eligible distributor'' as a public or private non-profit feeding 
organization distributing, or coordinating the distribution of, donated 
eligible dairy products to recipient individuals and families. Eligible 
distributors such as food banks, shelters, kitchens, and other food 
distribution organizations are eligible so long as they are nonprofit 
entities. Under this program, participating eligible distributors fill 
out an Eligible Distributor Certification Form to verify their non-
profit status and affirm they have appropriate facilities and processes 
for distributing donated dairy products to recipient individuals and 
families.
    Eligible partnership. Section 762(c) of the CAA requires an EDO and 
eligible distributor form a partnership to participate in the DDP. 
Requiring parties to apply as a partnership ensures all program 
provisions are met and an agreed-upon structure is in place when 
eligible dairy products are available for donation and distribution. 
Section 762(a)(4) of the CAA defines ``eligible partnership'' as ``a 
partnership between an eligible dairy organization and an eligible 
distributor,'' and this rule continues to find the same definition 
appropriate.
    AMS recognizes some EDOs may have processing plants in multiple 
locations reporting to different FMMOs. Similarly, eligible 
distributors may have multiple distribution sites; for example, several 
food pantries are operated by one umbrella organization. Thus, under 
Sec.  1147.102(a), the eligible partnership can submit one Plan to 
cover multiple plants and/or distribution locations as long as only one 
EDO is represented.
    Qualified expense. The statute does not define ``qualified 
expense,'' but does specify one needs to be incurred to be eligible for 
program participation. Section 1147.1 defines ``qualified expense'' as 
the cost incurred to purchase fresh fluid milk for processing into 
eligible dairy products or the cost incurred to purchase bulk dairy 
commodity products for further processing into eligible dairy products. 
A qualified expense is different than the reimbursement rate, which is 
described later in this final rule. Because defining ``qualified 
expense'' is fundamental to determining program eligibility and the 
MDRP and DDP reference the same ``eligible dairy organization'' 
statutory definition, the ``qualified expense'' definition was added to 
the MDRP regulation in the interim final rule and remains unchanged by 
this final rule.
    Additional terms necessary for administration of the program are 
defined in Sec.  1147.1. ``Program'' is defined as the Dairy Donation 
Program, and ``Secretary'' is defined as the Secretary of the United 
States Department of Agriculture or a representative authorized to act 
in the Secretary's stead.

Commodity Specifications

    The final rule amends the DDP's commodity specification provisions 
to expand applicability to eligible distributors, as explained below.
    The DDP is intended to reimburse eligible dairy organizations for 
timely donations of eligible dairy products and minimize food waste. It 
is therefore reasonable to ensure eligible dairy products donated under 
the DDP meet minimum food safety and quality standards and are in 
package sizes desired by eligible distributors, consistent with the 
intent of the program to minimize food waste that might otherwise 
result. The final rule makes no changes to Sec.  1147.3, which defines 
the program's commodity specifications.
    The final rule continues to require that EDOs comply with all 
applicable Federal, State, and local laws, executive orders, and rules 
and regulations related to its performance under this program.
    To qualify under the program, eligible dairy products must:
    1. Be made primarily from cow's (bovine) milk produced in the 
United States;
    2. Be packaged in consumer-sized packaging; and
    3. Meet the applicable provisions for dairy products in the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 301 et. seq.), as amended. 
Grade `A' dairy products must meet the applicable provisions of the 
current edition of the Pasteurized Milk Ordinance \9\; and
---------------------------------------------------------------------------

    \9\ https://www.fda.gov/food/guidance-documents-regulatory-information-topic-food-and-dietary-supplements/milk-guidance-documents-regulatory-information.
---------------------------------------------------------------------------

    4. Have a sell-by, best-by, or use-by date no sooner than 12 days 
from the date the eligible dairy product is delivered to the eligible 
distributor.
    Currently, bovine cow's milk is the only type of milk in surplus 
being dumped at the farm. Since the program is designed to prevent 
surplus milk from being dumped at the farm, it is the Secretary's 
discretion to limit the DDP to cow's (bovine) milk.
    Program provisions also specify donated dairy products must be in 
consumer-sized packaging. This provision should be interpreted by the 
eligible partnership as to whatever consumer-sized package is agreeable 
to both entities. Examples of consumer-sized packaging include, but are 
not limited to, gallons of milk, 8-ounce blocks of cheese, single serve 
containers of yogurt, 1-pound packages of butter, or large bags of milk 
if the eligible distributor has the ability to dispense (i.e., a soup 
kitchen). When submitting

[[Page 57866]]

Plans for approval, the EDO is required to list what types of products 
it will be donating. The submitted information is checked against the 
distribution process explained by the eligible distributor to ensure it 
has the ability to distribute the types of products to be donated.

Program Eligibility and Participation

    As explained below, this final rule makes no changes to the program 
eligibility and participation provisions, except for a modification of 
the Plan submission requirements designed to lessen the burden on 
participants.
    Section 1147.100 requires an eligible dairy organization must be a 
member of a partnership whose Plan has been approved by AMS to be 
eligible for reimbursements under the DDP.
    Section 1147.102 outlines requirements for Plan submission in order 
to be considered for the program. The interim final rule required the 
EDO to submit a Plan for each partnership. Upon administering the 
program, AMS found requiring an EDO to submit a separate Plan for each 
partnership overly burdensome to participants, as the EDO was 
submitting the same information about its operations on multiple Plans. 
Allowing Plans to cover multiple partnerships with the same EDO 
eliminates reporting redundancies, increases efficiencies, and reduces 
participant burden. Plans must continue to include a signed affirmation 
regarding the type of product to be donated and the EDO's ability to 
process and transport eligible dairy products consistent with the 
requirements in the commodity specifications under Sec.  1147.3.
    Along with the Plan submission, eligible distributors are required 
to submit a signed Certification Form, which includes a description of 
the eligible distributor's distribution process, contact information, 
and a tax identification number to ensure compliance with program 
provisions. AMS has found that details of a particular partnership-the 
EDO and the eligible distributor--are sufficiently covered in the 
information provided in the Eligible Distributor Certification Form. 
Accordingly, this final rule amends the regulations to allow the EDO to 
submit one Plan to cover all its partnerships and a separate 
Certification Form for each eligible distributor to AMS.
    As specified in Sec.  1147.208, AMS only collects information 
deemed necessary to determine whether an eligible partnership's Plan 
should be approved. All proprietary business information submitted is 
used only for the purposes of the program and kept confidential by AMS.
    Section 1147.104 specifies the process AMS will continue to use to 
review and approve program applications. Within 15 business days of 
application submission, AMS reviews the Plan and Certification Form, 
determines whether to approve or disapprove, and notifies the eligible 
partnership of the determination. Under Sec.  1147.104(a)(1), AMS 
reviews the information submitted by the partnership, including the 
signed affirmation that the partnership can meet the requirements 
related to proper processing, transport, storage, and distribution of 
eligible dairy products. Under Sec.  1147.104(a)(2), AMS considers the 
extent to which the Plan would advance the statutory purposes of the 
DDP, namely, whether the Plan would facilitate the timely donation of 
eligible dairy products and prevent and minimize food waste. See Sec. 
762(b) of the CAA.
    Finally, section 762(c)(2)(B)(i) of the CAA specifies that priority 
review is given to submitted Plans where an emergency or disaster was a 
substantial factor, including a declared or renewed public health 
emergency under section 319 of the Public Health Service Act (42 U.S.C. 
247(d)) or a disaster designated by the Secretary. In reviewing a Plan, 
AMS determines if an emergency or disaster was a substantial factor in 
the Plan's submission. In this case, ``substantial factor'' means that 
a supply and/or demand disruption caused by the emergency or disaster 
event is a main reason for the partnership submitting the Plan. For 
example, the COVID-19 public health emergency--which caused a 
significant decrease in school and restaurant dairy demand, leading to 
large volumes of displaced milk and many people in need of food 
assistance--could be considered a justification for priority review. If 
an emergency or disaster is deemed a substantial factor, AMS 
prioritizes review of that Plan to facilitate donations and meet an 
immediate need. Section 1147.104(a)(3) incorporates those factors for 
Plan prioritization.
    Once approved, Plans do not need to be resubmitted in subsequent 
fiscal years, unless changes are made. Eligible partnerships that 
received reimbursement from the MDRP were automatically enrolled in the 
DDP when the program was implemented and became eligible to receive the 
supplemental reimbursement as defined in Sec.  1147.109.

Reimbursement and Reimbursement Price

    This final rule makes minor administrative changes to the 
Reimbursement Claim Form and subsequently the MDRP and DDP regulations, 
to ensure proper reimbursement rates. This rule continues to find the 
reimbursement price--the sum of input, transportation, and 
manufacturing costs--an appropriate reimbursement rate to meet program 
objectives.
    Section 762(d) of the statute requires the Secretary to reimburse 
EDOs with approved Plans. Section 1147.106(a) provides the process and 
describes the necessary information and documentation AMS requires to 
verify the EDO's donation and calculate its reimbursement. To receive 
reimbursement, the EDO must complete and submit a Reimbursement Claim 
Form (Claim Form) that includes: the type, volume, and manufactured 
date of the eligible dairy products donated; the entity type 
(processor, co-pack facility, distribution center, or eligible 
distributor); the physical address(es) of the eligible dairy 
organization's processing plant(s), co-pack facility(ies), and 
distribution center(s), and the eligible distributor's distribution 
site(s); the universal product code(s) (UPCs) for donated product(s); 
the sell-by, best-by, or use-by date(s) for donated product(s); and the 
dates the donated dairy products were processed and shipped to the 
eligible distributor.
    In administering the DDP since September 1, 2021, AMS learned some 
EDOs transport donated product to EDO-owned distribution centers before 
delivering to an eligible distributor as part of their normal business 
operations. As the DDP was designed to only reimburse for 
transportation from the last point of ownership by the EDO, obtaining 
information on a distribution center location, where applicable, is 
necessary to determine the accurate transportation reimbursement. 
Accordingly, this final rule adds ``distribution center'' as an 
additional entity type to the Claim Form in order to improve data 
accuracy and ensure proper reimbursement calculations.
    There is no requirement dictating the frequency of Claim Form 
submissions; therefore, any time after its Plan is approved, the EDO 
can submit Claim Forms for donations made. The EDO also must provide 
adequate documentation, which should be available through its normal 
business records, to verify the eligible distributor received the 
donated eligible dairy products. Such documentation could

[[Page 57867]]

include, but is not limited to, processing and shipping records, bills 
of lading, storage records, or receiving records from the eligible 
distributor. As specified in Sec.  1147.208, AMS only collects the 
information and documentation needed to verify the EDO's reimbursement 
claim.
    Section 762(d)(4) of the CAA allows the Secretary to make 
retroactive reimbursements to EDOs that donate eligible dairy products 
before their Plans are approved. As provided for in statute, eligible 
dairy products donated through the MDRP are eligible for supplemental 
reimbursement through DDP for donations made on or after January 1, 
2020. To gain administrative efficiencies and streamline the two 
programs, donations of eligible dairy products through DDP beginning on 
the same date were also eligible for reimbursement by the interim final 
rule. Accordingly, Sec.  1147.106(a)(3) provides for donations of 
eligible dairy products beginning on January 1, 2020, to be eligible 
for reimbursement. As described earlier, total reimbursement for 
donations made from January 1, 2020, through December 27, 2020, was 
capped at $50 million by the interim final rule. This cap was 
implemented to ensure equitable distribution of funds for that time 
period in case a large number of claims were submitted. Participating 
entities had 6 months to submit claims for this time period; only 20 
claims were received and approximately $712,000 was reimbursed.
    As authorized by section 762(d)(3)(B) of the CAA, AMS may verify 
the accuracy of supporting documentation with spot checks and audits 
under Sec.  1147.206.
    Under section 762(d)(2)(A) of the CAA, the Secretary shall set a 
reimbursement price that reflects the cost of the milk required to make 
the donated eligible dairy product, is between the FMMO Class I and 
Class IV minimum prices for the month of production, is sufficient to 
avoid food waste, and does not interfere with the commercial marketing 
of milk or dairy products. Section 1147.108 provides for reimbursement 
of three separate cost factors: (1) input cost--fluid milk product or 
bulk dairy commodity product milk-equivalent cost; (2) manufacturing 
cost of converting fluid milk into a product; and (3) transportation 
cost from the EDO to the eligible distributor. Section 1147.108(a) 
provides that reimbursements are the sum of the three cost factors.
    For the first of these factors, input cost, processors purchasing 
and processing fresh fluid milk products (raw milk, skim milk, cream, 
or concentrated fluid products), are reimbursed at the applicable FMMO 
minimum classified skim and butterfat values. Processors purchasing 
bulk dairy commodity products for further processing into eligible 
dairy products are reimbursed at the applicable FMMO minimum classified 
skim and butterfat values for the fluid milk equivalent contained in 
the bulk product. This value is determined by the milk's end use (Class 
I for fluid milk products, Class II for soft products such as yogurt, 
Class III for cheese products, and Class IV for butter and powder 
products) pursuant to 7 CFR 1000.40 and the applicable classified price 
in effect for the month of production pursuant to 7 CFR 1000.50.
    The manufacturing cost for processing fluid milk is represented by 
the applicable FMMO make allowances contained in 7 CFR 1000.50. The DDP 
uses the FMMO make allowances in the Class III and IV price formulas to 
reflect manufacturing costs for Class III and IV products, as they are 
based on surveyed cost data of wholesale Class III and IV products. The 
Department lacked data on manufacturing costs for Class I and II 
products. As such, the interim final rule adopted the lowest make 
allowance, Class IV, as the representative manufacturing costs and 
requested public comment on manufacturing costs for these classes of 
products. One comment was received. As explained in the Background 
section, the comment did not include full context on what the cost 
ranges represented. However, AMS finds it reasonable to conclude from 
the data submitted that Class I manufacturing costs are higher than the 
Class IV make allowance currently used. Upon further review, this final 
rule amends the Class I make allowance to be the average of the Class 
III and IV make allowances, as the Class I pricing formula is a 
function of the average of Class III and IV prices. Also discussed 
earlier, the Class IV make allowance will still apply for Class II 
products, as the Class II price is a function of the Class IV price. 
This final rule does not retroactively apply the amended make allowance 
for Class I products to reimbursements made prior to the implementation 
of this final rule. The new Class I make allowance will only apply to 
reimbursement of Class I products submitted after the implementation of 
this final rule.
    As explained in the Background section, the program does not 
reimburse additional processing costs for bulk products purchased and 
further processed. Processors purchasing bulk dairy commodity products 
for further processing receive the same manufacturing cost 
reimbursement as described above. Processors buy bulk product on a per-
pound basis, and it is reasonable to conclude the price paid 
represented both the fluid milk value (which they are being reimbursed 
for as described earlier) and the cost to convert the fluid milk into 
the bulk commodity. Therefore, eligible dairy products made from bulk 
dairy commodity products are only eligible to receive the manufacturing 
cost reimbursement applicable to fluid milk.
    The transportation cost reimbursement is based on the U.S. monthly 
average diesel fuel price \10\ for the month the donation was made, a 
fuel economy factor of 6.1 miles per gallon,\11\ and the shortest hard-
surface distance from the last point of EDO-ownership of the product to 
the eligible distributor's physical distribution location. The final 
rule clarifies that transportation cost reimbursement is from the last 
point of EDO-ownership, which does not necessarily mean from the plant 
where the product was produced. As a normal course of business, some 
processors transport product to an EDO-owned distribution center before 
delivering to the eligible distributor. To ensure efficient movements 
of product and proper application of transportation reimbursement, it 
is appropriate the EDO only receive reimbursement from the last point 
of ownership. Transportation reimbursement is only be paid if the EDO 
incurred the transportation cost, which is verified on audit.
---------------------------------------------------------------------------

    \10\ U.S. Energy Information Administration (EIA), 2022; 
Gasoline and Diesel Fuel Update for December 5, 2022. https://www.eia.gov/petroleum/gasdiesel/, accessed December 9, 2022.
    \11\ United States Department of Transportation, 2021; 
Combination Truck Fuel Consumption Data. https://www.bts.gov/browse-statistical-products-and-data/freight-facts-and-figures/combination-truck-fuel-consumption, accessed August 23, 2021.
---------------------------------------------------------------------------

    Section 762(h) of the CAA requires the Secretary to make 
supplemental reimbursements to EDOs receiving reimbursements under the 
MDRP from January 1, 2020, to the date when DDP program funds are no 
longer available. AMS recognizes an EDO under MDRP is also eligible 
under DDP. Further, eligible dairy products under MDRP also qualify as 
eligible dairy products under DDP (notably, fluid milk products). Since 
DDP reimburses at a higher rate than MDRP, a supplemental reimbursement 
is needed to properly use funds for and fulfill the purposes of both 
programs. Section 1147.109 provides the process AMS follows to make a 
supplemental reimbursement to EDOs receiving reimbursement under

[[Page 57868]]

MDRP. EDOs with already approved Plans under MDRP were automatically 
enrolled in DDP when the program was implemented and received 
supplemental reimbursements equal to the difference they received under 
MDRP and the reimbursement they would be eligible to receive for the 
same products under DDP, calculated in Sec.  1147.108. New applicants 
to the DDP that donate fluid milk products will be automatically 
enrolled in MDRP. Upon approval, AMS makes reimbursements under the 
MDRP provisions and then supplemental reimbursements under the DDP 
provisions.

Administrative Provisions

    This final rule continues the administrative provisions without 
change.
    Section 762(g) of the CAA requires AMS to publish donation activity 
for the program. Accordingly, Sec.  1147.200 provides that AMS 
periodically reports on its publicly accessible website the aggregated 
donation activity under this program. Such information includes types 
and volume of product donated, as well as remaining available funds. 
Since April 2022, AMS has posted reports quarterly on its website, 
along with the Plan and Claim Form templates to be submitted for 
program participation.
    Section 762(e) of the CAA prohibits the sale of eligible dairy 
products donated under the DDP back into commercial markets and 
specifies that eligible distributors who violate that prohibition will 
not be eligible for future participation in the DDP. Section 1147.204 
implements the statutory prohibition and penalty for violation. In 
addition, the program prohibits reimbursement for donated eligible 
dairy products made in conjunction with marketing or promotional 
events.
    Section 762(f) of the CAA directs the Secretary to conduct 
appropriate reviews or audits to ensure the integrity of the DDP. Under 
section 762(d)(3)(B) of the CAA, the Secretary is further authorized to 
verify the accuracy of submitted documentation through spot checks and 
audits. Section 1147.206 provides that AMS verifies the proper delivery 
of and payment for donated eligible dairy products. Specifically, AMS 
ensures the donated eligible dairy products were delivered to the 
eligible distributor and the accuracy of the reimbursed value paid to 
the EDO. The section further provides for the review, audit, and spot 
checks of information submitted.
    As mentioned in the above discussions, Sec.  1147.208 requires AMS 
to maintain confidentiality regarding information collected to 
administer the program and to use the information only for program 
purposes.
    A books and records provision is included in Sec.  1147.209 to 
ensure the EDO maintains necessary records to be made available to AMS 
upon request in conjunction with an audit.
    Section 1147.210 specifies that dairy products sold or donated 
under any other USDA commodity purchase or donation program, other than 
the MDRP, are not eligible for reimbursement under the DDP. From time 
to time, USDA may purchase dairy products for use in nutrition 
assistance programs or other uses, but vendors are compensated for 
those purchases through funding under those program provisions. One of 
the main purposes of the DDP is to reduce food waste by encouraging the 
donation of additional dairy products through eligible distributors. 
Thus, EDOs who received compensation for dairy product purchases under 
other USDA programs may not receive reimbursements for the same dairy 
products under the DDP.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. Chapter 35), AMS has requested approval of updated information 
collection and recordkeeping requirements for the DDP. AMS received no 
public comments on the Office of Management and Budget (OMB)-approved 
information collection portion of the interim final rule. AMS is now 
making three minor changes (described below) to lessen the burden on 
participants and increase administrative efficiencies.
    Title: Dairy Donation Program Final Rule.
    OMB Number: 0581-0327.
    Expiration Date of Approval: Pending.
    Type of Request: Approval of Updated Information Collection.
    Abstract: The Consolidated Appropriations Act of 2021 (CAA) 
mandated establishment of a Dairy Donation Program (DDP) to reimburse 
eligible dairy organizations (EDO) for milk used to make eligible dairy 
products donated to non-profit groups for distribution to recipient 
individuals and families. Under the program, EDOs account to a Federal 
milk marketing order (FMMO) by filing a report with an FMMO. Entities 
not already filing an FMMO report will be required to submit a Report 
of Receipts and Utilization. The information collection burden is being 
changed to allow the report to be submitted once rather than every 
month donated products are manufactured as was originally implemented.
    All EDOs must submit a Dairy Donation and Distribution Plan (Plan 
outlining their partnership(s) and products to be donated and, for each 
eligible distributor partner, an Eligible Distributor Certification 
Form (Certification Form) describing the process of transporting, 
storing, and distributing eligible product to an eligible distributor. 
Once approved, the EDO can file a Reimbursement Claim Form (Claim Form) 
to receive reimbursement for the donated eligible dairy products. Since 
the final rule allows for EDOs to include multiple partnerships on one 
Plan, whereas the interim final rule required EDOs to submit one Plan 
per partnership, the number of responses and reporting burden for the 
Plan will decrease. Further, due to this same change, the number of 
responses and reporting burden for the Claim Form will decrease because 
the EDO will no longer need to submit separate Claim Forms for each 
partnership.
Dairy Donation and Distribution Plan
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 1 hour per response.
    Respondents: Eligible dairy organizations.
    Estimated Number of Respondents: 150.
    Estimated Number of Responses: 150.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 150 hours.
Eligible Distributor Certification Form
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 15 minutes per response.
    Respondents: Eligible distributors.
    Estimated Number of Respondents: 300.
    Estimated Number of Responses: 300.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 75 hours.
Reimbursement Claim Form
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 2 hours per response.
    Respondents: Eligible dairy organizations.
    Estimated Number of Respondents: 150.
    Estimated Number of Responses: 600.
    Estimated Number of Responses per Respondent: 4.
    Estimated Total Annual Burden on Respondents: 1,200 hours.

[[Page 57869]]

Report of Receipts and Utilization
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 1 hour per response.
    Respondents: Eligible dairy organizations.
    Estimated Number of Respondents: 15.
    Estimated Number of Responses: 15.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 15 hours.
    Comments: No comments were received on the information collection 
in the interim final rule.
    In the interim final rule, AMS estimated 150 respondents would form 
2 partnerships on average for a total of 300 partnerships. In the first 
fiscal year of program operation, there were approximately 120 
respondents that formed 280 partnerships.
    Each EDO is required to submit a Plan, which can cover multiple 
partnerships with that EDO, and a Certification Form for each eligible 
distributor partner. These forms only need to be submitted once; there 
will not be an annual renewal requirement. AMS estimates 1 hour to 
complete a Plan. Accompanying the Plan, the EDO will be required to 
complete a Certification Form, which AMS anticipates will take 15 
minutes.
    AMS estimates 10 percent of the 150 EDO participants do not already 
account to an FMMO by filing a report. Therefore, approximately 15 
respondents will need to account to an FMMO by filing a Report of 
Receipts and Utilization Form. All other EDOs have accounted to an FMMO 
through their normal report filing based on their existing association 
with an FMMO. AMS estimates 1 hour to complete the form. Filing of this 
form will not cause an EDO to become regulated by an FMMO.
    Claim Forms can be submitted any time after Plan approval and will 
be processed on at least a quarterly basis. AMS estimated that to 
capture efficiencies respondents will submit Claim Forms no more than 
once per quarter and it will take 2 hours to complete the form per 
quarter.
    Assuming the reporting burden will be completed by an 
administrative assistant employee, at an hourly salary rate of $21.70 
\12\, AMS estimates the following annual reporting costs per 
participant, assuming two eligible distributor partners per EDO: for 
the first year of participation, the annualized cost is $206.15 (one 
Plan, two Certification Forms, and four Claim Forms); for the 
subsequent years of participation, the annualized cost is $173.60 (four 
Claim Forms). Entities needing to account to an FMMO by filing a Report 
of Receipts and Utilization Form will experience an additional annual 
burden of $21.70 in the first year only (one response). EDOs also are 
required to maintain books and records for 3 years to be made available 
to AMS upon request in conjunction with an audit to verify the 
donations the EDO received reimbursement for were made. These records 
are part of normal business records and do not require additional 
records to be created. Such records include production records to 
verify yield computations and product code dates for donated 
manufactured products, or delivery documentation to verify the EDO 
incurred a transportation expense.
---------------------------------------------------------------------------

    \12\ Mean hourly wage for a bookkeeping, accounting, and 
auditing clerk in 2021, according to the Bureau of Labor Statistics: 
https://www.bls.gov/oes/current/oes433031.htm.
---------------------------------------------------------------------------

E-Government Act

    USDA is committed to complying with the E-Government Act (44 U.S.C. 
3601, et seq.) by promoting 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. 
Forms can be found at http://www.ams.usda.gov/ddp and filed through 
email at [email protected].

Statutory and Regulatory Authority

    Section 762 of the Consolidated Appropriations Act of 2021 mandates 
that AMS establish and administer a Dairy Donation Program (7 CFR part 
1147). The program is intended to facilitate the timely donation of 
eligible dairy products and prevent and minimize food waste.

Executive Orders 12866 and 13563

    USDA is issuing this rule in conformance with Executive Orders 
12866 and 13563, which direct agencies to assess all costs and benefits 
of available regulatory alternatives and, if regulation is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health, and safety effects; 
distributive impacts; and equity). Executive Order 13563 emphasizes the 
importance of quantifying both costs and benefits, reducing costs, 
harmonizing rules, and promoting flexibility. AMS has determined this 
action, mandated by Congress, meets the requirements set forth in the 
Consolidated Appropriations Act of 2021 to facilitate donation of 
eligible dairy products and prevent and minimize food waste.
    The interim final rule sought public comment on the economic 
impacts of this action on the industry, including availability of 
information or data that may demonstrate if and how DDP reimbursements 
affect the market. As discussed earlier, AMS received four comments, of 
which three were germane to this rulemaking. One comment was received 
on manufacturing costs for Class I and II products. Another comment 
requested additional flexibility concerning reporting requirements. One 
additional comment expressed support of the positive economic impact 
the program has on the dairy industry and consumers alike.
    Regarding regional economic differences, AMS considered alternative 
methods for allocating available funds under the program, including 
whether to allocate reimbursements equally across all the geographic 
areas of the United States or to target specific regions in need of 
milk donations. Ultimately, AMS determined that because the program's 
primary purpose is to reduce waste associated with the disposition of 
surplus milk, the industry would be best served by allowing those with 
the capacity to process surplus milk and who are in a position to make 
donations to apply for the program without consideration of geographic 
location.
    AMS continues to find that this rule does not have any quantified 
cost or benefits, rather the rule results in transfers consistent with 
the following table, adjusted from the interim final rule with actual 
expenditures during the first fiscal year of program operation and 
accordingly, an expanded range for the time period covered. As 
participants become more accustomed to the program and due to the 
decreased burden for participants in subsequent years after their Plans 
are approved, AMS reasonably expects the transfer value to increase 25 
percent, year-over-year, for the first 7 years, and held constant in 
the out years.

[[Page 57870]]



                                          Table 1--Accounting Statement
----------------------------------------------------------------------------------------------------------------
                                                    Primary                     Discount  rate
                                                   estimate      Year  dollar         (%)        Period  covered
----------------------------------------------------------------------------------------------------------------
Benefits--
    Annualized Monetized ($millions/year).....               0            2022               7      FY 2022-2038
                                                             0            2022               3
Costs--                                         ..............  ..............  ..............      FY 2022-2038
    Annualized Monetized ($millions/year).....               0            2022               7  ................
                                                             0            2022               3
                                                ..............  ..............  ..............  ................
Transfers--From the Federal Government to an
 eligible partnership
    Annualized Monetized ($millions/year).....          $21.04            2022               7      FY 2022-2038
                                                        $21.84            2022               3
----------------------------------------------------------------------------------------------------------------

    As the program is voluntary, eligible partnerships are expected to 
participate if they deem it beneficial depending on their individual 
circumstances. The transfers will be reimbursements in the form of 
Federal payments to program participants to help offset costs 
associated with eligible dairy product donations.
    In the normal course of transporting, delivering, and processing 
milk, a small volume of milk is ``lost'' each month. In the FMMO 
system, ``normal losses'' are estimated to be 0.25 percent of the total 
participating milk annually. Under certain conditions, an additional 
volume of milk cannot make it to market due to extraordinary 
circumstances, such as extreme weather, plant capacity issues, and 
market disruptions. This volume above ``normal losses'' is identified 
as ``excess losses'' in this analysis.
    According to FMMO statistics, ``excess losses'' averaged 0.08 
percent of the annual volume of milk participating in the FMMO program 
from 2015 through 2019, excluding the outlying pandemic-influenced 
years of 2020 and 2021. During these years, the COVID-19 pandemic 
resulted in higher levels of milk not making it to market, amounting to 
0.32 and 0.27 percent, respectively, of the milk that participated in 
the FMMO program. In the interim final rule, AMS included 2020 in the 
``excess loss'' average, but 2020 distorted the value, leading to an 
overestimate of the amount of milk available to be made into donated 
products for normal years. In conducting an economic analysis, AMS 
presumed milk classified as ``excess losses'' could be made into 
eligible dairy products and donated under the DDP.
    To estimate the volume of excess milk potentially donated under the 
program in this final rule, a 5-year average rate of 0.08 percent for 
2015-2019 period is applied to the projected 2023 U.S. milk production 
volume. Under this assumption, approximately 183 million pounds of milk 
would be available for dairy processors to make into eligible dairy 
products for donation to eligible distributors. As in the interim final 
rule, AMS lacks data to estimate the amount of bulk commodity product 
available for secondary processors to purchase and further process into 
eligible dairy products for donation to eligible distributors, so that 
scenario is not considered in the economic analysis.
    AMS estimated the amounts of butterfat and skim solids in the 
forecasted product volumes available for donation. The product mix 
includes fluid milk, soft products, cheese, butter, and nonfat dry milk 
powder volumes, based on the volume of available dairy farmer milk. The 
set of products utilizes nearly all the butterfat and skim solids 
present in the milk available for donation. In the case of butter and 
nonfat dry milk powder, both products can be made from a given amount 
of milk. Butter requires a large amount of butterfat, while powder 
utilizes very little butterfat but a large amount of the nonfat solids.
    The DDP reimburses EDOs for eligible dairy product donations for 
the input cost paid for the fluid milk or bulk dairy commodity product, 
manufacturing cost, and transportation cost. In the interim final rule, 
AMS estimated the maximum annual reimbursement value given the 
program's parameters that total reimbursement must be between the 
highest FMMO Class I value (Dade County, Florida) and the Class IV 
value (assumed the lowest classified value). Using the same 
methodology, AMS estimates a maximum reimbursement value of $63 
million, using forecasted 2023 FMMO class prices and volume available 
for donation based on the .08 percent excess loss assumption and USDA's 
November 2022 World Agricultural Supply and Demand Estimates (WASDE).
    In practice, AMS expects actual reimbursement expenditures to be 
lower. During the first year of operation, DDP expended $5,834,353,\13\ 
representing 22,562,669 pounds of donated dairy products (equivalent to 
27,576,312 milk pounds). Therefore, for this final rule, AMS determines 
it more appropriate to estimate annual DDP expenditures based on actual 
spending. Accordingly, expenditures are estimated to be 125 percent of 
the previous year and held constant after 7 years. This is a reasonable 
assumption given reduced participant burden and increased awareness and 
familiarity with the program is expected to increase participation.
---------------------------------------------------------------------------

    \13\ This figure represents Reimbursement Claims submitted in 
the first year of DDP operation (October 1, 2021, through Sept 30, 
2022), for product donated from January 1, 2020, to September 30, 
2022.
---------------------------------------------------------------------------

    In addition, normal fluctuation in market prices may contribute to 
increased donations in times of low milk prices, and subsequently 
higher program expenditures. For example, it is normal for excess milk 
to be made into storable products such as butter. Relatively high 
butter prices in 2022 indicated a tight butter market resulting in 
excess milk made into butter to be sold in the marketplace instead of 
donated through the DDP. USDA expects butter prices to be lower in 
2023, as compared to 2022, due to weaker demand and lower international 
prices, thus increasing DDP expenditures as the possibility rises that 
surplus milk used for butter is made available for donation.
    As described above, AMS estimates that 183 million pounds (0.08 
percent of projected 2023 production) of excess milk could be available 
to be processed and donated through the DDP. Consequently, AMS does not 
anticipate this small additional processing volume will impact milk 
prices. AMS anticipates dairy processors already donating dairy 
products to non-profit feeding organizations will become eligible for 
reimbursement through DDP. These donations are not new production

[[Page 57871]]

volume to be priced as they represent dairy products already processed 
and priced somewhere in the dairy supply chain. The DDP does not intend 
to reimburse for the full cost of processing and delivering donated 
dairy products but rather encourages excess milk to be used.
    This program is expected to have a negligible impact on retail 
dairy product sales. Typically, populations that receive dairy products 
from non-profit feeding organizations do so when they cannot buy dairy 
products at retail outlets. Since the DDP reimbursement rate does not 
cover all processing and transportation costs it is not a financially 
prudent decision to divert milk from retail outlets to donations. The 
following table provides examples of costs included and excluded from 
reimbursement under the DDP. This is not an all-inclusive listing but 
is intended to demonstrate how dairy product donations through this 
program are not expected to be a substitute for retail dairy product 
sales.

            Table 2--Examples of Costs Included and Excluded
------------------------------------------------------------------------
         Cost factor                Includes          Does NOT include
------------------------------------------------------------------------
Input.......................   Minimum       Any
                               classified price of   contractually
                               milk used in the      obligated monies,
                               donated eligible      over the minimum
                               dairy product.        classified value,
                                                     due to producers.
                                                     Assessments
                                                     for promotion and
                                                     research programs,
                                                     if applicable.
Manufacturing...............   Applicable    Additional
                               FMMO manufacturing    ingredient costs
                               make allowance,       (i.e., fruit for
                               representative of     fruit-flavored
                               the following         yogurt).
                               costs:.
                               Processing    Storage and
                               Labor.                inventory costs.
                               Utilities..   Costs of
                                                     participating in
                                                     the mandatory Dairy
                                                     Product Mandatory
                                                     Reporting Program.
                               Non-Labor..  ....................
                               General and  ....................
                               Administrative.
                               Packaging    ....................
                               into a commodity
                               volume.
Transportation..............   Fuel:         Vehicle
                               Shortest hard         maintenance.
                               surface mileage *     Vehicle
                               monthly diesel        depreciation.
                               price * 6.1 miles     Licensing
                               per gallon.           and other
                                                     administrative
                                                     fees.
------------------------------------------------------------------------

    In addition, DDP is a voluntary program and reimbursements occur 
after donations are made. Donations made through this program are made 
privately without donation volumes being announced in advance, reducing 
the impact on dairy markets compared to making advanced announcements 
on expected donation volume.

Regulatory Flexibility Analysis

    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (5 U.S.C. 601-612), AMS has considered the economic 
impact of the action on small entities. Accordingly, AMS prepared this 
Regulatory Flexibility Analysis (RFA).
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions so small businesses will not be 
unduly or disproportionately burdened. Small dairy farms are defined by 
the Small Business Administration (SBA) (13 CFR 121.201) as those 
businesses having annual gross receipts of $3.75 million or less. The 
SBA's definition of small agricultural service firms, which includes 
dairy processors, varies based on the type of dairy product 
manufactured. Small dairy processors are defined as having between 750 
and 1,250 or fewer employees depending on the products made.
    According to the 2017 USDA National Agricultural Statistics Service 
(NASS) Census Report, the most recent report, there were 39,303 farms 
with milk sales. AMS estimates 36,158 farms, or 92 percent, are 
considered small businesses. Dairy farmers of all sizes may benefit 
from the program as it encourages donations of dairy products which 
contain milk purchased from them. DDP is designed to reduce food waste 
by providing alternative outlets for milk to be utilized in donated 
products instead of being dumped due to oversupply. Often milk is 
dumped from smaller dairy farms that are more costly to service because 
their pickups may be less than a full tanker load and/or they may be 
located farther from major trucking routes. By providing cost 
reimbursement for donated products, the DDP incentivizes processors to 
pick up and process the milk into products for donation rather than 
having it dumped.
    AMS estimates approximately 3,000 plants, owned by approximately 
1,500 entities, manufacture dairy products in the United States. 
According to AMS calculations, about 10 percent are operated by dairy 
farmer cooperatives, while the remaining are independently owned. AMS 
believes 1,500 to be the universe of EDOs that could participate in the 
DDP. Of the potential EDOs, 90 percent would be considered small 
businesses based on total employee numbers.
    Participating in the DDP will not unduly or disproportionately 
burden small dairy processing entities. All entities, regardless of 
size, can apply for the program if they file a report with an FMMO and 
incur a qualified expense as defined by program provisions. Program 
provisions are administered without regard to business size. The 
paperwork required to participate asks for information that is part of 
normal business records.
    The definition of an eligible distributor is a public or private 
non-profit feeding organization that distributes or coordinates 
distribution of donated eligible dairy products to recipient 
individuals and families. Eligible distributors, regardless of size, 
can voluntarily participate in the DDP if they form a partnership with 
an EDO. The information collection burden for eligible distributors is 
minimal as they must only complete the Certification Form with the 
partnering EDO. The voluntary nature of the program allows any eligible 
distributor to stop participating if they find the program causes an 
undue or disproportionate burden.
    AMS has determined this program does not have a significant 
economic impact on small entities. Program provisions are applied 
uniformly to both large and small businesses and are not expected to 
burden small entities unduly or disproportionately.

Executive Order 13175

    In the interim final rule, AMS assessed the impact of this program 
on

[[Page 57872]]

Indian Tribes and determined it would not have Tribal implications 
requiring consultation under Executive Order 13175. Since the final 
rule does not include any changes affecting Tribal implications of the 
DDP, additional review is not necessary. Executive Order 13175 requires 
Federal agencies to consult and coordinate with Tribes on a government-
to-government basis on: (1) policies that have Tribal implication, 
including regulation, legislative comments, or proposed legislation; 
and (2) other policy statements or actions that have substantial direct 
effects on one or more Indian Tribes, on the relationship between the 
Federal Government and Indian Tribes, or on the distribution of power 
and responsibilities between the Federal Government and Indian Tribes.
    Tribal governments operating non-profit organizations feeding 
recipient individuals and families can qualify as eligible distributors 
and thus benefit from participation in the DDP. The regulatory burden 
from participating is minimal, estimated at 15 minutes for completing 
an Eligible Distributor Certification Form.
    AMS hosts a quarterly teleconference with Tribal leaders where 
matters of mutual interest regarding the marketing of agricultural 
products are discussed. Information about the final rule will be shared 
in an upcoming quarterly call. AMS will continue to work with the USDA 
Office of Tribal Relations to ensure meaningful consultation is 
provided as needed with regards to the DDP.

Executive Order 12988

    The interim final rule was reviewed under Executive Order 12988--
Civil Justice Reform. Since the final rule does not include any changes 
affecting the civil justice implications of the DDP, additional review 
is not necessary. This final rule may have a retroactive effect. Claims 
submitted after the effective date of this final rule for donations 
made starting January 1, 2020, are eligible for reimbursement under 
this rule's amended provisions if the eligible partnership's Dairy 
Donation and Distribution Plan is approved and if the partnership met 
all other program requirements. Dairy donations made prior to 2020 are 
not eligible for reimbursement under the program. The provisions 
amended by this final rule are not retroactive to Claims already 
submitted and processed prior to this rule's effective date. There are 
no administrative procedures that must be exhausted prior to judicial 
challenges to the provisions of this rule. The DDP does not preempt any 
state or local laws, regulations, or policies, unless they present an 
irreconcilable conflict with this rule.

Civil Rights Review

    AMS considered the potential civil rights implications of this rule 
on minorities, women, and persons with disabilities to ensure no person 
or group shall be discriminated against on the basis of race, color, 
national origin, gender, religion, age, disability, sexual orientation, 
marital or family status, political beliefs, parental status, or 
protected genetic information. This review included persons that are 
employees of the entities who are subject to these regulations. This 
final rule does not require affected entities to relocate or alter 
their operations in ways adversely affecting such persons or groups. 
Further, this rule does not deny any persons or groups the benefits of 
the program or subject any persons or groups to discrimination.
    AMS found no evidence this voluntary program and the associated 
final rule causes adverse or disproportionate impacts on minorities, 
women, and persons with disabilities. The AMS analysis found no 
evidence of potential impacts affecting dairy farmers or processors in 
any protected groups, or that these impacts will be different than any 
participating general population of dairy farmers and processors.

Executive Order 13132

    AMS examined the effects of provisions in this final rule on the 
relationship between the Federal Government and the States, as required 
by Executive Order 13132 on ``Federalism.'' The DDP reimburses EDOs for 
eligible dairy products donated to eligible distributors. The DDP does 
not preempt any State or local laws, regulations, or policies 
pertaining to the sale, manufacturing or distribution of milk or dairy 
products within States.

List of Subjects

7 CFR Part 1146

    Milk, Donations, Reporting and recordkeeping requirements.

7 CFR Part 1147

    Dairy, Donations, Food waste, Emergency, Reporting and 
recordkeeping requirements.
    For the reasons set forth in the preamble, 7 CFR chapter X is 
amended as follows:

PART 1146--MILK DONATION REIMBURSEMENT PROGRAM

0
1. The authority for part 1146 continues to read as follows:

    Authority: Sec. 1431, Pub. L. 113-79, 128 Stat. 695, as amended.


0
2. Amend Sec.  1146.102 by revising paragraph (a) to read as follows:


Sec.  1146.102  Dairy donation and distribution plans.

* * * * *
    (a) The physical address(es) of the eligible dairy organization's 
processing plant(s), co-pack facility(ies), and distribution center(s), 
and the eligible distributor's distribution site(s);
* * * * *

0
3. Amend Sec.  1146.106 by revising paragraph (a)(1)(ii) to read as 
follows:


Sec.  1146.106  Reimbursement Claims.

    (a) * * *
    (1) * * *
    (ii) The physical address(es) of the plant(s) or co-pack 
facility(ies) that processed and, if applicable, distribution center(s) 
that stored the donated dairy products;
* * * * *

PART 1147--DAIRY DONATION PROGRAM

0
4. The authority for part 1147 continues to read as follows:

    Authority: Sec. 762, Pub. L. 116-260, 134 Stat. 1182.


0
5. Amend Sec.  1147.102 by revising paragraph (a) to read as follows:


Sec.  1147.102  Dairy donation and distribution plans.

* * * * *
    (a) The physical address(es) of the eligible dairy organization's 
processing plant(s), co-pack facility(ies), and distribution center(s), 
and the eligible distributor's distribution site(s);
* * * * *

0
6. Amend Sec.  1147.106 by revising paragraph (a)(1)(ii) to read as 
follows:


Sec.  1147.106  Reimbursement Claims.

    (a) * * *
    (1) * * *
    (ii) The physical address(es) of the plant(s) or co-pack 
facility(ies) that processed and, if applicable, distribution center(s) 
that stored the donated dairy products;
* * * * *

0
7. Amend Sec.  1147.108 by revising paragraphs (a)(2)(i) and 
(a)(3)(iii) to read as follows:


Sec.  1147.108  Reimbursement calculation.

    (a) * * *

[[Page 57873]]

    (2) * * *
    (i) If a Class I product, the simple average of the Class III and 
Class IV manufacturing allowances applies;
* * * * *
    (3) * * *
    (iii) The fuel economy rate of 6.1 miles per gallon.
* * * * *


Sec.  1147.212  [Removed]

0
8. Remove Sec.  1147.212.

Erin Morris,
Associate Deputy Administrator, Agricultural Marketing Service.
[FR Doc. 2023-18148 Filed 8-23-23; 8:45 am]
BILLING CODE P